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EX-31.1 - EXHIBIT 31.1 - HYBRID Coating Technologies Inc.exhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - HYBRID Coating Technologies Inc.exhibit32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE YEAR ENDED December 31, 2012 OR

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

For the transition period from to

Commission File Number 000-53459

HYBRID COATING TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

NEVADA 20-3551488
(State of other jurisdiction of incorporation or (IRS Employer Identification Number)
organization)  

950 John Daly Blvd. Suite 260
Daly City, CA 94015
(Address of principal executive offices)

(650) 491-3449
(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

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

Common Stock, $ 0.001 par value

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes [   ]     No [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ]     No [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]     No [   ]

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (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 [   ]     No [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,933,034 based on the closing price of $0.50 for the common stock on June 29, 2012, the last business day of the registrant’s most recently completed second fiscal quarter.

Number of shares outstanding of the registrant’s class of common stock, as of April 15, 2013 was 6,577,568.


TABLE OF CONTENTS

    Page
PART I    
  Special Note Regarding Forward Looking Statements 3
Item 1 Description of Business 4
Item 1A. Risk Factors 14
Item 2 Description of Property 18
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures 18
     
PART II    
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 19
Item 6. Selected Financial Data 21
Item 7 Management Discussion and Analysis of Financial Condition and Results of Operations 21
Item7A Quantitative and Qualitative Disclosures about Market Risks 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26
Item 9A. Controls And Procedures 26
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 27
Item 11 Executive Compensation 32
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 34
Item 13 Certain Relationships and Related Transactions, and Director Independence 35
Item 14 Principal Accountant Fees and Services 36
Item 15 Exhibits 37


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, contained in this Annual Report constitute forward-looking statements. In some cases you can identify forward-looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "estimate," "anticipate," "predict," "project," "potential," or the negative of these terms and similar expressions intended to identify forward-looking statements.

     Forward-looking statements are based on assumptions and estimates and are subject to risks and uncertainties. We have identified in this Annual Report some of the factors that may cause actual results to differ materially from those expressed or assumed in any of our forward-looking statements. There may be other factors not so identified. You should not place undue reliance on our forward-looking statements. As you read this prospectus, you should understand that these statements are not guarantees of performance or results. Further, any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, those described under the heading "Description of Business and Risk Factors" under Item 1, as well as the following:

     Hybrid Coating Technologies Inc.’s anticipated cash needs and estimates regarding its capital expenditures, as well as its capital requirements and need for additional financing;

     Hybrid Coating Technologies Inc.’s ability to maintain its production capacity, staff complement and manufacturing performance in a cost-effective way;

     Hybrid Coating Technologies Inc.’s ability to identify and retain personnel for the continued manufacturing and sale of the Nanotech Products;

     Hybrid Coating Technologies Inc.’s ability to successfully commercialize its products including the Green Polyurethane™ products and to develop and commercialize new products and services;

     Hybrid Coating Technologies Inc.’s ability to maintain current strategic relationships and develop relationships with new strategic partners;

     Hybrid Coating Technologies Inc.’s ability to maintain its relationship with its current manufacturing partners;

     Hybrid Coating Technologies Inc.’s ability to maintain its rights pursuant to the Licensing Agreement:

     Hybrid Coating Technologies Inc.’s competitive position and its expectations regarding competition from other paint manufacturers and suppliers; and

     Anticipated trends and challenges in Hybrid Coating Technologies Inc.’s business and the markets in which it operates.

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PART I

ITEM 1. DESCRIPTION OF OUR BUSINESS

Our Business

On August 30, 2010, Hybrid Coating Technologies Inc. (the “Company”) consummated an August 16, 2010 Stock Purchase Agreement (the “Stock Purchase Agreement”) with Nanotech Industries International Inc., (“Nanotech”) a Nevada corporation located in Daly City, California. A previous January 31, 2010 agreement with Nanotech Industries Inc. (“NTI”), a related party of Nanotech, was terminated August 16, 2010 prior to its effectiveness.

Under the terms of the Stock Purchase Agreement, the Company agreed to acquire all of the issued and outstanding shares of capital stock of Nanotech (“Nanotech Shares”) from the holders of the Nanotech Shares (“Nanotech Shareholders”). In consideration for the purchase of the Nanotech Shares from the Nanotech Shareholders (the “ Nanotech Acquisition”), the Company issued an aggregate of 3,381,003 shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (“Common Stock”), to the Nanotech Shareholders. In addition, certain shareholders of the Company agreed to have 1,028,000 of their shares cancelled as part of the transaction. This transaction was closed on August 30, 2010.

Subject to completion of all required regulatory filings, the Company also intends to take such steps as may be necessary to appoint the senior management of Nanotech to the board of the Company.

As a result of the Nanotech Acquisition, Nanotech is now a wholly owned subsidiary of the Company. The Company intends to pursue the business of its Nanotech subsidiary and assume and execute Nanotech’s business plan as its sole business. (See “Incorporation and Business of Nanotech” below).

The products manufactured and sold by the Company (“Nanotech Products”) comprise both:

(1)

coatings and raw binder ingredients comprised of Green Polyurethane™ Monolithic Floor Coating and Green Polyurethane™ Binder and hereinafter referred to as “Coating Products”.

(2)

sealants and adhesives comprised of Green Polyurethane™ and hereinafter referred to as “Sealant Products”.

The Company was granted the right to manufacture and sell the Nanotech Products pursuant to an agreement (“Licensing Agreement”) entered into between the Company and Nanotech Industries Inc. (“NTI”), the holder of the proprietary rights to the license and intellectual property required for the manufacturing of the Nanotech Products. The Nanotech Products will target the coatings, adhesives, sealants and elastomers (“C.A.S.E.”) market in North America, Europe, and the Russian Territory ( including the Russian Federation, Belorussia, Kazakhstan Rupublic) with an option to sell in Asia and the rest of the world pursuant to the terms of the Licensing Agreement.

NTI and the Company are related parties by virtue of common ownership and control. NTI is privately-held.

“The Company” and “the Registrant”, as referred to herein, includes Hybrid Coating Technologies Inc. and/or its wholly owned subsidiary, Nanotech.

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Incorporation and Business of Nanotech

The Company was incorporated under the laws of the State of Nevada on July 8, 2010. On July 12, 2010, the Company entered into the Licensing Agreement(“ Initial Licensing Agreement”)for the manufacturing and sale of the Nanotech Coating Products, alternative , nonisocyanate polyurethane , Green Polyurethane™, including coatings and raw binder ingredients (Green Polyurethane™ Monolithic Floor Coating and Green Polyurethane™ Binder). The Nanotech Coating Products will be sold to the Coatings, Adhesives, Sealants & Elastomers (“C.A.S.E.”) market in North America, with options to sell in Europe, South America, Asia and the rest of the world.

Initial Licensing Agreement Note 1

The terms of the Initial Licensing Agreement (the “Agreement”) are as follows:

(i)

The Company was granted, effective June 12, 2010, manufacturing and sale rights (“North American Licensing Rights”) for the Coating Products on an exclusive basis for a 36-month period (“Exclusivity Period”) for the territory of North America. In consideration for the North America Licensing Rights, Nanotech paid NTI a one- time licensing fee of $500,000 and a royalty of 5% of future gross Coating Product sales.

   
(ii)

Within the Exclusivity Period, the Company shall have the option (“American- European Option”) to acquire perpetual and exclusive licensing rights for all of North America, South America and Europe (“Perpetual American-European Licensing Rights”). Should the Company wish to exercise the American-European Option, the Company shall issue to NTI an aggregate number of shares (“Coating Shares”) of common stock of the Company which shall give NTI, immediately upon such issuance of shares, a 52.5% ownership stake in the Company.

   
(iii)

Should the Company exercise the American-European Option, the Company shall then have an additional option to obtain perpetual and exclusive Licensing Rights for all of Asia and the rest of the world (“Asia Option”). Should the Company exercise the Asia Option, the Company shall issue to NTI an aggregate number of shares of common stock of the Company which shall give NTI, immediately upon such issuance of shares, an additional 10% ownership stake in the Company.

Note 1: The InitialAgreement was originally filed in an 8K on August 30, 2010 and the amended version (as described above) was refiled in an 8K on October 18, 2011. In the original filing the Licensing Rights included not only the Coating Products but Sealant Products as well. Also, for the”Asia”option the territory was for Asia only and later changed to Asia and the rest of the world.

Subsequent Licensing Agreements and Amendments

(i)

On March 17, 2011, the Company and NTI amended the Agreement to now include the territory of the Customs Union of Belorussia, Kazakhstan Republic and Russian Federation (the “Russian Territory”), on an exclusive basis for a period of ten years from the date of the signing of this amendment. In exchange for the right to manufacture and sell in the Russian Territory, the Company shall pay to the Licensor an ongoing royalty of 7.5% of gross Coating Product sales in the Russian Territory, and a one-time royalty fee of $150,000 (paid as of December 31, 2011).

   
(ii)

On July 7, 2011, a second amendment was made to the Agreement granting the Company an option (the “Option”) for a period of six months from the signing of this amendment to manufacture and sell Coating Products in the territory of the European Continent on an exclusive basis for a period of five years from the date the option is exercised, after which time the European Right shall continue perpetually on a non-exclusive basis. In exchange for this Option, the Company shall pay to the Licensor a one-time royalty fee of $1,250,000 payable within 24 months of the exercise of the Option. On November 29, 2011 the Company exercised the Option, the payment for which is being financed by NTI. The Company recorded the license at $1,250,000 and the related liability in Note Payable-related party.

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iii)           On October 18, 2011, the Company and NTI entered into a second licensing agreement (“Sealant Agreement”) granting the Company an option (“Sealant Option”) to be exercised within six months of the signing of the Sealant Agreement, for the manufacturing and sale of environmentally safe adhesives and sealants (“Sealant Products”), for the following :

  1.

The Company shall issue to NTI a one-time licensing fee, an aggregate number of shares (“Sealant Shares”) of the Company’s restricted common stock which shall give NTI, immediately upon issuance of such shares, an incremental 15% (fifteen percent) ownership stake in the Company.

     
  2.

The Company shall pay to NTI a royalty of 7.5% of gross revenue from the Sale of the Sealant Products (“Royalty”) for the duration of this Agreement. The Royalty shall be paid on a quarterly basis 65 calendar days after the end of each quarter (the “Royalty Payment Period”) and shall be based on the gross revenue as stated in the Company’s quarterly statements.

On December 6, 2011, the Company notified NTI of its intent to exercise the Sealant Option. To date, the Company has not issued the Sealant Shares and the Sealant Option has expired. The Company intends to renegotiate the Sealant Option once the Company has determined it has commercial viability.

          Further information concerning the historical business of Nanotech, the business acquired by the Company in the Acquisition, is set forth below.

Overview

The Company is a development-stage company and has only just begun to implement its business plan. The likelihood of success of the Company must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the competitive environment in which the Company will operate. The Company’s long-term viability, profitability and growth will depend upon successful commercialization of the Nanotech Products and the development and commercialization of new products and services relative to its business plan. As a development stage company, the Company has little or no relevant operating history upon which an evaluation of its performance can be made. Such performance must be considered in light of the risks, expenses and difficulties frequently encountered in establishing new products, services and markets.

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Business Model

The Company’s business model is based on a two-tier strategy, which includes direct sales and licensing. The Company’s ultimate goal is to license its proprietary Green Polyurethane™ formulation to national and/or global coatings formulators and then focus on rolling out the commercialization of other Green Polyurethane™ applications such as adhesives and sealants. In order to achieve this, the Company is proving the validity of its products through direct sales and is therefore targeting large distributors and multiple client bases. The Company intends to focus within the C.A.S.E. segment specifically for large industrial and commercial coatings applications where Green Polyurethane™ has a natural competitive advantage over other polyurethane ("PU") and epoxy coatings due to its superior chemical resistance and environmentally safe properties with reduced health risks. Some of the target applications for Green Polyurethane™ products markets include:

  • Industrial and commercial buildings
  • Civil applications for tunnels and bridges
  • Private and public garages
  • Chemical and food processing plants
  • Warehouses
  • Monolithic floorings for civil, industrial and military engineering
  • Marine and Aeronautic applications
  • Industrial equipment for dairy and liquid fertilizer processing plants and delivery systems
  • Military facilities and equipment
  • Protective coatings inside industrial and commercial pipes

In addition to the above, the Company’s business plan includes plans to:

  • Increase the number of contractors and applicators contacted
  • Contact paint formulators and offer Green Polyurethane™ Binder for their proprietary formulations
  • Establish distribution channels utilizing existing distribution hubs

Competitive Strengths

The Company believes that its competitive strengths include the following:

Product Advantage. Green Polyurethane™ is the first ever chemical platform based on modified hybrid PU that is produced using pending patented proprietary methods which completely eliminate the use of toxic isocyanates resulting in a substitute for conventional PU. This results in a product that is 100’s of times less toxic than conventional PU and which has superior properties.

2 Times Wear Resistance & Excellent Adhesion

  • Wear resistance is 25-30 (mgs./1000 cycles) or 2 times better than most premium PU coatings
  • Adhesiveness - 10-30% higher (depends on substrate)

High Gloss, Self-Priming - Achieve Any Thickness in One Coat

  • Green Polyurethane’s™ 100% solids, specific curing formulation can be applied with only one layer at any thickness in specific environments (some substrates in poor condition may need a primer)
  • Does not require careful drying of substrates (compared to conventional polyurethane coatings)

Increased Resistance to Chemical Degradation & Corrosion

  • Maintains an extended period of corrosion protection, more reliability due to its non-porous coating structure, and better durability than conventional coatings
  • Assures more effective protection against aggressive media
  • Unlike conventional polyurethanes, Green Polyurethane™ is indifferent to moisture and does not require special moisture controlled conditions in the manufacturing process

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  • UV and low temperature curing applications available (36-77 ºF) (2-25 ºC)

Safe & Easy curing in Cold, Hot or Sunny Conditions

  • Hardens at ambient temperatures

Increased Hydrolytic Stability

  • Maintains stability against chemical decomposition upon contact with water through anintramolecular hydrogen bond formed during its curing, thereby improving hydrolytic stability well above that of conventional polyurethanes

Tested Product and Technology. The Green Polyurethane™ technology has been tested, is proven, is commercial ready and currently in use. The Green Polyurethane™ technology has undergone rigorous testing by the Polymer Institute, GmbH, a well-recognized analytical firm for qualifying materials for use in the flooring industry and Assured Testing Services of Pennsylvania.

