UNITED STATES
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 August 31, 2013.
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 of 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 þ Non-accelerated filer o Smaller reporting company o
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 October 15, 2013 was 64,284,855.
1
TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
Item1.
4
Condensed Consolidated Balance Sheets for the period ended
4
August 31, 2013 (unaudited) and May 31, 2013
Unaudited Condensed Consolidated Statements of Operations for the
5
Three months ended August 31, 2013 and 2012, and cumulative amounts from
development stage activities (June 27, 2006 (Inception) through August 31, 2013)
Unaudited Condensed Consolidated Statements of Cash Flows for the
6
Three months ended August 31, 2013 and 2012, and cumulative amounts from
development stage activities (June 27, 2006 (inception) through August 31, 2013)
Condensed Notes to Consolidated Financial Statements (Unaudited)
7
Management's Discussion and Analysis of Financial Condition and Results of
15
Operations
Quantitative and Qualitative Disclosures about Market Risk
25
Controls and Procedures
26
PART II-OTHER INFORMATION
Legal Proceedings
27
Risk Factors
27
Unregistered Sales of Equity Securities and Use of Proceeds
31
Defaults Upon Senior Securities
31
Mine Safety Disclosures
31
Other Information
32
Exhibits
32
33
Index to Exhibits
34
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.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
August 31,
May 31,
2013
2013
(unaudited)
ASSETS
Current assets
Cash and cash equivalents
$
26,782 $
233,040
Accounts receivable
85,334
105,523
Note receivable - related parties
4,500
4,500
Prepaid expenses
99,112
117,028
Other current assets
12,060
15,799
Total current assets
227,788
475,890
Non-current assets
Property, plant and equipment, net
5,713,273
5,595,007
Patents and licenses, net
6,203,665
7,545,163
Assignment agreement - MesoCoat
200,660
210,528
Investment - Powdermet (Note 3)
2,304,480
2,449,312
Goodwill
364,384
364,384
Total Assets
$
15,014,250 $
16,640,284
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
1,431,905 $
890,791
Accounts payable - related parties
471,101
251,004
Capital leases - current portion
28,006
28,006
Loans payable, net of discounts of $11,993 and $160,472 (Note 4)
1,338,338
965,555
Accrued interest - loans payable
140,801
153,825
Loan payable- related parties
30,000
30,000
Accrued interest – related parties
2,600
1,987
Accrued liabilities
1,066,635
377,392
Total current liabilities
4,509,386
2,698,560
Non-current liabilities
Loans payable (Note 4)
3,141,360
4,241,278
Capital leases - non-current portion (Note 4)
62,331
63,875
Total liabilities
7,713,077
7,003,713
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
64,284,855 issued and outstanding – August 31, 2013,
64,284,855 issued and outstanding - May 31, 2013
6,430
6,430
Subscription receivable
-
(76,244)
Paid-in capital
21,134,653
20,833,426
Contributed capital
5,050
5,050
Accumulated deficit during the development stage
(15,684,591)
(13,545,788)
5,461,542
7,222,874
Non-controlling interest
1,839,631
2,413,697
Total stockholders' equity
7,301,173
9,636,571
Total liabilities and stockholders' equity
$
15,014,250 $
16,640,284
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
ABAKAN INC.
(A DEVELOPMENT STATE ENTERPRISE)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative amounts
from development
stage activities
For the three months ended
June 27, 2006
August 31,
(inception) to
Revenues
2013
2012
August 31, 2013
Commercial
$
25,247 $
19,300 $
293,000
Contract and grants
63,403
547,327
3,818,657
Other income
-
268,756
764,879
88,650
835,383
4,876,536
Cost of Revenues
80,532
336,774
1,868,803
Gross profit
8,118
498,609
3,007,733
Expenses
General and administrative
General and administrative
186,360
161,687
1,913,014
Professional fees
320,322
120,304
1,403,191
Professional fees - related parties
18,028
15,000
243,028
Consulting
273,809
363,932
3,360,588
Consulting - related parties
78,500
99,427
1,759,730
Payroll and benefits expense
533,985
182,976
2,381,088
Depreciation and amortization
198,419
85,500
947,575
Research and development
488,617
293,608
2,573,123
Impairment of asset
-
-
180,000
Stock expense on note conversion
-
-
730,097
Stock options expense
318,480
459,784
4,734,760
Total expenses
2,416,520
1,782,218
20,226,194
Loss from operations
(2,408,402)
(1,283,609)
(17,218,461)
Other (expense) income
Interest expense:
Interest – loans
(27,800)
(103,768)
(575,679)
Interest - related parties
(613)
-
(7,946)
Liquidated damages
-
-
(250,000)
Amortization of discount on debt
(148,479)
(181,128)
(1,599,632)
Total interest expense
(176,892)
(284,896)
(2,433,257)
Interest income
3
3,693
8,168
Creditor Fee
-
-
(241,051)
Gain on debt settlement
-
-
274,967
Gain on sale of assets
-
-
428,796
Unrealized gain on MesoCoat acquisition
-
-
1,764,345
Equity in Powdermet income/ (loss)
(144,832)
41,175
654,480
Equity in MesoCoat loss
-
(586,020)
Total Other (expense) income
(321,721)
(240,028)
(129,572)
Net profit/ (loss) before non-controlling interest
(2,730,123)
(1,523,637)
(17,348,033)
Non-controlling interest in MesoCoat Loss
591,320
116,254
1,663,442
Net profit/ (loss) attributable to Abakan Inc.
(2,138,803)
(1,407,383)
(15,684,591)
Provision for income taxes
-
-
-
Net profit/ (loss)
$
(2,138,803) $
(1,407,383) $
(15,684,591)
Net profit/ (loss) per share – basic
$
(0.03) $
(0.02)
Net profit/ (loss) per share – diluted
$
(0.03) $
(0.02)
Weighted average number of common
shares outstanding – basic
64,284,855
61,615,065
Weighted average number of common
shares outstanding – diluted
64,284,855
61,615,065
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
amounts from
development
stage
Activities
For the three months ended
June 27, 2006
August 31,
(Inception) to
2013
2012
August 31, 2013
NET CASH (USED IN) DEVELOPMENT STAGE
ACTIVITIES
$
(572,281) $
(466,972) $
(6,471,598)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, equipment and website
(297,209)
(282,082)
(4,079,411)
Proceeds from sale of capital assets
-
-
470,921
MesoCoat - minority interest, net of cash assumed in
business combination
-
-
(2,390,266)
Investment in MesoCoat
-
-
(750,070)
Powdermet - minority interest
-
-
(1,650,000)
Assignment agreement – MesoCoat
-
-
(100,000)
Capitalized patents and licenses
(4,738)
(11,358)
(148,006)
Waste to Energy Group Inc.
