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, 2008,
  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 April 9, 2009  was approximately $459,355, calculated
using a closing price of $.008 per share on April 9, 2009.  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
      o
                Non-accelerated
      filer o
                Smaller
      reporting company  þ(Do
      not check if a smaller reporting company)




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
April 9, 2009, there were issued and outstanding 102,108,606 shares of our
common stock.










nCoat,
      Inc.2008
      FORM 10-K ANNUAL REPORTTABLE
      OF CONTENTSPart
      IPageItem
      1.
                                                                                                                                                                              
                                                                                                                                                                              Business
                                                                                                                                                                              3Item
      1A.
                                                                                                                                                                              
                                                                                                                                                                              Risk
      Factors
                                                                                                                                                                              10Item
      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
                                                                                                                                                                              23Item
      8.
                                                                                                                                                                              
                                                                                                                                                                              Financial
      Statements and Supplementary Data
                                                                                                                                                                              25Item
      9.
                                                                                                                                                                              
                                                                                                                                                                              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                                                                                                                              41Item
      9A.
                                                                                                                                                                              
                                                                                                                                                                              Controls
      and Procedures
                                                                                                                                                                              41Item
      9B.
                                                                                                                                                                              
                                                                                                                                                                              Other
      Information
                                                                                                                                                                              44Part
      IIIItem
      10.
                                                                                                                                                                              
                                                                                                                                                                              Directors,
      Executive Officers and Corporate Governance
                                                                                                                                                                              44Item
      11.
                                                                                                                                                                              
                                                                                                                                                                              Executive
      Compensation
                                                                                                                                                                              46Item
      12.
                                                                                                                                                                              
                                                                                                                                                                              Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
                                                                                                                                                                              49Item
      13.
                                                                                                                                                                              
                                                                                                                                                                              Certain
      Relationships and Related Transactions, and Director
      Independence
                                                                                                                                                                              51Item
      14.
                                                                                                                                                                              
                                                                                                                                                                              Principal
      Accountant Fees and Services
                                                                                                                                                                              52Part
      IVItem
      15.
                                                                                                                                                                              
                                                                                                                                                                              Exhibits
      and Financial Statement Schedules
                                                                                                                                                                              56















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.




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 RESULTOF 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, including phases of data acquisition,
aerial photograph interpretation, base map preparation, prospecting and report
writing, as described in the appropriate periodic reports filed by the Company
with the United State 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 is 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-spilt 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.










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; and Quakertown, Pennsylvania. 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 four current operating
facilities  remain after operating plants in Arizona, Mississippi and
Utah were closed and business and equipment was 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
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 50% 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.









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. As of the end of 2008 Jet-Hot operates
from two production factories in Pennsylvania and Arizona.




Collectively,
nCoat’s subsidiaries now have over 9,000 customers presently being served by 116
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
2008, Lux Research estimates that approximately $600 million of coatings that
utilized nano-formulation were sold world-wide in 2008. Lux Research expects
this market to grow to $6.5 billion by 2013. 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.










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 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
have 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.










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 Distributed Production opportunities. OEM sales prospects may be
candidates for production at an HPC or MCCI plant or for on-site distributed
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, 2007 we spent $856,565 on sales and marketing
efforts.  In the fiscal year ended December 31, 2008 we spent $645,280
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 including North Carolina A&T
State University, where we have signed a research collaboration agreement, and
customer facilities.  In the fiscal year ended December 31, 2007 we
spent $402,000 on research and development efforts.  In the fiscal
year ended December 31, 2008 we spent $376,165 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 30 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.




Our
Facilities




As
of the date of this Report, nCoat and its subsidiaries operate in facilities in
four states: North Carolina, Pennsylvania, 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 2008. 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 2008 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 2008, Lux Research estimates that approximately $600
million of coatings that utilized nano-formulation was sold world-wide in 2008.
Lux Research expects this market to grow to $6.5 billion by 2013. 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.









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, 2008, we employed a total of approximately 116 persons in the
United States. The follow table sets out the location and number of those
employees:




Company
                                          Location
                                          TotalnCoat
                                          North
      Carolina
                                          14Utah
                                          3HPC
                                          North
      Carolina
                                          41Oklahoma
                                          29Utah
                                          6nTech
                                          North
      Carolina
                                          4MCCI
                                          Pennsylvania
                                          9Arizona
                                          7North
      Carolina
                                          3TOTALS
                                          
                                          116


*
Note that HPC employees in Arizona are now accounted for


as
MCCI employees after the consolidation of the two plants.



















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.




As of the filing date of this report, nCoat has not
been able to accumulate enough cash reserves to pay its public auditor to
complete the audited of nCoat’s financials statements. 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 fifteen (15)
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 in the next twelve (12) months, additional capital 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.




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
and this crisis has had a dramatic 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. Consumer
confidence and spending have decreased to levels not seen for 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. 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 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, 2008, nCoat incurred losses totaling $ 327,363,281 and had
negative shareholders’ equity of $363,448,350. If we are unable to attain
profitability we may need to cease operations.









