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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 November 30, 2012.

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the

transition period from

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 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, 2013 was 62,243,003.

TABLE OF CONTENTS

PART 1- FINANCIAL INFORMATION

Item1.

Financial Statements:

Condensed Consolidated Balance Sheets for the period ended November 30, 2012

(Unaudited) and May 31, 2012

Unaudited Condensed Consolidated Statements of Operations for the three and six

months ended November 30, 2012 and 2011, and cumulative amounts from

development stage activities (June 27, 2006 (Inception) through November 30,

2012)

Unaudited Condensed Consolidated Statements of Cash Flows for the six months

ended November 30, 2012 and 2011, and cumulative amounts from development

stage activities (June 27, 2006 (inception) through November 30, 2012)

Condensed Notes to Consolidated Financial Statements (Unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II-OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

(Removed and Reserved)

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Index to Exhibits

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.

ABAKAN, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

November 30,

May 31,

2012

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

715,591

859,566

Accounts receivable

85,912

22,854

Note receivable - related parties

4,500

Prepaid expenses (Note 7)

124,103

183,134

Total current assets

930,106

1,070,054

Non-current assets

Property, plant and equipment, net (Note 4)

4,187,569

3,021,088

Patents and licenses, net (Note 5)

7,672,228

7,776,315

Assignment agreement - MesoCoat (Note 6)

230,267

250,000

Investment - Powdermet (Note 8)

2,651,088

2,710,189

Goodwill

364,384

Total Assets

16,035,642

15,192,030

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

643,750

425,868

Accounts payable - related parties (Note 12)

190,867

80,773

Capital leases - current portion

36,595

42,999

Loans payable, net of discounts of $171,615 (Note 9)

2,678,132

2,465,165

Accrued interest - loans payable (Note 9)

329,331

183,106

Loan payable- related parties (Note 12)

30,000

Accrued interest – related parties (Note 12)

773

Accrued liabilities

366,232

310,997

Total current liabilities

4,275,680

3,508,908

Non-current liabilities

Loans payable, net of discounts of $444,881 (Note 9)

2,091,696

1,146,277

Capital leases - non-current portion

60,557

72,176

Total liabilities

6,427,933

4,727,361

Commitments and contingencies (Note 14)

Stockholders' equity (Note 10)

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

62,243,003 issued and outstanding – November 30, 2012,

61,465,445 issued and outstanding - May 31, 2012

6,226

6,147

Subscription receivable

(27,500)

Subscription payable

12,000

Paid-in capital

15,785,140

13,321,527

Contributed capital

5,050

Accumulated deficit during the development stage

(9,302,201)

(6,322,365)

6,478,715

7,010,359

Non-controlling interest

3,128,994

3,454,310

Total stockholders' equity

9,607,709

10,464,669

Total liabilities and stockholders' equity

16,035,642

15,192,030

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

ABAKAN INC.

(A DEVELOPMENT STATE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For three months ended

For six months ended

November 30,

November 30,

(Inception) to

2012

2011

2012

2011

November 30, 2012

Revenues

Commercial

50,781 $

25,338 $

70,081 $

31,515 $

147,472

Contract and grants

777,502

391,654

1,324,829

689,768

3,423,583

Other income

(268,756)

131,885

175,982

764,879

559,527

548,877

1,394,910

897,265

4,335,934

Cost of Revenues

205,227

220,948

542,001

391,031

1,591,199

Gross profit

354,300

327,929

852,909

506,234

2,744,735

Expenses

General and administrative

176,990

111,098

338,677

217,303

1,233,944

Professional fees

136,933

81,782

257,237

156,543

827,038

Professional fees - related parties

15,000

30,000

195,000

Consulting

259,085

159,417

623,017

384,789

2,327,312

Consulting - related parties

123,250

76,500

222,677

153,077

1,462,657

Payroll and benefits expense

160,701

215,442

343,677

353,049

1,341,982

Depreciation and amortization

108,432

84,171

193,932

166,230

526,016

Research and development

242,586

139,964

536,194

273,212

1,273,510

Impairment of asset

180,000

Stock expense on note conversion

37,223

528,200

Stock options expense

439,427

453,339

899,211

791,856

3,487,995

Total expenses

1,699,627

1,336,713

3,481,845

2,526,059

13,383,654

Loss from operations

(1,345,327)

(1,008,784)

(2,628,936)

(2,019,825)

(10,638,919)

Other (expense) income

Interest expense:

Interest - loans

(119,244)

(42,960)

(223,012)

(78,540)

(548,757)

Interest - related parties

(773)

(133)

(773)

(133)

(7,333)

Liquidated damages

(250,000)

Amortization of discount on debt

(215,957)

(155,787)

(397,085)

(279,322)

(1,009,949)

Total interest expense

(335,974)

(198,880)

(620,870)

(357,995)

(1,816,039)

Interest income

3,755

221

8,126

Loss on debt settlement

(5,257)

Gain on debt settlement

257,252

Gain on sale of assets

429,717

Unrealized gain on MesoCoat acquisition

- -

1,764,345

Equity in Powdermet income/ (loss)

(100,276)

(24,775)

(59,101)

21,274

1,001,088

Equity in MesoCoat loss

(44,408)

(586,020)

Total Other (expense) income

(436,188)

(223,581)

(676,216)

1,383,437

1,053,212

Net profit/ (loss) before non-controlling interest

(1,781,515)

(1,232,365)

(3,305,152)

(636,388)

(9,585,707)

Non-controlling interest in MesoCoat Loss

209,062

69,975

325,316

123,867

283,506

Net profit/ (loss) attributable to Abakan Inc.

(1,572,453)

(1,162,390)

(2,979,836)

(1,634,929)

(9,302,201)

Provision for income taxes

Net profit/ (loss)

$ (1,572,453) $ (1,162,390) $ (2,979,836) $

(512,521) $

(9,302,201)

Net profit/ (loss) per share - basic

(0.03) $

(0.02) $

(0.05) $

(0.01)

Net profit/ (loss) per share - diluted

(0.03) $

(0.02) $

(0.05) $

(0.01)

Weighted average number of common

shares outstanding - basic

61,999,242

59,377,425

61,806,104

59,353,818

Weighted average number of common

shares outstanding - diluted

61,999,242

59,377,425

61,806,104

59,353,818

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ABAKAN, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Cumulative

amounts from

development stage

activities

For the six months ended

June 27, 2006

November 30,

(Inception) to

2012

2011

November 30, 2012

CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES

Net profit/ (loss) before non-controlling interest

(3,305,152) $

(636,388) $

(9,585,707)

Adjustments to reconcile net (loss) to net

cash provided by (used in) development stage activities:

Depreciation and amortization

193,932

166,230

526,016

Amortization of discount on debt

397,085

279,322

1,009,949

Amortization of deferred financing fees

730

Stock options expense

899,211

791,856

3,487,995

Stock expense from note conversion

37,223

528,200

Stock issued for services

222,125

76,000

902,776

Equity in investee (profit)/ loss

59,101

23,134

(415,066)

Unrealized gain on MesoCoat acquisition

(1,764,345)

Gain on sale of capital asset

(429,717)

Changes in operating assets and liabilities:

Accounts receivable

(63,058)

75,513

85,545

Notes receivable - related parties

(4,500)

Prepaid expenses

59,031

(25,977)

(138,256)

Prepaid expenses - related parties

1,485

14,152

Accounts payable

217,875

272,145

857,433

Accounts payable - related parties

110,094

156,735

273,598

Accrued interest - related parties

2,664

Accrued interest - loans payable

223,785

77,801

383,189

Accrued liabilities

55,235

96,922

233,426

Waste to Energy Group Inc.

180,000

Total adjustments

2,411,639

227,551

5,733,059

NET CASH (USED IN) DEVELOPMENT STAGE ACTIVITIES

(893,513)

(408,837)

(3,852,648)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant, equipment and website

(1,214,142)

(626,105)

(2,321,016)

Proceeds from sale of capital assets

470,000

MesoCoat - minority interest, net of cash assumed in business combination

307,650

(2,390,266)

Investment in MesoCoat

(750,070)

Powdermet - minority interest

(1,650,000)

Assignment agreement - MesoCoat

(100,000)

Capitalized patents and licenses

(22,451)

(27,148)

(120,636)

Waste to Energy Group Inc.

(180,000)

NET CASH PROVIDED BY/ (USED) IN INVESTING ACTIVITIES

(1,236,593)

(345,603)

(7,041,988)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from sale of common stock

1,091,101

245,465

7,022,942

Proceeds from loans payable

1,037,580

944,833

4,888,867

Payments on loans payable

(138,974)

(514,625)

Proceeds from loans payable - related parties

66,200

9,000

145,880

Payments on loans payable - related parties

(36,253)

(15,190)

Repayments of capital leases

(18,023)

(11,565)

(72,662)

Stock Issuable

(15,500)

149,965

Proceeds from capital contributed

5,050

NET CASH PROVIDED BY FINANCING ACTIVITIES

1,986,131

1,187,733

11,610,227

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS

(143,975)

433,293

715,591

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

859,566

CASH AND CASH EQUIVALENTS, END OF PERIOD

715,591 $

433,293 $

715,591

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

November 30,

(Inception) to

2012

2011

November 30, 2012

Supplemental Disclosures:

Cash paid for income taxes

- $

Cash paid for interest

- $

964

Supplemental Non-cash Disclosures:

Notes and accounts payable converted to stock

Accounts payable - related parties

(46,000) $

- $

(251,971)

Loans payable

(157,788)

(807,957)

Accrued interest

(10,245)

(14,576)

Notes payable - related parties

(99,515)

Accrued interest - related parties

(9,724)

Common stock

214,033

1,188,493

Subscription payable

(3,000)

Subscription receivable

(1,750)

- $

Stock issued for assignment agreement - MesoCoat

Assignment agreement - MesoCoat

- $

(150,000)

Common stock

150,000

- $

Capital lease equipment acquired

Property, plant and equipment

- $

38,532 $

126,907

Capital lease payable

(38,532)

(126,907)

- $

Non-cash write off of balances

Accounts payable - related parties

- $

52,030

Loans payable

(156)

Accrued interest

(553)

Notes payable - related parties

(52,260)

Accrued interest - related parties

(811)

Subscription receivable

1,750

- $

Beneficial conversion valuation

Additional paid-in capital

- $

505,873 $

1,241,449

Discount on convertible debts

(505,873)

(1,241,449)

- $

Controlling interest purchase - MesoCoat

Accounts receivable

- $

171,457 $

171,457

Property and equipment, net

1,899,598

Deferred financing fees

3,608

Patents and licenses, net

2,170,391

7,938,206

Total assets

4,245,053

10,009,261

Accounts payable

(268,398)

Capital leases

(42,906)

(42,907)

Loans Payable and accrued interest

(2,415,469)

(2,233,474)

Other accrued liabilities

(65,545)

Total liabilities

(2,792,318)

(2,610,324)

Net assets

1,452,735

7,398,937

Non-controlling interest equity

(1,468,023)

(3,412,500)

Goodwill

4,335,646

364,384

Investment in MesoCoat

(1,849,665)

MesoCoat net assets received

- $

2,470,693 $

2,501,156

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 1 – BUSINESS

Your Digital Memories, Inc. was incorporated in the state of Nevada on June 27, 2006.

Waste to Energy Group Inc., a wholly-owned subsidiary of Your Digital Memories Inc., was incorporated

in the state of Nevada on August 13, 2008. Waste to Energy Group Inc. and Your Digital Memories Inc.

entered into an Agreement and Plan of Merger on August 14, 2008. The board of directors of Waste to

Energy Group Inc. and Your Digital Memories Inc. deemed it advisable and in the best interest of their

respective companies and shareholders that Waste to Energy be merged with and into Your Digital

Memories Inc. with Your Digital Memories Inc. remaining as the surviving corporation under the name

Waste to Energy Group Inc.

Abakan Inc., a wholly-owned subsidiary of Waste to Energy Group Inc., was incorporated in the state of

Nevada on November 6, 2009. Abakan Inc. and Waste to Energy Group Inc. entered into an Agreement

and Plan of Merger on November 6, 2009. The board of directors of Abakan Inc. and Waste to Energy

Group Inc. deemed it advisable and in the best interest of their respective companies and shareholders that

Abakan Inc. be merged with and into Waste to Energy Group Inc. with Waste to Energy Group Inc.

remaining as the surviving corporation under the name “Abakan Inc.”

Unless the context indicates otherwise, all references herein to the “Company”, “we,” “us,” and “our”

refer to Abakan Inc. and its consolidated subsidiaries. The Company is in the development stage as

defined under FASB ASC 915-10, "Development Stage Entities."

On December 10, 2009 the Company purchased a thirty-four percent (34%) interest in MesoCoat, Inc.

("MesoCoat"), and on July 13, 2011 purchased an additional eighteen and one-half percent (18.50%), for

an aggregate total of fifty two and one-half percent (52.50%) of the outstanding stock of MesoCoat.

MesoCoat (formerly “Powdermet Coating Technologies, Inc.”) was incorporated in Nevada as a wholly

owned subsidiary of Powdermet, Inc. (“Powdermet”) on May 18, 2007. Operations began in 2008 and

effective March 31, 2008 it was renamed as MesoCoat. Future success of operations is subject to several

technical hurdles and risk factors, including satisfactory product development, regulatory approval and

market acceptance of MesoCoat’s products and its continued ability to obtain future funding. MesoCoat is

currently in the development stage, as operations consist primarily of research and development

expenditures, and revenues from planned principal operations that have not yet been realized. MesoCoat

has invested heavily in intellectual property, machinery and equipment to initiate the research and

development of its core technology. Currently, MesoCoat’s revenue consists almost entirely of

government grants and cooperative reimbursement agreements.

On March 21, 2011, the Company purchased 596,813 shares of Powdermet from Kennametal, Inc., an

unrelated party, equal to a fully diluted 41% interest in Powdermet.