Testing by the Polymer Institute and Assured Testing Services confirmed Green Polyurethane’s™ claims in regard to its structural and chemical properties and its suitability for use in the flooring industry. In addition, floor coating samples were rigorously tested and were found to perform successfully in accordance with The American Society for Testing and Materials.

Cost Savings. The Company can offer substantial savings to clients in the flooring installation industry due to the unique combination of multiple properties in one coating of Green Polyurethane™ paint. Typically, concrete floors are painted using a primer, base and topcoat, resulting in the need for three different types of coatings for one application, which can be time consuming and costly. By using the Green Polyurethane™ formulation, however, the number of layers can be reduced to one or two, as Green Polyurethane™ does not require a primer, has excellent stand alone adhesion and, in most cases, would not require a top coat due to its excellent mechanical properties. In addition, its zero isocyanate, ~ zero VOC safety features, allows it to be applied without the interruption of business due to public exposure, creating an additional 30-60% savings on application costs for customers.

Management Team. The Company’s management team possesses a diverse set of industry skills and operating experience and a record of success in the scientific R&D, nanotechnology, management, marketing, sales and finance industries.

Growth Strategy

The Company’s business growth model includes a two-pronged strategy of direct sales and licensing. The Company’s ultimate goal is to license our proprietary formulation to national or global coatings formulators. In order to achieve this it is proving the validity of its products through direct sales.

The Company has developed marketing tools, brochures, One-sheets, and a user-friendly website to market its products directly to contractors and applicators of high end coatings and paint. The Company has also participated in high visibility trade shows to highlight the unique qualities of Green Polyurethane™ including the European Coatings Show (March 2011) and World of Concrete (February 2011 and 2012). From these shows, internet marketing (search engine optimization) and direct marketing, the Company has attracted hundreds of prospective clients. Flooring applications done for some of these clients in Montreal, San Jose, Bergen County, New Jersey and New York have allowed the Company to prove that its product can live up to the high standards and safety features advertised.

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The Company’s marketing and direct coating sales/application efforts have attracted over 50 established regional and global coatings distributors and formulators who are either testing samples of Green Polyurethane™, applying for final pilot samples of the material prior to ordering commercial quantities or negotiating licensing contracts.

The $3.5 billion EU polyurethane coatings market (JCT CoatingsTech | November 1, 2007 | Challener, Cynthia) is of particular interest to The Company because of the high demand and the overhaul of the EU’s chemical regulatory system. REACH (Registration, Evaluation & Authorization and Restriction of Chemicals) regulations were drafted in 1998 and finally adopted and put into force in June 2007. A major shift in this system will be placing a greater burden of proof on the industry that chemicals are safe. Substances of very high concern must be authorized under REACH and their use may be subject to restrictions. Isocyanates used in making PU are highly toxic and require expensive worker safety and handling procedures. A general movement towards greener products combined with the REACH regulations has accelerated projected growth in the total EU market for less toxic alternatives.

In addition to the above, the Company plans to:

  • Increase the number of contractors and applicators contacted
  • Contact paint formulators and offer Green Polyurethane® Binder for their proprietary formulations
  • Establish distribution channels utilizing existing distribution hubs
  • Sub-license technology in certain geographic areas.

The Company intends to work with GBK, a global regulatory compliance consultancy firm, first in the EU marketplace and then in other markets to educate targeted government agencies responsible for setting standards for hazardous chemicals used in coatings.

Educating Regulatory Authorities. The Company intends to educate regulatory agencies of the existence of an alternative to hazardous isocyanate-based polyurethane. The US Environmental Protection Agency (EPA) has shown strong interest in Green Polyurethane™ and has supported the efforts to manufacture and distribute Green Polyurethane™ products in the US and have suggested linking the Green Polyurethane™ technology to the EPA’s new website for spray polyurethane foam.

Maintain and Increase Cost and Operational Advantages. The Company’s strategy is to avoid large capital investments in manufacturing and instead rent facilities and equipment from its strategic partners. Management estimates that the Company can outsource the manufacture of up to 20,000 tons per year.

Subsidiaries

Nanotech Industries International, Inc. (“Nanotech”) is a wholly owned subsidiary of Hybrid Coating Technologies Inc. (collectively “the Company”) and is the source of the Company’s operations.

Legislation and Government Incentives

Current global trends toward more environmentally sound products and new legislative restrictions on the use of hazardous materials and their chemical by-products pose formidable obstacles to PU manufacturers. The European Union (EU) has already begun to take action against isocyanates by passing recent legislation that banned the addition of any new manufacturing capacities of isocyanates. Governmental health agencies and workers unions throughout Europe are beginning to actively speak out against the dangers of isocyanates in the workplace in order to protect and lobby for worker’s safety. On September 2007 the president of FATIPEC (Federation of the Paints, Varnishes, Lacquers and Printing Inks Industries Technologists’ Associations of Continental Europe) along with the Oil & Color Chemists’ Association reported that new EU safety regulations have been put into place which includes a tenfold lowering of the concentration limits of isocyanates in all paints.

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In addition, the EPA has recently developed a new Action Plan causing any company that produces products with free isocyanates to report any health related incidents related to the isocyanate exposure of its workers and any consumers using its products. These measures are similar to recent EU actions, which preceeded the banning of any Do-It-Yourself (DIY) consumer products with free isocyanates. These new regulations will afford Nanotech the opportunity to gain new ground.

Manufacturing

Overview

The Company intends to establish full commercial-scale manufacturing for both of its products at Adhpro Adhesives in Magog, Quebec and Simpson Coatings in California through non-exclusive toll manufacturing agreements.

The Company’s strategy is to avoid large capital investments in manufacturing and to outsource the manufacturing of Company Products to third-party manufacturers. At current capacity, the Company can manufacture 20,000 tons per year.

Third Party Manufacturing Partners

Adhpro Adhesives Inc.

Adhpro is an industrial premium quality adhesives manufacturer based out of Magog, Quebec Canada. Adhpro’s products are manufactured from the highest quality raw material to meet customer’s exact needs. Established since 1990, Adhpro is a young company that is expanding its skills from coast to coast.

Simpson Coatings Group Inc.

Simpson Coatings Group Inc. is a manufacturer of a wide variety of paints and lacquers for over fifty years based out of San Francisco, California. Simpson Coatings is a leader and respected principal in nearly every major coating paint category and a broadening list of specification products selling to firms of every description. The company is also a member of the National Paint and Coatings Association, Inc., and through this membership is kept current with all the latest specifications and their amendments.

Due to its long history, qualifications and production capacity Simpson Coatings is positioned as the primary source of production for the United States and its president is a Board member of Nanotech Industries, Inc. (NTI) ,the owner of the Green Polyurethane™ patents).

Research and Development

The Company does not foresee spending any capital on research and development. The Company has a renewable Licensing Agreement with NTI to sell the Green Polyurethane® Binder and Green Polyurethane™ Monolithic Floor Coating. Any and all research and development for the Nanotech Products is conducted by NTI .

Intellectual Property Protection

Several formulations of Green Polyurethane™ technology are patent and know-how protected through control of the manufacturing process. The underlying patents of Green Polyurethane™ (often referred to as HNIPU or NIPU) have been filed with the U.S Registrar of Patents and are held by NTI and cover both the method for producing and composition of Green PU..

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Name of Patent


Filed in
USA
(No. &
Date)
Liquid oligomer composition containing hydroxylamine adducts and method of manufacturing thereof
12/315,580
04/12/2008
    Nanostructured Hybrid Oligomer Composition
12/381,626
03/13/2009
    Epoxy-Amine Composition Modified with Hydroxyalkyl Urethane

Method of producing hybrid polyhydroxyurethane network on the base of carbonated-epoxydated unsaturated fatty acid triglycerides
12/383,589
03/26/2009
20.09.2010

In addition, with respect to proprietary knowledge that is not patentable and processes for which patents are difficult to enforce, the Company relies on trade secret protection and confidentiality agreements to safeguard its interests. Many elements of the manufacturing process used by the Company may involve proprietary knowledge, technology or data that is not covered by patents or patent applications, including technical processes, equipment designs, algorithms and procedures.

Facilities and Employees

Hybrid Coating Technologies Inc.’s principal office is located in Daly City, California, U.S.A.

As of December 31, 2012, Hybrid Coating Technologies Inc. had 5 employees.

Competition

To date, the Company is unaware of any other nonisocyanate polyurethane product and as such does not have any direct competition. However, it still must compete against major companies manufacturing and supplying toxic PU based paints and coatings. Large members of this market are BASF, Sherwin Williams, PPG, Benjamin Moore, AKZO Nobel, Rust-Oleum and Sika AG. The Company’s products, however, offer these competitors a cost effective and attractive green alternative to their existing coating formulations and this is why almost all of the top 10 formulators in the world have sought out The Company to learn about Green Polyurethane™.

Enviromental Matters

Hybrid Coating Technologies Inc., is not aware of any pending or threatened environmental investigation, proceeding or action by foreign, federal, state or local agencies, or third parties involving its current operations.

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Description of the Industry

The total available market for the Company within the polyurethane and coatings industries is currently estimated at $136 billion and comprised of three segments as follows:

  • Polyurethane – According to plastemart.com, a well known online authority in the coatings market, “As per Research and Markets, the global market for polyurethanes was estimated at 13,650.00 kilo tons in 2010 and is expected to reach 17,946.20 kilo tons by 2016, growing at a CAGR of 4.7% from 2011 to 2016. In terms of revenue, the market was estimated to be worth US$33 billion in 2010 and is expected to reach US$55 billion by 2016, growing at a CAGR of 6.8% from 2011 to 2016.”

  • Global Paints & Coatings – According to Datamonitor’s 2010 paints & coatings Global Industry Guide, “the global paints & coatings market grew by 8.6% in 2010 to reach a value of $103 billion with a volume of 35MM Tons. In 2015, the global paints & coatings market is forecast to have a value of $142 billion, an increase of 37.3% since 2010.” This market comprises three segments: Decorative, Industrial and automotive, speciality and other. HCT’s focus is on “specialty and other,” which comprises 23% of the market.

  • Nano Coatings - The market for nanocoatings was $2.1 billion in 2009 and projected to reach $3.3 billion in 2010 and $17.9 billion in 2015 with a five-year CAGR of 39.5% (BCC research, Jan. 2010).

Total Serviceable Market (TSM)

The Serviceable available market is currently estimated at $32 billion in value as follows:

  • Polyurethane – Out of the total $33BB global paints & coatings market, 25% or $8.25 billion accounts for binders, coatings & adhesives, available for the Company to service.

  • Global Paints & Coatings – Out of the total $103 billion polyurethane market 23% or $23.7 billion accounts for “specialty and other”, available for the Company to service.

  • NanoCoatings - Out of the total $3 billion nanocoatings market, the company anticipates servicing 5% or $150 million.

The only polyurethane markets for which it would not be economical to use Green Polyurethane™ are certain foams, which are produced at very low costs for furniture. However, Green Polyurethane™ can still be used for other polyurethane based foam products on a competitive basis. Green Polyurethane™ could also replace up to 20% of the high-end epoxy flooring/coating market.

Total Obtainable Market (TOM)

The Company sees a potential to capture 1% market share of the total $33 billion serviceable market worth $330 million in gross revenues.

The Global Polyurethane Market

According to 2005 industry estimates by IAL Consultants, the global PU market is a $30-35 billion industry with approximately 30.3 million tonnes of total production. North America currently dominates production with 8.2 million tonnes; Eastern Europe has 1.3 million tonnes of production; while the Middle East and Africa currently produce 1.7 million tonnes. IAL Consultants predict that China will overtake the U.S. in production by 2010. Growing from its current production of 6.4 million tonnes, China is likely to become the world leader in PU production as well as a significant consumer of PU based consumer goods.

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The Company estimates that 80% of the world market for PU based applications is a potential market for Green Polyurethane™ materials, in the form of PU based foam products, excluding certain foams produced at very low cost for furniture. Green Polyurethane™ could also replace up to 20% of the high-end epoxy flooring/coating market.

According to the Center for the Polyurethanes, the industry is generally broken up into the following segments:

  • Flexible Foam – used in bedding, furniture, automotive interiors, carpet underlay and packaging
  • Rigid Foam – energy-efficient and versatile insulation, which results in cutting fuel and construction costs while making commercial and residential properties safer, better utilized and more comfortable
  • Thermoplastic Polyurethane (TPU) – highly elastic, flexible and resistant to abrasion, impact and weather. TPU’s can be colored or fabricated in a wide variety of methods, and their use increases a product’s overall durability
  • Coatings, Adhesives, Sealants and Elastomers – coatings make a product more esthetic and durable; adhesives provide strong bonding advantages; sealants provide tighter seals; elastomers can be molded into almost any shape, are lighter than metal, offer superior stress recovery and can be resistant to many environmental factors and the Company hold licenses for the coatings segment and has options to license rights for the sealants and adhesives segment .

The World Coatings Market

According to the research company, Datamonitor, the global paints and coatings market generated total revenues of $71.7 billion in 2006 at a compound annual growth rate (CAGR) of 4.5% for the five year period 2002-2006 and is projected to accelerate, with an anticipated CAGR of 5.2% for the five-year period 2006-2011, reaching an expected market value of $92.5 billion by the end of 2011.

Market consumption volumes increased with a CAGR of 2.6% from 2002-2006 to reach a total of 29.4 million tonnes. Market volume is expected to rise to 35.5 million tonnes by the end of 2011, representing a CAGR of 3.9% for the period of 2006-2011. Higher percentage value gains over volume gains are the result of increasing improvements in the technology of paint formulation and delivery systems which have reduced wastage. In addition, average prices have been steadily increasing due to stronger prospects for higher quality, environmentally friendlier products such as powder-based and rad-cure coatings.

The Company’s current target market is the Industrial and Specialty Coatings segments, which represent a combined 54.1% of the total global PU coatings market or in value terms $38.8 billion.

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ITEM 1A. RISK FACTORS

Risks Related to Our Business, Products and the Green Polyurethane Industry

Risks Related to Hybrid Coating Technologies Inc.’s Business Operations

We have a limited operating history.

The Company was incorporated on July 8, 2010 and has limited or no operating history. As such historical operating results may not provide a meaningful basis for evaluating the business, financial performance and prospects. You should consider the Company’s business, operations and prospects in light of the risks, expenses and challenges faced as an early-stage company.