-
-
(180,000)
NET CASH USED IN INVESTING ACTIVITIES
(301,947)
(293,440)
(8.826,832)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock
76,244
525,000
9,300,514
Proceeds from loans payable
595,267
71,000
6,553,846
Payments on loans payable
(1,997)
(137,028)
(585,464)
Proceeds from loans payable - related parties
-
66,200
145,880
Payments on loans payable – related parties
-
(6,253)
(15,137)
Repayments of capital leases
(1,544)
(9,255)
(79,477)
Stock Issuable
-
-
-
Proceeds from capital contributed
-
-
5,050
NET CASH PROVIDED BY FINANCING
ACTIVITIES
667,970
509,664
15,325,212
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
(206,258)
(250,748)
26,782
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD
233,040
859,566
-
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
26,782 $
608,818 $
26,782
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
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 August 31, 2013, and the
results of its operations and cash flows for the three months ended August 31, 2013, have been made.
Operating results for the three months ended August 31, 2013 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, 2013 contained in Abakan’s Form 10-K.
Consolidation Policy
The accompanying August 31, 2013 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 August 31, 2013 is as follows:
Name of Subsidiary
Percentage of Ownership
AMP SEZC (Cayman)
100.0%
AMP Distributors (Florida)
100.0%
MesoCoat, Inc.
52.5%
MesoCoat, Inc. (“MesoCoat”) formed a wholly-owned subsidiary, MesoCoat Coating Services, Inc. on
June 13, 2013. There was no financial activity during the quarter ending August 31, 2013.
Non-Controlling Interest
Non-controlling interest represents the 47.5% minority shareholders’ proportionate share of the equity of
MesoCoat. Abakan’s 52.5% controlling interest in MesoCoat requires that its operations be included in
its consolidated financial statements. The equity interest of MesoCoat that is not owned by Abakan is
shown as a non-controlling interest in the consolidated financial statements.
Abakan’s 41% minority interest share of Powdermet, Inc.’s (“Powdermet”) income or loss is shown as
“Equity share of Powdermet income (loss)” in the statement of operations of the consolidated financial
statements. On June 13, 2013, Powdermet formed a wholly owned subsidiary, Terves Inc.
Development Stage Enterprise
At August 31, 2013, Abakan’s business operations had not fully developed and are dependent upon
funding and therefore Abakan is considered a development stage enterprise.
7
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
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 August 31, 2013 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 year ended
August 31, 2013, of $15,684,591 and a working capital deficit of $4,669,605. 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. Since inception Abakan has funded its operations through
the issuance of common stock, debt financing, related party loans and advances. Abakan is committed to
aggressively pursuing its present business plan and, and will seek additional debt and or equity
financing as required to meet its objectives. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
8
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
3. INVESTMENT IN NON-CONTROLLING INTEREST
Powdermet, Inc.
Abakan owns a forty one percent (41%) interest in Powdermet. Powdermet owns 47.5% of MesoCoat as
of August 31, 2013. Abakan’s 41% ownership of Powdermet, results in indirect ownership of the shares
of MesoCoat that Powdermet owns. On June 13, 2013, Powdermet formed a wholly owned subsidiary,
Terves Inc. There was no financial activity during the quarter ending August 31, 2013 for Terves.
We have analyzed our investment in accordance of “Investments – Equity Method and Joint Ventures”
(ASC 323), and concluded that the acquisition of our 41% 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, 2013
$
2,449,312
Equity in loss for three months ended August 31, 2013
(144,832)
Investment balance, August 31, 2013
$
2,304,480
Below is a table with summary financial results of operations and financial position of Powdermet:
Powdermet Inc.
For the three months
For the three months
ended
ended
August 31, 2013
August 31, 2012
Equity Percentage
41%
41%
Condensed income statement information:
Total revenues
$
446,811 $
685,432
Total cost of revenues
128,903
280,499
Gross margin
317,908
404,933
Total expenses
(287,299)
(304,507)
Other income/ (expense)
(591,320)
-
Provision for income tax benefit
207,463
-
Net profit/ (loss)
$
(353,248) $
100,426
Abakan’s equity in net profit/(loss): 41%
$
(144,832) $
41,175
Condensed balance sheet information:
August 31, 2013
May 31, 2013
Total current assets
$
569,523 $
536,111
Total non-current assets
2,463,544
3,077,305
Total assets
$
3,033,067 $
3,613,416
Total current liabilities
$
211,256 $
260,897
Total non-current liabilities
1,499,003
1,676,463
Total equity
1,322,808
1,676,056
Total liabilities and equity
$
3,033,067 $
3,613,416
9
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
4. LOANS PAYABLE
As of August 31, 2013 and May 31, 2013, the loans payable balance comprised of:
Description
August 31, 2013
May 31, 2013
Convertible demand note to an unrelated entity bearing 5% interest per annum
$
1,500,000 $
1,500,000
which matures on September 15, 2014. The note is shown net of a discount of
$-0- and $-0-, respectively, attributable to the beneficial conversion feature,
and an effective interest rate of 31% due the attached warrants.
Convertible demand note to an unrelated entity bearing 5% interest per annum
200,000
175,163
which matures on September 15, 2014. The note is shown net of a discount of
$-0- and $24,837, respectively, attributable to the beneficial conversion feature,
and an effective interest rate of 176% due to the attached warrants.
Convertible demand note to an unrelated entity bearing 5% interest per annum
500,000
387,473
which matures on July 14, 2014. The note is shown net of a discount of $-0-
and $112,527, respectively, attributable to the beneficial conversion feature,
and an effective interest rate of 143% due to the attached warrants.
Uncollateralized demand note to an unrelated entity bearing 8% interest per
70,000
70,000
annum
Uncollateralized demand note to an unrelated entity bearing 8% interest per
3,850
3,850
annum
Uncollateralized demand note to an unrelated entity bearing 8% interest per
19,350
19,350
annum
Uncollateralized demand note to an unrelated entity bearing 8% interest per
20,000
20,000
annum
Uncollateralized demand notes to an unrelated entity bearing 6% interest per
500,000
-
annum
Uncollateralized demand notes to an unrelated entity bearing 5% interest per
50,000
-
annum
Uncollateralized demand notes to an unrelated entity bearing 5% interest per
70,000
-
annum
Collateralized note to an unrelated entity bearing 1% interest for the first year
1,000,000
1,000,000
and then 7% per annum for years two – seven.