Powdermet was formed in 1996 as a Delaware corporation and has since developed a product platform of

advanced materials solutions derived from nano-engineered particle agglomerate technology and derived

hierarchically structured materials. Powdermet also owns 47.50% of MesoCoat.

On June 8, 2011, the Company formed a wholly owned subsidiary company named, AMP Distributors,

Ltd. (“AMP Distributors”), a Grand Cayman corporation. AMP Distributors was formed to distribute

MesoCoat products to consumer markets.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 1 – BUSINESS - continued

On June 8, 2011, the Company formed a wholly owned subsidiary company named, AMP Distributors,

Ltd. (“AMP Distributors”), a Grand Cayman corporation. AMP Distributors was formed to distribute

MesoCoat products to consumer markets.

On July 27, 2012, the Company formed a wholly owned subsidiary company named, AMP Distributors,

Inc. (“AMP FL”), a Florida corporation. AMP Distributors was formed to distribute MesoCoat products

to consumer markets.

The Company’s plan of operation is to acquire interests in early stage companies. Since those firms are

typically pre-commercialization, it is anticipated that each firm the Company decides to acquire will need

successive rounds of financing to fund research & development, lengthy qualification periods, sales and

marketing efforts. However, this may not necessarily be the case if the Company acquires a new

technology company with existing sales or we agree to a licensing strategy.

The Company’s acquisition strategy is to make sure it negotiates upfront future ownership based on a

series of value creating steps whereby we have the right to continue or discontinue investing based on an

investee meeting those milestone steps. Our approach allows management to forecast potential financing

needs of any given firm in stages to plan for present and future fundraising efforts. Further, our approach

also enables the Company to hedge its investing if it feels a company is not performing up to the goals

that were anticipated during the negotiating process. By taking this approach, each investee company is

expected to reach certain operating milestones prior to receiving the next round of fundraising or us

exercising our next round of acquisition.

NOTE 2 – 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 the Company’s financial position as of November 30,

2012, and the results of its operations and cash flows for the three and six months ended November 30,

2012, have been made. Operating results for the six months ended November 30, 2012 are not

necessarily indicative of the results that may be expected for the year ended May 31, 2013.

These condensed consolidated financial statements should be read in conjunction with the financial

statements and notes for the year ended May 31, 2012, thereto contained in the Company’s Form 10-K.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Consolidation Policy

The accompanying November 30, 2012 financial statements include the Company’s accounts and the

accounts of its subsidiaries. All significant intercompany transactions and balances have been eliminated in

consolidation. The Company’s ownership of its subsidiaries as of November 30, 2012 is as follows:

Name of Subsidiary

Percentage of Ownership

AMP Distributors (Cayman)

100.00%

AMP Distributors (Florida)

100.00%

MesoCoat, Inc.

52.50%

Earnings (Loss) Per Common Share

The Company computes net loss per share in accordance with FASB ASC 260-10, "Earnings per Share".

FASB ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of

the statement of operations. Basic EPS is computed by dividing net loss available to common

stockholders (numerator) by the weighted average number of shares outstanding (denominator)

during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during

the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive. The only

potentially dilutive common shares outstanding are stock options and warrants from inception (Note 11).

Non-Controlling Interest

Non-controlling interest represents the minority members’ proportionate share of the equity of MesoCoat,

Inc. The Company’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 the Company is

shown as non-controlling interest in the consolidated financial statements.

Development Stage Enterprise

At November 30, 2012, the Company’s business operations had not fully developed and the Company is

highly dependent upon funding and therefore is considered a development stage enterprise.

Reclassifications

Certain amounts in the period ended November 30, 2011 financial statements have been reclassified to

conform to the current period ended November 30, 2012 presentation.

Accounts Receivable

Accounts receivable are stated at face value, less an allowance for doubtful accounts. The Company

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, 2012 management has determined that no allowance for

doubtful accounts is required.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Accounts Receivable

Accounts receivable are stated at face value, less an allowance for doubtful accounts. The Company

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, 2012 management has determined that no allowance for

doubtful accounts is required.

Notes Receivable

Notes receivable are stated at face value, plus any accrued interest earned. The Company analyzes each

note receivable each period for probability of collectability. Notes are considered in default 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, 2012 management has determined that no

occurrence of default exists.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization.

Maintenance and repairs are charged to operations as incurred. Depreciation and amortization are based

on the straight-line method over the estimated useful lives of the related assets. When assets are retired or

otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the

accounts, and any resulting gain or loss is reflected in operations in the period realized.

Asset Construction in Progress

Construction in progress assets, represent assets that are in process of construction and rehabilitation in

order to bring them to operational status. All costs are captured in a separate Construction in Progress

account, and are included in the “Property, plant and equipment – net” amounts, and when the asset is

ready to enter service, the total costs are capitalized and depreciation commences per the schedule below.

Depreciation

Depreciation is computed on the straight-line method net of salvage value with useful lives as follows:

Computer equipment and software

3 - 5 years

Office furniture and equipment

5 - 7 years

Machinery and equipment

7 - 10 years

Leasehold improvements

balance of lease term

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Patent and Technology Licenses

Patent costs are recorded at the cost to obtain the patent and are amortized on a straight-line basis over their estimated

useful lives up to 20 years, beginning when the patent is secured by the Company. License costs are recorded at

the cost to obtain the license and are amortized on a straight-line basis over effective term of the license, up to 15

years.

Indefinite-Lived Intangible Assets

In accordance with GAAP, Intellectual Property – Research and Development in the amount of $6,120,200

related to the acquisition of MesoCoat, will not be amortized and will be reviewed for impairment on an annual

basis starting fiscal year ending May 31, 2013, due to its indefinite life.

Goodwill

In accordance with GAAP, goodwill in the amount of $364,384 related to the acquisition of MesoCoat will be

evaluated for impairment on an annual basis starting fiscal year ending May 31, 2013.

Revenue Recognition

The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has

occurred or services have been rendered, the sales price if fixed or determinable, and collectability is

reasonably assured.

Grant Revenue

Revenue from grants is generally recorded when earned as defined under the terms of the agreements. Each

grant document sets the timing of amounts that are allowed to be billed and how to bill those amounts. The Company

generally looks at a two week time period to bill from and work on the incurred costs for the same time period and

bills according to preset amounts that are allowed to be billed for per the grant documents. This is then billed through a

government billing system, reviewed by the government department, and then payment is sent to us.

Research and Development Costs

Research and development costs are charged to expense as incurred and are included in operating expenses. Total

research and development costs were $536,194 and $273,212 for the six months ended November 30, 2012 and

2011, respectively.

Advertising Expenses

Advertising costs are expensed as incurred. Advertising expenses are included in general and

administrative expense in the accompanying statement of operations. Total advertising expenses were

$5,000 and $496 for the six months ended November 30, 2012 and 2011, respectively.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Shipping and Handling Costs

The Company’s shipping and handling costs are included in cost of sales for all periods presented.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets, the disclosure of contingent assets

and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting periods. The more significant areas requiring the use of estimates include asset

impairment, stock-based compensation, beneficial conversion features on debt instruments, and future

income tax amounts. Management bases its estimates on historical experience and on other assumptions

considered to be reasonable under the circumstances. Actual results may differ from the estimates.

Income Taxes

Income taxes are provided for using the liability method of accounting. A deferred tax asset or liability

is recorded for all temporary differences between financial and tax reporting. Deferred tax expense

(benefit) results from the net change during the year in deferred tax assets and liabilities. Valuation

allowances are established when necessary to reduce deferred tax assets to the amount expected to more

likely than not be realized in future tax returns. Tax law and rate changes are reflected in income in the

period such changes are enacted.

Subsequent Events

In accordance with ASC 855-10 “Subsequent Events”, the Company has evaluated subsequent events and

transactions for potential recognition or disclosure in the financial statements through the date the

financial statements were issued (Note 17).

NOTE 3 – GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as

a going concern. The Company has net losses for the period of June 27, 2006 (inception) to the period

ended November 30, 2012, of $9,302,201, and a working capital deficit of $3,345,574. These

conditions raise substantial doubt about the Company’s ability to continue as a going concern. The

Company’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.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

November 30, 2012

May 31, 2012

Machinery and equipment

734,099

427,641

Construction in progress

3,516,352

2,617,196

Computer equipment and office furniture

43,538

35,369

Leasehold improvements

54,177

53,818

4,348,166

3,134,024

Less accumulated depreciation and amortization

(160,597)

(112,936)

4,187,569

3,021,088

Depreciation and amortization expense was $47,661 and $18,878 for the six months ended November 30,

2012 and 2011, respectively.

NOTE 5 – PATENTS AND LICENSES

Patents and licenses consist of the following:

November 30, 2012

May 31, 2012

Patents

82,693 $

72,991

Website

21,000

Intellectual Property Research and Development

6,120,200

Licenses

1,855,949

1,843,200

8,079,842

8,057,391

Less accumulated amortization

(407,614)

(281,076)

7,672,228 $

7,776,315

Amortization expense was $126,538 and $147,354 for the six months ended November 30, 2012 and

2011, respectively. In the six months ended November 30, 2012 and 2011, we have capitalized an

additional $22,451 and $27,148, respectively, on patents and licenses, and have begun amortizing those

according to our policy.

Future amortization patents and licenses as of November 30, 2012 are presented in the table below:

For the years ended May 31,

2013

161,860

2014

288,398

2015

288,398

2016

288,398

2017 and beyond

524,974

$ 1,552,028

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 5 – PATENTS AND LICENSES - continued

Patent license agreement

The Company has an exclusive commercial patent license agreement with a third party which requires the

Company to invest in the research and development of technology and the market for products by

committing to a certain level of personnel hours and $350,000 of expenditures.

The patent license agreement required a total of $50,000 in execution fees which are included in

intangible assets. The patent license agreements requires royalty payments equal to 2.5% of net sales of

the product sold by the Company beginning after the first commercial sale. For the first calendar year

after the achievement of a certain milestone and the following two calendar years during the term of the

agreement, the Company will pay a minimum annual royalty payment of $10,000, $15,000 and $20,000

respectively.

NOTE 6 – ASSIGNMENT AGREEMENT – MESOCOAT

On March 25, 2011, the Company entered into an assignment agreement (the Agreement) whereby it

would assume the exclusive rights to distribute MesoCoat’s products intended for applications specific to

the oil and gas pipeline industry in consideration of $250,000. The Agreement was entered into with a

company that entered into an exclusive distribution agreement with MesoCoat dated October 10, 2008

which was in effect for 10 years following the original date of the exclusive distribution agreement. On

May 31, 2011, the Company completed the transfer of consideration and assumed all rights to the

agreement. We commenced amortization on June 1, 2012, over the remaining term of 76 months, and

have recorded $19,733 in amortization expense as of the six months ended November 30, 2012.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 7 – PREPAID EXPENSES

Prepaid expenses consisted of the following at November 30, 2012:

Name

Description

Amount

Steven Ferris

Prepayment for services

15,000

Better Investing

Prepayment retainer for services

1,875

IPFS Corporation

Prepayment for insurance

9,070

Optiminera SA

Prepayment retainer for services

25,500

Financial Insights

Prepayment retainer for services

5,000

Crystal Research Associates

Prepayment retainer for services

10,417

Hall, Lamb, & Hall

Prepayment retainer for legal fees

5,782

Fulcrum Financial Inquiry

Prepayment retainer for services

800

Antenna Group

Prepayment retainer for services

15,800

Steven Rosenfeld, PC

Prepayment retainer for legal fees

2,555

Wolf, Rifkin, Shapiro

Prepayment retainer for legal fees

2,000

Rick Beck Engineering

Prepayment retainer for services

12,000

Deposits

Prepayment retainer for services

18,304

Total

124,103

Prepaid expenses consisted of the following at May 31, 2012:

Name

Description

Amount

Steven Ferris

Prepayment retainer for services

7,500

Better Investing

Prepayment retainer for services

4,125

Urish Popeck & Co

Prepayment retainer for valuation

8,000

Optiminera SA

Prepayment retainer for services

76,500

The Money Channel

Prepayment retainer for services

8,775

Crystal Research Associates

Prepayment retainer for services

41,667

Hall, Lamb, & Hall

Prepayment retainer for legal fees

29,572

Deposits

Prepayment retainer for services

6,995

Total

183,134

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 8 – INVESTMENT IN NON-CONTROLLING INTEREST

Powdermet, Inc.

Under the terms of our September 7, 2010 amendment to our stock purchase agreement dated June 28,

2010, the Company entered into a stock purchase agreement with Kennametal Inc. (“Kennametal”) to

purchase from Kennametal five hundred and ninety six thousand eight hundred and thirteen (596,813)

shares, representing a forty one percent (41%) interest in Powdermet, Inc. (“Powdermet”), in exchange

for one million six hundred fifty thousand dollars ($1,650,000).

The terms and conditions of the stock purchase agreement required the Company to pay an initial

payment of five hundred thousand dollars ($500,000) to Kennametal on September 7, 2010, and the

remainder on or before September 30, 2010. The stock purchase agreement contains additional terms

related to monthly liquidated damages in the amount of fifty thousand ($50,000) per month starting

October 1, 2010. The transaction was to close no later than December 31, 2010.

We made the initial payment of $500,000 on September 7, 2010 and did not make the payment on the

balance as agreed; accordingly we recorded liquidating damages of $50,000 per month beginning October

1, 2010, for a total of $250,000 as of the period ended February 28, 2011.

On January 19, 2011, we amended the Stock Purchase Agreement with Kennametal to complete the purchase of

Powdermet shares from Kennametal no later than February 15, 2011 for $1,150,000. We did not make our payment

on the balance as agreed. On March 21, 2011, we entered into an accord and satisfaction agreement to fulfill the

terms of our agreement and settled our debt in full to Kennametal in the amount of $1,200,000.

Powdermet was the parent company of MesoCoat, owning 66% of MesoCoat at May 31, 2011. Andy

Sherman serves as the chief executive officer of both Powdermet and MesoCoat in addition to his duties

as a member of the Company’s board of directors. Through the Company’s purchase of 41% of

Powdermet, we also gain indirect ownership of the additional shares of MesoCoat that Powdermet owns.