Our business, and therefore our results of operations and financial condition, may be adversely affected by the current disruption in the global credit markets and instability of financial systems.

The recent disruption in the global credit markets, the re-pricing of credit risk and the deterioration of the financial and real estate markets generally, particularly in the U.S. and Europe, have all contributed to a reduction in consumer spending and a decline in the overall U.S. and world economy. Although the recent disruptions were initially in the housing, financial and insurance sectors, this deterioration has further expanded to the general economy and various sectors. Tight credit, increased unemployment and reduced consumer confidence have had negative effects on demand in the consumer market and consequently for our product and service offerings. In addition, some economists are predicting that the U.S. economy, and possibly the global economy, has entered into a prolonged recession or even a depression as a result of the foregoing factors. Such a prolonged downturn in the U.S. or global economy could have a material adverse effect on our business in a number of ways, including lower product demand and lower sales, which could have a material adverse effect on our liquidity, results of operations and financial condition.

The intellectual property used by the Company has limited protection.

The process of seeking patent, industrial design and trademark protection can be time consuming and expensive and there can be no assurance that patents, industrial design registrations or trademark registrations will issue from future applications or that the existing intellectual property rights used by the Company or any new patents, industrial design registrations or trademark registrations that may be issued will be sufficient in scope or strength to provide meaningful protection or any commercial advantage. There can be no assurance that any pending or future patent, industrial design or trademark applications will be granted in respect of the technology used by The Company or that any existing, pending or future patents, industrial design registrations or trademark registrations will not be challenged, invalidated, ignored, circumvented or otherwise rendered unenforceable.

The Company’s future success depends on its ability to increase its client base and distribution channels

We will initially sell the Nanotech Products primarily to end-users within North America. If we are unable to successfully increase our client base and expand our distribution channels, our revenues and future prospects may be materially harmed. As we seek to grow our sales by entering new markets, our ability to increase market share and sales will depend substantially on our ability to expand our distribution channels by identifying, developing and maintaining relationships with manufacturers and distributors. We may be unable to enter into relationships with resellers in the markets we target or on terms and conditions favorable to us, which could prevent us from entering these markets at all or in accordance with our current plans. Our ability to enter into and maintain relationships with resellers will be influenced by factors beyond our control, including the relationships between these resellers and our competitors and market acceptance of our products.

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Our dependence on third party manufacturers for the manufacturing of all the Nanotech Products could prevent us from delivering our products to our customers within required timeframes, which could result in order cancellations and loss of market share.

We obtain all of the the Nanotech Products using third party manufacturers and assemblers and using materials and components procured from a limited number of third-party suppliers. If we fail to develop or maintain our relationships with these or other suppliers, we may be unable to manufacture our products or our products may be available only at a higher cost or after a long delay, which could prevent us from delivering our products to our customers within required time frames which may, in turn, result in order cancellations and loss of market share. The failure of a supplier to supply materials and components in a timely manner, or to supply materials and components that meet our quality, quantity and cost requirements could impair our ability to manufacture our products or increase their component costs, particularly if we are unable to obtain substitute sources of these materials and components on a timely basis or on terms acceptable to us.

Highly Competitive Industry

Many of the companies with which the Company will compete have significantly greater financial and other resources than the Company. Additionally, other companies which at present are not in competition with the Company may also enter into this industry, thereby directly competing with the Company.

Uncertain Acceptance and Maintenance Of Company Brand

The Company believes that the establishment and maintenance of a brand identified with the Company’s services is critical to attracting and expanding its customer base. While the Company is confident that its services and brand name(s) will provide an excellent foundation for developing brand awareness, no assurance can be given that such branding efforts will be successful. Promotion of brand awareness among users will depend, among other things, on the Company’s success in its marketing efforts and the usability of its services, none of which can be assured.

Significant Growth Places a Strain on Resources

If the Company is unable to manage growth effectively, business could be adversely affected. The Company expects to experience significant growth, both internally and through possible acquisitions and partnerships. This anticipated future growth may place a significant strain on its resources. As part of this growth, the Company will need to expand on its operational and financial systems, procedures and controls.

The Company may require additional capital in the future and no assurance can be given that such capital will be available at all or available on acceptable terms.

The Company does not currently generate sufficient revenue from operations to cover operating expenses and is not profitable. If the Company is not able to significantly increase operating revenue and achieve profitability, it may require additional equity or other means of debt financing to maintain business operations, fund expansions or complete strategic acquisitions. There can be no assurances that The Company will be able to obtain additional financial resources on favorable commercial terms or at all. Failure to obtain such financial resources could affect plans for sustainability and growth, or result in the Company being unable to satisfy obligations as they become due, either of which could have a material adverse effect on the Company’s business and financial condition.

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The Company has no history of significant profit and no assured foreseeable earnings.

The Company has no history of significant profit. The Company expects to continue to incur losses in the very near future, and there can be no assurance that it will ever be profitable as it expects operating expenses to increase as its client base and distribution channels are expanded. The Company’s ability to reach and sustain profitability depends on a number of factors including, but not limited to, the availability of financing and the continued availability of third party manufacturers.

The Company’s business depends substantially on the continuing efforts of its executive officers, and its business may be severely disrupted if the Company loses their services. In addition, if the Company is unable to attract, train and retain technical personnel, the Company’s business may be materially and adversely affected.

The Company’s future success depends substantially on the continued services of its executive officers. If one or more of the Company’s executive officers are unable or unwilling to continue being employed by us, the Company may not be able to replace them readily, if at all. Therefore, the Company’s business may be severely disrupted, and it may incur additional expenses to recruit and retain new officers.

Recruiting and retaining capable personnel is vital to the Company ’s success. If the Company is unable to retain and attract qualified employees, the Company’s business may be materially and adversely affected.

Our ability to increase market share and sales depends on our ability to successfully expand our distribution channels.

We will sell the Company Products to companies within North America. If we are unable to successfully expand our distribution channels and client base significantly, our revenues and future prospects will be materially harmed. As we seek to grow our sales by entering existing and new markets in some of which we have little experience selling coatings, adhesive and sealant products, our ability to increase market share and sales will depend substantially on our ability to expand our distribution channels by identifying, developing and maintaining relationships with resellers both within and outside of North America. We may be unable to enter into relationships with resellers in the markets we target or on terms and conditions favorable to us, which could prevent us from entering these markets or entering these markets in accordance with our plans.

The Company is delinquent in its payroll tax remittances.

The Company is delinquent on its state and federal payroll tax remittances. The State of California has issued a Notice of State Tax Lien against the property and rights owned by the Company covering interest and penalties for non-payment of payroll remittances.

Risks Related to the Common Stock

The Company may conduct further offerings in the future, in which case your shareholdings will be diluted.

Since inception, both the Registrant and the Company have relied on equity sales of Common Stock and issuances of convertible debt and warrants convertible or exercisable into shares of Common Stock to fund operations. The Registrant may conduct further equity and/or convertible debt offerings in the future to finance current projects or to finance subsequent projects that it decides to undertake. If Common Stock is issued in return for additional funds, or upon conversion or exercise of outstanding convertible debentures or warrants, the price per share could be lower than that paid by existing common stockholders. The Registrant anticipates continuing to rely on equity sales of Common Stock and issuances of convertible debt and/or warrants convertible or exercisable into shares of Common Stock in order to fund its business operations. If the Registrant issues additional shares of Common Stock, your percentage interest in the Registrant will be lower. This condition, often referred to as “dilution”, could result in a reduction in the per share value of your shares of Common Stock.

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The Company may exercise its American-European Option and additionally it’s Asia Option in the Licensing Agreement which will result in your shareholdings being significantly diluted.

On December 6, 2011, the Company notified the Licensor of its intent to exercise the Sealant Option. To date, the Company has not issued the sealant shares and the Sealant Option has expired.  The Company intends to renegotiate the Sealant Option in the future.

Should the Company exercise the American-European Option or also exercise the Asia Option, (as defined in the Licensing Agreement), this will result in a significant issuance of Common Stock in return for Perpetual Licensing Rights (as defined in the Licensing Agreement). This share issuance will also result in a change of control and NTI will own 52.5% of the Company’s outstanding Common Stock in return for the exercise of the American-European Option (and an additional 10% of the Company’s outstanding Common Stock in the event the Company also exercises the Asia Option). On December 6, the Company exercised its Sealant option which entitles NTI to 15% of the outstanding shares in the Company when effective. As a result, NTI will have substantial influence over all matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions such as mergers, tender offers and the sale of all or substantially all of the assets. The interests of NTI could conflict with or differ from your interests as a holder of common shares. For example, the concentration of ownership held by NTI could delay, defer or prevent a change of control of the Company or impede a merger, takeover or other business combination which you may view favorably.

The Registrant does not anticipate paying dividends in the future.

The Registrant’s current policy is to retain earnings to finance the development of new lines of products and to otherwise reinvest in our business. Therefore, the Registrant does not anticipate paying cash dividends in the foreseeable future. The Registrant’s dividend policy will be reviewed from time to time by the Board of Directors in the context of its earnings, financial condition and other relevant factors. Until the Registrant pays dividends, which it may never do, its shareholders will not be able to receive a return on shares of Common Stock unless they sell them.

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ITEM 2. DESCRIPTION OF PROPERTY

Description of Property

We do not own any real property or any rights to acquire any real property. Our head office is located at 950 John Daly Blvd. Suite 260, Daly City, CA 94015 . The lease is on a month to month basis, at $3,750 per month.

ITEM 3. LEGAL PROCEEDINGS

Litigation

There are no pending legal proceedings to which the Company is a party or to which any of our property is subject and to the best of our knowledge, no such actions against us are contemplated or threatened.

ITEM 4. MINE SAFETY DISCLOSURES

No applicable.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is quoted on the OTC Bulletin Board. Our shares were first traded on the OTC Bulletin Board on July 10, 2009 under the name “Allora Minerals, Inc.”, (OTCBB: ALRL). On August 12, 2009, the change of the Registrant’s name to Epod Solar Inc. was approved by the NASD, and we were issued the new trading symbol “EPDS”. On July 27, 2011 the Company changed its name to Hybrid Coating Technologies Inc. and on September 7, 2011 that change was approved by the Nevada Secretary of State and the Company was issued a new trading symbol “HCTI.ob”.

The following table indicates the high and low bid prices of our common stock obtained during the periods indicated:

  For the year ended For the year ended
  December 31, 2012 December 31, 2011
  High Low High Low
         
First Quarter $1.55 $0.26 $1.72 $0.15
         
Second Quarter $1.50 $0.18 $1.72 $0.95
         
Third Quarter $1.01 $0.20 $1.55 $1.05
         
Fourth Quarter $0.83 $0.25 $1.55 $1.05

The range of high and low price quotes of our common stock as set out in the table above is as quoted on the OTC Bulletin Board. The market quotations provided reflect inter-dealer prices, without retail markup, mark-down or commission and may not represent actual transactions.

The number of holders of record of our shares of our common stock, as of December 31, 2012 was 164.

Penny Stock Rules

The United States Securities and Exchange Commission (“SEC”) has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system; provided, that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and in such form as the SEC shall require by rule or regulation.

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The broker-dealer also must, prior to effecting any transaction in a penny stock, provide the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock that is not otherwise exempt from those rules, the broker-dealer must: (a) make a special written determination that the penny stock is a suitable investment for the purchaser; and (b) receive from the purchaser his or her written acknowledgement of receipt of the determination and a written agreement to the transaction.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock and therefore stockholders may have difficulty selling those securities.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.

Sale of Unregistered Securities

On August 30, 2010, the Company closed on the acquisition from Nanotech, a corporation formed pursuant to the laws of Nevada of all of the issued and outstanding shares of capital stock of Nanotech held by the holders of the Nanotech Shares. The purchase price for the Nanotech Acquisition consisted of 3,381,003 shares of common stock, $0.001 par value per share of the Registrant, issued to Nanotech Shareholders. In addition, certain shareholders of the Company agreed to have 1,028,000 of their shares cancelled as part of the transaction.

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ITEM 6. SELECTED FINANCIAL DATA

We are a “smaller reporting company” (as defined by Rule 12b-2 of the Exchange Act) and are not required to provide the information under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is designed to assist investors in understanding the nature and the importance of the changes and trends, as well as the risks and uncertainties associated with the Company’s operations and financial position. Some sections of this MD&A contain forward-looking statements that, because of their nature, necessarily involve a number of known and unknown risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. The Company’s actual and future results could therefore differ materially from those indicated or underlying these forward-looking statements. In evaluating these statements, you should consider various factors, including the risks discussed below, and, from time to time, in other reports filed by the Company with the SEC. See “Risk Factors” and “Special Note Regarding Forward Looking Statements”.

Although the Company deems the expectations reflected in these forward-looking statements to be reasonable, the Company cannot provide any guarantee as to the materialization of the expectations reflected in these forward-looking statements.

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Basis of Presentation

This MD&A on the Company’s operating results and cash flows for the fiscal year ended December 31, 2012 as well as its financial position at December 31, 2012, should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report.

Company Overview

Headquartered in Daly City, California, Hybrid Coating Technologies Inc.’s (formerly Epod Solar Inc.) (“HCT”) core business is that of its wholly-owned subsidiary, Nanotech Industries International Inc. (‘Nanotech”). This business is the manufacturing and sale of alternative non-toxic (isocyanate-free) polyurethane, Green Polyurethane™. The products manufactured and sold by Nanotech (“Nanotech Products”) include coatings and raw binder ingredients (Green Polyurethane® Monolithic Floor Coating and Green Polyurethane™ Binder). Nanotech was granted the right to manufacture and sell the Nanotech Products pursuant to an agreement (“Licensing Agreement”) entered into between Nanortech and NTI (Nanotech Industries Inc.) the holder of the proprietary rights to the license and intellectual property required for the manufacturing of the Nanotech Products. The Nanotech Products will target the coatings, adhesives, sealants and elastomers (“C.A.S.E.”) market in North America, with options to sell in Europe, South America and Asia, pursuant to the terms of the Licensing Agreement. (see Note 4 to consolidated financial statements and Item 1 –Description of Business) .

Off-Balance Sheet Arrangements

During the fiscal year ended December 31, 2012, the Company had no off-balance sheet arrangements.

Development Stage Company

The Company complies with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 “Development Stage Entities” in its characterization of the Company as a development stage enterprise.

Going Concern

The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of $10,977,400 since inception. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support The Company’s working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available the Company may be required to curtail its operations.

Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow

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Operating Results for the Fiscal Year Ended December 31, 2012 and 2011

Results of Operations

We have had no significant operating revenues for the period from our inception on July 8, 2010 through our fiscal year ended December 31, 2012, save for samples sales of $71,512. Our activities to date have been financed from the proceeds of share subscriptions, proceeds from convertible debentures issued and from loans from related and other parties and trade payables. During the year ended December 31, 2012, revenues from our operations were $66,642 compared to $4,870 for the year ended December 31, 2011.

For the period from inception on July 8, 2010 through our fiscal year ended December 31, 2012, we incurred total net expenses of $11,048,912 including non-cash charges of $4,511,551 from stock-based compensation, intangible asset amortization of $491,120, amortization of debt discounts of $714,506, interest expenses of $1,715,878, loss on extinguishment of debt of $102,467, loss on impairment of intangible assets of $631,917, a gain in the fair value of the derivative liability of $438,428. Also incurred were other general and administrative expenses of $2,276,603, cost of sales of $31,700 and other interest expense of $1,011,598.

General and administrative expenses totaled $1,608,055 for the year ended December 31, 2012, as compared to $2,104,639 for the year ended December 31, 2011, representing a 24% decrease from the prior corresponding period. Included in general administrative expenses for the year ended December 31 are the following:

    Year Ended December 31        
    2012     2011     % change  
Professional Fees $  452,559   $  649,481     (30% )
Payroll   414,939     388,159     7%  
Stock-based compensation (non-cash)   390,580     751,337     (48% )
Rent and general office costs   113,790     161,353     (29% )
Lab fees and supplies   87,809     40,285     118%  
Travel and trade shows   148,378     114,024     30%  
                   
Total $  1,608,055   $  2,104,639     (24% )

Amortization and depreciation was $218,580 for the year ended December 31, 2012 compared to $194,583 in the year ended December 31, 2011. The Company recorded an impairment of the License assets of $631,917 in the year ended December 31, 2011. There was no impairment recorded in the year ended December 31, 2012.

During the year ended December 31, 2012, we recorded a gain of $360,461 on the change in fair value of derivative liabilities related to our convertible notes payable, compared to a gain of $77,787 during the year ended December 31, 2011. The change in derivative liability has no impact on our cash flows for operations and was primarily a result of the decrease in our stock price during the years ended December 31, 2012 and 2011, respectively.

During the year ended December 31, 2012, we recorded $799,374 in interest expense compared to $1,733,359 during the year ended December 31, 2011. During the year ended December 31, 2011, we incurred a $1,179,886 interest charge related to the modification of warrants issued in connection with our Senior Secured Convertible Debentures.

During the year ended December 31, 2012, we recorded a loss on the extinguishment of debt in the amount of $22,750 compared to $79,717 during the year ended December 31, 2011.

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Liquidity and Capital resources

We had zero cash balances at December 31, 2012 and 2011. The Company had a working capital deficit of $3,784,346 as of December 31, 2012. We do not have enough cash on hand to commence operations. We believe that we will need approximately $1,500,000 to fund our operations over the next 12 months.

The ability of the Company to continue its operations is dependent on the successful execution of management’s plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company’s existence.

From our inception we raised $25,000 through an exercise of warrants at $0.40 per share for 62,500 shares. We issued 100,000 shares for fair value services rendered with respect to media relations of $135,000 in the fourth quarter of 2010. We issued Senior Secured Convertible Debentures for $400,000 on August 16, 2010. We raised an additional $75,000 and $72,600 from short-term loans in the 4th quarter of 2010.

In April 2011, the Company raised $1,201,000 in convertible debentures, with an individual face value of $5,000, a maturity of 36 months and a coupon rate of 10% per annum payable in cash or capital stock at the Company’s discretion. Each debenture shall be convertible (using a conversion factor of 1.4) into 3,571 Units of the Company where each Unit (at a price of $1.40 per Unit) , comprises of 1 share of common stock at and one half a stock purchase warrant of the Company with an exercise price of $2.00 per full unit and a maturity of 36 months. Warrants are exercisable at the option of the holder at any time prior to maturity. The Debentures shall carry an anti-dilution provision if the total outstanding shares exceed 9,250,000 shares.

On February 21, 2012, the Company raised an additional $119,500 in similar conditions as the ones above except for a conversion price of $1.45 per unit and a warrant exercise price of $2.10.

In 2011, the Company received $894,000 in short term loans from shareholders and repaid $315,200.

In 2012, the Company received approximately $1,566,000 (approximate $765,000 from related parties) in short term loans and repaid approximately $449,000.

Principal Cash Flows for the Fiscal Year Ended December 31, 2012

Operating activities used cash flows of $790,954. Net change in operating assets and liabilities generated cash flows of $533,761. This increase in use of cash relates primarily to the net loss incurred during 2012 after adjusting for non-cash expenses.

Financing activities provided cash flows of $790,954, primarily as a result of receipt of funds for the issuance of $119,500 in convertible debentures, $765,296 in shareholder loans and $681,500 in loan payable-related party. In addition, the Company repaid $326,350 of the note payable - related party, and repaid $448,992 on loans payable - shareholders.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Convertible Debt

The fair market value of our 10% senior secured convertible debentures is subject to interest rate risk, market price risk and other factors due to the convertible feature of the debentures. The fair market value of the debentures will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the debentures will generally increase as the market price of our common stock increases and decrease as the market price falls. The interest and market value changes affect the fair market value of the debentures but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Hybrid Coatings Technology Inc.
(A Development Stage Company)

Consolidated Financial Statements
December 31, 2012

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Hybrid Coatings Technology Inc.
(A Development Stage Company)

Consolidated Financial Statements

Contents

Reports of Independent Registered Public Accounting Firms F-1
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statement of Stockholder’s Deficit F-5
   
Consolidated Statements of Cash Flows F-8
   
Notes to Consolidated Financial Statements F-11


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
Hybrid Coating Technologies, Inc.
(A Development Stage Company)
Daly City, CA

We have audited the accompanying consolidated balance sheet of Hybrid Coating Technologies, Inc. as of December 31, 2012 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended and the period from July 8, 2010 (inception) to December 31, 2012. Hybrid Coating Technologies, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements for the period from July 8, 2010 (inception) through December 31, 2011 were audited by other auditors whose report expressed an unqualified opinion on those financial statements. The consolidated financial statements for the period from July 8, 2010 (inception) through December 31, 2011 include total revenues of $4,870 and a net loss of $8,728,044. Our opinion on the consolidated financial statements for the period from July 8, 2010 (inception) through December 31, 2012, insofar as it relates to amounts from July 8, 2010 (inception) through December 31, 2011, is based solely on the report of other auditors.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hybrid Coating Technologies, Inc. as of December 31, 2012, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that Hybrid Coating Technologies, Inc. will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, Hybrid Coating Technologies, Inc. has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GBH CPAs, PC

GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
April 16, 2013

F-1


Report of Independent Registered Public Accounting Firm

To the Board of Directors of
Hybrid Coating Technologies Inc.
(A Development Stage Company)

We have audited the accompanying balance sheets of Hybrid Coating Technologies Inc. (the “Company”) as of December 31, 2011, and the related statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2011 and period from July 8, 2010 (inception) to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2011 and the period from July 8, 2010 (inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its operations raise substantial doubt about its ability to continue as a going concern. The 2011 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP
Houston, Texas
may 10, 2012

F-2


Hybrid Coatings Technology Inc.
(A Development Stage Company)
Consolidated Balance Sheets
As of December 31, 2012 and 2011

    December 31     December 31  
ASSETS   2012     2011  
             
Current assets            
Samples and supplies $  -   $  37,836  
 Total current assets   -     37,836  
             
Intangible asset, net of accumulated amortization   626,963     845,543  
             
TOTAL ASSETS $  626,963   $  883,379  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
             
Current liabilities            
Bank overdraft $  22,104   $  40,013  
Accounts payable and accrued liabilities   435,245     293,214  
Accounts payable and accrued liabilities-related parties   554,633     172,695  
Stock payable   15,000     -  
Senior secured convertible debentures, net of unamortized discounts of $0 and $21,566, respectively   200,000     178,434  
Loans payable, net of unamortized discount of $14,638 and $0, respectively   694,362     27,500  
Loans payable – shareholders, net of unamortized discounts of $25,194 and $30,632, respectively   1,062,521     697,568  
Note payable – related party   800,481     1,126,831  
 Total current liabilities   3,784,346     2,536,255  
Convertible debentures, net of unamortized discount of $325,136 and $461,225, respectively   995,364     739,775  
Derivative liability   166,721     480,461  
             
Total liabilities   4,946,431     3,756,491  
             
Commitments and contingencies            
             
STOCKHOLDERS’ DEFICIT            
             
Common stock, $0.001 par value, 75,000,000 shares authorized, 6,503,568 shares and
         5,816,733 shares issued and outstanding, respectively
  6,504     5,817  
Additional paid-in capital   6,651,428     5,849,115  
Deficit accumulated during development stage   (10,977,400 )   (8,728,044 )
Total stockholders’ deficit   (4,319,468 )   (2,873,112 )
             
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $  626,963   $  883,379  

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

F-3


Hybrid Coatings Technology Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended December 31, 2012 and 2011
and the Period from July 8, 2010 (Inception) through December 31, 2012

    Year ended     Year ended     July 8, 2010 (inception)
    December 31, 2012     December 31, 2011     through December 31, 2012  
                   
Revenues $  66,642   $  4,870   $  71,512  
Cost of sales   27,700     4,000     31,700  
                   
Gross-margin   38,942     870     39,812  
Operating expenses                  
 General and administrative   1,608,055     2,104,639     7,502,480  
 Impairment of intangible asset   -     631,917     631,917  
 Amortization of intangible asset   218,580     194,583     491,120  
Total operating expenses   1,826,635     2,931,139     8,625,517  
 Loss from operations   (1,787,693 )   (2,930,269 )   (8,585,705 )
Other income (expense)                  
 Loss on extinguishment of debt   (22,750 )   (79,717 )   (102,467 )
 Change in fair value of derivative liability   360,461     77,787     438,248  
 Interest expense   (799,374 )   (1,733,359 )   (2,727,476 )
Net loss $  (2,249,356 ) $  (4,665,558 ) $  (10,977,400 )
                   
Basic and diluted net loss per common share $  (0.36 )   (0.85 )      
Basic and diluted weighted average number of common shares outstanding   6,316,699     5,501,026      

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

F-4


HybridCoatings TechnologyInc.
(A Development Stage Company)
Statement of Stockholder’s Deficit
For the Period July 8, 2010 (Inception) through December 31, 2012

                      Deficit        
                      Accumulated        
                      During the        
    Number of           Additional     Development        
    Shares     Amount     paid-in capital     Stage     Total  
       Issued      $      $     $      $  
                               
                               
Balance , July 8, 2010   -   $  -   $  -   $  -   $  -  
Issuance of Founders’ shares for services rendered   3,381,003     3,381     334,719           338,100  
                               
Fair value of warrants granted on July 8- re-valued on August 30   -     -     2,047,471     -     2,047,471  
Fair value of warrants granted on July 14- re-valued on August 30   -     -     849,063     -     849,063  
Exchange of shares for 33,810,035 shares of Nanotech Industries Int’l Inc.   1,821,000     1,821     (1,821 )   -     -  
                               
Issuance of shares for services rendered   100,000     100     134,900     -     135,000  
                               
Beneficial conversion feature on Senior Secured Convertible Debenture   -     -     126,607     -     126,607  
                               
Valuation of warrants issued   -     -     273,393     -     273,393  
                               
Exercise of warrants for cash on July 30, 2010 - 62,500 shares at $0.40 per share   -     -     25,000     -     25,000  
                               
Net loss during the development stage   -     -     -     (4,062,486 )   (4,062,486 )
Balance, December 31, 2010   5,302,003   $  5,302   $  3,789,332   $  (4,062,486 ) $  (267,852 )

(Continued on next page)

F-5



Issuance of shares as payment for consulting fees on February 9, 2011   30,000     30     50,970     -     51,000  
                               
Valuation of warrants issued with Loans payable shareholders   -     -     48,710     -     48,710  
                               
Remeasurement of warrants July 14, 2010 and Series A warrants   -     -     1,179,886     -     1,179,886  
                               
Issuance of shares as payment for consulting fees on May 16, 2011   112,928     113     175,925     -     176,038  
                               
Fair value of 25,000 warrants issued with loans payable shareholders - May 24, 2011   -     -     15,450     -     15,450  
                               
Issuance of shares as payment for consulting fees on June 2, 2011   58,000     58     89,842     -     89,900  
                               
Issuance of shares for services rendered on June 15, 2011   20,000     20     30,980     -     31,000  
                               
Fair value of 25,000 warrants issued with loans payable shareholders - July 15, 2011   -     -     27,915     -     27,915  
                               
Issuance of shares for services rendered on September 6, 2011   40,000     40     59,560     -     59,600  
                               
Replacement of outstanding pre-merger shares on September 7, 2011   30,500     31     (31 )   -     -  
                               
Issuance of shares for services rendered on September 7, 2011   10,000     10     14,390     -     14,400  
                               
Issuance of shares for services rendered on September 9, 2011   2,000     2     2,878     -     2,880  
                               
To record shares to be issued with loans payable shareholders   -     -     36,000     -     36,000  
                               
Issuance of shares for services rendered on October 31, 2011   27,302     27     42,291     -     42,318  
                               
Issuance of shares for services rendered on November 9, 2011   184,000     184     285,016     -     285,200  
                               
Net loss during the development stage   -     -     -     (4,665,558 )   (4,665,558 )
                               
Balance, December 31, 2011   5,816,733   $  5,817   $  5,849,115   $  (8,728,044 ) $  (2,873,112 )

(Continued on next page)

F-6



Issuance of shares for services rendered on January 31, 2012   18,000     18     26,982     -     27,000  
                               
Fair value of 30,000 warrants issued for services rendered - February 16, 2012   -     -     29,136     -     29,136  
                               
Fair value of 230,000 warrants issued for services rendered - February 23, 2012   -     -     239,269     -     239,269  
                               
Issuance of shares for services rendered - March 5, 2012   51,000     51     66,249     -     66,300  
                               
Issuance of shares with loans payable to shareholders - March 5, 2012   10,000     10     12,990           13,000  
                               
Issuance of shares for interest and premium on loan - March 5, 2012   90,000     90     92,910     -     93,000  
                               
