Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - ABAKAN, INC | Financial_Report.xls |
| EX-32.1 - CERTIFICATION ABAKAN - ABAKAN, INC | exhibit321.htm |
| EX-32.2 - CERTIFICATION ABAKAN - ABAKAN, INC | exhibit322.htm |
| EX-31.2 - CERTIFICATION ABAKAN - ABAKAN, INC | exhibit312.htm |
| EX-10.25 - EMPLOYMENT AGREEMENT GOSS - ABAKAN, INC | exhibit1025.htm |
| EX-31.1 - CERTIFICATION ABAKAN - ABAKAN, INC | exhibit311.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended November 30, 2014.
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from
to
.
Commission file number: 000-52784
ABAKAN INC.
(Exact name of registrant as specified in its charter)
Nevada
98-0507522
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
2665 S. Bayshore Drive, Suite 450, Miami, Florida 33133
(Address of principal executive offices) (Zip Code)
(786) 206-5368
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 o f this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act:
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. The number of shares outstanding of the issuer’s common stock, $0.0001 par value (the
only class of voting stock), at January 14, 2015 was 79,501,088.
1
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
Financial Statements:
3
Condensed Consolidated Balance Sheets for the period ended
4
November 30, 2014 (unaudited) and May 31, 2014
Unaudited Condensed Consolidated Statements of Operations for the
5
Three and six months ended November 30, 2014 and 2013.
Unaudited Condensed Consolidated Statements of Cash Flows for the
6
six months ended November 30, 2014 and 2013.
Condensed Notes to Consolidated Financial Statements (Unaudited)
7
Management's Discussion and Analysis of Financial Condition and Results of
17
Operations
Quantitative and Qualitative Disclosures about Market Risk
33
Controls and Procedures
33
PART II-OTHER INFORMATION
Legal Proceedings
34
Risk Factors
34
Unregistered Sales of Equity Securities and Use of Proceeds
39
Defaults Upon Senior Securities
41
Mine Safety Disclosures
41
Other Information
41
Exhibits
41
42
43
2
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
As used herein, the terms “Abakan”, “we,” “our,” and “us” refer to Abakan Inc., a Nevada corporation,
and its consolidated subsidiaries, unless otherwise indicated. In the opinion of management, the
accompanying financial statements included in this Form 10-Q reflect all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of operations for the periods
presented. The results of operations for the periods presented are not necessarily indicative of the results
to be expected for the full year.
3
ABAKAN INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
November 30,
May 31,
2014
2014
(unaudited)
ASSETS
Current assets
Cash and cash equivalents
$
1,547,685 $
31,111
Accounts receivable
79,225
119,122
Inventory
34,560
-
Prepaid expenses
147,434
185,770
Total current assets
1,808,904
336,003
Non-current assets
Deferred finance fees, net
14,070
14,070
Property, plant and equipment, net
5,370,341
5,539,549
Patents and licenses, net
6,118,229
6,106,686
Assignment agreement - MesoCoat
151,318
171,055
Investment - Powdermet (Note 3)
2,156,831
2,151,817
Goodwill
364,384
364,384
Total Assets
$
15,984,077 $
14,683,564
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
1,083,467 $
1,552,402
Accounts payable - related parties
270,188
675,041
Capital leases - current portion
31,701
31,465
Loans payable
5,407,276
4,820,816
Accrued interest - loans payable
524,613
306,160
Loan payable- related parties
359,468
224,799
Accrued interest – related parties
8,543
480
Accrued liabilities
676,704
652,212
Total current liabilities
8,361,960
8,263,375
Non-current liabilities
Loans payable (Note 4)
978,372
1,056,106
Capital leases - non-current portion (Note 4)
50,464
54,040
Total liabilities
9,390,796
9,373,521
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.0001 par value, 50,000,000 shares
authorized, none issued and outstanding
-
-
Common stock, par value $0.0001, 2,500,000,000 shares
79,501,088 issued and outstanding – November 30, 2014,
68,374,815 issued and outstanding - May 31, 2014
7,952
6,840
Subscription receivable
(30,000)
(28,000)
Paid-in capital
28,848,450
24,530,074
Contributed capital
5,050
5,050
Accumulated deficit
(22,399,312)
(19,502,097)
6,432,140
5,011,867
Non-controlling interest
161,141
298,176
Total stockholders' equity
6,593,281
5,310,043
Total liabilities and stockholders' equity
$
15,984,077 $
14,683,564
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
ABAKAN INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
For the six months ended
November 30,
November 30,
Revenues
2014
2013
2014
2013
Commercial
$
69,493 $
112,140 $
155,239 $
137,387
Contract and grants
81,777
71, 625
322,927
135,028
Other income
-
10,094
-
10,094
151,270
193,859
478,166
282,509
Cost of revenues
105,438
106,640
212,108
187,172
Gross profit
45,832
87,219
266,058
95,337
Expenses
General and administrative
General and administrative
321,919
192,750
522,160
379,110
Professional fees
251,429
139,213
355,848
459,535
Professional fees - related parties
15,000
15,000
30,000
33,028
Consulting
166,197
245,658
403,034
519,467
Consulting - related parties
61,500
40,500
128,000
119,000
Payroll and benefits expense
135,225
306,051
278,385
840,036
Depreciation and amortization
204,841
193,646
403,661
392,065
Research and development
161,508
341,331
341,165
829,948
Stock expense on debt conversion
76,500
-
76,500
-
Stock options expense
201,504
301,185
524,376
619,665
Total expenses
1,595,623
1,775,334
3,063,129
4,191,854
Loss from operations
(1,549,791)
(1,688,115)
(2,797,071)
(4,096,517)
Other (expense) income
Interest expense:
Interest – loans
(128,049)
(60,365)
(261,354)
(99,280)
Interest - related parties
(1,707)
(500)
(6,476)
(1,113)
Amortization of discount on debt
-
-
-
(137,364)
Total interest expense
(129,756)
(60,865)
(267,830)
(237,757)
Interest income
4
4
4
7
Loss on debt settlement
(2,651)
-
(2,651)
-
Equity in Powdermet gain (loss)
23,747
(77,738)
5,014
(222,570)
Total other (expense) income
(108,656)
(138,599)
(265,463)
(460,320)
Net loss before non-controlling interest
(1,658,447)
(1,826,714)
(3,062,534)
(4,556,837)
Non-controlling interest in MesoCoat loss
97,004
403,073
165,319
994,393
Net loss attributable to Abakan Inc.
(1,561,443)
(1,423,641)
(2,897,215)
(3,562,444)
Provision for income taxes
-
-
-
-
Net loss
$ (1,561,443) $ (1,423,641)
(2,897,215)
(3,562,444)
Net loss per share – basic
$
(0.02) $
(0.02)
(0.04)
(0.06)
Net loss per share – diluted
$
(0.02) $
(0.02)
(0.04)
(0.06)
Weighted average number of common
shares outstanding – basic
71,868,049
64,332,583
70,119,307
64,308,589
Weighted average number of common
shares outstanding – diluted
71,868,049
64,332,583
70,119,307
64,308,589
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
ABAKAN INC.
UNAUDITED CONDENSE CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended
November 30,
2014
2013
NET CASH (USED IN) OPERATING ACTIVITIES
$
(2,365,652) $
(1,349,762)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, equipment and website
(205,068)
(434,087)
Capitalized patents and licenses
(21,191)
(20,200)
NET CASH USED IN INVESTING ACTIVITIES
(226,259)
(454,287)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock
3,505,798
76,244
Proceeds from loans payable
978,184
1,610,000
Payments on loans payable
(336,658)
(20,752)
Proceeds from loans payable - related parties
1,501
-
Payments on loans payable – related parties
(65,000)
-
Repayments of capital leases
(3,340)
(3,115)
Proceeds from subscription receivable
28,000
-
NET CASH PROVIDED BY FINANCING ACTIVITIES
4,108,485
1,662,377
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,516,574
(141,672)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
31,111
233,040
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
1,547,685 $
91,368
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of Abakan’s financial position as of November 30, 2014, and
the results of its operations and cash flows for the six months ended November 30, 2014, have been made.
Operating results for the six months ended November 30, 2014 are not necessarily indicative of the results
for the year.
These condensed consolidated financial statements should be read in conjunction with the financial
statements and notes for the year ended May 31, 2014 contained in Abakan’s Form 10-K.
Consolidation Policy
The accompanying November 30, 2014 financial statements include Abakan’s accounts and the accounts of
its subsidiaries. All significant intercompany transactions and balances have been eliminated in
consolidation. Abakan’s ownership of its subsidiaries as of November 30, 2014 is as follows:
Name of Subsidiary
Percentage of Ownership
AMP SEZC (Cayman)
100.00%
AMP Distributors (Florida)
100.00%
MesoCoat, Inc.
88.08%
MesoCoat’s ownership of its subsidiaries as of November 30, 2014, is as follows:
Name of Subsidiary
Percentage of Ownership
MesoCoat Technologies (Canada)
100.00%
MesoCoat Coating Services, Inc. (Nevada) 100.00%
PT MesoCoat Indonesia
100.00%
Non-Controlling Interest
Non-controlling interest represents the minority members’ proportionate share of the equity of MesoCoat,
Inc. Abakan’s controlling interest in MesoCoat requires that its operations be included in the
consolidated financial statements. The equity interest of MesoCoat that is not owned by Abakan is shown
as non-controlling interest in the consolidated financial statements.
Development Stage Enterprise
At November 30, 2014, Abakan’s business operations had not fully developed and are dependent upon
funding and therefore Abakan is considered a development stage enterprise. Abakan has adopted FASB
ASU 2014-10 concerning our development stage enterprise financial statement presentation.
7
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Accounts Receivable
Accounts receivable are stated at face value, less an allowance for doubtful accounts. Abakan provides an
allowance for doubtful accounts based on management's periodic review of accounts, including the
delinquency of account balances. Accounts are considered delinquent when payments have not been
received within the agreed upon terms, and are written off when management determines that collection is
not probable. As of November 30, 2014 management has determined that no allowance for doubtful
accounts is required.
Subsequent Events
In accordance with ASC 855-10 “Subsequent Events”, Abakan has evaluated subsequent events and
transactions for potential recognition or disclosure in the financial statements through the date the
financial statements were issued (Note 9).
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that Abakan will continue as a
going concern. Abakan had net losses for the period of June 27, 2006 (inception) to the period ended
November 30, 2014, of $22,399,312 and a working capital deficit of $6,553,056. These conditions raise
substantial doubt about Abakan’s ability to continue as a going concern. Abakan’s continuation as a
going concern is dependent on its ability to develop additional sources of capital, and/or achieve
profitable operations and positive cash flows. Management’s plan is to aggressively pursue its present
business plan. Since inception we have funded our operations through the issuance of common stock,
debt financing, and related party loans and advances, and we will seek additional debt or equity
financing as required. The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
8
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
3. INVESTMENT IN NON-CONTROLLING INTEREST
Powdermet, Inc.
Abakan owns a 24.1% interest in Powdermet. Powdermet owns 11.92% of MesoCoat as of November
30, 2014. Abakan’s 24.1% ownership of Powdermet, results in indirect ownership of the shares of
MesoCoat that Powdermet owns. Abakan’s ownership in Powdermet decreased at the beginning of June
2014 from 24.99% to 24.1% as result of Powdermet’s management exercising certain stock options
resulting in a higher number of shares outstanding. On May 31, 2014, Powdermet’s ownership of
MesoCoat changed from 48.00% to 11.92% and therefore Powdermet has begun to account for its
investment using the cost method.
We have analyzed our investment in accordance of “Investments – Equity Method and Joint Ventures”
(ASC 323), and concluded that the 24.1% minority interest gives us significant influence over
Powdermet’s business actions, board of directors, and its management, and therefore we account for our
investment using the Equity Method. The table below reconciles our investment amount and equity
method amounts to the amount on the accompanying balance sheet.