We have analyzed our investment in accordance of “Investments – Equity Method and Joint Ventures”

(ASC 323), and concluded that when the stock purchase agreement was completed our 41% minority

interest investment gave 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.

March 21, 2011, initial investment

$ 1,650,000

Equity in profit for period of March 21

through May 31, 2011

71,656

Investment balance, May 31, 2011

$ 1,721,656

Equity in profit for year ended May 31, 2012

988,533

Investment balance, May 31, 2012

$ 2,710,189

Equity in loss for six months ended November 30, 2012

(59,101)

Investment balance, November 30, 2012

$ 2,651,088

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 8 – INVESTMENT IN NON-CONTROLLING INTEREST – continued

Powdermet’s ownership in MesoCoat was diluted when the Company exercised its initial option to

purchase 86,156 shares of common stock from MesoCoat. Powdermet’s ownership in MesoCoat as of

November 30, 2012 is 47.50%.

Below is a table with summary financial results of operations and financial position of Powdermet:

Powdermet Inc.

For the six months ended

November 30, 2012

November 30, 2011

Equity Percentage

41%

Condensed income statement information:

Total revenues

1,238,694

983,055

Total cost of revenues

492,708

417,300

Gross margin

745,986

565,755

Total expenses

890,134

513,866

Net profit/ (loss)

(144,148)

51,890

Company’s equity in net profit/ (loss)

(59,101)

21,274

Condensed balance sheet information:

November 30, 2012

May 31, 2012

Total current assets

650,246

578,725

Total non-current assets

4,652,477

4,234,600

Total assets

5,302,723

4,813,325

Total current liabilities

255,398

395,614

Total non-current liabilities

2,886,727

2,105,370

Total equity

2,160,598

2,312,341

Total liabilities and equity

5,302,723

4,813,325

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 9 – LOANS PAYABLE

As of November 30, 2012 and May 31, 2012, the loans payable balance comprised of:

Description

November 30, 2012

May 31, 2012

Convertible demand note to an unrelated entity bearing 5% interest per annum which matures

451,261 $

400,231

on April 13, 2013. The note is shown net of a discount of $48,739 and $99,769, respectively,

attributable to the beneficial conversion feature, and an effective interest rate of 30.19%.

Convertible demand note to an unrelated entity bearing 5% interest per annum which matures

1,377,124

1,214,917

on March 17, 2013. The note is shown net of a discount of $122,876 and $285,083,

respectively, attributable to the beneficial conversion feature, and an effective interest rate of

31.19%.

Convertible demand note to an unrelated entity bearing 5% interest per annum which matures

80,295

38,531

on June 7, 2013. The note is shown net of a discount of $119,705 and $161,469, respectively,

attributable to the beneficial conversion feature, and an effective interest rate of 175.84%.

Convertible demand note to an unrelated entity bearing 5% interest per annum which matures

174,824

70,671

on July 14, 2013. The note is shown net of a discount of $325,176 and $429,329, respectively,

attributable to the beneficial conversion feature, and an effective interest rate of 142.77%.

Uncollateralized demand note to an unrelated entity bearing 8% interest per annum

70,000

Uncollateralized demand note to an unrelated entity bearing 8% interest per annum

3,850

Uncollateralized demand note to an unrelated entity bearing 8% interest per annum

303

Uncollateralized demand note to an unrelated entity bearing 8% interest per annum

19,350

Uncollateralized demand note to an unrelated entity bearing 8% interest per annum

20,000

Collateralized note to an unrelated entity bearing 1% interest for the first year and then 7%

900,543

per annum for years two - seven

Uncollateralized demand note to a related entity bearing 8% interest per annum

30,000

Convertible demand note to an unrelated entity bearing 7.5% imputed interest per annum

54,435

56,043

which matures on July 10, 2018.

Capital leases payable to various vendors expiring in various years through September 2016;

97,152

115,175

collateralized by certain equipment with a cost of $205,157.

Uncollateralized demand note to an unrelated entity for royalties shown net of discount of

1,618,112

1,717,546

$46,788 and $82,454, respectively

4,896,979 $

3,726,617

Less current liabilities

2,744,726

2,508,164

Total long term liabilities

2,152,253 $

1,218,453

We also owed $330,104 and $183,106 in accrued interest for the above notes as of November 30, 2012

and May 31, 2012, respectively. We also amortized $397,085 and $279,322 in discount on debt as of

November 30, 2012, and 2011, respectively.

As of November 30, 2012 and May 31, 2012, we had no restrictive covenants attached to any of the

above referenced notes.

Future maturity of our notes payable as of November 30, 2012 is presented in the table below:

For the years ended May 31,

2013

2,744,726

2014

1,133,227

2015

342,378

2016

151,303

2017 and beyond

525,345

$ 4,896,979

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 9 – LOANS PAYABLE - continued

Development Loan - MesoCoat

On October 2, 2012 we began drawing against a development loan from the State of Ohio with a

maximum amount of $1,000,000, and bearing an interest rate of one percent the first year after the

disbursement date, and then for years two through seven, the interest rate is seven percent. On October 2,

2012, we received our first payout from this loan of $584,066, and then we received on October 5, 2012 a

second payout of $316,477, for a total of $900,543. The loan is to be repaid over seven years, and is

collateralized the project equipment, one CermaClad system and automated pipe blasting equipment, and

all inventory, equipment, all fixtures, all intangibles and accounts receivables owned by MesoCoat.

NOTE 10 – STOCKHOLDERS' EQUITY

Common Shares – Authorized

The Company has 2,500,000,000 common shares authorized at a par value of $0.0001 per share and

50,000,000 shares of preferred stock, par value $0.0001 per share. All common stock shares have equal

voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and,

therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all the

directors of the Company.

Common Stock Issuances

Private placements

For the six months ended November 30, 2012, we issued the following shares:

On July 30, 2012, we closed a private placement for $525,000, or 300,000 units consisting of one share of

our restricted common stock and one-half common stock warrant to purchase shares of our common

stock, with a purchase price of $2.00 per share and an expiration date of two years from the closing. In

connection with this placement we had no offering costs for a net of $525,000.

On September 28, 2012, we closed a private placement for $262,500, or 150,000 units consisting of one

share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.00 per share and an expiration date of two years from the

closing. In connection with this placement we had no offering costs for a net of $262,500.

On October 18, 2012, we closed a private placement for $230,000, or 100,000 units consisting of one

share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we had no offering costs for a net of $230,000.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 10 – STOCKHOLDERS' EQUITY – continued

Common Stock Issuances - continued

Private placements- continued

On November 26, 2012, we closed a private placement for $16,100, or 7,000 units consisting of one share

of our restricted common stock and one-half common stock warrant to purchase shares of our common

stock, with a purchase price of $2.70 per share and an expiration date of two years from the closing. In

connection with this placement we had no offering costs for a net of $16,100.

On November 26, 2012, we closed a private placement for $16,100, or 7,000 units consisting of one share

of our restricted common stock and one-half common stock warrant to purchase shares of our common

stock, with a purchase price of $2.70 per share and an expiration date of two years from the closing. In

connection with this placement we had no offering costs for a net of $16,100.

On November 30, 2012, we closed a private placement for $57,500, or 25,000 units consisting of one

share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we had no offering costs for a net of $57,500.

Conversion of debt to shares

On November 30, 2012, we converted several debt obligations for $168,033, or 73,058 units consisting of

one share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we incurred stock expense on conversion of $29,223.

On November 30, 2012, we converted several accounts payables for $46,000, or 20,000 units consisting

of one share of our restricted common stock and one-half common stock warrant to purchase shares of

our common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we incurred stock expense on conversion of $8,000.

Share based compensation

For the six months ended November 30, 2012, we issued the following shares for compensation:

On June 1, 2012, we issued 12,500 shares of our common stock for services performed valued at $32,625.

On June 1, 2012, we issued 12,500 shares of our common stock for services performed valued at $27,750.

On July 1, 2012, we issued 12,500 shares of our common stock for services performed valued at $25,000.

On July 9, 2012, we issued 10,000 shares of our common stock for services performed valued at $20,000.

On August 7, 2012, we issued 10,000 shares of our common stock for services performed valued at

$19,000.

On September 18, 2012, we issued 25,000 shares of our common stock for services performed valued at

$42,750.

On November 29, 2012, we issued 20,000 shares of our common stock for services performed valued at

$51,000, including costs of $21,000.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 10 – STOCKHOLDERS' EQUITY - continued

Common Stock Warrants

In connection with the above private placement we valued the common stock warrants granted during

the six months ended November 30, 2012, using the Black-Scholes model with the following

assumptions:

July 30,

September

October

November

2012

28, 2012

18, 2012

26, 2012

30, 2012

Expected volatility

154.31%

150.62%

(based on historical

volatility)

Expected dividends

0.00

Expected term in years

2.00

Risk-free rate

0.23%

0.29%

0.27%

0.25%

The expected volatility assumption was based upon historical stock price volatility measured on a daily

basis. The risk-free interest rate assumption is based upon U.S. Treasury bond interest rates appropriate

for the term of the Company’s warrants. The dividend yield assumption is based on our history and

expectation of dividend payments. All warrants are immediately exercisable upon granting.

A summary of the common stock warrants granted during the year ended May 31, 2012 and the six

months ended November 30, 2012 is presented below:

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Number of

Exercise

Terms

Intrinsic

Options

Price

(In Years)

Value

Balance at June 1, 2011

2,670,233

0.85

Granted

1,696,063

1.67

Exercised

Forfeited or expired

(2,300,000)

0.75

Balance at May 31, 2012

2,066,296

1.64

2.00 years

Exercisable at May 31, 2012

2,066,296

1.64

2.00 years

Weighted average fair value of

options granted during the year

ended May 31, 2012

1.64

Balance at June 1, 2012

2,066,296

1.64

Granted

337,500

2.23

Exercised

Forfeited or expired

Balance at November 30, 2012

2,403,796

1.85

2.00 years

Exercisable at November 30, 2012

2,403,796

1.85

2.00 years

Weighted average fair value of

options granted during the three

months ended November 30, 2012

1.85

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 10 – STOCKHOLDERS' EQUITY - continued

Common Stock Warrants - continued

The following table summarizes information about the warrants outstanding at November 30, 2012:

Options Outstanding

Options Exercisable

Number

Range

Outstanding

Weighted

Exercisable

Weighted

Average

Aggregate

Exercise

November

Remaining

Exercise

Intrinsic

November

Exercise

Intrinsic

Price

30, 2012

Contractual Life

Price

Value

30, 2012

Price

Value

$ 1.25

706,600

2.00 Years

$ 1.25

706,600 $ 1.25

$ 1.50

410,233

2.00 Years

$ 1.50

410,233 $ 1.50

$ 2.00

1,174,463

2.00 Years

$ 2.00

1,174,463 $ 2.00

$ 2.70

112,500

2.00 Years

$ 2.70

112,500 $ 2.00

2,403,796

2.00 Years

$ 1.85

2,403,796 $ 1.85

NOTE 11 – EARNINGS-PER-SHARE CALCULATION

Basic earnings per common share for the three and six months ended November 30, 2012 and 2011 are

calculated by dividing net income by weighted-average common shares outstanding during the period.

Diluted earnings per common share for the six months ended November 30, 2012 and 2011 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

ended November 30,

months ended

2012

November 30, 2011

Net earnings (loss) from operations

(1,572,453)

$ (1,162,390)

Weighted-average common shares

61,999,242

59,377,425

Effect of dilutive securities:

Warrants

Options to purchase common stock

Dilutive potential common shares

61,999,242

59,377,425

Net earnings per share from operations:

Basic

(0.03)

$ (0.02)

Diluted

(0.03)

$ (0.02)

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 11 – EARNINGS-PER-SHARE CALCULATION - continued

For the six months

ended November 30,

2012

2011

Net earnings (loss) from operations

(2,979,836)

$ (512,521)

Weighted-average common shares

61,806,104

59,353,818

Effect of dilutive securities:

Warrants

Options to purchase common stock

Dilutive potential common shares

61,806,104

59,353,818

Net earnings per share from operations:

Basic

(0.05)

$ (0.01)

Diluted

(0.05)

$ (0.01)

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 the Company’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.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 11 – 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 ended

November 30, 2012 November 30, 2011

Common Stock Equivalents:

Warrants

2,403,796

2,710,233

Options to purchase common stock

5,860,000

5,545,000

Total of Common Stock Equivalents:

8,263,796

8,255,233

For the six

months ended

November 30, 2012 November 30, 2011

Common Stock Equivalents:

Warrants

2,403,796

2,710,233

Options to purchase common stock

5,860,000

5,545,000

Total of Common Stock Equivalents:

8,263,796

8,255,233

NOTE 12 – RELATED PARTY TRANSACTIONS

Due to the common control between the Company and its related parties, the Company is exposed to the

potential that ownership risks and rewards could be transferred among the parties.

In addition to related party transactions mentioned elsewhere, we have the below agreements and

transactions:

Board of Advisors

On June 1, 2012, we appointed a new member to our Board of Advisors and granted him 100,000 stock

options for their service. The stock options have an exercise price of $2.30 per share of common stock,

and expire ten years from the date of grant. These options vest in equal one-third parts beginning on June

1, 2013, and every grant date anniversary for the next two years. The term of the Board of Advisors

Agreement will be in force until June 1, 2013, and shall renew automatically on an annual basis unless

terminated in writing. We also agreed to reimburse the advisor for all reasonable business expenses.