Issuance of shares for cashless exercise of 220,000 warrants on loan - March 23, 2012   205,135     205     (205 )   -     -  
                               
Issuance of shares for interest on convertible debentures - May 21, 2012   240,200     240     119,860     -     120,100  
                               
Issuance of shares for services rendered - May 21, 2012   50,000     50     16,450     -     16,500  
                               
Issuance of shares for services rendered - August 15, 2012   22,500     23     12,352     -     12,375  
                               
Imputed interest on note payable – related party   -     -     169,452     -     169,452  
                               
Valuation of warrants issued with loans payable - shareholders   -     -     16,868     -     16,868  
                               
Net loss during the development stage   -     -     -     (2,249,356 )   (2,249,356 )
                               
Balance, December 31, 2012   6,503,568   $  6,504   $  6,651,428   $  (10,977,400 ) $  (4,319,468 )

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

F-7


Hybrid Coatings Technology Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011 and the Period from July 8, 2010 (Inception) through December 31, 2012

    Year ended     Year ended     July 8, 2010 (inception)  
    December 31, 2012     December 31, 2011     through December 31, 2012  
CASH FLOWS FROM OPERATING ACTIVITIES                  
Net loss $  (2,249,356 ) $  (4,665,558 ) $  (10,977,400 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                  
 Stock-based compensation   390,580     751,337     4,511,551  
 Impairment of samples and supplies   10,136     -     10,136  
 Interest paid through issuance of shares   213,100     -     213,100  
 Amortization of intangible asset   218,580     194,583     491,120  
 Interest expense from revaluation of SSCD warrants   -     1,180,886     1,180,886  
 Interest expense on beneficial conversion feature related to SSCD warrants   -     -     126,607  
 Interest imputed on notes payable – related party   169,452     -     169,452  
 Loss on extinguishment of debt   22,750     79,717     102,467  
 Loss on impairment of intangible assets   -     631,917     631,917  
 Change in fair value of derivative liability   (360,461 )   (77,787 )   (438,248 )
 Incentive and interest paid on prepayment of debt   -     25,833     25,833  
 Amortization of debt discounts   260,505     402,740     714,506  
Change in operating assets and liabilities                  
 Samples and supplies   27,700     (37,836 )   (10,136 )
 Accounts payable and accrued liabilities   142,031     234,825     449,412  
 Accounts payable and accrued liabilities related parties   381,938     172,695     554,633  
 Bank overdraft   (17,909 )   40,013     22,104  
Net cash used in operating activities   (790,954 )   (1,066,635 )   (2,222,060 )
                   
CASH FLOWS FROM INVESTING ACTIVITIES                  
                   
Proceeds from sale of intangible asset   -     150,000     150,000  
Net cash provided in investing activities   -     150,000     150,000  

(CONTINUED ON NEXT PAGE)

F-8


Hybrid Coatings Technology Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011 and the Period from July 8, 2010 (Inception) through December 31, 2012

    Year ended     Year ended     July 8, 2010(inception)   
    December 31,     December 31,     through December 31,  
    2012     2011     2012  
                   
CASH FLOWS FROM FINANCING ACTIVITIES                  
                   
Proceeds from issuance of convertible debentures   119,500     851,000     970,500  
Proceeds from issuance of Senior Secured Convertible Debentures   -     -     400,000  
Proceeds from exercise of warrants   -     -     25,000  
Proceeds from loans payable - shareholders   765,296     894,000     1,731,896  
Repayments from loans payable - shareholders   (448,992 )   (315,200 )   (764,192 )
Proceeds from loans payable   681,500           758,375  
Repayments of note payable - related party   (326,350 )   (516,359 )   (1,049,519 )
                   
Net cash provided by financing activities   790,954     913,441     2,072,060  
                   
                   
INCREASE (DECREASE) IN CASH   -     (3,194 )   -  
                   
CASH, BEGINNING   -     3,194     -  
CASH, ENDING $  -   $  -   $  -  

(CONTINUED ON NEXT PAGE)

F-9


HybridCoatings TechnologyInc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011 and the Period from July 8, 2010 (Inception) through December 31, 2012

    Year ended     Year ended     July 8, 2010 (inception)   
    December 31,     December 31,     through December 31,  
    2012     2011     2012  
                   
Supplemental disclosure of cash flow information                  
 Cash paid during the period for:                  
   Interest paid $  83,440   $  6,000   $ 89,440  
   Income taxes $  -   $  -   $  -  
                   
 Non-cash financing transactions:                  
   Acquisition of intangible asset through issuance of note payable $  -   $  1,400,000   $  1,900,000  
   Discount arising from warrants attached to issuance of SSCD $  -   $  -   $  273,393  
   Discount arising from loans payable - shareholders $  -   $  92,075   $ 92,075  
   Transfer of loans and SSCD to convertible debentures $  -   $  310,000   $  310,000  
   Reclassification of accrued interest to SSCD $  -   $  14,167   $  14,167  
   Shares issued for premium on shareholder loans $  28,000   $  36,000   $  64,000  
   Discount arising from loans payable – shareholders $  16,868   $  -   $  16,868  
   Fair value of derivative convertible debentures $  46,721   $  558,248   $  604,969  
   Cashless exercise of warrants $  205   $  -   $  205  

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

F-10


Hybrid Coatings Technology Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

NOTE 1 – NATURE OF BUSINESS AND GOING CONCERN

Nature of Business Overview
Hybrid Coating Technologies Inc. (the “Company”, “HCT”), was incorporated in the State of Nevada on July 8, 2010.

On July 27, 2011, the Company by majority vote of shareholders amended its articles of incorporation to change its name to Hybrid Coating Technologies Inc. from EPOD Solar Inc. (EPOD). Further, the name change was approved by the Nevada Secretary of State on September 7, 2011, and the Company’s OTC Bulletin Board trading symbol has been changed to HCTI.ob.

On August 30, 2010, the Company acquired from Nanotech Industries International Inc. ("Nanotech"), a corporation formed pursuant to the laws of Nevada on July 8, 2010, all of the issued and outstanding shares of capital stock of Nanotech ("Nanotech Shares") held by the holders of the Nanotech Shares ("Nanotech Shareholders") (the "Acquisition"). The purchase price for the Acquisition consisted of 3,381,003 shares of common stock, $0.001 par value per share (the " EPOD Common Stock") of the Registrant, issued to Nanotech Shareholders. Nanotech is the surviving and continuing entity and the historical financials following the reverse merger transaction will be those of Nanotech. As a result of such acquisition, our operations are now focused on the manufacturing and sale of Green Polyurethane™, including Green Polyurethane™ Monolithic Floor Coating and Green Polyurethane™ Binder, an alternative non-toxic (isocyanate-free) polyurethane.

Going Concern
The Company also remains highly dependent upon funding from non-operational sources. The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses of approximately $11,000,000 since inception, and has a working capital deficit of approximately $3,800,000 as of December 31, 2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support The Company’s working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available the Company may be required to curtail or cease its operations.

F-11


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company’s fiscal year end is December 31.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Nanotech. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.

Development StageThe Company complies with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 915 “Development Stage Entities” in its characterization of the Company as a development stage enterprise.

Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Cash and Cash EquivalentsThe Company maintains various cash balances in one financial institution located in Daly City, California. These balances are fully insured by the Federal Deposit Insurance Corporation, which insures up to $250,000. On occasion, balances may temporarily exceed such coverage. The Company considers all highly liquid debt instruments, which could include commercial paper and certificates of deposits, with an original maturity of three months or less to be cash equivalents. Investments with maturities greater than three months and less than on year are classified as short term investments.

Inventories - Inventories are valued at the lower of cost or market. The cost is determined by using the average cost method.

Intangible Assets - Intangible assets are comprised of intellectual property which is amortized on a straight-line basis over the assets’ respective life, 36 months, 60 months and 120 months. Intellectual property with a perpetual life in not amortized.

Impairment of Long-Lived Assets Long-lived assets to be held and used are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. The determination of recoverability of long-lived assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset or its disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or net realizable value.

Revenue RecognitionRevenue is recognized when persuasive evidence of an arrangement exists, goods are delivered, sales price is determinable, and collection is reasonably assured.

F-12


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Income TaxesIncome taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes. Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets are also provided for certain tax loss carryforwards and tax credit carryforwards. A valuation allowance is established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As long as the Company is categorized as a development stage company, the net amount of any potential deferred tax assets will be off-set by such valuation allowance. Deferred income taxes are measured using the enacted tax rates that are assumed will be in effect when the asset and liability basis differences reverse and/or when the tax loss carryforwards and tax credit carryforwards are utilized.

A tax benefit from an uncertain position is recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2012 and 2011, the Company had not recorded any tax benefits from uncertain tax positions.

Fair ValueASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

As of December 31, 2012 and 2011, the significant inputs to the Company’s derivative liability calculation were Level 3 inputs.

Stock-Based CompensationFor stock and stock options awarded in return for services rendered, the expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.

F-13


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Earnings (Loss) per Share - Basic net loss per share amounts are computed by dividing the net loss by the weighted average number of common shares outstanding over the reporting period. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted net loss per share amounts as the effect would be anti-dilutive.

For the years ended December 31, 2012 and 2011, the following convertible debt and warrants to purchase shares of common stock were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive:

    Year Ended December 31,  
    2012     2011  
Convertible debt   1,206,936     1,124,523  
Stock warrants   3,385,735     2,587,856  
    4,592,671     3,712,379  

Recently Issued Accounting Pronouncements The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

Subsequent Events – The Company has evaluated all transactions occurring between the year ended December 31, 2012, and through the date of issuance of the consolidated financial statements for disclosure consideration.

NOTE 3– INTANGIBLE ASSETS

On July 12, 2010, the Company entered into a licensing agreement (the “Licensing Agreement”) with Nanotech Industries, Inc., (“NTI”, a privately-held entity deemed a related party by virtue of common ownership and control), for the rights to manufacture and distribute environmentally safe coatings (“Coating Products”) using NTI’s technology. As per the Licensing Agreement, the Company has a three-year exclusivity for all of North America and has the option to obtain rights for the rest of the world on an exclusive perpetual basis, in exchange for the issuance of stock to equal 62.5% of the Company’s total shares. If this option is exercised, NTI would obtain voting control of the Company.

F-14


As part of this Licensing Agreement, the Company agreed to pay NTI a one-time licensing fee of $500,000 and a 5% royalty on gross Coating Product sales within North America. The $500,000 cost basis of capitalized license rights (“North American Rights”) is being amortized over a three-year life. On November 22, 2011, the Company sold the Canadian portion of its North American Rights for $150,000 to a related party; Hybrid Coatings Canada Inc., a company whose CEO is a shareholder of, and consultant to, the Company. The proceeds of the sale were recorded as a reduction of the carrying value of the asset, with no gain or loss.

At December 31, 2012 and 2011, management determined, through independent valuation, that the fair value of the North American Rights exceeded the carrying value and no impairment adjustment was deemed necessary. The amount of amortization of the North American Rights for the years ended December 31, 2012 and 2011 was $73,080 and $162,500, respectively.

On March 17, 2011 the Company and NTI amended the Licensing Agreement to now include the territory of the Customs union of Belorussia, Kazakhstan Republic and Russian Federation (the “Russian Territory”), on an exclusive basis for a period of ten years from the date of the signing of this amendment. In exchange for the right to manufacture and sell Coating Products in the Russian Territory (“Russian Rights”), the Company shall pay to the Licensor an ongoing royalty of 7.5%, and a one-time royalty fee of $150,000 (paid during 2011). These capitalized license rights will be amortized over a ten-year period. The amount of amortization for the years ended December 31, 2012 and 2011 was $4,800 and $11,250, respectively. At December 31, 2011, the fair value, through independent valuation of the Russian Rights was determined to be $44,000. As this was determined to be a permanent impairment in value the carrying value of the Russian Rights was reduced by $94,750 and the associated loss was recorded. At December 31, 2012 management determined, through independent valuation, that the fair value of the Russian Rights exceeded the carrying value and no further impairment adjustment was deemed necessary.

On July 7, 2011, a second amendment was made to the Licensing Agreement granting the Company an option (the “Option”) for a period of six months from the signing of this amendment to manufacture and sell Coating Products in the territory of the European Continent (“European Rights”) on an exclusive basis for a period of five years from the date the option is exercised, after which time the European Rights shall continue perpetually on a non-exclusive basis. Upon exercise of this Option, the Company shall pay to the Licensor a one-time royalty fee of $1,250,000 payable within 24 months of the exercise of the Option. On November 29, 2011, the Company exercised the Option, the financing for which was provided by NTI and is recorded in notes payable – related party. The Company has repaid $449,519 to Nanotech related to the option as of December 31, 2012. The license rights shall be amortized over a five year period.

At December 31, 2011, management determined, through independent valuation, the fair value of the European Rights was $692,000, requiring an impairment charge of $537,167. At December 31, 2012, management determined, through independent valuation, that the fair value of the European Rights exceeded the carrying value and no further impairment adjustment was deemed necessary. The Company recorded $140,700 and $20,833 of amortization expense for the years ended December 31, 2012 and 2011, respectively.

On October 18, 2011, the Company and NTI entered into a second Licensing Agreement (“Second Licensing Agreement”) granting the Company an option (“Sealant Option”) to be exercised within six months of the signing of the Second Licensing Agreement, for the manufacturing and sale of environmentally safe adhesives and sealants (“Sealant Products”), for the following:

F-15


  1.

The Company shall issue to NTI a one-time licensing fee (“Sealant Shares”), an aggregate number of shares of the Company’s restricted common stock which shall give NTI, immediately upon such issuance of shares, an incremental 15% (fifteen percent) ownership stake in the Company.

     
  2.

The Company shall pay to NTI a royalty of 7.5% (seven and one half percent) of gross revenue from the sale of the Sealant Products for the duration of the agreement.

On December 6, 2011, the Company notified NTI of its intent to exercise the Sealant Option. To date, the Company has not issued the Sealant Shares and the Sealant Option has expired. The Company intends to renegotiate the Sealant Option once the Company has determined it has commercial viability.