Investment balance, May 31, 2014
$
2,151,817
Equity in loss for six months ended November 30, 2014
5,014
Investment balance, November 30, 2014
$
2,156,831
Below is a table with summary financial results of operations and financial position of Powdermet.
Powdermet Inc.
For the six months ended
For the six months
November 30, 2014
ended
November 30, 2013
Equity Percentage
24.1%
41%
Condensed income statement information:
Total revenues
$
1,206,950 $
1,017,706
Total cost of revenues
533,518
291,113
Gross margin
673,432
726,593
Total expenses
(641,910)
(593,871)
Other income/ (expense)
-
(994,394)
Provision for income tax benefit
(10,718)
318,818
Net profit/ (loss)
$
20,804 $
(542,854)
Abakan’s equity in net profit/(loss):
$
5,014 $
(222,570)
Condensed balance sheet information:
November 30, 2014
May 31, 2014
Total current assets
$
1,175,339 $
822,467
Total non-current assets
3,108,066
3,088,733
Total assets
$
4,283,405 $
3,911,200
Total current liabilities
$
687,917 $
424,085
Total non-current liabilities
1,011,855
924,286
Total equity
2,583,633
2,562,829
Total liabilities and equity
$
4,283,405 $
3,911,200
9
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
4. LOANS PAYABLE
As of November 30, 2014 and May 31, 2014, the loans payable balance comprised of:
Description
November 30, 2014
May 31, 2014
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured
$
1,500,000 $
1,500,000
on September 15, 2014.
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured
200,000
200,000
on September 15, 2014.
Convertible demand note to an unrelated entity bearing 5% interest per annum which matured
500,000
500,000
on July 14, 2014.
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
70,000
70,000
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
3,850
3,850
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
50,000
50,000
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
19,350
19,350
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
20,000
20,000
Uncollateralized demand note to a related entity bearing 8% interest per annum
-
65,000
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
15,000
15,000
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
43,600
43,600
Uncollateralized demand note to a related entity bearing 8% interest per annum
26,685
26,685
Uncollateralized demand note to a related entity bearing 8% interest per annum
80,994
79,494
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum
-
50,000
Uncollateralized demand note to an unrelated entity bearing 6% interest per annum
20,000
20,000
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
30,867
30,867
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum
250,000
250,000
Uncollateralized demand note to an unrelated entity bearing 5% interest per annum
668,426
130,000
Collateralized demand note to an unrelated entity bearing 5% imputed interest per annum
1,341,963
1,341,963
Collateralized term note to an unrelated entity bearing 5.15% interest per annum which
118,411
132,157
matures on September 7, 2018.
Uncollateralized demand note to a related entity bearing 8% interest per annum
21,308
21,308
Uncollateralized demand note to a related entity bearing 7% interest per annum
32,313
32,313
Uncollateralized demand note to an unrelated entity bearing 8% interest per annum
33,201
35,000
Uncollateralized demand note to an unrelated entity bearing 7% interest per annum
-
20,000
Uncollateralized term note to a related entity bearing 5% interest per annum which matures on
198,168
-
February 28, 2015
Collateralized note to an unrelated entity bearing 1% interest for the first year and then 7%
1,000,000
1,000,000
per annum for years two – seven.
Uncollateralized demand note to a related entity bearing 6% interest per annum
60,000
-
Convertible demand note to an unrelated entity bearing 7.5% imputed interest per annum
35,980
40,134
which matures on July 10, 2018.
Uncollateralized demand notes to an unrelated entity bearing 5% interest per annum
405,000
405,000
Capital leases payable to various vendors expiring in various years through September 2016;
82,165
85,505
collateralized by certain equipment with a cost of $205,157.
6,827,281
6,187,226
Less current liabilities
5,798,445
5,077,080
Total long term liabilities
$
1,028,836 $
1,110,146
10
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
4. LOANS PAYABLE - CONTINUED
On July 14, 2014, Abakan defaulted on a convertible debt obligation in the principal amount of $500,000.
The present default is in addition to a default on a promissory note due on September 15, 2014, in the
principal amount of $50,000. On August 28, 2014, the note holder filed a complaint in the United States
District Southern District of Florida. The complaint seeks $720,698.72 plus interest, penalties and legal
fees. Abakan believes that it has mitigating defenses to the lawsuit. Court proceedings are in discovery.
On September 15, 2014, Abakan defaulted on convertible debt obligations and a debt obligation to
Sonoro Invest, S.A. (“Sonoro”) in the principal aggregate amount of $2,105,000. Sonoro initiated legal
proceedings against Abakan to recover amounts due plus penalties and interest on October 2, 2014. The
complaint seeks $3,187,056.98 plus interest, penalties and legal fees. On November 6, 2014, Sonoro
obtained a Temporary Restraining Order enjoining Abakan from undertaking certain actions pending the
outcome of the legal proceedings. Abakan believes that it has mitigating defenses to the lawsuit. Court
proceedings are in discovery.
5. STOCKHOLDERS' EQUITY
Common Stock Issuances
For the six months ended November 30, 2014, Abakan issued the following shares for private placements
and conversion of debt to shares:
On July 31, 2014, we issued 43,800 shares of our common stock for services to be performed valued at
$31,098. In connection with this placement we had no offering costs.
On October 7, 2014, we issued 557,000 shares of our common stock for private placement valued at
$222,800. Abakan also issued 512,500 shares of our common stock for subscription payable valued at
$205,000. In connection with this placement we had no offering costs.
On October 7, 2014, we issued 1,792,973 restricted shares due to a downside protection provision and the placees agreed to cancel warrants to purchase 832,487 additional restricted share. Abakan offered downside stock price protection in two private placements that totaled 1,664,973 shares that closed in April 2014 and May 2014. The down-side protection offered additional shares if new private placements were offered within one year at a lower price. After receipt of these additional shares, the placees would hold the same quantity of shares as if they would have had participated in any subsequent lower priced private placement. Abakan is obligated to issue 88,775 additional shares if new private placements are issued below $.40 for every $.01 decrease through May 2015. Abakan cannot estimate if any additional shares will be issued in connection with this downside protection provision.
On November 11, 2014, we issued 7,500,000 shares of our common stock for private placement valued at
$3,000,000. In connection with this placement we had no offering costs.
On November 26, 2014, we issued 270,000 shares of our common stock for private placement valued at
$108,000. In connection with this placement we had no offering costs.
11
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
5. STOCKHOLDERS' EQUITY - CONTINUED
On November 26, 2014, we converted a debt obligation of $140,000, for 350,000 shares of our restricted
common stock. In connection with this placement we incurred stock expense on conversion of $59,500.
On November 26, 2014, we converted accounts payable obligation for $40,000, or 100,000 shares of our
restricted common stock. In connection with this placement we incurred stock expense on conversion of
$17,000.
Common Stock Warrants
A summary of the common stock warrants granted, forfeited or expired during the six months ended
November 30, 2014 and the year ended May 31, 2014 is presented below:
Weighted
Weighted
Average
Average
Remaining
Number of
Exercise
Contractual
Warrants
Price
Terms (In Years)
Balance at June 1, 2013
2,842,992
$
1.80
1.00 years
Granted
877,634
1.41
Exercised
-
-
Forfeited or expired
(1,681,058)
1.89
Balance at May 31, 2014
2,039,568
$
1.89
1.15 years
Granted
-
-
Exercised
-
-
Forfeited or expired
(1,190,134)
1.53
Balance at November 30, 2014
849,434
$
2.39
0.29 years
Exercisable at November 30, 2014
849,434
$
2.39
0.29 years
Weighted average fair value of
warranted granted during the three
months ended November 30, 2014
$
NA
The following table summarizes information about the common stock warrants outstanding at
November 30, 2014:
Warrants Exercisable
Weighted
Weighted
Weighted
Range of
Average
Average
Average
Exercise
Number
Remaining
Exercise
Number
Exercise
Price
Outstanding
Contractual Life
Price
Exercisable
Price
$
1.50
250,000
.38 Years
$
1.50
$
250,000 $
1.50
$
2.70
463,772
.20 Years
$
2.70
$
463,772 $
2.70
$
3.00
135,662
.42 Years
$
3.00
$
135,662 $
3.00
849,434
.29 Years
$
2.39
$
849,434 $
2.39
12
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
6. EARNINGS-PER-SHARE CALCULATION
Basic earnings per common share for the three and six months ended November 30, 2014 and 2013 are
calculated by dividing net income by weighted-average common shares outstanding during the period.
Diluted earnings per common share for the three and six months ended November 30, 2014 and 2013 are
calculated by dividing net income by weighted-average common shares outstanding during the period
plus dilutive potential common shares, which are determined as follows:
For the three months
For the three months
ended November 30,
ended November 30,
2014
2013
Net earnings (loss) from operations
$
(1,561,443)
$
(1,423,641)
Weighted-average common shares
71,868,049
64,332,583
Effect of dilutive securities:
Warrants
-
-
Options to purchase common stock
-
-
Dilutive potential common shares
71,868,049
64,332,583
Net earnings per share from operations:
Basic
$
(0.02)
$
(0.02)
Diluted
$
(0.02)
$
(0.02)
For the six months ended For the six months ended
November 30, 2014
November 30, 2013
Net earnings (loss) from operations
$
(2,897,215)
$
(3,562,444)
Weighted-average common shares
70,119,307
64,308,589
Effect of dilutive securities:
Warrants
-
-
Options to purchase common stock
-
-
Dilutive potential common shares
70,119,307
64,308,589
Net earnings per share from operations:
Basic
$
(0.04)
$
(0.06)
Diluted
$
(0.04)
$
(0.06)
Dilutive potential common shares are calculated in accordance with the treasury stock method, which
assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock
at market value. The amount of shares remaining after the proceeds are exhausted represents the
potentially dilutive effect of the securities. The increasing number of warrants used in the calculation is a
result of the increasing market value of Abakan’s common stock.
In periods where losses are reported the weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive.
13
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
6. EARNINGS-PER-SHARE CALCULATION - CONTINUED
These securities below were excluded from the calculations above because to include them would be anti-
dilutive:
For the three months
For the three months
ended November 30,
ended November 30,
2014
2013
Common Stock Equivalents:
Warrants
849,434
2,842,992
Options to purchase common stock
2,978,332
3,716,667
Total of Common Stock Equivalents:
3,827,766
6,559,659
For the six months
For the six months
ended November 30,
ended November 30,
2014
2013
Common Stock Equivalents:
Warrants
849,434
2,842,992
Options to purchase common stock
2,978,332
3,716,667
Total of Common Stock Equivalents:
3,827,766
6,559,659
14
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
7. STOCK – BASED COMPENSATION
2009 Stock Option Plan – Abakan
Our board of directors adopted and approved our 2009 Stock option Plan (“Plan”) on December 14, 2009,
as amended on June 14, 2012, which provides for the granting and issuance of up to 10 million shares of
our common stock. The total value of employee and non-employee stock options granted during the six
months ended November 30, 2014 and 2013, was $-0- and $234,271, respectively.
A summary of the options granted to employees and non-employees under the plan and changes during
the six months ended November 30, 2014 year ending May 31, 2014 is presented below:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Terms(In Years)
Value
Balance at June 1, 2013
3,800,000
$
1.26
7.78 years
$
108,750
Granted
850,000
1.35
Exercised
-
-
Forfeited or expired
(1,230,006)
$
1.35
Balance at May 31, 2014
3,419,994
$
1.36
7.90 years
$
126,750
Granted
-
-
Exercised
(50,000)
.65
Forfeited or expired
(391,662)
$
1.87
Balance at November 30, 2014
2,978,332
$
1.38
7.34 years
$
104,500
Exercisable at November 30,
2,060,001
$
1.30
7.34 years
$
--
2014
Weighted average fair value of
options granted during the six
months ending November 30,
2014
$
N/A
8. COMMITMENTS
There were no new commitments for the six month period ending November 30, 2014.
