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
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on this 20th day of
December, 2014, by and between Abakan Inc., of 2665 Bayshore Drive, Suite 450, Miami, Florida 33133
USA (the "Company"), and Stephen C. Goss (hereinafter, the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is to be employed as Chief Operating Officer (“COO”) of the
Company and Chief Executive Officer (“CEO”) of the Company’s subsidiary, MesoCoat Inc.
WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the
Company, its policies, methods and personnel;
WHEREAS, the Board of Directors of the Company recognizes that the Executive will contribute
to the growth and success of the Company, and desires to assure the Company of the Executive's
continued employment and to compensate him therefor;
WHEREAS, the Board has determined that this Agreement will reinforce and encourage the
Executive's continued attention and dedication to the Company;
WHEREAS, the Executive is willing to make his services available to the Company on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which are mutually
acknowledged, the Company and the Executive hereby agree as follows:
1.
Definitions.
When used in this Agreement, the following terms shall have the following meanings:
(a)
"Accrued Obligations" means:
(i)
all accrued but unpaid Base Salary through the Termination Date;
(ii)
any unpaid or un-reimbursed expenses incurred in accordance with
Company policy, including amounts due under Article 5(a) hereof, to the extent incurred during the Term
of Employment; and
(iii)
those vested benefits provided under the Company's employee benefit
plans, stock options plans, deferred compensation plans, programs or arrangements in which the
Executive participates, in accordance with the terms thereof.
(iv)
any earned unpaid Bonus in respect to any completed fiscal year that has
ended on or prior to the end of the Term of Employment; and
(v)
rights to indemnification by virtue of the Executive's position as an
officer or director of the Company or its subsidiaries and the benefits under any directors' and officers'
liability insurance policy maintained by the Company, in accordance with its terms thereof.
1
(b)
"Affiliate" means any entity that controls, is controlled by, or is under common
control with, the Company.
(c)
"Base Salary" means the salary provided for in Article 4(a) hereof or any
increased salary granted to Executive pursuant to Article 4(a) hereof.
(d)
"Beneficial Ownership" shall have the meaning ascribed to such term in Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
(e)
"Board" means the Board of Directors of the Company.
(f)
"Bonus" means any bonus payable to the Executive pursuant to Article 4(b)
hereof
(g)
"Bonus Period" means the period for which a Bonus is payable. Unless
otherwise specified by the Board, the Bonus Period shall be the fiscal year of the Company.
(h)
"Cause" means:
(i)
a conviction of the Executive, or a plea of nolo contendere, to a felony
involving moral turpitude; or
(ii)
willful misconduct or gross negligence by the Executive resulting, in
either case, in material economic harm to the Company or any Related Entities; or
(iii)
a willful continued failure by the Executive to carry out the reasonable
and lawful directions of the Board; or
(iv)
fraud, embezzlement, theft or dishonesty of a material nature by the
Executive against the Company or any Affiliate or Related Entity, or a willful material violation by the
Executive of a policy or procedure of the Company or any Affiliate or Related Entity, resulting, in any
case, in material economic harm to the Company or any Affiliate or Related Entity; or
(v)
a willful material breach by the Executive of this Agreement.
An act or failure to act shall not be "willful" if (i) done by the Executive in good faith or (ii) the
Executive reasonably believed that such action or inaction was in the best interests of the Company and
the Related Entities.
(i)
"Change in Control" means:
(i)
the acquisition by any Person of Beneficial Ownership of more than
fifty percent (50%) of the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") (the foregoing Beneficial Ownership hereinafter being referred to as a
"Controlling Interest"); provided, however, that for purposes of this definition, the following acquisitions
shall not constitute or result in a Change of Control: (v) any acquisition directly from the Company; (w)
any acquisition by the Company; (x) any acquisition by any person that as of the Commencement Date
owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the
Company; or (z) any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) below; or
2
(ii)
during any period of two (2) consecutive years (not including any period
prior to the Commencement Date) individuals who constitute the Board on the Commencement Date (the
"Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the Commencement Date whose
election, or nomination for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii)
consummation of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or
other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or
stock of another entity by the Company or any of its subsidiaries (each a "Business Combination"), in
each case, unless, following such Business Combination, (A) all or substantially all of the individuals and
entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than fifty percent (50%) of the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination beneficially owns, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or any Person that as of the Commencement Date owns
Beneficial Ownership of a Controlling Interest beneficially owns, directly or indirectly, more than fifty
percent (50%) of the then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at
least a majority of the members of the Board of Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(iv)
approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(j)
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended from time to time.
(k)
"Code" means the Internal Revenue Code of 1986, as amended.
(1)
"Commencement Date" means 1st of January, 2015.
(m)
"Common Stock" means the common stock of the Company, par value $0.0001
per share.
3
(n)
"Competitive Activity" means an activity that is in material or direct competition
with the Company in any of the States within the United States, or countries within the world, in which
the Company conducts business or intends to conduct business with respect to a business in which the
Company engaged while the Executive was employed by the Company.
(o)
"Confidential Information" means all trade secrets and information disclosed to
the Executive or known by the Executive as a consequence of or through the unique position of his
employment with the Company or any Related Entity (including information conceived, originated,
discovered or developed by the Executive and information acquired by the Company or any Related
Entity from others) prior to or after the date hereof, and not generally or publicly known (other than as a
result of unauthorized disclosure by the Executive), about the Company or any Related Entity or its
business.
(p)
"Disability" means the Executive's inability, or failure, to perform the essential
functions of his position, with or without reasonable accommodation, for any period of three months or
more in any 12 month period, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a continuous period of not less
than 12 months.
(q)
"Equity Awards" means any stock options, restricted stock, restricted stock
units, stock appreciation rights, phantom stock or other equity based awards granted by the Company or
any of its Affiliates to the Executive.
(r)
"Excise Tax" means any excise tax imposed by Section 4999 of the Code,
together with any interest and penalties imposed with respect thereto, or any interest or penalties incurred
by the Executive with respect to any such excise tax.
(s)
“Expiration Amount” means an amount of $100,000 payable to Executive on
the expiration of the Initial Term of Employment.
(t)
"Expiration Date" means the date on which the Term of Employment, including
any renewals thereof under Article 3(b), shall expire.
(u)
"Good Reason" means:
(i)
the assignment to the Executive of any duties inconsistent in any
material respect with the Executive's position (including status, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Article 2(b) of this Agreement, or any other action
by the Company that results in a material diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith which is
remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii)
any material failure by the Company to comply with any of the
material provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith that is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii)
any instruction by the Company to act in any manner that is unlawful
or contrary to Securities and Exchange Commission rules and regulations, other than an isolated,
insubstantial or inadvertent instruction not given in bad faith that is remedied by the Company
promptly after receipt of notice thereof given by the Executive; and
4
(iv)
any termination by the Company of the Executive's employment other
than for Cause pursuant to Article 6(b), or by reason of the Executive's Disability pursuant to Article 6(c)
of this Agreement, prior to the Expiration Date
(v)
"Group" shall have the meaning ascribed to such term in Section 13(d) of
the Securities Exchange Act of 1934.
(w)
"Initial Term" means January 1st, 2015 to December 31st, 2016.
(x)
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Securities Exchange Act of 1934 and used in Sections 13(d) and 14(d) thereof.
(y)
"Related Entity" means any subsidiary, and any business,
corporation, partnership, limited liability company or other entity designated by Board in which the
Company or a subsidiary holds a substantial ownership interest.