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, 2008, we had
accounts payable in excess of $2.0 million over 120 days past due. At December
31, 2008, we had cash on hand of $42,000, and net trade receivables of $767,160.
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
this document does not contain audited financial statements for 2008, 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 can not 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.










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.










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.  All of the businesses have little involvement on a
day-to-day business effort Mr. Holmes devotes approximately 100% of his
professional time to our business.  Messrs. Clayson’s and Holme’s
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 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:




•
                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 elect a
majority of our board of directors and to authorize or prevent proposed
significant corporate transactions. This concentrated ownership and control 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 stock is quoted on the Pink Sheet OTC Electronic Markets (“Pink Sheets”).
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 OTC Bulletin Board 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.










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.











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.










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;

















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





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
lease 9,830 square feet of office and production space in Quaker Town,
Pennsylvania.  Our monthly lease payment is $7,896.  The
terms of this lease expires on January 30, 2010.




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.




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.










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
                              
                              $
                              0.0040
                              
                              
                              $
                              0.0015




As
of April 14, 2009, we had approximately 105 shareholders of holding 102,108,606
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.






Recent
Sales of Unregistered Equity Securities




On
January 19, 2008 and January 29, 2008, the Company issued 1,554,198 shares of
its common stock as payment of interest on the Series A Notes and Series B
Notes.




On
August 18, 2008, the Company issued 1,250,000 shares of its common stock as the
result of a partial conversion of a Note holder’s interest, reducing that Note
by $25,000.





On
December 1, 2008, the Company issued 3,031,956 share of its common stock as the
result of a partial conversion of a Note holder’s interest, reducing the Note by
$10,000.






There
have been no repurchases of equity securities by nCoat during the years ended
December 31, 2008 or 2007.












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 2008 has been developed using Generally Accepted Accounting
Practices (GAAP), this information has not yet been audited by outside
accounting firm.  The information through the third quarter has been
reviewed, however, as of this date, year end audit has not taken
place.  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.









nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSDecember
      31
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007ASSETS
                                            
                                            (Unaudited)Current
      AssetsCash
                                            
                                            $
                                            42,134
                                            
                                            
                                            $
                                            295,961Trade
      receivables, net
                                            
                                            
                                            767,160
                                            
                                            
                                            
                                            934,337Inventory
                                            
                                            
                                            88,778
                                            
                                            
                                            
                                            172,477Other
      current assets
                                            
                                            
                                            99,281
                                            
                                            
                                            
                                            62,449Deferred
      income tax assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            151,600Total
      Current Assets
                                            
                                            
                                            997,353
                                            
                                            
                                            
                                            1,616,824Property and Equipment,
      net
                                            
                                            
                                            1,677,037
                                            
                                            
                                            
                                            2,233,189Intangible Assets,
      net
                                            
                                            
                                            2,375,091
                                            
                                            
                                            
                                            2,968,864Total
      Assets
                                            
                                            $
                                            5,049,481
                                            
                                            
                                            $
                                            6,818,877LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
                                            
                                            $
                                            3,476,203
                                            
                                            
                                            $
                                            2,212,663Accrued
      liabilities
                                            
                                            
                                            794,571
                                            
                                            
                                            
                                            2,355,956Accrued
      Interest
                                            
                                            
                                            17,872,582Accrued
      Registration Liability
                                            
                                            
                                            23,358,690Deferred
      revenue
                                            
                                            
                                            759,176
                                            
                                            
                                            
                                            -Current
      portion of notes payable
                                            
                                            
                                            298,734,128
                                            
                                            
                                            
                                            1,987,966Derivative
      Premium Payable
                                            
                                            
                                            120,348
                                            
                                            
                                            
                                            -Accrued
      consulting obligation
                                            
                                            
                                            500,000
                                            
                                            
                                            
                                            500,000Current
      portion of obligations under capital leases
                                            
                                            
                                            121,988
                                            
                                            
                                            
                                            153,540Total
      Current Liabilities
                                            
                                            
                                            345,737,686
                                            
                                            
                                            
                                            7,210,125Long-Term
      LiabilitiesNotes
      payable, net of current portion
                                            
                                            
                                            150,322
                                            
                                            
                                            
                                            12,654,812Obligations
      under capital leases , net of current portion
                                            
                                            
                                            206,112
                                            
                                            
                                            
                                            328,193Deferred
      income taxes
                                            
                                            
                                            97,262
                                            
                                            
                                            
                                            260,575Total
      Long-Term Liabilities
                                            
                                            
                                            453,696
                                            
                                            
                                            
                                            13,243,580Stockholders'
      Equity (Deficit)Common
      stock - $0.0001 par value; 500,000,000 shares
    authorized;102,108,606
      shares and 96,439,452 shares outstanding, respectively
                                            
                                            
                                            10,211
                                            
                                            
                                            
                                            9,644Additional
      paid-in capital
                                            
                                            
                                            22,295,667
                                            
                                            
                                            
