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ABAKAN INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended August 31, 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:

Default Sonoro Invest S.A. Notes

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.

Private Placements

On August 19, 2014, Abakan’s board of directors initiated a private placement of up to eighteen million

seven hundred and fifty thousand (18,750,000) shares of its restricted common stock, at a price of $0.40 a

share, for anticipated gross proceeds of seven million five hundred thousand dollars ($7,500,000), to

support ongoing operations, retire outstanding debt and bolster product development. The private

placement has realized $491,800 in cash proceeds as of the filing date of this report causing Abakan to

issue one million two hundred and twenty nine thousand five hundred (1,229,500) restricted shares in

connection therewith.

On October 6, 2014, Abakan’s board of directors authorized the issuance of one million seven hundred

ninety-two thousand, nine hundred seventy-three (1,792,973) restricted shares due to the down-side

protection offered to investors in two private placements offered in April 2014 and May 2014,

respectively. The provision of downside protection further resulted in the cancellation of warrants

attached to the placements that entitled those investors with down side protection to purchase 832,487

additional restricted shares of Abakan.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND 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 3.0% indirect interest in MesoCoat. Abakan’s combined direct and indirect interest in

MesoCoat is equal to 90.5% 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 IP license and technology transfer, and a

manufacturing support agreement.

MesoCoat has exclusively licensed and developed a proprietary metal cladding application process as

well as advanced nano-composite coating materials that combine corrosion and wear resistant alloys, and

nano-engineered cermet materials with proprietary high-speed coating or cladding application systems.

The result is protective cladding solutions that will be offered on a competitive basis with existing market

solutions while the PComP™ coating materials unite high strength, hardness, fracture toughness, and a

low coefficient of friction into one product structure. 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 (PComP™W, PComP™T, PComP™ S and PComP™ M) that 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 the PComP™ powder and thermal spray applications in

addition to grants that are awarded to further the development of various products. New grants from U.S.

government agencies are to develop new uses for PComP™ powders and to develop new solutions to

critical problems, including certain applications for NASA. CermaClad^TM clad products, which will

include the cladding of the inside of a full length pipe for the oil and gas industries, are in the

development and qualification stage. Meanwhile, MesoCoat has expanded its technical team and

transitioned staff from Powdermet to MesoCoat, in line with the requirements of various development

projects and the expansion of the PComP™ powder and coating services.

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 magnitude 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.

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 nanocomposite 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.

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.

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. MesoCoat expects that the modifications will

be completed in December 2014. Meanwhile, MesoCoat has developed a plan to construct a new facility

at its present location dedicated to the production of PComP™ to enable the second stage ramp up in

production of PComP™ powders to 160 tonnes.

Abakan’s sales agent in Mexico, Metallurgic Solutions, S.A. de CV (“MetalSol”) reported to us on

October 16, 2014, that roller screens (Rolls) coated with MesoCoat’s PComP™ W104 exhibited almost

no wear when compared to the conventional Rolls that were used in the same operating cycles that

exhibited dimensional loss of between 6 -15 mm due to wear. Since maintaining the absolute dimensions

of Rolls is directly associated with filtering the right sized pellets, the use of PComP™ W coatings can

effectively double the life of Rolls used in ire ore processing. The life extension associated with

PComP™ W104 directly translates into lower maintenance costs, less downtime and higher net revenues.

MesoCoat and MetalSol expect to procure an annual contract to coat Rolls with PComP™ W104 at the

facility in which these results were obtained.

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.

CermaClad™ clad steel is a premier, 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 Metallurgical clad pipes are primarily manufactured using roll-bonded

clad plate which is then 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 $400M 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.

Worldwide, there is a large and growing need for clad pipes as deeper and hotter, corrosive reserves come

into production. Current production methods not only have the above limitations, but plants are

operating at capacity, creating an increasing tight supply and lead-times of 2 years or more to delivery. A

number of organizations have stated that the market for clad pipe is expected to grow from approximately

$2 billion per year currently, to $4 billion to $8 billion within 2 to 4 years.

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 microstructural 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.

Today, clad steel is a specialized, profitable segment of the steel industry where demand has outstripped

supply and margins are high as a result. Management believes that the CermaClad™ process is scalable

to large volumes with a modest capital investment that is lower than that invested in existing production

methods.

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. Currently, typical requirements are for tens of kilometers with growing

numbers of projects needing hundreds of kilometers per project. As a result the clad pipe market is

growing rapidly and the limitations of current solutions in terms of installation, inspectability, quality, and

availability are restraining this growth. Full commercialization of CermaClad™ clad pipes can 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 nanocomposite 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.
CermaClad™ HT (High Temperature). Steel clad with nickel-chromium and metal-chromium-aluminum alloys for high temperature applications such as heat exchanger tubing, boilerwaterwalls, 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.