(z)
"Restricted Period" shall be the Term of Employment and if the Term
of Employment is terminated for any reason other than by the Company without Cause or by the
Executive for Good Reason, the eighteen (18) month period immediately following termination of
the Term of Employment. Notwithstanding the foregoing, the Restricted Period shall end in the event
that (i) the Company fails to make any payments or provide any Benefits required by Article 6 hereof
with 15 days of written notice from the Executive of such failure or (ii) the Company no longer has
the rights to the confidential information.
(aa)
"Severance Amount" shall be in the event of termination of the Executive's
employment by the Company without Cause, or by the Executive with Good Reason, prior to the
expiration of the Initial Term, an amount equal to the greater of the Base Salary remaining payable for the
Initial Term as of the Termination Date or $100,000. The total amount shall be due within one month of
the effective date of the Termination Date.
(bb)
"Severance Term" means the one (1) year period following the Termination
Date.
(cc)
"Stock Option" means a right granted to the Executive under Article 5(d) hereof
to purchase Common Stock under the Company's Stock Option Plan.
(dd)
"Stock Option Plan" means the Amended Abakan Inc. 2009 Stock Option Plan
adopted by the Company on December 14, 2009, as amended from time to time, and any successor plan
thereto.
(ee)
"Term of Employment" means the period during which the Executive shall be
employed by the Company pursuant to the terms of this Agreement.
(ff)
"Termination Date" means the date on which Executive's employment ends.
2.
Employment.
(a)
Employment and Term.
The Company hereby agrees to employ the Executive and the Executive hereby agrees to
serve the Company during the Term of Employment on the terms and conditions set forth herein.
5
(b)
Duties of Executive.
During the Term of Employment, the Executive shall be employed and serve as Chief
Operating Officer of the Company and Chief Executive Officer of Mesocoat, Inc, and shall have such
duties typically associated with such titles, including, without limitation, coordinating the day to day
management of the Company with the Board. The Executive shall faithfully and diligently perform all
services as may be reasonably assigned to him for his position by the Board of the Company, and shall
exercise such power and authority as may from time to time be delegated to him by the Board. The
Executive shall devote no less than 100% of his business time, attention and efforts to the performance
of his duties under this Agreement, render such services to the best of his ability, and use his reasonable
best efforts to promote the interests of the Company. The Executive shall not engage in any other
business or occupation, other than as declared and existing at the Commencement Date during the Term
of Employment, including, without limitation, any activity that (i) conflicts with the interests of the
Company or its subsidiaries, (ii) interferes with the proper and efficient performance of his duties for the
Company, or (iii) interferes with the exercise of his judgment in the Company's best interests.
Notwithstanding the foregoing or any other provision of this Agreement, it shall not be a breach or
violation of this Agreement for the Executive to (x) serve on civic or charitable boards or committees, or
(y) deliver lectures, or fulfill speaking engagements, or (z) advise companies, so long as such activities
do not interfere with or detract from the performance of the Executive's responsibilities to the Company
in accordance with this Agreement.
3.
Term.
(a)
Initial Term.
The Initial Term of Employment under this Agreement, and the employment of the
Executive hereunder, shall commence on the Commencement Date and shall expire on the 31st of
December, 2016, unless sooner terminated in accordance with Article 6 hereof.
(b)
Renewal Terms.
At the end of the Initial Term, the Term of Employment automatically shall renew for two (2)
successive one (1) year terms (subject to earlier termination as provided in Section 6 hereof), unless the
Company or the Executive delivers written notice to the other at least three (3) months prior to the
Expiration Date of an intention or election not to renew the Term of Employment.
4.
Compensation.
(a)
Base Salary.
The Executive shall earn a Base Salary at the annual rate of $240,000 ($20,000 per
month) during the Term of Employment, with such Base Salary payable in installments consistent with
the Company's normal payroll schedule, subject to applicable withholding and other taxes. The Base
Salary shall be reviewed, at least annually, for merit increases and may, by action and in the discretion
of the Compensation Committee of the Board, be increased at any time or from time to time, but may not
be decreased from the then current Base Salary. Once the Company has achieved annual revenues of no
less than $50,000,000 it is agreed that the Executive may request that the Compensation Committee
retain a firm specializing in corporate compensation to make Base Salary and Bonus recommendations
in the specific case of the Executive and that the Compensation Committee will act on such
recommendations.
6
The Base Salary shall accrue at a rate of thirty seven and one half percent (37.5%) of
each installment payable from the Commencement Date until such time as the Company realizes a
cumulative financing of not less than three million dollars ($3,000,000), subsequent to which time, all
amounts due to Executive as accrued Base Salary shall be payable forthwith and the Base Salary shall no
longer be accrued.
(b)
Bonuses.
(i)
The Executive shall receive such additional bonuses, if any, as the
Compensation Committee and the Board of Directors may in its sole and absolute discretion determine.
(ii)
Any Bonus payable pursuant to this Article 4(b) shall be paid by the
Company to the Executive within 2½ months after the end of the Bonus Period for which it is payable.
(c)
Stock Options.
The Executive shall be granted 1,000,000 Stock Options, from the Amended Abakan Inc.
2009 Stock Option Plan, at an exercise price of $0.60 per share, which Stock Options shall vest as
follows: 500,000 options on May 31, 2015, and 500,000 options on May 31, 2016, subject to the terms
and conditions of the Stock Option Agreement (attached hereto as Appendix A) subject to all terms and
conditions of the Stock Option Plan and all rules or regulations of the Securities and Exchange
Commission applicable thereto. Future stock option grants, and the terms and conditions thereof, shall be
determined by the Compensation Committee and the Board, or by the Board in its discretion and pursuant
to the Stock Option Plan or the plan or arrangement pursuant to which they are granted.
5.
Expense Reimbursement and Other Benefits
(a)
Reimbursement of Expenses.
Upon the submission of proper substantiation by the Executive, and subject to such
rules and guidelines as the Company may from time to time adopt with respect to the reimbursement of
expenses of executive personnel, the Company shall reimburse the Executive for all reasonable
expenses actually paid or incurred by the Executive in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses for which
reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or
other evidence reasonably requested by the Company.
(b)
Compensation Benefit Programs.
During the Term of Employment, the Executive shall be entitled at his election to
participate in any medical, dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are presently and hereinafter offered by the
Company or a Related Entity to its executive personnel, including savings, pension, profit-sharing and
deferred compensation plans, subject to the general eligibility and participation provisions set forth in
such plans.
(c)
Working Facilities.
During the Term of Employment, the Company shall furnish the Executive with an
office, accounting assistant and such other facilities at the Company's headquarters in Miami, Florida
and services suitable to his position and adequate for the performance of his duties hereunder.
7
(d)
Automobile.
After the realization of an accumulative combination of proceeds from equity, debt, sales
or leasing of technology rights, not including any amounts raised by a Related Entity, of no less than three
million dollars ($3,000,000) the Company shall provide to Executive an automobile allowance of no more
than $500.00 per month.
(e)
Other Benefits.
The Executive shall be entitled to four (4) weeks of paid vacation each calendar year
during the Term of Employment on the first anniversary of the Commencement Date to be taken at such
times as the Executive and the Company shall mutually determine and provided that no vacation time
shall significantly interfere with the duties required to be rendered by the Executive hereunder. Any
vacation time not taken by Executive during any calendar year may be carried forward into any
succeeding calendar year, subject to a maximum accrual of ten (10) weeks. The Executive shall receive
such additional benefits, if any, as the Board of the Company shall from time to time determine.