                                            22,440,669Accumulated
      deficit
                                            
                                            
                                            (363,447,779
                                            )
                                            
                                            
                                            (36,085,141
                                            )Total
      Stockholders' Equity (Deficit)
                                            
                                            
                                            (341,141,901
                                            )
                                            
                                            
                                            (13,634,828
                                            )Total
      Liabilities and Stockholders' Equity (Deficit)
                                            
                                            $
                                            5,049,481
                                            
                                            
                                            $
                                            6,818,877







n
      COAT, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended
                                      
                                      
                                      For
      the Twelve Months EndedDecember
      31
                                      
                                      
                                      December
      312008
                                      
                                      
                                      2007
                                      
                                      
                                      2008
                                      
                                      
                                      2007(Unaudited)
                                      
                                      
                                      
                                      
                                      
                                      (Unaudited)Net
      Sales
                                      
                                      $
                                      1,695,214
                                      
                                      
                                      $
                                      2,539,214
                                      
                                      
                                      $
                                      9,901,588
                                      
                                      
                                      $
                                      5,127,465Cost
      of Goods Sold
                                      
                                      
                                      1,331,644
                                      
                                      
                                      
                                      1,625,074
                                      
                                      
                                      
                                      6,420,227
                                      
                                      
                                      
                                      3,881,462Gross
      Profit
                                      
                                      
                                      363,570
                                      
                                      
                                      
                                      914,140
                                      
                                      
                                      
                                      3,481,361
                                      
                                      
                                      
                                      1,246,003Operating
      ExpensesGeneral
      and Administrative Expense
                                      
                                      
                                      986,056
                                      
                                      
                                      
                                      2,260,084
                                      
                                      
                                      
                                      5,496,474
                                      
                                      
                                      
                                      6,518,916Research
      and Development Costs
                                      
                                      
                                      79,709
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      376,165
                                      
                                      
                                      
                                      -Sales
      and Marketing Expenses
                                      
                                      
                                      153,930
                                      
                                      
                                      
                                      363,536
                                      
                                      
                                      
                                      645,280
                                      
                                      
                                      
                                      659,710Total
      Operating Expenses
                                      
                                      
                                      1,219,695
                                      
                                      
                                      
                                      2,623,620
                                      
                                      
                                      
                                      6,517,919
                                      
                                      
                                      
                                      7,178,626(Loss)
      from Operations
                                      
                                      
                                      (856,125
                                      )
                                      
                                      
                                      (1,709,480
                                      )
                                      
                                      
                                      (3,036,558
                                      )
                                      
                                      
                                      (5,932,623
                                      )Redemption
      premium interest expense
                                      
                                      
                                      (231,574,115
                                      )
                                      
                                      
                                      (16,544,198
                                      )
                                      
                                      
                                      (324,748,542
                                      )
                                      
                                      
                                      (17,507,711
                                      )Other
      Interest expense
                                      
                                      
                                      ---
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (69,582
                                      )Gain
      on derivative liability valuation
                                      
                                      
                                      ---
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      492,044
                                      
                                      
                                      
                                      -Net
      Loss
                                      
                                      $
                                      (232,430,240
                                      )
                                      
                                      $
                                      (18,253,678
                                      )
                                      
                                      $
                                      (327,362,638
                                      )
                                      
                                      $
                                      (23,440,334
                                      )Basic
      and Diluted Loss per Share
                                      
                                      $
                                      (0.01
                                      )
                                      
                                      $
                                      (0.20
                                      )
                                      
                                      $
                                      (3.34
                                      )
                                      
                                      $
                                      (0.30
                                      )Basic
      and Diluted Weighted-AverageShares
      Outstanding
                                      
                                      
                                      98,045,014
                                      
                                      
                                      
                                      89,496,127
                                      
                                      
                                      
                                      98,045,014
                                      
                                      
                                      
                                      78,618,770


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.




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, 2008, 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 will 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 will investigate to determine
our both synergies and diversification with respect to our first two
acquisitions.





Internal
Organic Growth. We have already taken the existing “book of business” of
our two subsidiaries and introduced into it additional products, both as cross
sales from the sister company’s product lines as well as the introduction of
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 current has one OEM
customer employing a distributed model and 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 protective
“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.









Strengthen
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.




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.






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, 2008 and 2007
                    
                    F-1Consolidated
      Statements of Operations and Comprehensive Loss for the Years
      Ended December
      31, 2008 and 2007
                    
                    F-2Consolidated
      Statements of Stockholders’ Equity (Deficit) for the Years Ended December
      31, 2008 and 2007
                    
                    F-3Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008,
      2007
                    
                    F-4Notes
      to Consolidated Financial Statements
                    
                    F-5




25







nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSDecember
      31
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007ASSETS
                                            
                                            (Unaudited)Current
      AssetsCash
                                            
                                            $
                                            42,134
                                            
                                            
                                            $
                                            295,961Trade
      receivables, net
                                            
                                            
                                            767,160
                                            
                                            
                                            
                                            934,337Inventory
                                            
                                            
                                            88,778
                                            
                                            
                                            
