UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the three months ended June 30, 2009

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

For the transition period from _______________ to __________________

Commission File No. 001-31332

nCoat, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	98-0375406
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

7237 Pace Dr.

PO Box 38

Whitsett, NC 27377-9118

(Address of principal executive office, zip code)

Registrant’s telephone number, including area code: (336) 447-2000

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 at least the past 90 days.

Yes o No x

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

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 August 10, 2009, there were 107,108,606 shares of the registrant’s common stock, $0.0001 par value, outstanding.

nCoat, Inc.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2009

FORWARD-LOOKING INFORMATION

Statements in this report concerning the future sales, expenses, profitability, financial resources, product mix, market demand, product development and other statements concerning the future results of operations, financial condition and business of nCoat, Inc., are “forward-looking” statements as defined in the Securities Act of 1933 and Securities Exchange Act of 1934. Investors are cautioned that the Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment, including competition, need for increased acceptance of products, ability to continue to develop and extend our brand identity, ability to anticipate and adapt to a competitive market, ability to effectively manage rapidly expanding operations, amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure, ability to provide superior customer service thereon , dependence upon key personnel and the like. Additionally, words such as “anticipates,” “expect,” “intend,” “estimates,” “seeks,” “may,” “could,” “plan,” “believes,” and similar words and phrases may indicate forward-looking statements. The Company’s most recent filings with the Securities and Exchange Commission, including reports on Form 8-K, contain additional information concerning many of these risk factors, and copies of these filings are available from the Company upon request and without charge. The Company disclaims any obligation or intention to update any forward looking statement in this report.

nCoat, Inc.

TABLE OF CONTENTS

Part I – FINANCIAL INFORMATON

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2009, and December 31, 2008 (Unaudited)	3
	Condensed Consolidated Statements of Operations for Six Months Ended June 30, 2009 and 2008 (Unaudited)	4
	Condensed Consolidated Statement of Shareholders’ Deficit for the Six Months Ended June 30, 2009 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009, and 2008 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantative and Qualitative Disclosures About Market Risk	21
Item 4T.	Controls and Procedures	21

Part II – OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signature Page		32

PART I

THE FINANCIAL STATEMENTS INCLUDED HEREIN ARE NOT AUDITED OR REVIEWED. NCOAT HAS NOT ACCUMULATED ENOUGH CASH TO PAY THE AUDIT FEE TO COMPLETE THE AUDIT OF ITS 2008 FINANCIALS PRIOR TO SUBMISSION OF THIS REPORT. IN ADDITION, LEGAL COUNSEL HAS NOT REVIEWED THIS REPORT. FOLLOWING PAYMENT OF THE AUDIT FEE, NCOAT AUDITORS WILL COMPLETE THE AUDIT, LEGAL COUNSEL WILL REVIEW THE COMPLETED AND AUDITED REPORT, AND NCOAT WILL FILE AN AMENDED FORM 10K AND 10Q.

FINANCIAL INFORMATION

Item 1 – Financial Statements

NCOAT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30			December 31
	2009			2008
ASSETS	(Unaudited)			(Unaudited)
Current Assets
Cash	$	74,626		$	42,134
Trade receivables, net		457,116			767,160
Inventory		91,343			88,778
Other current assets		92,785			99,281
Deferred income tax assets		-			-
Total Current Assets		715,870			997,353
Property and Equipment, net		1,377,138			1,677,037
Intangible Assets, net		2,043,636			2,375,091
Total Assets	$	4,136,644		$	5,049,481

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable	$	3,794,382		$	3,476,203
Accrued liabilities		1,116,668			794,571
Accrued Interest		62,920,113			17,872,582
Accrued Registration Liability		92,087,993			23,358,690
Deferred revenue		592,508			759,176
Current portion of notes payable		700,623,427			298,734,128
Derivative Premium Payable		120,348			120,348
Accrued consulting obligation		-			500,000
Current portion of obligations under capital leases		121,988			121,988
Total Current Liabilities		861,377,427			345,737,686
Long-Term Liabilities
Notes payable, net of current portion		144,524			150,322
Obligations under capital leases , net of current portion		169,655			206,112
Deferred income taxes		97,262			97,262
Total Long-Term Liabilities		411,441			453,696
Stockholders' Equity (Deficit)
Common stock - $0.0001 par value; 500,000,000 shares authorized;
107,108,606 shares outstanding		10,711			10,211
Additional paid-in capital		22,302,667			22,295,667
Accumulated deficit		(879,965,602	)		(363,447,779	)
Total Stockholders' Equity (Deficit)		(857,652,224	)		(341,141,901	)
Total Liabilities and Stockholders' Equity (Deficit)	$	4,136,644		$	5,049,481

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

NCOAT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

n COAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net Sales	$	1,726,297		$	3,513,454		$	4,149,839		$	5,759,104
Cost of Goods Sold		1,159,729			1,848,438			2,301,522			3,709,970
Gross Profit		566,568			1,665,016			1,848,317			2,049,134
Operating Expenses
General and Administrative Expense		1,094,205			1,468,193			2,182,038			3,223,759
Research and Development Costs		80,709			123,962			160,418			215,747
Sales and Marketing Expenses		150,590			46,451			304,520			328,825
		-
Total Operating Expenses		1,325,504			1,638,606			2,646,976			3,768,331
(Loss) from Operations		(758,936	)		26,410			(798,659	)		(1,719,197	)
Redemption premium interest expense		(29,391,020	)		(38,918,588	)		(515,572,212	)		(49,844,271	)
Other Interest expense		(60,797	)		(198,228	)		(82,437	)		(467,416	)
Gain on derivative liability valuation		-			472,341			-			472,341
Net Loss	$	(30,210,753	)	$	(38,618,065	)	$	(516,453,308	)	$	(51,558,543	)

Basic and Diluted Loss per Share	$	(0.28	)	$	(0.40	)	$	(4.82	)	$	(0.55	)

Basic and Diluted Weighted-Average Shares Outstanding		107,108,606			95,715,727			107,108,606			94,535,699

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

NCOAT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT

For the Six Months Ended June 30, 2009

(Unaudited)

					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders'
	Shares		Amount		Capital		Deficit			Deficit
Balance - December 31, 2008(Unaudited)		102,108,606	$	10,211	$	22,295,667	$	(363,512,294	)	$	(341,206,416	)
Shares issued upon conversion of
accrued interest											-
Compensation related to vested and
nonvested shares issued to employees,
net of forfeitures											-
Reclassification of fair value of warrants
to derivative liability.											-
Partial conversion of convertible note											-
Conversion of convertible note		5,000,000		500		7,000					7,500
Net Loss								(516,453,308	)		(516,453,308	)
Balance - June 30, 2009 (Unaudited)		107,108,606	$	10,711	$	22,302,667	$	(879,965,602	)	$	(857,652,224	)

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

NCOAT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the six Months Ended
	June 30,
	2009			2008
	(Unaudited)			(Unaudited)

Cash Flows From Operating Activities
Net loss	$	(516,453,308	)	$	(51,558,543	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		299,899			299,523
Amortization of intangible assets		331,455			287,244
Stock-based compensation		-			215,615
Amortization of discount and deferred loan costs and accretion of notes payable		-			-
Compensation expense paid by issuance of common stock		-			-
Redemption premium on notes payable recognized as interest expense		515,602,835			47,162,500
Gain on derivative warrnet liability					(472,341	)
Changes in assets and liabilities:
Accounts receivable		310,044			2,717
Inventory		(2,565	)		5,327
Other current assets		6,496			26,817
Accounts payable		318,179			551,979
Deferred revenue		(166,668	)
Accrued liabilities		(177,418	)		3,293,207
Net Cash Provided by Operating Activities		68,949			(185,955	)
Cash Flows From Investing Activities
Purchase of property and equipment		-			(3,537	)
Net Cash Used in Investing Activities		-			(3,537	)
Cash Flows From Financing Activities
Proceeds from issuance of notes payable		(7,500	)		500,000
Proceeds from issuance of stock		7,500
Principal payments on notes payable		-			(424,843	)
Principal payments under capital lease obligations		(36,457	)		(74,141	)
Net Cash Used in Financing Activities		(36,457	)		1,016
Net Increase (Decrease) in Cash		32,492			(188,476	)
Cash At Beginning of Period		42,134			295,961
Cash At End of Period	$	74,626		$	107,485
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	489,910		$	19,586


Schedule of Noncash Investing and Financing Activities
Common stock issued upon conversion of accrued interest	$	-		$	185,261
Notes payable issued for the purchase of equipment and insurance		-			-
Reclassification of the fair value of derivative warrant liability		-			-
Common stock issued upon conversion of notes payable		-			-

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

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

THE FINANCIAL STATEMENTS INCLUDED HEREIN ARE NOT AUDITED OR REVIEWED. NCOAT HAS NOT ACCUMULATED ENOUGH CASH TO PAY THE AUDIT FEE TO COMPLETE THE AUDIT OF ITS 2008 FINANCIALS PRIOR TO SUBMISSION OF THIS REPORT. IN ADDITION, LEGAL COUNSEL HAS NOT REVIEWED THIS REPORT. FOLLOWING PAYMENT OF THE AUDIT FEE, NCOAT AUDITORS WILL COMPLETE THE AUDIT, LEGAL COUNSEL WILL REVIEW THE COMPLETED, AUDITED REPORT AND NCOAT WILL FILE AN AMENDED FORM 10K AND 10Q.