6.
Termination.
(a)
General.
The Term of Employment shall terminate upon the earliest to occur of (i) the Executive's
death, (ii) a termination by the Company by reason of the Executive's Disability, (iii) a termination by the
Company with or without Cause, or (iv) a termination by Executive with or without Good Reason. Upon
termination of Executive's employment for any reason, except as may otherwise be requested by the
Company in writing and agreed upon in writing by Executive, the Executive shall resign from any and all
directorships, committee memberships or any other positions Executive holds with the Company or any
of its subsidiaries.
(b)
Termination by Company for Cause.
The Company shall at all times have the right, upon written notice to the Executive, to
terminate the Term of Employment, for Cause. In no event shall a termination of the Executive's
employment for Cause occur unless the Company gives written notice to the Executive in accordance
with this Agreement stating with reasonable specificity the events or actions that constitute Cause and
providing the Executive with an opportunity to cure (if curable) within a reasonable period of time. No
termination of the Executive's employment for Cause shall be permitted unless the Termination Date
occurs during the 120-day period immediately following the date that the events or actions constituting
Cause first become known to the Board. Cause shall in no event be deemed to exist except upon a
decision made by the Board, at a meeting, duly called and noticed, to which the Executive (and the
Executive's counsel) shall be invited upon proper notice. If the Executive's employment is terminated by
the Company for Cause by reason of Article 6(b) hereof, and the Executive's conviction is overturned on
appeal, then the Executive's employment shall be deemed to have been terminated by the Company
without Cause in accordance with Article 6(e) below. In the event that the Term of Employment is
terminated by the Company for Cause, Executive shall be entitled only to the Accrued Obligations.
(c)
Disability.
The Executive's employment hereunder shall terminate upon his Disability. The
Executive's employment shall terminate in such a case on the last day of the applicable period.
8
In the event that the Term of Employment is terminated due to the Executive's Disability, in
addition to any benefits available from applicable insurance, the Executive shall be entitled to:
(i)
the Accrued Obligations;
(ii)
the continuation of the health benefits provided to Executive and
his covered dependents under the Company or Related Entity health plans as in effect from time to
time after the Termination Date at the same cost applicable to active employees until the expiration
of the Severance Term, and
(d)
Death.
(i)
In the event that the Term of Employment is terminated due to the
Executive's death, the Executive shall be entitled to the Accrued Obligations; and
(ii)
the Severance Amount.
(e)
Termination Without Cause.
The Company may terminate the Term of Employment at any time without Cause, by
written notice to the Executive of not less than 180 days prior to the effective date of such termination. In
the event that the Term of Employment is terminated by the Company without Cause (other than due to
the Executive's Death or Disability) the Executive shall be entitled to:
(i)
the Accrued Obligations; and
(ii)
the Severance Amount.
(f)
Termination by Executive for Good Reason.
The Executive may terminate the Term of Employment for Good Reason by providing
the Company thirty (30) days' written notice setting forth in reasonable specificity the event that
constitutes Good Reason, which written notice, to be effective, must be provided to the Company within
one hundred and twenty(120) days of the occurrence of such event. During such thirty (30) day notice
period, the Company shall have a cure right (if curable), and if not cured within such period, the
Executive's termination shall be effective upon the date immediately following the expiration of the thirty
(30) day notice period, and the Executive shall be entitled to the same payments and benefits as provided
in Article 6(e) above for a termination without Cause.
(g)
Termination by Executive Without Good Reason.
The Executive may terminate his employment without Good Reason by providing the
Company thirty (30) days' written notice of such termination. In the event of a termination of
employment by the Executive under this Section 6(g), the Executive shall be entitled only to the Accrued
Obligations. In the event of termination of the Executive's employment under this Article 6(g), the
Company may, in its sole and absolute discretion, by written notice, accelerate such date of termination
and still have it treated as a termination without Good Reason.
9
(h)
Termination Upon Expiration Date.
In the event that Executive's employment with the Company terminates upon the
expiration of the Initial Term of Employment, the Executive shall be entitled to and the Company shall
pay the Executive the Expiration Amount.
(i)
Change in Control of the Company.
If the Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason during (y) the 6-month period preceding the date of the Change in Control or
(z) the two 2 year period immediately following the Change in Control, the Executive shall be entitled to:
(i)
the Accrued Obligations, payable as and when those amounts would
have been payable had the Term of Employment not ended; including the immediate vesting of Stock
Options; and
(ii)
a payment equal to the Severance Amount.
(j)
Release.
Any payments due to Executive under this Article 6 (other than the Accrued
Obligations or any unpaid expenses or payments due on account of the Executive's death) shall be
conditioned upon Executive's execution of a general release of claims in the form attached hereto as
Exhibit A (subject to such modifications as the Company reasonably may request).
(k)
Cooperation.
Following the Term of Employment, the Executive shall give his assistance and
cooperation willingly, upon reasonable advance notice with due consideration for his other business or
personal commitments, in any matter relating to his position with the Company, or his expertise or
experience as the Company may reasonably request, including his attendance and truthful testimony
where deemed appropriate by the Company, with respect to any investigation or the Company's defense
or prosecution of any existing or future claims or litigations or other proceedings relating to matters in
which he was involved or potentially had knowledge by virtue of his employment with the Company. In
no event shall his cooperation materially interfere with his services for a subsequent employer or other
similar service recipient. To the extent permitted by law, the Company agrees that (i) it shall promptly
reimburse the Executive for his reasonable and documented expenses in connection with his rendering
assistance and/or cooperation under this Article 6(k) upon his presentation of documentation for such
expenses and (ii) the Executive shall be reasonably compensated for any continued material services as
required under this Article 6(k).
(1)
Return of Company Property.
Following the Termination Date, the Executive or his personal representative shall return
all Company property in his possession, including but not limited to all computer equipment (hardware
and software), telephones, facsimile machines, palm pilots and other communication devices, credit cards,
office keys, security access cards, badges, identification cards and all copies (including drafts) of any
documentation or information (however stored) relating to the business of the Company, its customers
and clients or its prospective customers and clients.
10
(m)
Section 409A.
To the extent that the Executive otherwise would be entitled to any payment (whether
pursuant to this Agreement or otherwise) during the six months beginning on the Termination Date that
would be subject to the additional tax imposed under Section 409A of the Code ("Section 409A"), (x) the
payment shall not be made to the Executive during such six month period and instead shall be made to a
trust in compliance with Revenue Procedure 92-64 (the "Rabbi Trust") and (y) the payment shall be paid
to the Executive on the earlier of the six-month anniversary of the Termination Date or the Executive's
death or Disability. Similarly, to the extent that the Executive otherwise would be entitled to any benefit
(other than a payment) during the six months beginning on the Termination Date that would be subject to
the Section 409A additional tax, the benefit shall be delayed and shall begin being provided (together, if
applicable, with an adjustment to compensate the Executive for the delay) on the earlier of the six-month
anniversary of the Termination Date, or the Executive's death or Disability.
(i)
The Company shall not take any action that would expose any payment or
benefit to the Executive to the additional tax of Section 409A, unless (w) the Company is obligated to take
the action under an agreement, plan or arrangement to which the Executive is a party, (x) the Executive
requests the action, (y) the Company advises the Executive in writing that the action may result in the
imposition of the additional tax, and (z) the Executive subsequently requests the action in a writing that
acknowledges that the Executive shall be responsible for any effect of the action under Section 409A.