A summary of the licenses acquired to date from NTI is as follows:

        Carrying
        Value at
License Rights   Term (date) of  Original December 31,
Overview Licensed Region License cost 2012
A Coating Products
North America
June 12, 2010
3 years
$500,000
$36,463
B Coating Products
Russian Territory
March 17, 2011
10 years
$150,000
$39,200
C Coating Products
European Continent
July 7, 2011
5 years
$1,250,000
$551,300

Intangible assets activity is as follows for the years ended December 31, 2012 and 2011:

    2012     2011  
             
Net intangible asset, beginning of year $  845,543   $  422,043  
     Purchases   -     1,400,000  
     Sale   -     (150,000 )
     Impairment   -     (631,917 )
     Less: current amortization   (218,580 )   (194,583 )
Net intangible asset, end of year $  626,963   $  845,543  

The balance of intangible assets is as follows as of December 31, 2012 and 2011:

    2012     2011  
Intangible assets $  1,118,083   $  1,118,083  
Less, accumulated amortization   (491,120 )   (272,540 )
Intangible assets, net $  626,963   $  845,543  

F-16


NOTE 4–LOANS PAYABLE

Loans payable include a loan from a non-related party that was issued for $75,000 on November 16, 2010 and was repayable on May 16, 2011 with a 10% premium. This $7,500 premium has been amortized and on April 29, 2011, the lender converted $55,000 of this debt to convertible debentures. The balance at December 31, 2012 and 2011 was $27,500, and the loan is currently in default. The Company has not received any notices from the loan holders with respect to the defaults.

During the year ended December 31, 2012, the Company entered into various short term loans with different terms totaling $681,500 with interest payable monthly at interest rates ranging from 15% to 25% per annum. Some loans incur a penalty of up to 60% of the monthly interest if the interest is not paid on time. During the year, the Company accrued approximately $47,500 in interest and penalties of which $31,100 was paid. Through the date of issuance of these consolidated financial statements, the Company has defaulted on four of these loans totaling $183,500; $19,000 maturing on October 1, 2012, $94,500 on January 13, 2013, $50,000 on March 1, 2013 and $20,000 on April 3, 2013. The Company has not received any notices from the loan holders with respect to the defaults.

During the year ended December 31, 2012, the Company issued 50,000 warrants related to a $150,000 loan payable. The fair value of the 50,000 warrants issued in conjunction with the debt issued in 2012 amounted to $19,005 using the assumptions discussed in the table below. This resulted in a relative fair value of $16,668 which was recorded as a debt discount. The discount is amortized over the life of the associated loan payable. Interest expense of $2,230 was recorded from amortization of the debt discount, resulting in an unamortized discount of $14,438 at December 31, 2012.

Expected volatility 166.04%
Exercise price $0.50
Stock price $0.50
Expected life 2 years
Risk-free interest rate 0.25%
Dividend yield $ Nil

NOTE 5 – LOANS PAYABLE –SHAREHOLDERS

A shareholder loaned the Company money to pay for Company expenses. The loans are non-interest bearing and unsecured, with no specific terms of repayment or collateral. During the years ended December 31, 2012 and 2011, the shareholder loaned the Company $177,866 and $60,000, respectively. The Company made repayments in the amounts of $117,502 and $45,200 during the years ended December 31, 2012 and 2011, respectively. The balance of the amounts owed to the shareholder at December 31, 2012 and 2011 was $147,764 and $87,400, respectively.

On January 17, 2011, the Company received a loan of $50,000 with a $10,000 premium due at maturity on April 30, 2011. The premium has been expensed to interest. The balance due at December 31, 2012 and 2011 was $60,000 and the loan is currently in default.

On January 21, 2011, the Company entered into a loan with a shareholder for $100,000 to be repaid by May 21, 2011. The loan has a $10,000 premium payable at maturity and includes 10,000 warrants with a maturity of 24 months at an exercise price of $1.72. During the year ended December 31, 2011, the Company paid $85,000. The balance at December 31, 2012 and 2011 was $25,000 and the loan is currently in default.

F-17


On March 2, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $50,000 to be repaid by the maturity date of May 2, 2011. The loan had a $3,000 premium payable at a maturity and included 50,000 warrants with a maturity of 24 months at an exercise price of $1.48 per share. In the event of default, the shareholder will receive an additional 50,000 warrants with a maturity of 24 months and an exercise price of $1.48. During the year ended December 31, 2011, the Company paid $53,000 and the balance at December 31, 2012 and 2011 was $0.

On March 8, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder had agreed to loan the Company $50,000 to be repaid by the maturity date of May 8, 2011. The loan had a $3,000 premium payable at a maturity and included 30,000 warrants with a maturity of 24 months at an exercise price of $1.48 per share. In the event of default, the shareholder will receive an additional 30,000 warrants with a maturity of 24 months and an exercise price of $1.48. During the year ended December 31, 2011, the Company paid $53,000 and the balance at December 31, 2012 and 2011 was $0.

On May 24, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder has agreed to loan the Company $50,000 to be repaid by the maturity date of August 24, 2011. The loan had a $5,000 premium payable at maturity and included 25,000 warrants with a maturity of 24 months at an exercise price of $1.48 per share. In the event of default, the shareholder will receive an additional 50,000 warrants with a maturity of 24 months and an exercise price of $1.48 per share. The shareholder had an option to convert this loan into future convertible debentures. During the year ended December 31, 2011, the Company paid $55,000 and the balance at December 31, 2012 and 2011 was $0.

On June 16, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $60,000 to be repaid by the maturity date of October 16, 2011. The loan had a $6,000 premium payable at maturity that was charged to interest expense. The Company has pledged security in the form of 60,000 shares of the Company. In the event of default, the shareholder has the option to retain the 60,000 shares instead of payment of the $66,000 liability. The lender has granted an extension until June 16, 2013. The balance at December 31, 2012 and 2011 was $66,000.

On July 15, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $100,000 to be repaid by the maturity date of October 15, 2011. The loan had a premium of $20,000 payable at maturity and included 25,000 warrants with a maturity of 24 months at an exercise price of $1.48 per share, which the Company has amortized over the three month term and expensed as interest. In the event of default, the shareholder will receive 30,000 warrants with a maturity of 24 months and an exercise price of $1.48 per share. The Company repaid $24,000 of the loan during the year ended December 31, 2011. On November 4, 2011, the lender has granted the Company an extension of the maturity date until June 29, 2012 for an additional $8,750 in interest payable at maturity. The balance at December 31, 2011 was $96,000. On July 1, 2012, the Company entered into a new loan agreement with the shareholder to extend the maturity in exchange for a new loan balance of $118,750. The new maturity date of the loan is December 31, 2013. The Company reviewed the debt modification for debt extinguishment and determined that the $22,750 additional premium caused the fair value of the new debt to exceed the carrying value of the old debt by more than 10%. Accordingly, the Company recorded the additional $22,750 in premium as a loss on debt extinguishment. There is an additional premium of $26,800 payable at maturity. During 2012, $8,933 of this premium was amortized to interest expense leaving an unamortized premium of $17,867 at December 31, 2012.

F-18


On July 29, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $100,000 to be repaid by the maturity date of November 29, 2011 which was extended to July 29, 2012. The loan carries an interest payment of $1,000 per month. The Company accrued $5,000 of interest expense as of December 31, 2011. As collateral, the Company pledged 70,968 shares valued at $110,000 at the date of grant. In the event of default, the shareholder will receive 50,000 warrants with a maturity of 24 months and an exercise price of $1.48 per share. The balance of the loan at December 31, 2012 and 2011 was $0 and $100,000, respectively.

On July 31, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder has agreed to loan the Company $150,000 to be repaid by the maturity date of July 31, 2012. The Company received half the funds on August 31, 2011 and the balance on September 12, 2011. $1,875 interest per month is payable for the term of the loan. The balance of the loan at December 31, 2012 and 2011 was $0 and $150,000, respectively.

On February 14, 2012, the shareholder exchanged the two outstanding loans of $100,000 and $150,000 mentioned above and advanced an additional $50,000 for a new loan total of $300,000. The new loan bears interest at 16% per annum with required interest payments of $4,000 per month. The loan matures on December 31, 2013. The balance of the loan at December 31, 2012 was $300,000.

On August 1, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $74,000 to be repaid by the maturity date of August 1, 2012. The loan has a $14,800 premium half payable on signing date and half payable at maturity. In addition 20,000 shares will be issued at a premium valued on September 30, 2011 of $24,000. The 20,000 shares were issued during the year ended December 31, 2012. The premium will be amortized over the term of the loan. During the year ended December 31, 2011, the Company amortized $20,483 of the premium to interest expense, leaving unamortized premium of $18,317. In the event of default, the shareholder will receive 50,000 warrants with a maturity of 24 months and an exercise price of $1.48 per share. The balance at December 31, 2011, net of the unamortized discount, was $70,483. During the year ended December 31, 2012 the Company amortized the remaining $18,317 in premium to interest expense. The balance at December 31, 2012 was $88,800.

On September 21, 2011, the Company entered into a loan agreement with a shareholder, whereby the shareholder has agreed to loan the Company $50,000 to be repaid by the maturity date of September 21, 2012. The Company will pay a cash premium of $5,000 and will issue 10,000 shares at a premium valued on September 30, 2011 of $12,000. The premium will be amortized over the term of the loan. The amortization of the premium of $12,315 and $ 4,685 has been charged to interest expense with unamortized premium of $0 and $12,315 at December 31, 2012 and 2011, respectively. Interest of $625 per month will be charged for the term of the loan. At December 31, 2012 and 2011, $1,875 of interest expense has been accrued. The balance of the loan at December 31, 2012 and 2011, net of the unamortized discount, was $ 55,000 and $42,685, respectively. This loan is currently in default.

Except to the extent paid at inception of the loans the premiums described above were fully amortized using the effective interest method over their respective terms and included in interest expense.

The relative fair value of the 140,000 warrants issued in conjunction with the aggregate debt issued in 2011 amounted to $92,075 using the assumptions discussed in the table below. The discounts arising from these warrants have been fully amortized over the lives of the associated notes.

F-19



Fair value assumptions:

Expected volatility 100.28% to 112.6%
Expected life 2 years
Risk-free interest rate 0.56%-0.73%
Dividend yield $ Nil

During the year ended December 31, 2012, a company owned by the CEO of HCT advanced the Company $357,430 and was repaid $331,490. The balance owed at December 31, 2012 was $25,940. The advances are non-interest bearing and unsecured, with no specific terms of repayment or collateral.

On February 22, 2012, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $20,000 to be repaid by the maturity date of September 22, 2013. The loan had a premium of 10,000 shares that were valued at the issuance date at $13,000. This premium was fully amortized over the term of the loan. The loan bears interest at $267 per month and is payable monthly. In the event of default, the shareholder will receive 30,000 warrants with a maturity of 24 months and an exercise price of $1.48 per share.

On June 8, 2012, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $40,000 to be repaid by the maturity date of October 18, 2012. The loan bears at interest at 15% per annum and is payable monthly. The loan is unsecured, with no collateral and is currently in default.

On July 2, 2012, the Company entered into a loan agreement with a shareholder, whereby the shareholder agreed to loan the Company $100,000 to be repaid by the maturity date of January 2, 2013. The loan bears at interest at 18% per annum and is payable monthly. The loan is unsecured, with no collateral and is currently in default.

During 2012, the Company accrued $73,854 (2011-$10,500) in interest of which $52,354 (2011-$8,625) was paid. The Company also issued 70,000 shares of common stock to a shareholder as payment of for extending the maturity dates of several loans. The fair value of the stock issued was $93,000 based on the stock price on the date of issuance and was recorded as interest expense.

NOTE 6 – CONVERTIBLE DEBENTURES

On April 29, 2011, the Company issued convertible debentures for proceeds of $1,201,000 and on February 21, 2012, issued an additional $119,500 (“Debentures”) with a maturity of 36 months and a coupon rate of 10% per annum payable in cash or capital stock at the Company’s discretion. The debentures are held by third parties and by non-controlling shareholders, and are convertible as follows:

April 29, 2014 convertible debentures

-by dividing the conversion amount by a conversion factor of 1.4 yielding Units of the Company where each Unit (at a price of $1.40 per Unit), is comprised of 1 share of common stock and one half of a warrant to purchase a share of common stock of the Company with an exercise price of $2.00 per share and a maturity at April 29, 2014. Warrants are exercisable at the option of the holder at any time prior to maturity.

February 21, 2015 convertible debentures:

-by dividing the conversion amount by a conversion factor of 1.45 yielding Units of the Company where each Unit (at a price of $1.45 per Unit), is comprised of 1 share of common stock and one half of a warrant to purchase a share of common stock of the Company with an exercise price of $2.10 per share and a maturity at February 21, 2015. Warrants are exercisable at the option of the holder at any time prior to maturity.

F-20


Both debentures carry an anti-dilution provision. The conversion price applicable to the debentures is subject to reset in the event of a Dilutive Issuance (as defined in the debenture agreement) by the Company. A Dilutive Issuance excludes shares or options issued to employees, officers, directors or consultants pursuant to stock option plans approved by the Board of Directors.

We analyzed derivative financial instruments, (the convertible debenture, share purchase and warrants) in accordance with FASB ASC 815, Fair Value Measurements and Disclosures. The embedded conversion features in the convertible debentures and attached warrants should be accounted for as a derivative liability. The warrants contain full ratchet reset features (subject to adjustment for dilutive share issuances) and should be valued as a derivative liability.

The valuation of the derivative liability attached to the debentures arrived at through the use of multinomial lattice models based on a probability weighted discounted cash flow model. These models are based on future projections of the various potential outcomes. The features in the note that were analyzed and incorporated into the model included the conversion feature with the reset provisions and the call/redemption options. Based on these features, there are six primary events that can occur: payments are made in cash; payments are made with stock; the holder converts upon receiving a change notice; the holder converts the note; the Issuer redeems the note; or the company defaults on the note.

The model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. interest rates, stock price, conversion price, etc.). Projections were then made on these underlying factors which led to a set of potential scenarios. Probabilities were assigned to each of these scenarios over the remaining term of the note based on management projections. This led to a cash flow projection over the life of the note and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed, and it was compared to the discounted cash flow of the note without the embedded features, thus determining a value for the derivative liability of $558,248 as of April 29, 2011 and of $46,721 at February 21, 2012 for each issuance. The Company recorded the change in the fair value of the derivative liability as a gain of $77,787 as of December 31, 2011, to reflect the value of the derivative liability as $480,461. The Company recorded another gain of $360,461 to reflect the value of the derivative liability as $166,721 as of December 31, 2012.

