UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
one)





x
            Annual
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the fiscal year ended December 31, 2009,
  or





o
            Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the transition period from
              ______________
      to _____________.





Commission
File No. 333-121660





nCoat,
Inc.


(Exact
name of registrant as specified in its charter)








Delaware
            3470
            98-0375406(State
      or jurisdiction of
              incorporation
      or organization)
            (Primary
      Standard Industrial
              Classification
      Code Number)
            (I.R.S.
      Employer
              Identification
      No.)





7237 Pace
Drive


P.O. Box
38


Whitsett,
NC 27377


(336)
447-2000


(Address
and telephone number of principal executive offices)





7237 Pace
Drive


P.O. Box
38


Whitsett,
NC 27377


(336)
447-2000


(Address
of principal place of business or intended


and
principal place of business)





Paul S
Clayson


7237 Pace
Drive


P.O. Box
38


Whitsett,
NC 27377


(336)
447-2000


(Name,
Address and telephone number of agent for service)





Securities
registered pursuant to Section 12(b) of the
Act:              None


Securities
registered pursuant to Section 12(g) of the
Act:              None





Indicate
by check mark if the registrant is a well-know seasoned issuer, as defined in
Rule 405 of the Securities Act


Yes o No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d)


Required
x Not Required
o








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 xNo o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 19, 2010 was approximately $348,204 calculated using a
closing price of $.0028 per share on March 19, 2010.  For purposes of
this calculation, the registrant has included only the number of shares directly
held by its officers and directors as of (and not counting shares beneficially
owned on that date), in determining the shares held by
non-affiliates.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company,”
in Rule 12b-2 of the Exchange Act.  (Check one.)





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o (Do not check if
      a smaller reporting company)
            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 x.





As of
March 19, 2010, there were issued and outstanding 126,710,605 shares of our
common stock.








nCoat,
      Inc.2009
      FORM 10-K ANNUAL REPORTTABLE
      OF CONTENTSPart
      IPageItem
      1.
            
            Business
            3Item
      1A.
            
            Risk
      Factors
            9Item
      2.
            
            Properties
            19Item
      3.
            
            Legal
      Proceedings
            20Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            20Part
      IIItem
      5.
            
            Market
      for Registrant's Common Equity, Related Stockholder Matters and
      Issuer Purchases
      of Equity Securities
            20Item
      6.
            
            Selected
      Financial Data
            22Item
      7.
            
            Management's
      Discussion and Analysis of Financial Condition and Results
      of Operations
            25Item
      8.
            
            Financial
      Statements and Supplementary Data
            28Item
      9.
            
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            29Item
      9A.
            
            Controls
      and Procedures
            29Item
      9B.
            
            Other
      Information
            29Part
      IIIItem
      10.
            
            Directors,
      Executive Officers and Corporate Governance
            30Item
      11.
            
            Executive
      Compensation
            32Item
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            35Item
      13.
            
            Certain
      Relationships and Related Transactions, and Director
      Independence
            36Item
      14.
            
            Principal
      Accountant Fees and Services
            37Part
      IVItem
      15.
            
            Supplementary
      Magagement's Discussion
            38Item
      16.
            
            Exhibits
      and Financial Statement Schedules
            47





2





THE FINANCIAL STATEMENTS INCLUDED
HEREIN ARE NOT AUDITED. NCOAT HAS NOT ACCUMULATED ENOUGH CASH TO PAY THE AUDIT
FEE TO COMPLETE THE AUDIT OF ITS ANNUAL AND QUARTERLY FINANCIAL STATEMENTS FROM
OCTOBER 2008 UP TO AND INCLUDING THIS 2009 FORM 10K PRIOR TO SUBMISSION OF THE
REPORTS. FOLLOWING PAYMENT OF THE AUDIT FEE, NCOAT AUDITORS WILL COMPLETE THE
AUDIT AND NCOAT WILL FILE AN AMENDED REPORTS FOR ALL FORM 10K AND FORM 10QSB
REPORTS THAT HAVE NOT BEEN PREVIOUS AUDITED.




PART
I





ITEM
1.                              
BUSINESS





THIS
ANNUAL REPORT ON FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES.  OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED BY nCOAT AND DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS.  FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES ARE DISCUSSED BELOW IN THE SECTION “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” IN THE SECTION
ENTITLED “FORWARD-LOOKING STATEMENTS,” AND ELSEWHERE IN THIS ANNUAL
REPORT.  WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE
ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE.  THE FOLLOWING DISCUSSION SHOULD BE READ
TOGETHER WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED
ELSEWHERE IN THIS DOCUMENT.





nCoat
History





Overview





nCoat,
Inc., was incorporated as Tylerstone Ventures Corporation under the laws of the
state of Delaware on September 24, 1998, with authorized common stock of
25,000,000 shares at a par value of $.001. Tylerstone was formed to develop a
commercially profitable mining claim, described in the appropriate periodic
reports filed by the Company with the United States Securities and Exchange
Commission (the “SEC or “Commission”).





In the
fall of 2006, the Tylerstone management began discussions with the management
of nCoat, Inc.  These discussions and eventual negotiations
considered the possible mutual interest between the parties for possible
economic business opportunities because by becoming a wholly owned subsidiary of
Tylerstone, our shareholders could get greater liquidity because Tylerstone’s
common stock was publicly traded on the OTC Bulletin Board and Tylerstone would
gain an operating subsidiary.





On
February 3, 2007, Tylerstone entered into a Share Exchange Agreement (the
“Agreement”) with nCoat Auto (formerly known as nCoat, Inc.) for the purpose of
acquiring all of the issued and outstanding shares of common stock of nCoat
Auto, par value $0.001 per share (“nCoat Auto Common Stock”), in exchange for
new shares of  Tylerstone’s common stock, par value $0.0001 per share
(“Company Common Stock”).





On
February 14, 2007, the parties to the Agreement completed the final steps of
that Agreement (the “Closing”) as contemplated by the Agreement. Pursuant to the
terms of the Agreement, the Company acquired 11,554,545 shares of nCoat Auto’s
Common Stock from all shareholders of nCoat Auto which represented 100.0% of the
issued and outstanding shares of nCoat Auto’s Common Stock, in exchange for
2,542,000 pre-split shares of the Company’s Common Stock, which
represented 57.75% of the issued and outstanding shares of Company Common
Stock.  As a part of the Agreement, our existing shareholders returned
750,000 outstanding pre-split shares of Company Common Stock for no
consideration which shares were canceled.  Within a few days of the
formal closing, our forward 20:1 split of the Common Stock was recognized
by NASDAQ.





In
connection with the Closing, Tylerstone changed its name to nCoat, Inc. As used
in this Report, the terms, “nCoat,” “Company,” and “Registrant” means nCoat,
Inc., and its subsidiaries, taken as a whole, unless the context indicates
otherwise. The historical financial information contained herein, prior to the
Closing refers to the historical financial information of the nCoat
Auto.





Background
and History of nCoat Auto and its Operating Subsidiaries and
Affiliates





Following
the Closing, we changed our operations to those of nCoat Auto’s. As such, the
discussions of our business in this Report include the new business focus as
described below. Although we still hold title to the mineral claim in which, we
have suspended our previous business activities and have determined that it is
in our best interest to give up all rights to the mining
claims.


3





nCoat is
a technology development and business holding company. Through our subsidiaries,
we develop, manufacture, distribute and service specialty nanotechnology
coatings as well as traditional surface coatings, designed to provide heat
management, corrosion resistance, friction reduction, abrasion protection,
porosity reduction, enhanced appearance, and bond strength.  Using
nano-scale particles combined with proprietary binding technology, chemistry,
and processes, we have developed surface treatment materials and processes that
are used in a range of industries, including automotive, diesel engine,
trucking, recreational vehicle, motorcycle, aerospace, and oil and gas
industries.





As an
integral part of our strategic plan, nCoat has acquired respected,
customer-rich, coatings application companies in the fragmented high performance
coatings industry and providing capital and nanotechnology-based product
innovation to foster their growth. We then introduced our nano-coatings to the
acquired company’s enterprise customers as the next generation of coatings
technology. This acquisition process began in September 2005 with the
acquisition of High Performance Coatings, Inc. (“HPC”) and continues with the
acquisition of Metallic Ceramic Coatings, Inc. (“MCCI”), which has been doing
business under the brand name of Jet-Hot®, in June 2007.





We are
headquartered in Whitsett, North Carolina which includes our newest and largest
production and mixing and blending plant which opened in October,
2006.  In addition to the North Carolina headquarters, HPC and MCCI
currently operate additional production plants in Oklahoma City, Oklahoma;
Tempe, Arizona;. nCoat also owns a third operating entity
named  nTech, Inc. (“nTech”) which was formed to develop and hold
proprietary intellectual property and to focus on executing our distributed
production and licensing strategy. After acquisition of HPC and MCCI, nCoat
operated ten manufacturing, administrative and mixing and blending facilities
acquired in the transactions. The three current operating
facilities  remain after operating plants in Arizona, Mississippi Utah
and Pennsylvania were closed and business and equipment were consolidated to the
other plants to cut costs, increase operating efficiencies and reduce
administrative oversight.





In
preparation for anticipated growth through acquisitions and internal growth of
existing operating entities, we incurred one-time expenses and capital
expenditures in 2006 by adding facilities, personnel, systems and processes to
support business growth and acquisition activities. In 2007 and 2008, following
the transition and integration of our acquisition of MCCI, we began
consolidation of administrative offices and satellite mixing and blending
facilities to our North Carolina headquarters. In 2008, we closed the additional
operating plants discussed above and closed the administrative offices and
headquarters of MCCI in Pennsylvania and mixing and blending facilities in
Pennsylvania and the HPC mixing and blending plant in Utah. In November 2009, we
ceased operations at an application plant in Pennsylvania pending expiration of
the lease in January, 2010. The Pennsylvania plant was vacated on January 31,
2010.





In
September 2005, we acquired HPC, a 23-year old Oklahoma company that has
specialized in thermal barrier, corrosion resistant, lubritic and appearance
high performance coatings for the motor sports and other industries. Building on
these race car roots, we have expanded HPC's customer markets specialized
engines and exhaust systems for automotive aftermarket customers, to include
corporate accounts of manufacturers of commercial trucks, recreational vehicles,
defense applications, motorcycles, aerospace components, aviation parts, oil and
gas industry suppliers, energy producers and other sophisticated users, while
continuing to provide coatings and services to the after-market
customer.  HPC offers highly competitive thermal, corrosion, abrasion,
and porosity management coatings. HPC is a recognized brand in performance
coatings for automotive applications. nCoat introduced its first nano-coatings
applications to customers of HPC and achieved its first OEM customers for
nano-formulated products in the first quarter of 2006, approximately four months
after first introduced. Since that time, HPC has moved over 70% of its revenue
to sales and application of nano-coatings.





In June
2007, we acquired Metallic Ceramic Coatings, Inc. (“MCCI”), which was founded in
1981 and incorporated in 1983.  At the time of the acquisition, MCCI’s
corporate headquarters were located in King of Prussia, Pennsylvania.
MCCI does business under their market brand, Jet-Hot. Jet-Hot was developed
by MCCI under the trade name JET-HOT Coatings.  Now in their third
generation of performance enhancements, JET-HOT offers thermal barrier and
corrosion resistance coatings applied on autos and motorcycles ranging from
street rods and dragsters to classics and exotics, snowmobiles and
over-the-road trucks.  Jet-Hot also produces and applies coatings for
improved durability, performance and appearance of manifolds, side pipes and
valve covers.  In accelerated salt-spray tests conducted in accordance with
ASTM B117, JET-HOT corrosion barrier coatings last over 14 times longer than
chrome and more that 140 times longer than high-temperature paint, enduring more
than 5,000 hours.


4





Jet-Hot’s  first
products and customers were in military applications on jet-fighter engines and
submarine parts subjected to high temperatures, cyclical stress loads and
corrosive environments. Jet-Hot supplied proprietary coatings used to
protect parts on aircraft-carrier launch systems for the US Navy and armored
vehicles for the US Army. Shortly thereafter, Jet-Hot introduced automotive
products for performance racing and consumer applications.  Racing
teams began to use the coatings for safety factors by reducing header-surface
temperatures, quick cool down and horsepower enhancements. In the 1990s, JET-HOT
became the only coating company to support racers with contingency-award payouts
and continues to do so today.





Jet-Hot
continues to innovate new coatings to add to their intellectual property
portfolio of trade secret formulas, processes and equipment. Formulas include
proprietary nano-formulated and micron particulate coatings primarily focused on
ceramic/metallic technology innovations. Jet-Hot coatings have been transitioned
to over 70% nanocoatings since nCoat acquired the company. Jet-Hot products are
applied at all three nCoat facilities.  Effective January 31, 2010 an
original Jet-Hot plant Pennsylvania plant was closed.





Collectively,
nCoat’s subsidiaries now have over 9,000 customers presently being served by 83
employees.





The
Coatings Industry





The
general global coatings industry is a long-established, $30 billion market with
multiple competitors. The commodity coatings market segment which encompasses
more than 85% of the market includes those coatings that are typically within
the paint, varnish, sizing, primers and other metal pre-treatment product
families. This segment has been dominated by large multi-national companies.
These companies include Akzo Nobel Coatings, PPG Industries, Sherman-Williams,
ICI Paints, DuPont Coatings & Color Technologies Group, BASF Coatings AG,
SigmaKalon Group BV, Valspar Corp., Nippon Paint Co. Ltd., Kansai Paint Co., and
Ltd. RPM, Inc., making up the top ten in annual revenues.





In the
fragmented high performance coatings sector, the number of companies developing
and are utilizing nanotechnology in their commercialized formulations and
processes is growing. Typically companies with nano-scale products are
small start-up companies working to achieving initial commercialization. In
2009, Lux Research estimated that approximately $3.3 billion of coatings that
utilized nano-formulation were sold world-wide. Lux Research expects this market
to grow to nearly $20 billion by 2015. nCoat products incorporate traditional
coatings with components and processes that include micron-sized solid
particulates as well as nano-scale formulations with additional properties. A
micron is one-millionth of a meter. A nanometer is one-billionth of a meter.
Nano-scale coatings typically use nano-particles between 5 and 100 nanometers in
size. The relative size of this new scale deals with particles and processes one
thousand times smaller than the traditional coatings on the market today,
allowing for combinations, properties and processes that provide additional
protections and performance.





The
competition in the nano and micron formulation high performance coatings
industry, a market segment of more than $4.0 billion in annual revenues, is
characterized by hundreds of small privately owned coatings companies with
market share in several market segments. Most of the US firms are small, local
or regional applicators, with many that use supplied third-party coatings. No
single company dominates the marketplace. This is especially true in the
automotive original equipment manufacturers (“OEM”) and aftermarket industries.
Resulting from the relative small size of competitors in this market space,
there is little product research and innovation and even less production
innovation. HPC excels because of its research and engineering expertise. HPC
and Jet-Hot are two of fewer than twenty-five companies that could be
considered large enough to be known nationally.





Our
Product and Service Focus





We have
multiple high performance coating products using proprietary chemical
formulations for coating metallic, ceramic, fabric and multiple other materials.
These coatings provide functionality that currently solves costly problems in
many industries that arise from technology advances. Key emerging problems to be
solved by these coatings include; (i) high heat generated by higher speeds of
machines, (ii) tensile strength and heat resistance of new composite materials,
(iii) corrosion and abrasion occurring in new areas of exploration (space, high
altitude, water, extreme temperature conditions, etc.), (iv) degradation of
common metals from high acidic and heat conditions to meet new, aggressive
federal pollution restrictions, (v) abrasion created by miniaturization through
computerization, and (vi) materials degradation from high speed manufacturing
systems causing heat, bonding, and (vii) oxidation of chrome which discolors
chrome pipes as engine operations create heat soak.


5





Following
is a chart showing some of nTech’s proprietary high performance coatings, their
functionality and some of the markets in which these coatings are or can be
used:





Product
            
            Functionality
            
            Markets(s)H-Series
      -Hi-Per
      Coat
            
            High
      temperature coatings engineered to provide outstanding corrosion
      protection.  Nano and micron formulations.
            
            Automotive
      OEM, Automotive Aftermarket, Aerospace, Defense, Gas/Oil Production,
      Petro-Chemical Industry, Recreation, Vehicles, Heavy Trucking, Trucking
      Aftermarket, Racing, Medical , MarineR-Series
              Hi-Per
      Coat Extreme
            
            High
      temperature coatings designed specifically for the glass
      industry.
            
            Glass
      Industries, Medical, Marine, Communication/Computer, BeverageE-Series
              Hi-Per
      Coat Extreme
            
            High
      temperature coating engineered to provide thermal fatigue oxidation
      protection up to 2,200° F while reducing temperatures by 48%.
              Nano
      and micron formulations.
            
            Automotive
      OEM, Automotive Aftermarket, Aerospace, Defense, Gas/Oil Production, Heavy
      Trucking, Racing, Marine, Heavy trucking and Diesel Engine
      manufacturing.S-Series
              (Solid Dry
      Films)
            
            Coatings
      engineered to reduce friction. Nano and micron
    formulations.
            
            Automotive  Trucking,
      Diesel Engine, Motorcycle and Recreational Vehicle
              OEM,
      Automotive,
              Trucking,
      Diesel Engine, Motorcycle and Recreational Vehicle Aftermarket, Aerospace,
      Defense, Gas/Oil
              Production,
      Petro-ChemicalN-Series
            
            Nano-formulated
      coatings, equipment and processes for anti-porosity
applications.
            
            Automotive,
      Trucking, Diesel Engine, Motorcycle, Recreational Vehicle and Performance
      Racing OEM and aftermarket





While we
will continue to sell our traditional high performance coating products, we
will also continue to focus in the near term on disruptive proprietary
nanotechnology products developed at nTech to create highly differentiated
market advantages and revenue from nano-formulated products.





We sell
into two fairly distinct markets and market distribution approaches for each of
these markets.  The “aftermarket” coatings segment of our business
includes small dealers, distributors, and individual users of our products and
services.  In most cases these are the hobbyist, the small race car or
performance automobile owner.  Our marketing methods here are media
presence: internet web pages, advertising in trade journals and hobbyist
periodicals, sponsorship of performance racing cars and drivers, handling of
plant walk-in traffic, word of mouth, educational opportunities with trade
schools and organizations and other retail-oriented marketing.  The
sale of services, coating or accessories is mostly regional to each of the plant
locations. We generally receive the customer’s parts to be coated either by
direct walk-in delivery or by normal mail or freight services.  After
we complete the application process, we return the parts by the same
methods.  Our OEM marketplace marketing is conducted in a manner that
includes the media presence suggested above, however, we are much more involved
with technical meetings with engineering staffs of the larger
customer.  The main thrust of our OEM activities, include, direct
contact by sales personnel, personal relationships and referral from other large
companies.  With very few exceptions, the parts are truck shipped to
the plant that will undertake the work, in most cases the closest plant to the
customer.  Once the work is completed, the finished work is shipped
back the same way.  We sell our coatings and ship finished work
directly to customers, rather than through dealers or agents.





Sources
and Availability of Raw Materials





Our
proprietary blend of formulations begins with components that are readily
available from a series of raw material vendors, including Brenntag Chemicals,
Chemcentral Chemicals and Valimet, Inc. Our formulations include readily
available ingredients, there are a number of supply sources and we have a
diversified purchasing program. As a result, we are able to continually produce
our coatings on a regular and manageable scale. We are not materially dependent
on one or more suppliers and we do not have any agreement with any
supplier.


6





Our
Customers





Prior to
acquisition, our operating company’s business was originally based largely on
the small individual customer ranging from a single automotive racing enthusiast
building a race car, or rebuilding a classic car or crafting a street rod on
weekends.  During the last three years we have expanded our market to
include the regional tier one suppliers and OEM customers.  We now
derive as much as 70% of our revenues from our OEM customer base of more than
fifty separate accounts.  Currently, we are not dependent on one or a
few major customers and no single customer represents more than 5% of our
business. One reason we acquired MCCI, with its business emphasis in the
aftermarket sector was to help us diversify our revenue base and industry
concentration even further.