                                            172,477Other
      current assets
                                            
                                            
                                            99,281
                                            
                                            
                                            
                                            62,449Deferred
      income tax assets
                                            
                                            
                                            -
                                            
                                            
                                            
                                            151,600Total
      Current Assets
                                            
                                            
                                            997,353
                                            
                                            
                                            
                                            1,616,824Property and Equipment,
      net
                                            
                                            
                                            1,677,037
                                            
                                            
                                            
                                            2,233,189Intangible Assets,
      net
                                            
                                            
                                            2,375,091
                                            
                                            
                                            
                                            2,968,864Total
      Assets
                                            
                                            $
                                            5,049,481
                                            
                                            
                                            $
                                            6,818,877LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
                                            
                                            $
                                            3,476,203
                                            
                                            
                                            $
                                            2,212,663Accrued
      liabilities
                                            
                                            
                                            794,571
                                            
                                            
                                            
                                            2,355,956Accrued
      Interest
                                            
                                            
                                            17,872,582Accrued
      Registration Liability
                                            
                                            
                                            23,358,690Deferred
      revenue
                                            
                                            
                                            759,176
                                            
                                            
                                            
                                            -Current
      portion of notes payable
                                            
                                            
                                            298,734,128
                                            
                                            
                                            
                                            1,987,966Derivative
      Premium Payable
                                            
                                            
                                            120,348
                                            
                                            
                                            
                                            -Accrued
      consulting obligation
                                            
                                            
                                            500,000
                                            
                                            
                                            
                                            500,000Current
      portion of obligations under capital leases
                                            
                                            
                                            121,988
                                            
                                            
                                            
                                            153,540Total
      Current Liabilities
                                            
                                            
                                            345,737,686
                                            
                                            
                                            
                                            7,210,125Long-Term
      LiabilitiesNotes
      payable, net of current portion
                                            
                                            
                                            150,322
                                            
                                            
                                            
                                            12,654,812Obligations
      under capital leases , net of current portion
                                            
                                            
                                            206,112
                                            
                                            
                                            
                                            328,193Deferred
      income taxes
                                            
                                            
                                            97,262
                                            
                                            
                                            
                                            260,575Total
      Long-Term Liabilities
                                            
                                            
                                            453,696
                                            
                                            
                                            
                                            13,243,580Stockholders'
      Equity (Deficit)Common
      stock - $0.0001 par value; 500,000,000 shares
    authorized;102,108,606
      shares and 96,439,452 shares outstanding, respectively
                                            
                                            
                                            10,211
                                            
                                            
                                            
                                            9,644Additional
      paid-in capital
                                            
                                            
                                            22,295,667
                                            
                                            
                                            
                                            22,440,669Accumulated
      deficit
                                            
                                            
                                            (363,447,779
                                            )
                                            
                                            
                                            (36,085,141
                                            )Total
      Stockholders' Equity (Deficit)
                                            
                                            
                                            (341,141,901
                                            )
                                            
                                            
                                            (13,634,828
                                            )Total
      Liabilities and Stockholders' Equity (Deficit)
                                            
                                            $
                                            5,049,481
                                            
                                            
                                            $
                                            6,818,877








F-1







n
      COAT, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended
                                    
                                    
                                    For
      the Twelve Months EndedDecember
      31
                                    
                                    
                                    December
      312008
                                    
                                    
                                    2007
                                    
                                    
                                    2008
                                    
                                    
                                    2007(Unaudited)
                                    
                                    
                                    
                                    
                                    
                                    (Unaudited)Net
      Sales
                                    
                                    $
                                    1,695,214
                                    
                                    
                                    $
                                    2,539,214
                                    
                                    
                                    $
                                    9,901,588
                                    
                                    
                                    $
                                    5,127,465Cost
      of Goods Sold
                                    
                                    
                                    1,331,644
                                    
                                    
                                    
                                    1,625,074
                                    
                                    
                                    
                                    6,420,227
                                    
                                    
                                    
                                    3,881,462Gross
      Profit
                                    
                                    
                                    363,570
                                    
                                    
                                    
                                    914,140
                                    
                                    
                                    
                                    3,481,361
                                    
                                    
                                    
                                    1,246,003Operating
      ExpensesGeneral
      and Administrative Expense
                                    
                                    
                                    986,056
                                    
                                    
                                    
                                    2,260,084
                                    
                                    
                                    
                                    5,496,474
                                    
                                    
                                    
                                    6,518,916Research
      and Development Costs
                                    
                                    
                                    79,709
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    376,165
                                    
                                    
                                    
                                    -Sales
      and Marketing Expenses
                                    
                                    
                                    153,930
                                    
                                    
                                    
                                    363,536
                                    
                                    
                                    
                                    645,280
                                    
                                    
                                    
                                    659,710Total
      Operating Expenses
                                    
                                    
                                    1,219,695
                                    
                                    
                                    
                                    2,623,620
                                    
                                    
                                    
                                    6,517,919
                                    
                                    
                                    