Uncollateralized demand note to a related entity bearing 8% interest per annum
30,000
30,000
Convertible demand note to an unrelated entity bearing 7.5% imputed interest
46,231
48,228
per annum which matures on July 10, 2018.
Uncollateralized notes to an unrelated entity bearing 8% interest per annum,
405,000
405,877
matures on September 15, 2014
Capital leases payable to various vendors expiring in various years through
90,337
91,881
September 2016; collateralized by certain equipment with a cost of $205,157.
Collateralized 5 year term note to an unrelated entity bearing 5.15% interest
95,267
-
Uncollateralized demand note to an unrelated entity for royalties shown net of
-
1,576,892
discount of $23,108
4,600,035 $
5,328,714
Less current liabilities
1,396,344
1,023,561
Total long term liabilities
$
3,203,691 $
4,305,153
Intangible assets of $1,336,281 and a liability of $1,576,892 related to the 2011 Exclusivity Agreement
with Mattson Technology Inc. have been removed from the August 31, 2013 financial statements based
on the matters discussed on page 20 in the Management Discussion section.
10
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
5. STOCKHOLDERS' EQUITY
Common Stock Issuances
For the three months ended August 31, 2013, we did not issue any shares for private placements,
conversion of debt to shares, or share based compensation.
A summary of the common stock warrants granted, forfeited or expired during the three months ended
August 31, 2013 and the year ended May 31, 2013 is presented below:
Weighted
Weighted
Average
Average
Remaining
Number of
Exercise
Contractual
Warrants
Price
Terms (In Years)
Balance at June 1, 2012
2,066,296
$
1.64
2.0 years
Granted
1,186,934
2.35
Exercised
(270,233)
1.50
Forfeited or expired
(140,005)
1.50
Balance at May 31, 2013
2,842,992
$
1.80
2.0 years
Granted
-
-
Exercised
-
-
Forfeited or expired
-
-
Balance at August 31, 2013
2,842,992
$
1.80
2.0 years
Exercisable at August 31, 2013
2,842,992
$
1.80
2.0 years
Weighted average fair value of
options granted during the three
months ended August 31, 2013
$
NA
The following table summarizes information about the common stock warrants outstanding at August
31, 2013:
Warrants Exercisable
Weighted
Weighted
Weighted
Range of
Average
Average
Average
Exercise
Number
Remaining
Exercise
Number
Exercise
Price
Outstanding
Contractual Life
Price
Exercisable
Price
$
1.25
1,306,595
2.00 Years
$
1.25
$
1,306,595 $
1.25
$
1.50
250,000
2.00 Years
$
1.50
$
250,000 $
1.50
$
2.00
574,463
2.00 Years
$
2.00
$
574,463 $
2.00
$
2.70
576,272
2.00 Years
$
2.70
$
576,272 $
2.70
$
3.00
135,662
2.00 Years
$
3.00
$
135,662 $
3.00
2,842,992
2.00 Years
$
1.80
$
2,842,992 $
1.80
11
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
6. EARNINGS-PER-SHARE CALCULATION
Basic earnings per common share for the three months ended August 31, 2013 and 2012 are calculated by
dividing net income by weighted-average common shares outstanding during the period. Diluted earnings
per common share for the three months ended August 31, 2013 and 2012 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 ended
For the three months ended
August 31, 2013
August 31, 2012
Net earnings (loss) from operations
$
(2,138,803)
$ (1,407,383)
Weighted-average common shares
64,284,855
61,515,065
Effect of dilutive securities:
Warrants
-
-
Options to purchase common stock
-
-
Dilutive potential common shares
64,284,855
61,515,065
Net earnings per share from operations:
Basic
$
(0.03)
$ (0.02)
Diluted
$
(0.03)
$ (0.02)
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.
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 August 31, 2013
ended August 31, 2012
Common Stock Equivalents:
Warrants
2,842,992
2,216,296
Options to purchase common stock
3,796,667
5,860,000
Total of Common Stock Equivalents:
6,639,659
8,076,296
12
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
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 three months ended
August 31, 2013 and 2012, was $234,271 and $1,315,619, respectively.
For the three months ended August 31, 2013, Abakan granted 80,000 stock options to an officer of
MesoCoat on June 14, 2013. These options were issued at an exercise price of $2.94 per share, and these
options will expire ten years from the grant date, and will vest in equal one third parts on the anniversary
of the option grant date.
A summary of the options granted to employees and non-employees under the plan and changes during
the three months ended August 31, 2013 year ending May 31, 2013 is presented below:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Terms(In Years)
Value
Balance at June 1, 2012
5,160,000
$
0.77
9.00 years
$
185,000
Granted
1,135,000
2.39
Exercised
-
-
Forfeited or expired
(2,495,000)
$
0.69
Balance at May 31, 2013
3,800,000
$
1.26
7.78 years
$
108,750
Granted
80,000
2.94
Exercised
-
-
Forfeited or expired
(83,333)
$
1.30
Balance at August 31, 2013
3,796,667
$
1.26
7.52 years
$
108,750
Exercisable at August 31, 2013
2,513,329
$
0.90
7.52 years
$
--
Weighted average fair value of
options granted during the 3
months ending August 31, 2013
$
2.94
8. COMMITMENTS
There were no new commitments for the three months period ending August 31, 2013.
13
ABAKAN INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended August 31, 2013 and 2012
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:
Other Business
In September, Petrobras made the final payment for balance of “Phase Two” payments of the original
Cooperation Agreement.
14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONAND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
parts of this quarterly report contain forward-looking statements that involve risks and uncertainties.
Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,”
“plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future
performance and our actual results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include but are not limited to those
discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future
Results and Financial Condition below.
The following discussion should be read in conjunction with our financial statements and notes thereto
included in this quarterly report and with the financial statements, notes and the Management
Discussion and Analysis of Financial Conditions and Results of Operations section for the year ended
May 31, 2013 contained in Abakan’s Form 10-K. Our fiscal year end is May 31.
Abakan
Abakan, through its subsidiaries, 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 currently 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 our affiliate,
Powdermet, Inc. (“Powdermet”).