15
ABAKAN INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the six months ended November 30, 2014 and 2013
9. SUBSEQUENT EVENTS
Management has evaluated subsequent events after the balance sheet date, through the issuance of the
financial statements, for appropriate accounting and disclosure. Abakan has determined that there were no
such events that warrant disclosure or recognition in the financial statements, except for the following:
Employment agreement
On December 20, 2014, we entered into an employment agreement effective January 1, 2015 with a
related individual to perform duties as the Chief Operating Officer of Abakan and to continue to serve
as the Chief Executive Officer of Abakan’s subsidiary, MesoCoat under this agreement. The individual
also serves as a director of Abakan and MesoCoat. The employee retains previously granted stock
options for his service as a director. The terms of the employment agreement include a $20,000 per
month salary of which a portion is deferred, and granted 1,000,000 stock options with an exercise price
of $0.60 per share that will expire ten years from the option grant date that vest in equal parts on May
31, 2015 and May 31, 2016. The employment agreement will end on December 31, 2016 and which
time it can be renewed for 2 one year periods. In the event that this agreement is terminated early, the
employee may be eligible for a severance payment.
Stock Options
On December 11, 2014, we granted 100,000 stock options to a consultant of Abakan with an exercise
price of $0.65 per share that will expire ten years from the grant date, and vest in equal one third parts
commencing on the date of grant and on each anniversary of the option grant date.
16
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
parts of this quarterly report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition below.
The following discussion should be read in conjunction with our financial statements and notes thereto
included in this quarterly report and with the financial statements, notes and the Management
Discussion and Analysis of Financial Conditions and Results of Operations section for the year ended
May 31, 2014 contained in Abakan’s Form 10-K. Our fiscal year end is May 31.
Abakan
Abakan designs, develops, manufactures, and markets advanced nano-composite materials, innovative
fabricated metal products, highly engineered metal composites, and engineered reactive materials for
applications in the oil and gas, petrochemical, mining, aerospace and defense, energy, infrastructure, and
processing industries. Our technology portfolio includes high-speed, large-area metal cladding
technology, long-life nano-composite anti-corrosion and-wear coating materials, high-strength,
lightweight metal composites, and energetic materials. Operations are conducted through our subsidiary,
MesoCoat, Inc. (“MesoCoat”) and an affiliated entity, Powdermet, Inc. (“Powdermet”).
Abakan owns an 88.08% controlling interest in MesoCoat and a 24.1% non-controlling interest in
Powdermet. Powdermet owns a 11.92% interest in MesoCoat. Abakan’s interest in Powdermet represents
an additional 2.87% indirect interest in MesoCoat. Abakan’s combined direct and indirect interest in
MesoCoat is equal to 90.95% ownership.
MesoCoat
MesoCoat’s Business
MesoCoat is an Ohio based materials science company intending to become a technology leader in metal
protection and repair based on its metal coating and metal cladding technologies designed to address
specific industry needs related to conventional oil and gas, oil sands, mining, aerospace, defense,
infrastructure, and shipbuilding. The company was originally formed as a wholly owned subsidiary of
Powdermet, known as Powdermet Coating Technologies, Inc., to focus on the further development and
commercialization of Powdermet’s nano-composite coatings technologies. The company was renamed as
MesoCoat in March of 2008. Thereafter, in July of 2008, the coatings and cladding assets of Powdermet
were conveyed to MesoCoat through an asset transfer, an exclusive IP license and technology transfer,
and a manufacturing support agreement.
17
MesoCoat has since developed a proprietary metal cladding application process known as CermaClad and
advanced nano-composite coating materials known as PComP, that work to combine corrosion and wear
resistant alloys, and nano-engineered cermet materials with proprietary high-speed coating or cladding
application systems. Ten of MesoCoat’s products; 3 Corrosion Resistant Alloy (CRA) materials (625,825,
316L), 3 Wear Resistant Alloy (WRA) material. (Tungsten Carbide (WC), Chrome Carbide (CRC),
Structurally Amorphous Metal (SAM) Alloys) and 4 PComP product families (PComPW, PComPT,
PComPS and PComPM) have either undergone extensive testing, or are being tested by oil and gas
majors, pipe manufacturers, oil field equipment manufacturing and service companies, original equipment
manufacturers (OEMs) and other end users.
MesoCoat’s revenues are comprised of sales of PComP powder along with thermal spray applications and
research and development grants. Current grants from U.S. government agencies are to develop new uses
for PComP powders and CermaClad applications to develop solutions to critical problems, including
certain projects for the Environmental Protection Agency, the National Aeronautics and Space Agency,
the Department of Energy and the National Insitute of Health. Meanwhile CermaClad products, which are
intended to include the cladding of the inside of a full length pipe for use within the oil and gas, and
mining industries, are in the development and qualification stage.
The recent dramatic decline in oil prices may affect Abakan’s business to some extent should
current prices remain consistent or continue to decline. Even so, Abakan believes that the impact on its
business over the short and long term would be minimal. The best alternative to clad pipe for the
transportation of corrosive oil is pipe made from solid alloy which is at least five times more expensive
than clad pipes. Lower prices paid for energy might in fact compel oil and gas companies to choose clad
pipe over solid alloy pipe. Since more than 70% of the remaining oil fields in the world are highly
corrosive the use of clad pipes for these fields may no longer an option but a necessity. Furthermore,
almost 40% of the new projects that require clad pipes are for gas and not oil. Natural gas prices in Asia-
Pacific and Africa (where most of these projects are located) are about three to five times higher than
what you find in the United States.
Most industry analysts are confident that oil will stabilize at $60-70 per barrel within the next 6 months.
Oil prices though cyclical in nature are now seeing far lower recovery periods, down from a decade to a
year. Therefore, Abakan expects the falling oil prices to be a 6 month concern rather than a 5 year
problem. Abakan’s independent analysis coupled with several research reports clearly reflect that more
than 80% of conventional oil fields have a lower than $45 per barrel cost of production, which means that
oil companies will still be making more than a decent margin if the oil prices settle at $60-70 per barrel.
Certainly, moon-shot oil and gas projects, like drilling in Arctic have been shelved, but we do not believe
that this immediate industry reaction will result in a lasting impact for most oil and gas projects under
consideration.
Although the oil and gas industry is important to Abakan it is not the only one that could benefit from our
business. The U.S. Department of Commerce counts 800 industry classifications that face problems with
corrosion, which is a growing issue faced by companies worldwide. Abakan’s advanced metal coating
solutions addresses the concerns of several other large industries including mining, aerospace and
defense, chemical, petrochemical, infrastructure, nuclear, desalination, and others. For example, the U.S.
military alone spends over $40 billion annually to address wear and corrosion of its assets (Source: The
U.S. Army’s SBIR Commercialization Brochure, 2010)
18
According to ‘The World Corrosion Organization’, the cost of corrosion to the global economy is $2.2
trillion annually, or roughly 3% of the world’s GDP. The global market for products and services to
combat wear and corrosion is estimated at over $200 billion, which includes more than $103 billion
annually in paints and coatings, and a forecasted $100 billion in specialty steel, alloys, and metal
composites (Sources: Data Monitor and BCC Research).
Abakan in partnership with UP Scientech Materials Corp. (“UP Scientech”), one of the largest wear-plate
manufacturer in the world, is now focusing additional effort to cater to the mining and cement industry,
which constitutes roughly 85% of UP Scientech’s market. Mining, cement, and steel are all industries that
realize the most losses due to wear, when components have to be discarded and replaced often due to the
highly abrasive environment. Abakan’s CermaClad technology is now being used to develop long-life
wear-resistant clad plates that it expects will be distributed through UP Scientech’s existing sales and
marketing channels in over 35 countries.
Furthermore, Abakan is also developing solutions for the nuclear, healthcare, medical, and steel
industries, primary funded by government agencies.
PComP.
PComP is a family of nano-composite cermet coating materials used to impart wear and corrosion
resistance and to restore dimensions of worn metal components. Named for its particulate composite
powders, PComP, is the result of over a decade of nano-engineered materials development, and is now
one of the few commercially viable industry replacement solutions for hard chrome and carbides.
PComP competes against thermally sprayed carbide and other coatings such as chrome and nickel plating
in the $32 billion dollar (source, BCC Inc.) inorganic metal finishing market. Competing materials like
hexavalent chrome, carbides and tungsten carbide-cobalt have become a major concern for industrial
producers in the metal finishing industry since these materials are on the EPA’s hazardous materials
watch list and are legally banned in many countries. While businesses grapple with the need to transition
away from these harmful products, they continue to spend billions on these materials despite the harm
done to the environment. The adoption of green products and processes such as PComP thermal spray
coatings would place the business at a competitive advantage over destructive solutions while at the same
time mitigating environmental liabilities. PComP thermal spray coatings comprise a performance leading
solution platform which has shown order of significant improvements in head to head wear and corrosion
performance tests while offering a significantly better value proposition over other hard chrome
alternatives.
On the PComP platform, MesoCoat has developed and patented a family of corrosion resistant and wear
resistant coating solutions that combine extreme corrosion and/ or wear resistance, fracture toughness
(resiliency), and a low friction coefficient all in one product. In conventional materials science toughness
normally decreases as hardness and wear resistance increases. However, by combining nano-level
structure control and advanced ductile phase toughening materials science, MesoCoat has developed a
material structure that can be both very tough and very wear resistant (hard). Equally important, the
hardness of a wear coating normally limits the ease with which it can be machined. The unique
hierarchical structure of the PComP coating solutions results in a coating that can be machined through a
finish grinder much faster than a product with a traditional carbide coating which needs to be diamond
ground. The speed of coating application and final machining results in higher productivity and lower
costs in metal finishing operations.
19
The revolutionary nano-structure of the PComP coatings produces a coating that is self-smoothing in
service, resulting in friction properties approaching those of diamond-like carbon films and solid
lubricants, with the ability to be used structurally and applied to large components at a fraction of the cost
of coatings such as diamond-like carbon. This low friction property reduces wear, and improves energy
efficiency and life in sliding components such as drilling rotors, plungers, mandrels, ball and gate valves,
rotating and sliding seals, and metal processing equipment.
The PComP product platform, combined with metal finishing applications of the large area weld overlay
technologies underlying the CermaClad clad steel product family provides a high degree of product
differentiation and a sustainable competitive advantage, which includes OEM components and the
maintenance, repair, and overhaul of industrial assets and machinery in the “components manufacturing
and repair” segment of MesoCoat’s business.
The PComP family of nano-composite coatings currently consists of five products, not including variation
in composition, all of which have shown in testing by third parties to provide better wear, corrosion and
mechanical properties at a lower life cycle cost than these, and several other alternatives are as follows:
Wear and Corrosion Resistance and Dimensional Restoration
PComP T is a titanium carbo-nitride based high corrosion/wear resistant, low friction high velocity
oxygen fuel (HVOF) coating that competes with hard chrome and diamond like carbon PVD (physical
vapor deposition) alternatives for hydraulic cylinders, piston rings, bearings, rotating shafts, and valve
components where low stick-slip, corrosion, and modest wear resistance are required. PComP provides
both wear and corrosion resistance (unlike chrome), and significantly reduces environmental safety and
health liabilities. Furthermore, in many applications, thermal spray coatings such as PComP provide life
multiples over chrome (80 times in cylinder liner application in testing reported by Caterpillar). Lower
coefficient of friction protects seals from premature wear and reduces energy consumption in rotating
components through lower friction losses, and the lower coating stresses and higher toughness enable
thicker coatings to be applied than chrome or other alternatives, meaning component life can be extended
through enabling additional repair cycles. Grinding and finishing of PComP T coatings can be done faster
and cheaper with conventional grinding techniques compared to the expensive diamond finishing process
used for competing carbide coatings.