Sales
and Marketing Efforts





Our sales
efforts are focused on the auto-aftermarket industry, on the OEM industry and on
Licensing opportunities. OEM sales prospects may be candidates for production at
an HPC or MCCI plant or for on-site licensed production. Seven of our employees
are responsible for sales and customer service.





Marketing
efforts support all sales groups. Marketing activities include direct website
sales, direct mail, trade shows, print advertising, internet advertising, racing
sponsorships, public relations, collateral materials, and many others. Our
marketing department is also responsible for corporate, division and product
branding. Two of our employees are responsible for marketing.





In the
fiscal year ended December 31, 2008 we spent $645,280 on sales and marketing
efforts.  In the fiscal year ended December 31, 2009 we spent $606,818
on sales and marketing.





Our
Research and Development





nTech is
engaged in an active and extensive research and develop program focused both on
continual improvement of existing coatings and development of new coatings
products and binders, including nano-formulated coatings. Research is conducted
and testing performed at our proprietary labs and at North Carolina A&T
State University, where we have signed a research collaboration agreement, and
customer facilities. We also have developed a research agreement with the
performance engine laboratory at the University of North Carolina Charlotte
(UNCC) for research on the impact of nCoat coatings on engine fuel efficiency,
performance and with bio fuels and other alternative fuel systems. In the fiscal
year ended December 31, 2008 we spent $376,165 on research and development
efforts.  In the fiscal year ended December 31, 2009 we spent $321,421
on research and development.  None of the expenses in these two
categories has been borne directly by a customer or customers. nTech is
responsible for blending and mixing all coatings for HPC and
Jet-Hot.





Our
Intellectual Property





nTech
holds more than 100 proprietary coatings trade secrets, patent pending and
patents with the majority held as proprietary trade secret intellectual
properties. In addition, nTech has applied for six new patents on
nano-formulated coatings, the application processes and equipment used to
formulate and apply those coatings. Two of these patents were granted in 2008,
nTech is also under exploration for patents on additional nano-formulations,
equipment and/or processes. nTech holds additional engineering trade secrets on
processes, procedures and equipment used to formulate and apply non-nano
coatings.





All key
employees have signed confidentiality and non-competition agreements with us. In
addition, all employees are obligated to protect our confidential information.
Where appropriate for our business strategy, management will continue to take
steps to protect intellectual property rights.


nTech
coatings are mixed in-house at facilities secured separately from application
production facilities and administrative offices. Formulations are kept in
multiple secure facilities off-site. nTech personnel working with coatings
formulations sign stringent non-disclosure, non-circumvention and assignment
agreements with nTech. nTech does not conduct customer tours of mixing
facilities. A limited number of nTech employees under non-disclosure and
assignment agreements have access to and full knowledge of proprietary
formulations.


7





Our
Facilities





As of the
date of this Report, nCoat and its subsidiaries operate in facilities in three
states: North Carolina, Oklahoma and Arizona.




Competition





The
general coatings industry is a long-established market with multiple
competitors. The industry has grown from $9.2 billion in annual revenue 2000 to
over $30 billion at year end 2009. The commodity coatings market segment (paint,
varnish, sizing, metal pre-treatments, etc.) is dominated by large
multi-national companies, such as Akzo Nobel Coatings, PPG Industries,
Sherman-Williams, ICI Paints, DuPont Coatings & Color Technologies Group,
BASF Coatings AG, SigmaKalon Group BV, Valspar Corp., Nippon Paint Co. Ltd.,
Kansai Paint Co., and Ltd. RPM, Inc., making up the top ten in annual
revenues.





The high performance coatings market
segment had aggregate revenues of over $4.0 billion in 20098 with annual growth
of over 12%. Competition in the high performance coatings industry (sometimes
referred to as durable equipment coatings or specialty coatings) is
characterized by more than 600 small coatings companies in the U.S. with average
revenue under $3,000,000 annually and small market share in several market
segments. The European market has over 900 small coatings companies. Many of
these companies have one to several revenue accounts with major multi-national
companies who employ their services for performance coatings. There are few
large performance coatings companies operating in these
industries.  In the fragmented high performance coatings sector, the
number of companies developing and are utilizing nanotechnology in their
commercialized formulations and processes is growing. Typically companies with
nano-scale products are small start-up companies working to achieving initial
commercialization. In 2009, Lux Research estimated that approximately $3.3
billion of coatings that utilized nano-formulation were sold world-wide.
Research expects this market to grow to nearly $20 billion by 2015. nCoat
products incorporate traditional coatings with components and processes that
include micron-sized solid particulates as well as nano-scale formulations with
additional properties. A micron is one-millionth of a meter. A nanometer is
one-billionth of a meter. Nano-scale coatings typically use nano-particles
between 5 and 100 nanometers in size. The relative size of this new scale deals
with particles and processes one thousand times smaller than the traditional
coatings on the market today, allowing for combinations, properties and
processes that provide additional protections and performance. Companies
claiming to have nano-coatings sold directly into nCoat’s automotive market
space include Ecology Coatings, Starfire Systems, Nanovere and Mayaterials. We
have never seen any of these competitors in any competition for an account.
Competitors with micron formulated coatings operating in industries nCoat serves
include Swain Tech, Lincoln Industries, NIC, Airborne, Calico, Nitroplate and
Techline.





We
compete with others in our market segment through a continued media presence:
internet web pages, advertising in trade journals and hobbyist periodicals,
handling of plant walk-in traffic, word of mouth, educational opportunities with
trade schools and organizations, sponsorships of performance racing cars and
drivers and other retail-oriented marketing.  The sale of aftermarket
services, coating application or accessories is mostly regional to each of the
plant locations. We generally receive the customer’s parts to be coated either
by direct walk-in delivery or by normal mail or freight
services.  After we complete the application process, we return the
parts by the same methods.  Our OEM marketplace marketing is conducted
in a manner that includes the media presence suggested above, however, we are
much more involved with technical meetings with engineering staffs of the larger
customer.  The main thrust of our activities in this market segment
includes direct contact by sales personnel, personal relationships and referral
from other large companies.  With very few exceptions, the parts are
truck shipped to the plant that will undertake the work, in most cases the
closest plant to the customer.  Once the work is completed, the
finished work is shipped back the same way.  We sell our coatings and
ship finished work directly to customers, rather than through dealers or
agents.


8


Regulation





Governmental
regulations, particularly those in the U.S. have had a two-edged impact on the
coatings industry.  There have been increasing concerns for the
environment with the passage of regulations which restrict the amount of
volatile organic compounds (VOCs) which can be released with the manufacture and
application of both commodity and high performance coatings.  There
have been stricter regulations on the waste side of the coating manufacturing
and application.  This continuing upward pressure on the formulations
and applications of coatings has required the industry to seek “cleaner”
methods, and environmentally safer coatings.  We have recognized these
issues we are continually working to anticipate and adjust their proprietary
formulation to meet the changing regulatory landscape.  Because of the
far-reaching effect of the same environmental issues that manufacturers of
trucks, equipment, engines, and others including nCoat’s present and potential
customer base are seeking higher and better performance from the coatings
available in the marketplace.  Recirculation of exhaust gases in
internal combustion engines in attempt to lower the release of pollutants as
mandated, has engine manufacturers seeking thermal and corrosion protection for
engines now operating at hotter temperatures with increased corrosion because
exhaust gases now introduced through the air intake systems.





Our
operations are subject to the annual purchase and maintenance of permits
allowing us to generate small amounts of potentially hazardous
waste.  Any such waste is stored for a very short time at the
respective plant and picked up for disposal by professional waste
handlers.  The cost of the permits and the waste disposal for all of
our operations is less than $10,000.00 a year.





In
addition, nCoat may be subject to periodic routine inspections from the
Environmental Protection Agency for VOC, nano-particle, air and water protection
practices and the occupational Safety and Health Administration for workplace
safety compliance.





Employees





As of
December 31, 2009, we employed a total of approximately 83 persons in the United
States. The follow table sets out the location and number of those
employees:





Company
            
            Location
            
            TotalnCoat
            
            North
      Carolina
            
            14Utah
            
            1HPC
            
            North
      Carolina
            
            36Oklahoma
            
            18Utah
            
            1nTech
            
            North
      Carolina
            
            4MCCI
            
            Pennsylvania
            
            1Arizona
            
            5North
      Carolina
            
            3TOTALS
            
            
            
            83*
      Note that HPC employees in Arizona are now accounted for as
      MCCI employees after the consolidation of the two
  plants.




9





ITEM
1A.                           RISK
FACTORS





The
short- and long-term success of nCoat is subject to certain risks, many of which
are substantial in nature and outside the control of nCoat or its
management.  You should consider carefully the following risk factors,
in addition to other information contained herein.  When used in this
Report, words such as “believes,” “expects,” “intends,” “plans,” “anticipates,”
“estimates,” and similar expressions are intended to identify forward-looking
statements, although there may be certain forward-looking statements not
accompanied by such expressions.  Additionally, statements that relate
to future business development, financial projections, capital raising, capital
requirements, growth of markets or customer bases, or future business
combinations may also include forward-looking statements.  You should
understand that several factors govern whether any forward-looking statement
contained herein will or can be achieved.  Any one of those factors
could cause actual results to differ materially from those projected
herein.  These forward-looking statements include plans and objectives
of management for future operations, including the strategies, plans and
objectives relating to the products and the future economic performance of nCoat
and its subsidiaries discussed above.  In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of any such statement should not be regarded as a representation by
nCoat or any other person that the objectives or plans of nCoat will be
achieved.  nCoat disclaims any intention or obligation to update any
forward-looking statement contained herein.





RISKS
RELATED TO NCOAT BUSINESS





nCoat
has not completed an audit of its financial statements as of the date of the
filing of this report.





THE FINANCIAL STATEMENTS INCLUDED
HEREIN ARE NOT AUDITED. AS OF THE FILING DATE OF THIS REPORT, NCOAT HAS NOT
ACCUMULATED ENOUGH CASH TO PAY THE AUDITORS FEES TO COMPLETE THE AUDIT OF ITS
ANNUAL AND QUARTERLY FINANCIAL STATEMENTS BEGINNING IN OCTOBER 2008 UP TO AND
INCLUDING THIS 2009 FORM 10K PRIOR TO SUBMISSION OF THE REPORTS. FOLLOWING
PAYMENT OF THE AUDIT FEE, NCOAT AUDITORS WILL COMPLETE THE AUDIT AND NCOAT WILL
FILE AN AMENDED REPORTS FOR ALL FORM 10K AND FORM 10QSB REPORTS THAT HAVE NOT
BEEN PREVIOUS AUDITED.


No
assurance can be made that nCoat will be able to pay the auditor in a timely
manner to provide audited statements for investors to review.





nCoat
has been in technical default on its debenture notes for over twenty-seven (27)
months and owes substantial amounts of interest, penalties, liquidated damages
and default fees to its debenture holders.





Because
of cash shortfalls beginning in September, 2007, nCoat has not paid cash
interest payment to its debenture holders since October, 2007. nCoat paid
interest in stock for the third quarter of 2007, but has not paid interest in
any form since. Subject to provisions of the documentation governing technical
and/or actual default of the debenture financings, nCoat is subject to
significant increases in interest rates, increases in principal owed, compounded
penalties for non-payment of interest and principal, liquidated damages, and
other penalties, many of which are tied to changes in nCoat’s public stock
prices. With nCoat’s current stock price under $.01/share, penalties create
exorbitant cash and stock penalties currently owed by nCoat to its debenture
holders. While nCoat has been in continual contact with its debenture holders
and is seeking a re-structure agreement favorable to both debenture holders and
shareholders of nCoat, there can be no assurance that such and agreement will
ever be completed and nCoat could be subject to a declaration of actual default
and thereby be subject to partial or complete liquidation of its assets by
debenture holders.





nCoat
is seeking a restructure of its current debenture debt and agreements and must
raise additional capital to accomplish this restructure.





As
mentioned above herein, nCoat is in technical default on its current debenture
financing. nCoat is seeking and attempting to negotiate a restructure of these
debenture notes to provide a work out arrangement favorable to both current
debenture holders and shareholders. To accomplish this restructure, nCoat must
raise as soon as possible, additional capital to satisfy negotiated demands of
the current debenture holders and to pay aged accounts payables current owed by
nCoat to its vendors. Capital raise to this end may (1) be accomplished in a
debt instrument which will incur debt to the Company, and/or (2) be raised in an
equity offering which may create significant dilution to current shareholders,
or (3) not be completed at all. No assurance can be made the terms of the
capital raise will provide enough capital to repay all Company debt or satisfy
all current demand on the Company. There can be no assurance that nCoat will
raise needed capital in time to forestall actual default of its debentures and
subsequent possible liquidation of its assets.


10




Current
global, national and local economic conditions have affected nCoat revenues in
both aftermarket and OEM market sectors and these revenue decreases may continue
for the foreseeable future.





Current global economic crisis
world-wide in general has had a material negative impact on key industries from
which nCoat derives a significant portion of its revenue and most of its
profitability. Automotive revenues decreased in the fourth quarter of 2008 by
55% over same period revenues in 2007. Heavy duty truck sales have decreased 65%
over 2007 and 2008 when compared with sales the two years previous. Year over
year sales in 2009 in automotive industries were again siginificantly reduced
over 2008.  Consumer confidence and spending have decreased to levels
lower than has been seen in the last 40 years. These factors have had a negative
impact on nCoat revenues in both OEM and aftermarket market segments. nCoat
total revenues in the fourth quarter of 2008 decreased 20% year over year with
aftermarket sales decreasing over 40% in the same period. OEM sales decreased
slightly during the period. Year over year nCoat revenues in 2009 were over 25%
lower than 2008. Fourth quarter 2009 revenue for nCoat increased over fourth
quarter 2008 due to increased diesel engines truck sales of 2009 platform trucks
prior to the last mandated EPA emissions changes scheduled for inclusion on 2010
model diesel engines. nCoat expects first and second quarter revenues for truck
sales to significantly weaker than same quarter sales in 2009 as new engine
platforms are introduced to the market and as a result nCoat revenues in the
first and second quarters of 2010 will be less than same quarter sales in 2009.
nCoat expects additional decreases in OEM and aftermarket sales until
automotive, trucking, motorcycle and aircraft sales begin to
increase.





nCoat,
HPC, and nTech  have a limited operating history.





We are a
company with limited operating history and experience.  nCoat, Inc.
was also limited in its operating history prior to the merger with Tylerstone.
It had acquired HPC, a company with a 23-year operating history with all but the
last seven years in performance automotive markets. While HPC’s operating
history in its historical primary market is very strong, commercial success in
the new OEM markets is limited.  MCCI historical operating history is
identical to that of HPC, nTech was formed three years ago and therefore has
less operating history than nCoat or any of its other
subsidiaries.  Therefore both the Company all its operating
subsidiaries have a limited number of current customers in the new target
markets. Further, both the Company and its operating subsidiaries have
experienced the need to refocus manufacturing to handle increased volume of OEM
orders, which has required significant corporate cash resources and required
significant management talent to accomplish. This change led to reduced cash
reserves for operations and management disruption to the core after-market
business. In addition, activities necessary to transition and integrate acquired
companies and to consolidate operating facilities, management, employees and
systems have required significant capital and management and employee time and
attention. Recent negative impacts of the global financial crisis and subsequent
decreased nCoat revenues have also required management time and
attention.  To meet its business plan, the Company will need to keep
focused on business prospects, develop structured management and personnel
responsibilities, and develop expansion plans for product development,
production and customer services that can remain ahead of the prospective growth
or shrinkage based on market conditions and financial status.





We
will require substantial working capital to implement our business
plan.





Projected
success and growth are dependent on sufficient working capital to fund
operations and product development. Management originally engaged investment
bankers to assist in raising $20,000,000, of which $14,250,000 has been
raised.  Included in the capital raise discussed earlier in this document
is additional capital to sufficiently fund operations, fund expansion of sales
efforts, fund expansion of production capacity and operations, fund the
development and growth of our products mix, and the capital raise may include an
additional $5,000,000 to $10,000,000 to allow us to acquire accretive
companies.  All of these efforts are a part of our business strategic plan
discussed herein.  There is no assurance that any such additional funds
will be available or available on terms and conditions acceptable to the
Company.  Further, if we are successful in raising such funds, there
can be no assurance that such funds will be sufficient or that such operational
activities will be successful within the anticipated timeframe. In such case, we
could be required to seek additional investment on terms available in the
marketplace, which could materially increase corporate indebtedness and subject
us to high interest rates and/or dilute shareholders’ ownership positions.
Furthermore, the failure to obtain additional working capital, if needed, could
prevent us from achieving our business objectives.





We
have incurred continuing losses, and we may not be able to operate profitably in
the future





Through
December 31, 2009, nCoat incurred losses totaling $ 574,239,722 and had
negative shareholders’ equity of $937,752,016. If we are unable to attain
profitability and restructure current debenture debt obligations we may need to
cease operations.


11





We
are experiencing a significant liquidity crisis and we may not obtain sufficient
funding to continue operations.





We are
experiencing a significant liquidity crisis. A number of our vendors have turned
our accounts over to collection agencies and at December 31, 2009, we had
accounts payable in excess of $2.0 million over 120 days past due. At December
31, 2009, we had cash on hand of $17,000, and net trade receivables of $450,626.
We do not generate sufficient cash from our operations in any given month to
meet our financing expenses and fund our operations. We have an immediate need
for financing to pay such overdue accounts and fund our operations. Because we
generate only enough income to support our current operations, we need immediate
financing of approximately $2,500,000 to pay aged payables and notes.. There can
be no assurance such financing will be available, or available on terms
acceptable to the Company. If we are unable to obtain such financing, we will be
unable to pay our liabilities, and we may need to cease operations.





Our
independent registered public accounting firm has included an explanatory
paragraph relating to our ability to continue as a going concern in its
report on our financial statements for the year ended December 31,
2007





Because
none of our financial statements have been audited since third quarter 2008,
including the financial statements for all of 2009 and including financials
statements in this report, we again include this note from our 2007 Form
10K.  Because we generated significant losses and required additional
working capital to continue operations, our independent registered accounting
firm included in its report for the year ended December 31, 2007 an explanatory
paragraph to the effect that these conditions raised substantial doubt about our
ability to continue as a going concern.





Our business strategy
includes dependence on strategic partnerships with well-established
corporations for business growth and development.





Our
business strategy includes, among other elements the development of long-term
strategic partnerships with well-established corporations.  These
companies include large original equipment manufacturers (OEM’s) that build
parts, engines, pistons, or other components in the automotive and marine fields
with which we could leverage our business using their book of business, or brand
identification in the industry.  We cannot dictate to those companies
their business activities regarding our partnership, however, we expect to enter
into agreements that will allow us to influence the partnership for mutual
success.   Our growth in this area of our business plan may be
limited if we are either unable to identify and partner with these larger
companies, or in the course of the partnership we are unable to execute our
business plans.





Our
products and technologies are subject to technological change and
obsolescence.





Our
products are subject to competitive technological advances and new competitive
product introductions. Current competitors or new market entrants could
introduce products with features that render products sold by the Company less
marketable or obsolete. In addition, some of our services to large accounts
provide products enabling customers’ technology to efficiently operate. There
can be no assurances that our customers will continue to utilize their current
technology innovations that require our products and services and new technology
innovations that do not require our products and services may be used. Our
future success will depend, to a certain extent, on the ability to adapt to
technological change and to address market needs. There can be no assurance that
we will be able to keep pace with technological change or the demands of the
marketplace.





Many
of our competitors may have greater capitalization or be better positioned in
our markets.





The
coatings industry includes large commodity coating providers, including BASF,
Pittsburg Paint & Glass, and Sherwin-Williams to name three of the
largest.  Although we are in a much smaller niche segment of the
coatings industry which includes a large number of small and regional providers,
these larger companies may elect to develop operations and marketing into our
niche of high performance coatings.  These competitors possess greater
capitalization, market presence and sales and distribution channels than the
company and could, if they elected to directly compete, eliminate market
advantages currently enjoyed by nCoat leading to significant loss of revenue and
consequently lead to our failure.