On June 20, 2012, we appointed a new member to our Board of Advisors and agreed to pay him $5,000

per month for his services beginning July 1, 2012. We also granted him 50,000 stock options for their

service. The stock options have an exercise price of $2.05 per share of common stock, and expire ten

years from the date of grant. These options vest in equal one-third parts beginning on June 20, 2013, and

every grant date anniversary for the next two years. The term of the Board of Advisors Agreement will be

in force until May 31, 2013, and shall renew automatically on an annual basis unless terminated in

writing. We also agreed to reimburse the advisor for all reasonable business expenses.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 12 – RELATED PARTY TRANSACTIONS – continued

Board of Advisors - continued

On August 1, 2012, we appointed a new member to our Board of Advisors and agreed to pay him $3,000

per month for his services beginning August 1, 2012. We also granted him 75,000 stock options for his

service. The stock options have an exercise price of $1.95 per share of common stock, and expire ten

years from the date of grant. These options vest in equal one-third parts beginning on August 1, 2013, and

every grant date anniversary for the next two years. The term of the Board of Advisors Agreement will be

in force until August 1, 2013, and shall renew automatically on an annual basis unless terminated in

writing. We also agreed to reimburse the advisor for all reasonable business expenses.

Board of Directors

On June 15, 2012, we appointed a new member to our Board of Directors. We agreed to pay him $15,000

per annum, payable in four equal payments. We also agreed to issue him 10,000 restricted shares of our

common stock and granted him 150,000 stock options for their service. The stock options have an

exercise price of $2.30 per share of common stock, and expire ten years from the date of grant. These

options vest in equal one-third parts beginning on September 15, 2012, and every September 15 after that.

We also agreed to pay for continuing education classes and related travel expenses, for a maximum of

$4,500. This agreement will be in force until May 31, 2015, unless terminated with a sixty day notice. We

also agreed to reimburse the new director for all reasonable business expenses.

On August 7, 2012, we appointed a new member to our Board of Directors. We agreed to issue him

10,000 restricted shares of our common stock and granted him 150,000 stock options for their service.

The stock options have an exercise price of $1.90 per share of common stock, and expire ten years from

the date of grant. These options vest in equal one-third parts beginning on August 7, 2013 and every

August 7 after that. This agreement will be in force until August 7, 2015, unless terminated with a sixty

day notice. We also agreed to reimburse the new director for all reasonable business expenses.

Notes Payable – Related Party

For the six months ended November 30, 2012, we entered into two uncollateralized demand notes to a

Company controlled by our Chief Executive Officer’s spouse, Prosper Financial, bearing 8% interest

per annum for an aggregate total of $66,200. On August 31, 2012, we applied $6,200 of principal in

addition to $59.24 of accrued interest to advances owed to us by the same company. On September 25,

2012, we also made a cash principal payment of $30,000. As of November 30, 2012 we owed $30,000,

and $773 of accrued interest.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 13 – STOCK – BASED COMPENSATION

2009 Stock Option Plan – The Company

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.

On June 12, 2012, we granted 175,000 stock options to two consultants at an exercise price of $2.30 per

share. The 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.

On June 1, 2012, we granted 100,000 stock options to two consultants at an exercise price of $0.75 per

share. The options will expire ten years from the grant date, and will vest in completely on March 15,

2013.

On June 15, 2012, we granted 150,000 stock options to a new director at an exercise price of $2.30 per

share. The options will expire ten years from the grant date, and will vest in equal one third parts

beginning on September 15, 2012, and then every September 15^th for the next two years.

On June 20, 2012, we granted 50,000 stock options to a consultant at an exercise price of $2.05 per share.

The 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.

On July 27, 2012, we granted 75,000 stock options to a consultant at an exercise price of $1.95 per share.

The 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.

On August 7, 2012, we granted 150,000 stock options to a new director at an exercise price of $1.90 per

share. The 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.

After these grants there will be 4,140,000 available for future grant.

Our board of directors administers our Plan, however, they may delegate this authority to a committee

formed to perform the administration function of the Plan. The board of directors or a committee of the

board has the authority to construe and interpret provisions of the Plan as well as to determine the terms

of an award. Our board of directors may amend or modify the Plan at any time. However, no

amendment or modification shall adversely affect the rights and obligations with respect to outstanding

awards unless the holder consents to that amendment or modification.

The Plan permits us to grant Non-Statutory stock options to our employees, directors and consultants.

The options issued under this Plan are intended to be Non-Statutory Stock Options exempt from Code

Section 409A.

The duration of a stock option granted under our Plan cannot exceed ten years. The exercise price of an

incentive stock option cannot be less than 100% of the fair market value of the common stock on the

date of grant.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 13 – STOCK – BASED COMPENSATION - continued

2009 Stock Option Plan – The Company - continued

The Plan administrator determines the term of stock options granted under our Plan, up to a maximum

of ten years, except in the case of certain events, as described below. Unless the terms of an optionee's

stock option agreement provide otherwise, if an optionee's relationship with us ceases for any reason

other than disability or death, the optionee may exercise any vested options for a period of ninety days

following the cessation of service. If an optionee's service relationship with us ceases due to disability

or death the optionee or a beneficiary may exercise any vested options for a period of 12 months in the

event of disability or death.

Unless the Plan administrator provides otherwise, options generally are not transferable except by will,

the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may

designate a beneficiary, however, who may exercise the option following the optionee's death.

The value of employee and non-employee stock warrants granted during the six months ended

November 30, 2012 was estimated using the Black-Scholes model with the following assumptions:

June 1, 2012

June 12, 2012

June 15, 2012

June 20, 2012

Expected volatility (based on

200.15%

154.39%

historical volatility)

Expected dividends

0.00

Expected term in years

Risk-free rate

0.95%

1.67%

1.60%

1.65%

July 27, 2012

August 7, 2012

Expected volatility (based on historical volatility)

154.39%

Expected dividends

0.00

Expected term in years

Risk-free rate

1.58%

1.66%

The expected volatility assumption was based upon historical stock price volatility measured on a daily

basis. The risk-free interest rate assumption is based upon U.S. Treasury bond interest rates appropriate

for the term of the Company’s employee stock options. The dividend yield assumption is based on our

history and expectation of dividend payments.

A summary of the options granted to employees and non-employees under the plan and changes during

the year ended May 31, 2012 and the six months ended November 30, 2012 is presented below:

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 13 – STOCK – BASED COMPENSATION - continued

2009 Stock Option Plan – The Company - continued

A summary of the options granted to employees and non-employees under the plan and changes during

the year ended May 31, 2012 and the six months ended November 30, 2012 is presented below:

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Number of

Exercise

Terms

Intrinsic

Options

Price

(In Years)

Value

Balance at June 1, 2011

5,420,000

0.75

Granted

520,000

1.06

Exercised

Forfeited or expired

(780,000)

Balance at May 31, 2012

5,160,000

0.77

9.00 years

185,000

Exercisable at May 31, 2012

2,980,829

0.71

9.00 years

Weighted average fair value of

options granted during the year ended

May 31, 2012

1.06

Balance at June 1, 2012

5,160,000

0.77

Granted

700,000

1.93

Exercised

Forfeited or expired

Balance at November 30, 2012

5,860,000

0.90

9.00 years

185,000

Exercisable at November 30, 2012

2,980,829

0.71

9.00 years

Weighted average fair value of

options granted during the year ended

November 30, 2012

1.06

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 13 – STOCK – BASED COMPENSATION - continued

2009 Stock Option Plan – The Company - continued

The following table summarizes information about employee stock options under the 2009 Plan

outstanding at November 30, 2012:

Options Outstanding

Options Exercisable

Weighted

Number

Range

Number

Average

Weighted

Exercisable

Weighted

Outstanding

Remaining

Average

Aggregate

Exercise

at November

Contractual

Exercise

Intrinsic

November

Exercise

Intrinsic

Price

30, 2012

Life

Price

Value

30, 2012

Price

Value

$ 0.60

1,945,000

8.00 Years

0.60

1,900,040 $ 0.60

$ 0.65

1,400,000

8.00 Years

0.65

120,000

394,968 $ 0.65

$ 0.75

200,000

9.00 Years

0.75

15,000

100,000 $ 0.75

$ 1.00

50,000

10.00 Years

1.00

-- $ 0.00

$ 1.01

225,000

9.00 Years

1.01

106,656 $ 1.01

$ 1.02

650,000

10.0 Years

1.02

50,000

116,660 $ 1.02

$ 1.03

50,000

4.00 Years

1.03

-- $ 0.00

$ 1.05

270,000

10.0 Years

1.05

83,330 $ 1.05

$ 1.07

95,000

10.00 Years

1.07

12,500 $ 1.07

$ 1.20

100,000

5.0 Years

1.20

100,000 $ 1.20

$ 1.25

25,000

10.0 Years

1.25

-- $ 0.00

$ 1.30

250,000

10.0 Years

1.30

166,675 $ 1.30

$ 1.90

150,000

10.0 Years

1.90

-- $ 0.00

$ 1.95

75,000

10.0 Years

1.95

-- $ 0.00

$ 2.05

50,000

10.0 Years

2.05

-- $ 0.00

$ 2.30

325,000

10.0 Years

2.30

-- $ 0.00

5,860,000

9.0 Years

0.90

185,000

2,980,829 $ 0.71

The total value of employee and non-employee stock options granted during the six months ended

November 30, 2012 and 2011, was $1,315,619 and $143,267, respectively. During six months ended

November 30, 2012 and 2011 the Company recorded $899,211 and $791,856, respectively, in stock-

based compensation expense relating to stock option grants.

At November 30, 2012 and 2011 there was $1,747,689 and $2,130,783, respectively, of total

unrecognized compensation cost related to stock options granted under the plan. That cost is expected

to be recognized pro-rata through August 7, 2015. The following table represents the stock options

expense for the each of the next four fiscal years ended May 31:

For years ended May 31,

Expense

2013

622,717

2014

706,184

2015

408,568

2016

10,220

1,747,689

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 13 – STOCK – BASED COMPENSATION - continued

Stock Option Plan - MesoCoat

MesoCoat accounts for equity awards using the grant-date fair value.

The Company’s stock option plan (the Stock Option Plan) is intended to advance the interest of the

Company and its shareholders. Options granted under the Stock Option Plan can be either incentive stock

options or non-qualified stock options. The Stock Option Plan authorized the issuance of a maximum of

9,000 shares of the Company’s common stock. These options have a term of six years and will expire

beginning August 2014 through November 2014.

A summary of the Company’s stock option plan as of November 30, 2012, and the changes during the

period then ended is presented in the table below:

Options Outstanding

Number of

Weighted

Average

Exercise

Price

Outstanding at May 31, 2012

4,450 $

2.68

Granted

Exercised

Forfeited

Outstanding at November 30, 2012

4,450 $

2.68

Options exercisable at November 30, 2012

3,150 $

1.95

NOTE 14 – COMMITMENTS

Leases

In August 2011, the Company entered into a non-cash leasing arrangement where services are provided in

exchange for an asset. The Company has an obligation to provide 600 hours of services at a fair value of

$120,000 as consideration during the period from August 2011 to August 2017. The Company has

recorded this capital lease at its fair value.

The Company leases its office space in Miami on a month to month basis at a cost of $2,213 a month paid

to Prosper Financial, Inc., a related party. The Company is also committed to a non-cancellable operating

lease for a vehicle that expired in March 2012.

MesoCoat subleases its research and development and laboratory space, in Ohio, from Powdermet, a related

party. The cost of the sub-lease to MesoCoat is $6,700 per month that expires on May 31, 2020.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 14 – COMMITMENTS - continued

Leases - continued

MesoCoat also leases machinery and equipment under various capital lease arrangements, which expires

through September 2016. These leases are included in long-term and short-term debt and the related assets have

been capitalized.

Total expense related to the operating leases was $40,200 and $26,889 for the six months ended

November 30, 2012 and 2011. Interest expense for the leases for the six months ended November 30, 2012

and for the period of July 13 through November 30, 2012 was $612 and $1,991.

Minimum annual rental commitments are as follows at November 30, 2012:

For the years ended May 31,

Capital Leases

Operating Leases

2013

28,562 $

40,200

2014

23,181

80,400

2015

22,197

80,400

2016

21,273

80,400

2017 and thereafter

7,951

328,300

Total minimum lease payments

103,164 $

609,700

Less amount representing interest

(6,012)

Present value of net minimum capital lease payments

97,152

Less current maturities

(36,595)

Long-term obligations under capital leases

60,557

Consulting agreement

On September 18, 2012, we entered into a consulting agreement commencing September 18, 2012, with

an unrelated individual to provide investor public relations consulting. The terms of the consulting

agreement are that the consultant is paid $5,000 per month; in addition the consultant was issued 25,000

shares of our restricted common stock for the initial three month period. Then commencing December

18, 2012 and each quarter after the Company will issue Shares of our restricted common stock valued at

$60,000 per quarter. We also agreed to reimburse the consultant for all reasonable business expenses

incurred by him in the performance of his duties, with a term expiring September 18, 2013.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 15 - EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Plan (the Plan) covering substantially all of its employees who are at least age

21 and have completed three months of service. Participating employees may elect to contribute, on a tax

deferred basis, a portion of their compensation in accordance with Section 401(k) of the Internal Revenue

Code. Additional matching contributions may be made to the Plan at the discretion of the Company. For

the six months ended November 30, 2012, the Company contributed $10,339.

NOTE 16 – RECENT ACCOUNTING PRONOUNCEMENTS

We have examined all recent accounting pronouncements and believe that none of them will have a

material impact on the financial statements of the Company.

NOTE 17– SUBSEQUENT EVENTS

Management has evaluated subsequent events after the balance sheet date, through the issuance of the

financial statements, for appropriate accounting and disclosure. The Company has determined that there

were no such events that warrant disclosure or recognition in the financial statements, except for the

below:

Private Placements

On December 7, 2012, we closed two private placements for a total of $279,450, or 121,500 units

consisting of one share of our restricted common stock and one-half common stock warrant to purchase

shares of our common stock, with a purchase price of $2.70 per share and an expiration date of two years

from the closing. In connection with this placement we had no offering costs for a net of $279,450.

On December 10, 2012, we closed a private placement for $230,000, or 100,000 units consisting of one

share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we had no offering costs for a net of $230,000.

On December 18, 2012, we closed three private placements for a total of $211,600, or 92,000 units

consisting of one share of our restricted common stock and one-half common stock warrant to purchase

shares of our common stock, with a purchase price of $2.70 per share and an expiration date of two years

from the closing. In connection with this placement we had no offering costs for a net of $211,600.