Abakan holds a 52.5% controlling interest in MesoCoat and a 41% non-controlling interest in Powdermet.
Powdermet directly owns the remaining 47.5% of MesoCoat. Abakan’s interest in Powdermet represents
an additional 19.5% indirect interest in MesoCoat. The combined direct and indirect interest equals a
total 72.0% ownership of MesoCoat by Abakan.
MesoCoat
MesoCoat’s Business
MesoCoat is an Ohio based materials science company intending to become a technology leader in metal
protection and repair based on its metal coating and metal cladding technologies designed to address
specific industry needs related to conventional oil and gas, oil sands, mining, aerospace, defense,
infrastructure, and shipbuilding. The company was originally formed as a wholly owned subsidiary of
Powdermet, known as Powdermet Coating Technologies, Inc., to focus on the further development and
commercialization of Powdermet’s nano-composite coatings technologies. The company was renamed as
MesoCoat in March of 2008. Thereafter, in July of 2008, the coatings and cladding assets of Powdermet
were conveyed to MesoCoat through an asset transfer, an IP license and technology transfer, and a
manufacturing support agreement.
15
MesoCoat has exclusively licensed and developed a proprietary metal cladding application process as
well as advanced nano-composite coating materials that combine corrosion and wear resistant alloys, and
nano-engineered cermet materials with proprietary high-speed coating or cladding application systems.
The result is protective cladding and dimensional restoration coating solutions that will be offered on a
competitive basis with existing market solutions. The company’s PComP™ coating solutions unite high
wear and corrosion resistance, toughness, and a low coefficient of friction into one product structure using
patented micro structural engineering techniques. MesoCoat’s Cermaclad™ cladding solutions offer
improved metallurgy and 1-2 orders of magnitude higher application rates compared to other hardfacing
and weld cladding alternatives. Three of the company’s PComP™ wear products, PComP™-W333,
PComP™ W104, and PComP™-T48 are utilized by original equipment manufacturers (OEM’s) and are
in commercial sales, while the companies PComP™-M solution for molten metal resistance is undergoing
extensive field testing in preparation for market launch. MesoCoat’s Cermaclad™ CRA solutions,
primarily alloy 625 claddings, but also 825 and 316 are undergoing extensive internal and external
evaluation, certification, and qualification to API (American Petrochemical Institute) and major oil
company standards to ensure meeting rigorous industry requirements. Cermaclad™ WRA (wear resistant
alloys), including tungsten carbine, nano-composite chromium carbide, and structurally amorphous metal
(SAM) alloy claddings are also undergoing advanced testing and qualification for the construction
equipment, mining, and oil sands extraction industries.
MesoCoat’s commercial revenues are comprised of sales of PComP™ powder and thermal spray
applications. CermaCladTM clad products are in the development and qualification stage and are nearing
commercialization, including the cladding of the inside of a full length pipe for the oil and gas industries.
Additional revenue is realized from grants that are awarded to MesoCoat to further product development.
MesoCoat has expanded its technical team to complete the various developments and is working towards
the expansion of PComP™ powder and coating services.
CermaClad™
CermaClad™ is a premier metallurgically bonded clad carbon steel solution 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, ships, and bridges. In corrosive environments, including seawater, road salt, mining slurry transport
lines, unprocessed oil containing water 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 run up costs. CermaClad™ offers a competing,
lower cost solution allowing the owner or operator to clad their carbon steel with a corrosion resistant
alloy coating at typically less than ½ the cost of using solid CRA. Cladding solutions such as
CermaClad™ is estimated to save up to 75% of the cost of using solid alloys, while providing equivalent
maintenance free corrosion lifetimes equal to the life of the asset. Clad metals are widely used in oil and
gas exploration and production, marine transportation, mining, petrochemical processing and refining,
nuclear, paper and pulp, desalination, and power generation industries. Each industry sector has slightly
different needs and requirements. For instance, to meet growing global energy demands, oil companies
continue to extend their offshore drilling efforts into deeper seas. The higher temperatures and corrosivity
(carbon dioxide and hydrogen sulfide content) of these deeper reserves eliminate plastics and other
competing material solutions from consideration, resulting in a significantly increased use of corrosion
resistant alloys - and lower-cost clad pipe alternatives.
16
CermaClad™ is MesoCoat’s proprietary cladding process which utilizes a high density infrared fusion
heat source – an arc lamp – to melt, fuse, and metallurgically bond (make inseparable) metals, corrosion
resistant alloys and/or cermets onto metal substrates such as plate, pipe, or large components. Using this
process, products like risers and flowlines can be protected against harsh operating environments with
great efficiency and speed compared to competing weld overlay products. Today, clad steel is a
specialized segment of the steel industry where it is projected that demand will outstrip supply in the next
few years. Management believes that the CermaClad™ process and equipment offers the lowest capital
cost per unit production, and is scalable to large volumes with low to modest capital investment and plant
requirements.
Despite unanticipated delays associated with scaling the CermaClad™ process to be used to coat 12 meter
pipe, due primarily to mechanical and integration problems related to the first of its kind, prototype nature
of the new full scale manufacturing equipment, MesoCoat has made significant progress in quality control
and reliability of the pipe cladding process, including development of correlations between control
variables, dependant variables, and cladding quality. Working with EWI and with additional internal
resources, the Company continues to develop and refine detailed analytical models of the fusion process
to predict and understand what goes on inside the pipe during the fusion cladding process, and how that
relates to cladding and base metal quality and performance. Based on these models MesoCoat has been
able to develop fully clad short sections of pipe with strong metallurgical bond, uniform quality, and good
surface finish, which after completing additional internal testing will be released to Petrobras and others
for initial qualification. MesoCoat has also strengthened its development team by adding two individuals
holding PhD’s with significant experience in metallurgy and coatings, completed installation and
integration of an additional pipe cladding system, and restructured the cladding development team to
allow development of manufacturing development and engineering validation activities to run in parallel
instead of in series. The investment into development of validated simulation tools, the additional
cladding system, and the restructuring and team expansion is intended to reduce development time line
and risk of further delays to ensure availability of the final product at the earliest date possible.
PComP™
PComP™ is a series of nanocomposite cermet coatings that are used to impart wear and corrosion
resistance, and to restore dimensions, of metal components. PComP™ competes against chrome and
nickel plating, and tungsten carbide in the multibillion dollar inorganic metal finishing market.