                                    7,178,626(Loss)
      from Operations
                                    
                                    
                                    (856,125
                                    )
                                    
                                    
                                    (1,709,480
                                    )
                                    
                                    
                                    (3,036,558
                                    )
                                    
                                    
                                    (5,932,623
                                    )Redemption
      premium interest expense
                                    
                                    
                                    (231,574,115
                                    )
                                    
                                    
                                    (16,544,198
                                    )
                                    
                                    
                                    (324,748,542
                                    )
                                    
                                    
                                    (17,507,711
                                    )Other
      Interest expense
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (69,582
                                    )Gain
      on derivative liability valuation
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    492,044
                                    
                                    
                                    
                                    -Net
      Loss
                                    
                                    $
                                    (232,430,240
                                    )
                                    
                                    $
                                    (18,253,678
                                    )
                                    
                                    $
                                    (327,362,638
                                    )
                                    
                                    $
                                    (23,440,334
                                    )Basic
      and Diluted Loss per Share
                                    
                                    $
                                    (0.01
                                    )
                                    
                                    $
                                    (0.20
                                    )
                                    
                                    $
                                    (3.34
                                    )
                                    
                                    $
                                    (0.30
                                    )Basic
      and Diluted Weighted-AverageShares
      Outstanding
                                    
                                    
                                    98,045,014
                                    
                                    
                                    
                                    89,496,127
                                    
                                    
                                    
                                    98,045,014
                                    
                                    
                                    
                                    78,618,770








F-2








nCOAT,
      INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYAdditional
                                        
                                        
                                        
                                        
                                        
                                        TotalCommon
      Stock
                                        
                                        
                                        Paid-In
                                        
                                        
                                        Accumulated
                                        
                                        
                                        Stockholders'Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Deficit
                                        
                                        
                                        DeficitBalance
      - December 31, 2007
                                        
                                        
                                        96,439,452
                                        
                                        
                                        $
                                        9,644
                                        
                                        
                                        $
                                        22,440,669
                                        
                                        
                                        $
                                        (36,085,141
                                        )
                                        
                                        $
                                        (13,634,828
                                        )Shares
      issued upon conversion of accrued interest
                                        
                                        
                                        1,554,198
                                        
                                        
                                        
                                        155
                                        
                                        
                                        
                                        185,106
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        185,261Compensation
      related to vested andnonvested
      shares issued to employees,net
      of forfeitures
                                        
                                        
                                        (167,000
                                        )
                                        
                                        
                                        (16
                                        )
                                        
                                        
                                        247,712
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        247,696Reclassification
      of fair value of warrantsto
      derivative liability.
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (612,392
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        (612,392
                                        )Partial
      conversion of convertible note
                                        
                                        
                                        1,250,000
                                        
                                        
                                        
                                        125
                                        
                                        
                                        
                                        24,875
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        25,000Conversion
      of convertible note
                                        
                                        
                                        3,031,956
                                        
                                        
                                        
                                        303
                                        
                                        
                                        
                                        9,697
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        10,000Net
      Loss
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (327,362,638
                                        )
                                        
                                        
                                        (327,362,638
                                        )Balance
      - December 31, 2008(Unaudited)
                                        
                                        
                                        102,108,606
                                        
                                        
                                        $
                                        10,211
                                        
                                        
                                        $
                                        22,295,667
                                        
                                        
                                        $
                                        (363,447,779
                                        )
                                        
                                        $
                                        (341,141,901
                                        )








F-3








nCOAT,
      INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Twelve Months EndedDecember
      31,2008
                                                          
                                                          
                                                          2007(Unaudited)Cash
      Flows From Operating ActivitiesNet
      loss
                                                          
                                                          $
                                                          (327,362,638
                                                          )
                                                          
                                                          $
                                                          (23,440,334
                                                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                                          
                                                          
                                                          599,232
                                                          
                                                          
                                                          
                                                          316,449Amortization
      of intangible assets
                                                          
                                                          
                                                          593,772
                                                          
                                                          
                                                          
                                                          520,940Amortization
      of discount and deferred loan costs and accretion of notes
      payable
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          16,443,286Compensation
      expense paid by issuance of common stock
                                                          
                                                          
                                                          247,696
                                                          
                                                          
                                                          
                                                          1,222,044Redemption
      premium on notes payable recognized as interest
    expense
                                                          
                                                          
                                                          325,753,121Gain
      on derivative warrant liability
                                                          
                                                          
                                                          (492,044
                                                          )Changes
      in assets and liabilities:Accounts
      receivable
                                                          
                                                          
                                                          167,177
                                                          
                                                          
                                                          
                                                          388,135Inventory
                                                          
                                                          
                                                          83,699
                                                          
                                                          
                                                          
                                                          (12,986
                                                          )Other
      current assets
                                                          
                                                          
                                                          114,768
                                                          
                                                          
                                                          
                                                          (46,415
                                                          )Accounts
      payable
                                                          
                                                          
                                                          1,263,540
                                                          
                                                          
                                                          