Note 1. Basis of Presentation

Interim Financial Statements – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements included in the Company’s amended annual report on Form 10-K/A filed with the Securities and Exchange Commission on April 15, 2009. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2009.

Nature of Operations – nCoat, Inc., and its subsidiaries specialize in material science research and licensing, and the commercialization, distribution and application of nano-scale as well as multiple non-nano surface coatings. The Company’s specialized coatings are used by the automotive, diesel engine, trucking, recreational vehicle, motorcycle, aerospace and oil and gas industries for heat management, corrosion resistance, friction reduction, porosity management, bond strength and appearance. Corporate offices and operations headquarters are located in Whitsett, North Carolina, and application operations are conducted at facilities located in Oklahoma City, Oklahoma; Quakertown, Pennsylvania; Tempe, Arizona; and Whitsett, North Carolina.

Principles of Consolidation – The accompanying unaudited consolidated financial statements include the operations, accounts and transactions of nCoat Automotive Group, Inc., High Performance Coatings, Inc., nTech, Inc., and Metallic Ceramic Coatings, Inc. (“MCCI”) for all periods presented. These entities are collectively referred to herein as the “Company” or “nCoat.” All intercompany transactions and balances have been eliminated in consolidation.

Business Condition – The accompanying unaudited condensed 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. The Company has incurred losses of $ 516,453,308 and $51,558 and provided $68,949 but used $185,955 of cash in operating activities during the six months ended June 30, 2009 and 2008, respectively. At June 30, 2009, the Company has a working capital deficiency of $860,661,557, an accumulated deficit of $879,965,602 and a stockholders’ deficit of $ 857,652,224. Based on current operations, cash flows from operations have become positive and should remain positive for the remainder of the year; however, the Company will likely face negative income for the first three quarters of the year ending December 31, 2009. As of June 30, 2009, the Company’s principal sources of liquidity were $74,626 of cash and $457,116 of trade accounts receivable, while current liabilities totaled $ 861,377,427 at that date, of which $700,623,427 relates to notes payable that are due currently. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. It is necessary for the company to raise additional capital to restructure current debenture debt and to pay aged payables. This may be dilutive to existing shareholders, and could suppress stock values if the number of shares outstanding were to be increased. This will be difficult to achieve during the current capital market environment and may be difficult to achieve in a more robust capital markets environment. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

Licensing Revenue Recognition – Fees received from licensing the Company’s technology to customers is recognized over the term of the license agreements. Licensing fees received prior to recognition are accounted for as deferred revenue. Sales revenue excludes lease payments made by customers on facilities used by the Company.

Loss Per Common Share – Basic loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding. The nonvested common shares issued as employee compensation are excluded from the calculation of basic loss per share. Diluted loss per share reflects dilutive potential common shares outstanding during the period. During the twelve months ended December 31 2008, the following anti-dilutive potential common shares were excluded from the calculation of diluted loss per share: 1,837,800 nonvested shares of common stock; 6,601,388,889 shares of common stock issuable upon conversion of notes payable; 32,418,750 shares of common stock issuable upon the exercise of warrants.

Note 2. Acquisition of MCC, Inc.

On June 29, 2007, nCoat, Inc., completed the acquisition of all the capital stock of Metallic Ceramic Coatings, Inc. ("MCCI"), doing business in the marketplace under the brand of JET-HOT® Coatings. MCCI provides high performance coatings of metal parts for industrial and personal use. In connection with the acquisition of MCCI, the Company entered into a consulting agreement with the former majority shareholder of MCCI whereby the Company is obligated to pay the former majority shareholder consulting fees of $120,000 annually, performance bonuses equal to 2.5% of net sales from new customers, and to purchase, for up to $70,000, an automobile for the consultant. The term of the obligation for the consulting fees and the performance bonuses is through December 31, 2009, and will continue for successive one-year periods unless terminated by either party.

Note 3. Notes Payable

Series A and B 6% Convertible Promissory Notes– From May 25, 2007 through June 18, 2007 (primarily on May 31, 2007), the Company issued $9,000,000 of Series A 6% convertible promissory notes (the “Series A Notes”) and warrants to purchase 22,500,000 shares of common stock exercisable at $1.00 per share through May 31, 2012. The Series A Notes were originally convertible into common stock at $0.40 per share through May 31, 2010, when the Series A Notes were due. Accrued interest is payable quarterly. From May 31, 2007 through July 10, 2007, the Company also issued $3,250,000 of Series B 6% convertible promissory notes (the “Series B Notes”) and warrants to purchase 8,125,000 shares of common stock exercisable at $0.80 per share through May 31, 2010. The Series B Notes were originally convertible into common stock at $0.40 per share through May 31, 2010, when the Series B Notes were due. Accrued interest is payable quarterly. Conversion of the promissory notes is limited such that at any time a note holder cannot own more than 4.99% of the Company’s outstanding common stock. The conversion price is adjustable to match any additional issuances of common stock at prices lower than the current conversion price.

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

The common stock into which the Series A Notes are convertible and the related warrants are subject to certain registration rights. Per the registration rights agreement, the Company is obligated obtain the effectiveness of a registration statement, which has not occurred, and to keep the registration statement effective until all the registered shares of common stock are sold by the note holders. If the company fails to obtain effectiveness of the registration statement, the Company is required to pay partial liquidated damages of 1% per month of the aggregate purchase price paid by the Series A note holders, or $90,000 per month. Interest is charged on unpaid damages at the rate of 18% per annum. The Company recognized a registration payment liability at the date of the issuance of the Series A notes and has adjusted the liability to $92,087,993 at June 30, 2009, for estimated payments to be made under the registration rights agreement. The carrying value of the registration payment liability is adjusted to reflect the fair value of the registration payment liability at each balance sheet date.

Upon the occurrence of certain default or triggering events, the notes holders may demand redemption of the Series A and Series B notes. The triggering events include failure to provide notice and pay the related partial liquidated damages to the note holders within one day of the following events: failure to file the registration statement or obtain its effectiveness by the required dates; failure to respond to comments by the U.S. Securities and Exchange Commission within 15 days of receipt of those comments; suspension from trading or listing on a market; failure to convert shares upon request; failure to qualify new debt as permitted debt under the terms of the Series A and Series B Notes; and failure to make payments under the terms of the promissory notes. Upon the occurrence of a triggering event, the holders have the right to require the Company to redeem their notes at an amount equal to the total of unpaid accrued interest, unpaid liquidated damages and the face amount of the notes multiplied by the greater of (i) 125% during the first 12 months of the term of the note or 115% thereafter or (ii) upon the occurrence of certain of the listed triggering events, the closing market price of the Company’s common stock on the date of the triggering event divided by the closing market price on the first day of each month following the triggering event. The conversion price also decreases to the closing market price on the first day of each month following the triggering event.

In December 2007, the Company entered into an agreement with the Series A and Series B note holders whereby the Series A and Series B note holders agreed to waive certain triggering events in exchange for the modification of the conversion price to $0.25 per share and for Company agreeing to pay partial liquidated damages to the note holders for triggering events occurring on or after February 29, 2008. However, on February 29, 2008, the Company failed to obtain effectiveness of the required registration statement. On April 1, 2008, July 1, 2008 and on October 1, 2008, the Company failed to pay accrued interest to the Series A and B note holders. As a result, the Series A and B notes became due on demand at a redemption premium as described above. At June 30,2009, the carrying value of the Series A and B notes has been adjusted to $698,928,588 for the increase in the redemption price. As of the date of this report there has been only one note holder that has given demand for the redemption of its Series A note. The note was originally issued May 31, 2007, with the face amount of $1,500,000. The note holder has previously converted a portion of its note ($42,500) as reflected in the financial statements set forth herein. The demand is for the remaining balance of the note of $1,457,000 plus interest of $232,183 multiplied by a 115% premium factor for a total demand of $1,963,209. As of the date of this report, no other demand had been made by the remaining note holders for redemption of the Series A and B Notes. At the October 1, 2008, conversion price of $0.015 per share, the Series A and B Notes are convertible into 6,601,388,889 shares of common stock. However, there are only 400,923,350 authorized, unissued shares of common stock available and, therefore, the notes payable cannot all be converted.

Unpaid accrued interest bears interest at 18% per annum. Under the terms of the Series A and B Notes, the unpaid accrued interest and the unpaid registration payment liability have also been increased by the redemption premium formula described above, which resulted in accrued interest on the Series A and B Notes of $ 62,849,903 and a registration payment liability $ 92,087,993 at June 30, 2009.