On December 24, 2012, we closed a private placement for $103,500, or 45,000 units consisting of one

share of our restricted common stock and one-half common stock warrant to purchase shares of our

common stock, with a purchase price of $2.70 per share and an expiration date of two years from the

closing. In connection with this placement we had no offering costs for a net of $103,500.

ABAKAN INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended November 30, 2012 and 2011

NOTE 17– SUBSEQUENT EVENTS - continued

Board of Directors

On December 5, 2012, we appointed a new member to our Board of Directors. We agreed to grant him

175,000 stock options for his service. The stock options have an exercise price of $2.61 per share of

common stock, and expire ten years from the date of grant. These options vest as follows; 25,000 upon

the date of this agreement and then in equal parts of 50,000 options beginning on December 5, 2013 and

every December 5 after that. This agreement will be in force until December 5, 2015, unless terminated

with a sixty day notice. We also agreed to reimburse the new member of the Board for all reasonable

business expenses.

Employment agreement

On December 5, 2012, we entered into an employment agreement commencing December 10, 2012

with a related individual to perform duties as our Chief Financial Officer. The individual was a prior

director and resigned the effective date of this agreement. The employee retained previously issued

stock options. The terms of the employment agreement are $16,000 per month salary of which a portion

is deferred. The employment agreement will end on December 31, 2015 and which time it can be

renewed for 2 one year periods. In the event that this agreement is terminated, the employee may be

eligible for severance pay based upon the length of employment. The employee was also granted

125,000 stock options with an exercise price of $2.61 per share; they will vest equally over 3 years

beginning December 9, 2013. The employee was also given a retention award to be paid $20,000 in

common shares the month following the anniversary date of his employment.

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. Our fiscal year end is May 31.

Abakan

Abakan expects to become a leader in the multi-billion dollar advanced coatings and metal formulations

markets as a result of its investment in MesoCoat, Inc. (“MesoCoat”) and Powdermet, Inc.

(“Powdermet”). MesoCoat and Powdermet each have the potential to substantially impact the surface

engineering and energy management needs of Fortune 1000 companies and government entities. Towards

this end, Abakan is actively involved in supporting their R&D, market development, and

commercialization efforts.

Abakan has to date acquired a 52.5% controlling interest in MesoCoat and a 41% non-controlling interest

in Powdermet. Since Powdermet owns 47.5% of MesoCoat, Abakan’s interest in Powdermet represents

an additional 19.5% indirect interest in MesoCoat.

MesoCoat

MesoCoat’s Business

MesoCoat is an Ohio based materials science company intent on becoming 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 nanocomposite 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 a technology transfer and

manufacturing support agreement.

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

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

nano-engineered cermet materials with proprietary high-speed application systems. The result is

protective cladding applications that will be offered on a competitive basis with existing market solutions.

The coating materials unite high strength, hardness, fracture toughness, and a low coefficient of friction

into one product structure. MesoCoat’s products are currently undergoing extensive testing by the U.S.

Air Force, U.S. Navy and Marine Corp, oil field service companies, and original equipment

manufacturers (OEMs).

CermaClad^TM cladding applications are nearing commercialization and commercial sales of PComP^TM, a

cermet-metallic composite powder for thermal spray applications have commenced.

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.

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.

Management believes the competitive advantages of CermaClad™ over current competing technologies

and products are:

 CermaClad™ and other clad overlays can be produced at a 50-80% lower cost than alternative

solid alloy products.

 CermaClad™ produces a metallurgically bonded overlay, reducing the risk of catastrophic failure

and the buckling of mechanically lined pipes such as those supplied by industry leader.

 CermaClad™ can be applied to seamless pipe, or after pipe welding, eliminating 90% of special

metal welds which are difficult, expensive, and also a common source of early failure.

 CermaClad™ application technology occurs with a 30-40cm wide infrared “torch” compared to

less than 1 cm wide for laser or inert gas welding torches, resulting in application rates over an

order of magnitude faster than current weld overlay technologies.

 Due to its high productivity compared to traditional weld overlay, and the elimination of the need

for deformation processing (steel mill) of bulk metals, CermaClad™ capital and start-up costs are

two to ten times lower than competing technologies.

 Compared to weld overlay, CermaClad™ produces a smooth overlay that is virtually free of base

metal dilution, improving inspectability and corrosion resistance. This characteristic enables the

use of thinner, even lower cost cladding alternatives in many applications. Smooth surfaces also

decrease flow resistance, enabling reduced friction losses in pipeline applications.

The CermaClad™ product line in development today is as follows:

 CermaClad™ CR (Corrosion Resistant Alloys). Product line that offers a lower cost alternative to

solid nickel and stainless steel alloys for oil and gas, pulp and paper, and chemical process

industry vessels, pipes, flowlines, risers, jumpers, valves, and components.

 CermaClad™ WR (Wear Resistant). Product line of metal matrix composite and nanocomposite

wear resistant materials to extend life of steel structures such as hydrotransport slurry lines, pump

components, valve components, spools, T’s, and elbows for mining, mineral processing, and oil

sands/heavy oil production.

 CermaClad™ HT (High Temperature). Product line of high temperature claddings for heat

exchanger tubing, boiler, 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). Exploits the unique high purity capabilities of the

CermaClad™ process to provide thin (less than 0.5mm) claddings for providing 50-200 year

corrosion free life in atmospheric and seawater corrosion environments and applicable to marine

structures, fuel and cargo tanks, bridges, architectural steel, and transportation structures.

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.

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 nanostructural 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 line is currently positioned to compete with two dominant product alternatives:

hard chrome plating and tungsten carbide thermal spray coatings. The PComP™ family of nanocomposite

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 selling these products through different channels appropriate to the specific market. The

majority of commercial sector accounts will have access to these advanced coatings and coating processes

by buying coating application services from MesoCoat. This is generally a regional business. Large

OEM’s and Government agencies like the U.S. Air Force would procure raw powders and apply them for

their specific products under license as they 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 will be limited over the next few years. MesoCoat’s low-cost, long-life coating materials

should appeal to government buyers striving to meet budgetary restrictions. Finally, to achieve more

rapid penetration of a territorial (geographic) market for coating services, MesoCoat is actively qualifying

licensed application partners in certain territories (Houston, Alberta, and Los Angeles as three examples)

to provide services in territories it is not currently able to service. This strategy will lead eventually to

acquisition or market entry into these markets, while supporting economies of scale for the powder

production needed to meet product cost targets.

The competitive advantages of PComP™ for each of its initial target markets are as follows:

 Wear and corrosion resistance and dimensional restoration

 PComP™ T-HT (High Toughness) is a titanium carbon-nitride based high corrosion/wear

resistant, low friction high velocity oxygen fuel (HVOF) coating that competes with hard

chrome and diamond like carbone 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. PComP™ T-HT has

significantly higher build-up rates than that of carbides, and grinding and finishing can be

done faster and cheaper with conventional grinding techniques compared to the

expensive diamond finishing process used for competing carbide coatings.

 PComP™ T-HH (High Hardness) is a higher wear resistance, cobalt based version of

PComP™ T-HT coating for hard chrome replacement in environments that need better

wear resistance but have less severe corrosion requirements. PComP™ T-HH also

provides good corrosion resistance in non-water environments and its low coefficient of

friction and lack of coarse by-products also protects seals and mating surfaces from

premature wear.

 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. PComP™W is also

significantly more robust and lower cost than competing detonation gun and alternate

coatings, achieving excellent results with much higher throughput and lower operating

cost equipment such as standard HVOF guns.

 Metals processing equipment

 PComP-MB™ is a metal boride coating designed for use in molten metal processing.

PComP-MB™ has completed laboratory testing showing greater than two and one half

times the life of the state of the art molybdenum boride coatings in galvanizing lines, and

ten times the resistance of conventional WC coatings to molten metal erosion and wear.

PComP-MB™ is preparing for market launch in the $60 million zinc pot roll and bearing

coatings market, while also of interest to the diecasting, paper and pulp, and other related

industries

 Thermal barrier coatings

 ZComP™ is MesoCoat’s nanocomposite thermal barrier coatings that offer 50% lower

thermal conductivity, with improved toughness and cyclic thermal life compared to

conventionally structured thermal barrier coatings in the $500 million thermal barrier

coatings market.

 MesoCoat is actively forming partnerships to introduce these performance-leading

materials into the turbine engine market, Mesocoat has recently completed and/or

continues to work with Powdermet Inc under contract with the Department of Energy for

power turbines, and with the Air Force (Oklahoma Air Logistics Center), The Ohio

Aerospace Institute (OAI), General Dynamics Information Systems, and under a space

act agreement with NASA for propulsion turbine applications of these engineered

nanocomposite thermal barrier coatings.

Stage of Development

MesoCoat’s PComP-W high performance materials are now established with initial customers and

adoption is increasing through qualified regional application partners with capacity being expanded to

match growing demand, while PComP-T best-value chrome alternatives are still in qualification and

limited beta release through application partners with original equipment. A seven-fold capacity

expansion and introduction of higher value coating application (component) services is underway to be

completed in the second half of FY2013. High revenue Cermaclad corrosion resistant (CR) and wear

resistant (WR) products are nearing market entry with the completion of the first clad pipe production

facility in the third quarter of FY2013. The following table indicates our estimated timeline for the

commercial introduction and geographic territory expansion of those products that are most imminent:

PRODUCT

COMMERCIAL TIMELINE

TIME (MONTHS)

PComP™ T

Initial Partner Sales

Current

PComP™ W

Growing partner sales

Current

PComP™MB

Market Entry for zinc pot rolls

PComP™ Coating Services

Market Entry

Current

CermaClad™ CR

Euclid Market Entry

CermaClad™ CR

Brazil market entry

12-15

Cermaclad™ CR

Asia-Pacific market entry

18-24

CermaClad™ WR

Market Entry

CermaClad™ WR

Canada expansion

14-18

License agreement with Powdermet, Inc.

On July 22, 2008, MesoCoat entered into a license agreement with Powdermet. The agreement gives

MesoCoat a royalty-free, exclusive, perpetual license to PComP™ intellectual property, certain

equipment, and contracts and business lists, including seven supporting patents, the trademark, and

supporting confidential and trade secret information, including formulations, processes, customer lists and

contracts, for all Powdermet technologies in the field of wear and corrosion resistant coatings. MesoCoat

was at the time of licensing a wholly owned subsidiary of Powdermet, and Powdermet currently retains a

47.50% ownership position in MesoCoat. The agreement also includes Powdermet’s commitment to

provide manufacturing expertise and technical capabilities supporting PcomP™ powders on a priority

basis. Powdermet retains the exclusive manufacturing rights for the first 50 tons of PComP™ powders

through July 1, 2013. The license agreement will end upon the last valid claim of licensed patents to

expire, unless terminated earlier within the terms of the agreement.

MesoCoat's exclusivity agreement with Mattson Technology, Inc.

Mattson Technology, Inc. (“Mattson”) is the developer and manufacturer of the Vortek™ high power

plasma arc lamps, and is a high energy plasma arc lamp developer. The principal provisions of an

exclusivity agreement dated April 7, 2011 between MesoCoat and Mattson Technology, Inc. are as

follows:

 Mattson has provided the exclusive right and license to MesoCoat to purchase and use the high

intensity Vortek lamp in MesoCoat’s products in the wear reducing and corrosion resistant

coatings, claddings and related surface treatments market.

 The exclusivity period runs to the end of 2017 and is conditional on an escalating minimum

number of 5 lamps being ordered on an annual basis starting in 2012, subject to certain

extensions.

 In return for these rights MesoCoat is obligated to pay Mattson a fee of $2 million in five equal

installments starting from the date of the successful performance of the first unit.

 Included in this agreement is a sliding scale price discount based upon the number of units to be

ordered each year.

MesoCoat’s exclusive patent license agreement with UT-Battelle LLC.

MesoCoat has obtained a two stage, exclusive license from UT-Battelle, LLC to utilize two patents in its

processes to develop products for wear and corrosion applications. The initial non-commercial exclusive

license was entered into on September 22, 2009, which enabled MesoCoat to conduct development work

to prove out the technology within the field of use. The second stage of the agreement comprises a

commercial exclusive license, executed on March 7, 2011, that permits MesoCoat to conduct commercial

sales utilizing the licensed process and technology. The license is valid through the expiration of the last

patent in 2024 and required that MesoCoat invest in additional research and development of the

technology and the market for products that stem from the technology by committing to a certain level of

personnel hours and $350,000 in expenditures. MesoCoat has met the aforesaid conditions of the license

agreement.

Stage I and II license fees of $50,000 have been paid against the agreement and a royalty of $15,000 or

2.5% of revenues generated in the United States that utilize the technology, minus allowable costs as

defined by contract, whichever is greater, are due March 31 on an annual basis beginning after the first

commercial sale. For the first calendar year after the achievement of a certain milestone and the following

two calendar years during the term of the agreement, MesoCoat is obligated to pay a minimum annual

royalty payment of $10,000, $15,000 and $20,000 respectively.

Cooperation agreement with Petroleo Brasileiro S.A

MesoCoat entered into a cooperation agreement dated January 7, 2011, with Petroleo Brasileiro S.A

(“Petrobras”) for the purpose of carrying out development work and conducting validation tests in

connection with applying the CermaClad™ process to coating the internal surfaces of pipes for use in the

oil and gas industry. The term of the cooperative agreement was initially for 18 months during which

time MesoCoat, with the assistance of Petrobras, carried out development work and a series of tests

divided into two phases with the prospect of a third phase. Phase I was designed to verify that the

CermaClad™ process and the resultant materials for compliance with industry standards and acceptability

for clad pipe use in order to modify the existing system for the internal coating of pipes. Phase II was

designed to develop a prototyping facility that could coat the inner surface of a 10 inch diameter pipe and

verify that the CermaClad™ process was suitable for application to line pipe in accordance with current

industry standards. The prospective third phase would be designed to finalize the design and construction

of a coating facility in Brazil with the capacity for producing cladding on the interior diameter of pipes

and tubes with section lengths of at least 12 meters.