PComP S is a silicon-nitride based hard chrome replacement solution for aerospace applications that
exhibits high toughness, wear resistance and displays increased spallation resistance. PComP S also has
the lowest density of any chrome alternative, enabling significant fuel savings to be realized in
transportation markets.
PComP W is MesoCoat’s “nano-engineered” tungsten carbide coating solution that offers industry
leading toughness and wear resistance for thermal spray coatings, making it better for critical high wear
applications such as gate valves and downhole drilling tools. PComP W replaces conventional tungsten
carbide cobalt in the thermal spray industry and provides increased wear resistance, design allowable
(stress levels), and reduced friction in abrasive wear applications, with higher toughness and impact
resistance than ceramic alternatives such as alumina-titania.
20
Liquid Metal Corrosion
PComP M is a hierarchically structured molybdenum boride coating designed for use in liquid metal
corrosion application, especially the rolls used in galvanizing baths. PComP M has demonstrated, in
laboratory and initial field testing, vastly improved molten metal corrosion resistance, combined with
increased durability and reliability, in the rapidly changing environment encountered in molten metal
contact when compared to conventional materials. MesoCoat believes that its PComP M will be able to
provide significant cost savings to industrial customers and generate a new revenue stream within the
$150+ million primary metals production equipment coatings market. We expect to focus PComP M
initially on zinc pot stabilizer roll and pot bearing roll refurbishment market.
Thermal Barrier Coatings
ZComP is MesoCoat’s nano-composite thermal barrier coatings that offers 50% lower thermal
conductivity, with improved toughness and cyclic thermal life compared to conventional thermal barrier
coatings in the $500 million thermal barrier coatings market. MesoCoat has received interest from
multiple companies in multiple industries needing improved thermal barrier materials, but to date Abakan
has not formed any partnership with such entities. Abakan initially wants to introduce ZComP materials
into the turbine engine market.
CermaClad
CermaClad is a multiple award winning technology to produce coatings that protect metal, primarily
carbon steel, from wear and corrosion, that offers the benefits of corrosion resistant alloys such as
stainless steel, nickel, or titanium based alloys and wear resistant materials such as tungsten carbide and
chrome carbide at a significantly lower cost by permanently altering, or cladding, the surface of a high
strength, low cost carbon steel with a layer of a much higher cost wear or corrosion resistant alloy. The
result is a hybrid product offering the wear and corrosion performance of costly alloys with the ease of
fabrication and the lower cost of traditional steel material.
Cladding refers to the process where a high performance wear or corrosion resistant metal alloy or
composite (the cladding material) is applied through the use of high pressure and/ or high temperature
processes onto another dissimilar metal (the base metal or substrate) to enhance its durability, strength or
appearance. The majority of clad products produced today use carbon steel as the substrate and nickel
alloys, stainless steel, or various hard materials such as chrome carbides as the clad layer to protect that
underlying steel base metal from the environment it resides in. MesoCoat is utilizing a unique, patented,
“High Density Infrared” or HDIR technology, exclusively licensed from Oak Ridge National Laboratory
(“ORNL”) to produce clad steel. Testing by ORNL has shown that this HDIR technology is capable of
applying a very high quality cladding at 2 to 10 times higher productivity (100’s of Kg’s versus 3-
20Kg/hr) than traditional laser bead or weld cladding techniques, in current wide commercial use.
MesoCoat believes that this HDIR process represents the first truly scalable, large area cladding
technology. Scalable, low capital cost cladding technology then enables the production of large volumes
of customized, premium, high margin clad steel products.
21
CermaClad clad steel is a metallurgically bonded, clad carbon steel materials solution that is
optimized to manage the risks and consequences of wear and corrosion damage and the failure of large
assets including oil and gas risers and flowlines, refinery/chemical processing towers and transfer lines,
power plant heat exchanger tubes, and other steel infrastructure. In corrosive environments, including
seawater, road salt, mining slurry transport lines, unprocessed oil containing water, sulphides and carbon
dioxide, chemical processing and transportation equipment, metals production, and other large industrial
applications, asset owners and operators either need to continually maintain and replace major assets, or
fabricate these assets using expensive, corrosion resistant alloy (CRA) materials, which substantially
increase capital costs.
Clad steel, and CermaClad in particular, offer a competing, lower cost solution to these alloys, allowing
the owner or operator to use clad carbon steel which typically costs about half of solid CRA. Combining
the reduced material cost with reduced fabrication, installation, and maintenance costs, cladding solutions
such as CermaClad are estimated to save up to 75% over the cost of using solid alloys, while still
providing essentially maintenance free corrosion lifetimes equal to the life of the asset. In the last 20
years, clad steel products have gained wide acceptance and continually increased its market share in oil
and gas exploration and production, mining, petrochemical processing and refining, nuclear, and power
generation industries. The oil and gas industry is the largest consumer of clad steel products. In order to
meet growing global energy demands, oil companies continue to extend their offshore drilling efforts into
deeper waters farther from shore. The higher temperatures and corrosivity (carbon dioxide, sea water,
hydrogen disulfide content, etc.) of these new reserves are resulting in a significantly increased demand
for corrosion resistant alloys.
Currently used cladding processes include weld overlay, roll-bonding, co-extrusion, explosion cladding,
and mechanical lining. While cladding carbon steel pipes is cheaper than using a solid stainless steel
alloy, current production technologies still have significant limitations which CermaClad is believed to
overcome. Directly comparable metallurgically clad pipes are primarily manufactured using roll-bonded
clad plate which is bent and welded to form a pipe. Though a higher productivity process, Roll-bonded
pipe involves a lot of welded area and the failure of that weld is the single most common reason for
pipeline leaks. Furthermore, current bimetal rolling mills are limited to around 40 feet in length by 5 feet
in width (less than 20 inch diameter), limiting the size of pipe that can be fabricated. Expanding roll mill
size to enable the production of larger diameter pipe needed for large gas projects in Southeast Asia
would require very large investments, estimated to be in excess of a $400 million compared to similar
capacity from an 8-line CermaClad™ large diameter pipe production facility budgeted to cost $43
million.
Mechanically lined (bi-metal) pipe now makes up a significant portion of the clad pipe market. Bimetal
pipe is lower in cost than metallurgically clad pipe, but provides only a mechanical attachment between
the inner and outer pipe. This reduced bonding strength results in a higher risk of buckling, wrinkling and
disbonding when under stress, such as during bending, reeling, or application of external coatings on
these pipes. Mechanically lined pipe also raise concerns with respect to uniformity and reliability in that
the gap between the inner and outer pipes, coupled with the mixture of materials, leads to challenges in
NDT (non-destructive testing) inspections. Co-extrusion is another process that involves extruding a
bimetal billet into a clad pipe. Co-extrusion has not been successful in producing long lengths of larger
diameter pipes, and would require significant capital investment and further technology development to
meet growing demand for the thicker wall and larger diameter clad pipes that CermaClad is targeted. The
remaining production process, weld overlay, does not have the productivity needed to meet clad pipe
demand, and is primarily used for smaller diameter and complex shapes, such as manifolds and
“Christmas tree’s” used in oil and gas, although weld overlay is a dominant technology for wear resistant
overlays that cannot be produced by the other techniques.
22
CermaClad clad steel utilizes MesoCoat’s proprietary cladding process based on the use of a high-
intensity arc lamp to rapidly melt, fuse, and metallurgically bond (make inseparable) the protective,
proprietary cladding materials onto steel pipes and tubes (internal and external surfaces), plates, sheets,
and bars. The CermaClad clad steel product portfolio combines this high-speed fusion cladding process
with proprietary corrosion resistant alloy (“CRA”) and wear resistant alloy (“WR”) coating materials
which incorporate patented micro-structural and compositional modifications. The HDIR process melts
and fuses material onto the inside of a pipe within seconds to produce the CermaClad product that offers a
seamless metallurgical bond, a smooth surface, low porosity, and minimal dilution of the overlay, along
with good strength retention of the substrate . More importantly, CermaClad clad pipe is easier to inspect
and install (reel) irrespective of the size and thickness of the pipe compared to current alternatives.
Clad steel is a specialized, profitable segment of the steel industry where demand has outstripped supply
and margins are high as a result. Historically, the typical contract for clad pipe was for 3 to 5 kilometers
of product with larger contracts for 20 to 30 kilometers of product. Typical requirements today, even for
those projects that will be put on hold or reevaluated with the recent drop in energy prices, are for tens of
kilometers with a number of long term projects needing hundreds of kilometers per project. As a result the
clad pipe market has grown rapidly and the limitations of current solutions in terms of installation,
inspectability, quality, and availability are inhibiting growth. Future, commercialization of CermaClad
clad pipes should be able to address these constrains to clad pipe market growth.
Management believes the competitive advantages of CermaClad over current competing technologies and
products are:
§ CermaClad clad steel provides a metallurgically bonded overlay, making the clad pipes easier to
inspect, bend, reel, and install compared to the widely used and slightly lower cost mechanically
bonded clad pipes.
§ CermaClad clad steel offers a seamless metallurgical cladding requiring only girth welds, unlike
the pipes made from metallurgically clad plates which have longitudinal welds.
§ CermaClad application technology utilizes a 30cm wide, high density, infrared “lamp” compared
to a 0.7 cm wide laser “torch” for laser or inert gas welding torches, resulting in application rates
much faster than current weld overlay technologies.
§ The proprietary process used to make CermaClad clad steel products is more flexible (it can do
both wear and corrosion resistant alloys, for example), and has relatively low capital costs for
initial and added capacity. This provides the advantage of being able to respond to customer
needs, such as meeting local content requirements, faster and with less investment risk than
currently established alternatives.
§ CermaClad products exceed the requirements of the defining API 5LD and DNV OS F101
standard requirements for clad pipe.
§ CermaClad offers a smoother surface, minimal dilution, greater flexibility in materials, and the
ability to do thinner, lower cost claddings than current production technologies.
The CermaClad clad steel product lines under development include:
§ CermaClad CRA (Corrosion Resistant Alloys). 1-3mm thick CRA clad steel that offers a lower
cost alternative to solid nickel, stainless steel, and titanium alloys for oil and gas, mining,
desalination, pulp and paper, and chemical process.
§ CermaClad WR (Wear Resistant). 1-15mm thick carbide, metal matrix composite, structurally
amorphous metal, and nano-composite wear resistant clad steel that extends the life of steel
structures such as hydrotransport slurry lines, pump components, valve components, spools, T’s,
and elbows for oil sands, heavy oil, mining and mineral processing.
23
§ CermaClad HT (High Temperature). Steel clad with nickel-chromium and metal-chromium-
aluminum alloys for high temperature applications such as heat exchanger tubing, boiler
waterwalls, and other energy production components offering greater compositional control
(higher performance) and lower cost than solid alloys or traditional weld overlays.
§ CermaClad LT (Low Thickness). Lower cost thin-clad steel that exploits the unique high purity
capabilities of the HDIR application process to provide thin one millimeter claddings that should
provide 50-200 year corrosion free life in atmospheric and seawater corrosion environments.
This “stainless steel paint” is applicable to the outside diameter transportation pipelines, marine
structures, fuel and cargo tanks, bridges, architectural steel, and transportation structures.
Current Grants
Abakan’s subsidiary MesoCoat has consistently received highly-competitive funding from several federal
and state agencies, which has significantly assisted MesoCoat in developing a robust product pipeline;
MesoCoat’s PComP nano-composite coating materials were incubated and developed using federal
funding. Below is a brief summary of ongoing federally funded projects that provide an overview of the
product pipeline.
Developing CermaClad as an Alternative to Toxic Galvanizing
The Environmental Protection Agency (EPA) provided $100,000 in funding to MesoCoat to develop zinc
coatings that have excellent corrosion resistance using its R&D100 award-winning CermaClad process,
which uses a high-density infrared (HDIR) lamp to fuse a uniform layer of metal onto metal surfaces.