Competing materials like hexavalent chrome, carbides and tungsten carbide cobalt have become major
headaches 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 several countries. Industry currently spends
billions annually on these hazardous materials, and MesoCoat’s customers can gain a competitive
advantage while mitigating environmental liabilities by adopting green products and processes such as
PComP™ thermal spray coatings into their product offerings. While businesses grapple with the need to
transition away from these harmful products, MesoCoat has developed a performance leading solution
platform which has shown order of magnitude improvements in head to head wear and corrosion
performance testing.
PComP™, named for its particulate composite powders, is one of the few economically viable industry
replacement solutions for hard chrome and carbides due to the product line’s advanced corrosion, friction,
wear and thermal barrier properties.
17
MesoCoat scientists have developed and patented a family of corrosion resistant coating solutions that
combine extreme 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
increase. By combining nano-level structure control and advanced ductile phase toughening materials
science, MesoCoat has developed a patented coating structure that can be both very tough and very wear
resistant. Equally important, the hardness of a wear coating normally limits the ease with which it can be
machined. The unique nano-structural design of the PComP™ coating solutions results in a coatings that
can be machined through a finish grinder much faster than a product with a traditional carbide coating.
The speed of coating application and final machining results in higher productivity and lower costs in
metal finishing operations.
The unique nano-structure of the PComP™ coatings also result in friction properties approaching those of
diamond-like carbon films and solid lubricants, but 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. The low friction
reduces wear, and improved energy efficiency and life in sliding components such as drilling rotors,
plungers, mandrels, ball and gate valves, and metal processing equipment.
The PComP™ product lines are currently being positioned to compete with two dominant product
alternatives: hard chrome plating and tungsten carbide thermal spray coatings. The PComP™ family of
nano-composite coatings consists of five products, 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 most of today’s
alternatives.
The PComP™ product platform, combined with the CermaClad™ large area weld overlay technologies
provide a high degree of product differentiation and a sustainable competitive advantage in the $10 billion
inorganic metal finishing markets, which include OEM components and the maintenance, repair, and
overhaul of industrial assets and machinery in the “components and coatings” segment of MesoCoat’s
business (as opposed to the clad steel business lines discussed under the CermaClad™ product line
above).
MesoCoat is currently selling PComP™ coating materials through different channels appropriate to the
specific market. In the future, the majority of commercial sector accounts will be able to order coating
application services from MesoCoat on a regional basis. Large OEM’s and government agencies like the
U.S. Air Force procure raw powders and apply them for their specific products under license as such
agencies are vertically integrated to do their own thermal spray and coating applications using dedicated
maintenance and repair depots. Recently, several defense organizations have been given congressional
mandates to make better use of their existing equipment (planes, helicopters, jets, tanks and other armored
vehicles, etc.) as budgets for the purchase of new equipment is to be limited over the next few years.
MesoCoat’s low-cost, long-life coating materials appeal to government buyers striving to meet budgetary
restrictions. An effort to expand geographically the market for coating services is now underway, as
MesoCoat is actively qualifying licensed application partners that already have an existing customer base
in certain territories (Houston, Alberta, and Los Angeles) to provide services in territories that it is not
currently able to service directly. We believe that this strategy will lead to acquisition or market entry
into these markets, while supporting economies of scale for the powder production needed to meet
product cost targets.
18
MesoCoat’s PComP™-W high performance materials are now established with initial customers and
adoption is expected to increase through qualified regional application partners, with capacity being
expanded to match growing demand. PComP™-T best-value chrome plating products are in initial sales
and final field testing trials, though coating applicators and partnerships with original equipment
manufacturers. A six fold capacity expansion and the introduction of higher value application
(component) services is underway. The CermaClad™ corrosion resistant (CRA) product is undergoing
manufacturing scale-up and detailed process and quality engineering to enable the production of a full
scale, commercially acceptable product, leading to qualification for critical, major oil and gas production
projects.
MesoCoat’s wholly-owned subsidiary MesoCoat Coating Services, Inc. was formed on June 2013 to
extract maximum value from the PComP™ family by offering high margin coating services starting in
late 2013.
Sales Agency Agreement for Mexico and Central America
Abakan announced on September 16, the entry into the Mexican and Central American markets by
signing an exclusive sales agent agreement with Metallurgic Solutions, S.A. de CV (“MetalSol”) to
introduce MesoCoat’s products into Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica,
and Panama. MetalSol will also assist MesoCoat in the establishment of production and service
operations in Mexico for its PComP™ long-life metal coatings, CermaClad™ clad steel, and future
products that are currently under development.
Product Development Timeline
PRODUCT
COMMERCIAL TIMELINE
TIME (MONTHS)
As of 8/31/13
PComP™ W
Growth and expansion
Current
PComP™ T
Partner sales
Current
PComP™ M
Market entry
3
PComP™ S
Qualification
12
ZComP™
Development
24
CermaClad™ CRA
Full scale product API qualification
12
CermaClad™ WR
Development
14
CermaClad™ LT
Development
24
CermaClad™ HT
Incubation
36
Product Commercial Expansion Timeline
Our near term plan is to expand the presence of our products into Brazil and the Asia-Pacific market. We
remain in the process of negotiating the terms of a “build to suit” agreement to construct a manufacturing
plant in the Recife, Brazil free trade zone that might give us direct access to Brazilian markets.
Meanwhile, we have incorporated an Asian operating subsidiary, PT MesoCoat Indonesia, which is
currently negotiating the terms of a “build-to-suit” agreement to construct a manufacturing plant on the
island of Batam, Indonesia. The expected time-frame for the completion of each project has not yet been
finalized.
19
PRODUCT
COMMERCIAL EXPANSION
TIMELINE
TIME (MONTHS)
As of 8/31/13
PComP™ Coating Services
Market entry for PComP™-M
3
CermaClad™ CRA
Demonstration order for full scale
pipe
9
MesoCoat's Exclusivity Agreement with Mattson Technology, Inc.
On April 7, 2011, MesoCoat and Mattson Technology Inc. (“Mattson”) entered into an Exclusivity
Agreement for the supply of customized arc lamps for cladding applications. That agreement required
MesoCoat to pay non-recurring engineering and exclusively purchase plasma arc lamp systems and power
supplies customized by Mattson for Mesocoat’s field of use. Matson agreed to develop these specialized
plasma arc lamp systems and exclusively sell such modified systems to MesoCoat in our field of use. The
Exclusivity Agreement also required MesoCoat and Mattson to enter into a separate supply agreement for
plasma arc lamps over a fixed number of years on terms set by the Exclusivity Agreement.