The immediate objective of the cooperation agreement, subject to obtaining successful results, in each of

Phase I and II, is that the materials and processes tested result in American Petroleum Institute (API) and

Det Norte Veritas (DNV) approval for the CermaClad™ process. API and DNV approvals would,

assuming the completion of a suitable manufacturing facility as anticipated by the prospective third

phase, permit MesoCoat market entry into the oil and gas industry and cause full scale production

activities.

MesoCoat has successfully completing Phase I of the cooperation agreement by demonstrating that the

CermaClad™ process is capable of producing pipe products that meet API 5LD -Specifications for CRA

clad steel pipe on flat coupons. Phase II consist of the design and verification of a pipe ID cladding

system prototype, and to further verify the suitability of the CermaClad™ process and equipment for

producing alloy 625 CRA clad line pipe product and delivering designs for a future production facility.

Phase III of the cooperative agreement is to demonstrate commercial producability leading to production

orders for Petrobras products.

Phase II is close to being completed, including the design, production, and demonstration of a

miniaturized CermaClad™ fusing system that is able to operate inside an 8” diameter pipe that is

integrated into a pipe manipulation and coating control system. MesoCoat has verified parameters for

CRA material deposition and produced ID clad pipe coupons that meet industry requirements under API

5LD for alloy 625-metallurgically bonded clad pipe. The Phase II final report has been submitted and is

in review by Petrobras for final approval, whole work continues on an expanded scope which includes

addition of thermal modeling and imaging to enhance instrumentation and control of the pipe cladding

process prior to the delivery of clad pipe sections for qualification testing.

Additional cooperative efforts with Petrobras are envisioned including girth welding demonstration,

advanced quality control and inspection methods, added cladding alloy development, expanded testing

specific to pre-salt projects, and qualification of additional base metals (X70) as a means to reduce

product insertion risk and qualify MesoCoat as a supplier for additional Petrobras project needs, including

collaboration in the areas of quality assurance, secondary operations, process improvement, product

production and cost reduction.

The development team is being expanded to include a dedicated manufacturing engineering team during

the current Phase III manufacturing scale-up to include improved severe environment sensors, feedback

process control system development and further system modifications and upgrades focused on

maximizing product yields, performance and system productivity.

Powdermet

Powdermet’s Business

Powdermet was formed in 1996 and has since developed a product platform of advanced materials

solutions derived from nano-engineered particle agglomerate technology and derived hierarchically

structured materials. These advanced materials include energy absorbing ultra-lightweight syntactic- and

nano-composite metals in addition to the PComP™ nanocomposite cermets exclusively licensed to

MesoCoat. The business has historically financed itself through corporate engineering consulting fees,

government contracts and grants (over 90), and recently through partnerships with prime contractors and

systems integrators. Powdermet now expects to transition from an engineered nano-powder R&D

laboratory and toll powder manufacturer into a commercial sector company.

While MesoCoat’s product focus is on developing advanced cermets to address corrosion and wear

coating needs, Powdermet’s product differentiation is based on its ability to build advanced nano-

structured metal formulations to address energy efficiency, reduction in hazardous materials, and life

cycle cost reduction. Powdermet’s technologies are particularly useful in crash and ballistic energy

management markets since they offer weight reduction and the ability to dissipate substantially more

impact energy than the aluminum alloys and foamed metals currently available.

Powdermet has four materials solution families under development:

 SComP™ - A family of syntactic metal composites known for their light weight properties and

ability to absorb more impact energy than any other known material. SComP™ can provide

weight savings over aluminum and magnesium alloys without magnesium’s corrosion and wear

limitations, reducing structural weight by 10-30% in targeted aerospace, consumer electronics,

and transportation applications. One new patent applications was filed this quarter on low

density ,mill product and method of manufacture

 MComP™ - A family of hierarchically structured, rare earth free, nanocomposite metal and metal

matrix composites that provide higher strength and temperature capability compared to traditional

aluminium and magnesium allows. MComP™ is designed to be a market replacement for

beryllium, aluminum and magnesium in structural applications, without relying on scare and

expensive rare earths to produce high strength and thermal stability. Targeted applications include

aerospace and defense and transportation market segments, as well as electrical transmission and

distribution.

 EnComP™ - A diverse family of nano-engineered particle based solutions for energy

storage. Current developments include record setting energy density nanoparticle filled films for

capacitors, structured nanocomposite anode and cathode materials for thermal and lithium ion

batteries, and inflatable hydrogen storage media capable of energizing power fuel cells down to -

34C. A new patent application was filed related to environmentally-triggered reactive

composites, with applications to well perforation devices, reactive warheads, and dissolvable

frack balls for shale gas field completions for new product launches in the EnComP product

family

 SynFoam™ - A family of structural, thermally insulating syntactic ceramic composites

combining strength, high temperature functionality and low thermal conductivity into one

multifunctional material. Applications include rocket propulsion and re-entry vehicle systems,

and structural insulation for high temperature energy production and use including flowlines and

heat treatment furnaces. Two new patent applications were filed for high temperature structural

insulation, and for high temperature insulation for production flowlines to support new product

releases in the Synfoam Product line.

Powdermet’s two developmental products closest to commercialization are SynFoam™ and EnComP™.

Powdermet also produces custom-engineered powders and nanopowders, provides advanced materials

contract research and development services, and derives significant revenues from tolls and contract

development and manufacturing services. The company signed initial trial orders with Shell to further

develop its high temperature flowline insulation product, and a venture backed battery start-up to

transition its nanostructured anode production technology for advanced lithium ion batteries.

AMP Distributors Ltd./AMP Distributors, Inc.

AMP Distributors Ltd. (“AMP”) and AMP Distributors, Inc. (“AMP FL”) were formed by Abakan in

June of 2011 and July 27, 2012 respectively as a Cayman Island company and a Florida corporation for

the primary purpose of negotiating, executing and administrating international sales of MesoCoat's

products. AMP and AMP FL will also be tasked with acquiring equipment and coating materials for

Abakan’s international transactions. AMP has appointed a managing director with over 15 years of

experience in the offshore financial services industry and retained Kariola Limited, a consultancy

organization, to assist it with technical advice and entry into the Far East markets.

Plan of Operation

Abakan’s plan of operation for the coming year is to assist MesoCoat to succeed in commercialization

efforts focused on its CermaClad™ and PComP™ products. To achieve this success Abakan aims to:

 Complete investments in manufacturing scale-up and market entry for Cermaclad™ clad steel

products

 Establish overseas subsidiaries and plants while supporting their management teams.

 Gain market entry by creating awareness and establishing relationships with key reference

customers and clients

 Increase its investment in MesoCoat to a direct 75% interest.

 Target and qualify existing coating application companies as approved application partners to

apply powders produced by MesoCoat and Powdermet to grow market share in additional

geographic regions. These partners will also be evaluated as future acquisition candidates.

 Expand PComP production to multiple tons/month of nanocomposite powder shipments

 Initiate commercial coating services in Euclid, Ohio and add additional production cells

 Launch additional PComP nanocomposite coating variants (-MB, ZComP) in the metal finishing

and energy generation markets

 Assist MesoCoat in achieving the following objectives and milestones

o Becoming American Petroleum Institute (API) and DNV compliant for CermaClad™

corrosion and wear resistant alloys products through a cooperative agreement with

Petrobras and ongoing development work.

o Gaining approved vendor status through product qualification efforts with Petrobras and

at least 2 other major and national oil companies and supporting engineering firms

o Completing construction of its first clad pipe operating plant in Euclid, Ohio and

complete manufacturing scale-up to production, and obtain plant certification and

approval for bidding clad pipe jobs.

o Execute on our plan of geographic expansion by constructing CermaClad™ and

PComP™ operating plants in strategic market locations (Houston, Alberta, Brazil asia-

pacific and the Middle East).

o Expand Cermaclad horizontal markets by completing development and launching

Cermaclad wear products, heat exchanger/high temperature products, and low thickness

transportation and infrastructure products

o Continuing the formation of strategic partnerships and a pipeline of potential clients for

the CermaClad™ and PComP™ product lines.

Growth Strategy

Abakan intends to grow MesoCoat over the next five years by actively supporting their R&D, market

development, and commercialization efforts and by applying the expertise of its board of directors and

board of advisors to the expansion of operations on a global basis. Management will rely on both project

and investor financing to build new production facilities in emerging markets in a manner dedicated to

capturing market share and enhancing shareholder value.

The accomplishment of these objectives relies on either of two growth strategies. The first is a

conservative or “organic” strategy that requires an additional $16,000,000 in financing. The second

strategy is considered a moderate strategy which requires early market acceptance and an additional

$45,000,000 to $50,000,000 in financing (dependent on the level of cash flow achieved and the level of

project debt financing secured). On realizing sufficient financing and further market acceptance,

MesoCoat plans to launch between six and fifteen operating plants worldwide, up to 4 CRA plants, 3 WR

Plants, 1 CRA powder plant, 4 PComP plants and 1 PComP powder plant.

Our plan for strategic global positioning requires us to determine the location for any given

manufacturing plant based on the prospect of servicing multiple corporations over a range of industry

sectors. Accordingly, we have identified Brazil as our initial region of focus due to the significant impact

of oil and mining sectors in that country. West Africa is another part of the world that would benefit

significantly from the application of MesoCoat’s products since the oil industry in that part of the world is

plagued with corrosion and high pressure problems that are similar to those encountered in offshore

Brazilian oil fields. Locations in Asia offer additional opportunities for MesoCoat.

MesoCoat is currently negotiating an agreement with a turn-key development and construction company

for its first offshore manufacturing plant to be constructed in Brazil on a “build to suit” basis. The

agreement being negotiated includes architectural designs and permits, in addition to offering a leasing or

financing arrangement for the land and the building. Building and producing in Brazil will enable us to be

highly competitive in that market as any foreign producer of similar products will have to incur up to 56%

in import duties on their products along with freight costs. Abakan has held discussions with the

governing bodies of several Brazilian jurisdictions that have indicated an interest in attracting high

technology companies and offered the possibility of providing incentives such as grants and loan

guarantees.

Given the wide range of Abakan’s assumptions, the growth strategy depends largely upon the successful

execution of the product development, marketing plans and plant openings for CermaClad™ and

PComP™. Given our strategy of targeting strategic global regions with multiple potential clients with

multiple product lines, we believe that it is feasible for us to meet our expectations. Nonetheless, Abakan

will carefully monitor the risks associated with achieving the goals in each growth scenario to ensure that

MesoCoat can meet client expectations.

While Abakan explores each opportunity it is aware of the inherent risks that often come with operating

in offshore markets. Risks might include those associated with politics, currency or even the environment

about which we will seek advice from experienced professionals in each offshore jurisdiction. Further, we

expect that recent additions to our board of directors and our board of advisors will assist us in

successfully navigating these prospective pitfalls based on years of experience within the international

arena.

Operational Logistics

CermaClad™, PComP™ SComP™, MComP™ and ENComP™ are platform technologies with extensive

product potential in multiple large market verticals. Abakan and related operations should play a major

role in six distinct product segments of the value chain: raw materials/consumables, application

equipment, coating (cladding) services, casting, fabrication, and maintenance & repair of existing assets.

By playing a major role in these six segments of the value chain, Abakan and its partners may prove to be

an influential player in defining market prices and trends in the structural composites, steel plate, sheet,

bar, and tubular products industries. Our vision is to form partnerships, and set up captive or regional

facilities with the power players in the target industry. Most of these large manufacturers have project

management and installation capabilities besides fabrication, and thus partnerships with these companies

would help us build one-stop-shops for customers, where the customers define the

specifications/requirements and we, and our value chain partners would take care of the steel fabrication,

coating/cladding operations, casting, assembly integration, and inspection activities. We intend to partner

with a major suppliers or end users within geographic regions. Depending on the amount of financing

available, we are considering three approaches to this market:

 High Capital Intensity: Abakan will continue to self-finance and act as owner-operator.

 Medium Capital Intensity: Abakan intends to enter into joint venture partnerships, with it being

the operator at 51% ownership and the partner at 49% ownership.

 Low Capital Intensity: Abakan expects to enter into joint ventures with supply chain partners

which would act as operators and financiers with 51% ownership while it would act as the

technology supplier with 49% ownership. Within these arrangements we do not intend to be a

licensor but rather participate in the operations and service end of the businesses.

Additional Funding

MesoCoat will require additional funding over the next twelve months to fulfill its business plan. Not all

of the funding sought is currently available though MesoCoat expects to receive additional funding from

Abakan. Should MesoCoat be unable to secure additional financing from outside sources or Abakan,

MesoCoat will most likely be unable to meet its milestones and may need to scale back operations. Any

shortfall in minimum funding will adversely affect MesoCoat’s ability to expand or even continue

operations.

Results of Operations

During the six month period ended November 30, 2012:

 We continued its search to identify prospective business opportunities for merger or acquisition.



We focused our efforts on our interest on the continued development of MesoCoat products.



We completed equity financing in the amount of $1,506,180



We continued negotiations with prospective joint venture partners in regions, such as Russia, in

which we do not intend to operate on our own.



We continued negotiations with prospective joint venture partners in respect to technological

applications that we do not intend to develop on our own.



We added two independent directors to the board and adopted corporate governance charters.



We continued our due diligence in respect to determining a suitable site for an additional

MesoCoat manufacturing facility in Brazil.



Secured a $1 million low interest loan from the State of Ohio to partially fund equipment for the

new 11,000 sq. ft CermaClad™ clad piping manufacturing plant in Euclid, Ohio.