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

Notes payable at June 30, 2009, and December 31, 2008, are summarized as follows:

	June 30		December 31,
	2009		2008
6% $9,000,000 Series A convertible promissory notes; due on demand	$	513,486,912	$	218,215,000
6% $3,250,000 Series B convertible promissory notes; due on demand		185,441,176		78,812,500
Note payable, bearing interest at prime plus 1.0% (8.25% at December 31, 2007); due March 2011		141,192		146,264
Note payable, bearing interest at prime plus 1.0% (8.25% at December 31, 2007); payable on demand		280,364		280,364
Note payable; bearing interest at 8.35%, due November 7, 2007; in default		-		-
Note payable to bank; secured by equipment; bearing interest at 8.75%: payments due through 2010		-		14,670
Notes payable to a bank; secured by equipment; bearing interest at 6.75% to 7.75%; payments due through 2010		11,438		-
Notes payable, bearing interest at 5%; due September 1, 2007; in default		-		-
Note payable, bearing interest at 6%; payable on demand		-		-
Note payable to a bank; secured by equipment; bearing interest at 6.98%; payable in monthly installments of $4,841 through February 2014		226,869		235,652
Notes payable; bearing interest at 10%; unsecured; due on demand		1,180,000		1,180,000
Total Notes Payable		700,767,951		298,884,450
Less: Current portion		700,623,427		298,734,128
Long-Term Notes Payable	$	144,524	$	150,322

The fair value of notes payable was determined based upon their short-term redemption requirements and based upon current market interest rates and totaled $700,780,249 at June 30, 2009. Future annual maturities of notes payable as of June 30, 2009, were as follows:

Years Ending December 31:
2009			1,295,932
2010			699,046,643
2011			72,919
2012			57,459
Thereafter			307,296
Total			700,780,249

Note 4. Derivative Warrant Liability

On June 30, 2009 the carrying value of the Series A and B promissory notes increased and their conversion prices decreased to a point that the Company does not have sufficient authorized, unissued shares of common stock to enable the conversion of the promissory notes and the exercise of outstanding warrants. Because the Company may be required to settle the outstanding warrants for cash, they became a derivative liability on March 31, 2008, and their fair value of $612,392 was reclassified from additional paid-in capital to a derivative liability.

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

Due to decreases in the market value of the Company’s common stock, the fair value of the derivative warrant liability decreased to $120,348 at September 30, 2008, which resulted in the recognition of a gain on the derivative liability valuation of $19,703 during the three months ended September 30, 2008. The fair value of the warrants at September 30, 2008, was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: expected future volatility of 125%, risk-free interest rate of 2.8%, expected dividend yield of 0% and an expected life of 3.17 years. At September 30, 2008, there were 32,418,750 warrants outstanding that were exercisable at a weighted-average price of $0.92 per share. The weighted-average remaining contractual term was 2.42 years.

Note 5. Stock Compensation Plan

On February 2, 2007, the Company adopted a stock award plan (the “Plan”) and began awarding shares of common stock and shares of non-vested common stock to employees and consultants as compensation. The non-vested shares vest over periods ranging from immediately upon being issued to four years. If an employee terminates employment with the Company prior to the shares vesting, the non-vested portion of the shares are be forfeited and returned to the Company. As of June 30, 2009, employees holding 235,000 non-vested shares have terminated their employment with the Company but have not forfeited and returned those shares to the Company. The Company is at risk that it may not obtain back the forfeited shares. Accordingly, the Company has not accounted for those shares as forfeited.

Compensation related to the shares awarded is based upon the fair value of the awards on the dates awarded or modified as determined by the Black-Scholes option-pricing model applied to awards expected to vest and recognized by the graded-vesting method applied to awards expected to vest. Compensation expense related to non-vested shares held by terminated employees will be reversed when and if those shares are returned to the Company.

A summary of the status of the Company’s nonvested shares of common stock as of June 30, 2009:

				Weighted-Average
				Award-Date
Nonvested Shares of Common Stock	Shares			Fair Value
Award		13,309,090		$	0.144
Vested		(10,902,190	)	$	0.129
Forfeited		(402,000	)	$	0.129
Nonvested at December 31, 2008		2,004,900		$	0.139

As of December 31, 2008, there was $100,471 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.4 years from December 31, 2008.There were no additional vestitures in the second quarter of 2009.

Note 6. Common Stock

In August, 2008, the Company received a Notice of Conversion from one of the Holders of Notes, seeking to convert $25,000 into common shares at $.02 per share. The Company issued 1,250,000 to satisfy this conversion.

In May, 2009, the Company received a Notice of Conversion from one of the Holders of Notes, seeking to convert $7,500 into common shares at $.0015 per share. The Company issued 5,000,000 to satisfy this conversion.

NCOAT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

(Unaudited)

Note 7. Deferred Income Taxes

Deferred income taxes consisted of the following:

	June 30			December 31
	2009			2008
Deferred Tax Liabilities
Property and equipment	$	299,899		$	293,344
Intangible assets		331,455			1,146,574
Total Deferred Tax Liabilities		631,354			1,439,918
Deferred Tax Assets
Allowance for doubtful accounts		107,755			120,008
Accrued PTO		210,477			210,477
Operating loss carryforwards		7,374,202			6,640,543
Total Deferred Tax Assets		7,692,434			6,971,028
Valuation Allowance		(7,061,080	)		(5,531,110	)
Net Deferred Tax Liability	$	-		$	-

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

This management’s discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere in this report on Form10-Q.

This management’s discussion and analysis, as well as other sections of this report on Form10-Q, may contain “forward-looking statements” that involve risks and uncertainties, including statements regarding our plans, future events, objectives, expectations, forecasts, or assumptions. Any statement that is not a statement of historical fact is a forward-looking statement, and in some cases, words such as “believe,” “estimate,” “ project,” “expect,” “intend,” “may,” “anticipate,” “plans,” “seeks,” and similar expressions identify forward-looking statements. These statements involve risks and uncertainties that could cause actual outcomes and results to differ materially from the anticipated outcomes or results, and undue reliance should not be placed on these statements. These risks and uncertainties include, but are not limited to uncertainties discussed in filings made with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The following Management’s discussion and Analysis of financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand nCoat, Inc., our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto contained in Item 1 of this report. This overview summarizes MD&A, which includes the following sections:

Overview – a general description of our business and the markets in which we operate; our objective; our areas of focus; and challenges and risks of our business.

Significant Accounting Policies – a discussion of accounting policies that require critical judgments and estimates.

Results of Operations – an analysis of our Company’s consolidated results of operations for the three years presented in our consolidated financial statements. Except to the extent that differences among our operating segments are material to an understanding of our business as a whole, we present the discussion in the MD&A on a consolidated basis.

Liquidity and Capital Resources – an analysis of cash flows; off-balance sheet arrangements and aggregate contractual obligations; the impact of foregoing exchange; an overview of financial position; and the impact of inflation and changing prices.

We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of the Company as a whole. This discussion should be read in conjunction with our financial statements as of September 30, 2008, and the year then ended and the notes accompanying those financial statements.

Overview

nCoat continues to focus on its core business of providing high quality, nano-scale and micronized particle surface treatment materials (coatings) that provide heat management, corrosion management, abrasion reduction, and porosity reduction to multiple mature industries. We focus on creating a competitive company with scalable processes, equipment and facilities to meet customer demand and to provide newly innovated nano-formulated materials with novel properties.

Our principal business strategy includes the following components:

Internal Organic Growth. We have integrated into the existing “book of business” of our two acquired subsidiaries, which creates additional product offerings for both entities as cross sales opportunities from the sister company’s product lines. Operationally we have created common core formulations that represent the best-of-breed from all sources acquired or owned. Our emphasis on the after-market retail customer continues to be one of the two major segments of our business. In additional to the aftermarket sector, we continue to develop customers in the OEM market segment. nCoat products are becoming more recognized as a standard product for reducing corrosion and heat in diesel engines. The initial market for these products has been heavy duty over-the-road diesel engine trucks. nCoat is now beginning to expand into other sub-segments of the diesel engine markets including marine, locomotives, military vehicles and sea-going vessels, recreational vehicles, stationary generators, pumps and other fixed applications, agriculture, heavy duty equipment, aftermarket re-manufactured engines and other areas. In addition, we are expanding our customer base in gasoline powered engines as well including into increased activity in motorcycle and racing venues. A strong source for internal organic growth in the next three years is the continued emphasis by the manufacturers of diesel, gasoline and hybrid fueled engines to meet demanding environmental requirements imposed on their respective industries as we seek to improve emissions, fuel economy and safety. nCoat also continues to innovate new nano-products that meet the needs of our customers. nCoat is in beta testing of a new anti-oxidation nano-coating to eliminate discoloration of chrome on vehicle exhaust systems. This product appears to be a unique innovation that to the knowledge of the Company is not offered by any other competitive company. nCoat expects these kinds of new products to create cross selling opportunities with existing customers and opportunities to expand the market base with product offerings to existing and new market segments. nCoat expects these product opportunities to add to the internal growth of our customer base and revenues. Because of our initial focus on automotive, trucking, motorcycles and recreational vehicles, we expect that our revenues will remain subject to (1) seasonal build schedules of our OE and aftermarket customers, (2) volume adjustments dictated by macro-economic conditions, and (3) changing consumer spending trends. Year to date, Company revenues are down approximately twenty percent (20%) as our customers have adjusted to lower consumer demand consumer confidence in current and future economic conditions. We have not lost any major accounts during this period of reductions in manufacturing output, however, total unit volumes in our largest market segment are significantly reduce year-over-year from 2008 levels and year-over-year 2008 levels were significantly reduced from 2007 levels. Until current economic trends and credit restrictions improve, we expect that our revenues from existing customers will not substantially improve.