(ii)
It is the Company's intention that the benefits and rights to which the
Executive could become entitled in connection with termination of employment comply with Section
409A. If the Executive or the Company believes, at any time, that any of such benefit or right does not
comply, it shall promptly advise the other and shall negotiate reasonably and in good faith to amend the
terms of such benefits and rights such that they comply with Section 409A (with the most limited possible
economic effect on the Executive and on the Company).
(n)
Clawback of Certain Compensation and Benefits.
If within the three year period after the termination of the Executive's employment with
the Company for any reason other than by the Company for Cause:
(i)
it is determined in good faith by the Board and in accordance with the
due process requirements of Article 6(b) that the Executive's employment could have been terminated by
the Company for Cause under Article 6(b) (unless the Board knew or should have known that as of the
Termination Date the Executive's employment could have been terminated for Cause in accordance with
Article 6(b)); or
(ii)
if the Company determines that the Executive has engaged in fraudulent
or intentional misconduct related to or materially affecting the Company's business operations or the
Executive's duties at the Company; or
(iii)
the Executive breaches Article 7, then the Executive's employment shall
be deemed to have been terminated for Cause retroactively to the Termination Date, and in addition to
any other remedy that may be available to the Company in law or equity and/or pursuant to any other
provisions of this Agreement, the Executive shall also be subject to the following provisions:
11
(a)
he Executive shall be required to pay to the Company,
immediately upon written demand by the Board, (a) notwithstanding Article 1 (a)(iii), Article 1(a)(iv)
and Article 6(b), any additional amounts paid to Executive as a Bonus, deferred compensation, or
Severance; that Executive would not have received had Executive's employment been terminated for
Cause; and
(b)
the Executive shall be required to pay to the Company any
additional amounts paid to Executive on or after the Termination Date (including the pre-tax cost to the
Company of any benefits that are in excess of the total amount that the Company would have been
required to pay and the pre-tax cost of any benefits that the Company would have been required to
provide) that are in addition to those amounts Executive would have received if the Executive's
employment with the Company had been terminated by the Company for Cause in accordance with
Article 6(b) above; and
(c)
notwithstanding Article 1 (a)(iii) and Article 6(b), the Executive
shall forfeit at the discretion of the Board, based on the facts and circumstances surrounding the
Executive's culpability, all or a portion of the Stock Options granted pursuant to this Agreement, vested
and unvested, or if Stock Options have been exercised, all or a portion of the shares so issued for
cancellation upon payment by Company to Executive the full exercise price, while any remaining Stock
Options, if any, may be rescinded by the Board.
7.
Restrictive Covenants.
(a)
Non-competition.
At all times during the Restricted Period, the Executive shall not, directly or indirectly
(whether as a principal, agent, partner, employee, officer, investor, owner, consultant, board member,
security holder, creditor or otherwise), engage in any Competitive Activity, or have any direct or indirect
interest in any sole proprietorship, corporation, company, partnership, association, venture or business or
any other person or entity that directly or indirectly (whether as a principal, agent, partner, employee,
officer, investor, owner, consultant, board member, security holder, creditor, or otherwise) engages in a
Competitive Activity; provided that the foregoing shall not apply to the Executive's ownership of
Common Stock of the Company or the acquisition by the Executive, solely as an investment, of securities
of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, and
that are listed or admitted for trading on any United States national securities exchange or that are quoted
on the NASDAQ Stock Market, or any similar system or automated dissemination of quotations of
securities prices in common use, so long as the Executive does not control, acquire a controlling interest
in or become a member of a group which exercises direct or indirect control of, more than five percent
(5%) of any class of capital stock of such corporation.
12
(b)
Non-solicitation of Employees and Certain Other Third Parties.
At all times during the Restricted Period, the Executive shall not, directly or indirectly,
for himself or for any other person, firm, corporation, partnership, association or other entity (i) employ
or attempt to employ or enter into any contractual arrangement with any employee, consultant or
independent contractor performing services for the Company, or any Affiliate or Related Entity, unless
such employee, consultant or independent contractor, has not been employed or engaged by the
Company for a period in excess of six (6) months, and/or (ii) call on or solicit any of the actual or
targeted prospective customers or clients of the Company or any Affiliate or Related Entity on behalf of
any person or entity in connection with any Competitive Activity, nor shall the Executive make known
the names and addresses of such actual or targeted prospective customers or clients, or any information
relating in any manner to the trade or business relationships of the Company or any Affiliates or Related
Entities with such customers or clients, other than in connection with the performance of the Executive's
duties under this Agreement, and/or (iii) persuade or encourage or attempt to persuade or encourage any
persons or entities with whom the Company or any Affiliate or Related Entity does business or has some
business relationship to cease doing business or to terminate its business relationship with the Company
or any Affiliate or Related Entity or to engage in any Competitive Activity on its own or with any
competitor of the Company or any Affiliate or Related Entity.
(c)
Confidential Information.
The Executive shall not at any time divulge, communicate, use to the detriment of the
Company or for the benefit of any other person or persons, or misuse in any way, any Confidential
Information pertaining to the business of the Company. Any Confidential Information or data now or
hereafter acquired by the Executive with respect to the business of the Company (which shall include, but
not be limited to, information concerning the Company's financial condition, prospects, technology,
customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special
and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and
the Executive shall remain a fiduciary to the Company with respect to all of such information.
Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Executive from disclosing
Confidential Information as required to perform his duties under this Agreement or to the extent required
by law. If any person or authority makes a demand on the Executive purporting to legally compel him to
divulge any Confidential Information, the Executive immediately shall give notice of the demand to the
Company so that the Company may first assess whether to challenge the demand prior to the Executive's
divulging of such Confidential Information. The Executive shall not divulge such Confidential
Information until the Company either has concluded not to challenge the demand, or has exhausted its
challenge, including appeals, if any. Upon request by the Company, the Executive shall deliver promptly
to the Company upon termination of his services for the Company, or at any time thereafter as the
Company may request, all memoranda, notes, records, reports, manuals, drawings, designs, computer files
in any media and other documents (and all copies thereof) containing such Confidential Information.
13
(d)
Ownership of Developments.
All processes, concepts, techniques, inventions and works of authorship, including new
contributions, improvements, formats, packages, programs, systems, machines, compositions of matter
manufactured, developments, applications and discoveries, and all copyrights, patents, trade secrets, or
other intellectual property rights associated therewith conceived, invented, made, developed or created
by the Executive during the Term of Employment either during the course of performing work for the
Company, Affiliate, Related Entity or their clients or which are related in any manner to the business
(commercial or experimental) of the Company or its clients (collectively, the "Work Product"), within
the field of use of wear and corrosion resistant coatings shall belong exclusively to the Company and
shall, to the extent possible, be considered a work made by the Executive for hire for the Company
within the meaning of Title 17 of the United States Code. To the extent the Work Product within the
wear and corrosion coatings field of use may not be considered work made by the Executive for hire for
the Company, the Executive agrees to assign, and automatically assign at the time of creation of the
Work Product, without any requirement of further consideration, any right, title, or interest the Executive
may have in such Work Product. Upon the request of the Company, the Executive shall take such further
actions, including execution and delivery of instruments of conveyance, as may be appropriate to give
full and proper effect to such assignment. The Executive shall further: (i) promptly disclose the Work
Product to the Company; (ii) assign to the Company, without additional compensation, all patent or
other rights to such Work Product for the United States and foreign countries; (iii) sign all papers
necessary to carry out the foregoing; and (iv) give testimony in support of his inventions, all at the sole
cost and expense of the Company.