                                                          640,322Deferred
      revenue
                                                          
                                                          
                                                          759,176Accrued
      liabilities
                                                          
                                                          
                                                          (1,441,037
                                                          )
                                                          
                                                          
                                                          150,028Net
      Cash Provided by Operating Activities
                                                          
                                                          
                                                          286,462
                                                          
                                                          
                                                          
                                                          (3,818,531
                                                          )Cash
      Flows From Investing ActivitiesPurchase
      of property and equipment
                                                          
                                                          
                                                          (43,080
                                                          )
                                                          
                                                          
                                                          (9,487
                                                          )Payment
      for purchase MCC Inc., net of cash acquired
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (4,931,220
                                                          )Net
      Cash Used in Investing Activities
                                                          
                                                          
                                                          (43,080
                                                          )
                                                          
                                                          
                                                          (4,940,707
                                                          )Cash
      Flows From Financing ActivitiesProceeds
      from issuance of notes payable
                                                          
                                                          
                                                          500,000
                                                          
                                                          
                                                          
                                                          5,530,554Proceeds
      from issuance of warrants, net of offering costs paid
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          6,654,165Deferred
      income taxes
                                                          
                                                          
                                                          (163,313
                                                          )Changes
      in stock and paid-in-capital
                                                          
                                                          
                                                          (144,435
                                                          )Principal
      payments on notes payable
                                                          
                                                          
                                                          (535,828
                                                          )
                                                          
                                                          
                                                          (3,356,373
                                                          )Principal
      payments under capital lease obligations
                                                          
                                                          
                                                          (153,633
                                                          )
                                                          
                                                          
                                                          (96,469
                                                          )Net
      Cash Used in Financing Activities
                                                          
                                                          
                                                          (497,209
                                                          )
                                                          
                                                          
                                                          8,731,877Net
      Increase (Decrease) in Cash
                                                          
                                                          
                                                          (253,827
                                                          )
                                                          
                                                          
                                                          (27,361
                                                          )Cash
      At Beginning of Period
                                                          
                                                          
                                                          295,961
                                                          
                                                          
                                                          
                                                          63,437Cash
      At End of Period
                                                          
                                                          $
                                                          42,134
                                                          
                                                          
                                                          $
                                                          36,076Supplemental
      Disclosures of Cash Flow InformationCash
      paid for interest
                                                          
                                                          $
                                                          489,910
                                                          
                                                          
                                                          $
                                                          986,244Schedule
      of Noncash Investing and Financing ActivitiesCommon
      stock issued upon conversion of accrued interest
                                                          
                                                          $
                                                          185,261
                                                          
                                                          
                                                          $
                                                          -Notes
      payable issued for the purchase of equipment and insurance
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          83,158Reclassification
      of the fair value of derivative warrant liability
                                                          
                                                          
                                                          612,392
                                                          
                                                          
                                                          
                                                          -Common
      stock issued upon conversion of notes payable
                                                          
                                                          
                                                          25,000
                                                          
                                                          
                                                          
                                                          -







F-4








NCOAT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008 and 2007




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, 2008 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 Automotive Group,
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 $327,362,638 and $23,440,334 and generating $286,462 and
using $3,818,531 of cash in operating activities during the years ended December
31, 2008 and 2007 respectively.  The Company has experienced losses
from operations since inception and has an accumulated deficit of $363,447,779
as of December 31, 2008. At December 31, 2008, the Company had a working capital
deficiency of $341,141,901. Based on current operations, cash flows from
operations were positive for the second half of calendar year
2008.  As of December 31, 2008, the Company’s principal sources of
liquidity was  $767,160 of trade accounts receivable while current
liabilities totaled $345,737,686 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, 2008 and 2007




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 2008, the following anti-dilutive potential common share were
excluded from the calculation of diluted loss per share: 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.  During the twelve months ended December 31,
2007, potential common shares consisted of 6,396,500 nonvested shares of common
stock; 42,534,722 shares of common stoc issueable upon conversion of notes
payable; 32,418,750 shares of common stock issuble 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.







F-6





NCOAT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008 and 2007




Note
4.  Property and Equipment




December
      31,
                          
                          
                          December
      31,2008
                          
                          
                          2007Machinery
      and equipment
                          
                          $
                          2,099,839
                          
                          
                          $
                          2,051,761Computer
      and office equipment
                          
                          
                          118,959
                          
                          
                          
                          118,959Furniture
      and fixtures
                          
                          
                          55,205
                          
                          
                          
                          55,205Vehicles
                          
                          
                          158,182
                          
                          
                          
                          158,182Leasehold
      improvements
                          
                          
                          609,138
                          
                          
                          
                          609,138Total
      Property and Equipment
                          
                          
                          3,041,323
                          
                          
                          
                          2,993,245Less:
      Accumulated depreciation
                          
                          
                          791,543
                          
                          
                          
                          765,055Net
      Property and Equipment
                          
                          $
                          2,249,780
                          
                          
                          $
                          2,228,190





Note
5.  Intangible Assets


HPC,
      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 12/31/2008
                              
                              
                              2,149,467
                              
                              
                              
                              819,396
                              
                              
                              
                              2,968,863Accumulated
      Amortization
                              
                              
                              (429,893
                              )
                              
                              
                              (163,879
                              )
                              
                              
                              (593,772
                              )Net
      Book Balance 12/31/2008
                              
                              
                              1,719,574
                              
                              
                              
                              655,517
                              
                              
                              
                              2,375,091No
      additional impairment was taken since the IP and formulas have become even
      moreimportant
      and valualbe due to the uniqueness of our preocesses.