Licensed Application and Joint Venture Development. We continue to work to develop technology licensing and/or joint venture business agreements to establish on-site coatings application as part of the assembly-line process within the manufacturing and/or assembly process of a large customer. This business model will become increasing viable as nCoat products continue to gain acceptance in our targeted markets and as we increase volume production to levels that make on-site licensing financially viable for our customers. nCoat currently has two OEM customers employing a licensing model and we continue to have discussions with other prospects. The savings on handling, shipping, inventory, logistics management and other similar expenses that comes from having the on-site process is the principle benefit for our larger customers. Prime targets for licensed applications include engine builders, vehicles manufactures, engine re-manufacturers, automotive parts manufacturers, and other major industry applications.

Licensing Intellectual Property. We continue to enter into protective “field of use” licensing with manufacturers that are tier-one suppliers of large OEM companies or who deploy a licensed application or joint venture model as described above. However, unlike the licensed application and/or joint venture model where application expertise and management control are inherent elements of the model, our “field of use” license agreements supply proprietary coatings to third parties already applying coating at their plants. The license agreements will be limited to targeted applications and industries where nCoat is not likely to engage in application services in the future and are structured as joint ventures to avoid creating competition in our own current market space.

Acquisitions. We completed the acquisition, transition and integration of HPC and MCCI which have given us a base of operations and market presence. We have minimized work on merger and acquisition activity during the current global economic downturn and to reduce expenses in our current condition of low available cash. As capital, the economy and opportunities allow, we may identify new specific target companies in target markets for acquisition.

Strengthen nTech's research and development efforts. On January 15, 2008, nCoat announced that North Carolina Agricultural and Technical State University (NC A&T) in Greensboro, North Carolina, and nCoat Inc. had established a technical collaboration agreement for characterization and development of nanotechnology based materials and industrial coatings. The Memorandum of Understanding (“MOU”) was signed December 20th, 2007 with the Division of Research and Economic Development at the university’s campus in Greensboro, North Carolina. Under the MOU, nCoat collaborates with NC A&T’s Center for Advanced Materials and Smart Structures (CAMSS) in areas of advanced composites, carbon nanotubes, nano enhanced slurry coatings and metallic degradation from extreme thermal and chemical environments. CAMSS has a track record in nano-science based advanced materials as applied to thin film research, nano-composites, tribological and environmental coatings.

CAMSS is an extensively equipped and staffed materials research facility located on the campus of NC A&T in Greensboro a few miles from nCoat’s location in Whitsett. CAMSS is a NC A&T-wide umbrella center receiving support from the National Science Foundation (Center for Research Excellence in Science and Technology), Department of Energy, Department of Defense (Center for Nanoscience and Nanomaterials), Air Force, and many industries. The center has extensive nano characterization equipment including recent multiple innovations in atomic and electron scanning microscopy and optical technologies. NC A&T has been recognized as one of the leading nano materials research and development centers in the United States.

The agreement outlines joint efforts between nCoat and NC A&T to identify, characterize, develop and commercialize new nano technology enhancements for functional coatings and materials with applications in aerospace, medical, energy, automotive, industrial, textile, advance composites, diesel engine applications and other industries.

Among other activities, the MOU is intended to establish a framework for conceptualization and implementation of R&D projects with subsequent commercialization. The agreement outlines governance of jointly and separately developed intellectual property and potential patent alliances for inventions. The agreement is also designed to establish joint revenues through technology licensing for commercial applications.

Some of the initial collaborative commercialization activities will be in the nano-structured surface engineered systems to improve thermal barrier, corrosion, tribological properties, biocompatibility and creating surface technologies that create a cleaner environment. The MOU also allows nCoat to collaborate with CAMSS on testing, prototyping and development of materials specific to enhancing nCoat industry needs.

This agreement and others under discussion with outside research and development groups, including technology transfer offices of universities, private laboratories and other small start-up technology companies are designed to continue to strengthen and exploit our research and development capacities while reducing R&D costs. All of nTech’s research activities are focused on projects that can show commercialization within three to six months, rather than long term R&D projects. Many research projects are driven by direct requests from customers seeking immediate solutions to immediate critical problems.

In the second quarter, 2009, we identified additional research and development opportunities with NC A&T and continue to develop technology prospects toward commercialization.

Completed Acquisitions

The acquisitions of HPC and Jet-Hot have created certain market strengths for the combined company. As a whole, the combination of the companies gives nCoat the opportunity to scale our operations to meet larger OE customer demands.

Acquisition of MCCI/Jet-Hot

With respect to the acquisition of Jet-Hot in June, 2007, we have realized key synergies which include:

1. Jet-Hot had a plant in Arizona as did HPC. The plants were about 10 miles apart. These were consolidated into a single location.

2. Jet-Hot plants are built for high through-put and packaging of individual aftermarket production. HPC plants are built for high volume of OEM parts production. Key strengths of each company have be used to create best-of-breed know-how at all operating plants.

3. Two corporate headquarters existed. The Jet-Hot accounting, human resources, legal, purchasing, sales and marketing, R&D and company management were consolidated into our North Carolina headquarter.

4. HPC and JET-HOT sales and marketing groups were consolidated for maximum production and efficiency, including advertising budgets.

5. Jet-Hot R&D and technical services were consolidated to nTech, for efficiency and intellectual property synergies.

6. HPC and JET-HOT sales prospects include many of the same names, including several where the two companies are the only two competitors for the account. This list was sorted into HPC and MCCI responsibilities, creating a non-competing sales effort.

7. We have acquired sufficient market and operational experience to realize that a single coating entity has a competitive disadvantage in attempting to create high volume productions of both aftermarket parts and OEM parts. The addition of MCCI allows us to create focused operations for each of our major market sectors.

8. Competition between MCCI and HPC for stand-alone coatings sales (no applications services) has been eliminated and we are offering “best of breed” coating from each company to customers.

9. JET-HOT has more thermal barrier customers than HPC. HPC has more corrosion resistance and lubritic coatings customers than JET-HOT. Cross selling now occurs in each company’s customer base to attempt to raise same-customer revenue. In addition, JET-HOT did not sell internal engine coatings. Their product line was for coatings on external parts only. HPC internal engine coatings are now offered to all of JET-HOT’s approximate 9000 annual individual aftermarket customers.

Since the acquisition of JET-HOT, we have gradually transition most aftermarket product sales and services across all companies into JET-HOT to leverage the JET-HOT brand in the marketplace for consumer products and we have gradually transitioned most OE product sales and services to HPC to leverage the HPC brand for engineered products for industry applications.

Company contact information

Our headquarters’ address is 7237 Pace Drive, P.O. Box 38, Whitsett, NC 27377, and our phone number is (336) 447-2000.

Results of Operations

Performance in First Six Months of 2009 Compared to First Six Months of 2008

Performance Overview

The comparative revenue for the three months ending June 30, 2008, to June 30, 2009, shows a decrease of $1,609,265 or 27.9%. Aftermarket sales began to experience declines in June, 2008 as consumer confidence plummeted and uncertain and negative economic conditions began to impact consumer spending. Quarter over quarter aftermarket sales experienced 60% reduction in the fourth quarter of 2008 as economic conditions and consumer uncertainty worsened. In the first and second quarters of 2009, aftermarket sales were down 32.7% compared to the first six months of last year. Additionally, OEM sales have been negatively impacted by reductions in demand with diesel engine manufacturers. Many diesel manufacturers ceased production of new 2009 model trucks choosing to sell out existing inventories and prepare for new 2010 model year vehicles which are required to meet new EPA emissions standards. The weakness in this sector may continue into the third quarter of 2009, although we have seen some renewal in 2009 engine platform production. Media sources continue to report year-over-year engine build rates the past two years as being down over 60% from pre-2007 levels.

In 2007, our diesel engine manufacturing customers were required to introduce new engine platforms to meet new Environmental Protection Agency (EPA) requirements to lower harmful particulates in engine emissions in order to comply with Federal clean air standards. nCoat sells and applies corrosion resistant coatings created to protect engines from corrosive agents in the emissions re-circulated during use of new technology that aides diesel emissions systems to meet these new standards. The new standards affected those engine platforms commencing in 2007 and the complete 2007 year was a period of “wait and see” as the new engineering was road-proven prior to the acceptance by the market. The downturn of active new unit purchases was further affected by the dramatic increase in fuel prices, rapid and broad tightening of available credit in response to global financial turbulence, followed by the economic recession. Additionally, the national economic downturn and severe limitations on corporate credit resources beginning in the fall of 2008 continued the limitations of unit sales. Until economic activity shows signs of rebounding, and liquidity returns to the financial markets, transportation companies will defer capital expenditures on rolling stock. Once markets begin to thaw a combination of aging fleets, increasing EPA requirements and potential government incentives will ultimately produce an increased volume of production to relieve the demand. Our earliest expectation would be the fourth quarter of 2009, but this weakness may continue into 2010 and beyond.