12





Certain
nCoat technologies are in the early stages of development.





While we
do have marketable formulations that include formulas and coatings that we
employ in generating revenues, we also have additional technologies that are not
yet incorporated in our market mix.  Our business plan is based, in
part, on our ability to create additional nanoparticle formulations that exceed
the performance of a number of our current coatings, as well as developing
additional methods to improve the application process.   We are
developing coatings with greater thermal protection capabilities, with methods
that will allow us to create more plant throughput for our OEM volume clients
and direct development of new materials that will provide higher levels of
performance.  Some of our technologies are in an early stage of
development. These technologies have not been extensively marketed or
laboratory tested. In order to fully validate the commercial feasibility of the
technologies, additional product research and development and extensive testing
must be done.  Any failures experienced by our technologies while in
product development could negatively impact our performance and ability to
achieve our business objectives.





We
may experience difficulty integrating future acquisitions.





One of
the elements of our business strategy is to continue to acquire other coatings
companies. With each of the potential target, we undertake extensive due
diligence to understand all aspects of the acquisition target, including its
history, management, markets, operations, marketing, sales, finance, personnel,
assets, intellectual property, risks, reputation, strengths, weaknesses,
opportunities, threats, and synergies, etc. of all domestic and international
business operations. Experience has shown that discovering all of the issues
inherent in an acquisition leading to total seamless operations between us and
the acquired company is impossible.  We may, in the course of future
acquisitions, meet unexpected difficulties in transitioning and integrating a
new acquisition.  Areas of potential difficulty may including
inexperience in certain markets, , reactions of management or employees of the
acquired company, lack of anticipated synergy with our core business, and/or
missing historical information.  Any of these issues may result in
increased expenses, decreased revenues, loss of key personnel, or other impacts
which could negatively affect the Company.  In each acquisition nCoat
negotiates a holdback of a portion of the purchase consideration for a period of
time as we integrate the operations of the acquisition. There can be no
assurance that the amount held back will be sufficient to offset the losses or
expenses incurred should problems arise.





Our
processes and equipment are subject to the risk of unexpected
failures.





Our
manufacturing processes are extremely specialized and depend on critical pieces
of equipment, such as air compressors, ovens, application machinery, conveyor
systems, overhead cranes, vehicles, computer and communications systems and
other machinery that may have to be repaired or replaced. On occasion, equipment
may be out of service as a result of unanticipated failures which may result in
material plant shutdowns or periods of reduced production with significant
expense and time delay. Interruptions in production capabilities will inevitably
increase production costs and reduce nCoat sales and earnings. In addition to
equipment failures, our facilities are also subject to the risk of catastrophic
loss due to unanticipated natural or man-caused events such as fires,
explosions, floods, natural disasters, adverse weather conditions, or other
unforeseen conditions. Furthermore, any interruption in production capability
may require us to make large capital expenditures to remedy the situation, which
could have a negative effect on our profitability and cash flows. Although we
have business interruption insurance, management cannot provide any assurance
that the insurance will cover all losses that could occur as a result of the
equipment failures. In addition, longer-term business disruption could result in
a loss of customers. If this were to occur, future sales levels, and therefore
profitability, could be adversely affected.





There
is no guarantee that we will be able to protect our intellectual
property.





As part
of our business strategy, we intend to accelerate investment in new technologies
in an effort to strengthen and differentiate the product portfolio and make our
manufacturing processes more efficient. As a result, we believe that the
protection of proprietary intellectual property will become increasingly
important to the business. Currently, we have patent applications pending. We
expect to rely on a combination of patents, trade secrets, trademarks and
copyrights to provide protection in this regard, but this protection might be
inadequate. For example, pending or future patent applications might not be
approved or, if allowed, the patents might not be of sufficient strength or
scope. Conversely, third parties might assert that technologies infringe their
proprietary rights. In either case, litigation could result in substantial costs
and diversion of our resources, and whether or not we are ultimately successful,
the litigation could hurt our business and financial
condition.


13





We
may incur significant costs to comply with the “controls and procedures”
requirements of the securities laws.





As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 or “SOX 404”, the
Securities and Exchange Commission or “SEC” adopted rules requiring public
companies to include a report of management on the company’s internal controls
over financial reporting in their annual reports, including Form 10-KSB. In
addition, the independent registered public accounting firm auditing a company’s
financial statements must also attest to and report on management’s assessment
of the effectiveness of the company’s internal controls over financial reporting
as well as the operating effectiveness of the company’s internal controls. nCoat
Auto was not subject to these requirements until the Closing. Anticipating the
possible Agreement, both the Company and nCoat Auto have evaluated internal
control systems in order to allow management to report thereon, and independent
auditors to attest to, the Company’s internal controls as required by these
requirements of SOX 404. Under current law, the Company was subject to these
requirements beginning with the management report for the annual report for the
fiscal year ending December 2007 and auditor attestation for the Company’s 2008
annual report. Management can provide no assurance that the Company will be able
to comply with all of the requirements imposed thereby. There can be no
assurance that the Company will receive a positive attestation from the
independent auditors. In the event nCoat identifies significant deficiencies or
material weaknesses in its internal controls that cannot remediated in a timely
manner or management is unable to receive a positive attestation from the
independent auditors with respect to the Company’s internal controls, investors
and others may lose confidence in the reliability of the Company’s financial
statements.





We rely heavily on Company
management.





Our
ability to execute our business plan relies to a considerable extent on the
efforts of Paul Clayson and Terry Holmes. In the event that the services of
Mr. Clayson and Mr. Holmes become unavailable, we may not be able to achieve
our business objectives.





Paul
Clayson, our Chief Executive Officer and Chairman of our Board and Terry R.
Holmes, our President and Chief Operating Officer are involved in other
businesses which may cause them to devote less time to our
business.





Paul
Clayson, our Chief Executive Officer and Chairman of our Board and Terry R.
Holmes, our President and Chief Operating Officer, serve as officers for
other companies.  In addition to serving as our Chief Executive
Officer and Chairman of our Board, Mr. Clayson also serves as the President and
Chief Operating Officer and equity partner of Sequoia Pacific Research
Company, Inc. a nanotechnology company that presently has no day-to-day
operational activity.  Mr. Clayson devotes approximately 100% of his
professional time, to our business. Mr. Holmes serves as Chief Executive Officer
and Chairman of the Board of TelNetz, LLC, an ASP telephony and web service
company and as Chief Executive Officer and Chairman of Sequoia Pacific
Research Company, Inc. a nano-technology research, development and technology
licensing company. In addition, he is involved with other minor business
interests. Mr. Holmes devotes approximately 100% of his professional time
to our business.  Messrs. Clayson’s and Holmes’ involvement with
other businesses have been handled after hours, and at time when there has been
no conflict to date.  One of the risks we face, however, may be the
point in time where outside business involvement may cause them to allocate
their time and services between us and other entities. Consequently, they may
give priority to other matters over our needs which may materially cause us to
lose their services temporarily which could affect our operations and
profitability.





We
are dependent on the services
of our technical personnel.





The loss
of any key personnel could have a material adverse impact on our business. Our
future success depends, to a significant extent, on its ability to attract,
train and retain technical and personnel. Recruiting and retaining capable
personnel, particularly those with expertise in the industry, are vital to
success. There is substantial competition for qualified technical personnel, and
there can be no assurance that we will be able to attract or retain such
personnel. If it is unable to attract and retain qualified employees, the
business may be materially and adversely affected.





The
market price of our common stock likely will be volatile and beyond our
control.





As we are
a relatively new company in the public market, the market price for our shares
is likely to be highly volatile and subject to wide fluctuations in response to
factors including the following:




14


•
              announcements
      of technological or competitive developments;•
              regulatory
      developments in target markets affecting the Company, customers or
      competitors;
 
 •
              announcements
      regarding patent litigation or the issuance of patents to the Company or
      its competitors;


•
            announcements
      regarding new financings, acquisitions or other financial
      transactions;•
            announcements
      of studies and reports relating to the conversion efficiencies of
      anticipated products of the Company or those of its
      competitors;•
            Actual
      or anticipated fluctuations in nCoat quarterly operating
      results;•
            Changes
      in financial estimates by securities research analysts;•
            Changes
      in the economic performance or market valuations of other high performance
      coating industry companies;•
            Addition
      or departure of the Company’s executive officers and key
      personnel;•
            release
      or expiry of resale restrictions on other outstanding common
      shares;•
            sales
      or perceived sales of additional shares to raise working
      capital•
            global,
      national, regional or local economic conditions; and/or•
            multiple
      additional unforeseen factors.




In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also have a material
adverse effect on the market price of the Company’s shares.





Our
ownership is highly concentrated in a few individuals.





There is
a large portion of our stock owned by few individuals. As seen in the section
Security Ownership of Certain Beneficial Owners and Management, 45.5% of our
present outstanding voting securities are beneficially owned by a few
shareholders. As a result, they possess significant influence and can influence
election a majority of our board of directors and to authorize or prevent
proposed significant corporate transactions. This concentrated ownership may
also have the effect of delaying or preventing a future change in control,
impeding a merger, consolidation, takeover or other business combination or
discourage a potential acquirer from making a tender offer. In addition, we
anticipate additional financing efforts in order to complete our business
strategy. Some or all of such financing may be acquired by a single person or a
relatively small group of persons that could have the effect of further
concentrating the ownership.





Trading
in our common stock is limited.





Our
common shares were originally quoted on the OTC Bulletin Board. Our common stock
is now quoted on the Pink Sheet OTC Electronic Markets (“Pink Sheets”) and was
moved to the Pink Sheets following rapid devaluation of our commons stock after
our debenture holders forced a restructure of the terms of the debenture notes
to pay accumulated interest. The Pink Sheets is a significantly more limited
market than the New York Stock Exchange or NASDAQ system or the OTC Bulletin
Board. The quotation of our shares on the Pink Sheets may result in a less
liquid market available for existing and potential stockholders to trade shares
of its common stock could depress the trading price of its common stock and
could have a long-term adverse impact on our ability to raise capital in the
future.





Holders
of our common stock are subject to the risk of additional and substantial
dilution to their interests as a result of the issuances of common stock in
connection with the Series A Convertible Notes and Series A
Warrants.


15





The
following table describes the number of shares of common stock that were issued
in connection with the conversion of the Convertible Debentures, and that would
be issuable, assuming a full exercise of the Series A Warrants and assuming that
the full principal amount of the Series A Notes outstanding as of the date of
this Report (excluding any interest accrued) was converted into shares of our
common stock, irrespective of the availability of registered shares, and further
assuming that the applicable conversion or exercise prices at the time of such
conversion or exercise were the following amounts:





Shares
      Issuable Upon Conversion of
              $9,000,000
      Principal
              Amount
      of Series A
              Notes
      having a
              conversion
      price
              of  $.25
      per share
            
            Shares
      Issuable Upon Exercise of
              Series
      A
              Warrants
      having an
              exercise
      of
              $1.00
      per share
            
            Shares
      Issued
              Upon
      the
              Conversion
      of
              Previously
      issued
              Debentures
      having a
              conversion
      price
              of
      $.50 per share
            
            Total
      Shares Issued or Issuable in Connection
              with
      Conversion or
              Exercise
      of Series A
              Notes,
      Warrants, and
              Convertible
      Debentures36,000,000
            
            22,500,000
            
            5,171,719
            
            63,671,719





The table
assumes the hypothetical exercise of all of the Series A Warrants at an
exercise price of $1.00 per share, and a conversion of all of the principal of
the Series A Notes at a conversion price of $.25 per share.  As a
result, we would issue a total of 63,671,719 shares of our common stock, which
constitutes approximately 66% of the number of shares issued and outstanding
prior to such issuances.  In addition, there are shares underlying the
Series B Notes and Warrants.  The dilution factor of this additional
series increases the shares to 84,796,719 or 88% of the issued and
outstanding.  Although there can be no guarantee that the Selling
Shareholders will exercise the Series A Warrants or convert the Series A Notes,
or the other holders of the Series B Notes and Warrants will exercise their
warrants or convert their notes, should they choose to do so, holders of
our common stock would experience substantial dilution of their interests and
these factors may have a depressive effect upon the market price of our common
stock.  The impact of the exercise of the warrants in both cases is
less because the Company would receive additional capital in exchange for the
issuance of the shares, however the number of shares, the dilution and the
impact of per share earnings will be affected.  We have, for purposes
of the table, not included the interest shares that may be payable under the
terms of the Notes.   As it stands the agreements provide for the
payment of interest by share if and only if those shares are
registered.  To date the interest payments have been cash
only.





There
is an increased potential for short sales of our common stock due to the sales
by the Selling Shareholders of shares issuable upon conversion or exercise of
the Series A Notes and the Series A Warrants, and the shares of common stock
that were issued upon conversion of the Convertible Debentures, which could
materially affect the market price of our stock.





Downward
pressure on the market price of our common stock that likely will result from
sales by the Selling Shareholders of our common stock issuable upon conversion
of the Series A Notes or exercise of the Series A Warrants, or the shares of
common stock that were issued upon exercise of the Convertible Debentures, could
encourage short sales of common stock by the Selling Shareholders or
others.  A "short sale" is defined as the sale of stock by an investor
that the investor does not own.  Typically, investors who sell short
believe that the price of the stock will fall, and anticipate selling at a price
higher than the price at which they will buy the stock.  Significant
amounts of such short selling could place further downward pressure on the
market price of our common stock, which could make it more difficult for
existing shareholders to sell their shares.





The
restrictions on the number of shares issued upon exercise of the Series A
Warrants and conversion of the Series A Notes may have little if any effect on
the adverse impact of our issuance of shares in connection with exercise of the
Series A Warrants and conversion of the Series A Notes, and as such, the Series
A Selling Shareholders may sell a large number of shares, resulting in
substantial dilution to the value of shares held by our existing
shareholders.





The
holders of Series A Notes and Series A Warrants (collectively, the “Series A
Selling Shareholders”) are prohibited, except in certain circumstances, from
exercising the Series A Warrants and converting amounts of the Series A Notes to
the extent that the issuance of shares would cause any Series A Selling
Shareholder to beneficially own more than 4.99% of our then outstanding common
stock.  These restrictions, however, do not prevent any Series A
Selling Shareholder from selling shares of common stock received in connection
with an exercise or conversion, and then receiving additional shares of common
stock in connection with a subsequent exercise or conversion.  In this
way, a Series A Selling Shareholder could sell more than 4.99% of the
outstanding common stock in a relatively short time frame while never holding
more than 4.99% at one time.  As a result, existing shareholders and
new investors could experience substantial dilution in the value of their shares
of our common stock.


16





The
trading market for our common stock is limited, and investors who purchase
shares from the Selling Shareholders may have difficulty selling their
shares.





The
public trading market for our common stock is limited.  As of the date
of this Report, our common stock was listed on the Pink
Sheets.  Nevertheless, an established public trading market for our
common stock may never develop or, if developed, it may not be able to be
sustained.  The Pink Sheets is an unorganized, inter-dealer,
over-the-counter market that provides significantly less liquidity than other
markets.  Purchasers of our common stock therefore may have difficulty
selling their shares should they desire to do so.





It
may be more difficult for us to raise funds in subsequent stock offerings as a
result of the sales by the Selling Shareholders of our common
stock  issuable upon exercise or conversion of the Series A Notes and
the Series A Warrants, and our common stock that was issued upon conversion of
the Convertible Debentures.





As noted
above, sales by the Selling Shareholders of common stock issuable upon
conversion or exercise of the Series Notes or Series A Warrants, or of the
common stock that was issued to the Selling Stockholders upon conversion of the
Convertible Debentures, likely will result in substantial dilution to the
holdings and interest of current and new shareholders.  Additionally,
as noted above, the volume of shares sold by the Selling Shareholders could
depress the market price of our stock.  These factors could make it
more difficult for us to raise additional capital through subsequent offerings
of our common stock, which could have a material adverse effect on our
operations.





Our
common stock is considered a penny stock.  Penny stocks are subject to
special regulations, which may make them more difficult to trade on the open
market.





Securities
in the OTC market are generally more difficult to trade than those on the Nasdaq
National Market, the Nasdaq SmallCap Market or the major stock exchanges. In
addition, accurate price quotations are also more difficult to
obtain.  The trading market for our common stock is subject to special
regulations governing the sale of penny stock.





A "penny
stock," is defined by regulations of the Securities and Exchange Commission as
an equity security with a market price of less than $5.00 per share. However, an
equity security with a market price under $5.00 will not be considered a penny
stock if it fits within any of the following exceptions:





•
            the
      equity security is listed on Nasdaq or a national securities
      exchange;•
            the
      issuer of the equity security has been in continuous operation for less
      than three years, and either has (a) net tangible assets of at least
      $5,000,000, or (b) average annual revenue of at least $6,000,000;
      or





•
            the
      issuer of the equity security has been in continuous operation for more
      than three years, and has net tangible assets of at least
      $2,000,000.





If you
buy or sell a penny stock, these regulations require that you receive, prior to
the transaction, a disclosure explaining the penny stock market and associated
risks. Furthermore, trading in our common stock would be subject to Rule 15g-9
of the Exchange Act, which relates to non-Nasdaq and non-exchange listed
securities. Under this rule, broker-dealers who recommend our securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from this rule if their market price is at least $5.00 per
share.


17





Penny
stock regulations will tend to reduce market liquidity of our common stock,
because they limit the broker-dealers' ability to trade, and a purchaser's
ability to sell the stock in the secondary market. The low price of our common
stock will have a negative effect on the amount and percentage of transaction
costs paid by individual shareholders. The low price of our common stock may
also limit our ability to raise additional capital by issuing additional shares.
There are several reasons for these effects. First, the internal policies of
many institutional investors prohibit the purchase of low-priced stocks. Second,
many brokerage houses do not permit low-priced stocks to be used as collateral
for margin accounts or to be purchased on margin. Third, some brokerage house
policies and practices tend to discourage individual brokers from dealing in
low-priced stocks. Finally, broker's commissions on low-priced stocks usually
represent a higher percentage of the stock price than commissions on higher
priced stocks. As a result, our shareholders will pay transaction costs that are
a higher percentage of their total share value than if our share price were
substantially higher.




Forward-looking
statements





Certain
of the statements contained in this Report (other than the historical financial
data and other statements of historical fact) are forward-looking
statements.  These statements include, but are not limited to our
expectations with respect to the development of a new offices or divisions; the
achievement of certain revenue goals; the receipt of new business and contracts;
and our intentions with respect to financing our operations in the
future.  Additional forward-looking statements may be found in the
“Risk Factors” Section of this Report, together with accompanying explanations
of the potential risks associated with such statements.





Forward-looking
statements made in this Report are made based upon management’s good faith
expectations and beliefs concerning future developments and their potential
effect upon the Company.  There can be no assurance that future
developments will be in accordance with such expectations, or that the effect of
future developments on nCoat will be those anticipated by
management.  Forward-looking statements may be identified by the use
of words such as “believe,” “expect,” “plans,” “strategy,” “prospects,”
“estimate,” “project,” “anticipate,” “intends” and other words of similar
meaning in connection with a discussion of future operating or financial
performance.





You are
cautioned not to place undue reliance on these forward looking statements, which
are current only as of the date of this Report.  We disclaim any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.  Many important factors could cause actual results to
differ materially from management’s expectations, including those listed in the
“Risk Factors” Section, as well as the following:





•
            unpredictable
      difficulties or delays in the development of new products and
      technologies;•
            changes
      in U.S.  or international economic conditions, such as
      inflation, interest rate fluctuations, foreign exchange rate fluctuations
      or recessions in nCoat’s markets;





•
            pricing
      changes to our supplies or products or those of our competitors, and other
      competitive pressures on pricing and
sales;





•
            difficulties
      in obtaining or retaining the management, engineering, and other human
      resource competencies that we need to achieve our business
      objectives;





•
            the
      impact on nCoat or a subsidiary from the loss of a significant customer or
      a few customers;





•
            risks
      generally relating to our international operations, including
      governmental, regulatory or political changes;•
            Conversion
      of debt to a large number of shares by debenture
  holders.