Under this program, MesoCoat’s CermaClad process was used to coat the base materials with Zn in order
to minimize the detrimental effect on environment caused by the pickling step in the galvanizing process
conventionally used for coating steel parts.
Zinc powder was sourced to confirm a suitable supply for the CermaClad process. The powders were
evaluated for relative ease in manufacturing of an alloy precursor, prior to coating fusion on steel
surfaces. Precursor composition and thickness were down-selected and lamp processing parameters
determined to successfully melt and fuse a thin (0.1 mm) layer of zinc to plain carbon steel surfaces. The
coating surface composition contained 2-3 wt% Fe; the corresponding microstructure was evaluated and
found similar to commercial hot dip galvanized plates, having significant volume fraction -phase
encased by solid solution zinc. It was shown that fused zinc coatings behaved similarly to commercial
galvanized steel coatings. Finally extensive testing was performed on both CermaClad zinc coatings and
commercial galvanized coatings. The CermaClad zinc coatings exhibited similar or better corrosion
properties than the commercially galvanized steel, surviving 500 hours of ASTM B117 Salt Fog testing.
High-Temperature Coatings for Nuclear Reactors
National Aeronautics and Space Agency (NASA) provided $125,000 in funding to MesoCoat to develop
a series of nano-/micro-composite coated nuclear reactor facing components using MesoCoat's
CermaClad process. MesoCoat's CermaClad process has been used to coat carbon-carbon substrates with
Tungsten (W), and Molybdenum (Mo). The different combinations of substrates and coatings produced a
material structure that is capable of high heat transfer and be able to withstand the high-temperature and
high-heat flux environments present in fission energy reactors, such as nuclear thermal rockets. The
proposed concept is ideal for fission energy technology applications at high temperatures (less than
4400oF) where these nano-composite coatings that can withstand extreme heat and facilitate high heat
transfer for an extended period of time.
24
Extreme Coatings for Gears, Bearings, and Shafts
NASA provided $125,000 funding to MesoCoat to develop advanced coatings that self-lubricate to
minimize friction and wear in extreme environments. MesoCoat’s R&D100 award-winning PComP™
nanocomposite coatings have the same characteristics as diamond like carbon coating, but the additional
advantages of low cost application, ability to shield the substrate, and the ability to incorporate solid
lubricants into the nanocomposite, and offer one of the few viable alternatives to DLC coatings with a (in
at least one experts opinion) significantly higher probability of success in the gearbox application.
MesoCoat achieved the goal of this program by thermal spraying of hierarchical nanostructured hard
particle-based powders with specific chemistry. MesoCoat conducted preliminary testing to prove the
high wear resistance and low friction of novel materials under specified conditions. Under this program,
MesoCoat successfully demonstrated that the nanostructured thermally sprayed coatings exhibits wear
rates that is under the detection limit. MesoCoat successfully demonstrated that the proposed material is a
viable candidate for gear, bearings or shafts.
Joining Dissimilar Metals
MesoCoat along with Oak Ridge National Laboratory (ORNL), have been awarded $1 million by the
Department of Energy (DOE) to develop a process to join dissimilar metal alloys. The primary objective
of this project is to develop functional gradient transition joints between carbon steel and austenitic
stainless steel for nuclear reactors. The research will directly address the needs described in development
of advanced joining techniques for materials for nuclear fission reactor applications. This collaborative
project capitalizes on recent advances made by each organization in the field of dissimilar metal joining
and application of high-energy density plasma arc lamp processing. This project will use high density
infrared generated by plasma arc lamp to build gradient transition joint for dissimilar metal welding.
In order to add new design and functionalities to metal components, equipment, and structures; it is
essential that engineers are provided with the tools to join dissimilar metals. For example, on the inside
the reactor may need corrosion or wear protection and on the outside heat-resistance or toughness. By
providing the technology to join dissimilar metals, MesoCoat is providing designers and engineers the
capabilities to explore, design, and develop new material systems. The uniqueness of MesoCoat’s
CermaClad process is the ability to melt, fuse, and metallurgically bond dissimilar materials; and that is
the primary reason why the Department of Energy has entrusted MesoCoat with the responsibility of
protecting our nation’s critical assets in the nuclear industry.
Improving the ability to join dissimilar materials with engineered properties are enabling new approaches
to add limitless functionalities to metals, light-weighting automotive structures, improving methods for
energy production, creating next generation medical products and consumer devices, and many other
manufacturing and industrial uses. Further, CermaClad technology is ideally-suited for additive
manufacturing, the newest trend in manufacturing to add layers of metals one upon the other for
dimensional restoration and extending the useable life of metal assets. Not many are aware of the
problems caused by metal components, equipment, and structures that do not last long enough. Apart
from the massive costs involved with infant failure of metals which includes downtime, maintenance, and
replacement costs; it is estimated that every tonne of metal production leads to 2.4 tonnes of CO2
emission. The impact of metals that could last three to six times longer would be significant development
that could lead to a paradigm shift in metal asset protection and life extension.
25
Antimicrobial Coating for Healthcare
National Institute of Health (NIH) provided $150,000 funding to MesoCoat to develop copper-based
antimicrobial coatings primarily for contact surfaces like door knobs, handles, rails, carts, poles, sinks,
etc. In addition to hospital use, these coatings could also be applied to many other public areas such as
airports, bus and railway stations, schools, restaurants and work places. Antimicrobial coatings could
have a significant positive impact on public health by preventing the onset of infections and diseases
Under this program, MesoCoat intends to demonstrate the technical and manufacturing feasibility and
capabilities of producing durable, aesthetically pleasing and cost-effective, antimicrobial touch surfaces
for hospitals and public places. This development combines known antimicrobial copper alloys with a
low cost high volume process such as CermaClad capable of achieving touch surface market penetration
by offering a corrosion resistant aesthetically pleasing solution that is lower cost than stainless steel
components currently used with the known benefit of being anti-microbial. The project is designed to
provide the evidence and experience to verify the technical and economic feasibility of producing and
using copper-alloy cladded steel as a cost-effective, visually attractive antimicrobial material for touch
surfaces in the medical and healthcare and other industries.
Recent Developments
The PComP ramp up of coating materials to 18 tonnes has been delayed due to the need to implement
necessary modifications to our existing production facility in Euclid Ohio. MesoCoat had expected that
the modifications would be completed by December 2014. However, the decision taken in December to
construct a new facility dedicated to the production of PComP, to enable the second stage ramp up in
production of PComP powders to 160 tonnes, caused us to expand the scope of the modifications to
ensure that our modified infrastructure could be readily transferred for use within that new facility. We
now expect that our expanded modification of our existing facility will be completed in February 2015.
Meanwhile, as modifications come back on line we have realized an initial increase in powder production,
production efficiencies have doubled when compared to materials used in the process prior to beginning
the modifications and most importantly we are already seeing an increase in the quality of the product.
During August of 2014, we also installed technology upgrades to our facility in Euclid. MesoCoat
installed fiber optic data lines for both a new server and phone system. Several new computers purchased
and installed. We also upgraded our security with a stronger anti-virus and firewall system. New software
was acquired to network our computers and upgrade office production and engineering design software.
The upgrades have vastly improved both communication and security at the facility. The new systems are
fully backed up both on site and remotely in a fully encrypted format in compliance with best industry
practice.
Abakan’s sales agent in Mexico, Metallurgic Solutions, S.A. de CV (“MetalSol”) are proceeding with
trial runs and the evaluation of roller screens (Rolls) coated with MesoCoat’s PComP W104 by one of
Mexico’s largest steel manufacturers. Results to date have been excellent and we expect to procure an
annual contract to coat Rolls with PComP W104 at the facility in which these results were obtained when
the evaluation process is completed. Meanwhile, MetalSol continues to converse with both the federal and
state government agencies. The state government of Campeche, known as the center of the off-shore oil
and gas industry in Mexico, has indicated an interest in making land available to us on we could build a
production facility within a new oil services port currently under construction, Furthermore, MetalSol has
been in discussions with the national standards office to assist in establishing standards for clad pipe that
are similar to those maintained by the API. Finally, we are in discussions for a grant/contract with the
faculty of aeronautical engineering at the University of Queretero to assist us in the further development
of our Cermaclad products in particular in the development of binders and CFD modeling.
26
On November 13, 2014, Abakan entered into a Letter Agreement with UP Scientech Materials Corp.
(“UP Scientech”) to procure a strong industry partner, that included a provision for an exclusive Sales
Agency Agreement for PComP sales in Japan, South Korea, China and Taiwan and a series of options
granted to UP Scientech to cause Abakan to establish up to four joint venture companies for the
manufacture and sale of PComP, CermaClad Plate and CermaClad Pipe on a global basis. The Letter
Agreement also included a provision that caused UP Scientech to make a $3 million equity investment in
Abakan.
MesoCoat’s partnership to establish a prototype demonstration facility for developing, testing and
commercializing wear-resistant clad pipe and components in Alberta, Canada was delayed due some
facility inadequacies that have since been addressed. A lamp system was shipped to the demonstration
facility in December for installation. The equipment is now in the process of being installed.
CermaClad product development plans to move ahead with ever longer runs of steel pipe both in time and
coated area. Initial quality control inspection of runs made to date has proven satisfactory and additional
metallurgical tests have validated this success. Further, in order to concentrate all research and
development under one roof, we completed the relocation of our second and third lamp system to Euclid,
Ohio, which equipment was previously installed in our R &D facility in Eastlake, Ohio. We expect to
commence experimental runs on larger diameter pipe early in 2015.
Anticipated Product Development Timeline
The anticipated product development timeline detailed below is based on management’s estimate of the
time requisite to bring the respective products to market, all of which products are subject to uncertainties
surrounding the actual completion date of any number of items as is normal in product development.
Note, certain of the anticipated commercial timelines presented have not advanced since the end of our
last reporting period. Unless otherwise explained below in respect to specific products, the unanticipated
delays are attributed, in large part, to ongoing supply and support issues with our arc lamp component
supplier, personnel changes, the need to replace aging equipment associated with PComP and the
availability of financing.
TIME TO
PRODUCT
COMMERCIAL STATUS
COMMERCIALIZE
(MONTHS)
PComP W
Growth and Expansion
Current
PComP T
Market Entry
Current
PComP M
Field Testing
Current
PComP S
Prototype Qualification
12
PComP Coating Services
Market Entry
Current
ZComP
Development
18
CermaClad CRA Euclid, Ohio
Full scale product API qualification
9 for small scale orders
CermaClad CRA 4 line plant
Full scale product API qualification
28 full scale production
CermaClad WR
Development
8 plate sales from OH
CermaClad LT
Development Delayed
24
CermaClad HT
Incubation
36
27
Product Commercial Expansion Timeline
Abakan’s near term plan is to expand the presence of its products in North America and the Asia-Pacific
market. We expect to soon enter into negotiations to construct a production facility in Taiwan in
partnership with UP Scientech. Metalsol has been working to get financial support from local government
and corporate entities to build a production facility in Mexico. Meanwhile, our wholly owned Asian
subsidiary, PT MesoCoat Indonesia, in positioned to construct a manufacturing plant on the island of
Batam, Indonesia at such time as CermaClad product development draws close to commercialization.