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 effects the reported revenues of the Company for the period
ending 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, 2008


(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
($23,358,690 after the effects of the redemption premium discussed below) at
December 31, 2008 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, 2008, the carrying value of the Series A and B notes has been
adjusted to $297,062,500 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, 2009 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 397,891,394 authorized, unissued shares of common
stock available and, therefore, the notes payable cannot all be
converted.  Should debenture holders wish to convert their notes,
current shareholders would experience significant dilution.





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
$17,872,582 and a registration payment liability $23,358,690 at December 31,
2008.







F-8





NCOAT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008 and 2007








December
      31,
                                                                        
                                                                        
                                                                        December
      31,2008
                                                                        
                                                                        
                                                                        20076%
      $9,000,000 Series A convertible promissory notes; due on
      demand
                                                                        
                                                                        $
                                                                        218,215,000
                                                                        
                                                                        
                                                                        $
                                                                        9,000,0006%
      $3,250,000 Series B convertible promissory notes; due on
      demand
                                                                        
                                                                        
                                                                        78,812,500
                                                                        
                                                                        
                                                                        
                                                                        3,250,000Note
      payable, bearing interest at prime plus 1.0% (8.25% at December 31,
      2007);due
      March 2011
                                                                        
                                                                        
                                                                        146,264
                                                                        
                                                                        
                                                                        
                                                                        174,537Note
      payable, bearing interest at prime plus 1.0% (8.25% at December 31,
      2007);payable
      on demand
                                                                        
                                                                        
                                                                        280,364
                                                                        
                                                                        
                                                                        
                                                                        280,364Note
      payable; bearing interest at 8.35%, due November 7, 2007; in
      default
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        28,950Note
      payable to bank; secured by equipment; bearing interest at
      8.75%:payments
      due through 2010
                                                                        
                                                                        
                                                                        14,670
                                                                        
                                                                        
                                                                        
                                                                        13,637Notes
      payable to a bank; secured by equipment; bearing interest at 6.75%
      to7.75%;
      payments due through 2010
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        33,703Notes
      payable, bearing interest at 5%; due September 1, 2007; in
      default
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        355,783Note
      payable, bearing interest at 6%; payable on demand
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        76,476Note
      payable to a bank; secured by equipment; bearing interest at 6.98%;
      payable inmonthly
      installments of $4,841 through February 2014
                                                                        
                                                                        
                                                                        235,652
                                                                        
                                                                        
                                                                        
                                                                        289,328Notes
      payable; bearing interest at 10%; unsecured; due on demand
                                                                        
                                                                        
                                                                        1,180,000
                                                                        
                                                                        
                                                                        
                                                                        1,140,000Total
      Notes Payable
                                                                        
                                                                        
                                                                        298,884,450
                                                                        
                                                                        
                                                                        
                                                                        14,642,778Less:
      Current portion
                                                                        
                                                                        
                                                                        298,734,128
                                                                        
                                                                        
                                                                        
                                                                        1,987,966Long-Term
      Notes Payable
                                                                        
                                                                        $
                                                                        150,322
                                                                        
                                                                        
                                                                        $
                                                                        12,654,812




The fair
value of notes payable was determined based upon current market interest rates
and was $16,829,971 at December 31, 2007. Future annual maturities of notes
payable, exclusive of unamortized discounts, as of December 31, 2007, 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, 2008




A summary
of the status of the Company’s nonvested shares of common stock as of December
31, 2008:




Weighted-AverageAward-DateNonvested
      Shares of Common Stock
                        
                        Shares
                        
                        
                        Fair
      ValueAward
                        
                        
                        13,309,090
                        
                        
                        $
                        0.144Vested
                        
                        
                        (10,902,190
                        )
                        
                        $
                        0.129Forfeited
                        
                        
                        (402,000
                        )
                        
                        $
                        0.129Nonvested
      at December 31, 2008
                        
                        
                        2,004,900
                        
                        
                        $
                        0.139







As of
December 31, 2008, there was $100,471 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
1.4 years from December 31, 2008. The total fair value of the shares that vested
during the year ended December 31, 2008 was $271,929.