Cost of Sales

Cost of sales was $2,301,522 for the first six months of 2009, a reduction of 38% from the same period last year. The company continues to realize efficiencies stemming from closing Mississippi and Utah plant locations. Additionally we continue to improve processes and reduce variable cost and waste through our lean manufacturing program and Six-Sigma management training. In the second quarter, six members of our management and supervisory team achieved Six Sigma black-belt designations after completing training provided to the company by North Carolina State University as a free service from the North Carolina Department of Commerce as an economic incentive to the our company.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2009, decreased by approximately $1,041,000 or 32% over same period 2008 expenses. Management has instituted a number of steps designed to reduce these expenses including:

1) Closing Mississippi and Utah plant locations, relocating their capacity to other existing facilities and consolidating the JET-HOT and HPC plants in Arizona.

2) Increasing the effectiveness of communications and reducing unnecessary travel.

3) Realigning upper management positions to more closely track the size and present revenues of the Company.

Sales and Marketing Expense

Sales and marketing expense for the three months ended June 30, 2009, decreased by approximately $24,000 or 7% compared to the same period in 2008. Management has restructured the marketing and sales group, revamped commission structure and reduced print advertising expense. However, management believes some expense reductions have impacted aftermarket sales and OE sales and that further reductions to advertising and direct marketing and sales efforts will adversely impact both aftermarket and OE sales efforts and thereby revenues and the overall financial condition of the Company. Management believes that some increase in marketing and sales expenditures will be necessary to sustain sales and customer services.

Interest Expense

Management’s greatest concern remains that all of the significant positive changes that have been made to reach operating profitability have been overshadowed by the great impact seen in our financial reports of the interest expense is attributed to the contractual redemption premium computations. We are in technical default under the terms of the Series A and Series B Promissory Notes and hence are subject to the premium computed on a redemption right granted to the holders of the Notes. As of the date of this report management has received demand from one note holder for the redemption of its Series A note. The note was originally issued May 31, 2007 with the face amount of $1,500,000. The note holder has previously converted a portion of its note ($35,000) as reflected in the financial statements set forth herein. The demand was later withdrawn, and the same investor converted $7,500 at a share price of $.0015 for 5,000,000 shares in May of this year. No other demand has been made by the remaining note holders for redemption of the Series A and B Notes. We have had no indication from the other Note holders of demand, or other negative impacts and are working to complete further negotiations with them in order to restructure the triggering events which have lead to the accounting entries.

Earnings per Share

As a result of the share exchange transaction discussed in the overview section above, exercise of warrants and conversion of debt, the number of outstanding shares increased to 107,108,606 as of June 30, 2009. For the six month period ended June 30, 2009 there was a loss per share of 4.82.

Financial Statements, One-Time Charges and Capital Expenditures

Cost reduction activities have been underway since our anticipated funding was only partially completed in 2007. We continue to realize reductions in personnel, consolidation of facilities and emphasis on lean and efficient manufacturing practices. Our resulting operational savings have been encouraging.

1. Facilities – Since the first quarter of 2007, facilities have been shut down in Mississippi and Utah and consolidated in Arizona. The capacity was shifted to other existing facilities, reducing our overhead and improving our labor productivity.

Our plans call for a second OEM production line in North Carolina in 2009 at a cost of approximately $250,000 for its installation. Most of this cost will be for installation of existing equipment which has already been relocated due to the consolidation of the Mississippi, Utah and Arizona plant locations.

2. Personnel - The Company has reduced the workforce from over 200 employees in July, 2007 to approximately 116 employees as of June 30, 2009. This decrease comes from operating plants more efficiently and reducing the number of plant locations. Additionally the first quarter of last year included some management positions which presumed full funding of our investments and subsequent growth. The current management staff level is in line with existing business levels. We continue to focus on completion of Standard Operating Procedure documentation, preparation of information systems, accounting, human resource, production, communications, mixing and blending, strategic finance and other systems to accommodate rapid growth from internal and acquisition growth.

3. Research and Development – Our expenditures for research and development were $160,418 for the six months ended June 30, 2009. Expenditures for the first six months of 2008 totaled $215,747.

4. Financing - Expenses in the first six months of 2009 show Redemption premium interest expense of $515,614,712. This is the current calculation for the penalty associated with the default on the A and B notes discussed at length elsewhere in this report.

Liquidity and Capital Resources

nCoat is a company with limited operating history and experience upon which to base an evaluation of its performance. In September of 2005, we acquired High Performance Coatings, Inc. (“HPC”), an operational coatings company, which was responsible for the majority of our consolidated revenues. In 2006, we formed an intellectual property and development entity, nTech, Inc. (“nTech”), and in June 2007, we acquired all of the common stock of Metallic Ceramic Coatings, Inc. (“MCCI”), a primary competitor of HPC with 26 years of coatings experience and historical revenues similar to HPC.

On April 13, 2007, we converted $2,000,000 of convertible debentures and $67,752 of accrued interest into 4,135,503 shares of our common stock at $0.50 per share. The remaining $500,000 of convertible debentures, along with accrued interest of $18,107, was converted to 1,036,215 shares of common stock at $0.50 per share on August 24, 2007.

From May 25, 2007, through July 9, 2007, we issued $9,000,000 of Series A 6% convertible promissory notes (the “Series A Notes”) and warrants to purchase 22,500,000 shares of common stock, exercisable at $1.00 per share through May 31, 2012. The Series A Notes are convertible into common stock at $0.40 per share through May 31, 2010 when the Series A Notes are due. On May 31, 2007, the Company issued $3,250,000 of Series B 6% convertible promissory notes (the “Series B Notes”) and warrants to purchase 8,125,000 shares of common stock at $0.80 per share through May 31, 2010. The Series B Notes are convertible into common stock at $0.40 per share through May 31, 2010 when the Series B Notes are due. The Series A and B private placement offerings included the conversion of $800,000 of advances from investors of which $700,000 had been received prior to March 31, 2007. The Company received $10,618,916 of proceeds from the issuance of the Series A and Series B convertible notes, net of the $700,000 of advances previously recognized and net of cash offering costs of $931,064.

In the final stages of the offering, after we had closed on the purchase of MCCI, a subscribed investor did not fund its portion of offering. Our intended use of proceeds included retirement of debt and related accrued interest of $3,677,286, $5,000,000 for the acquisition of MCCI, payment of significant pre-offering liabilities and establishing a working capital reserve. The retirement of pre-offering liabilities and the working capital portion of the offering did not get raised prior to our contractual obligation to close the offering. This deficiency of the expected $6,500,000 in funding, combined with the seasonal lull in aftermarket and OEM revenues, caused us to experience a significant liquidity crisis. A number of our vendors turned our account over to collection agencies and at December 31, 2008, we had accounts payable in excess of $2.0 million over 120 days past due.

At December 31, 2008 we are in technical breech of the Securities Purchase Agreement and the related Series A and B Convertible Notes and Registration Agreement (collectively the “Note Agreement”). This technical breech is due to our failure to pay partial liquidating damages and failure to pay interest nCoat is attempting to negotiate a restructure of these debenture notes to provide a work out arrangement favorable to both current debenture holders and shareholders. To accomplish this restructure, nCoat must raise in the next twelve (12) months, additional capital to satisfy negotiated demands of the current debenture holders and to pay aged accounts payables current owed by nCoat to its vendors. Capital raised to this end may (1) be accomplished in a debt instrument which will incur debt to the Company, and/or (2) be raised in an equity offering which may create significant dilution to current shareholders, or (3) not be completed at all. nCoat is seeking through negotiations to restructure all outstanding penalties, interest, carrying charges and principal accrued under the current debenture notes. Any changes to the agreement or to accounting treatment described herein will be reflected in subsequent periods.

Although no demand has been made, the Note Agreement provides that in the event of a breech, within the first 12 months following closing, the holders are entitled to demand immediate redemption of all, or any portion of, the face value of the Series A Notes and Series B Notes, along with a redemption premium. This premium is the greater of 25% or the product of a multiplicand whose numerator is the stock price on the day of the default trigger event divided by the weighted market price at the beginning of each month thereafter. As a result, the full face value of the Notes and redemption premium are shown on our Balance Sheet as current liabilities at December 31, 2008.

We have been active in our attempt to reduce our losses and conserve cash. We have had a reduction in work force and reduced the number of employees by more than 80. We consolidated operations and eliminated three facilities in 2008. During the first six months of 2009 certain members of the executive staff elected to defer all or a portion of their salaries totaling $221,000

At June 30, 2009, we had assets of $ 4,136,644 and current liabilities of $861,377,427 of which the redemption premium set forth above comprises 97% of that total. Any amounts owed to related parties have no specific terms of repayment and bear no interest.

Off Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include operating leases for it production facilities and office space.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Information in this section will be added once an audit has been completed.