(e)
Books and Records.
All books, records, and accounts relating in any manner to the customers or clients of the
Company, whether prepared by the Executive or otherwise coming into the Executive's possession, shall
be the exclusive property of the Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the Company's request at any time.
14
(f)
Acknowledgment by Executive.
The Executive acknowledges and confirms that the restrictive covenants contained in
this Article 7 (including without limitation the length of the term of the provisions of this Article 7) are
reasonably necessary to protect the legitimate business interests of the Company, and are not overbroad,
overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that the compensation payable to the Executive under this
Agreement is in consideration for the duties and obligations of the Executive hereunder, including the
restrictive covenants contained in this Article 7, and that such compensation is sufficient, fair and
reasonable. The Executive further acknowledges and confirms that his full, uninhibited and faithful
observance of each of the covenants contained in this Article 7 will not cause him any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or
otherwise to obtain income required for the comfortable support of him and his family and the
satisfaction of the needs of his creditors. The Executive acknowledges and confirms that his special
knowledge of the business of the Company is such as would cause the Company serious injury or loss if
he were to use such ability and knowledge to the benefit of a competitor or were to compete with the
Company in violation of the terms of this Article 7. The Executive further acknowledges that the
restrictions contained in this Article 7 are intended to be, and shall be, for the benefit of and shall be
enforceable by, the Company's successors and assigns. The Executive expressly agrees that upon any
breach or violation of the provisions of this Article 7, the Company shall be entitled, as a matter of right,
in addition to any other rights or remedies it may have, to (i) temporary and/or permanent injunctive
relief in any court of competent jurisdiction as described in Article 7(i) hereof, and (ii) such damages as
are provided at law or in equity. The existence of any claim or cause of action against the Company or
its affiliates, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the
enforcement of the restrictions contained in this Article 7.
(g)
Reformation by Court.
In the event that a court of competent jurisdiction shall determine that any provision of
this Article 7 is invalid or more restrictive than permitted under the governing law of such jurisdiction,
then only as to enforcement of this Article 7 within the jurisdiction of such court, such provision shall be
interpreted or reformed and enforced as if it provided for the maximum restriction permitted under such
governing law.
(h)
Extension of Time.
If the Executive shall be in violation of any provision of this Article 7, then each time
limitation set forth in this Article 7 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive relief from such
violation in any court, then the covenants set forth in this Article 7 shall be extended for a period of time
equal to the duration of such proceeding including all appeals by the Executive.
15
(i)
Injunction.
It is recognized and hereby acknowledged by the parties hereto that a breach by the
Executive of any of the covenants contained in Article 7 of this Agreement will cause irreparable
harm and damage to the Company, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and hereby acknowledges that the Company shall be
entitled to an injunction from any court of competent jurisdiction enjoining and restraining any
violation of any or all of the covenants contained in Article 7 of this Agreement by the Executive or
any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to
injunction shall be cumulative and in addition to whatever other remedies the Company may
possess.
8.
Representations and Warranties of Executive.
The Executive represents and warrants to the Company that:
(a)
the Executive's employment will not conflict with or result in his breach of any
agreement to which he is a party or otherwise may be bound;
(b)
the Executive has not violated, and in connection with his employment with the
Company will not violate, any non-solicitation, non-competition or other similar covenant or agreement
of a prior employer by which he is or may be bound;
(c)
in connection with Executive's employment with the Company, he will not
use any confidential or proprietary information that he may have obtained in connection with
employment with any prior employer, with the exception of current or former affiliates, parents, or
subsidiaries of the company;
(d)
the Executive has not (i) been convicted of any felony; or (ii) committed any
criminal act with respect to Executive's current or any prior employment; and
(e)
the Executive is not dependent on alcohol or the illegal use of drugs.
9.
Mediation.
Except to the extent the Company has the right to seek an injunction under Article 7(i) hereof, in
the event a dispute arises out of or relates to this Agreement, or the breach thereof, and if the dispute
cannot be settled through negotiation, the parties hereby agree first to attempt in good faith to settle the
dispute by mediation administered by the American Arbitration Association under its Employment
Mediation Rules before resorting to the jurisdiction of federal or state courts to resolve any dispute.
10.
Taxes.
Anything in this Agreement to the contrary notwithstanding, all payments required to be
made by the Company hereunder to the Executive or his estate or beneficiaries shall be subject to
the withholding of such amounts relating to taxes as the Company may reasonably determine it
should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts,
in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of
taxes and withholding as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold have been satisfied.
16
11.
Assignment.
The Company shall have the right to assign this Agreement and its rights and obligations
hereunder in whole, but not in part, to any corporation or other entity with or into which the Company
may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its
assets, if in any such case said corporation or other entity shall by operation of law or expressly in writing
assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto,
but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may
not assign or transfer this Agreement or any rights or obligations hereunder.
12.
Governing Law.
This Agreement shall be governed by and construed and enforced in accordance with the internal
laws of the State of Florida, without regard to principles of conflict of laws.
13.
Jurisdiction and Venue.
The parties acknowledge that a substantial portion of the negotiations, anticipated performance
and execution of this Agreement occurred or shall occur in Miami, Florida, and that, therefore, without
limiting the jurisdiction or venue of any other federal or state courts, each of the parties irrevocably and
unconditionally (i) agrees that any suit, action or legal proceeding arising out of or relating to this
Agreement which is expressly permitted by the terms of this Agreement to be brought in a court of law,
shall be brought in the courts of record of the State of Florida or the court of the United States; (ii)
consents to the jurisdiction of each such court in any such suit, action or proceeding; (iii) waives any
objection which it or he may have to the laying of venue of any such suit, action or proceeding in any of
such courts; and (iv) agrees that service of any court papers may be effected on such party by mail, as
provided in this Agreement, or in such other manner as may be provided under applicable laws or court
rules in such courts.
14.
Survival.
The respective rights and obligations of the parties hereunder shall survive any termination of the
Executive's employment hereunder, including without limitation, the Company's obligations under Article
6 and the Executive's obligations under Article 7 above, and the expiration of the Term of Employment,
to the extent necessary to the intended preservation of such rights and obligations.
15.
Notices.
All notices required or permitted to be given hereunder shall be in writing and shall be
personally delivered by courier, sent by registered or certified mail, return receipt requested or sent by
confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by
facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed
in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as
evidenced by the return receipt thereof, or three (3) days after deposit in the U.S. mail. Notice shall be
sent (i) if to the Company, addressed to 2665 South Bayshore Drive, Suite 450, Miami, Florida 33133
USA Attention: Robert Miller, CEO, and (ii) if to the Executive, to his address as reflected on the
payroll records of the Company, or to such other address as either party shall request by notice to the
other in accordance with this provision.
17
16.
Benefits; Binding Effect.
This Agreement shall be for the benefit of and binding upon the parties hereto and their respective
heirs, personal representatives, legal representatives, successors and, where permitted and applicable,
assigns, including, without limitation, any successor to the Company, whether by merger, consolidation,
sale of stock, sale of assets or otherwise.
17.