The Company recorded a corresponding discount of $46,721 and $558,248 against the carrying value of the convertible debentures during the years ended December 31, 2012 and 2011, respectively. The discounts are amortized using the effective interest method over the three year term of the debt. Amortization of the debt discount was $182,810 and $97,023 for the years ended December 31, 2012 and December 31, 2011, respectively, leaving a remaining discount of $325,136 at December 31, 2012. Interest of $130,651 has been accrued for the year ended December 31, 2012 (2011-$81,274). During 2012, $120,100 in interest has been paid through the issuance of 240,200 shares of common stock on May 21, 2012. The balance of the debentures at December 31, 2012 and December 31, 2011, net of the unamortized discount, was $995,364 and $739,775, respectively.

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:

    Significant Unobservable
Inputs
(Level 3)
Year Ended December 31,
 
    2012     2011  
Beginning balance $ 480,461   $ -  
Total gains   (360,461 )   (77,787 )
Settlements   -     -  
Additions   46,721     558,248  
Transfers   -     -  
             
Ending balance $ 166,721   $ 480,461  
             
Change in unrealized gains included in
earnings relating to derivatives still
held as of December 31, 2012 and 2011
  360,461     77,787  

F-21


NOTE 7 – SENIOR SECURED CONVERTIBLE DEBENTURES

On August 16, 2010, the Company entered into a securities purchase agreement with a third party for the subscription of senior secured convertible debentures (“SSCD”) for an amount of $400,000. The debentures have a maturity date of August 16, 2012 with a coupon of 10% and convert into shares of common stock of the Company at a price of $0.75 per share. The notes are secured by all assets of the Company. The subscriber also received 533,336 Series A warrants with a maturity of 1 year and an exercise price of $1.25 per share and 133,360 Series B warrants with a maturity of 3 years and an exercise price of $1.50 per share. The debentures and Series A warrants carry registration rights whereby upon the consummation of the reverse merger with Nanotech, the shares underlying the debentures and Series A warrants will be registered as soon as is practicable. All prices and warrants issued have been adjusted for the post-acquisition of Nanotech by HCT.

The unamortized discount of $0 and $21,566 as of December 31, 2012 and 2011, respectively, was as a result of the relative fair value of the Series A and B warrants attached to the SSCD. Amortization of the debt discount was $21,566 and $ 120,849 for years ended December 31, 2012 and 2011, respectively. The discount is amortized using the effective interest method over the two year term of the debt. Interest of $20,075 was accrued during the year ended December 31, 2012, for an outstanding balance of $46,575 (2011-$26,500) that has been accrued. During the year ended December 31, 2011, $200,000 of the debt was repaid along with $14,167 of accrued interest and $25,833 as an incentive payment for pre-payment. This $240,000 was repaid through the issuance of a Convertible Debenture due April 29, 2014. A loss on extinguishment of debt of $79,717 has been recorded. The balance due at December 31, 2012 and 2011, net of the unamortized discount, was $200,000 and $178,434, respectively. The Company is in default of payment of the debentures which matured on August 16, 2012. No notices have been issued by the debenture holder.

The obligations of the Company under the SSCD will rank senior to all outstanding and future indebtedness of the Company and shall be secured by a first priority, perfected security interest in all the assets of the Company.

NOTE 8– STOCKHOLDERS’ DEFICIT

2011

During the year the Company issued 22,000 shares to employees and 462,230 shares to consultants for services with a fair value of $751,336.

On March 14, 2011, the board of directors authorized the extension of the expiration date of the common stock purchase warrants described in Note 6 to February 28, 2014. This extension of the expiration date will apply to the following: (i) the 533,336 Series A warrants issued to a third party pursuant to the SSCD agreement entered into on August 16, 2010; and (ii) the 687,500 remaining stock purchase warrants issued to a consultant on July 14, 2010. The 533,336 Series A warrants and the 687,500 warrants were re-valued using the Black-Scholes method according to the following assumptions:

F-22



Expected volatility 126.7%
Exercise price $1.25
Stock price $1.48
Expected life 3 years
Risk-free interest rate 1.07%
Dividend yield $ Nil

The new value of the 533,336 Series A (see Note 7) and 687,500 July 14, 2010 warrants (see above) was determined to be $1,180,886 and was recognized as an increase in additional paid –in capital and interest expense.

On August 1, 2011 and September 1, 2011 the Company entered agreements with shareholders whereby loan premiums of 20,000 and 10,000 shares respectively would be issued to shareholders. The fair value of these shares was recorded as a reduction in the carrying value of the loans and an increase in additional paid-in capital of $36,000. The Company issued 20,000 shares during the year ended December 31, 2012. The remaining 10,000 shares have not been issued by the Company.

On September 7, 2011, the Company issued 30,500 shares to pre-merger shareholders that were never issued their shares in error.

On June 15, 2011, the Company’s Board of Directors established the 2011 Stock Incentive Plan expiring on June 15, 2016. The Company’s Board of Directors has determined that it would be in the best interests of the Company to adopt and approve a new long-term stock incentive plan which will facilitate the continued use of long-term equity-based incentives and rewards for the foreseeable future. The Company expects equity-based incentives to comprise an important part of the compensation packages needed to attract qualified executives, key employees, directors and consultants to the Company and in providing long-term incentives and rewards to those individuals responsible for the Company’s success. Accordingly, the Company’s Board of Directors approved the plan.

2012

During 2012, the Company issued 141,500 shares to employees and consultants for services with a fair value of $122,175. The shares were valued using the stock price on the date of grant.

During 2012, the Company issued 240,200 shares to the Convertible Debenture holders as payment for one year’s interest totaling $120,100. The shares were valued using the stock price on the date of grant.

During 2012, the Company issued 100,000 shares to a shareholder as interest compensation for loans. 20,000 of the shares were issued for 2011 premiums previously valued and recorded in additional paid-in capital, 70,000 shares were issued as interest compensation and were valued at $93,000 and were charged to interest expense and the remaining 10,000 shares valued at $13,000 were recorded as debt discount for new loan premiums.

During 2012, the Company issued 260,000 warrants to purchase common stock of the Company to consultants for services and 50,000 warrants in conjunction with the issuance of shareholder loans. The warrants were valued using the Black-Scholes option pricing model using the following assumptions:

F-23



Expected volatility 104.75% - 166.04%
Exercise price $0.10 - $0.50
Stock price $0.50 - $1.12
Expected life 2 - 3 years
Risk-free interest rate 0.24% - 0.43%
Dividend yield $ Nil

The value of the warrants (see above) issued to consultants was determined to be $268,405 and was recognized as an increase in additional paid–in capital and expensed as consulting fees. The fair value of the warrants issued for the shareholder loan was $19,005 and the relative fair value of the warrants was $16,868. The relative fair value was recorded as a debt discount against the carrying value of the loan and an increase in additional paid-in capital.

On February 22, 2012, the Company entered an agreement with a shareholder whereby a loan premium of 10,000 shares would be issued to the shareholder. Although the shares had not been issued the Company has recorded a reduction of the loan and an increase in stock payable of $15,000. The fair value of the stock was determined using the stock price on the date of grant.

On March 23, 2012, a warrant holder exercised 220,000 warrants through a cashless option for 205,135 shares. The Company recorded an increase in par value for the shares and a corresponding reduction in additional paid in capital of $205.

Warrants

A summary of the activity in the Company’s warrants during the years ended December 31, 2012 and 2011 is presented below:

  Number of Weighted Average
  Warrants Exercise Price
     
Outstanding at December 31, 2010 2,018,928 $0.20
Issued 140,000 $1.72
Exercised - $0.00
Outstanding and exercisable, at December 31, 2011 2,158,928 $0.28
Issued February 16, 2012 30,000 $0.10
Issued February 23, 2012 230,000 $0.10
Issued November 29, 2012 50,000 $0.50
Exercised March 23, 2011 (220,000) $0.10
Outstanding and exercisable, at December 31, 2012 2,248,928 $0.29

In addition to the regular warrants detailed in the table above, there are issued and outstanding 533,336 Series A warrants with an exercise price of $1.25 per share and a maturity date of February 14, 2014 and 133,336 Series B warrants with an exercise price of $1.50 per share and a maturity date of August 16, 2013.

The intrinsic value of warrants outstanding at December 31, 2012 was $591,430.

F-24


Contingent Warrant Issuance

On July 20, 2012, the Company’s board of directors approved the issuance of 300,000 stock purchase warrants, with an exercise price of $0.001 per share and five-year life, from date of issuance, to the Company’s President, Joseph Kristul, contingent on his successful negotiation of a major sales contract. The major sales contract agreement has not yet been reached by the Company.

NOTE 9– RELATED PARTY TRANSACTIONS

Fees charged by Shareholder
During the years ended December 31, 2012 and 2011, the Company was charged $262,000 and $375,000 by an outside consultant, who is also a shareholder, for professional fees, expenses and commissions. The amounts are included in accounts payable and accrued liabilities related parties. The Company paid $46,000 and $359,000 to the consultant during the years ended December 31, 2012 and 2011, respectively. The Company has an outstanding balance as of December 31, 2012 and 2011 of $485,468 and $168,530, respectively.

Principal Debt Payments
During the year ended December 31, 2012, the Company made Principal payments of $326,350 on its note payable to NTI related to the 2011 acquisition of the license rights for Coatings in Europe. The note matures on November 29, 2013, does not bear interest, and no payments are required prior to maturity. The balance of the note was $800,481 and $1,126,831 at December 31, 2012 and December 31, 2011, respectively.

Shared Administrative Costs
The Company shares office space and certain personnel with NTI. Costs are allocated among the parties based on usage. During 2012 and 2011, the allocation of such shared costs between the Company and NTI was 80% and 20%, respectively. Rent expense for the years ended December 31, 2012 and 2011 was $45,000 and $45,000, respectively.

NOTE 10 – INCOME TAXES

Deferred income taxes reflect the net effect of:

(a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income taxes reporting purposes, and

(b) net operating loss carryforwards.

No net provision for refundable U.S. Federal income tax has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carryforward has been recognized, as it is not deemed more likely than not to be realized.

The effective tax rate of the Company is reconciled to statutory tax rates as follows for the years ended December 31, 2012 and 2011:

F-25



  2012 2011
US federal statutory tax rate 34% 34%
Change in US valuation allowance (34%) (34%)
Effective tax rate - -

Deferred tax assets consist of the following as of December 31:

    2012     2011  
Net operating loss carryforward $  3,672,000   $ 2,967,000  
Valuation allowance   (3,672,000 )   (2,967,000 )
Deferred tax asset $  -   $ -  

The Company has non-capital losses carried forward of approximately $7,130,000 which expire beginning in 2031. They may be utilized to offset future taxable income. Future tax benefits, which may arise as a result of these losses and resource expenditures, have not been recognized in these financial statements.

NOTE 11-COMMITMENT AND CONTINGENCIES

The Company has an option expiring July 12, 2013 to issue a controlling stake in the Company amounting to 52.5% to a related party for a perpetual exclusive license to manufacture and sell Nanotech Products for all North America, South America and Europe.

If this option is exercised, the Company will have a similar option for the territory of Asia to issue and additional 10% ownership stake in the Company.

The Company is delinquent on its state and federal payroll tax remittances. The State of California has issued a Notice of State Tax Lien against the property and rights owned by the Company covering interest and penalties for non-payment of payroll remittances.

NOTE 12– SUBSEQUENT EVENTS

Subsequent to December 31, 2012, the Company issued 74,000 shares for proceeds of $29,600 for services.

On January 21, 2013 the Company entered into a loan agreement for $78,400 maturing on July 20, 2013. The loan bears interest at 2% per month, with any interest unpaid bearing interest at an additional 2.5% /month. The loan is secured by a legal interest in the Company’s assets for approximately $94,000.

In 2013, the Company negotiated terms on a shareholder loan extending the maturity to December 31, 2013 from January 1, 2013 for an additional premium of $30,000.

In March 2013 the company issued warrants to purchase shares with an exercise price of $0.001and a 5 year term as follows:

-450,000 warrants to a related party for payment of three years rent up to end of 2013.

F-26


-420,000 warrants to a shareholder for consulting services.

-480,000 warrants to the CEO for back pay.

Subsequent to year end the Company received $300,000 in advances from shareholders.

F-27


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

Our consolidated financial statements for the year ended December 31, 2012 included in this annual report have been audited by GBH, CPAs PC, Houston, Texas. Our consolidated financial statements for the year ended December 31, 2011 included in this annual report have been audited by LBB & Associates Ltd., LLP, Houston, Texas, as set forth in this annual report. There have been no disagreements on accounting and financial disclosure for the years ended December 31, 2012 and 2011.

ITEM 9A. CONTROLS AND PROCEDURES

Reference is made to the disclosures below under Item 9A(T) Controls and Procedures.

Item 9A(T). Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer, who also acts as our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Management’s Report on Internal Controls

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:

  • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

  • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and
    directors of the issuer; and

  • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer, who also acts as our principal financial officer, an evaluation was performed on the effectiveness of the design and operation of our internal controls and procedures over financial reporting as of December 31, 2012, covered by this annual report, based on the criteria framework established in Internal Control – Integrated Framework issued be the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our President and Chief Executive Officer, concluded that our internal controls and procedures were not effective as of the December 31, 2012, covered by this annual report.

As of June 30, 2012, certain controls related to the financial statement close and reporting process were not functioning effectively to properly accrue certain expenses and classify some expenses in the financial statements. Management concluded that this control deficiency constituted a material weakness at December 31, 2012. We are currently in the development stage, and although we have hired qualified resources to carry out our day-to-day accounting and financial reporting obligations, we have not yet reached the point at which we have adequate resources to address all accounting procedures, especially the process to close our financial records at each reporting period in a timely manner. These control weaknesses were, in part, due to lack of adequate funding during the period in which the financial statements were being prepared.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by our independent registered public accounting firm because smaller reporting companies are exempt from this requirement.

(c) Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The address of all Directors and Executive Officers listed above is c/o Hybrid Coating Technologies Inc., 950 John Daly Blvd. Suite 260, Daly City, CA 94015.

Directors and Executive Officers.

The current directors and executive officers of the Registrant are as follows:

Name Age Position(s)
Joseph Kristul 64 Director, President, Treasurer and Chief Executive Officer
Darin Nellis 43 Secretary , Director of Sales & Marketing
Alex Trossman 63 Director

All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. There is no family relationship between any of our directors or executive officers. As of April 16, 2013, there was no known litigation pending or active against any of our directors or executive officers. None of our directors or executive officers has served as a general partner or executive officer of any company that has filed, or has had filed against it, any petition for bankruptcy, either at the time such filing was made or during the preceding two years.