Item 4T – Controls and Procedures

Management’s Report On Internal Control Over Financial Reporting

Evaluation of disclosure controls and procedures. All financial information contained in this report is unaudited and un-reviewed. The accounting firm has reviewed our quarterly filings as of 9/30/2008. nCoat has not produced enough cash flow to pay the auditors to complete the audit by the publication date of this report. Upon payment of the audit fees, the auditors will complete the audit and an amended Form 10K and 10Q will be filed. All figures are presented in accordance with Generally Accepted Accounting Principles (GAAP), but have not been tested or validated by an outside firm as of yet. As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the company’s management, including its Chief Executive Officer and Chief Financial Officer, of its disclosure controls and procedures (as defined by Rules13a — 15(e)and 15d-15(e)under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in internal Controls over Financial Reporting

There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

RISKS RELATED TO NCOAT BUSINESS

nCoat has not completed an audit of its financial statements as of the date of the filing of the Annual Report for the year ended December 31, 2008, and as such, the financial statements filed with the Annual Report are not audited, and the interim quarterly financial statements in the Quarterly Report for the three months ended March 31, 2009, were not reviewed.

As of the date of filing of the Company’s Annual Report for the year ended December 31, 2008 with the SEC, nCoat had not been able to accumulate enough cash reserves to pay its public auditor to complete the audit of nCoat’s financials statements for the year ended December 31, 2008. Accordingly, the Annual Report on Form 10-K for the year ended December 31, 2008 and filed on April 15, 2009 with the SEC, does not include audited financial statements. Additionally, the Company’s auditors did not review the financial statements included in the Quarterly Report for the quarter ended March 31, 2009. Moreover, neither the Company’s auditors nor its outside legal counsel reviewed either the Annual Report for the year ended December 31, 2008, or the Quarterly Report for the three months ended March 31, 2009. As such, such reports may contain material misstatements or omissions.

The Company intends to use some of the proceeds of this offering to obtain an audit of the December 31, 2008, financial statements and a review of the March 31, 2009, quarterly interim financial statements, and to update and amend the Annual and Quarterly Reports which will be reviewed by the Company’s auditors and outside legal counsel. However, there may be material changes to both the Annual and Quarterly Reports as a result of these amendments.

nCoat has been in technical default on its debenture notes for over fifteen (15) months and owes substantial amounts of interest, penalties, liquidated damages and default fees to its debenture holders.

Because of cash shortfalls beginning in September, 2007, nCoat has not paid cash interest payments to its debenture holders since October, 2007. nCoat paid interest in stock for the third quarter of 2007, but has not paid interest in any form since that time. Subject to provisions of the documentation governing technical and/or actual default of the debenture financings, nCoat is subject to significant increases in interest rates, increases in principal owed, compounded penalties for non-payment of interest and principal, liquidated damages, and other penalties, many of which are tied to changes in nCoat’s public stock prices. With nCoat’s current stock price around $.01/share, penalties create exorbitant cash and stock penalties currently owed by nCoat to its debenture holders. While nCoat has been in continual contact with its debenture holders and has reached a verbal agreement to restructure terms favorable to nCoat, there can be no assurance that such and agreement will ever be completed and nCoat could be subject to a declaration of actual default and thereby be subject to partial or complete liquidation of its assets by debenture holders.

nCoat is seeking a restructure of its current debenture debt and agreements and must raise additional capital to accomplish this restructure.

As mentioned above herein, nCoat is in technical default on its current debenture financing. nCoat is seeking and attempting to negotiate a restructure of these debenture notes to provide a work out arrangement favorable to both current debenture holders and shareholders. To accomplish this restructure, nCoat is using this Offering to raise additional capital to satisfy negotiated demands of the current debenture holders and to pay aged accounts payables currently owed by nCoat to its vendors. No assurance can be made the terms of the capital raise will provide enough capital to repay all Company debt or satisfy all current demands on the Company. There can be no assurance that nCoat will raise needed capital in time to forestall actual default of its debentures and subsequent possible liquidation of its assets.

Current global, national and local economic conditions have affected nCoat revenues in both aftermarket and OEM market sectors and these revenue decreases may continue for the foreseeable future.

The current global economic crisis world-wide in general has had a dramatic negative impact on key industries from which nCoat derives a significant portion of its revenue and most of its profitability. Automotive revenues decreased in the fourth quarter of 2008 by 55% over same period revenues in 2007. Heavy duty truck sales have decreased 65% over 2007 and 2008 when compared with sales the two years previous. Consumer confidence and spending have decreased to levels not seen for the last 40 years. These factors have had a negative impact on nCoat revenues in both OEM and aftermarket market segments. nCoat total revenues in the fourth quarter of 2008 decreased 20% year over year with aftermarket sales decreasing over 40% in the same period. nCoat expects revenues in these sectors to remain low or experience additional decreases in OEM and aftermarket sales until automotive, trucking, motorcycle and aircraft sales begin to increase.

nCoat, HPC, and nTech have a limited operating history.

We are a company with limited operating history and experience. nCoat, Inc. was also limited in its operating history prior to the merger with Tylerstone. It had acquired HPC, a company with a 23-year operating history with all but the last seven years in performance automotive markets. While HPC’s operating history in its historical primary market is strong, commercial success in the new OEM markets is limited. MCCI historical operating history is similar to that of HPC. nTech was formed three years ago and therefore has less operating history than nCoat or any of its other subsidiaries. Therefore both the Company and all its operating subsidiaries have a limited number of current customers in the new target markets. Further, both the Company and its operating subsidiaries have experienced the need to refocus manufacturing to handle increased volume of OEM orders, which has required significant corporate cash resources and required significant management attention to accomplish. This change led to reduced cash reserves for operations and management disruption to the core after-market business. In addition, activities necessary to transition and integrate acquired companies and to consolidate operating facilities, management, employees and systems have required significant capital and management and employee time and attention. Recent negative impacts of the global financial crisis and subsequent decreased nCoat revenues have also required management time and attention. To meet its business plan, the Company will need to remain focused on business prospects, develop structured management and personnel responsibilities, and develop expansion plans for product development, production and customer services that can remain ahead of the prospective growth or shrinkage based on market conditions and financial status.

We will require substantial working capital to implement our business plan.

Projected success and growth are dependent on sufficient working capital to fund operations and product development. Management originally engaged investment bankers to assist in raising substantial capital via the sale of the Series A and Series B Notes and Warrants. Included in the capital raise discussed as part of this Offering is additional capital to sufficiently fund operations, fund expansion of sales efforts, fund expansion of production capacity and operations, fund the development and growth of our products mix. There is no assurance that if this offering is not successful or is only partially successful, any additional funds will be available or available on terms and conditions acceptable to the Company. Further, if we are successful in raising such funds, there can be no assurance that such funds will be sufficient or that such operational activities will be successful within the anticipated timeframe. In such case, we could be required to seek additional investment on terms available in the marketplace, which could materially increase corporate indebtedness, subject us to high interest rates and/or dilute shareholders’ ownership positions. Furthermore, the failure to obtain additional working capital, if needed, could prevent us from achieving our business objectives.

We have incurred continuing losses, and we may not be able to operate profitably in the future

Through March 31, 2009, nCoat incurred losses totaling $ (486,242,555) and had negative shareholders’ equity of $(849,754,849)]. While nCoat achieved positive operating income for the same reporting period, penalties, premiums and other charges relating to non-payment of the Company’s Series A and B Convertible Debentures created substantial losses. If we are unable to complete a restructure of the debt represented by the Company’s Series A and B Convertible Debentures and continue to generate positive operating income and attain consistent profitability we may need to cease operations or seek protection under the bankruptcy laws.

We are experiencing a significant liquidity crisis and we may not obtain sufficient funding to continue operations.

We are experiencing a significant liquidity crisis. A number of our vendors have turned our accounts over to collection agencies, and at March 31, 2009, we had accounts payable in excess of $3.4 million over 120 days past due. At March 31, 2009, we had cash on hand of $31,960, and net trade receivables of $492,212. We do not generate sufficient cash from our operations in any given month to meet our financing expenses and fund our operations. We have an immediate need for financing to pay such overdue accounts and restructure our Series A and B Convertible Debenture debt. Because we generate only enough income to support our current operations, we need immediate financing of approximately $2,500,000 to pay aged payables and notes on current terms. There can be no assurance such financing will be available, or available on terms acceptable to the Company. If we are unable to obtain such financing, we will be unable to pay our liabilities, and we may need to cease operations or file for bankruptcy protection.

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our financial statements for the year ended December 31, 2007.

Because our Annual Report for 2008 did not contain audited financial statements for 2008, we included in that report a note from our 2007 Annual Report on Form 10-K. Because we generated significant losses and required additional working capital to continue operations, our independent registered accounting firm included in its report for the year ended December 31, 2007 an explanatory paragraph to the effect that these conditions raised substantial doubt about our ability to continue as a going concern. We expect that given current financial conditions of the Company, the independent auditors would include a similar or identical statement in our current financial statements upon completion of the audit of those statements.

Our business strategy includes dependence on strategic partnerships with well-established corporations for business growth and development.

Our business strategy includes, among other elements, the development of long-term strategic partnerships with well-established corporations. These companies include large original equipment manufacturers (OEMs) that build parts, engines, pistons, or other components in the automotive, trucking, motorcycle and gas and oil industries with which we could leverage our business using their book of business, or brand identification in the industry. We can not dictate to those companies their business activities regarding our partnership, however, we expect to enter into agreements that will allow us to influence the partnership for mutual success. Our growth in this area of our business plan may be limited if we are either unable to identify and partner with these larger companies, or in the course of the partnership we are unable to execute our business plans.