Recent Developments

MesoCoat’s partnership with Northern Alberta Institute of Technology (NAIT) to establish a prototype

demonstration facility for developing, testing and commercializing wear-resistant clad pipe and

components in Alberta, Canada has been delayed due some facility inadequacies that need to be addressed

before our shipping of a full lamp system for installation. We had planned to ship the equipment in

August but now anticipate a ship date in October 2014.

CermaClad™ product development has moved ahead this October, 2014, achieving the longest runs both

in time and coated area to date. Initial quality control inspection was satisfactory and further metallurgical

tests are currently being carried out to validate this success. MesoCoat continues to increase the length of

coating pipe and improve cooling parameters. Recent progress may make possible a shorter timeline to

market than that currently anticipated for CermaClad™ corrosion resistant products.

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, Mattson, personnel changes, the need to replace aging equipment associated with PComP™ and

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

PComP™ Coating Services

Market Entry

Current

ZComP™

Development

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

CermaClad™ HT

Incubation

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. Our attempts to negotiate reasonable terms for a “build to suit” agreement to construct a

manufacturing plant in the Recife, Brazil free trade zone have been abandoned. We continue to consider

the best strategy to secure direct access for our products to Brazilian markets. Meanwhile, our wholly

owned Asian subsidiary, PT MesoCoat Indonesia, is negotiating the terms of a “build-to-suit” agreement

to construct a manufacturing plant on the island of Batam, Indonesia. The expected time-frame for the

completion of this project is yet to be finalized.

In Mexico our sales agent Metalsol has been working to get financial support from government and

corporate entities to build a production facility in Mexico.

Results of Operations

For the three months ended

August 31,

Change

Revenues

2014

2013

Commercial

138,746 $

25,247 $

113,499

450

Contract and grants

188,150

63,403

124,747

197

Other income

326,896

88,650

238,246

269

Gross profit

220,226

8,118

212,108

2613

General and administrative

1,144,634

2,098,040

(953,406)

(45)

Stock options expense

322,872

318,480

4,392

Operation Loss

(1,247,280)

(2,408,402)

1,161,122

Interest exp & amortization of debt discount

(138,074)

(176,892)

38,818

(22)

Other income (expense)

(18,733)

(144,829)

126,096

(87)

Loss before non-controlling interest

(1,404,087)

(2,730,123)

1,326,036

(49)

Non-Controlling interest in MesoCoat loss

68,315

591,320

(523,005)

(88)

Loss before income taxes

(1,335,772)

(2,138,803)

(803,031)

(38)

Income taxes

Net Income

(1,335,772)

(2,138,803)

(803,031)

(38)

Revenues

Revenues for the quarter ending August 31, 2014 were $326,896, as compared to $88,650 for the quarter

ending August 31, 2013, an increase of 269%. Revenues for the two periods can be wholly attributed to

the operations of MesoCoat.

Revenue in the current period was derived from commercial revenues of $138,746 as compared to

$25,247 in the prior year same period, contract and grant revenues of $188,150 in the current period as

compared to $63,403 in the prior year same period. Commercial revenue increased by 450% as

MesoCoat continues implementation of its commercial products. The 197% increase in contract and grant

revenue in the current period over the prior year same period is due to an award of three grants versus one

in the previous period.

We expect grant revenue to increase over the next twelve months as MesoCoat completes the current

outstanding grants plus additional revenue to be earned on two grants awarded subsequent to the end of

the quarter. Since the end of the quarter, MesoCoat, along with Oak Ridge National Laboratory, have

been awarded $1 million by the Department of Energy to develop a process to join dissimilar metal

alloys. The award will be shared equally over thirty months. MesoCoat has also won a $150,000 SBIR

(Small Business Innovation Research), award from the National Institute of Health to develop

antimicrobial coatings using its high-speed large-area metal cladding technology CermaClad™. Work on

the SBIR is anticipated to take six months.

We expect an increase in commercial revenue over the next twelve months as MesoCoat implements the

PComP™ expansion plan. Meanwhile, we continue to focus on the development of both current and new

products while continuing to commercialize existing products lines.

Gross Profit

Gross profits in both periods can be wholly attributed to the operations of MesoCoat. The $212,108

increase in gross profit in the three month period ending August 31, 2014 over the three month period

ending August 31, 2013, is the result of the increase in commercial as the company continues to increase

its production capacity. In addition, the work on the current grants contributed to the gross profit

increasing.