Mattson failed to provide plasma arc systems that were adequate in Mesocoat’s field of use, and has
refused to enter into a long term supply agreement on the terms required by the Exclusivity Agreement.
On July 12, 2013, MesoCoat sent its notice of breach of the terms of the Exclusivity Agreement and
breach of related purchase orders. Mattson’s attempt to cure the breaches to date have been unsuccessful.
MesoCoat continues to work with Mattson to achieve its goal of developing fully operational plasma arc
lamp systems.
As a consequence of Mattson’s failure to provide fully functional and reliable plasma arc lamps as
required, MesoCoat may be required to develop alternative technology and suppliers. Delays caused by
late deliveries, the design and manufacturing defects, and insufficient technical support of the two lamp
systems acquired from Mattson, and the breach of the Exclusivity Agreement have interfered with the
MesoCoat’s ability to commence production as projected.
Results of Operations
For the three months ended
August 31,
Change
Revenues
2013
2012
$
%
Commercial
$
25,247 $
19,300 $
5,947
31
Contract and grants
63,403
547,327
(483,924)
(88)
Other income
-
268,756
(268,756)
(100)
88,650
835,383
(746,733)
(89)
Gross profit
8,118
498,609
(490,491)
(98)
General and administrative
2,098,040
1,322,434
775,606
59
Stock options expense
318,480
459,784
(141,304)
(31)
Operation Loss
(2,408,402)
(1,283,609)
(1,124,793)
88
Interest exp & amort of discount on debt
(176,892)
(284,896)
108,004
(62)
Other income (expense)
(144,829)
44,868
(189,697)
(423)
Loss before non-controlling interest
(2,730,123)
(1,523,637)
(1,206,486)
79
Non-Controlling interest in MesoCoat loss
591,320
116,254
475,066
409
Loss before income taxes
(2,138,803)
(1,407,383)
(731,420)
52
Income taxes
-
-
-
Net Income
(2,138,803)
(1,407,383)
(731,420)
52
20
Revenues
The decrease in contract and grant revenue in the three month period ending August 31, 2013 over the
three month period ending August 31, 2012 is due to the reduction in grant applications as MesoCoat has
focused on developing and commercializing its products. The decrease in revenue in the current three
month period when compared to the prior three month period is in other revenue which was comprised
mostly of amounts paid by Petrobras in the prior period.
We expect grant revenue to continue to decrease over the next nine months as government sponsored
contracts that commenced late last year are completed. However, we do expect a significant increase in
commercial revenue over the next twelve months as the PComP™ powder production capacity is brought
online. During the current three month period MesoCoat began the acquisition and installation of larger
scale manufacturing equipment required to expand PComP™ sales. Qualifying process changes with the
larger batch sizes and downtime while installing the new larger production equipment temporarily
impacted PcomP™ production during the period. We remain focused on the development of both current
and new products while continuing to commercialize existing products lines.
Gross Profit
Gross profits in both periods can be wholly attributed to the operations of MesoCoat. The $490,491
decrease in gross profit in the three month period ending August 31, 2013 over the three month period
ending August 31, 2012, is the result of the decrease in other revenue generated under the terms and
conditions of the cooperation agreement with Petrobras.
We expect gross profit to decrease over the next twelve months as result of the reduction in grant
applications. This reduction is expected to be offset at an increase in profit margin throughout the year as
MesoCoat expands its PComP™ product line.
Net Losses
We do not expect to realize net income in the near term as anticipated operational expenses associated
most significantly with research and development, consulting, payroll expenses and the depreciation and
amortization of existing assets are expected to increase. The increases are expected to be the direct result
of continued research and development costs associated with the CermaClad™ product line in addition to
costs anticipated for the building of the planned manufacturing plant in Batam, Indonesia.
Despite management’s focus on ensuring operating efficiencies, we expect to continue to operate at a loss
through fiscal 2014.
21
Expenses
The $775,606 increase in operating expenses in the three month period ending August 31, 2013, over the
three month period ending August 31, 2012, can be attributed in part to: payroll and related costs
increased by $351,009 as the result, in part, of Abakan agreeing to place approximately $235,000 of
Abakan’s restricted stock into the respective MesoCoat and Powdermet retirement plans, which cost and
related expense was accrued in the current fiscal quarter; the $195,009 increase in research and
development costs as Abakan continues to develop its products for commercial applications; professional
fees increased by $200,018 for the three month period as result of increased legal fees associated the legal
representation for the exclusive sales agent agreement for the Mexican and Central American markets,
legal representation in the negotiation and drafting of an agreement with a European equipment
manufacturer, and with on-going litigation. In addition to the increases noted above, payroll and benefits
also increased due to Abakan employing a chief financial officer and MesoCoat employing a chief
operating officer during the quarter. Depreciation and amortization increased by $112,919 due to the
commencement of depreciation on the new Cermaclad™ equipment and leasehold improvements in
Euclid, Ohio offset by the elimination of the amortization expense relating to the Mattson Exclusivity
Agreement. Stock option expense decreased since stock options that were previously granted have started
to become fully vested and expensed.
We expect that operating expenses will continue to increase as our aggressive growth strategy over the
next five years will require significant increases in personnel and facilities along with significant research
and development to ensure that products nearing commercialization are brought to market as quickly and
as effectively as possible.
Interest Expense and Amortization of Discount on Debt
The $108,004 decrease in interest and amortization expenses in the three month period ending August 31,
2013, over the three month period ending August 31, 2012, was due to the prior discounts becoming fully
amortized. The future amortization of the discount of debt will further decrease and be partially offset by
higher interest on debt.
Other Expense/Income
The $189,697 decrease in other expense / income in the three month period ending August 31, 2013, over
the three month period ending August 31, 2012, was due to Abakan a $41,175 equity gain in Powdermet
income in the period ending August 31, 2012, versus a $144,632 loss in the period ending August 31,
2013.
We expect to continue to incur other expense in future periods due to the interest accruing on convertible
debt and the anticipated increase in interest on new debentures that are required for future growth.
Income Tax Expense (Benefit)
Abakan may have a prospective income tax benefit resulting from a net operating loss carry-forward and
start up costs that will offset any future operating profit once taxable income is generated.