•
            transactions
      or other events affecting the need for, timing and extent of our capital
      expenditures; and•
            the
      extent to which we reduce outstanding
debt.





18





ITEM
      2.
            PROPERTIES





All of
the facilities of the Company are leased.





We lease
63,600 square feet of office and production space in Whitsett, North Carolina
which houses our corporate headquarters and largest production
facility.  Our monthly lease payment is $20,600 per
month.  The terms of this lease expire


3/31/2011.





We lease
5,000 square feet of office space in King of Prussia, Pennsylvania which was
formerly the corporate headquarters of MCCI.  We vacated this space
March 31, 2008 and subsequently subleased the space.








We rent,
on a month-to-month basis, property in Oklahoma City, Oklahoma, with a monthly
payment of $1,250.





We rent,
on a month-to-month basis, a property in Tempe, Arizona, with a monthly payment
of $6,676.





We
believe that our current leased and rented space is sufficient to meet our needs
for the next 12 months and that the property is currently in acceptable
condition.





The
following table set forth a summary of these leases:





Company
            Location
            
            Office
              Space
            
            
            Production
              Space
            
            
            Total
            
            
            Annual
              Rent
              expense
            
            Expiration
              DatenCoat
            North
      Carolina
            
            
            12,000
            
            
            
            
            
            
            12,000
            
            
            $
            247,200
            
            3/31/11HPC
            North
      Carolina
            
            
            *
            
            
            
            51,600
            
            
            
            51,600
            
            
            
            **
            
            3/31/11Oklahoma
            
            
            *
            
            
            
            17,000
            
            
            
            17,000
            
            
            $
            15,000
            
            N/A
      (month-to-month)nTech
            North
      Carolina
            
            
            ****
            
            
            
            
            
            
            
            0
            
            
            
            **
            
            3/31/11MCCI
            Pennsylvania
            
            
            5,000
            
            
            
            
            
            
            
            5,000
            
            
            $
            65,000
            
            12/31/10Pennsylvania
            
            
            *
            
            
            
            9,840
            
            
            
            9,840
            
            
            $
            34,949
            
            1/30/10Arizona
            
            
            *
            
            
            
            15,000
            
            
            
            15,000
            
            
            $
            78,024
            
            N/A
      (month-to-month)TOTALS
            
            
            
            17,000
            
            
            
            93,440
            
            
            
            110,440
            
            
            $
            440,173


*Although
the table does not show office space in a number of the facilities, operational
management personnel have offices within the site and the square footage set
forth as production space includes these amounts.
 
 ** The
North Carolina location lease encompasses nCoat, HPC and nTech under a single
lease with an annual rent expense of $247,200.
  ****
nTech’s office personnel are presently sharing office space within the nCoat
office space listed.
 
 We
believe that the facilities are well maintained, and are generally suitable and
adequate for our current and projected operating needs.


19





ITEM
      3.
            LEGAL
      PROCEEDINGS





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. Litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business. As of the date of this Report, with the
exception of the case cited below, which has been resolved subsequent to the
close of our fiscal year, we were not aware of any such legal proceedings or
claims against the Company or its subsidiaries that management believes will
have a material adverse affect on business development, financial condition or
operating results.





Jeffrey
C. Holm et al. v. High Performance Coatings, Inc., Civil No. 080903021, Third
Judicial District Court, Salt Lake County, State of Utah.  On February
20, 2008, Jeffrey Holm and Thunderchief Enterprises, LLC (collectively, the
“Plaintiffs”) filed a complaint against High Performance Coatings, Inc.,
Nanocoat, Inc., Terry R. Holmes, Paul S. Clayson (collectively, the “nCoat
Defendants”), and others, in connection with a stock purchase agreement, a
consulting agreement, an escrow agreement, and other agreements between certain
of the parties.  The Complaint brings claims for relief against the
nCoat Defendants for breach of the consulting agreement, slander, tortuous
interference with economic relations, breach of the stock purchase agreement,
declaratory relief relating to a non-compete agreement, and
conversion.  The Plaintiffs sought damages from the nCoat Defendants
of approximately $740,000, plus the return of certain designated personal
property, together with damages to be proven at trial, punitive damages, fees,
costs, and such other relief as the court deems appropriate.  The
nCoat Defendants filed an Answer and Counter-claim against the Plaintiffs for
breach of contract, defamation, tortuous interference, violations of Utah
Uniform Securities Act, common law fraud and misrepresentation, and declaratory
relief and the Company continued its vigorous defense and prosecution of its
claims throughout 2008.





As of
January 2009, a settlement was reached whereby nCoat released the previously
escrowed funds associated with the HPC purchase originally scheduled for release
to Holm in August, 2008 and Jeffrey C. Holm dismissed with prejudice his civil
suit against the Company and agreed to a two year non-compete agreement and the
Company dismissed with prejudice its counterclaim against Holm.




ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Market
information





Our
common stock trades on the Pink Sheets OTC Electronics markets under the symbol
NCOA.pk.  The following table sets forth the prices of our common
stock as reported and summarized on the Pink Sheets since February 22,
2007.  These prices are based on inter-dealer bid and asked prices,
without markup, markdown, commissions, or adjustments and may not represent
actual transactions.


20




Calendar
      Quarter Ended
            
            High
      Bid
            
            
            Low
      Bid2007
      First Quarter
            
            $
            1.0900
            
            
            $
            0.59002007
      Second Quarter
            
            $
            1.0500
            
            
            $
            0.65002007
      Third Quarter
            
            $
            0.7300
            
            
            $
            0.36002007
      Fourth Quarter
            
            $
            0.5250
            
            
            $
            0.10002008
      First Quarter
            
            $
            0.2300
            
            
            $
            0.50002008
      Second Quarter
            
            $
            0.0520
            
            
            $
            0.01502008
      Third Quarter
            
            $
            0.0340
            
            
            $
            0.10002008
      Fourth Quarter
            
            $
            0.0150
            
            
            $
            0.00112009
      First Quarter
            
            $
            0.0017
            
            
            $
            0.00172009
      Second Quarter
            
            $
            0.0100
            
            
            $
            0.01002009
      Third Quarter
            
            $
            0.0050
            
            
            $
            0.00402009
      Fourth Quarter
            
            $
            0.0035
            
            
            $
            0.0035




As of
March 19, 2010, we had approximately 105 shareholders of holding 126,710,605
shares of common stock.





We have
not paid, nor declared, any dividends on our common stock since our inception
and do not intend to declare any such dividends in the foreseeable future. Our
ability to pay dividends is subject to limitations imposed by Delaware law.
Under Delaware law, dividends may be paid to the extent the corporation's assets
exceed its liabilities and it is able to pay its debts as they become due in the
usual course of business.





Penny
Stock Rules





Our
shares of common stock are subject to the "penny stock" rules of the Securities
Exchange Act of 1934 and various rules under this Act. In general terms, "penny
stock" is defined as any equity security that has a market price less than $5.00
per share, subject to certain exceptions. The rules provide that any equity
security is considered to be a penny stock unless that security is registered
and traded on a national securities exchange meeting specified criteria set by
the SEC, authorized for quotation from the NASDAQ stock market, issued by a
registered investment company, and excluded from the definition on the basis of
price (at least $5.00 per share), or based on the issuer's net tangible assets
or revenues. In the last case, the issuer's net tangible assets must exceed
$3,000,000 if in continuous operation for at least three years or $5,000,000 if
in operation for less than three years, or the issuer's average revenues for
each of the past three years must exceed $6,000,000.





Trading
in shares of penny stock is subject to additional sales practice requirements
for broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. Accredited investors, in general, include
individuals with assets in excess of $1,000,000 or annual income exceeding
$200,000 (or $300,000 together with their spouse), and certain institutional
investors. For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of the security and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, the rules
require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks. These rules may
restrict the ability of broker-dealers to trade or maintain a market in our
common stock, to the extent it is penny stock, and may affect the ability of
shareholders to sell their shares.





On May
22, 2009, the Company issued 5,000,000 shares of its common stock as the result
of a partial conversion of a note holder’s interest, reducing that Note by
$7,500.





On August
4, 2009, the Company issued 5,000,000 shares of its common stock as the result
of a partial conversion of a note holder’s interest, reducing that Note by
$7,500.





On
October 12, 2009, the Company issued 5,333,333 shares of its common stock as the
result of a partial conversion of a note holder’s interest, reducing that Note
by $8,000.





On
November 24, 2009, the Company issued 5,333,333 shares of its common stock as
the result of a partial conversion of a note holder’s interest, reducing that
Note by $8,000.





There
have been no repurchases of equity securities by nCoat during the years ended
December 31, 2009 or 2008.


21





ITEM
      6.
            SELECTED
      FINANCIAL DATA





The
selected consolidated financial information set forth below is derived from our
consolidated balance sheets and statements of operations as of and for the years
ended December 31, 2008 and December 31, 2007.  While the information
for 2009 has been developed using Generally Accepted Accounting Practices
(GAAP), this information has
not yet been audited or reviewed by outside accounting
firm.    The data set forth below should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the consolidated financial statements and related
notes thereto included in this Report.








22




nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSDecember
      31
            
            
            December
      312009
            
            
            2008ASSETS
            
            (Unaudited)
            
            
            (Unaudited)Current
      AssetsCash
            
            $
            17,062
            
            
            $
            42,134Trade
      receivables, net
            
            
            450,626
            
            
            
            767,160Inventory
            
            
            162,710
            
            
            
            88,778Other
      current assets
            
            
            55,036
            
            
            
            99,281Deferred
      income tax assets
            
            
            -
            
            
            
            -Total
      Current Assets
            
            
            685,434
            
            
            
            997,353Property and Equipment,
      net
            
            
            1,234,994
            
            
            
            1,677,037Intangible Assets,
      net
            
            
            1,845,717
            
            
            
            2,375,091Total
      Assets
            
            $
            3,766,145
            
            
            $
            5,049,481LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
            
            $
            3,501,602
            
            
            $
            3,476,203Accrued
      liabilities
            
            
            1,103,403
            
            
            
            859,086Accrued
      Interest
            
            
            83,762,099
            
            
            
            17,872,582Accrued
      Registration Liability
            
            
            132,683,572
            
            
            
            23,358,690Deferred
      revenue
            
            
            425,840
            
            
            
            759,176Current
      portion of notes payable
            
            
            696,800,082
            
            
            
            298,734,128Derivative
      Premium Payable
            
            
            120,348
            
            
            
            120,348Accrued
      consulting obligation
            
            
            -
            
            
            
            500,000Current
      portion of obligations under capital leases
            
            
            123,419
            
            
            
            121,988Total
      Current Liabilities
            
            
            918,520,365
            
            
            
            345,802,201Long-Term
      LiabilitiesNotes
      payable, net of current portion
            
            
            523,181
            
            
            
            150,322Obligations
      under capital leases , net of current portion
            
            
            40,475
            
            
            
            206,112Deferred
      income taxes
            
            
            97,262
            
            
            
            97,262Total
      Long-Term Liabilities
            
            
            660,918
            
            
            
            453,696Stockholders'
      Equity (Deficit)Common
      stock - $0.0001 par value; 500,000,000 shares
      authorized; 124,358,605 shares and 102,108,606 shares
      outstanding, respectively
            
            
            12,277
            
            
            
            10,211Additional
      paid-in capital
            
            
            22,324,601
            
            
            
            22,295,667Accumulated
      deficit
            
            
            (937,752,016
            )
            
            
            (363,512,294
            )Total
      Stockholders' Equity (Deficit)
            
            
            (915,415,138
            )
            
            
            (341,206,416
            )Total
      Liabilities and Stockholders' Equity (Deficit)
            
            $
            3,766,145
            
            
            $
            5,049,481





23





n
      COAT, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended
            
            
            For
      the Twelve Months EndedDecember
      31
            
            
            December
      312009
            
            
            2008
            
            
            2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Net
      Sales
            
            $
            1,904,549
            
            
            $
            1,695,214
            
            
            $
            7,327,146
            
            
            $
            9,901,588Cost
      of Goods Sold
            
            
            913,817
            
            
            
            1,331,644
            
            
            
            4,139,937
            
            
            
            6,420,227Gross
      Profit
            
            
            990,732
            
            
            
            363,570
            
            
            
            3,187,209
            
            
            
            3,481,361Operating
      ExpensesGeneral
      and Administrative Expense
            
            
            916,685
            
            
            
            986,056
            
            
            
            3,630,752
            
            
            
            5,496,474Research
      and Development Costs
            
            
            80,794
            
            
            
            79,709
            
            
            
            321,421
            
            
            
            376,165Sales
      and Marketing Expenses
            
            
            149,138
            
            
            
            153,930
            
            
            
            606,818
            
            
            
            645,280Impairment
      Loss on Intangible Assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Operating Expenses
            
            
            1,146,617
            
            
            
            1,219,695
            
            
            
            4,558,991
            
            
            
            6,517,919(Loss)
      from Operations
            
            
            (155,885
            )
            
            
            (856,125
            )
            
            
            (1,371,782
            )
            
            
            (3,036,558
            )Redemption
      premium interest expense
            
            
            (27,103,349
            )
            
            
            (231,574,115
            )
            
            
            (573,098,351
            )
            
            
            (324,748,542
            )Other
      Interest expense
            
            
            (181,917
            )
            
            
            ---
            
            
            
            (269,589
            )
            
            
            (69,582
            )Income
      from Bonus/Debt reduction
            
            
            ---
            
            
            
            
            
            
            
            500,000Gain
      on derivative liability valuation
            
            
            ---
            
            
            
            ---
            
            
            
            -
            
            
            
            492,044Net
      Loss
            
            $
            (27,441,151
            )
            
            $
            (232,430,240
            )
            
            $
            (574,239,722
            )
            
            $
            (327,362,638
            )Basic
      and Diluted Loss per Share
            
            $
            (0.26
            )
            
            $
            (2.37
            )
            
            $
            (5.47
            )
            
            $
            (3.34
            )Basic
      and Diluted Weighted-AverageShares Outstanding
            
            
            104,954,706
            
            
            
            98,045,014
            
            
            
            104,954,706
            
            
            
            98,045,014





24





ITEM
      7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





THIS
REPORT ON FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES.  ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED BY NCOAT AND DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS.  WHEN USED IN THIS ANNUAL REPORT, WORDS SUCH AS
"BELIEVES," "EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES," AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS,
ALTHOUGH THERE MAY BE CERTAIN FORWARD-LOOKING STATEMENTS NOT ACCOMPANIED BY SUCH
EXPRESSIONS.  ADDITIONALLY, STATEMENTS THAT RELATE TO THE FUTURE
BUSINESS DEVELOPMENT, FINANCIAL PROJECTIONS, CAPITAL RAISING, CAPITAL
REQUIRMENTS, GROWTH OF MARKETS OR CUSTOMER BASES, OR FUTURE BUSINESS
COMBINATIONS MAY ALSO INCLUDE FORWARD-LOOKING STATEMENTS.FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED BELOW IN THE SECTION
ENTITLED "INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS" AND UNDER THE
HEADING "CERTAIN SIGNIFICANT RISK FACTORS," ABOVE.  NCOAT, INC.,
SPECIFICALLY DISCLAIMS ANY OBLIGATION OR INTENTION TO UPDATE ANY FORWARD LOOKING
STATEMENT.





The
following Management’s discussion and Analysis of financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand
nCoat, Inc., our operations and our present business
environment.  MD&A is provided as a supplement to, and should be
read in conjunction with, our consolidated financial statements and the
accompanying notes thereto contained in Item 8 of this report.  This
overview summarizes MD&A, which includes the following
sections:





·
            Overview – a general
      description of our business and the markets in which we operate; our
      objective; our areas of focus; and challenges and risks of our
      business.





·
            Significant Accounting
      Policies– a discussion of accounting policies that require
      critical judgments and estimates.





·
            Results of Operations–
      an analysis of our Company’s consolidated results of operations for the
      three years presented in our consolidated financial
      statements.  Except to the extent that differences among our
      operating segments are material to an understanding of our business as a
      whole, we present the discussion in the MD&A on a consolidated
      basis.





·
            Liquidity and Capital
      Resources– an analysis of cash flows; off-balance sheet
      arrangements and aggregate contractual obligations; the impact of
      foregoing exchange; an overview of financial position; and the impact of
      inflation and changing prices.




25





We intend
for this discussion to provide the reader with information that will assist in
understanding our financial statements, the changes in certain key items in
those financial statements from year to year, and the primary factors that
accounted for those changes, as well as how certain accounting principles affect
our financial statements.  The discussion also provides information
about the financial results of the various segments of our business to provide a
better understanding of how those segments and their results affect the
financial condition and results of operations of the Company as a
whole.  This discussion should be read in conjunction with our
financial statements as of December 31, 2009, and the year then ended and the
notes accompanying those financial statements.





Overview





Our
principal business strategy includes the following components:





Acquisitions.  We
completed the acquisition, transition and integration of HPC and MCCI which have
given us a base of operations and market presence.  During the next
three years, we may identify additional specific target companies for
acquisition.  The high performance coating industry includes a number
of “sub-niche” sectors, such as corrosion and thermal management coatings solar
and alternative energy equipment manufacturing, thermal and corrosion management
coatings for orbital and non-orbital aircraft and aircraft engine manufacturing,
self-healing coatings for continuous corrosion management, hard-face coatings
for the gas and oil and aerospace industries, piston manufacturing and
protection, lubritic dry film coatings, anti-porosity/anti-oxidation coatings,
conformal coatings used to control corrosion and fugitive dust on printed
circuit boards and microchips, gas and oil tools, valves and pipelines, marine
applications for engine parts and anti-fouling technologies to name just a
few.  The fragmentation of the industry provides us with a large
number of small to medium size companies that we may investigate to determine
our both synergies and diversification with respect to our first two
acquisitions. Both internal and external factors may affect our ability to or
not to acquire additional companies including relative valuations of target
companies, financial criteria, nCoat financial condition, macro economic
conditions and other factors.





Internal Organic Growth. We
have already taken the existing “book of business” of our two subsidiaries and
introduced into it additional productsto cross sell from the sister company’s
product lines introduced nano-formulated coatings.  Operationally we
have created common core formulations that represent the best-of-breed from all
sources acquired or owned. Our emphasis on the after-market retail customer is
one of the two major segments of our business.  In additional to the
aftermarket sector, we continue to develop customers in the OEM market
segment. A strong source for internal organic growth in the next three
years is the continued emphasis by the manufacturers of diesel, gasoline and
hybrid fueled engines to meet demanding environmental requirements imposed on
their respective industries as we seek to improve emissions, fuel economy and
safety.





Distributed Model
Development. The
“distributed” business model is our establishment of on-site coatings
application as part of the assembly-line process within the manufacturing and/or
assembly process of a large customer.  nCoat currently has one OEM
customer employing a distributed model and we continue to have discussions with
others.  The savings on handling, shipping, inventory, logistics
management and other similar expenses that comes from having the on-site “plant”
is the principle benefit for our larger
customers.





Licensing Intellectual
Property.  We continue to enter into “field of use” licensing
with manufacturers that are tier-one suppliers of large OEM companies or who
deploy a distributed production model described above. However, unlike the
distributed model where application expertise and management control are
inherent elements of the model, our “field of use” license agreements supply
proprietary coatings to third parties already applying coating at their
plants.  The license agreements will be limited to targeted applications
and industries and structured as joint ventures to avoid creating competition in
our own current market space.