We expect gross profit to increase over the next twelve months as result of the expected increase in gross

profit throughout the year 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 as anticipated operational expenses associated

most significantly with 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

Operating expenses for the quarter ended August 31, 2014, were $1,144,634 compared to $2,098,040 for

the quarter ended August 31, 2013, a decrease of 45%. The decrease in operating expenses over the prior

period can be attributed to significant decreases in professional fees, payroll & benefits and research and

development costs which accounted for $915,688 of the $953,406 decrease. The decreases can be

attributed to a realignment of our management team and labor force that included the decision not to full

non-critical positions eliminated in the realignment, our renewed focus on operating efficiencies that

caused us further examination of our research and development practices and the absence of any

contribution of our restricted common stock to the MesoCoat and Powdermet retirement plans that

accounted for of an expense of $235,000 in the prior period.

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.

Interest Expense and Amortization of Discount on Debt

The $38,818 decrease in interest and amortization expenses in the three month period ending August 31,

2014, over the three month period ending August 31, 2013, was attributed to the prior discounts being

fully amortized. The current quarter represents interest expense and increased over the prior year due to

increase debt.

Other Expense/Income

The $126,096 decrease in other expense / income in the three month period ending August 31, 2014, over

the three month period ending August 31, 2013, was due to Abakan’s reduction of a $18,733 equity loss

in Powdermet income in the period ending August 31, 2014, versus a $144,829 loss in the period ending

August 31, 2013.

We expect to continue to incur other expense in future periods due to the interest accruing on convertible

debt and the anticipated increase in interest on new debentures that are required for future growth.

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 significant amounts of investment activities for the period from June 27, 2006,

(inception) to August 31, 2014, which amounted to $9,394,971. A large portion of these expenditures are

related to plant, property and equipment in the construction of the manufacturing facility in Euclid, Ohio,

and a 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 $4,492,925 and a working capital deficit of $8,745,804 at August 31,

2014.

Cash flows

Key elements to the Consolidation Statement of Cash Flows for the three months ended August 31, 2014

and 2013:

2014

2013

Net Change in Cash and Cash Equivalents

Provided by (used in):

Operating activities

(621,883) $

(572,281)

Investing activities

(172,121)

(301,947)

Financing activities

866,913

667,970

Net Change in cash and cash equivalents

72,909 $

(206,258)

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 up to eighteen million seven hundred

and fifty thousand (18,750,000) shares of its restricted common stock, at a price of $0.40 a share pursuant

to which Abakan had raised $491,800 as of the filing date of this report and expects to include the

extinguishment of debt for equity in an amount up to $2,000,000. Abakan had further expected to allocate

$4 to $5 million dollars of the private placement to secure an industry partner, which expectation, if

realized, is no longer to be considered as part of this private equity placement but will be made part of

separate agreements under consideration. Regardless of the realization of proceeds from the current

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 August 31, 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 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.

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 new Euclid, Ohio manufacturing facility.

Off Balance Sheet Arrangements

As of August 31, 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.

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 August 31, 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.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 is based on Paloma’s failure to perform

according to the terms of a consulting agreement dated May 2, 2011, pursuant to which Paloma was to

introduce suitable investors to the Abakan in exchange for certain consideration including 50,000 shares

of Abakan and 150,000 stock options to purchase shares of Abakan. The suit demands the return of the

Abakan shares and the stock options. Paloma is yet to be served with the complaint. Abakan no longer

intends to proceed with its complaint and expects that the legal proceedings will be dismissed without

prejudice.

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. The

parties remain in the discovery process. Abakan believes that it has mitigating defenses to the lawsuit, and

has obtained an extension of time in which to respond to the complaint and will do so in due course.

Sonoro Invest S.A.

Sonoro Invest S.A. 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. Abakan believes

that it has mitigating defenses to the lawsuit, and will respond to the complaint in due course.

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.

Abakan has a history of significant operating losses and such losses may continue in the future.

Abakan incurred net losses of $20,837,869 for the period from June 27, 2006 (inception) to August 31,

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 $1,340,000

on April 29, 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.

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.

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.

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.

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

contractual indemnification obligations under its employment agreements with its executive officers. 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. 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 the 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 transactions 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 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 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 transactions 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.

ITEM 3.

DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page

36 of this Form 10-Q, and are incorporated herein by this reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized.

Abakan Inc.

Date

/s/ Robert H. Miller

October 20, 2014

By: Robert H. Miller

Its: Chief Executive Officer, and Director

/s/ Costas Takkas

October 20, 2014

By: Costas Takkas

Its: Chief Financial Officer and Principal Accounting Officer

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.

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.

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.

31.1

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.

31.2

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.

32.1

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.

32.2

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