Results of Operations
(000)
For the three months ended
For the six months ended
November 30,
Change
November 30,
Change
Revenues
2014
2013
$
%
2014
2013
$
%
Commercial
$
69 $
112 $
(43)
(38)
$
155 $
137 $
18
13
Contract and grants
82
72
10
14
323
135
188
139
Other income
0
10
(10)
(100)
0
10
(10)
(100)
151
194
(43)
(22)
478
282
196
69
Gross profit
46
87
(41)
(47)
266
95
171
179
General and administrative
1,394
1,474
80
5
2,539
3,572
1,033
29
Stock options expense
202
301
99
33
524
620
96
15
Operation Loss
(1,550)
(1,688)
138
8
(2,797)
(4,097)
1,300
32
Interest exp & amortization
of discount on debt
(130)
(61)
(69)
(113)
(267)
(237)
(30)
(13)
Other income (expense)
21
(78)
99
127
2
(222)
224
101
Loss before non-
controlling interest
(1,659)
(1,827)
168
8
(3,062)
(4,556)
1,494
33
Non-Controlling interest in
MesoCoat loss
97
403
(306)
(76)
165
994
(829)
(83)
Loss before income taxes
(1,562)
(1,424)
(138)
(10)
(2,897)
(3,562)
665
19
Income taxes
-
-
-
-
-
-
Net Income
(1,562)
(1,424)
(138)
(10)
(2,897)
(3,562)
665
19
Revenues
The $43,000 decrease in revenue, or 22% from $151,000 for the current three month period as compared
to the prior comparative period revenue of $194,000, is the result of delayed shipments at the request of
the customer. Meanwhile, we continued production and inventoried $34,560 of raw material, work-in-
progress and finished goods at the end of the current period. The $196,000 increase in revenue, or 69%
from $478,000 for current six month period over the prior comparative period revenue of $282,000, is the
result of increased factory production and the award of three grants.
We expect grant revenue to increase over the next twelve months, which will include the award of a $1
million grant, to be shared equally with the Oak Ridge National Laboratory over thirty months, from the
DOE, to develop a process to join dissimilar metal alloys. MesoCoat also won a $150,000 SBIR (Small
Business Innovation Research), award from the NIH during the current quarter, to develop antimicrobial
coatings based on its high-speed large-area metal cladding technology CermaClad. Work on the SBIR is
anticipated continue through the next two quarters.
28
We expect an increase in commercial revenue over the next twelve months as MesoCoat completes its
PComP expansion plan. MesoCoat expects to better penetrate the market for PComP through qualified
application partners applying PComP in Houston, Calgary, and Florida, while simultaneously working
directly with OEMs, to build demand and market acceptance. MesoCoat is also relying on agents and
partners including MetalSol/Mexico and UP Plate/Taiwan to augment direct marketing resources to
pursue industry projects, get placed on approved vendors list, create demand and eventually preference,
and manage market acceptance risk. While implementing the PComP expansion, we continue to focus
on the development of both current and new products.
Gross Profit
Gross profits in both periods can be wholly attributed to the operations of MesoCoat. The $41,000
decrease in gross profit, or 47% from $46,000 for the current three month period as compared to the prior
comparative period of $87,000, can be partially attributed to the delayed shipments at the request of the
customer. The $171,000 increase in gross profit, or 179% from $266,000 for current six month period
over the prior comparative period of $95,000, is attributable to the award of additional grants during the
current and prior periods.
We expect gross profit to increase over the next twelve months as MesoCoat expands its PComP product
line and increases in grant revenue due to the awards received after the end of the quarter.
Net Losses
We do not expect to realize net income in the near term due to anticipated operational expenses associated
most significantly with facility expansion, research and development, consulting, payroll expenses and
the depreciation and amortization of existing assets. The increase in expenses are expected to be the direct
result of continued research and development costs associated with the CermClad™ product line in
addition to costs anticipated for the building of a manufacturing plant.
Despite management’s focus on ensuring operating efficiencies, we expect to continue to operate at a loss
through fiscal 2015.
Expenses
The $80,000 decrease in operating expense, or 5% from $1,394,000 for the current three month period as
compared to the prior comparative period of $1,474,000, can be attributed to lower payroll, research and
development and consulting fees as result of increased efficiencies. The decrease for the quarter was
partially offset by higher professional fees and administrative expense as a result of additional audit fees
incurred for the year-end audit, costs associated with the share exchange transaction with Powdermet, and
travel expenses incurred to expand our partnership base on the PComP product line.
The $1,033,000 decrease in operating expense, or 29% from $2,539,000 for the current six month period
as compared to the prior comparative period of $3,572,000, can be attributed to a realignment of our
management team and labor force that included the decision not to fill non-critical positions eliminated in
the realignment, and our renewed focus on operating efficiencies that caused us to further examine our
research and development practices.
We expect that operating expenses will increase over the next 12 months as our aggressive growth
strategy over the next five years will require significant increases in personnel and facilities along with
significant research and development to ensure that products nearing commercialization are brought to
market as quickly and as effectively as possible.
29
Interest Expense and Amortization of Discount on Debt
The $69,000 increase in interest expense, or 113% from $130,000 for the current three month period as
compared to the prior comparative period of $61,000, can be attributed to the increase in our debt load
and the accrual of higher interest expenses associated with certain debt defaults which are currently being
contested through the judicial process. The $30,000 increase in interest expense, or 13% from $267,000
for current six month period over the prior comparative period of $237,000, is similarly attributable to the
increase in our debt load and the accrual of higher interest expenses on certain debt defaults. The increase
was partially offset by the prior period discount on debt being fully amortized in the period.
Other Expense/Income
The $99,000 and $224,000 positive change in other expense / income in the three and six month period
ending November 30, 2014, over the prior comparative periods, was mainly due to the decrease in
Abakan’s equity interest in Powdermet for the current period over the prior comparative period.
We expect to continue to incur other expense in future periods based on the accrual of interest of existing
debt and that debt anticipated in future periods to support future expansion.
Non-controlling interest in MesoCoat loss
The $306,000 and $829,000 decrease in non-controlling interest of MesoCoat loss in the three and six
month period ending November 30, 2014, over the prior comparative periods, was due to the increase in
Abakan’s equity interest in MesoCoat and the corresponding decrease in its equity interest as a minority
owner of Powdermet.
We expect to continue to record the allocation of a non-controlling interest in MesoCoat in the future until
such time as Abakan’s ownership of MesoCoat increases to 100%.
Income Tax Expense (Benefit)
Abakan may have a prospective income tax benefit resulting from a net operating loss carry-forward and
start up costs that will offset any future operating profit once taxable income is generated.
Capital Expenditures
Abakan has spent a significant amounts of investment activities for the period from June 27, 2006,
(inception) to November 30, 2014, which amounted to $9,693,846. A large portion of these expenditures
are related to plant, property and equipment in the construction of the manufacturing facility in Euclid,
Ohio, and to its minority interest in Powdermet.
Liquidity and Capital Resources
Abakan has experienced significant changes in liquidity, capital resources, and stockholders’ equity.
Abakan had stockholders’ equity of $6,593,281 and a working capital deficit of $6,553,056 at November
30, 2014.
30
Cash flows
Key elements to the Consolidation Statement of Cash Flows for the six months ended November 30, 2014
and 2013:
2014
2013
Net Change in Cash and Cash Equivalents
Provided by (used in):
Operating activities
$
(2,365,652) $
(1,349,762)
Investing activities
(226,259)
(454,287)
Financing activities
4,108,485
1,662,377
Net Change in cash and cash equivalents
$
1,516,574 $
(141,672)
Net cash used in operating activities resulted from current period loss plus certain non-cash items which
included depreciation, amortization of discount on debt, stock issued for services and stock option
expense plus net change accrued liabilities, accounts payable, accrued interest on loans payable, prepaid
expenses and accounts receivable. We expect to continue to generate negative cash flow in operating
activities until such time as net losses transition to net income.
Net cash used in investing activities in the current period can be primarily attributed to the purchase of
property, plant and equipment. We expect to continue to generate negative cash flow in investing
activities as Abakan increases its investment in property, plant and equipment through MesoCoat.
Net cash provided by financing activities in the current period is attributable to proceeds from loans
payable, offset by payments on loans payable and repayments on capital leases. We expect to continue to
generate positive cash flow from financing activities as Abakan seeks new rounds of financing to build its
business.
Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the
next twelve months and as such Abakan will require additional debt or equity financing. Management to
this end initiated a private equity placement prior to period end of its restricted common stock, at a price
of $0.40 a share pursuant to which Abakan raised $3,535,800 as of the filing date of this report and settled
debt, accounts payable and services in an amount of $180,000. Despite the realization of proceeds from
the most recent private equity placement, additional capital will still be required to meet obligations and
needs over the next twelve months. Except for the private equity placement noted, we had no other
commitments or arrangements for financing at November 30, 2014, though we continue to pursue a
number of prospective sources that include industry or strategic partners, sale of additional equity, the
procurement of long term debt, shareholder loans or the settlement of additional debt for equity. We face
certain financial obstacles to attracting new financing due to our historical record of net losses and
working capital deficits. Therefore, despite our efforts we can provide no assurance that Abakan will be
able to obtain the financing required to meet its stated objectives or even to continue as a going concern.
Abakan does not expect to pay cash dividends in the foreseeable future.
Abakan has a defined stock option plan titled “The Amended Abakan Inc., 2009 Stock Option Plan” and
contractual commitments with all of its officers and directors.
Abakan has plans for the purchase of plant or equipment in connection with expansion of the PComP
powder production commercial line.
31
Abakan intends to increase the number of employees engaged by MesoCoat on completion on the PComP
product line expansion and upon completion of development and commercialization of the Cermaclad
product in the Euclid, Ohio manufacturing facility.
Off Balance Sheet Arrangements
As of November 30, 2014, Abakan had no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is
material to stockholders.
Going Concern
Abakan’s auditors have expressed an opinion that refers to its ability to continue as a going concern as a
result of net losses since inception and a working capital deficit of $7,927,372 as of May 31, 2014. Our
ability to continue as a going concern is dependent on realizing net income from operations, gains on
investment, obtaining funding from outside sources or realizing some combination of these objectives.
Management’s plan to address Abakan’s ability to continue as a going concern includes: (i) obtaining
funding from the private placement of debt or equity; (ii) revenue from operations; (iii) converting debt to
equity; and (iv) obtaining loans and grants from financial or government institutions. Management
believes that it will be able to obtain funding to allow Abakan to remain a going concern through the
methods discussed above, though there can be no assurances that such methods will prove successful.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled Results of Operations and Description of Business, with the
exception of historical facts, are forward looking statements. We are ineligible to rely on the safe-harbor
provision of the Private Litigation Reform Act of 1995 for forward looking statements made in this
current report. Forward looking statements reflect our current expectations and beliefs regarding our
future results of operations, performance, and achievements. These statements are subject to risks and
uncertainties and are based upon assumptions and beliefs that may or may not materialize. These
statements include, but are not limited to, statements concerning:
§ our anticipated financial performance;
§ uncertainties related to the commercialization of proprietary technologies held by entities in which
we have an investment interest;
§ our ability to generate revenue from operations or gains on investments;
§ our ability to raise additional capital to fund cash requirements for operations;
§ the volatility of the stock market; and
§ general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated including the factors
set forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise
readers not to place any undue reliance on the forward looking statements contained in this report, which
reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update
or revise these forward looking statements to reflect new events or circumstances or any changes in our
beliefs or expectations, other that is required by law.
32
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly report, an evaluation was carried out by Abakan’s
management, with the participation of the chief executive officer and the acting chief financial officer, of
the effectiveness of Abakan’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of November 30, 2014. Disclosure
controls and procedures are designed to ensure that information required to be disclosed in reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Commission’s rules and forms, and that such information is accumulated and
communicated to management, including the chief executive officer and the chief financial officer, to
allow timely decisions regarding required disclosures.
Based on that evaluation, Abakan’s management concluded, as of the end of the period covered by this
report, that Abakan’s disclosure controls and procedures were ineffective in recording, processing,
summarizing, and reporting information required to be disclosed, within the time periods specified in the
Commission’s rules and forms, and such information was not accumulated and communicated to
management, including the chief executive officer and the chief financial officer, to allow timely
decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
Since the end of the prior reporting period, there have been no changes in internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, Abakan’s internal
control over financial reporting.
33
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Sonoro Invest S.A.