Right to Consult with Counsel; No Drafting Party.
The Executive acknowledges having read and considered all of the provisions of this Agreement
carefully, and having had the opportunity to consult with counsel of his own choosing, and, given this, the
Executive agrees that the obligations created hereby are not unreasonable. The Executive acknowledges
that he has had an opportunity to negotiate any and all of these provisions and no rule of construction
shall be used that would interpret any provision in favor of or against a party on the basis of who drafted
the Agreement.
18.
Severability.
The invalidity of any one or more of the words, phrases, sentences, clauses, provisions, sections
or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in
the event that any one or more of the words, phrases, sentences, clauses, provisions, sections or articles
contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid
word or words, phrase or phrases, sentence or sentences, clause or clauses, provisions or provisions,
section or sections or article or articles had not been inserted. If such invalidity is caused by length of time
or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or
area which would cure such invalidity.
19.
Waivers.
The waiver by either party hereto of a breach or violation of any term or provision of this
Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.
20.
Damages; Attorneys Fees.
Nothing contained herein shall be construed to prevent the Company or the Executive from
seeking and recovering from the other damages sustained by either or both of them as a result of its or
his breach of any term or provision of this Agreement. In the event that either party hereto seeks to
collect any damages resulting from, or the injunction of any action constituting, a breach of any of the
terms or provisions of this Agreement, then the party found to be at fault shall pay all reasonable costs
and attorneys' fees of the other.
21.
No Set-off or Mitigation.
The Company's obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense
or other claim, right or action which the Company may have against the Executive or others.
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22.
Section Headings.
The article, section and paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
23.
No Third Party Beneficiary.
Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon
or give any person other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any rights or remedies under or
by reason of this Agreement.
24.
Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall be deemed to
be an original but all of which together shall constitute one and the same instrument and agreement.
25.
Indemnification.
(a)
Subject to limitations imposed by law, the Company shall indemnify and hold
harmless the Executive to the fullest extent permitted by law from and against any and all claims,
damages, expenses (including attorneys' fees), judgments, penalties, fines, settlements, and all other
liabilities incurred or paid by him in connection with the investigation, defense, prosecution, settlement or
appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and to which the Executive was or is a party or is threatened to be made a
party by reason of the fact that the Executive is or was an officer, employee or agent of the Company, or
by reason of anything done or not done by the Executive in any such capacity or capacities, provided that
the Executive acted in good faith, in a manner that was not grossly negligent or constituted willful
misconduct and in a manner he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Company also shall pay any and all expenses (including attorney's fees)
incurred by the Executive as a result of the Executive being called as a witness in connection with any
matter involving the Company and/or any of its officers or directors.
(b)
Except in the event that the Company is involved in an adversarial claim either
against or initiated by Executive, the Company shall pay any expenses (including attorneys' fees),
judgments, penalties, fines, settlements, and other liabilities incurred by the Executive in investigating,
defending, settling or appealing any action, suit or proceeding described in this Article 25 in advance of
the final disposition of such action, suit or proceeding. Subject to the limited exception conditioned
above, the Company shall promptly pay the amount of such expenses to the Executive, but in no event
later than 10 days following the Executive's delivery to the Company of a written request for an advance
pursuant to this Article 25, together with a reasonable accounting of such expenses.
(c)
The Executive hereby undertakes and agrees to repay to the Company any
advances made pursuant to this Article 25 if and to the extent that it shall ultimately be found that the
Executive is not entitled to be indemnified by the Company for such amounts.
19
(d)
The Company shall make the advances contemplated by this Article 25
regardless of the Executive's financial ability to make repayment, and regardless whether indemnification
of the Indemnitee by the Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Article 25 shall be unsecured and interest-free. The provisions of this Article 25 shall
survive the termination of the Term of Employment or expiration of the term of this Agreement.
(e)
The provisions of this Article 25 shall survive the termination of the Term of
Employment or expiration of the term of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first
above written.
“EXECUTIVE”
Stephen C. Goss
/s/ Stephen C. Goss
Stephen C. Goss
“COMPANY”
ABAKAN INC.
/s/ Robert H. Miller
By: Robert H. Miller
On Behalf of Abakan Inc.’s Board of Directors
20
EXHIBIT A
FORM OF RELEASE
GENERAL RELEASE OF CLAIMS
Stephen C. Goss ("Executive"), for himself and his family, heirs, executors, administrators, legal
representatives and their respective successors and assigns, in exchange for the consideration received
pursuant to this Employment Agreement to which this release is attached as Exhibit A (the "Employment
Agreement"), does hereby release and forever discharge Abakan Inc. (the "Company"), its subsidiaries,
affiliated companies, successors and assigns, and its current or former directors, officers, employees,
shareholders or agents in such capacities (collectively with the Company, the "Released Parties") from
any and all actions, causes of action, suits, controversies, claims and demands whatsoever, for or by
reason of any matter, cause or thing whatsoever, whether known or unknown including, but not limited
to, all claims under any applicable laws arising under or in connection with Executive's employment or
termination thereof, whether for tort, breach of express or implied employment contract, wrongful
discharge, intentional infliction of emotional distress, or defamation or injuries incurred on the job or
incurred as a result of loss of employment. Executive acknowledges that the Company encouraged him to
consult with an attorney of his choosing, and through this General Release of Claims encourages him to
consult with his attorney with respect to possible claims under the Age Discrimination in Employment
Act ("ADEA") and that he understands that the ADEA is a Federal statute that, among other things,
prohibits discrimination on the basis of age in employment and employee benefits and benefit plans.
Without limiting the generality of the release provided above, Executive expressly waives any and all
claims under ADEA that he may have as of the date hereof. Executive further understands that by signing
this General Release of Claims he is in fact waiving, releasing and forever giving up any claim under the
ADEA as well as all other laws within the scope of this paragraph 1 that may have existed on or prior to
the date hereof. Notwithstanding anything in this paragraph 1 to the contrary, this General Release of
Claims shall not apply to (i) any rights or claims that may arise as a result of events occurring after the
date this General Release of Claims is executed, (ii) any indemnification rights Executive may have as a
former officer or director of the Company or its subsidiaries or affiliated companies, (iii) any claims for
benefits under any directors' and officers' liability policy maintained by the Company or its subsidiaries or
affiliated companies in accordance with the terms of such policy, and (iv) any rights as a holder of equity
securities of the Company.
Executive represents that he has not filed against the Released Parties any complaints, charges,
or lawsuits arising out of his employment, or any other matter arising on or prior to the date of this
General Release of Claims, and covenants and agrees that he will never individually or with any person
file, or commence the filing of, any charges, lawsuits, complaints or proceedings with any governmental
agency, or against the Released Parties with respect to any of the matters released by Executive pursuant
to paragraph 1 hereof (a "Proceeding"); provided, however, Executive shall not have relinquished his
right to commence a Proceeding to challenge whether Executive knowingly and voluntarily waived his
rights under ADEA.
Executive hereby acknowledges that the Company has informed him that he has up to twenty-one
(21) days to sign this General Release of Claims and he may knowingly and voluntarily waive that
twenty-one (21) day period by signing this General Release of Claims earlier. Executive also understands
that he shall have seven (7) days following the date on which he signs this General Release of Claims
within which to revoke it by providing a written notice of his revocation to the Company.
1
Executive acknowledges that this General Release of Claims will be governed by and construed
and enforced in accordance with the internal laws of the State of Florida applicable to contracts made and
to be performed entirely within such State.