Our products and technologies are subject to technological change and obsolescence.

Our products are subject to competitive technological advances and new competitive product introductions. Current competitors or new market entrants could introduce products with features that render products sold by the Company less marketable or obsolete. In addition, some of our services to large accounts provide products enabling customers’ technology to efficiently operate. There can be no assurances that our customers will continue to utilize their current technology innovations that require our products and services. New technology innovations that do not require our products and services may be used. Our future success will depend, to a certain extent, on the ability to adapt to technological change and to address market needs. There can be no assurance that we will be able to keep pace with technological change or the demands of the marketplace.

Many of our competitors may have greater capitalization or be better positioned in our markets.

The coatings industry includes large commodity coating providers, including BASF, DuPont, Dow Chemical, Pittsburg Paint & Glass, and Sherwin-Williams to name some of the largest. Although we are in a much smaller niche segment of the coatings industry which includes a large number of small and regional providers, these larger companies may elect to develop or acquire operations and marketing into our niche of high performance coatings. These competitors possess greater capitalization, market presence and sales and distribution channels than the company and could, if they elected to directly compete, eliminate market advantages currently enjoyed by nCoat leading to significant loss of revenue and consequently lead to our failure.

Certain nCoat technologies are in the early stages of development.

While we do have marketable formulations that include formulas and coatings that we employ in generating revenues, we also have additional technologies that are not yet incorporated in our market mix. Our business plan is based, in part, on our ability to create additional nanoparticle formulations that exceed the performance of a number of our current coatings , as well as developing additional methods to improve the application process. We are developing coatings with greater thermal, corrosion, abrasion, and porosity protection capabilities, with methods that will allow us to create more plant throughput for our OEM volume clients and direct development of new materials that will provide higher levels of performance. Some of our technologies are in an early stage of development while others are in late stages of development but not yet launched in broad market applications. These technologies have not been extensively marketed or laboratory tested. In order to fully validate the commercial feasibility of the technologies, additional product research and development and extensive testing must be done. Any failures experienced by our technologies while in product development could negatively impact our performance and ability to achieve our business objectives.

We may experience difficulty integrating future acquisitions.

While cash constraints and significant debt overhang currently prevent us from acquiring other companies, one of the elements of our business strategy which may be executed in the future is to continue to acquire other coatings companies. With each of the potential targets, we undertake extensive due diligence to understand all aspects of the acquisition target, including its history, management, markets, operations, marketing, sales, finance, personnel, assets, intellectual property, risks, reputation, strengths, weaknesses, opportunities, threats, and synergies, etc. of all domestic and international business operations. Experience has shown that discovering all of the issues inherent in an acquisition leading to total seamless operations between us and the acquired company is impossible. We may, in the course of future acquisitions, meet unexpected difficulties in transitioning and integrating a new acquisition. Areas of potential difficulty may include inexperience in certain markets, actions of previous owners, management or employees of the acquired company, lack of anticipated synergy with our core business, and/or missing historical information. Any of these issues may result in increased expenses, decreased revenues, loss of key personnel, or other impacts which could negatively affect the Company. In each acquisition nCoat negotiates a holdback of a portion of the purchase consideration for a period of time as we integrate the operations of the acquisition. There can be no assurance that the amount held back will be sufficient to offset the losses or expenses incurred should problems arise.

Our processes and equipment are subject to the risk of unexpected failures.

Our manufacturing processes are extremely specialized and depend on critical pieces of equipment, such as air compressors, ovens, application machinery, conveyor systems, overhead cranes, vehicles, computer and communications systems and other machinery that may have to be repaired or replaced. On occasion, equipment may be out of service as a result of unanticipated failures which may result in material plant shutdowns or periods of reduced production with significant expense and time delay. Interruptions in production capabilities will inevitably increase production costs and reduce nCoat sales and earnings. In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated natural or man-caused events such as fires, explosions, floods, natural disasters, adverse weather conditions, or other unforeseen conditions. Furthermore, any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative effect on our profitability and cash flows. Although we have business interruption insurance, management cannot provide any assurance that the insurance will cover all losses that could occur as a result of the equipment failures or that insurance payments will be received by the Company in time to replace or repair damaged equipment and/or facilities. In addition, longer-term business disruption could result in a loss of customers. If this were to occur, future sales levels, and therefore profitability, could be adversely affected.

There is no guarantee that we will be able to protect our intellectual property.

As part of our business strategy, we intend to accelerate investment in new technologies in an effort to strengthen and differentiate the product portfolio and make our manufacturing processes more efficient. As a result, we believe that the protection of proprietary intellectual property will become increasingly important to the business. Currently, we have patent applications pending. We expect to rely on a combination of patents, trade secrets, trademarks and copyrights to provide protection in this regard, but this protection might be inadequate. For example, pending or future patent applications might not be approved or, if allowed, the patents might not be of sufficient strength or scope. Conversely, third parties might assert that technologies infringe their proprietary rights. In either case, litigation could result in substantial costs and diversion of our resources, and whether or not we are ultimately successful, the litigation could hurt our business and financial condition.

We may incur significant costs to comply with the “controls and procedures” requirements of the securities laws.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or “SOX 404,” the Securities and Exchange Commission (“SEC”) adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. The Company’s management has evaluated the Company’s internal control systems in order to allow management to report thereon, and independent auditors to attest to, the Company’s internal controls as required by these requirements of SOX 404. Under current law, the Company was subject to these requirements beginning with the management report for the annual report for the fiscal year ending December 2007 and auditor attestation for the Company’s 2008 annual report. Management can provide no assurance that the Company will be able to comply with all of the requirements imposed thereby. There can be no assurance that the Company will receive a positive attestation from the independent auditors. In the event nCoat identifies significant deficiencies or material weaknesses in its internal controls that cannot be remediated in a timely manner or management is unable to receive a positive attestation from the independent auditors with respect to the Company’s internal controls, investors and others may lose confidence in the reliability of the Company’s financial statements.

RISKS RELATED TO MANAGEMENT OF THE COMPANY

We rely heavily on Company management.

Our ability to execute our business plan relies to a considerable extent on the efforts of Paul Clayson and Terry Holmes. In the event that the services of Mr. Clayson and Mr. Holmes become unavailable, we may not be able to achieve our business objectives.

Paul Clayson, our Chief Executive Officer and Chairman of our Board and Terry R. Holmes, our President and Chief Operating Officer are involved in other businesses which may cause them to devote less time to our business.

Paul Clayson, our Chief Executive Officer and Chairman of our Board and Terry R. Holmes, our President and Chief Operating Officer, serve as officers for other companies. In addition to serving as our Chief Executive Officer and Chairman of our Board, Mr. Clayson also serves as the President and Chief Operating Officer and equity partner of Sequoia Pacific Research Company, Inc. (“SPRC”), a nano-technology research, development and technology licensing company that presently has no day-to-day operating activity. Mr. Clayson devotes approximately 100% of his professional time, to our business. Mr. Holmes serves as Chief Executive Officer and Chairman of the Board of Telnetz, Inc., an ASP telephony and web service company and as Chief Executive Officer and Chairman of SPRC. In addition, he is involved with other business interests, which collectively require little involvement on a day-to-day business effort. Mr. Holmes devotes virtually 100% of his professional time to our business. Messrs. Clayson’s and Holmes’ involvement with other businesses have been handled after hours, and at time when there has been no conflict to date. One of the risks we face, however, may be the point in time where outside business involvement may cause them to allocate their time and services between us and other entities. Consequently, they may give priority to other matters over our needs which may materially cause us to lose their services temporarily which could affect our operations and profitability.

We are dependent on the services of our technical personnel.

The loss of any key personnel could have a material adverse impact on our business. Our future success depends, to a significant extent, on its ability to attract, train and retain technical personnel. Recruiting and retaining capable personnel, particularly those with expertise in the industry, are vital to success. There is substantial competition for qualified technical personnel, and there can be no assurance that we will be able to attract or retain such personnel. If it is unable to attract and retain qualified employees, the Company may be materially and adversely affected.

RISKS RELEATED TO OWNERSHIP OF OUR STOCK

The market price of our common stock likely will be volatile and beyond our control.

As we are a new company in the public market, the market price for our shares is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

•

	•	Announcements of technological or competitive developments;
	•	Regulatory developments in target markets affecting the Company, customers or competitors;

•

Announcements regarding patent litigation or the issuance of patents to the Company or its competitors;

•

Announcements regarding new financings, acquisitions or other financial transactions;

	•	Announcements of studies and reports relating to the conversion efficiencies of anticipated products of the Company or those of its competitors;
	•	Actual or anticipated fluctuations in nCoat quarterly operating results;
	•	Changes in financial estimates by securities research analysts;

•

Changes in the economic performance or market valuations of other high performance coating industry companies;

•

Addition or departure of the Company’s executive officers and key personnel;

	•	Release or expiry of resale restrictions on other outstanding common shares;
	•	Sales or perceived sales of additional shares to raise working capital

	•	Announcements of changes in status of debenture debt including either triggering of any actual default or elimination of debenture debt due to restructuring
	•	Global, national, regional or local economic conditions; and/or
	•	Multiple additional unforeseen factors.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies in general or our Company in specific. These market fluctuations may also have a material adverse effect on the market price of the Company’s shares.