Set forth below is certain biographical information for our current directors and executive officers and certain persons whom we have identified as key personnel, including a summary description of the principal occupation and business experience of each of our directors and executive officers for at least the last five years.

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Directors and Executive Officers

Joseph Kristul, President, CEO, Treasurer and Director

Mr. Kristul is one of the founders and principal financial backers of Nanotech Industries. He has years of experience in international financing with an emphasis on marketing and sales. He is the former Chairman, CEO and co-founder of Transnational Financial Network. At Transnational Mr. Kristul was responsible for overall company management directly overseeing secondary marketing, finance, corporate marketing, investor relations and strategic corporate planning. In 1995 Mr. Kristul created Transnational’s wholesale division, where he developed the company’s base of loan brokers and implemented systems and controls to manage the quality of loan products delivered to brokers. In 1999 he took the company public and by 2005 had over 400 employees and $800 million in mortgage loan originations. Mr. Kristul graduated with a Master of Science in Applied Mathematics and Mechanics from the Odessa Physics and Technology University, in Odessa, Russia.

Darin Nellis, Secretary Director of Sales & Marketing

Mr. Nellis, MBA, has twenty years of experience working in business management and community relations for private, public and non-profit organizations in Africa and the US. His expertise includes strategic planning, marketing, cross-cultural education, youth mentorship and nonviolent conflict resolution. Private sector positions include Director of Corporate Planning and consultant in the area of finance, strategic planning and marketing for several environmental high tech firms including the Eurasian power quality equipment distribution company, Power Quality Holdings and the nanotechnology commercialization company, Nanotech Industries. Non-profit and public positions have included Community Development Officer at The United Way of Greater LA, Loyola Marymount Peace Corps Fellow, and Community Development Agent for the U.S. Peace Corps in Mauritania West Africa and Volunteer & Outreach Coordinator for the American Oceans Campaign. Mr. Nellis received his BA from UCLA in International Relations and his MBA in International Business from Loyola Marymount University.

Alex Trossman, Director, VP of Israeli & European Operations

Mr. Trossman is directly responsible for the daily running of Nanotech’s operations in Israel including managing the production process, client orders & communication, product documentation and customs issues. Mr. Trossman has nearly 30 years of experience in management and mechanical engineering in Israel working in such positions as Assistant Chief Engineer for Automotive Industries, Ltd.; Chief of the Engineering Department of Rotem-Amfert-Negev, Ltd., a large fertilizer producer; Technical Manager of Galam, Ltd., a Starch, Glucose & Fructose producer; General Manager of Eurotech Israel, Ltd. and as a founding partner and general manager of the Polymate Research Center.

-28-


Significant Employees

Elena Shenkar, Director of Operations

Ms. Shenkar: has seventeen years of experience as a business owner and upper level executive in the hospitality and finance industries. Her expertise includes negotiations and management of contractual relationships with bankers, private equity investors, landlords, trademark and transactions attorneys, architects, interior designers, operations managers, entitlement consultants, neighborhood community leaders, publicists, marketing and promotions firms, major publications, graphic and brand designers, corporate America executives and high profile charity organizations. She was one of the founding partners of O Sushi Café in Brea, California and helped structure, develop and finance several key concepts in the hospitality industry including the construction, operations and ownership of Blowfish Sushi in the highly publicized, billion-dollar, Santana Row Development. She has raised close to five million dollars for various business ventures and has a wealth of experience with investor relations. She attended the University of Southern California where she received a bachelor of science in Business Finance. She also attended Whittier Law School and has passed the California Bar Exam. Ms. Shenkar was born in Odessa, Ukraine and immigrated to the United States in 1978. She is fluent in English and Russian.

Executive Employment Agreements

The Company currently has no employment agreements in place with any of its named executive officers.

Long-Term Incentive Plans

The Company currently has no long-term incentive plans.

Compensation of Directors

The Company has not compensated our directors for service on the board of directors.

Stock Option Plans

On June 15, 2011, the Company’s Board of Directors established the 2011 Stock Incentive Plan expiring on June 15, 2016 (the “2011 Plan”).

The Company’s Board of Directors has determined that it would be in the best interests of the Company to adopt and approve a new long-term stock incentive plan which will facilitate the continued use of long-term equity-based incentives and rewards for the foreseeable future. The Company expects equity-based incentives to comprise an important part of the compensation packages needed to attract qualified executives, key employees, directors and consultants to the Company and in providing long-term incentives and rewards to those individuals responsible for the Company’s success. Accordingly, the Company’s Board of Directors approved the 2011 Plan. Pursuant to Section 78.320(2) of the Nevada Revised Statutes and the Company’s Bylaws, the written consent of stockholders holding at least a majority of the voting power may adopt a corporate action by written consent in lieu of holding a special meeting of stockholders.

-29-


The 2011 Plan is expected to ensure that the Company will have a sufficient number of long-term equity-based incentives and rewards to issue to its future employees as well as to help ensure, to the extent possible, the tax deductibility by the Company of awards under the 2011 Plan for purposes of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). The Code, among other things, provides certain tax advantages to persons granted stock options under a qualifying “incentive stock option plan.” The adoption of the 2011 Plan will allow option holders to take advantage of the favorable tax attributes associated with such options that may be granted under the 2011 Plan.

The material terms of the 2011 Plan are summarized below. The summary is qualified in its entirety by reference to the specific provisions of the 2011 Plan, the full text of which is set forth as Exhibit C to this Information Statement.

Purpose

The purpose of the 2011 Plan is to enhance the long-term stockholder value of the Company by offering opportunities to its directors, officers, employees and eligible consultants and any entity that directly or indirectly is in control of or is controlled by the Company (a “Related Company”) to acquire and maintain stock ownership in the Company in order to give these persons the opportunity to participate in the Company’s growth and success, and to encourage them to remain in the Company or a Related Company.

2011 Plan

Under the Plan, the Company may grant certain employees both incentive and non-qualified options to purchase shares of common stock. The Plan is authorized to grant options covering up to seven hundred thousand (700,000) shares.

Involvement in Certain Legal Proceedings

There are no legal proceedings that have occurred during the past five years concerning our directors or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

Code of Ethics

Due to the limited scope of our current operations, the Company has not yet adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar function. Following completion of the Acquisition described in Item 1, we may adopt a Code of Ethics.

-30-


Committees

Since our Board of Directors has not established an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of Directors as a whole, nor has the Board established a corporate governance committee or nominating committee.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board of Directors will participate in the consideration of director nominees.

The Board is of the opinion that such committees and procedures are currently not necessary, as the Company is an early exploration stage company, has only one director and, to date, such director has been performing the functions of such committees. When we are able to expand our Board of Directors to include one or more independent directors, our Board of Directors plans to form an audit committee and a corporate governance committee.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires or directors and officers, and the persons who beneficially own more than ten percent (10%) of our common stock, to file reports of ownership and changes in ownership with the SEC. Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable Section 16(a) filing requirements during the fiscal year ended December 31, 2010.

-31-


ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth all compensation awarded to, paid to or earned by the Registrant’s President, Chief Executive Officer and Chief Financial Officer for the fiscal year of the Company indicated.

The table below sets forth all compensation awarded to, paid to or earned by the Company’s President, Chief Executive Officer and Chief Financial Officer for the fiscal year of the Registrant indicated.


Name and
Principal
Position




Year




Salary

($)



Bonus

($)


S tock
Awards

($)


Option
Awards

($)
Nonequity
Incentive
Plan
Compensa
tion
($)
Nonqualified
Deferred
Compensation
Earnings

($)

All
Other
Compen
sation
($)



Total

($)
                   
Joseph Kristul
Director, President, Chief
Executive Officer and
Chief Financial Officer
2012


$184,000


0


0


0


0


0


0


0


Compensation of Executive Officers

Mr Kristul receives a salary of $184,000 per annum.

Employment Agreements

The Company has not entered into any employment agreements with our executive officers or other employees to date.

Grants of Plan-Based Awards

No plan-based awards were granted to any of our named executive officers during the fiscal year ended December 31, 2012.

-32-


Outstanding Equity Awards at Fiscal Year End

No unexercised options or warrants were held by any of our named executive officers at December 31, 2012. No equity awards were made during the fiscal year ended December 31, 2012.

Option Exercises and Stock Vested

No options to purchase our capital stock were exercised by any of our named executive officers, nor was any restricted stock held by such executive officers vested during the fiscal year ended December 31, 2012.

Pension Benefits

No named executive officers received or held pension benefits during the fiscal year ended December 31, 2012.

Nonqualified Deferred Compensation

No nonqualified deferred compensation was offered or issued to any named executive officer during the fiscal year ended December 31, 2012.

Potential Payments upon Termination or Change in Control

Our executive officers are not entitled to severance payments upon the termination of their employment agreements or following a change in control.

-33-


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below provides information about the beneficial ownership of the Common Stock as of December 31, 2012, by each of the current directors and executive officers, by all directors and executive officers as a group and by each person known to the Registrant who is the beneficial owner of more than 5% of any class of the Registrant’s securities. Unless otherwise noted, the persons listed below have sole voting and investment power with respect to the shares reported.

    Beneficial        
    Ownership        
             
Name of Beneficial Owner   Total Shares (2)     Percent of Class (4)  
             
Joseph Kristul (1) Director, President, Treasurer and Chief Executive Officer   500,000 (3)   7.69%  
Darin Nellis (1), Secretary   126,000     1.94%  
Alex Trossman (1), Director   62,500     0.96%  
Eugene Shenkar   389,200     5.99%  
All Directors and Executive Officers as a Group (3 Persons)   688,500     10.59%  

(1)

Executive officer and/or director of the Company. The appointment of Mr. Kristul and of Mr. Trossman shall become effective on the Effective Date.

   
(2)

Represents the total number of shares of Common Stock owned as of December 31, 2012.

   
(3)

Represents 400,000 shares of common stock issued to Mr. Kristul and 100,000 shares issued to his wife, Maria Kristul.

   
(4)

The percentages listed in the percent of class column are based upon 6,503,568 issued and outstanding shares of Common Stock.

-34-


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Transactions with Related Persons

None of the following parties has had, since the beginning of the Company’s fiscal year, any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect the Registrant:

  • Any directors or executive officers;
  • Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to the outstanding shares of Common Stock;
  • Any promoters; and
  • Any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons.

Director Independence

Because the Common Stock is traded on the OTC Bulletin Board, the Company is not subject to the independence requirements of any securities exchange or the NASD regarding members of the Company’s Board of Directors. The Company intends, in the future, to use the definition of “independence” of a national securities exchange or of an inter-dealer quotation system which requires that a majority of the Board of Directors be independent. The Company has not determined whether any of its directors are independent.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

GBH CPAs PC (“GBH”) served as our independent registered public accounting firm for our fiscal year ended December 31, 2012. The Company did not incur any fees from GBH during the year ended December 31, 2012. Our previous auditor, LBB & Associates Ltd., LLP served as our independent registered public accounting firm for our fiscal year ended December 31, 2011 and up to the third quarter ended September 30, 2012 resigning on March 12, 2013. The following table shows the fees that were billed for the audit and other services provided by the firm for the fiscal year indicated.


  Fiscal Year Ended
Dec. 31, 2012
    Fiscal Year Ended
Dec. 31, 2011
 
             
Audit Fees $  73,383   $ 41,720  
Audit-Related Fees   -     -  
Tax Fees   -     -  
All Other Fees   -     -  
Total $  73,383   $ 41,720  

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees — This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.

Tax Fees — This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board of Directors, or, in the period between meetings, by a designated member of Board of Directors. Any such approval by the designated member is disclosed to the entire Board of Directors at the next meeting. The audit and tax fees paid to the auditors with respect to our fiscal year ended December 31, 2012 were pre-approved by the Board of Directors.

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ITEM 15. EXHIBITS

Exhibit   Description of Exhibits
Number    
3.1  

Amended Articles of Incorporation. (1)

3.2  

Bylaws, as amended. (1)

3.3  

Certificate of Amendment to Articles of Incorporation (2)

4.1  

Convertible Debenture Agreement dated April 29, 2011 Pursuant to Regulation D (6)

4.2  

Convertible Debenture Agreement dated April 29, 2011 Pursuant to Regulation S (6)

10.1

Stock Purchase Agreement, dated August 18, 2010, by and among Nanotech Industries International Inc. and EPOD Solar Inc. (3)

10.2

Licensing Agreement between Nanotech Industries International Inc and Nanotech Industries Inc. dated July 12, 2010 (4)

10.3  

Amendment to the Licensing Agreement previously entered into on the 12th day of July, 2010 (5)

10.4  

Securities Purchase Agreement dated April 29, 2011 Pursuant to Regulation D (6)

10.5  

Securities Purchase Agreement dated April 29, 2011 Pursuant to Regulation S (6)

10.6  

Warrant Agreement dated April 29, 2011 Pursuant to regulation D (6)

10.7  

Warrant Agreement dated April 29, 2011 Pursuant to regulation S (6)

10.8

Amendment to articles of incorporation to change the name of the company to “Hybrid Coating Technologies Inc.” (7)

10.9  

Approval and adoption of the 2011 Stock Incentive Plan (7)

10.10

Second Amendment to the Licensing Agreement previously entered into on the 12th day of July, 2010 (8)

10.11

Licensing Agreement between Nanotech Industries International Inc and Nanotech Industries Inc. dated October 18, 2011 (9)

10.12  

Convertible Debenture Agreement Dated February 21, 2012 (10)

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-153675), filed with the SEC on September 26, 2008.
(2) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 22, 2009.
(3) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on August 30, 2010.
(4) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on August 30, 2010
(5) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on March 14, 2011
(6) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on May 3, 2011
(7) Incorporated as reference to the Schedule 14C filed with the SEC on July 6, 2011
(8) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on July 7, 2011
(9) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on October 18, 2011
(10) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on February 21, 2012

-37-


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 16, 2013 HYBRID COATING TECHNOLOGIES INC
  (Registrant)
     
  By: /s/ Joseph Kristul
    Name: Joseph Kristul
    Title: President and Chief Executive Officer
    (Principal Executive, Financial and Accounting
    Officer)

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

Signature   Title   Date
         
/s/ Joseph Kristul       April 16, 2013
Joseph Kristul   President and Chief Executive Officer,
  (Principal executive officer principal financial and accounting officer)
         
         
         
/s/ Alex Trossman       April 16, 2013
Alex Trossman   Director    

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