26





Strengthening nTech's research and
development efforts. On January 15, 2008, nCoat announced that North
Carolina Agricultural and Technical State University (NC A&T) in Greensboro,
North Carolina, and nCoat Inc. had established a technical collaboration
agreement for characterization and development of nanotechnology based materials
and industrial coatings. The Memorandum of Understanding (“MOU”) was signed
December 20th, 2007 with the Division of Research and Economic Development at
the university’s campus in Greensboro, North Carolina. Under the MOU, nCoat
collaborates with NC A&T’s Center for Advanced Materials and Smart
Structures (CAMSS) in areas of advanced composites, carbon nanotubes, nano
enhanced slurry coatings and metallic degradation from extreme thermal and
chemical environments. CAMSS has a track record in nano-science based advanced
materials as applied to thin film research, nano-composites, tribological and
environmental coatings.





CAMSS is
an extensively equipped and staffed materials research facility located on the
campus of NC A&T in Greensboro a few miles from nCoat’s location in
Whitsett. CAMSS is a NC A&T-wide umbrella center receiving support from the
National Science Foundation (Center for Research Excellence in Science and
Technology), Department of Energy, Department of Defense (Center for Nanoscience
and Nanomaterials), Air Force, and many industries. The center has extensive
nano characterization equipment including recent multiple innovations in atomic
and electron scanning microscopy and optical technologies. NC A&T has been
recognized as one of the leading nano materials research and development centers
in the United States.





The
agreement outlines joint efforts between nCoat and NC A&T to identify,
characterize, develop and commercialize new nano technology enhancements for
functional coatings and materials with applications in aerospace, medical,
energy, automotive, industrial, textile, advance composites, diesel engine
applications and other industries.





Among
other activities, the MOU is intended to establish a framework for
conceptualization and implementation of R&D projects with subsequent
commercialization. The agreement outlines governance of jointly and separately
developed intellectual property and potential patent alliances for inventions.
The agreement is also designed to establish joint revenues through technology
licensing for commercial applications.





Some of
the initial collaborative commercialization activities will be in the
nano-structured surface engineered systems to improve thermal barrier,
corrosion, tribological properties, biocompatibility and creating surface
technologies that create a cleaner environment.The
MOU also allows nCoat to collaborate with CAMSS on testing, prototyping and
development of materials specific to enhancing industry needs.





In March
2009, NC A&T was awarded a $25m Engineering Resource Center (ERC) grant from
the National Science Foundation and was recognized as the first federal
government designated historically black college or university (HBCU) to win
such an award and one of very few universities nationwide to ever win an ERC
grant. nCoat’s commercial development agreement with NC A&T played an
important role in aiding NC A&T to obtain the grant and nCoat officers
currently serve as key advisors and managers of the ERC, including as chair of
the Industrial Advisory Board to the ERC. nCoat expects to commercially benefit
from these activities.





This
agreement and others under discussion with outside research and development
groups, including technology transfer offices of universities, private
laboratories and other small start-up technology companies are designed to
continue to strengthen and exploit our research and development capacities while
reducing R&D costs.   All of nTech’s research activities are
focused on projects that can show commercialization within three to six months,
rather than long term R&D projects. Many research projects are driven by
direct requests from customers seeking immediate solutions to immediate critical
problems.


27





Acquisitions





Management
believes that there is a strategic acquisition opportunities resulting from the
market dynamics of the high performance coatings markets. Acquisitions of HPC
and Jet-Hot have further validated our strategic research. We expect to search
for, complete due diligence on and acquire other coatings companies that (i)
have a customer base that includes enterprise level customers in a mature
market, (ii) enjoy strong and stable market presence in our targeted primary
markets, (iii) are profitable, (iv) have a brand presence similar to HPC, and
Jet-Hot, and (v) have an existing product mix whose performance and
functionality can be significantly improved by the integration of nanotechnology
know-how.





Acquisition
of Jet-Hot





With
respect to the acquisition of Jet-Hot, we have realized key synergies which
include:





1.        
Jet-Hot had a plant in Arizona as does HPC. The plants are about 10 miles apart.
These were consolidated into a single location.


2.        
Jet-Hot plants are built for high through-put and packaging of individual
aftermarket production. HPC plants are built for high volume of OEM parts
production.


3.        
Two corporate headquarters existed. The accounting, human resources, legal,
purchasing, sales and marketing, R&D and company management were
consolidated into our North Carolina headquarter.


4.        
HPC and JET-HOT sales and marketing groups were consolidated for maximum
production and efficiency, including advertising budgets.


5.        R&D
and technical services were consolidated to nTech, for efficiency and
intellectual synergies.


6.        
HPC and JET-HOT sales prospects include many of the same names, including
several where the two companies are the only two competitors for the account.
This list was sorted into HPC and MCCI responsibilities, creating a
non-competing sales effort.


7.        
We have acquired sufficient market and operational experience to realize that a
single coating entity has a competitive disadvantage in attempting to create
high volume productions of both aftermarket parts and OEM parts.  The
addition of MCCI allows us to create focused plants for each of our major market
sectors.


8.        
Competition between MCCI and HPC for stand-alone coatings sales (no applications
services) has been eliminated and we are carrying “best of breed” coating from
each area in which we have needs.


9.         JET-HOT
has more thermal barrier customers than HPC. HPC has more corrosion resistance
and lubritic coatings customers than JET-HOT. Cross selling can occur to each
company’s customer base to raise same-customer revenue. In addition, JET-HOT
does not currently sell internal engine coatings. Their product line is for
coatings on external parts only. HPC internal engine coatings can now be offered
to all of JET-HOT’s approximate 9000 annual individual aftermarket
customers.





ITEM
8.                             
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Index
      to Consolidated Financial Statements:CONSOLIDATED FINANCIAL
      STATEMENTS:Consolidated
      Balance Sheets as of December 31, 2009 and 2008
            
            F-1Consolidated
      Statements of Operations and Comprehensive Loss for the Years
      Ended December
      31, 2009 and 2008
            
            F-2Consolidated
      Statements of Stockholders’ Equity (Deficit) for the Years
      Ended December
      31, 2009 and 2008
            
            F-3Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009,
      2008
            
            F-4Notes
      to Consolidated Financial Statements
            
            F-5





28





nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSDecember
      31
              
              
              December
      312009
              
              
              2008ASSETS
              
              (Unaudited)
              
              
              (Unaudited)Current
      AssetsCash
              
              $
              17,062
              
              
              $
              42,134Trade
      receivables, net
              
              
              450,626
              
              
              
              767,160Inventory
              
              
              162,710
              
              
              
              88,778Other
      current assets
              
              
              55,036
              
              
              
              99,281Deferred
      income tax assets
              
              
              -
              
              
              
              -Total
      Current Assets
              
              
              685,434
              
              
              
              997,353Property and Equipment,
      net
              
              
              1,234,994
              
              
              
              1,677,037Intangible Assets,
      net
              
              
              1,845,717
              
              
              
              2,375,091Total
      Assets
              
              $
              3,766,145
              
              
              $
              5,049,481LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
              
              $
              3,501,602
              
              
              $
              3,476,203Accrued
      liabilities
              
              
              1,103,403
              
              
              
              859,086Accrued
      Interest
              
              
              83,762,099
              
              
              
              17,872,582Accrued
      Registration Liability
              
              
              132,683,572
              
              
              
              23,358,690Deferred
      revenue
              
              
              425,840
              
              
              
              759,176Current
      portion of notes payable
              
              
              696,800,082
              
              
              
              298,734,128Derivative
      Premium Payable
              
              
              120,348
              
              
              
              120,348Accrued
      consulting obligation
              
              
              -
              
              
              
              500,000Current
      portion of obligations under capital leases
              
              
              123,419
              
              
              
              121,988Total
      Current Liabilities
              
              
              918,520,365
              
              
              
              345,802,201Long-Term
      LiabilitiesNotes
      payable, net of current portion
              
              
              523,181
              
              
              
              150,322Obligations
      under capital leases , net of current portion
              
              
              40,475
              
              
              
              206,112Deferred
      income taxes
              
              
              97,262
              
              
              
              97,262Total
      Long-Term Liabilities
              
              
              660,918
              
              
              
              453,696Stockholders'
      Equity (Deficit)Common
      stock - $0.0001 par value; 500,000,000 shares
      authorized;124,358,605 shares and 102,108,606 shares outstanding,
      respectively
              
              
              12,277
              
              
              
              10,211Additional
      paid-in capital
              
              
              22,324,601
              
              
              
              22,295,667Accumulated
      deficit
              
              
              (937,752,016
              )
              
              
              (363,512,294
              )Total
      Stockholders' Equity (Deficit)
              
              
              (915,415,138
              )
              
              
              (341,206,416
              )Total
      Liabilities and Stockholders' Equity (Deficit)
              
              $
              3,766,145
              
              
              $
              5,049,481
 
  F-1
  
 n
      COAT, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended
              
              
              For
      the Twelve Months EndedDecember
      31
              
              
              December
      312009
              
              
              2008
              
              
              2009
              
              
              2008(Unaudited)
              
              
              (Unaudited)
              
              
              (Unaudited)
              
              
              (Unaudited)Net
      Sales
              
              $
              1,904,549
              
              
              $
              1,695,214
              
              
              $
              7,327,146
              
              
              $
              9,901,588Cost
      of Goods Sold
              
              
              913,817
              
              
              
              1,331,644
              
              
              
              4,139,937
              
              
              
              6,420,227Gross
      Profit
              
              
              990,732
              
              
              
              363,570
              
              
              
              3,187,209
              
              
              
              3,481,361Operating
      ExpensesGeneral
      and Administrative Expense
              
              
              916,685
              
              
              
              986,056
              
              
              
              3,630,752
              
              
              
              5,496,474Research
      and Development Costs
              
              
              80,794
              
              
              
              79,709
              
              
              
              321,421
              
              
              
              376,165Sales
      and Marketing Expenses
              
              
              149,138
              
              
              
              153,930
              
              
              
              606,818
              
              
              
              645,280Impairment
      Loss on Intangible Assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      Operating Expenses
              
              
              1,146,617
              
              
              
              1,219,695
              
              
              
              4,558,991
              
              
              
              6,517,919(Loss)
      from Operations
              
              
              (155,885
              )
              
              
              (856,125
              )
              
              
              (1,371,782
              )
              
              
              (3,036,558
              )Redemption
      premium interest expense
              
              
              (27,103,349
              )
              
              
              (231,574,115
              )
              
              
              (573,098,351
              )
              
              
              (324,748,542
              )Other
      Interest expense
              
              
              (181,917
              )
              
              
              ---
              
              
              
              (269,589
              )
              
              
              (69,582
              )Income
      from Bonus/Debt reduction
              
              
              ---
              
              
              
              
              
              
              
              500,000Gain
      on derivative liability valuation
              
              
              ---
              
              
              
              ---
              
              
              
              -
              
              
              
              492,044Net
      Loss
              
              $
              (27,441,151
              )
              
              $
              (232,430,240
              )
              
              $
              (574,239,722
              )
              
              $
              (327,362,638
              )Basic
      and Diluted Loss per Share
              
              $
              (0.26
              )
              
              $
              (2.37
              )
              
              $
              (5.47
              )
              
              $
              (3.34
              )Basic
      and Diluted Weighted-AverageShares Outstanding
              
              
              104,954,706
              
              
              
              98,045,014
              
              
              
              104,954,706
              
              
              
              98,045,014
 
  F-2
  
 nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY(Unaudited)Additional
              
              
              
              
              
              TotalCommon
      Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              DeficitBalance
      - December 31, 2008(Unaudited)
              
              
              102,108,606
              
              
              $
              10,211
              
              
              $
              22,295,667
              
              
              $
              (363,512,294
              )
              
              $
              (341,206,416
              )Shares
      issued upon conversion ofaccrued interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Compensation
      related to vested andnonvested shares issued to employees, net of
      forfeitures
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Conversion
      of convertible note 5/22/2009
              
              
              5,000,000
              
              
              
              500
              
              
              
              7,000
              
              
              
              
              
              
              
              7,500Conversion
      of convertible note 8/04/2009
              
              
              5,000,000
              
              
              
              500
              
              
              
              7,000
              
              
              
              
              
              
              
              7,500Conversion
      of convertible note 10/12/2009
              
              
              5,333,333
              
              
              
              533
              
              
              
              7,467
              
              
              
              
              
              
              
              8,000Conversion
      of convertible note 11/24/2009
              
              
              5,333,333
              
              
              
              533
              
              
              
              7,467
              
              
              
              -
              
              
              
              8,000Net
      Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (574,239,722
              )
              
              
              (574,239,722
              )Balance
      - December 31, 2009 (Unaudited)
              
              
              122,775,272
              
              
              $
              12,277
              
              
              $
              22,324,601
              
              
              $
              (937,752,016
              )
              
              $
              (915,415,138
              )
 
  F-3
 
 nCOAT,
      INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Twelve Months EndedDecember
      31,2009
              
              
              2008(Unaudited)
              
              
              (Unaudited)Cash
      Flows From Operating ActivitiesNet
      loss
              
              $
              (574,239,722
              )
              
              $
              (327,362,638
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
              
              
              502,417
              
              
              
              599,232Amortization
      of intangible assets
              
              
              529,374
              
              
              
              593,772Compensation
      expense paid by issuance of common stock
              
              
              -
              
              
              
              247,696Redemption
      premium on notes payable recognized as interest
      expense
              
              
              573,356,605
              
              
              
              325,753,121Gain
      on derivative warrant liability
              
              
              -
              
              
              
              (492,044
              )Changes
      in assets and liabilities:Accounts
      receivable
              
              
              316,534
              
              
              
              167,177Inventory
              
              
              (73,932
              )
              
              
              83,699Other
      current assets
              
              
              44,245
              
              
              
              114,768Accounts
      payable
              
              
              25,399
              
              
              
              1,263,540Deferred
      revenue
              
              
              (333,336
              )
              
              
              759,176Accrued
      liabilities
              
              
              (255,683
              )
              
              
              (1,441,037
              )Net
      Cash Provided by Operating Activities
              
              
              (128,099
              )
              
              
              286,462Cash
      Flows From Investing ActivitiesPurchase
      of property and equipment
              
              
              (251,545
              )
              
              
              (43,080
              )Payment
      for purchase MCC Inc., net of cash acquired
              
              
              -
              
              
              
              -Net
      Cash Used in Investing Activities
              
              
              (251,545
              )
              
              
              (43,080
              )Cash
      Flows From Financing ActivitiesProceeds
      from issuance of notes payable
              
              
              540,000
              
              
              
              500,000Deferred
      income taxes
              
              
              -
              
              
              
              (163,313
              )Changes
      in stock and paid-in-capital
              
              
              31,000
              
              
              
              (144,435
              )Principal
      payments on notes payable
              
              
              (306,049
              )
              
              
              (535,828
              )Principal
      payments under capital lease obligations
              
              
              (164,206
              )
              
              
              (153,633
              )Net
      Cash Used in Financing Activities
              
              
              100,745
              
              
              
              (497,209
              )Net
      Increase (Decrease) in Cash
              
              
              (278,899
              )
              
              
              (253,827
              )Cash
      At Beginning of Period
              
              
              295,961
              
              
              
              295,961Cash
      At End of Period
              
              $
              17,062
              
              
              $
              42,134Supplemental
      Disclosures of Cash Flow InformationCash
      paid for interest
              
              $
              105,254
              
              
              $
              489,910
 
  F-4
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Note
1. Basis of Presentation and Description of Business
 
 Financial
Statements- The accompanying unaudited annual condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“generally accepted accounting
principles”) for condensed financial information and with the instructions to
Form 10-K for Small Businesses.  In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.  Operating results for the year ended December 31, 2009 are not
necessarily indicative of the results that may be expected for any future
periods.
 
 Nature of
Operations - nCoat, Inc. and its subsidiaries specialize in
nanotechnology research, licensing, and the commercialization, distribution and
application of nano as well as multiple non-nano surface coatings. The Company’s
specialized coatings are used by the automotive, diesel engine, trucking,
recreational vehicle, motorcycle, aerospace and oil and gas industries for heat
management, corrosion resistance, friction reduction, bond strength and
appearance.  Corporate offices and operations headquarters are located
in Whitsett, North Carolina and application operations are conducted at
facilities located in Oklahoma City, Oklahoma; Quaker Town, Pennsylvania; Tempe,
Arizona; and Whitsett, North Carolina.
 
 Principles of
Consolidation – The accompanying consolidated financial statements
include the operations, accounts and transactions of nCoat, Inc., High
Performance Coatings, Inc. and nTech, Inc. for all periods presented, of nCoat,
Inc. from February 14, 2007 and of MCCI from June 29, 2007. These entities are
collectively referred to herein as the “Company” or “nCoat.” All intercompany
transactions and balances have been eliminated in consolidation.
 
 Business
Condition – The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred losses of $574,239,722 and $327,362,638 and using $128,099 and
generating $286,462of cash in operating activities during the years ended
December 31, 2009 and 2008 respectively.  The Company has experienced
losses from operations since inception and has an accumulated deficit of
$937,752,016 as of December 31, 2009 which include over $920,000,000 in
penalties, interest, and carrying charges resulting from non-payment of interest
due on debenture financing the company engage in beginning May 31, 2007. . At
December 31, 2009, the Company had a working capital deficiency of $915,415,138.
Based on current operations, cash flows from operations were positive for the
second half of calendar year 2009.  As of December 31, 2009, the
Company’s principal sources of liquidity was  $450,626 of trade
accounts receivable while current liabilities totaled $918,520,365 at that date.
These factors, among others, raise substantial doubt about the Company’s ability
to continue as a going concern for a reasonable period of time. The accompanying
condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
  F-5
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Licensing Revenue
Recognition – Fees received from licensing the Company’s technology to
customers is recognized over the term of the license agreements. Licensing fees
received prior to recognition are accounted for as deferred revenue. Sales
revenue excludes lease payments made by customers on facilities used by the
Company.
 
 Loss Per Common
Share – Basic loss per share is computed by dividing net loss for the
period by the weighted-average number of common shares outstanding. The
nonvested common shares issued as employee compensation are excluded from the
calculation of basic loss per share. Diluted loss per share reflects dilutive
potential common shares outstanding during the period. During the twelve months
ended December 31 2009, the following anti-dilutive potential common shares were
excluded from the calculation of diluted loss per share: no nonvested shares of
common stock; 17,379,242,650 shares of common stock issuable upon conversion of
notes payable; 32,418,750 shares of common stock issuable upon the exercise of
warrants.  During the twelve months ended December 31, 2008, potential
common shares consisted of 1,837,800 nonvested shares of common stock;
6,601,388,889 shares of common stock issuable upon conversion of notes payable;
32,418,750 shares of common stock issuable upon the exercise of
warrants.
 
 Note
2.   Acquisition of MCC, Inc.
 
 On June
29, 2007, nCoat, Inc., completed the acquisition of all the capital stock of
MCC, Inc. ("MCCI"), doing business in the marketplace under the brand of
JET-HOT® Coatings. MCCI provides high performance coatings of metal parts for
industrial and personal use. In connection with the acquisition of MCCI,
the Company entered into a consulting agreement with the former majority
shareholder of MCCI whereby the Company is obligated to pay the former majority
shareholder consulting fees of $120,000 annually, performance bonuses equal to
2.5% of net sales from new customers, and to purchase, for up to $70,000, an
automobile for the consultant. The term of the obligation for the consulting
fees and the performance bonuses is through December 31, 2009, and will continue
for successive one-year periods unless terminated by either party. Because of
low cash flow, nCoat was unable to pay all obligations to the former majority
shareholder by December 31, 2009 and thereby restructured a new agreement with
him that continues until 11/01/2011.
  F-6
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
  Note
4.  Property and Equipment
 
 Property
      and EquipmentDecember
      31,
              
              
              December
      31,2009
              
              
              2008Property
      and Equipment
              
              $
              2,188,200
              
              
              $
              2,127,839Computer
      and office equipment
              
              
              118,959
              
              
              
              118,959Furniture
      and fixtures
              
              
              50,205
              
              
              
              50,205Vehicles
              
              
              155,182
              
              
              
              155,182Leasehold
      improvements
              
              
              589,138
              
              
              
              589,138Total
      Property and Equipment
              
              
              3,101,684
              
              
              
              3,041,323Less:
      Accumulated Depreciation
              
              
              1,866,690
              
              
              
              1,364,286Net
      Property and Equipment
              
              $
              1,234,994
              
              
              $
              1,677,037Intangible
      Assets 12/31/2009HPC,
      Inc.
              