Our ownership is highly concentrated in a few individuals.

There is a large portion of our stock owned by few individuals. Approximately 45.5% of our present outstanding voting securities are beneficially owned by a few shareholders. As a result, they possess significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. This concentrated ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer. In addition, we anticipate additional financing efforts in order to complete our business strategy. Some or all of such financing may be acquired by a single person or a relatively small group of persons that could have the effect of further concentrating the ownership. In addition, the Company has fewer than 150 total shareholders. This limited number of shareholders could create limited liquidity in daily trading activity and create wider price swings between buyers bids and sellers offers to sell.

Trading in our common stock is limited.

Our common stock is quoted on the Pink Sheet OTC Electronic Markets (“Pink Sheets”). The Pink Sheets is a significantly more limited liquidity market than the New York Stock Exchange or NASDAQ system or the OTC Bulletin Board. The quotation of our shares on the Pink Sheets may result in a less liquid market available for existing and potential stockholders to trade shares of its common stock, could depress the trading price of its common stock and could have a long-term adverse impact on our ability to raise capital in the future.

We previously traded on the OTC Bulletin Board, but became ineligible for continued listing due to our untimely public filings. Although the Company’s management intends to become and remain current in its public filing obligations, there can be no guarantee that the Company will be able to remain current or qualify for listing on the OTC Bulletin Board or other market or trading facility in the near future or ever.

The trading market for our common stock is limited, and investors who purchase common stock in this offering may have difficulty selling their shares.

The public trading market for our common stock is limited. As of the date of this Agreement, our common stock was listed on the Pink Sheets. Nevertheless, an established, vibrant public trading market for our common stock may be slow to develop or, if developed, it may not be able to be sustained. The Pink Sheets is an unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than other markets. Purchasers of our common stock therefore may have difficulty selling their shares should they desire to do so.

Our common stock is considered a penny stock. Penny stocks are subject to special regulations, which may make them more difficult to trade on the open market.

Securities in the OTC market are generally more difficult to trade than those on the Nasdaq National Market, the Nasdaq SmallCap Market or the major stock exchanges. In addition, accurate price quotations are also more difficult to obtain. The trading market for our common stock is subject to special regulations governing the sale of penny stock.

A "penny stock," is defined by regulations of the Securities and Exchange Commission as an equity security with a market price of less than $5.00 per share. However, an equity security with a market price under $5.00 will not be considered a penny stock if it fits within any of the following exceptions:

	•	the equity security is listed on Nasdaq or a national securities exchange;
	•	the issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible assets of at least $5,000,000, or (b) average annual revenue of at least $6,000,000; or

•

the issuer of the equity security has been in continuous operation for more than three years, and has net tangible assets of at least $2,000,000.

If you buy or sell a penny stock, these regulations require that you receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in our common stock would be subject to Rule 15g-9 of the Exchange Act, which relates to non-Nasdaq and non-exchange listed securities. Under this rule, broker-dealers who recommend our securities to persons other than established customers and accredited investors must make a special written suitability determination for the Purchaser and receive the Purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if their market price is at least $5.00 per share.

Penny stock regulations will tend to reduce market liquidity of our common stock, because they limit the broker-dealers' ability to trade, and a purchaser's ability to sell the stock in the secondary market. The low price of our common stock will have a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our common stock may also limit our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of many institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker's commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, our shareholders will pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher.

PART II

OTHER INFORMATION

Item 1 – Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this Report, with the exception of the case cited below, we were not aware of any such legal proceedings or claims against the Company or its subsidiaries that management believes will have a material adverse affect on business development, financial condition or operating results.

First Tennessee Bank v. MCC Inc. and Michael Novakovic, Case No. CH-09-0558-1 Shelby County Chancery Court for the Thirtieth Judicial District at Memphis, TN. On April 17th, 2009 First Tennessee filed a complaint against MCC Inc. and Michael Novakovic (collectively, the “Plaintiffs”) claiming breach of contract regarding a promissory note. This note was originated February 15, 2007 by MCC Inc. Mike Novakovic subsequently purchased the note from First Tennessee, and negotiations are underway by the company for settlement and renewed payments with him at this time. The Complaint brings claims for accelerated balance due on the note for $240,384.

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

On January 19, 2008 and January 29, 2008, the Company issued 1,554,198 shares of its common stock as payment of interest on the Series A Notes and Series B Notes for interest due for the third quarter of 2007.

On August 18, 2008, the Company issued 1,250,000 shares of its common stock as the result of a partial conversion of a Note holder’s principal, reducing that Note by $25,000.

On December 1, 2008, the Company issued 3,031,956 share of its common stock as the result of a partial conversion of a Note holder’s interest, reducing the Note by $10,000.

On May 22, 2009 the Company issued 5,000,000 shares of its common stock as the result of a partial conversion of a Note holder’s interest, reducing the Note by $7,500.

There have been no repurchases of equity securities by nCoat during the years ended December 31, 2007 or 2006.

In each case, the securities were issued in connection with private transactions with accredited investors pursuant to Section 4(2) of the Securities Act and regulations promulgated there under.

Proceeds from the sale of the above securities were and will be used for retirement of debt, acquisition of MCCI and working capital.

Item 3 – Defaults Upon Senior Securities

As set forth above, the Company was in technical breach of the underlying financing agreements until it obtained waivers as described in the 10-KA report filed by the Company on August 1, 2008.

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

None.

Item 5 – Other Information

None.

Item 6 – Exhibits

The following documents are filed as an exhibit to this Report:

Exhibit	Description

3.1	Certificate of Incorporation (previously filed as an exhibit to a registration statement on Form SB-2, filed with the Commission on December 27, 2004, and incorporated herein by this reference).

3.2	Certificate of Amendment to Certificate of Incorporation (previously filed as an exhibit to a Current Report on Form 8-K, filed with the Commission on February 8, 2007, and incorporated herein by this reference).

3.3	Bylaws (previously filed as an exhibit to a registration statement on Form SB-2, filed with the Commission on December 27, 2004, and incorporated herein by this reference).

4.1	Convertible Debenture, dated October 24, 2006 (previously filed as an exhibit to a Current Report on Form 8-K, filed with the Commission on November 3, 2006, and incorporated herein by this reference).

4.2	Convertible Debenture, dated November 9, 2006 (previously filed as an exhibit to a Quarterly Report on Form 10-QSB, filed with the Commission on January 17, 2007, and incorporated herein by this reference).

4.3	Convertible Debenture, dated November 28, 2006 (previously filed as an exhibit to a Quarterly Report on Form 10-QSB, filed with the Commission on January 17, 2007, and incorporated herein by this reference).

4.4	Convertible Debenture, dated February 6, 2007 (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on July 12, 2007, and incorporated herein by this reference).

4.5	Convertible Debenture, dated May 14, 2007 (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on July 12, 2007, and incorporated herein by this reference).

10.1	Form of Securities Purchase Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.2	Form of Series A Notes (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.3	Form of Series A Warrants (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.4	Form of Series B Notes (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.5	Form of Series B Warrants (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.6	Form of Registration Rights Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.7	Form of Escrow Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.8	Form of Amendment to Escrow Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.9	Form of Lockup Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 1, 2007, and incorporated herein by this reference).

10.10

Stock Purchase Agreement by and among nCoat, Inc., MCC, Inc., and Michael Novakovic and Phebe Novakovic, dated June 19, 2007 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on June 22, 2007, and incorporated herein by this reference).

10.11

Lease Agreement, dated May 15, 2001, between Remco Management Company, LLC, and HPC, (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.12

Lease Extension Agreement, dated June 1, 2006, between Remco Management Company, LLC, and HPC (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.13

Industrial Lease, dated October 15, 2005, between Ralf LLC, and HPC (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.14

Lease Agreement, dated February 21, 2006, between Mebane Warehouse, LLC, and HPC (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.15

Memorandum of Sublease, dated November 1, 2005, between Heritage One, L.L.C., Rocky Mountain Seed and Grain, and HPC(previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.16

Commercial Lease Agreement, dated October 13, 2005, between Philadelphia Suburban Development Corporation and MCCI(previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

10.17

Lease Agreement, dated January 22, 2007, between Milford Business Centre and MCCI (previously filed as an exhibit to a Registration Statement on Form SB-2, filed with the Commission on October 12, 2007, and incorporated herein by this reference).

31.1	Certification of the Chairman and Chief Executive Officer, Section 302 of Sarbanes-Oxley Act of 2002

32.1	Certification of the Chairman and Chief Executive Officer, Section 1350

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 hereunto duly authorized.

	nCoat, Inc
	(Registrant)

Date: August 14, 2009	Paul Clayson
	Paul Clayson
	Chief Executive Officer
	(Principal Executive Officer)


Date: August 14, 2009	Paul Clayson
	Paul Clayson
	Acting Chief Financial Officer
	(Principal Financial and Accounting Officer)

nCoat, Inc. 10-Q