22
Capital Expenditures
Abakan has spent significant amounts of investment activities for the period from June 27, 2006,
(inception) to August 31, 2013, which amounted to $8,826,832. A large portion of these expenditures are
related to plant, property and equipment in the construction of the manufacturing facility in Euclid, Ohio,
and a minority interest in Powdermet.
Liquidity and Capital Resources
Abakan has been in the development stage since inception, and has experienced significant changes in
liquidity, capital resources, and stockholders’ equity.
Abakan had stockholders’ equity of $7,301,173 and a working capital deficit of $4,669,605 at August 31,
2013.
Cash flows
Key elements to the Consolidation Statement of Cash Flows for the three months ended August 31, 2013
and 2012:
Since
2013
2012
Inception
Net Change in Cash and Cash Equivalents
Provided by (used in):
Development Stage activities
$
(572,281) $
(466,972) $
(6,471,598)
Investing activities
(301,947)
(293,440)
(8,826,832)
Financing activities
667,970
509,664
15,325,212
Net Change in cash and cash equivalents
$
(206,258) $
(250,748) $
26,782
Net cash used in development stage 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, and capitalized patents and licenses. 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.
23
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. We had no firm
commitments or arrangements for financing at August 31, 2013. To date most of Abakan’s financings
have come from current shareholders that we expect will continue in the immediate future, as we continue
to pursue a number of prospective sources that include engaging an investment bank, industry and/or
strategic partners, sale of additional equity, and the procurement of short and long term debt. We face
certain financial obstacles to attracting new financing due to our status as a technology company just
entering sales with a historical record of net losses and working capital deficits. Therefore, despite our
efforts we can provide no assurance that Abakan will be able to obtain the financing required to meet its
stated objectives or even to continue as a going concern.
Abakan does not expect to pay cash dividends in the foreseeable future.
Abakan has a defined stock option plan titled “The Abakan Inc., 2009 Stock Option Plan” and contractual
commitments with all of its officers and directors.
Abakan has plans for the purchase of plant or equipment in connection with expansion of the PComP™
powder production commercial line. MesoCoat has obtained verbal commitments for future capital
expenditures from Abakan to fund any shortfalls (including plant and equipment) in the expansion of the
PComP™ powder equipment required for expansion should it not be able to raise funds in the normal
course of business.
Abakan intends to increase the number of employees engaged by MesoCoat on completion on the
PComP™ product line expansion and upon completion of development and commercialization of the
Cermaclad™ product in the new Euclid, Ohio manufacturing facility.
Off Balance Sheet Arrangements
As of August 31, 2013, 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 our ability to continue as a going concern as a
result of net losses of $13,545,788 and a working capital deficit of $2,222,670 as of May 31, 2013. 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.
24
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
quarterly 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 net revenue from operations or gains on investments;
§ our ability to raise additional capital to fund cash requirements for operations;
§ the volatility of the stock market; and
§ general economic conditions.
We wish to caution readers that our operating results are subject to various risks and uncertainties that
could cause our actual results to differ materially from those discussed or anticipated including the factors
set forth in the section entitled Risk Factors included elsewhere in this report.
We also wish to advise readers not to place any undue reliance on the forward looking statements
contained in this report, which reflect our beliefs and expectations only as of the date of this report. We
assume no obligation to update or revise these forward looking statements to reflect new events or
circumstances or any changes in our beliefs or expectations, other that is required by law.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash
deposited in interest bearing accounts. The cash and cash equivalents are held for working capital
purposes. We have not used derivative financial instruments. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in market interest rates. Declines in interest
rates, however, will reduce future investment income, at our current balance levels the change in our
interest income will not be material, assuming consistent balance levels.
Interest rate risk also refers to our exposure to movements in interest rates associated with our interest
bearing liabilities. The interest bearing liabilities are denominated in U.S. dollars and the interest expense
is based on the market rates of interest. If the credit markets in the United States changed significantly it
could cause a material change in our interest expense and our costs of borrowing.
25
Credit Risk
Credit risk refers to our exposures to financial institutions, suppliers and customers that have in the past
and may in the future experience financial difficulty, particularly in light of recent conditions in the credit
markets and the global economy. As of May 31, 2013, our cash and cash equivalents were held in
deposits with maturities of three months or less with banks and other financial institutions having credit
ratings of BBB or above. We generally monitor the financial performance of our suppliers and customers,
as well as other factors that may affect their access to capital and liquidity. Presently, we believe that we
will not incur material losses due to our exposures to such credit risk.
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 chief financial officer, of the
effectiveness of Abakan’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the
Securities Exchange Act of 1934 (“Exchange Act”)) as of August 31, 2013. 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 effective 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 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.
26
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Uptick Capital, LLC.
Abakan initiated legal proceedings against Uptick Capital, LLC. (“Uptick”) on November 7, 2012, in the
United States District Court for the Southern District of New York Superior Court. The claim is based on
Uptick’s alleged failure to perform according to the terms of a consulting agreement dated November 1,
2010, pursuant to which Uptick was to identify and introduce suitable investors to Abakan in exchange
for certain consideration including 60,000 shares. Abakan seeks the return of the 60,000 shares delivered
which were subsequently sold or in the alternative for a judgment in an amount to be ascertained in excess
of $1,000,000 for damages in addition to reasonable attorney’s fees and court costs. The parties are
currently in the process of exchanging document disclosure. Abakan believes that is will be successful in
the pursuit of its claims.
Paloma Capital Group Ltd.
Abakan initiated legal proceedings against Paloma Capital Group Ltd (“Paloma”) on July 2, 2013, in the
Circuit Court in and for Miami-Dade County. The claim is based on Paloma’s failure to perform
according to the terms of a consulting agreement dated May 2, 2011, pursuant to which Paloma was to
introduce suitable investors to Abakan in exchange for certain consideration including 50,000 shares of
Abakan and 150,000 stock options to purchase shares of Abakan. The suit demands the return of the
Abakan shares and the stock options. Paloma is yet to be served with the complaint. Abakan believes it
will be successful in the pursuit of its claims.
ITEM 1A.
RISK FACTORS
Abakan’s operations and securities are subject to a number of risks. Below we have identified and
discussed the material risks that we are likely to face. Should any of the following risks occur, they will
adversely affect our business, financial condition, and/or results of operations as well as the future trading
price and/or the value of our securities.
Abakan has a history of significant operating losses and such losses may continue in the future.