Executive acknowledges that he has read this General Release of Claims, that he has been advised
that he should consult with an attorney before he executes this general release of claims, and that he
understands all of its terms and executes it voluntarily and with full knowledge of its significance and the
consequences thereof.
This General Release of Claims shall take effect on the eighth day following Executive's
execution of this General Release of Claims unless Executive's written revocation is delivered to the
Company within seven (7) days after such execution.
____________________
Stephen C. Goss
Date: __________________________.
2
Appendix A
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Amended Abakan Inc., 2009 Stock
Option Plan shall have the same defined meanings in this Stock Option Agreement.
I.
NOTICE OF STOCK OPTION GRANT
The undersigned Optionee, Stephen C. Goss, has been granted an option (herein referred to as the
“Option”) to purchase up to an aggregate of One Million (1,000,000) shares of Common Stock of the
Corporation, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows:
1.
Optionee:
Stephen C. Goss
2.
Date of Grant:
January 1, 2015
3.
Exercise Price per Share:
$0.60
4.
Total Number of Shares:
1,000,000 Shares of Common Stock
5.
Total Exercise Price:
$600,000
6.
Type of Option:
Incentive Stock Option
X
Non-Statutory Stock Option
7.
Term/Expiration Date:
Ten (10) years from Date of Grant
8.
Vesting Schedule: This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
(a)
On May 31, 2015, Optionee shall have the right to exercise that portion of the
Option granted herein for five hundred thousand (500,000) shares of Common Stock.
(b)
On May 31, 2016, Optionee shall have the right to exercise that portion of the
Option granted herein for five hundred thousand (500,000) shares of Common Stock.
9.
Termination:
(a)
In the event of Optionee’s Involuntary Termination, as that term is defined in the
Plan, this Option shall immediately vest in full and shall be exercisable as to all Shares of
Common Stock subject to this Option for a period of twelve (12) months after Optionee
ceases to be an Employee.
(b)
In the event of Optionee’s termination of employment for any reason other than
Involuntary Termination, the Optionee’s death or Disability, all outstanding options with
respect to all unvested shares at the date of such termination held by the Optionee shall
terminate and cease to remain outstanding, and Optionee shall have a period of twelve
(12) months after Optionee ceases to be an Employee in which to exercise any vested
options.
1
(c)
Upon Optionee’s death or Disability, all outstanding options with respect to all
unvested shares at the date of such termination held by the Optionee shall terminate and
cease to remain outstanding, and Optionee, or the personal representative of his estate, as
the case may be, shall have a period of thirty-six (36) months after Optionee ceases to be
an Employee in which to exercise any vested options.
(d)
In no event may Optionee exercise this Option after the Term/Expiration Date
provided above in the Notice of Grant.
II.
AGREEMENT
1.
Grant of Option.
(a)
The Plan Administrator of the Corporation hereby grants to the Optionee named
in the Notice of Grant (the “Optionee”), the Option to purchase the number of Shares set
forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of
Grant (the “Exercise Price”), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. In the event of a conflict between the terms and
conditions of the Plan and this Option Agreement, the terms and conditions of the Plan
shall prevail.
(b)
If designated in the Notice of Grant as an Incentive Stock Option, this Option
shall qualify as an Incentive Stock Option as defined in Section 422 of the Code.
Nevertheless, to the extent that this Option exceeds the $100,000 rule of Code Section
422(d) or fails to comply with any other requirement of Code Section 422 or regulations
issued thereunder, such Option shall be treated as a Non-Statutory Stock Option.
2.
Exercise of Option.
(a)
Right to Exercise. This Option shall be exercisable during its term in accordance
with the Vesting Schedule set out in the Notice of Grant and with the applicable
provisions of the Plan and this Option Agreement.
(b)
Method of Exercise. This Option shall be exercisable by delivery of an exercise
notice in the form attached as Exhibit A (the “Exercise Notice”), which shall state the
election to exercise the Option, the number of Shares with respect to which the Option is
being exercised, and such other representations and agreements as may be required by the
Corporation. The Exercise Notice shall be accompanied by payment of the aggregate
Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Corporation of such fully executed Exercise Notice accompanied by
the aggregate Exercise Price.
(c)
Compliance with Law. No Shares shall be issued pursuant to the exercise of an
Option unless such issuance and such exercise comply with Applicable Law. Assuming
such compliance, for income tax purposes the Shares shall be considered transferred to
the Optionee on the date on which the Option is exercised with respect to such Shares.
2
3.
Optionee’s Representations. In the event the Shares have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), at the time this Option is exercised, if
required by the Corporation, the Optionee shall deliver to the Corporation, concurrently with the
exercise of all or any portion of this Option, his or her Investment Representation Statement in
the form attached hereto as Exhibit B.
4.
Method of Payment. Payment of the aggregate Exercise Price shall be made by any
manner provided in the Plan. However, following the registration of the Shares under Section
12(g) of the Securities Exchange Act of 1934, the Exercise Price also may be paid as follows:
(a)
in shares of Common Stock held for the requisite period necessary to avoid a
charge to the Corporation’s earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or
(b)
to the extent the Option is exercised for vested shares through a special sale and
remittance procedure pursuant to which the Optionee (or any other person or persons
exercising the Option) concurrently will provide irrevocable written instructions to (i) a
brokerage firm designated by the Corporation to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable for the
purchased shares, plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such exercise and (ii) the
Corporation to deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
5.
Restrictions on Exercise. This Option may not be exercised if the issuance of such
Shares upon such exercise or the method of payment of consideration for such shares would
constitute a violation of any Applicable Law.
6.
Limited Transferability of Option; Restrictions on Transfer of Shares. If this Option is
designated as an Incentive Stock Option in the Option Grant Notice, this Option may not be
transferred or assigned in any manner by Optionee other than by will or by the laws of descent
and distribution, and during the lifetime of Optionee, may be exercised only by Optionee. If this
Option is designated as a Non-statutory Stock Option in the Option Grant Notice, at the discretion
of the Plan Administrator and in connection with Optionee’s estate plan, this Option may be
assigned in whole or in part during Optionee’s lifetime to one or more members of Optionee’s
immediate family or to a trust established exclusively for the benefit of one or more such family
members.
7.
Successors and Assigns. The terms of the Plan and this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
8.
Term of Option. This Option may be exercised only within the term set out in the Notice
of Grant, and may be exercised during such term only in accordance with the Plan and the terms
of this Option Agreement.
3
9.
Entire Agreement, Governing Law. The Plan is incorporated herein by reference. The
Plan and this Option Agreement, together with all Exhibits attached hereto, constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety
all prior undertakings and agreements of the Corporation and Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a
writing signed by the Corporation and Optionee. This Option Agreement is governed by the
internal substantive laws but not the choice of law rules of Florida.
10.
No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF ANY PORTION OF THIS OPTION PURSUANT TO THE
VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
CONSULTANT OR SERVICE PROVIDER. OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS
A CONSULTANT OR SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL.
11.
Conflict. If there is a conflict between this Agreement and the Plan, the provisions of the
Plan shall control.
12.
Acknowledgement. Optionee acknowledges receipt of a copy of the Plan and represents
that he or she is familiar with the terms and provisions thereof, and hereby accepts the Option
granted hereunder subject to all of the terms and provisions thereof. Optionee has reviewed the
Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option Agreement and fully understands all provisions of this
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Plan Administrator on any questions arising under the Plan or
this Option Agreement. Optionee further agrees to notify the Corporation upon any change in the
residence address indicated below.