Revenues

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan realized revenues of

$4,335,934. Revenues for the three month period ended November 30, 2012 were $559,527 as compared

to $548,877 for the three month period ended November 30, 2011, an increase of 2%. Revenues for the

six month period ended November 30, 2012 were $1,394,910 as compared to $897,265 for the six month

period ended November 30, 2011, an increase of 55%. Revenues over the comparative periods can be

wholly attributed to the operations of MesoCoat. Revenue in the current six month period was derived

from commercial revenues of $70,081 as compared to $31,515 in the prior comparative period, contract

and grant revenues of $1,324,829 as compared to $689,768 in the prior comparative period, and other

income of none as compared to $175,982 in the prior comparative period. Other income in the respective

six month periods is primarily comprised of amounts paid by Petrobras under the terms and conditions of

the cooperation agreement that has been reclassified to commercial, contract and grant revenues for better

classification. As a result the current three month period reflects a negative amount for other revenue due

to the reclassification of these revenues.

We expect revenue to continue to increase over the next twelve months as MesoCoat’s commercial and

government sponsored contracts that commenced late last year are completed and new products under

development are brought on line for commercial sales.

Gross Profit

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan realized a gross profit of

$2,744,735. Gross profit for the three month period ended November 30, 2012 was $354,300 compared to

$327,930 for the three month period ended November 30, 2011, an increase of 8% . Gross profit for the

six month period ended November 30, 2012 was $852,909 compared to $506,234 for the six month

period ended November 30, 2011, an increase of 68%. Gross profits in the current three month periods

can be wholly attributed to the operations of MesoCoat.

We expect gross profits to continue to increase over the next twelve months as the business moves

towards the commercialization of its products.

Net Losses/Income

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan incurred net losses of

$9,302,201. Net losses for the three month period ended November 30, 2012 were $1,572,453 compared

to net loss of $1,162,390 for the three month period ended November 30, 2011. Net losses for the six

month period ended November 30, 2012 were $2,979,836 compared to a net loss of $512,521 for the six

month period ended November 30, 2011, an increase of 470%.

Net losses in the current three month period as compared to net losses in the prior three month period can

be primarily attributed to the increase in research and development expenses and costs associated with

consultants as Abakan continues to develop its products. The increase in losses for the six month period

when compared to the same period in the previous year is primarily attributed to a book entry gain of

$1,764,345 in the prior six month period that did not affect net losses relative to actual cash used due to

an unrecognized gain on the acquisition of MesoCoat. We do not expect to return to net income in the

near term as anticipated increases in revenue and gross profit are likely to be parried by increases in

operational expenses associated most significantly with increases in general and administrative expenses,

professional fees, payroll expenses, research and development costs and depreciation and amortization of

existing assets.

Despite management’s focus on ensuring operating efficiencies we do expect to continue to operate at a

loss through fiscal 2013.

Expenses

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan incurred operating

expenses of $13,383,654. Operating expenses for the three month period ended November 30, 2012 were

$1,699,627 as compared to $1,336,713 for the three month period ended November 30, 2011, an increase

of 23%. Operating expenses for the six month period ended November 30, 2012 was $3,481,845

compared to $2,526,058 the six month period ended November 30, 2011, an increase of 35%. The

increase in operating expenses over the comparative three and six month periods can be primarily

attributed to increases in research and development costs and amounts paid to consultants, which

expenses increased by a combined $181,290 and $480,210 for the three and six month periods

respectively. The increases were in part the result of adding an employee to the research and

development department and the utilization of consultants in product development and the identification

of potential locations for new facilities.

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.

Other Expense/Income

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan realized other income of

$1,053,212. Other expense for the three month ended November 30, 2012 was $436,188 as compared to

$223,581 for the three month period ended November 30, 2011, an increase of 95%. Other expense for

the six month period ended November 30, 2012 was $676,216 as compared to other income of

$1,383,437 for the six month period ended November 30, 2011. The primary reasons for the increase in

other expense in the current three month period over the comparative three month period were the growth

in interest expense as result of additional notes and the loss associated with our equity interest in

Powdermet. The transition to other expense in the current six month period over other income in the prior

six month period can be primarily attributed to a book entry gain of $1,764,345 in the prior comparative

six month period that did not affect other income relative to actual cash used in that period due to an

unrecognized gain on the acquisition of MesoCoat.

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

debt and the anticipated increase in the amortization of discount on debt over the next twelve months.

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.

Impact of Inflation

Abakan believes that inflation has not had a material effect on operations for the period from June 27,

2006 (inception) to November 30, 2012.

Capital Expenditures

Abakan has spent significant amounts on capital expenditures for the period from June 27, 2006

(inception) to November 30, 2012 which amounted to $2,321,016. A large portion of these expenditures

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

Ohio.

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.

As of November 30, 2012 Abakan had current assets of $930,106 consisting of cash and cash equivalents

of $715,591, accounts receivable of $85,912, a note receivable from a related party of $4,500, and prepaid

expenses of $124,103. Abakan had total assets of $16,035,642 consisting of current assets, property, plant

and equipment of $4,187,569, patents and licenses of $7,672,228, an assignment agreement of $230,267,

an investment in Powdermet of $2,651,088, and goodwill of $364,384.

As of November 30, 2012 Abakan had current liabilities of $4,275,680, consisting of accounts payable of

$643,750, accounts payable to related parties of $190,867, capital leases of $36,595, loans payable of

$2,678,132, accrued interest of $329,331, loan payable to related parties of $30,000, accrued interest to

related party of $773 and accrued liabilities of $366,232. Abakan had total liabilities of $6,427,933

consisting of current liabilities, loans payable of $2,091,696 and capital leases of $60,557.

Abakan had stockholders’ equity of $9,607,709 and a working capital deficit of $3,345,574 at November

30, 2012.

For the period from June 27, 2006 (inception) to November 30, 2012, Abakan’s net cash used in

development stage activities was $3,852,648. Net cash used in development stage activities for the six

month period ended November 30, 2012 was $893,513 as compared to $408,837 for the six month period

ended November 30, 2011. Net cash used in development stage activities in the current six month period

can be attributed primarily to a number of items that are book expense items which do not affect the total

amount relative to actual cash used including depreciation, amortization of discount on debt, stock issued

for services and stock option expense offset by equity in investee profit. Actual cash items used, that are

not income statement related items, include accrued liabilities, accounts payable, accrued interest on loans

payable, and prepaid expenses offset by changes in accounts receivable.

We expect to continue to generate negative cash flow in operating activities until such time as net losses

transition to net income.

For the period from June 27, 2006 (inception) until November 30, 2012, Abakan’s net cash used in

investing activities was $7,041,988. Net cash used in investing activities for the six months ended

November 30, 2012, was $1,236,593 as compared to net cash used in investing activities of $345,603 for

the six month period ended November 30, 2011. 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.

For the period from June 27, 2006 (inception) until August 31, 2012, Abakan’s net cash provided by

financing activities was $11,610,227. Net cash provided by financing activities for the six months ended

November 30, 2012 was $1,986,131 as compared to $1,187,733 the six months ended November 30,

2011. Net cash provided by financing activities in the current period is attributable to proceeds from the

sale of common stock and loans payable, including related party loans, offset by payments on loans

payable, including those to related parties, 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 pursuant to which Abakan had raised

$1,506,180, during the six month period ended November 30, 2012. Nevertheless, additional capital will

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, 2012,

though we continue to pursue a number of prospective sources that include industry or strategic partners,

sale of additional equity, the sale of additional equity, the procurement of long term debt, shareholder

loans or the settlement of additional debt for equity. We face certain financial obstacles to attracting new

financing due to our historical record of net losses and working capital deficits. Therefore, despite our

efforts we can provide no assurance that Abakan will be able to obtain the financing required to meet its

stated objectives or even to continue as a going concern.

Abakan does not expect to pay cash dividends in the foreseeable future.

Abakan has a defined stock option plan titled “The Abakan Inc., 2009 Stock Option Plan” and contractual

commitments with all of its officers and directors.

Abakan has plans for the significant purchase or sale of any plant or equipment in connection with the

completion of the manufacturing facility under construction in Euclid, Ohio. MesoCoat has obtained

verbal commitments for future capital expenditures from Abakan and Powdermet to fund any shortfalls

(including plant and equipment) in the construction of the Euclid facility should it not be able to raise

funds in the normal course of business. Further, MesoCoat has secured a $1,000,000 loan from the Ohio

Third Frontier program that can be drawn down at any time in connection with the new manufacturing

facility. MesoCoat had drawn down $900,543 in connection with the loan as of November 30, 2012.

Abakan intends to increase the number of employees engaged by MesoCoat on completion of the new

Euclid, Ohio manufacturing facility.

Off Balance Sheet Arrangements

As of November30, 2012, 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 as to its ability to continue as a going concern as a result of

net losses of $9,302,201 and a working capital deficit of $3,345,574 as of November 30, 2012. 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) net income from operations; (iii) realizing a gain from its

investment in Powdermet; (iv) converting debt to equity; and (v) 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

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 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.

Critical Accounting Policies

The notes to the audited financial statements for Abakan for the years ended May 31, 2012 and 2011,

included in Abakan's Form 10-K filed with the Commission, discusses those accounting policies that are

considered to be significant in determining the results of operations and financial position. Our

management believes that their accounting principles conform to accounting principles generally (GAAP)

accepted in the United States of America.

The preparation of financial statements in conformity with GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the year. The more significant areas requiring the use of estimates include

asset impairment, stock-based compensation, beneficial conversion features on debt instruments, and

future income tax amounts. Management bases its estimates on historical experience and on other

assumptions considered to be reasonable under the circumstances. Actual results may differ from the

estimates.

Stock-Based Compensation

We have adopted Accounting Standards Codification Topic (“ASC”) 718, Share-Based Payment, which

addresses the accounting for stock-based payment transactions in which an enterprise receives employee

services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair

value of the enterprise’s equity instruments or that may be settled by the issuance of such equity

instruments.

Recent Accounting Pronouncements

We have examined all recent accounting pronouncements and believe that none of them will have a

material impact on our financial statements.

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 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 November 30, 2012. 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 Abakan’s prior reporting period on Form 10-K, Abakan adopted an audit committee

charter, formed an audit committee comprised of independent members of its board of directors, and

involved said audit committee in overseeing the completion of this periodic report on Form 10-Q, thereby

effecting a change in internal control over financial reporting (as defined in Rule 13a-15(f) of the

Exchange Act) during the period ended November 30, 2012, that materially affected, or is reasonably

likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Abakan and Stratton S.A. (“Stratton”) initiated legal proceedings against First Canadian Capital Corp.

(“First Canadian”) on December 10, 2012, in the Circuit Court of the 6^th Judicial Circuit In and For

Pinellas County, Florida. The claim is based on First Canadian’s alleged failure to perform according to

the terms of a consulting agreement dated December 1, 2011, pursuant to which First Canadian was to

provide services aimed at raising investor awareness, attracting investment and identifying prospective

financial parties in exchange for a monthly cash fee and Abakan shares. Abakan seeks the return of the

56,000 shares proffered or in the alternative for a judgment in an amount to be ascertained in excess of

$1,000,000 for the fair market value of the shares. Abakan believes that it will be successful in the pursuit

of its claims.

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 proffered

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. Abakan believes that is 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 incurred net losses of $9,302,201 for the period from June 27, 2006 (inception) to November 30,

2012. 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, 2012 and 2011 expressed an opinion as to its ability to

continue as a going concern as a result of net losses of $6,322,365 and a working capital deficit of

$2,438,854 as of May 31, 2012 which had increased to $9,302,201 and $3,345,574 respectively as of

November 30, 2012. Unless Abakan is able to produce net revenue over successive future periods its

ability to continue as a going concern will be in jeopardy.

Abakan’s success is dependent on its ability to assist MesoCoat and Powdermet 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 assist MesoCoat and Powdermet in the

commercial application of proprietary technologies to produce sufficient revenue to sustain and expand

operations. The same successful efforts criteria will be required for any additional targets that are

acquired by Abakan. 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 and deter

the prospect of additional acquisitions. Should we be unable to improve our financial condition through

debt or equity offerings, our ability to successfully advance our 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.

MesoCoat and Powdermet compete with larger and better financed corporations.

Competition within the industrial coatings industry and other high technology industries is intense. While

each of MesoCoat and Powdermet’s products are distinguished by next-generation innovations that are

more sophisticated and cost effective than many competitive products currently in the market place, a

number of entities and new competitors may enter the market in the future. Some of MesoCoat’s and

Powdermet’s existing and potential competitors have longer operating histories, greater name recognition,

larger customer bases and significantly greater financial, technical and marketing resources than we do,

including well known multi-national corporations. Accordingly, MesoCoat’s and Powdermet’s products

could become obsolete at any time. Competitors could develop products similar to or better than our own,

finish development of new technologies in advance of either MesoCoat’s or Powdermet’s research and

development, or be more successful at marketing new products, any of which factors may hurt our

prospects for success.

Market acceptance of the products and processes produced by MesoCoat and Powdermet is critical to our

growth.

We expect to generate revenue and realize a gain on our interest in Powdermet from the development and

sale of products and processes produced by MesoCoat and Powdermet. Market acceptance of those

products is therefore critical to our growth. If our customers do not accept or purchase those products or

processes produced by MesoCoat and Powdermet, then our revenue, cash flow and operating results will

be negatively impacted.

General economic conditions will affect our operations.

Changes in the general domestic and international climate may adversely affect the financial performance

of Abakan, MesoCoat and Powdermet. Factors that may contribute to a change in the general economic

climate include industrial disputes, interest rates, inflation, international currency fluctuations and

political and social reform. Further, the delayed revival of the global economy is not conducive to rapid

growth, particularly of technology companies with newly commercialized products.

MesoCoat and Powdermet rely upon patents and other intellectual property.

MesoCoat and Powdermet rely on a combination of patent applications, trade secrets, trademarks,

copyrights and licenses, together with non-disclosure and confidentiality agreements, to establish and

protect proprietary rights to technologies they develop. Should either of MesoCoat or Powdermet be

unable to adequately protect their intellectual property rights or become subject to a claim of

infringement, their businesses and that of Abakan may be materially adversely affected.