Sonoro Invest S.A. (“Sonoro”) initiated legal proceedings against Abakan on October 2, 2014, in the United States District Southern District of Florida. The claim is based on Abakan’s failure to pay amounts due on certain promissory notes. The complaint seeks $3,187,056.98 plus interest and legal fees. On November 6, 2014, Sonoro obtained a Temporary Restraining Order enjoining Abakan from undertaking certain actions pending the outcome of the legal proceedings. Abakan believes that it has mitigating defenses to the lawsuit, and has responded to the complaint accordingly.
Joe T. Eberhard
Joe T. Eberhard initiated legal proceedings against Abakan on August 29, 2014, in the United States District Southern District of Florida. The claim is based on Abakan’s failure to repay amounts due on certain promissory notes. The complaint seeks $720,698.72 plus interest, penalties and legal fees. Abakan believes that it has mitigating defenses to the lawsuit. Court proceedings are in discovery.
Paloma Capital Group Ltd.
Abakan initiated legal proceedings against Paloma Capital Group Ltd (“Paloma”) on July 2, 2013, in the Circuit Court in and for Miami-Dade County. The claim was based on Paloma’s failure to perform according to the terms of a consulting agreement dated May 2, 2011. Abakan no longer intends to proceed with its complaint and expects that the legal proceedings will be dismissed without prejudice.
Securities and Exchange Commission
Abakan received notice of a non-public fact finding inquiry from the Securities and Exchange Commission (“Commission”) on November 21, 2014, with a formal order to produce certain documentation. The Commission seeks to determine whether there have been any violations of federal securities laws. The inquiry does not mean that the Commission has concluded that Abakan or anyone associated with Abakan has violated federal securities laws or that the Commission has a negative opinion of any Abakan related person, entity or security. Abakan is cooperating with the Commission’s investigation and has filed a claim with our D&O insurance carrier to offset covered expenses.
ITEM 1A. RISK FACTORS
Abakan’s operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our business, financial condition, and/or results of operations as well as the future trading price and/or the value of our securities.
34
Abakan is the subject of a formal inquiry by the Commission which inquiry may harm our business and results of operations.
Abakan is the subject of a non-public fact finding inquiry instigated by the Commission. We can neither determine the focus of the inquiry nor predict its outcome. We have incurred and will continue to incur expenses related to the Commission’s inquiry, which expenses may be substantial, including indemnification costs for which we may be responsible. Abakan does carry Director’s & Officers liability insurance, which coverage may mitigate the financial expense associated with this inquiry. Should there be an adverse event in connection with the Commission’s inquiry, our business and results of operations may be adversely impacted. Furthermore, our responses to the Commission’s inquiry may require significant diversion of management’s attention and resources.
Abakan has a history of significant operating losses and such losses may continue in the future.
Abakan incurred net losses of $22,399,312 for the period from June 27, 2006 (inception) to November 30, 2014. Since we have been without significant revenue since inception and have only recently transitioned to producing revenue that is insufficient to support operations, losses may likely continue for the foreseeable future.
Abakan has a history of uncertainty about continuing as a going concern.
Abakan’s audits for the periods ended May 31, 2014 and 2013 expressed an opinion as to its ability to continue as a going concern as a result of net losses since inception and a working capital deficit of $7,927,372 as of May 31, 2014. Until Abakan is able to produce net income over successive future periods its ability to continue as a going concern will remain in jeopardy.
Abakan requires capital funding.
Abakan must raise additional funds, either through equity offerings, debt placements or joint ventures, to maintain operations and meet our long term financial commitments. Additional capital, if in the form of equity, will result in dilution to our current shareholders. Should Abakan be unable to realized future income it ability to continue as a going concern will remain in jeopardy.
Abakan has defaulted on certain unsecured debt obligations
Abakan has defaulted on certain significant unsecured debt obligations due prior to or subsequent to the end of this quarterly reporting period, which defaults have caused the original obligations to increase. Abakan does intend to address its obligations but without additional capital funding it may be unable to satisfy the debt holders which in turn is subjecting Abakan to legal action.
MesoCoat has secured its assets against the payment of certain loan amounts due in April of 2015.
Should MesoCoat be unable to repay amounts due to a third party creditor of approximately $1,341,963 on April 27, 2015, all of its assets, with limited exceptions, absent any change in certain loan documents, will become the property of a third party creditor on declaration of default. Abakan is in the process of securing a financing sufficient to repay said creditor and is confident that MesoCoat’s obligations will be satisfied or otherwise amended to avert any default. However, neither the financing to satisfy MesoCoat’s loan obligations nor any changes to the existing terms and conditions of the loan documents have been agreed.
35
Abakan’s success is dependent on its ability to commercialize proprietary technologies to the point of generating sufficient revenues to sustain and expand operations.
Abakan’s near term future operation is dependent on its ability to commercialize proprietary technologies to produce sufficient revenue to sustain and expand operations. The success of these endeavors will require that sufficient funding be available to assist in the development of its business interests. Currently, Abakan’s financial resources are limited, which limitation may slow the pace at which proprietary technologies can be commercialized. Should Abakan be unable to improve its financial condition through debt or equity offerings, the ability to successfully advance its business plan will be severely challenged.
We face significant commercialization risks related to technological businesses.
The industries in which MesoCoat and Powdermet operate and plan to operate are characterized by the continual search for higher performance at lower cost. Our growth and future financial performance will depend on the ability of MesoCoat and Powdermet to develop and market products that keep pace with technological developments and evolving industry requirements. Further, the research and development involved in commercializing products requires significant investment and innovation to keep pace with technological developments. Should we be unable to keep pace with outside technological developments, respond adequately to technological developments or experience significant delays in product development, our products might become obsolete. Should these risks overcome our ability to keep pace there is a significant likelihood that our ability to successfully advance our business will be severely limited.
The coatings industry is likely to undergo technological change so our products and processes could become obsolete at any time.
Evolving technology, updated industry standards, and frequent new product and process introductions are likely to characterize the coatings industry going forward so our products or processes could become obsolete at any time. Competitors could develop products or processes similar to or better than our own, finish development of new technologies in advance of our research and development, or be more successful at marketing new products or processes, any of which factors may hurt our prospects for success.
MesoCoat and Powdermet compete with larger and better financed corporations.
Competition within the industrial coatings industry and other high technology industries is intense. While each of MesoCoat and Powdermet’s products are distinguished by next-generation innovations that are more sophisticated and cost effective than many competitive products currently in the market place, a number of entities and new competitors may enter the market in the future. Some of MesoCoat’s and Powdermet’s existing and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do, including well known multi-national corporations. Accordingly, MesoCoat’s and Powdermet’s products could become obsolete at any time. Competitors could develop products similar to or better than our own, finish development of new technologies in advance of either MesoCoat’s or Powdermet’s research and development, or be more successful at marketing new products, any of which factors may hurt our prospects for success.
36
Market acceptance of the products and processes produced by MesoCoat and Powdermet is critical to our growth.
We expect to generate revenue and realize a gain on our interest in Powdermet from the development and sale of products and processes produced by MesoCoat and Powdermet. Market acceptance of those products is therefore critical to our growth. If our customers do not accept or purchase those products or processes produced by MesoCoat and Powdermet, then our revenue, cash flow and operating results will be negatively impacted.
General economic conditions will affect our operations.
Changes in the general domestic and international climate may adversely affect the financial performance of Abakan, MesoCoat and Powdermet. Factors that may contribute to a change in the general economic climate include industrial disputes, interest rates, inflation, international currency fluctuations and political and social reform. Further, the delayed revival of the global economy is not conducive to rapid growth, particularly of technology companies with newly commercialized products.
MesoCoat and Powdermet rely upon patents and other intellectual property.
MesoCoat and Powdermet rely on a combination of patent applications, trade secrets, trademarks, copyrights and licenses, together with non-disclosure and confidentiality agreements, to establish and protect proprietary rights to technologies they develop. Should either of MesoCoat or Powdermet be unable to adequately protect their intellectual property rights or become subject to a claim of infringement, their businesses and that of Abakan may be materially adversely affected.
MesoCoat and Powdermet expect to prepare patent applications in accordance with their respective worldwide intellectual property strategies on acquiring new technologies. However, neither they nor Abakan can be certain that any patents will be issued with respect to future patents pending or future patent applications. Further, neither they nor Abakan know whether any future patents will be upheld as valid, proven enforceable against alleged infringers or be effective in preventing the development of competitive patents. Abakan believes that MesoCoat and Powdermet have each implemented a sophisticated internal intellectual property management system to promote effective identification and protection of their products and know-how in connection with the technologies they have developed and may develop in the future
We may not be able to effectively manage our growth.
We expect considerable future growth in our business. Such growth will come from the addition of new plants, the increase in global personnel, and the commercialization of new products. Additionally, our products should have an impact on the cladding industry; as companies learn that they can receive materials with a short lead time at a higher quality and lower price, market demand should grow, expanding the overall market itself. To achieve growth in an efficient and timely manner, we will have to maintain strict controls over our internal management, technical, accounting, marketing, and research and development departments. We believe that we have retained sufficient quality personnel to manage our anticipated future growth though we are still striving to improve financial accounting oversight to ensure that adequate reporting and control systems in place. Should we be unable to successfully manage our anticipated future growth by adherence to these strictures, costs may increase, growth could be impaired and our ability to keep pace with technological advances may be impaired which failures could result in a loss of future customers.
37
Environmental laws and other governmental legislation may affect our business.
Should the technologies which each of MesoCoat and Powdermet have under development not comply with applicable environmental laws then Abakan’s business and financial results could be seriously harmed. Furthermore, changes in legislation and governmental policy could also negatively impact us. Although we are currently unaware of any introduced or proposed bills, or policy, that might cause us to make specific changes to our operations, no assurance can be given that if new legislation is passed we will be able to make the changes to comport our technologies with future regulatory requirements.
Abakan and those entities in which it holds an interest may face liability claims.
Although MesoCoat and Powdermet intend to implement exhaustive testing programs to identify potential material defects in technology each develops, any undetected defects could harm their reputation and that of Abakan, diminish their customer base, shrink revenues and expose themselves and us to product liability claims. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.
The market for our stock is limited and our stock price may be volatile.
The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Due to the limitations of our market and the volatility in the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to sell. The average daily trading volume for our stock has varied significantly from week to week and from month to month, and the trading volume often varies widely from day to day.
Abakan’s common stock is deemed to be “penny stock”, which determination may make it more difficult for investors to sell their shares.
Abakan’s common stock is and will be subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If Abakan remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If Abakan’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
38
The elimination of monetary liability against Abakan’s directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by Abakan and may discourage lawsuits against our directors, officers and employees.
Abakan’s certificate of incorporation contains a specific provision that eliminates the liability of directors for monetary damages to us and our stockholders; further, Abakan is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law. Abakan may also have additional contractual indemnification obligations under its employment agreements with its executive officers and indemnification obligations to its directors. The foregoing indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which Abakan may be unable to recoup. Although Abakan does carry Director’s & Officers liability insurance, which coverage may mitigate the financial expense associated with indemnification claims, these provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against Abakan’s directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 31, 2014 our board of directors authorized the issuance of 25,000 restricted shares at $0.71 per share to David Charbonneau in order to terminate one hundred and twenty five thousand (125,000) stock options granted in accordance with a settlement of stock option agreement pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”).
Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction by Abakan which did not involve a public offering; (2) the offeree had access to the kind of information which registration would disclose; (3) the offeree is a former officer and director of Abakan and (4) the offeree is financially sophisticated.
On July 31, 2014 our board of directors authorized the issuance of 18,800 restricted shares at $0.71 per share to CFO Consultants, Inc. for services rendered in accordance with a consulting agreement pursuant to the exemption from registration provided by Section 4(2) of the Securities Act.
Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction by Abakan which did not involve a public offering; (2) the offeree had access to the kind of information which registration would disclose; and (3) the offeree is an entity owned by a former officer and director of Abakan and (4) the offeree is financially sophisticated.