ABAKAN INC.
By: /s/ Robert H. Miller
Name: Robert H. Miller
Title: On Behalf of the Board of Directors
OPTIONEE
/s/ Stephen C. Goss
Stephen C. Goss
4
EXHIBIT A
AMENDED ABAKAN INC.
2009 STOCK OPTION PLAN
EXERCISE NOTICE
Abakan Inc.
2665 S. Bayshore Drive, Suite 450
Miami, Florida 33133
Attention: ___________________
1.
Exercise of Option. Effective as of this ____________________day of _________, 20__
the undersigned (“Optionee”) hereby elects to exercise Optionee’s option to purchase shares of Common
Stock (the “Shares”) of Abakan Inc. (the “Corporation”) granted under and pursuant to the Amended
Abakan 2009 Stock Option Plan (the “Plan”) and the Stock Option Agreement dated January 1, 2015 (the
“Option Agreement”).
2.
Delivery of Payment. Optionee herewith delivers to the Corporation the full exercise
price of the Shares, as set forth in the Option Agreement.
3.
Representations of Optionee. Optionee acknowledges that Optionee has received, read
and understands the Plan and the Option Agreement and agrees to abide by and be bound by their terms
and conditions.
4.
Rights as Shareholder. Until the issuance of the Shares (as evidenced by the appropriate
entry on the books of the Corporation or of a duly authorized transfer agent of the Corporation), no right
to receive dividends or any other rights as a shareholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as
practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date of issuance.
5.
Tax Consultation. Optionee understands that Optionee may suffer adverse tax
consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that
Optionee has consulted with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying on the Corporation for any tax
advice.
6.
Restrictive Legends and Stop-Transfer Orders.
(a)
Legends. Optionee understands and agrees that, in addition to any other legends
the Board determines, in its discretion, are necessary or appropriate, the Corporation shall cause
the legends set forth below or legends substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Shares together with any other legends that may be
required by the Corporation or by state or federal securities laws:
5
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SHARES OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT THAT IS THEN
APPLICABLE TO THE SHARES, AS TO WHICH A PRIOR OPINION OF
COUNSEL ACCEPTABLE TO THE ISSUER OR TRANSFER AGENT MAY
BE REQUIRED.
(b)
Stop-Transfer Notices. Optionee agrees that, in order to ensure compliance with
the restrictions referred to herein, the Corporation may issue appropriate “stop transfer”
instructions to its transfer agent, if any, and that, if the Corporation transfers its own securities, it
may make appropriate notations to the same effect in its own records.
(c)
Refusal to Transfer. The Corporation shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to
vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been
so transferred.
7.
Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be
submitted by Optionee or by the Corporation forthwith to the Administrator which shall review such
dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final
and binding on all parties.
8.
Governing Law; Severability. This Exercise Notice is governed by the internal
substantive laws but not the choice of law rules, of the State of Florida.
9.
Entire Agreement. The Plan and Option Agreement are incorporated herein by reference.
This Exercise Notice, the Plan, the Option Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Corporation and Optionee with respect to the
subject matter hereof, and may not be modified adversely-to the Optionee’s interest except by means of a
writing signed by the Corporation and Optionee.
Submitted by:
Accepted by:
OPTIONEE
ABAKAN INC.
_____________________________
By
Signature
Name
Title
STEPHEN C. GOSS
Print Name
_____________________________
Date Received
Address
6
EXHIBIT B
AMENDED ABAKAN INC.
2009 STOCK OPTION PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
STEPHEN C. GOSS
CORPORATION:
ABAKAN INC.
SECURITIES:
COMMON STOCK
AMOUNT:
______________________
DATE:
______________________
In connection with the purchase of the above-listed Securities, the undersigned Optionee
represents to the Corporation the following:
(a)
Optionee is aware of the Corporation’s business affairs and financial condition and has
acquired sufficient information about the Corporation to reach an informed and knowledgeable decision
to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee’s own
account only and not with a view to, or for resale in connection with, any “distribution” thereof within the
meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b)
Optionee acknowledges and understands that the Securities constitute “restricted
securities” under the Securities Act and have not been registered under the Securities Act in reliance upon
a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature
of Optionee’s investment intent as expressed herein. In this connection, Optionee understands that, in the
view of the Securities and Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee’s representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or
until an increase or decrease in the market price of the Securities, or for a period of one year or any other
fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Corporation is under no obligation to
register the Securities. Optionee understands that the certificate evidencing the Securities will be
imprinted with a legend that prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the Corporation, and any other legend
required under applicable state securities laws.
(c)
Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated
under the Securities Act, which, in substance, permit limited public resale of “restricted securities”
acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction
of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant
of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act.
7
In the event that the Corporation does not qualify under Rule 701 at the time of grant of the
Option, then the Securities may be resold in certain limited circumstances subject to the provisions of
Rule 144, including: (i) the resale may occur not less than six (6) months after the date the Securities were
sold by the Corporation, (ii) the resale may be made through a broker in an unsolicited “broker’s
transaction” or in transactions directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (iii) certain public information must be made
available about the Corporation, (iv) the amount of Securities being sold during any three month period
may not exceed the limitations specified in Rule 144(e), and (v) a Form 144 must be timely filed, if
applicable.
(d)
Optionee further understands that in the event all of the applicable requirements of Rule
701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some
other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701
are not exclusive, the staff of the Securities and Exchange Commission has expressed its opinion that
persons proposing to sell private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such persons and their respective
brokers who participate in such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be available in such event.
Signature of Optionee:
Date: ___________________________
8
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert H. Miller certify that:
1. I have reviewed this report on Form 10-Q of Abakan Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and
internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including any consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls over financial reporting.
Date: January 14, 2015
/s/ Robert H, Miller
Robert H. Miller
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Costas Takkas certify that:
1. I have reviewed this report on Form 10-Q of Abakan Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and
internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including any consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls over financial reporting.
Date: January 14, 2015
/s/ Costas Takkas
Costas Takkas
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the report on Form 10-Q of Abakan Inc. for the quarterly period ended November 30,
2014, as filed with the Securities and Exchange Commission on the date hereof, I, Robert H. Miller, do
hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:
(1) This report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in this report fairly presents, in all material respects, the financial
condition of the registrant at the end of the period covered by this report and results of operations
of the registrant for the period covered by this report.
Date: January 14, 2015
/s/ Robert H. Miller
Robert H. Miller
Chief Executive Officer
This certification accompanies this report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the registrant
for the purposes of §18 of the Securities Exchange Act of 1934, as amended. This certification shall not
be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of this report),
irrespective of any general incorporation language contained in such filing.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the report on Form 10-Q of Abakan Inc. for the quarterly period ended November 30,
2014, as filed with the Securities and Exchange Commission on the date hereof, I, Costas Takkas, do
hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:
(1) This report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in this report fairly presents, in all material respects, the financial
condition of the registrant at the end of the period covered by this report and results of operations
of the registrant for the period covered by this report.
Date: January 14, 2015
/s/ Costas Takkas
Costas Takkas
Chief Financial Officer
This certification accompanies this report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the registrant
for the purposes of §18 of the Securities Exchange Act of 1934, as amended. This certification shall not
be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of this report),
irrespective of any general incorporation language contained in such filing.
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