              
              MCCI,
      Inc.
              
              
              TotalOriginal
      Balance
              
              
              3,991,444
              
              
              
              5,393,429
              
              
              
              9,384,873Impairment
      12/31/2007
              
              
              (1,841,977
              )
              
              
              (4,574,033
              )
              
              
              (6,416,010
              )Adjusted
      Balance 12/31/2009
              
              
              2,149,467
              
              
              
              819,396
              
              
              
              2,968,863Accumulated
      Amortization
              
              
              (795,034
              )
              
              
              (328,112
              )
              
              
              (1,123,146
              )Net
      Book Balance 12/31/2009
              
              
              1,354,433
              
              
              
              491,284
              
              
              
              1,845,717
 
 
 Impairment of Intangible Assets –The Company is required to review the fair market carrying values of
intangible assets regularly and evaluate them either through a formal evaluation
undertaken by an independent third-party valuation, or by comparing the present
value of the net cash flows generated by the assets over their useful life,
together with any recoverable value at the end of the life.  The
Company has undertaken careful conservative projections of revenues expected,
including the subjective likelihood of each area of revenue and has determined
that there is impairment to the intangible asset carrying value of
$6,416,010.  We have adjusted the Gross Carrying amount, and in so
doing also reset Accumulated Amortization going forward.  This
impairment directly affects the reported revenues of the Company for the period
ending December 31, 2009 and December 31, 2008.
 
 Note
6. Notes Payable
 
 Series A and B 6%
Convertible Promissory Notes– From May 25, 2007 through June 18, 2007
(primarily on May 31, 2007), the Company issued $9,000,000 of Series A 6%
convertible promissory notes (the “Series A Notes”) and warrants to purchase
22,500,000 shares of common stock exercisable at $1.00 per share through May 31,
2012. The Series A Notes were originally convertible into common stock at $0.40
per share through May 31, 2010, when the Series A Notes were due. Accrued
interest is payable quarterly.  From May 31, 2007 through July 10,
2007, the Company also issued $3,250,000 of Series B 6% convertible promissory
notes (the “Series B Notes”) and warrants to purchase 8,125,000 shares of common
stock exercisable at $0.80 per share through May 31, 2010. The Series B Notes
were originally convertible into common stock at $0.40 per share through May 31,
2010, when the Series B Notes were due. Accrued interest is payable quarterly.
Conversion of the promissory notes is limited such that at any time a note
holder cannot own more than 4.99% of the Company’s outstanding common stock. The
conversion price is adjustable to match any additional issuances of common stock
at prices lower than the current conversion price.
  F-7
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009
 (Unaudited)
 
 The
common stock into which the Series A Notes are convertible and the related
warrants are subject to certain registration rights. Per the registration rights
agreement, the Company is obligated obtain the effectiveness of a registration
statement, which has not occurred, and to keep the registration statement
effective until all the registered shares of common stock are sold by the note
holders. Failing to obtain effectiveness of the registration statement, the
Company is required to pay partial liquidating damages of 1% per month of the
aggregate purchase price paid by the Series A note holders, or $90,000 per
month. Interest is charged on unpaid damages at the rate of 18% per
annum. The Company recognized a registration payment liability at the date
of the issuance of the Series A notes and had adjusted the liability to $540,000
($132,683,572 after the effects of the redemption premium discussed below) at
December 31, 2009 for estimated payments to be made under the registration
rights agreement. The carrying value of the registration payment liability is
adjusted to reflect the fair value of the registration payment liability at each
balance sheet date.
 
 Upon the
occurrence of certain default or triggering events, the notes holders may
demand redemption of the Series A and Series B notes. The triggering events
include failure to provide notice and pay the related partial liquidated damages
to the note holders within one day of the following events: failure to file the
registration statement or obtain its effectiveness by the required dates,
failure to respond to comments by the U.S. Securities and Exchange Commission
within 15 days of receipt of those comments, suspension from trading or listing
on a market, failure to convert shares upon request, failure to qualify new debt
as permitted debt under the terms of the Series A and Series B Notes and failure
to make payments under the terms of the promissory notes. Upon the
occurrence of a triggering event, the holders have the right to require the
Company to redeem their notes at an amount equal to the total of unpaid accrued
interest, unpaid liquidated damages and the face amount of the notes multiplied
by the greater of (i)
125% during the first 12 months of the term of the note or 115% thereafter or
(ii) the closing market
price of the Company’s common stock on the date of the triggering event divided
by the closing market price on the first day of each month following the
triggering event. The conversion price also decreases to the closing market
price on the first day of each month following the triggering
event.
 
 In
December 2007, the Company entered into an agreement with the Series A and
Series B note holders whereby the Series A and Series B note holders agreed
to waive certain triggering events in exchange for the modification of the
conversion price to $0.25 per share and for Company agreeing to pay partial
liquidated damages to the note holders for triggering events occurring on or
after February 29, 2008. However, on February 29, 2008, the Company failed
to obtain effectiveness of the required registration statement. On April 1,
2008, July 1, 2008 and on October 1, 2008, the Company failed to pay accrued
interest to the Series A and B note holders.  As a result, the Series
A and B notes became due on demand at a redemption premium as described above.
At December 31, 2009, the carrying value of the Series A and B notes has been
adjusted to $695,169,706 for the increase in the redemption price.  To
date, no demand has been made by the note holders for redemption of the Series A
and B Notes. At the January 1, 2010 conversion price of $0.002 per share, the
Series A and B Notes are convertible into 148,531,250,000 shares of common
stock. However, there are only 375,641,395 authorized, unissued shares of common
stock available and, therefore, the notes payable cannot all be
converted.  Should debenture holders seek to convert all or
substantially all of their currently outstanding debenture notes at stock prices
allowed under the liquidated damages clauses in the debenture notes
documentation at current stock prices, nCoat would be required to seek approval
from shareholders to substantially increase the number of shares authorized to
at least 150,000,000,000 shares to meet the shares required from the
conversions.
 
 Unpaid
accrued interest bears interest at 18% per annum. Under the terms of the Series
A and B Notes, the unpaid accrued interest and the unpaid registration payment
liability have also been increased by the redemption premium formula described
above, which resulted in accrued interest on the Series A and B Notes of
$83,538,845 and a registration payment liability $132,683,572 at December 31,
2009.
  F-8
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009 and 2008
 
 Notes
payable at December 31, 2009 and December 31, 2008 are summarized as
follows:
 
 December
      31,
              
              
              December
      31,2009
              
              
              20086%
      $9,000,000 Series A convertible promissory notes;due on demand
              
              $
              513,494,412
              
              
              $
              218,215,0006%
      $3,250,000 Series B convertible promissory notes;due on demand
              
              
              181,675,294
              
              
              
              78,812,500Note
      payable, bearing interest at prime plus 1.0%(3.25%
      at December 31, 2009); due March 2011
              
              
              141,192
              
              
              
              146,264Note
      payable, bearing interest at prime plus 1.0%(3,25%
      at December 31, 2009) payable on demand
              
              
              280,364
              
              
              
              280,364Note
      payable to bank; secured by equipment;interest
      at 8.75%, payments due through 2010
              
              
              5,893
              
              
              
              14,670Notes
      payable to Investment Group; secured byequipment;
      bearing interest at 17%,payments
      $8,523 monthly
              
              
              264,471Notes
      payable to Consultant; secured by equipment;
              
              
              
              
              
              
              -bearing
      interest at 12%, payments $3,792 monthly
              
              
              86,289Notes
      payable to Shareholder; secured by equipment;bearing
      interest at 12%, payments $6,631 monthly
              
              
              195,348
              
              
              
              235,652Notes
      payable; bearing interest at 10%; unsecured;due
      on demand
              
              
              1,180,000
              
              
              
              1,180,000Total
      Notes Payable
              
              
              697,323,263
              
              
              
              298,884,450Less:
      Current portion
              
              
              696,800,082
              
              
              
              298,734,128Long-Term
      Notes Payable
              
              $
              523,181
              
              
              $
              150,322  Future
      maturities:Years
      Ending December 31:2010
                
                $
                696,800,0822011
                
                
                266,2642012
                
                
                97,4592013
                
                
                74,9632014
                
                
                47,447Thereafter
                
                
                37,048Total
                
                $
                697,323,263
 
 The fair
value of notes payable was determined based upon current market interest rates
and was $298,847,369 at December 31, 2008. Future annual maturities of notes
payable, exclusive of unamortized discounts, as of December 31, 2008, were as
follows:
 
 Years
      Ending December 31:2009
              
              $
              298,585,9802010
              
              
              106,4342011
              
              
              67,6762012
              
              
              56,2672013
              
              
              58,502Thereafter
              
              
              9,591Total
              
              $
              298,884,450
 
 Note
7. Stock Compensation Plan
 
 On
February 2, 2007, the Company adopted a stock award plan (the “Plan”) and began
awarding shares of common stock and shares of nonvested common stock to
employees and consultants as compensation. The nonvested shares vest over
periods ranging from immediately upon being issued to four years. If an employee
terminates employment with the Company prior to the shares vesting, the
nonvested portion of the shares will be forfeited and returned to the Company.
The nonvested shares are being held in an escrow by a third party. Compensation
related to the shares awarded is based upon the fair value of the awards
expected to vest, as determined by the Black-Scholes option pricing model and
recognized by the graded-vesting method over the period each award vests. The
Company recognized $1,222,044 of related compensation expense during the nine
months ended September 30, 2007.
  F-9
 
 NCOAT,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2009
 
  A summary
of the status of the Company’s nonvested shares of common stock as of December
31, 2009:
 
 Weighted-AverageAward-DateNonvested
      Shares of Common Stock
              
              Shares
              
              
              Fair
      ValueAward
              
              
              13,309,090
              
              
              $
              0.144Vested
              
              
              (12,334,260
              )
              
              $
              0.129Forfeited
              
              
              (402,000
              )
              
              $
              0.129Nonvested
      at December 31, 2009
              
              
              572,830
              
              
              $
              0.139
  As of
December 31, 2009, there was $28,706 of total unrecognized compensation expense
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period of
..4 years from December 31, 2009. The total fair value of the shares that vested
during the year ended December 31, 2009 was $2,865.
 
 Note
8. Common Stock
 
 In
addition to shares of common stock issued as part of the stock compensation
plan, on February 2, 2007, 1,130,910 shares of common stock were issued to a
shareholder to whom the company had issued 5,666,668 shares of common stock for
$1,500,000 in June 2006. The additional shares were to increase the number of
shares issued for the original cash consideration and was recorded during
February 2007 for no additional consideration. On February 14, 2007,
3,740,000 shares of common stock were issued upon the exercise of warrants for
$170. On March 23, 2007, the Company issued 880,400 shares of common stock to an
investment banker for its services in facilitating a debt or equity offering.
The shares were valued at $113,572, or $0.129 per share, and were recognized as
deferred loan costs. On August 17, 2007, $100,000 of principal on a note payable
to the former majority shareholder of MCCI was converted into 250,000 shares of
common stock.
 
 Note
9.  Income Taxes
 
 Accrued
income taxes at September 30, 2007 consisted of $108,975 of federal and state
income taxes assumed in the acquisition of MCC, Inc. on June 29, 2007. There was
no benefit or provision for income taxes during the nine months ended September
30, 2007. The net deferred income tax liability consisted of the following at
December 31, 2009 and December 31, 2008:
 
 nCoat,
      Inc. and SubidiairesIncome
      Tax Disclosures12/31/2009December
      31,
              
              
              December
      31,2009
              
              
              2008Deferred
      Tax LiabilitiesProperty
      and equipment
              
              $
              293,344
              
              
              $
              293,344Intangible
      assets
              
              
              1,146,574
              
              
              
              1,146,574Total
      Deferred Tax Liabilities
              
              
              1,439,918
              
              
              
              1,439,918Deferred
      Tax AssetsAllowance
      for doubtful accounts
              
              
              138,555
              
              
              
              120,008Accrued
      consulting obligation
              
              
              -
              
              
              
              -Accrued
      PTO
              
              
              155,762
              
              
              
              210,477Operating
      loss carryforwards
              
              
              6,872,708
              
              
              
              6,640,543Total
      Deferred Tax Assets
              
              
              7,167,025
              
              
              
              6,971,028Valuation
      Allowance
              
              
              (5,727,107
              )
              
              
              (5,531,110
              )Net
      Deferred Tax Liability
              
              $
              -
              
              
              $
              -
  F-10




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              
              THE FINANCIAL STATEMENTS INCLUDED
      HEREIN ARE NOT AUDITED. NCOAT HAS NOT ACCUMULATED ENOUGH CASH TO PAY THE
      AUDIT FEE TO COMPLETE THE AUDIT OF ITS 2008 FINANCIALS PRIOR TO SUBMISSION
      OF THIS REPORT. FOLLOWING PAYMENT OF THE AUDIT FEE, NCOAT AUDITORS WILL
      COMPLETE THE AUDIT AND NCOAT WILL FILE AN AMENDED FORM 10K.ITEM
      9A.
            CONTROLS AND
      PROCEDURES





Management’s
Report On Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Exchange Act. This
rule defines internal control over financial reporting as a process designed by,
or under the supervision of, the Company’s Chief Executive Officer and Chief
Financial Officer, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP. Our internal control over financial
reporting includes those policies and procedures that:





•
            Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





•
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. GAAP, and that
      receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the Company;
      and





•
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





The
Company has taken steps to address all previously noted weaknesses, and believes
that internal controls are significantly improved over prior
year.  HOWEVER, AS NOTED ABOVE, FINANCIAL STATEMENTS FOR 2008 HAVE NOT
YET BEEN AUDITED BY OUTSIDE ACCOUNTING FIRM, AND THEREFORE MUST BE VIEWED IN
THAT CONTEXT.





ITEM
9B.                        
   OTHER INFORMATION





None.


29





PART
III




ITEM
10.                       
     Directors, Executive Officers, Promoters and
Control Persons





Directors
      and Executive Officers
            
            
            
            Position
            Served
      SincePaul
      S. Clayson
            
            
            53
            
            CEO
      and Chairman of the Board of Directors.
            February
      2007Director
            October
      2006Terry
      R. Holmes
            
            
            63
            
            President,
      COO
              Director
            February
      2007
              October
      2006Dr.
      Thomas Buckley
            
            
            60
            
            Director
            March
      2007





Paul
S. Clayson


Mr.
Clayson is the founder, chairman, and chief executive officer of nCoat. He has
been a business owner, global strategic planning expert, financial and
investment strategist and political advisor for the past 30 years. Since 2003 he
has served as President and Chief Operating Officer and equity partner of
Sequoia Pacific Research, Inc., which is a diversified nanotechnology company.
From 1998 to 2003 Mr. Clayson was Vice President, Corporate Strategy, Sales,
Marketing and Corporate Development for Fonix Corporation, a software technology
company where he developed global marketing, business, product development and
finance strategies and grew the company from a no-revenue R&D company to a
globally commercialized firm with customers worldwide and development contracts
with many of the world's dominant computer, semiconductor, telecom and consumer
electronics companies.  From 1988 to 1998, Mr. Clayson managed
congressional campaigns and served as Chief of Staff to two U.S. Congressmen and
as a lead advance agent to two U.S. Presidents. From 1982 to 1986, Mr.
Clayson served as senior management and operations officer for three prominent
institutional investment advisory and research firms in Portland, Oregon,
growing assets under management from $400 million to over $2 billion in under
four years. Mr. Clayson has served as the Chairman of the Economic Development
Committee for the campaign of Governor Jon Huntsman of Utah and was appointed by
the Governor to serve as the Chairman of the Utah Nanotechnology Initiative. Mr.
Clayson devotes over 60 hours per week to our business. Mr. Clayson currently
serves as the Chairman of the Industrial Advisory Board to the North Carolina
A&T State University Engineering Resource Center and as a member of the
University of North Carolina Technology Transfer Advisory Board. He has served
as Chairman of the North Carolina Advanced Manufacturing Round
Table.





Terry
R. Holmes


Since
2001, Mr. Holmes has served as CEO and Chairman of Sequoia Pacific Research,
Inc. a nano-technology research, development and technology licensing company,
which he founded.  Mr. Holmes has 35 years of high level business
experience as a serial entrepreneur successfully starting numerous profitable
technology enterprises, primarily in the telephony, software development and
interactive voice response (IVR) industries. Mr. Holmes has incubated numerous
software applications and commercialized many into companies.  Mr.
Holmes founded the first ASP voice mail bureau in the United Stated of America
and developed a total of 3 voice mail bureaus, then sold his interest to develop
systems for the IVR industry. Mr. Holmes has founded and been CEO and Chairman
of several telephony software companies, including; a telephony interconnect
company, a telecom consulting company, an MLM ASP software development and
licensing company and a health benefit eligibility and enrollment ASP software
development and licensing company. Currently, he serves as CEO and Chairman of
the Board of TelNetz, Inc., an ASP telephony and web based incubation company.
Mr. Holmes currently serves as the Vice Chairman of the Utah Nanotechnology
Imitative and as a member of the Utah Digital Health Commission. Mr.
Holmes devotes over 60 hours per week to our business.


30





Dr.
Thomas F. Buckley


Since
1996, Dr. Buckley has served on the staff of Chevron Texaco providing counsel
and product management strategies to assure coordinated and timely technical
outcomes consistent with regulatory compliance obligations and internal
corporate policy. To this end, among other duties, he serves as lead new
substance notification negotiator in most discussions with the major global
Competent Authorities. Currently, he also serves as a lead lubricant industry
group contributor to the ongoing debate to develop reasoned and scientifically
sound draft directives and regulations, thus minimizing any potentially adverse
impacts upon the chemical industry at large. For over 27 years, Dr. Buckley has
enjoyed career success as a research and development chemist, staff scientist,
and global chemical product compliance specialist providing market support for
existing and emerging lubricant and fuel additive technologies, novel minerals
applications and alternative fuel sources for both large and small corporations
and affiliated university research departments. Dr. Buckley has specific
expertise in synthetic organic chemistry, related commercial process and product
development, the protection of Intellectual Property Rights, and associated
global new chemical regulatory affairs. Dr. Buckley received both his Bachelor
of Science degree in Chemistry and his Master of Science degree in Organic
Chemistry from the University of New Hampshire (Durham) in the early 70s,
beginning his professional career as a medicinal chemist. He later completed his
Doctor of Philosophy degree in Synthetic Organic Chemistry from the University
of California (Berkeley). He is the inventor of record for over 45 U.S. and
International patents, has published in several research, business trade, and
technical journals over his career including numerous technical conference
venues to date, and has served as Chairperson of numerous lubricant additive
trade associations sector groups having impact upon the uniform interpretation,
reconciliation, and implementation of regional chemical regulations in a global
chemicals economy.




Audit
Committee Financial Expert





The Board
of Directors has determined that we do not have an audit committee financial
expert.  We have been seeking to add an individual with these
qualifications to our Board of Directors but have been unable to find a suitable
individual.  We continue to search for someone who meets the
qualifications of an audit committee financial expert.





31





Compliance
with Section 16(a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who beneficially own more than 10% of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission.  Officers, directors and
greater than 10% shareholders are required by regulation of the Securities and
Exchange Commission to furnish us with copies of all Section 16(a) forms which
they file.  Based solely on its review of the copies of such forms
furnished to us during the fiscal year ended December 31, 2007, we are aware of
the following untimely filings:





As of the
date of this report, Messrs. Clayson and Holmes had not filed Forms
5.





Code
of Ethics Disclosure





Code of
Ethics.  The Company has not yet adopted a code of
ethics.  The Board of Directors anticipates that it will adopt a code
of ethics during the second or third quarter of 2008, and that we will file the
code of ethics as an exhibit to the quarterly report following the adoption of
the code of ethics.