On October 7, 2014, Abakan authorized the issuance of 1,069,500 shares of restricted common sharesat an exercise price of $0.40 to the following entities for cash, in reliance upon the exemption from registration provided by Section 4(2), Regulation D/Regulation S of the Securities Act:
39
| Name | Consideration | Basis | Shares | Exemption |
| Susan S. Almendinger | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Warren D. Lydon | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Highpoint Investments L.L.C. | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Terry L. Poltorek | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Emsarida, LLC | $100,000 | Cash | 250,000 | Sec. 4(2)/Reg D |
| Tangies, LLC | $25,000 | Cash | 62,500 | Sec. 4(2)/Reg D |
| RJ & CS St. Germain Partnership Ltd. | $12,000 | Cash | 30,000 | Sec. 4(2)/Reg D |
| Bruce M. Weinstein | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Jeremy Siders | $35,000 | Cash | 87,500 | Sec. 4(2)/Reg D |
| Jeremy Siders | $45,000 | Cash | 112,500 | Sec. 4(2)/Reg D |
| Donald Latore | $20,000 | Cash | 50,000 | Sec. 4(2)/Reg D |
| Tom Edwards | $4,800 | Cash | 12,000 | Sec. 4(2)/Reg D |
| Frank Stafford | $26,000 | Cash | 65,000 | Sec. 4(2)/Reg D |
| Mark W. Sullivan | $60,000 | Cash | 150,000 | Sec. 4(2)/Reg D |
On October 7, 2014, Abakan authorized the issuance of 1,792,973 restricted shares as result of the down-side protection offered to investors in the April and May 2014 private placements. Abakan offered downside stock price protection in two private placements that totaled 1,664,973 shares that closed in April 2014 and May 2014. The down-side protection offered additional shares if new private placements were offered within one year at a lower price. After receipt of these additional shares, the placees would hold the same quantity of shares as if they would have had participated in any subsequently lower price private placement. The placees agreed to cancel warrants to purchase 832,487 additional restricted shares. Abakan is obligated to issue additional 88,775 shares if new private placements are issued below $.40 for every $.01 decrease through May 2015. Abakan cannot estimate if any additional shares will be issued in the future. The restricted common shareswere issued, in reliance upon the exemption from registration provided by Section 4(2), Regulation D/Regulation S of the Securities Act:
| Name | Basis | Shares | Exemption |
| Warren D. Lydon | Downside Protection Clause | 55,000 | Sec. 4(2)/Reg D |
| Chris Bennett | Downside Protection Clause | 30,000 | Sec. 4(2)/Reg D |
| Steven R. Ferris | Downside Protection Clause | 424,000 | Sec. 4(2)/Reg D |
| Stratton S.A. | Downside Protection Clause | 205,990 | Sec. 4(2)/Reg D |
| Green Chip S.A. | Downside Protection Clause | 492,983 | Sec. 4(2)/Reg D |
| Orsa & Co. | Downside Protection Clause | 50,000 | Sec. 4(2)/Reg D |
| Kevin McDonell | Downside Protection Clause | 10,000 | Sec. 4(2)/Reg D |
| Susan S. Almendinger | Downside Protection Clause | 25,000 | Sec. 4(2)/Reg D |
| Ammon & Associates Inc. | Downside Protection Clause | 500,000 | Sec. 4(2)/Reg D |
On November 11, 2014, Abakan authorized the issuance of 7,500,000 shares of restricted common sharesat an exercise price of $0.40 to UP Scientech Materials Corp for cash, in connection with entering into a strategic alliance to form joint ventures, in reliance upon the exemption from registration provided by Section 4(2) and Regulation S of the Securities Act.
On November 26, 2014, Abakan authorized the issuance of 720,000 shares of restricted common sharesat an exercise price of $0.40 to the following entities for cash or settlement, in reliance upon the exemption from registration provided by Section 4(2), Regulation D/Regulation S of the Securities Act:
40
| Name | Consideration | Basis | Shares | Exemption |
| RJ & CS St. Germain Partnership Ltd. | $8,000 | Cash | 20,000 | Sec. 4(2)/Reg D |
| Warren D. Lydon | $10,000 | Cash | 25,000 | Sec. 4(2)/Reg D |
| Richard A. Beck | $10,000 | Cash | 25,000 | Sec. 4(2)/Reg D |
| Stephen C. Goss | $50,000 | Cash | 125,000 | Sec. 4(2)/Reg D |
| Orsa & Company | $40,000 | AP Settlement | 100,000 | Sec. 4(2)/Reg D |
| Steven R. Ferris | $140,000 | Debt Settlement | 350,000 | Sec. 4(2)/Reg D |
| Jeremy Siders | $30,000 | Cash | 75,000 | Sec. 4(2)/Reg D |
On December 11, 2014, Abakan authorized the grant of 100,000 stock options with an exercise price of $0.65 per share that expire ten years from the date of grant vesting in equal one-third parts annually beginning on date of grant to CFO Consultants Inc., in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act.
Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuance was a isolated private transaction by Abakan which did not involve a public offering; (2) the offeree had access to the kind of information which registration would disclose; (3) the offeree is an entity owned by a former officer and director of Abakan and (4) the offeree is financially sophisticated.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On January 1, 2015, Stephen Goss was appointed as the Chief Operating Officer of Abakan pursuant to the terms and conditions of an Employment Agreement dated December 20, 2014. He will continue to serve as the Chief Executive Officer of MesoCoat under the Employment Agreement. The terms of the employment agreement include a $20,000 per month salary of which a portion is deferred, and granted 1,000,000 stock options with an exercise price of $0.60 per share that will expire ten years from the option grant date that vest in equal parts on May 31, 2015 and May 31, 2016. The Employment Agreement will end on December 31, 2016 and which time it can be renewed for 2 one year periods. In the event that this agreement is terminated early, the employee may be eligible for a severance payment. Mr. Goss continues to also serve as a director of Abakan and MesoCoat.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 43 of this Form 10-Q, and are incorporated herein by this reference.
41
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Abakan Inc.
Date
/s/ Robert H. Miller
January 14, 2015
By: Robert H. Miller
Its: Chief Executive Officer, and Director
/s/ Costas Takkas
January 14, 2015
By: Costas Takkas
Its: Chief Financial Officer and Principal Accounting Officer
42
INDEX TO EXHIBITS
Exhibit No.
Exhibit Description
3.1*
Articles of Incorporation and Certificate of Amendment, incorporated hereto by reference to
the Form SB-2, filed with the Commission on June 19, 2007.
3.2*
Bylaws, incorporated hereto by reference to the Form SB-2, filed with the Commission on
June 19, 2007.
10.1*
Lease Agreement between Powdermet and Sherman Properties, LLC dated March 7, 2007,
incorporated hereto by reference to the Form 10-K filed with the Commission on September
13, 2011.
10.2*
License agreement between MesoCoat and Powdermet dated July 22, 2008, incorporated
hereto by reference to the Form 10-K/A-2 filed with the Commission on December 27, 2011.
10.3*
Exclusive license between MesoCoat and UT-Battelle, LLC, dated September 22, 2009,
incorporated hereto by reference to the Form 10-K/A-2 filed with the Commission on
December 27, 2011.
10.4*
Articles of Merger dated November 9, 2009, incorporated hereto by reference to the Form 8-
K filed with the Commission on December 9, 2009.
10.5*
Agreement and Plan of Merger dated November 9, 2009, incorporated hereto by reference to
the Form 8-K filed with the Commission on December 9, 2009.
10.5*
Consulting agreement dated December 1, 2009, between Abakan and Mr. Greenbaum,
incorporated hereto by reference to the Form 8-K filed with the Commission on May 28,
2010.
10.7*
Employment agreement dated December 1, 2009, between MesoCoat and Andrew Sherman,
incorporated hereto by reference to the Form 10-K filed with the Commission on September
13, 2011.
10.8*
Consulting agreement date December 1, 2009 between Abakan and Prosper Financial Inc.,
incorporated hereto by reference to the Form 10-K filed with the Commission on September
13, 2011.
10.9*
Consulting agreement dated December 8, 2009 between Abakan and Robert Miller,
incorporated hereto by reference to the Form 10-K filed with the Commission on September
13, 2011.
10.10*
Investment Agreement dated December 9, 2009, between Abakan, MesoCoat and
Powdermet, incorporated hereto by reference to the Form 8-K filed with the Commission on
December 17, 2009.
10.11*
Agreement date March 17, 2010 between Abakan and Sonnen Corporation, incorporated
hereto by reference to the Form 10-K filed with the Commission on September 13, 2011.
10.12*
Agreement dated April 30, 2010 between Abakan and Mr. Buschor, incorporated hereto by
reference to the Form 8-K filed with the Commission on May 11, 2010.
10.13*
Commercial lease agreement date June 1, 2010, between Powdermet and MesoCoat,
incorporated hereto by reference to the Form 10-K filed with the Commission on September
13, 2011.
10.14*
Stock Purchase Agreement dated June 29, 2010 between Abakan and Kennametal,
incorporated hereto by reference to the Form 8-K filed with the Commission on September
15, 2010.
10.15*
Employment agreement dated August 20, 2010, between Abakan and Mr. Takkas,
incorporated hereto by reference to the Form 8-K filed with the Commission on August 26,
2010.
10.16*
Amendment No. 1 to Stock Purchase Agreement between Abakan and Kennametal dated
September 7, 2010, incorporated hereto by reference to the Form 8-K filed with the
Commission on September 15, 2010.
43
10.17*
Amendment to the Investment Agreement dated December 8, 2010, between Abakan,
MesoCoat and Powdermet, incorporated hereto by reference to the Form 10-Q filed with the
Commission on January 19, 2011.
10.18*
Cooperation Agreement between MesoCoat and Petroleo Brasileiro S.A. dated January 11,
2011, incorporated by reference to the Form 8-K/A-3 filed with the Commission on March 6,
2012. (Portions of this exhibit have been omitted pursuant to a request for confidential
treatment.)
10.19*
Amendment No. 2 to Stock Purchase Agreement between Abakan and Kennametal dated
January 19, 2011, incorporated hereto by reference to the Form 8-K filed with the
Commission on July 13, 2011.
10.20*
Accord and Satisfaction Agreement dated March 21, 2011 between Abakan and Kennametal,
Inc., incorporated hereto by reference to the Form 8-K filed with the Commission on March
25, 2011.
10.21*
Assignment Agreement dated March 25, 2011 with Polythermics LLC and MesoCoat,
incorporated hereto by reference to the Form 10-Q/A filed with the Commission on
September 27, 2011.
10.22*
Exclusivity Agreement between MesoCoat and Mattson Technology, Inc. dated April 7,
2011, incorporated hereto by reference to the Form 8-K/A-3 filed with the Commission on
March 6, 2012. (Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.)
10.23*
Accord and Satisfaction of Investment Agreement dated May 31, 2014, incorporated hereto
by reference to the Form 8-K filed with the Commission on June 3, 2014.
10.24*
Letter Agreement dated November 13, 2014, incorporated hereto by reference to the Form 8-
K filed with the Commission on November 25, 2014.
Employment Agreement dated December 20, 2014 between Abakan and Stephen Goss.
14*
Code of Business Conduct & Ethics adopted on June 13, 2012, and incorporated hereto by
reference to the Form 10-K filed with the Commission on September 13, 2013.
21*
Subsidiaries of Abakan, incorporated hereto by reference to the Form 10-K filed with the
Commission on October 1, 2014.
Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attached.
Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attached.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.
101. INS
XBRL Instance Document†
101. PRE
XBRL Taxonomy Extension Presentation Linkbase†
101. LAB XBRL Taxonomy Extension Label Linkbase†
101. DEF XBRL Taxonomy Extension Label Linkbase†
101. CAL XBRL Taxonomy Extension Label Linkbase†
101. SCH XBRL Taxonomy Extension Schema†
*
Incorporated by reference to previous filings of Abakan.
†
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and
not “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the
Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities
and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
44