MesoCoat and Powdermet expect to prepare patent applications in accordance with their respective

worldwide intellectual property strategies on acquiring new technologies. However, neither they nor

Abakan can be certain that any patents will be issued with respect to future patents pending or future

patent applications. Further, neither they nor Abakan know whether any future patents will be upheld as

valid, proven enforceable against alleged infringers or be effective in preventing the development of

competitive patents. Abakan believes that MesoCoat and Powdermet have each implemented a

sophisticated internal intellectual property management system to promote effective identification and

protection of their products and know-how in connection with the technologies they have developed and

may develop in the future

We may not be able to effectively manage our growth.

We expect considerable future growth in our business. Such growth will come from the addition of new

plants, the increase in global personnel, and the commercialization of new products. Additionally, our

products should have an impact on the cladding industry; as companies learn that they can receive

materials with a short lead time at a higher quality and lower price, market demand should grow,

expanding the overall market itself. To achieve growth in an efficient and timely manner, we will have to

maintain strict controls over our internal management, technical, accounting, marketing, and research and

development departments. We believe that we have retained sufficient quality personnel to manage our

anticipated future growth though we are still striving to improve financial accounting oversight to ensure

that adequate reporting and control systems in place. Should we be unable to successfully manage our

anticipated future growth by adherence to these strictures, costs may increase, growth could be impaired

and our ability to keep pace with technological advances may be impaired which failures could result in a

loss of future customers.

Environmental laws and other governmental legislation may affect our business.

Should the technologies which each of MesoCoat and Powdermet have under development not comply

with applicable environmental laws then Abakan’s business and financial results could be seriously

harmed. Furthermore, changes in legislation and governmental policy could also negatively impact us.

Although we are currently unaware of any introduced or proposed bills, or policy, that might cause us to

make specific changes to our operations, no assurance can be given that if new legislation is passed we

will be able to make the changes to comport our technologies with future regulatory requirements.

Abakan and those subsidiaries in which it holds an interest may face liability claims on future products.

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.

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 the Abakan’s securities are subject to the penny stock rules, investors will find it

more difficult to dispose of our securities.

The elimination of monetary liability against Abakan’s directors, officers and employees under Nevada

law and the existence of indemnification rights to our directors, officers and employees may result in

substantial expenditures by Abakan and may discourage lawsuits against our directors, officers and

employees.

Abakan’s certificate of incorporation contains a specific provision that eliminates the liability of directors

for monetary damages to us and our stockholders; further, Abakan is prepared to give such

indemnification to its directors and officers to the extent provided by Nevada law. Abakan may also have

contractual indemnification obligations under its employment agreements with its executive officers. The

foregoing indemnification obligations could result in our incurring substantial expenditures to cover the

cost of settlement or damage awards against directors and officers, which Abakan may be unable to

recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against

directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of

derivative litigation by our stockholders against 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

On January 8, 2013, Abakan authorized the issuance of 435,022 shares of restricted common shares and

435,022 share purchase warrants, two warrants are convertible into one additional share at an exercise

price of $2.70 for a two year period from the date of issue to the following entities for cash, in reliance

upon the exemption from registration provided by Section 4(2), Regulation D or Regulation S of the

Securities Act:

Name

Consideration

Basis

Shares

Warrant

Exemption

Enrique Sanz De

Santamaria

$ 50,600

Cash

22,000

11,000 Sec 4(2)/Reg D

Jose Maria Ribot

Rodriguez

$ 149,500

Cash

65,000

32,500 Sec 4(2)/Reg S

Jose Maria Robot

Barroso

$ 129,950

Cash

56,500

28,250 Sec 4(2)/Reg S

Maria Eugenia Barroso

Rivera

$ 103,500

Cash

45,000

22,500 Sec 4(2)/Reg S

Darrell L. Payne

$ 230,000

Cash

100,000

50,000

Sec 4(2)/Reg D

Pierre Arbour

$ 57,500

Cash

25,000

12,500 Sec 4(2)/Reg D

Jose Vicente Estevez

Alverde

$ 103,500

Cash

45,000

22,500 Sec 4(2)/Reg S

River Fish Holdings

$ 176,000

Cash

76,522

38,261 Sec 4(2) Reg S

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

Abakan complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any

general solicitation or advertising to market the securities; (ii) offering only to an accredited offeree; (iii)

having not violated antifraud prohibitions with the information provided to the offeree; (iv) being

available to answer questions by the offeree; and (v) providing restricted common shares and warrants to

the offeree.

Abakan complied with the requirements of Regulation S of the Securities Act by having directed no

offering efforts in the United States, by offering common shares and warrants only to offerees who were

outside of the United States at the time of the offering, and ensuring that the offerees to whom the

securities were offered and authorized were non-U.S. offerees with addresses in foreign countries.

On January 8, 2013, Abakan authorized the issuance of 21,429 restricted common shares for services

rendered pursuant to a consulting agreement valued at $2.80 a share to the Red Chip Companies Inc. in

reliance upon the exemption from registration provided by Section 4(2) of Securities Act.

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

On December 5, 2012, Abakan authorized the grant of 175,000 stock options with an exercise price of

$2.61 per share that expire ten years from the date of grant with 25,000 vesting on grant and the

remaining vesting in equal one-third increments annually beginning on December 5, 2013 to Raymond

Tellini for independent director services rendered, 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 an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

On December 5, 2012, Abakan authorized the grant of 125,000 stock options with an exercise price of

$2.61 per share that expire ten years from the date of grant vesting in equal one-third parts annually

beginning on December 9, 2013 to David Charbonneau for employee servicesrendered, 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 an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

On November 29, 2012, Abakan authorized the issuance of 245,058 shares of restricted common shares

and 245,058 share purchase warrants, two warrants are convertible into one additional share at an exercise

price of $2.70 for a two year period from the date of issue to the following entities for cash, payment of

note payable, interest, and accounts payable, in reliance upon the exemptions from registration provided

by Section 4(2), Regulation D or Regulation S of the Securities Act:

Name

Consideration Basis

Shares

Warrant Exemption

River Fish Holdings

$ 161,000

Note & interest

70,000

70,000 Sec 4(2)/Reg S

Orsa &Company

$ 23,000

Accounts Payable

10,000

10,000 Sec 4(2)/Reg D

Costas M. Takkas

$ 23,000

Accounts Payable

10,000

10,000 Sec 4(2)/Reg D

Steven Ferris

$ 57,500

Cash

25,000

25,000 Sec 4(2)/Reg D

Bank Gutenberg AG

$ 7,033

Interest

3,058

3,000 Sec 4(2)/Reg S

Kenneth Iriart

$ 16,100

Cash

7,000

7,000 Sec 4(2)/Reg D

Ammon & Associates $ 230,000

Cash

100,000 100,000 Sec 4(2)/Reg D

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

Abakan complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any

general solicitation or advertising to market the securities; (ii) offering only to an accredited offeree; (iii)

having not violated antifraud prohibitions with the information provided to the offeree; (iv) being

available to answer questions by the offeree; and (v) providing restricted common shares and warrants to

the offeree.

Abakan complied with the requirements of Regulation S of the Securities Act by having directed no

offering efforts in the United States, by offering common shares and warrants only to offerees who were

outside of the United States at the time of the offering, and ensuring that the offerees to whom the

securities were offered and authorized were non-U.S. offerees with addresses inforeign countries.

On November 29, 2012 Abakan authorized the issuance of 20,000 restricted common shares for services

rendered pursuant to a consulting agreement valued at $1.70 a share to Financial Insights in reliance upon

the exemption from registration provided by Section 4(2) of Securities Act.

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

On September 28, 2012, Abakan authorized the issuance of 150,000 restricted common shares and

150,000 share purchase warrants, two warrant convertible into an additional share at an exercise price of

$2.00 for a two year period from the date of issue, for $262,500 or $1.75 a share to Ammon & Associates,

Inc. in reliance upon the exemptions from registration provided by Section 4(2) and Regulation D of the

Securities Act of 1933, as amended (“Securities Act”).

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

Abakan complied with the requirements of Regulation D of the Securities Act by: (i) foregoing any

general solicitation or advertising to market the securities; (ii) offering only to an accredited offeree; (iii)

having not violated antifraud prohibitions with the information provided to the offeree; (iv) being

available to answer questions by the offeree; and (v) providing restricted common shares and warrants to

the offeree.

On September 18, 2012, Abakan authorized the issuance of 25,000 restricted common shares for

services rendered pursuant to a consulting agreement valued at $1.71 a share to Red Chip Companies, Inc.

in reliance upon the exemption from registration provided by Section 4(2) of Securities Act.

Abakan complied with the exemption requirements of Section 4(2) of the Securities Act based on the

following factors: (1) the issuance was an isolated private transactions by Abakan which did not involve a

public offering; (2) the offeree had access to the kind of information which registration would disclose;

and (3) the offeree is financially sophisticated.

ITEM 3.

DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

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

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

SIGNATURES

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

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

Abakan Inc.

Date

/s/ Robert H. Miller

January 11, 2013

By: Robert H. Miller

Its: Chief Executive Officer, and Director

/s/ David G. Charbonneau

January 11, 2013

By: David G. Charbonneau

Its: Chief Financial Officer and Principal Accounting Officer

INDEX TO EXHIBITS

Exhibit No.

Exhibit Description

3.1*

Articles of Incorporation and Certificate of Amendment, incorporated hereto by reference to

the Form SB-2, filed with the Commission on June 19, 2007.

3.2*

Bylaws, incorporated hereto by reference to the Form SB-2, filed with the Commission on

June 19, 2007.

10.1*

Lease Agreement between Powdermet and Sherman Properties, LLC dated March 7, 2007,

incorporated hereto by reference to the Form 10-K filed with the Commission on September

13, 2011.

10.2*

License agreement between MesoCoat and Powdermet dated July 22, 2008, incorporated

hereto by reference to the Form 10-K/A-2 filed with the Commission on December 27, 2011.

10.3*

Exclusive license between MesoCoat and UT-Battelle, LLC, dated September 22, 2009,

incorporated hereto by reference to the Form 10-K/A-2 filed with the Commission on

December 27, 2011.

10.4*

Articles of Merger dated November 9, 2009, incorporated hereto by reference to the Form 8-

K filed with the Commission on December 9, 2009.

10.5*

Agreement and Plan of Merger dated November 9, 2009, incorporated hereto by reference to

the Form 8-K filed with the Commission on December 9, 2009.

10.5*

Consulting agreement dated December 1, 2009, between Abakan and Mr. Greenbaum,

incorporated hereto by reference to the Form 8-K filed with the Commission on May 28,

2010.

10.7*

Employment agreement dated December 1, 2009, between MesoCoat and Andrew Sherman,

incorporated hereto by reference to the Form 10-K filed with the Commission on September

13, 2011.

10.8*

Consulting agreement date December 1, 2009 between Abakan and Prosper Financial Inc.,

incorporated hereto by reference to the Form 10-K filed with the Commission on September

13, 2011.

10.9*

Consulting agreement dated December 8, 2009 between Abakan and Robert Miller,

incorporated hereto by reference to the Form 10-K filed with the Commission on September

13, 2011.

10.10*

Investment Agreement dated December 9, 2009, between Abakan, MesoCoat and

Powdermet, incorporated hereto by reference to the Form 8-K filed with the Commission on

December 17, 2009.

10.11*

Agreement date March 17, 2010 between Abakan and Sonnen Corporation, incorporated

hereto by reference to the Form 10-K filed with the Commission on September 13, 2011.

10.12*

Agreement dated April 30, 2010 between Abakan and Mr. Buschor, incorporated hereto by

reference to the Form 8-K filed with the Commission on May 11, 2010.

10.13*

Commercial lease agreement date June 1, 2010, between Powdermet and MesoCoat,

incorporated hereto by reference to the Form 10-K filed with the Commission on September

13, 2011.

10.14*

Stock Purchase Agreement dated June 29, 2010 between Abakan and Kennametal,

incorporated hereto by reference to the Form 8-K filed with the Commission on September

15, 2010.

10.15*

Employment agreement dated August 20, 2010, between Abakan and Mr. Takkas,

incorporated hereto by reference to the Form 8-K filed with the Commission on August 26,

2010.

10.16*

Amendment No. 1 to Stock Purchase Agreement between Abakan and Kennametal dated

September 7, 2010, incorporated hereto by reference to the Form 8-K filed with the

Commission on September 15, 2010.

10.17*

Amendment to the Investment Agreement dated December 8, 2010, between Abakan,

MesoCoat and Powdermet, incorporated hereto by reference to the Form 10-Q filed with the

Commission on January 19, 2011.

10.18*

Cooperation Agreement between MesoCoat and Petroleo Brasileiro S.A. dated January 11,

2011, incorporated by reference to the Form 8-K/A-3 filed with the Commission on March 6,

2012. (Portions of this exhibit have been omitted pursuant to a request for confidential

treatment.)

10.19*

Amendment No. 2 to Stock Purchase Agreement between Abakan and Kennametal dated

January 19, 2011, incorporated hereto by reference to the Form 8-K filed with the

Commission on July 13, 2011.

10.20*

Accord and Satisfaction Agreement dated March 21, 2011 between Abakan and Kennametal,

Inc., incorporated hereto by reference to the Form 8-K filed with the Commission on March

25, 2011.

10.21*

Assignment Agreement dated March 25, 2011 with Polythermics LLC and MesoCoat,

incorporated hereto by reference to the Form 10-Q/A filed with the Commission on

September 27, 2011.

10.22*

Exclusivity Agreement between MesoCoat and Mattson Technology, Inc. dated April 7,

2011, incorporated hereto by reference to the Form 8-K/A-3 filed with the Commission on

March 6, 2012. (Portions of this exhibit have been omitted pursuant to a request for

confidential treatment.)

10.23

Third Amendment to the Investment Agreement between Abakan, MesoCoat and Powdermet

dated December 21, 2012.

Code of Business Conduct & Ethics adopted on December 10, 2012.

21*

Subsidiaries of Abakan incorporated hereto by reference to the Form 10-K filed with the

Commission on September 13, 2012.

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act as

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attached.

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act as

adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, attached.

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached.

99*

Powdermet audited financial statements for the period ended May 31, 2012 incorporated

hereto by reference to the Form 10-K filed with the Commission on September 13, 2012.

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.