ITEM
      11.
            EXECUTIVE
      COMPENSATION





Compensation
Discussion and Analysis





The
following is a discussion of the Company’s program for compensation of its named
executive officers and directors.  As of the date of this Report, the
compensation committee of the Board of Directors was responsible for determining
the Company’s compensation program.





Compensation
Program Objectives





The
Company’s compensation program is designed to encompass several factors in
determining the compensation of the Company’s named executive
officers.  The following are the main objectives of the compensation
program for the Company’s named executive officers:





-
            Retain
      qualified officers.-
            Provide
      overall corporate direction for the officers and also to provide direction
      that is specific to officer’s respective areas of
      authority.  The level of compensation amongst the officer group,
      in relation to one another, is also considered in order to maintain a high
      level of satisfaction within the leadership group. We consider the
      relationship that the officers maintain to be one of the most important
      elements of the leadership group.-
            Provide
      a performance incentive for the officers.





The
Company’s compensation program is designed to reward the officers in the
following areas:





-
            achievement
      of specific goals;-
            professional
      education and development;-
            creativity
      in the form of innovative ideas and analysis for new programs and
      projects;-
            new
      program implementation;-
            attainment
      of company goals, budgets, and objectives;-
            results
      oriented determination and organization;-
            positive
      and supportive direction for company personnel; and-
            community
      involvement.





As of the
date of this Report, there were four principal elements of named executive
officer compensation.  The Board of Directors determines the portion
of compensation allocated to each element for each individual named executive
officer.  The discussions of compensation practices and policies are
of historical practices and policies.  Our Compensation Board of
Directors is expected to continue these policies and practices, but will
reevaluate the practices and policies as it considers
advisable.


32





The
elements of the compensation program include:





-           Base
salary;


-           Stock
options and stock awards;


-           Employee
benefits in the form of:


-           health
and dental insurance;


-           auto
reimbursement


-           Other
de minimis benefits.





Base
salary





Base
salary is intended to provide competitive compensation for job performance and
to attract and retain qualified named executive officers.  The base
salary level is determined by considering several factors inherent in the market
place such as: the size of the company; the prevailing salary levels for the
particular office or position; prevailing salary levels in a given geographic
locale; and the qualifications and experience of the named executive
officer.





Stock
options and stock awards





Stock
ownership is provided to enable named executive officers and directors to
participate in the success of the Company.  The direct or potential
ownership of stock will also provide the incentive to expand the involvement of
the named executive officer to include, and therefore be mindful of, the
perspective of stockholders of the Company.





Employee
benefits





Several
of the employee benefits for the named executive officers are selected to
provide security for the named executive officers.  Most notably,
health insurance coverage is intended to provide a level of protection to that
will enable the named executive officers to function without having the
distraction of having to manage undue risk.  The health insurance also
provides access to preventative medical care which will help the named executive
officers function at a high energy level, to manage job related stress, and
contribute to the overall well being of the named executive officers, all of
which contribute to an enhanced job performance.





Other
de minimis benefits





Other de
minimis employee benefits such as cell phones and auto usage reimbursements are
directly related to job functions but contain a personal use element which is
considered to be a goodwill gesture that contributes to enhanced job
performance.





As
discussed above, the Board of Directors determines the portion of compensation
allocated to each element for each individual named executive
officer.  As a general rule, base salary is competitively based while
giving consideration to employee retention, qualifications, performance, and
general market conditions.  Typically, stock options are based on the
current market value of the option and how that will contribute to the overall
compensation of the named executive officer.  Consideration is also
given to the fact that the option has the potential for an appreciated future
value.  As such this future value may in fact be the most significant
factor of the option, but it is also more difficult to quantify as a benefit to
the named executive officer.





Accordingly,
in determining the compensation program for the Company, as well as setting the
compensation for each named executive officer, the Board of Directors
attempts to attract the interest of the named executive officer within in the
constraints of a compensation package that is fair and equitable to all parties
involved.


33




SUMMARY
COMPENSATION TABLE
 
 The
following executive compensation disclosure reflects all compensation awarded
to, earned by or paid to the executive officers below. The following table
summarizes all compensation projected for 2009.








Name
      and Principal Position
            Year
            
            Salary
            
            
            Bonus
            
            Stock
              Awards
            Option
              Awards
            Non-Equity
              Incentive
      Plan Compensation
            Nonqualified
      Deferred Compensation Earnings
            All
      Other
              Compensation
            
            TotalPaul
      Clayson
            2009
            
            $
            250,000
            
            
            (1)
            
            
            
            
            
            
            
            $
            250,000TerryHolmes
            2009
            
            $
            250,000
            
            
            (1)
            
            
            
            
            
            
            
            $
            250,000





(1)
Executive management salaries are established by the Board and may include
contractual agreements between executive management and nCoat. Further, current
or new investors may require compensation contracts with executive management to
entice them to remain with nCoat and/or incent their performance.


(1)  Annual
bonuses, if any, are established by the Board or its compensation committee, as
applicable, which will establish potential bonus amounts, criteria and
milestones in consultation with executive management. Bonuses may be based on
factors such as (i) revenue growth, (ii) EBITDA, (iii) new product introduction,
(iv) customer base growth, (v) customer retention, (vi) completion of target
M&A activities, and (vii) successful integration of acquired companies or
assets (each such area adopted by the board or Compensation Committee being a
“Performance Evaluation Category”). Achievement of objectives are monitored by
the Board and entitles the executives to bonus payments in cash, nCoat stock,
vehicles and other considerations. Cash considerations may be awarded up to an
amount as much as three hundred percent (300%) of the executive’s annual base
salary.





Director
Compensation





We have not paid any compensation to
our directors in 2009.





Stock
Option Plans





There is
no stock option plan in effect as of the date of this report.  This
does not preclude any such plans in the future.





Board
of Directors Meetings, Committees and Director Compensation





Our board
of directors took action at one meeting duly noticed meeting of the board during
2009.


34





ITEM
12.        SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.





The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2009 [OR MORE RECENT IF POSSIBLE],
by:





•
            each
      person known by us to be a beneficial owner of more than 5.0% of our
      outstanding common stock;•
            each
      of our directors;•
            each
      of our named executive officers; and•
            all
      directors and executive officers as a
group.





The
number and percentage of shares beneficially owned is determined under rules of
the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire beneficial ownership of within 60 days of  November 19 , 2007
through the exercise of any stock option or other right. Unless otherwise
indicated in the footnotes, each person has sole voting and investment power
with respect to the shares shown as beneficially owned. A total of 126,710,605
shares of our common stock were issued and outstanding as of March 19,
2010.





Unless
provided for otherwise, the address for each of the beneficial owners named
below is the Company's business address 7237 Pace Dr. PO Box 38 Whitsett,
NC 2737-9118.








Name
      of Beneficial Owner
            
            Shares
            
            
            Percent
      of Class5%
      Stock Holders
            
            
            16,058,600
            
            
            
            16.7%Mark
      Willes Family Trust3561
      North 100 EastSuite
      300Provo,
      UT 84604Directors
      and Named Executive OfficersPaul
      Clayson
            
            
            13,451,880
            
            
            
            13.9%Terry
      Holmes
            
            
            13,976,880
            *
            
            
            13.9%Dr.
      Thomas F. Buckley
            
            
            -
            
            
            
            --
            
            
            
            -All
      directors and executive officers as a group. (4 persons)
            
            
            27,428,760
            
            
            
            27.8%





*  Includes
525,000 shares owned by Marcine Holmes, Spouse


35





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.





Beginning
October 1, 2005, we have leased telephone and computer equipment and purchased
long distance telephone service from TelNetz, Inc., a Utah Company which is
owned by Mr. Holmes on terms not less favorable to us than what we would have
paid to any unrelated or unaffiliated party.  Currently, nCoat leases
Telephone Services from TelNetZ and all other affiliate transactions with Mr.
Holmes have been satisfied and terminated.





Director
Independence





As of the
date of this Report, our common stock traded on the Pink Sheets.
..  The Pink Sheets does not impose on us standards relating to
director independence or the makeup of committees with independent directors, or
provide definitions of independence.  Nevertheless, we have undertaken
to appoint to our Board of Directors Dr. Thomas Buckley, who is independent
under the NASDAQ Marketplace Rules and those standards applicable to companies
trading on NASDAQ.





Specifically,
Dr. Buckley:





-
            has
      not been any time during the past three years, employed by us or by any
      parent or subsidiary of ours;


-
            has
      not accepted or had a family member who accepted any compensation from us
      in excess of $60,000 during any period of twelve consecutive months within
      the three years preceding the determination of
    independence.-
            is
      not a family member of an individual who is, or at any time during the
      past three years was, employed by us as an executive
    officer;


-
            is
      not, and does not have a Family Member who is, a partner in, or a
      controlling shareholder or an executive officer of, any organization to
      which we made, or from which the company received, payments for property
      or services in the current or any of the past three fiscal years that
      exceed 5% of the recipient's consolidated gross revenues for that year, or
      $200,000.-
            is
      not, and does not have a family member who is, employed as an executive
      officer of another entity where at any time during the past three years
      any of the executive officers of ours serve on the compensation committee
      of such other entity; or


-
            is
      not, and does not have a family member who is, a current partner of our
      outside auditor, or was a partner or employee of our outside auditor who
      worked on our audit at any time during any of the past three
      years.




36





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





(1) AUDIT
FEES





(2)
AUDIT-RELATED FEES





(3)
TAX FEES





(4) ALL
OTHER FEES





(5)
AUDIT COMMITTEE POLICIES AND PROCEDURES





Not
applicable.





(6) If
greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent
employees.





Not
applicable.


37





Item 2.  Management’s Discussion
and Analysis of Financial Condition and Results of Operations





This
management’s discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes included elsewhere in this
report on Form10-QSB.





This
management’s discussion and analysis, as well as other sections of this report
on Form10-QSB, may contain “forward-looking statements” that involve risksand
uncertainties, including statements regarding our plans, future events,
objectives, expectations, forecasts, or assumptions. Any statement that is not a
statement of historical fact is a forward-looking statement, and in some cases,
words such as “believe,” “estimate,” “ project,” “expect,” “intend,” “may,”
“anticipate,” “plans,” “seeks,” and similar expressions identify forward-looking
statements. These statements involve risks and uncertainties that could cause
actual outcomes and results to differ materially from the anticipated outcomes
or results, and undue reliance should not be placed on these statements. These
risks and uncertainties include, but are not limited to uncertainties discussed
in filings made with the Securities and Exchange Commission. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.





Overview





Tylerstone
Ventures Corporation (“Tylerstone”) was incorporated under the laws of the State
of Delaware on September 24, 1998, with authorized common stock of 25,000,000
shares at a par value of $0.001. Tylerstone’s formation and prior operations are
as described in the appropriate periodic reports filed by Tylerstone with the
United State Securities and Exchange Commission (the “Commission”).





In the
fall of 2006, Tylerstone’s then current management began discussions with the
management of a company named nCoat, Inc. These discussions and eventual
negotiations considered the possible mutual interest between the parties.
Tylerstone was a registered and reporting company that had been completing
requirements to be listed on the OTC Bulletin Board and nCoat was an operating
company that needed additional capital.  A merger was agreed upon
whereby Tylerstone would buy nCoat, run that business and change Tylerstone’s
name so that nCoat, Inc would be the name of the public entity. In anticipation
of the merger of the parties, nCoat, Inc. changed its name to nCoat Automotive
Group, Inc. (“nCoat Auto”) to allow Tylerstone to amend its articles of
incorporation to change its name to nCoat, Inc. We completed the administrative
steps and on February 3, 2007, Tylerstone entered into a Share Exchange
Agreement (the “Agreement”) with nCoat Auto for the purpose of acquiring all of
the issued and outstanding shares of common stock of nCoat Auto, par value
$0.001 per share (“nCoat Auto Common Stock”), in exchange for new shares of
Tylerstone’s Common Stock.





On
February 14, 2007, the parties to the Agreement completed the initial steps
contemplated by the Agreement. Pursuant to the terms of the Agreement, nCoat,
Inc., which was formerly Tylerstone, acquired 11,554,545 shares of nCoat Auto
Common Stock from all of the shareholders of nCoat Auto, which represented
100.0% of the issued and outstanding shares of nCoat Auto Common Stock, in
exchange for the issuance of 50,840,000 shares of nCoat, Inc. Common Stock, par
value $0.0001 per share, which represents 57% of the then issued and outstanding
shares of nCoat, Inc.’s Common Stock. As an integral part of the Agreement, we
then undertook the additional fund-raising financing steps as required by the
terms of the Agreement.





As used
in this report, the terms, “nCoat,” “the Company,” and “the Registrant” means
nCoat, Inc., and its subsidiaries, taken as a whole, unless the context
indicates otherwise. The historical references to nCoat or the Company prior to
the February 14, 2007, closing date refers to the historical financial
information of the original nCoat, Inc. (nCoat Auto).  We also will
use the terms “we”, “us” and “our” in order to make the text of this document as
readable as possible, only referring to the companies by name to reduce the
confusion of similarly named groups.


38


Background and History of nCoat Auto
and its Operating Subsidiaries and Affiliates





We
specialize in nanotechnology research, licensing, and the commercialization,
distribution and application of nano-formulated, as well as traditional, surface
coatings. Our specialized coatings are used by the automotive, diesel engine,
trucking, recreational vehicle, motorcycle, aerospace and oil and gas industries
for heat management, corrosion resistance, friction reduction, bond strength and
appearance. Operations are headquartered in Whitsett, North Carolina, which
includes our largest production facility. In addition, the Company maintains
satellite production facilities in Tempe, Arizona; Oklahoma City, Oklahoma; and
Quakertown, Pennsylvania. As previously reported by us, we have historically had
franchise agreements in France, New Zealand and Australia under which we have
sold a minimal volume of its coatings to the franchisees. As of the date of this
filing, the franchise agreements in Australia had been terminated either by the
expiration of the original term of the franchise agreement or due to the closure
of the franchisee’s business. We are currently evaluating restructuring the
relationships with the operations in New Zealand and France.





nCoat
operated as an unincorporated association from September 25, 2004, until January
2005 when it was incorporated in Delaware under the name and style of NanoCoat,
Inc. NanoCoat, Inc. was a development stage enterprise until it completed the
acquisition of High Performance Coatings, Inc. (“HPC”) on September 30, 2005. In
the fall of 2006, NanoCoat, Inc., in the interest of going forward with branding
and other commercial marketing efforts, elected to change its name to nCoat,
Inc. and then later to nCoat Automotive Group, Inc. to allow for the
nCoat/Tylerstone merger.  From September 30, 2005, the date of the HPC
acquisition, nCoat has been a fully operating company.





In May
2006, nCoat formed nTech, Inc. (“nTech”), a Delaware corporation that is a
wholly owned subsidiary, designated to develop and hold proprietary intellectual
property for the nCoat group of companies.  On June 29, 2007, we
acquired all of the common stock of MCC, Inc. (Metallic Ceramic Coatings, Inc.,
or "MCCI"), a Pennsylvania corporation doing business under the brand name of
Jet-Hot®.





Part of
our business focuses on nanotechnology research, licensing, and the
commercialization, distribution and application of nano-formulated, as well as
traditional, surface coatings.  Nanotechnology is the branch of
science dealing with manipulating, building, and organizing material from
extremely small particles, some at the molecular level.  These
diminutive particles can be combined in new, disruptive materials that have
unique properties.





We have
developed a business strategy to commercialize these new products, we have
focused thus far on our specialized coatings that are used by the automotive,
diesel engine, trucking recreational vehicle, motorcycle, aerospace and oil and
gas industries for heat management, corrosion resistance, friction reduction,
porosity reduction, bond strength and appearance.





Since
inception, we have focused our resources on the following areas:





1)
            Develop
      proprietary nanotechnology coatings formulations into commercially viable
      nano-formulated coatings and materials
products.





2)
            Fund
      the acquisitions of profitable high performance coating (surface
      treatment) companies in a highly fragmented cottage industry and to
      provide operating and expansion capital for growth of those
      acquisitions.





3)
            Exploit
      the organic growth prospects in HPC, MCCI and in all future acquisitions.
      (See discussion below.)





4)
            Provide
      a corporate structure for the daily management of all companies,
      interests, and stock held by nCoat and its subsidiaries, including
      preparation of all accounting and finance, operations, information,
      marketing, sales, human resource, management and other systems and process
      to support transition and integration of an aggressive acquisition
      strategy.





5)
            Create
      competitive diversification by incorporating a “distributed” production
      model into the specialty coatings industry that is currently rare in the
      high performance coatings arena.





6)
            Create
      competitive diversification by incorporating a “licensing” model into our
      business plans. This licensing will allow us to provide other applicators
      with our coatings.





7)
            Operate
      nTech, HPC and MCCI and other future acquisitions to develop, integrate
      and sell commercially viable proprietary nano-formulated and traditional
      coatings products.




39





In
anticipation of achieving growth through acquisitions and internal growth of
existing operating entities, we added facilities, personnel, systems and
processes to support business growth and acquisition activities. Details of
these expenses are discussed below.





In
September 2005, we acquired HPC, a 23-year-old Oklahoma company that has
specialized in thermal barrier, corrosion resistant, lubritic and appearance
high performance coatings for the motor sports and other industries. Building on
these race car roots, we expanded HPC’s market-base beyond specialized engine
coatings and exhaust systems, to include corporate accounts of manufacturer of
commercial trucks, recreational vehicles, defense applications, motorcycles,
aerospace components, aviation parts, oil and gas industry suppliers, energy
producers and other sophisticated users, while continuing to provide coatings
and services to the aftermarket customer.





On June
29, 2007, we acquired MCCI, a primary competitor of HPC.  Management
believes that MCCI’s 26-year market share growth and customer base in automotive
aftermarket and original equipment manufacturing (OEM) markets could effectively
double the revenues of nCoat.





Our
management and science advisors, together with HPC’s and MCCI’s management, have
determined that many of the coatings produced and used by us could be
reformulated and patented into nano-formulated coatings, creating more efficient
and effective coatings than currently produced by the industry. nTech has
developed trade secret formulations using nano-scale particles to enhance the
performance of its coatings. Currently, we have applied for six patents on our
newly nano-formulated coatings and processes which are unique and novel to the
industry. With the acquisition of MCCI, nCoat’s customer-base of over 9,000
companies and individuals is presently being served by116
employees.





Our
headquarters’ address is 7237 Pace Drive, P.O. Box 38, Whitsett, NC 27377, and
our phone number is (336) 447-2000.





Results
of Operations





Performance
in Fourth Quarter of 2009 Compared to Fourth Quarter of 2008





Performance
Overview





The
quarter to quarter revenues declined approximately $126,000 due in large part to
the softness in the economy and its impact on purchases of aftermarket products
and services and to a lesser degree slower orders in the truck manufacturing
industry.  Our direct aftermarket sales were down 40% year over
year.  In addition, according to industry sources, heavy-duty truck
sales are down 65% over two years that began early in 2007.


40





Cost of Sales.





Cost of
sales as a percentage of sales decreased from 78% in the fourth quarter of 2008
to 57% for the quarter ended December 31, 2009.  This favorable
decrease is the result of plant consolidation and lean manufacturing processes
established.





General and Administrative
Expenses.





General
and administrative expenses for the quarter ended December 31, 2009 decreased by
approximately $185,328 and decreased as a percentage of sales from 58% to 44%
for the same period in 2008.





Sales
and Marketing Expense.





Sales and
marketing expense for the year ended December 31, 2009, decreased by
approximately $55,000 and decreased to 8% of sales compared to 9% for the same
period in 2008.  This reduction in 2008, when compared to the same
period in 2008, is attributable to reduced expenditure in print advertising,
employees and promotional sponsorships.  Management has shifted
emphasis to internet based promotions which have proved to be cost effective in
relationship to revenue production.





Interest
Expense.





The
increase in interest expense reflects the impact of the change in the redemption
premium for the Series A and B notes described above.  This change in
premium is a function of stock price, which was $0.002 per share as of January
1, 2009.  This resulting calculation increased the carrying value of
the Series A and B notes to a total of $695,169,706.





Earnings
per Share.