Abakan has incurred net losses of $15,684,591 for the period from June 27, 2006 (inception) to August
31, 2013. Since we have been without significant revenue since inception and have only recently
transitioned to producing limited revenue, as a result of the business combination with MesoCoat,
historical losses may continue into the future.
Abakan has a history of uncertainty about continuing as a going concern.
Abakan’s audits for the periods ended May 31, 2013 and 2012 expressed an opinion as to its ability to
continue as a going concern as a result of net losses of $13,545,788 since inception and a working capital
deficit of $2,222,670 as of May 31, 2013. Unless Abakan is able to produce net income over successive
future periods its ability to continue as a going concern will be in jeopardy.
27
Abakan requires additional capital funding.
Abakan requires additional funds, either through equity offerings, debt placements or joint ventures to
develop our operations. Such additional capital will result in dilution to our current shareholders. Our
ability to meet long-term financial commitments will depend on future cash. There can be no assurance
that any future income will generate sufficient funds to enable us to meet our financial commitments.
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 the Company be unable to improve its financial condition
through debt or equity offerings, the ability to successfully advance its business plan will be severely
limited.
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.
28
MesoCoat and Powdermet compete with larger and better financed corporations.
Competition within the industrial coatings industry and other high technology industries is intense. While
each of MesoCoat and Powdermet’s products are distinguished by next-generation innovations that are
more sophisticated and cost effective than many competitive products currently in the market place, a
number of entities and new competitors may enter the market in the future. Some of MesoCoat’s and
Powdermet’s existing and potential competitors have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and marketing resources than we do,
including well known multi-national corporations. Accordingly, MesoCoat’s and Powdermet’s products
could become obsolete at any time. Competitors could develop products similar to or better than our own,
finish development of new technologies in advance of either MesoCoat’s or Powdermet’s research and
development, or be more successful at marketing new products, any of which factors may hurt our
prospects for success.
Market acceptance of the products and processes produced by MesoCoat and Powdermet is critical to
our growth.
We expect to generate revenue from our interest in MesoCoat and realize a gain on our interest in
Powdermet from the 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 the Company 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 the
Company 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
29
We may not be able to effectively manage our growth.
We expect considerable future growth in our business. Such growth will come from the addition of new
plants, the increase in global personnel, and the commercialization of new products. Additionally, our
products should have an impact on the cladding industry; as companies learn that they can receive
materials with a short lead time at a higher quality and lower price, market demand should grow,
expanding the overall market itself. To achieve growth in an efficient and timely manner, we will have to
maintain strict controls over our internal management, technical, accounting, marketing, and research and
development departments. We believe that we have retained sufficient quality personnel to manage our
anticipated future growth though we are still striving to improve financial accounting oversight to ensure
that adequate reporting and control systems in place. Should we be unable to successfully manage our
anticipated future growth by adherence to these strictures, costs may increase, growth could be impaired
and our ability to keep pace with technological advances may be impaired which failures could result in a
loss of future customers.
Environmental laws and other governmental legislation may affect our business.
Should the technologies which each of MesoCoat and Powdermet have under development not comply
with applicable environmental laws then Abakan’s business and financial results could be seriously
harmed. Furthermore, changes in legislation and governmental policy could also negatively impact us.
Although we are currently unaware of any introduced or proposed bills, or policy, that might cause us to
make specific changes to our operations, no assurance can be given that if new legislation is passed we
will be able to make the changes to comport our technologies with future regulatory requirements.
Abakan and those entities in which it holds an interest may face liability claims.
Although MesoCoat and Powdermet intend to implement exhaustive testing programs to identify
potential material defects in technology they develop, 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.
30
Abakan’s common stock is currently deemed to be “penny stock”, which makes it more difficult for
investors to sell their shares.
Abakan’s common stock is and will be subject to the “penny stock” rules adopted under section 15(g) of
the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the
NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or
that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for
three or more years). These rules require, among other things, that brokers who trade penny stock to
persons other than “established customers” complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in the security, including a
risk disclosure document and quote information under certain circumstances. Many brokers have decided
not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number
of broker-dealers willing to act as market makers in such securities is limited. If Abakan remains subject
to the penny stock rules for any significant period, it could have an adverse effect on the market, if any,
for our securities. If Abakan’s securities are subject to the penny stock rules, investors will find it more
difficult to dispose of our securities.
The elimination of monetary liability against Abakan’s directors, officers and employees under Nevada
law and the existence of indemnification rights to our directors, officers and employees may result in
substantial expenditures by Abakan and may discourage lawsuits against our directors, officers and
employees.
Abakan’s articles of incorporation contains a specific provision that eliminates the liability of directors for
monetary damages to us and our stockholders; further, Abakan is prepared to give such indemnification to
its directors and officers to the extent provided by Nevada law. Abakan may also have contractual
indemnification obligations under its employment agreements with its executive officers. The foregoing
indemnification obligations could result in our incurring substantial expenditures to cover the cost of
settlement or damage awards against directors and officers, which Abakan may be unable to recoup.
These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative
litigation by our stockholders against the Abakan’s directors and officers even though such actions, if
successful, might otherwise benefit the us and our stockholders.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3.
DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.
31
ITEM 6.
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page
34 of this Form 10-Q, and are incorporated herein by this reference.
32
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Abakan Inc.
Date
/s/ Robert H. Miller
October 15, 2013
By: Robert H. Miller
Its: Chief Executive Officer, and Director
/s/ David G. Charbonneau
October 15, 2013
By: David G. Charbonneau
Its: Chief Financial Officer and Principal Accounting Officer
33
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 the Company 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 the Company 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 the Company 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 the Company, 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 the Company 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 the Company 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 the Company 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 the Company and Mr. Takkas,
incorporated hereto by reference to the Form 8-K filed with the Commission on August 26,
2010.
34
10.16*
Amendment No. 1 to Stock Purchase Agreement between the Company and Kennametal
dated September 7, 2010, incorporated hereto by reference to the Form 8-K filed with the
Commission on September 15, 2010.
10.17*
Amendment to the Investment Agreement dated December 8, 2010, between the Company,
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 the Company 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 the Company 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.)
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, 2012.
21*
Subsidiaries of the Company, incorporated hereto by reference to the Form 10-K filed with
the Commission on August 29, 2013.
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.
99*
Powdermet audited financial statements for the period ended May 31, 2013, incorporated
hereto by reference to the Form 10_K filed with the commission on August 29th 2013.
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 the Company.
†
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.
35