Weighted-Average
Shares Outstanding as of 12/31/09 totaled 104,954,706 compared to 98,045,014
shares last year.





The
Company incurred losses of $262,494 and $27,441,151 during the three month
periods ended December 31, 2009, and December 31, 2008,
respectively.





Performance
in the Twelve Months of 2009 Compared to Twelve  Months of
2008





Performance
Overview





When
compared to the twelve month period ending December 2008, the year to date
decrease in revenue of approximately $4,774,000 is attributable to the
acquisition of MCCI on June 29, 2007 and organic sales. Factors impacting our
year to year revenue comparisons include the impact of the reduced number diesel
engines being produced by our customers which was offset by the impact of
increased market share represented by the MCCI acquisition, especially in the
first half of the year.


41





Cost of Sales.





Cost of
sales as a percentage of sales decreased to 57% for the year ended December 31,
2009, compared to 65% for the same period in 2008. Prior year includes costs
associated with start-up operations with new facilities.  Management
has continued efforts to drive down unit costs through lean manufacturing and
Six Sigma process improvements, automation, and logistical changes.





General
and Administrative Expenses





General
and administrative expenses for the year ended December 31, 2009 declined by
approximately $1.8 million to 50% of sales compared to 55% for the same period
in 2008. The expense for 2008 reflects the grant of shares of common stock to
employees during the first and third quarter and the related expense of
$1,222,044.





Sales
and Marketing Expense





Total
expenditures for Sales and Marketing expense decreased by $38,000 of prior year
cost, due to a reduction in advertising in market publications.





Interest
Expense





Interest
expense increased by approximately $250 million for the year ended December 31,
2009.  This increase reflects the impact of the Series A and B
Convertible Notes described above.  The redemption premium is a
function of stock price at period end.





Earnings
per Share.





As a
result of the share exchange transaction, issuance of employee stock, exercise
of warrants and conversion of debt, the number of outstanding shares has
increased to 126,710,605 and the weighted average shares have increased from
98,045,014 for the year ended December 31, 2008 to 104,954,706 as of December
31, 2009.





The
Company incurred losses of $574,239,722 and $327,362,638 for the year ended
December 31, 2009 and December 31, 2008,
respectively.   Operating Activities used a negative $128,099 of
cash for 2009. Operating Activities generated a positive $286,462 in cash during
2008.





Gross
Margins





Average gross margins for consolidated
operations improved by approximate 60% year over year, increasing from 35% at
year end 2008 to 43% at year end 2009. Increases were attributable to reduced
manufacturing costs, lean manufacturing efficiencies which reduced production
labor, the acquisition of MCCI which added additional high margin aftermarket
customers and negotiated reductions in purchase of source materials based on
volume.





EBITDA





nCoat Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) significantly improved in 2009 over 2008.
Year end 2008 EBITDA was ($1,843,554) compared to year end 2009 EBITDA of
($339,991). Changes are attributable to significant expense reductions in
production, sales and marketing, general and administrative, research and
development and other operating areas.


42




Financial
Statements, One-Time Charges and Capital Expenditures





As we
commenced our planned growth in 2007 with the promise of funding, we experienced
higher costs which were attributable to the infrastructure of a company with a
larger footprint.  During the second half of 2007 as we reduced costs
through the transition and integration of the newly acquired MCCI, it became
more apparent to management that funding commitments had been
disappointing.  Efforts were commenced to reduce additional
costs.  We have included reductions in personnel, consolidation of
facilities and emphasis on lean manufacturing practices.  Our
resulting operational savings have been encouraging.





1.          Facilities
– We consolidated our operations in Mississippi into our Oklahoma and North
Carolina facilities.  In November we consolidated our Utah operations
into Arizona and North Carolina.  We are exploring further plant
consolidation to increase the use capacity in existing
locations.  Although location consolidation provides for long-range
savings, in some cases the additional one-time charges associated with such
closure appear to affect earnings directly.





Our 2009
plans also call for (1) the installation in North Carolina of existing equipment
transferred from the closing of the Mississippi and Utah production plants as a
second OEM production line and (2) installation of a third production line
dedicated solely to aftermarket production using equipment transferred from the
Mississippi plant, at a total installation and build-out cost of approximately
$250,000 for both new lines, predicated upon economic trends.





We also
began consolidation of our Pennsylvania operations into North Carolina, Oklahoma
and Arizona facilities beginning in November 2009 and culminating with the
closing of the Pennsylvania plant in January 2010.





2.          Personnel
- The Company has reduced the workforce from over 200 employees to approximately
83 employees.  This decrease comes from operating plants more
efficiently and reducing management personnel which had been originally brought
on to accommodate the accelerated growth projected with full funding and
multiple facilities.  We have focused on completion of Standard
Operating Procedure documentation, preparation of information systems,
accounting, human resource, production, communications, mixing and blending,
strategic finance and other systems to accommodate rapid growth from internal
and acquisition growth.





3.          Research
and Development – Our expenditures for research and development have been
reduced from $376,165 in the twelve months ended December 31, 2008 to $321,421
for 2009.  The savings reflects consolidation of facilities and
redundant personnel rather than a reduction in emphasis.





4.          Financing
- Expenses in 2008 and 2009 differ in nature.  In 2008 we
experienced expenses relating to the money-raising process, including fees
relating to engaging advisors to assist the Company in future financings and
expenses related to creating the strategic relationships necessary to
successfully execute the business plan.  In 2008, the majority of the
expense involved in the financing relates to interest expense, particularly the
dramatic accounting for the redemption premium.


43





Liquidity
and Capital Resources –





nCoat is
a company with limited operating history and experience upon which to base an
evaluation of its performance. In September of 2005, we acquired High
Performance Coatings, Inc. (“HPC”), an operational coatings company, which was
responsible for the majority of our consolidated revenues. In 2006, we formed an
intellectual property and development entity, nTech, Inc. (“nTech”), and in June
2007, we acquired all of the common stock of Metallic Ceramic Coatings, Inc.
(“MCCI”), a primary competitor of HPC with 26 years of coatings experience and
historical revenues similar to HPC.





On April
13, 2007, we converted $2,000,000 of convertible debentures and $67,752 of
accrued interest into 4,135,503 shares of our common stock at $0.50 per share.
The remaining $500,000 of convertible debentures, along with accrued interest of
$18,107, was converted to 1,036,215 shares of common stock at $0.50 per share on
August 24, 2007.





From May
25, 2007, through July 9, 2007, we issued $9,000,000 of Series A 6% convertible
promissory notes (the “Series A Notes”) and warrants to purchase 22,500,000
shares of common stock, exercisable at $1.00 per share through May 31, 2012. The
Series A Notes are convertible into common stock at $0.40 per share through May
31, 2010 when the Series A Notes are due. On May 31, 2007, the Company issued
$3,250,000 of Series B 6% convertible promissory notes (the “Series B Notes”)
and warrants to purchase 8,125,000 shares of common stock at $0.80 per share
through May 31, 2010. The Series B Notes are convertible into common stock at
$0.40 per share through May 31, 2010 when the Series B Notes are due. The Series
A and B private placement offerings included the conversion of $800,000 of
advances from investors of which $700,000 had been received prior to March 31,
2007. The Company received $10,618,916 of proceeds from the issuance of the
Series A and Series B convertible notes, net of the $700,000 of advances
previously recognized and net of cash offering costs of $931,064.





In the
final stages of the offering, after we had closed on the purchase of MCCI, a
subscribed investor did not fund its portion of offering.  Our intended use
of proceeds included retirement of debt and related accrued interest of
$3,677,286, $5,000,000 for the acquisition of MCCI, payment of significant
pre-offering liabilities and establishing a working capital reserve. The
retirement of pre-offering liabilities and the working capital portion of the
offering did not get raised prior to our contractual obligation to close the
offering.  This deficiency of the expected $6,500,000 in funding, combined
with the seasonal lull in aftermarket and OEM revenues, caused us to experience
a significant liquidity crisis.  A number of our vendors turned our account
over to collection agencies and at December 31, 2009, we had accounts payable in
excess of $2.0 million over 120 days past due.





At
December 31, 2009 we are in technical breech of the Securities Purchase
Agreement and the related Series A and B Convertible Notes and Registration
Agreement (collectively the “Note Agreement”). This technical breech is due to
our failure to pay partial liquidating damages and failure to pay interest nCoat
is attempting to negotiate a restructure of these debenture notes to provide a
work out arrangement favorable to both current debenture holders and
shareholders. To accomplish this restructure, nCoat must raise in the next
twelve (12) months, additional capital to satisfy negotiated demands of the
current debenture holders and to pay aged accounts payables current owed by
nCoat to its vendors. Capital raised to this end may (1) be accomplished in a
debt instrument which will incur debt to the Company, and/or (2) be raised in an
equity offering which may create significant dilution to current shareholders,
or (3) not be completed at all. nCoat is seeking in the restructured a
negotiated settlement of all outstanding penalties, interest, carrying charges
and principal accrued under the current debenture notes.  Any changes
to the agreement or to accounting treatment described herein will be reflected
in subsequent periods.




Although
no demand has been made, the Note Agreement provides that in the event of a
breech, within the first 12 months following closing, the holders are entitled
to demand immediate redemption of all, or any portion of, the face value of the
Series A Notes and Series B Notes, along with a redemption
premium.  This premium is the greater of 25% or the product of a
multiplicand whose numerator is the stock price on the day of the default
trigger event divided by the weighted market price at the beginning of each
month thereafter.  As a result, the full face value of the Notes and
redemption premium are shown on our Balance Sheet as current liabilities at
December 31, 2009.




44





We have
been active in our attempt to reduce our losses and conserve cash.  We
have had a reduction in work force and reduced head count by 80
employees.  Following the acquisition of MCCI we consolidated our two
Arizona facilities.  During 2007, certain salaried employees
(largely senior executives) elected to defer all or a portion of their salaries
at various pay periods totaling $215000 in total deferred salary. In 2008,
$84,000 of the 2007 deferred salary was repaid. During 2008, certain
salaried employees (largely senior executives) elected to defer all or a portion
of their salaries at various pay periods totaling $94,000 in total deferred
salary. $28,000 of that 2008 deferred salary was repaid. As a subsequent event,
during 2009, certain salaried senior management employees elected to defer
all or a portion of their salaries at various pay periods totaling $503,035 in
total deferred salary since January 1, 2009. We have limited travel and
curtailed expenditures. In August, we closed our plant operations in
Mississippi, sending the workflow to Oklahoma and North Carolina.  As
of November 2008, we moved the Utah operations into the Arizona plant.





At
December 31, 2009, we had assets of $3,766,145.  Total Stockholders’
Deficit is $915,415,138, resulting from the Redemption Premium associated with
the Series A and B Convertible Notes of approximately $912
million.  Any amounts owed to related parties have no specific terms
of repayment and bear no interest.




Off
Balance Sheet Arrangements





The
Company’s off-balance sheet arrangements include operating leases for it
production facilities and office space.




Item
3 – Controls and Procedures





Evaluation of disclosure
controls and procedures.
All financial information contained in this report is unaudited.  The
accounting firm has reviewed our quarterly filings as of 9/30/2008. nCoat has
not produced enough cash flow to pay the auditors to complete the audit by the
publication date of this report. Upon payment of the audit fees, the auditors
will complete the audit and an amended Form 10K will be filed. All figures are
presented in accordance with Generally Accepted Accounting Principles (GAAP),
but have not been tested or validated by an outside firm as of
yet.  As of the end of the period covered by this report, an
evaluation was carried out under the supervision and with the participation of
the company’s management, including its Chief Executive Officer and Chief
Financial Officer, of its disclosure controls and procedures (as defined by
Rules13a — 15(e)and 15d-15(e)under the Securities Exchange Act of 1934). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective as of the end of the period covered by this
report.





Changes in internal
controls.There has been no change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting.


45





PART
II





OTHER
INFORMATION





Item
1 – Legal Proceedings





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. Litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from
time to time that may harm our business. As of the date of this Report, with the
exception of the case cited below, we were not aware of any such legal
proceedings or claims against the Company or its subsidiaries that management
believes will have a material adverse affect on business development, financial
condition or operating results.





Jeffrey
C. Holm et al. v. High Performance Coatings, Inc., Civil No. 080903021, Third
Judicial District Court, Salt Lake County, State of Utah.  On February
20, 2008, Jeffrey Holm and Thunderchief Enterprises, LLC (collectively, the
“Plaintiffs”) filed a complaint against High Performance Coatings, Inc.,
Nanocoat, Inc., Terry R. Holmes, Paul S. Clayson (collectively, the “nCoat
Defendants”), and others, in connection with a stock purchase agreement, a
consulting agreement, an escrow agreement, and other agreements between certain
of the parties.  The Complaint brings claims for relief against the
nCoat Defendants for breach of the consulting agreement, slander, tortuous
interference with economic relations, breach of the stock purchase agreement,
declaratory relief relating to a non-compete agreement, and
conversion.  The Plaintiffs seek damages from the nCoat Defendants of
approximately $740,000, plus the return of certain designated personal property,
together with damages to be proven at trial, punitive damages, fees, costs, and
such other relief as the court deems appropriate.  The nCoat
Defendants filed an Answer and Counter-claim against the Plaintiffs for breach
of contract, defamation, tortuous interference, violations of Utah Uniform
Securities Act, common law fraud and misrepresentation, and declaratory relief
and the Company  continued its vigorous defense and prosecution of its
claims throughout 2008.


As of
January 2009, a settlement was reached whereby nCoat released the previously
escrowed funds associated with the HPC purchase originally scheduled for release
to Holm in August, 2008, and Jeffrey C. Holm dismissed with prejudice his civil
suit against the Company and agreed to a two year non-compete agreement and the
Company dismissed with prejudice its counterclaim against Holm.






Private
Offering of Convertible Notes and Warrants





Item 2 – Unregistered Sales of Equity
Securities and Use of Proceeds




There
have been no repurchases of equity securities by nCoat during the years ended
December 31, 2009 or 2008.





In each
case, the securities were issued in connection with private transactions with
accredited investors pursuant to Section 4(2) of the Securities Act and
regulations promulgated there under.





Proceeds
from the sale of the above securities were and will be used for retirement of
debt, acquisition of MCCI and working capital.





Item
3 – Defaults Upon Senior Securities





As set
forth above, the Company was in technical breach of the underlying financing
agreements until it obtained waivers as described in the 10-KA report filed
by the Company on August 1, 2008.





Item
4 – Submission of Matters to a Vote of Security Holders





None.





Item
5 – Other Information





None.


46





PART
IV





ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




The
following documents are filed as an exhibit to this Report:





Exhibit
            Description3.1
            Certificate
      of Incorporation (previously filed as an exhibit to a registration
      statement on Form SB-2, filed with the Commission on December 27, 2004,
      and incorporated herein by this
reference).





3.2
            Certificate
      of Amendment to Certificate of Incorporation (previously filed as an
      exhibit to a Current Report on Form 8-K, filed with the Commission on
      February 8, 2007, and incorporated herein by this
    reference).





3.3
            Bylaws
      (previously filed as an exhibit to a registration statement on Form SB-2,
      filed with the Commission on December 27, 2004, and incorporated herein by
      this reference).





4.1
            Convertible
      Debenture, dated October 24, 2006 (previously filed as an exhibit to a
      Current Report on Form 8-K, filed with the Commission on November 3, 2006,
      and incorporated herein by this
reference).





4.2
            Convertible
      Debenture, dated November 9, 2006 (previously filed as an exhibit to a
      Quarterly Report on Form 10-QSB, filed with the Commission on January 17,
      2007, and incorporated herein by this
  reference).





4.3
            Convertible
      Debenture, dated November 28, 2006 (previously filed as an exhibit to a
      Quarterly Report on Form 10-QSB, filed with the Commission on January 17,
      2007, and incorporated herein by this
  reference).





4.4
            Convertible
      Debenture, dated February 6, 2007 (previously filed as an exhibit to a
      Registration Statement on Form SB-2, filed with the Commission on July 12,
      2007, and incorporated herein by this
  reference).





4.5
            Convertible
      Debenture, dated May 14, 2007 (previously filed as an exhibit to a
      Registration Statement on Form SB-2, filed with the Commission on July 12,
      2007, and incorporated herein by this
  reference).





10.1
            Form
      of Securities Purchase Agreement (previously filed as an exhibit to the
      Company’s Current Report on Form 8-K, filed with the Commission on June 1,
      2007, and incorporated herein by this
  reference).





10.2
            Form
      of Series A Notes (previously filed as an exhibit to the Company’s Current
      Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.3
            Form
      of Series A Warrants (previously filed as an exhibit to the Company’s
      Current Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.4
            Form
      of Series B Notes (previously filed as an exhibit to the Company’s Current
      Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.5
            Form
      of Series B Warrants (previously filed as an exhibit to the Company’s
      Current Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.6
            Form
      of Registration Rights Agreement (previously filed as an exhibit to the
      Company’s Current Report on Form 8-K, filed with the Commission on June 1,
      2007, and incorporated herein by this
  reference).





10.7
            Form
      of Escrow Agreement (previously filed as an exhibit to the Company’s
      Current Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.8
            Form
      of Amendment to Escrow Agreement (previously filed as an exhibit to the
      Company’s Current Report on Form 8-K, filed with the Commission on June 1,
      2007, and incorporated herein by this
  reference).




47





10.9
            Form
      of Lockup Agreement (previously filed as an exhibit to the Company’s
      Current Report on Form 8-K, filed with the Commission on June 1, 2007, and
      incorporated herein by this
reference).





10.10
            Stock
      Purchase Agreement by and among nCoat, Inc., MCC, Inc., and Michael
      Novakovic and Phebe Novakovic, dated June 19, 2007 (previously filed as an
      exhibit to the Company’s Current Report on Form 8-K, filed with the
      Commission on June 22, 2007, and incorporated herein by this
      reference).





10.11
            Lease
      Agreement, dated May 15, 2001, between Remco Management Company, LLC, and
      HPC, (previously filed as an exhibit to a Registration Statement on Form
      SB-2, filed with the Commission on October 12, 2007, and incorporated
      herein by this reference).





10.12
            Lease
      Extension Agreement, dated June 1, 2006, between Remco Management Company,
      LLC, and HPC (previously filed as an exhibit to a Registration Statement
      on Form SB-2, filed with the Commission on October 12, 2007, and
      incorporated herein by this
reference).





10.13
            Industrial
      Lease, dated October 15, 2005, between Ralf LLC, and HPC (previously filed
      as an exhibit to a Registration Statement on Form SB-2, filed with the
      Commission on October 12, 2007, and incorporated herein by this
      reference).





10.14
            Lease
      Agreement, dated February 21, 2006, between Mebane Warehouse, LLC, and HPC
      (previously filed as an exhibit to a Registration Statement on Form SB-2,
      filed with the Commission on October 12, 2007, and incorporated herein by
      this reference).





10.15
            Memorandum
      of Sublease, dated November 1, 2005, between Heritage One, L.L.C., Rocky
      Mountain Seed and Grain, and HPC(previously filed as an exhibit to a
      Registration Statement on Form SB-2, filed with the Commission on October
      12, 2007, and incorporated herein by this
  reference).





10.16
            Commercial
      Lease Agreement, dated October 13, 2005, between Philadelphia Suburban
      Development Corporation and MCCI(previously filed as an exhibit to a
      Registration Statement on Form SB-2, filed with the Commission on October
      12, 2007, and incorporated herein by this
  reference).





10.17
            Lease
      Agreement, dated January 22, 2007, between Milford Business Centre and
      MCCI (previously filed as an exhibit to a Registration Statement on Form
      SB-2, filed with the Commission on October 12, 2007, and incorporated
      herein by this reference).




48





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 hereunto
duly authorized.





nCoat,
      Inc(Registrant)Date: March
      19, 2010
            /s/
      Paul ClaysonPaul
      ClaysonChief
      Executive Officer(Principal
      Executive Officer)Date: March
      19, 2010
            /s/
      Paul ClaysonPaul
      ClaysonChief
      Financial Officer(Principal
      Financial and Accounting Officer)









49