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
September 30, 2007 and December 31, 2006:








F-10





NCOAT,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008 and 2007




December
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007Deferred
      Tax LiabilitiesProperty
      and equipment
                      
                      $
                      293,344
                      
                      
                      $
                      205,078Intangible
      assets
                      
                      
                      1,146,574
                      
                      
                      
                      1,146,574Total
      Deferred Tax Liabilities
                      
                      
                      1,439,918
                      
                      
                      
                      1,351,652Deferred
      Tax AssetsAllowance
      for doubtful accounts
                      
                      
                      120,008
                      
                      
                      
                      67,882Accrued
      consulting obligation
                      
                      
                      -
                      
                      
                      
                      193,100Accrued
      PTO
                      
                      
                      210,477
                      
                      
                      
                      83,718Operating
      loss carryforwards
                      
                      
                      6,640,543
                      
                      
                      
                      6,640,543Total
      Deferred Tax Assets
                      
                      
                      6,971,028
                      
                      
                      
                      6,985,243Valuation
      Allowance
                      
                      
                      (5,531,110
                      )
                      
                      
                      (5,633,591
                      )Net
      Deferred Tax Liability
                      
                      $
                      -
                      
                      
                      $
                      -




During
the twelve months ended December 31, 2008, the deferred tax valuation allowance
decreased by $14,215 from operations and decreased by $88,266
from  deferred tax liabilities.







F-11




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.
 
 PART
III
 
 
 ITEM
10.                            
Directors, Executive Officers, Promoters and Control Persons
  Directors
      and Executive Officers
                    
                    
                    
                    Position
                    Served
      SincePaul
      S. Clayson
                    
                    
                    51
                    
                    CEO
      and Chairman of the Board of Directors.
                    February
      2007Director
                    October
      2006Terry
      R. Holmes
                    
                    
                    61
                    
                    President,
      COO
                      Director
                    February
      2007
                      October
      2006Bert
      Wonnacott
                    
                    
                    57
                    
                    Vice
      President, Chief Development Officer
                    March
      2007James
      C. Dodd*
                    
                    
                    65
                    
                    Vice
      President, Chief Financial Officer*
                    March
      2007Dr.
      Thomas Buckley
                    
                    
                    58
                    
                    Director
                    March
      2007*  Mr.
      Dodd retired from the Company on April 18, 2008.
   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 25 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.
  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 TeeNetz, Inc., an ASP telephony and web services company. Mr. Holms
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.
  
  Bert
Wonnacott
 From
October 2005 to March 2007 Mr. Wonnacott was our Vice President and General
Counsel. From 1985 to October 2005 Mr. Wonnacott was a solo practitioner with a
corporate law practice. Prior to that he was a partner at Williams, Wonnacott
& George, which merged into Tanner, Kesler, Rust & Williams. He earned
an MBA and JD degree in a combined program from the University of Utah following
an undergraduate degree in business management and accounting from the same
institution. For more than thirty years, he has worked in corporate law,
business management and strategic advisory of multiple individuals and business
entities. He has been a small business owner and officer in several ventures.
Mr. Wonnacott has previously worked in corporate and private law practice
focusing on business start-ups, venture capital portfolio management, capital
funding, mergers, acquisitions and international taxation. He worked for a
venture capital firm in charge of portfolio selection, due diligence,
documentation, federal compliance and investment management. He also formed an
investment advisory company focusing on specialized global currency trading and
investing. He has volunteered his professional services for several 501(c)(3)
charitable organizations.
  James
Dodd
 From 2002
to March 2007 Mr. Dodd was vice president finance (chief financial officer) for
P&J Brands, Inc.  Following 20 years of public accounting
experience, including nine years as a partner with a leading international CPA
firm, Mr. Dodd has 20 years experience as a senior corporate officer and Chief
Financial Officer ranging in scope from a large multinational concern to a new
product startup company. His experience in finance, accounting, administration,
analysis and planning, mergers and acquisitions and business development have
included two public companies with domestic and international operations. Mr.
Dodd has served as the CFO of companies engaged in manufacturing and
distribution in the food, defense, automotive, investment research and
publishing and recreation sectors. Mr. Dodd has a degree in business from
Montana State University and is a CPA.  Mr. Dodd retired
from the Company on April 18, 2008.
  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.
  
  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.
  
  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.
   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 2007.  Note that the
individuals listed below were neither paid employees or compensated board
members of nCoat until after its merger in February.  The salary
amounts are projected for the 2007 fiscal year.  No other officers or
directors received annual compensation in excess of $100,000 during the last two
fiscal years.
  
  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
                2008
                
                $
                250,000
                
                
                
                (1
                )
                
                
                
                
                
                
                
                
                $
                250,000Terry
                  Holmes
                2008
                
                $
                250,000
                
                
                
                (1
                )
                
                
                
                
                
                
                
                
                $
                250,000James
      Dodd
                2008
                
                $
                120,000
                
                
                
                (1
                )
                
                
                
                
                
                
                
                
                
                $
                120,000Bert
                  Wonnacott
                2008
                
                $
                120,000
                
                
                
                (1
                )
                
                
                
                
                
                
                
                
                
                $
                120,000
  (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 the Employee. Bonuses will 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”). For each Performance Evaluation Category,
there will be a baseline performance level, the achievement of which entitles
the Employee to bonus consideration, and a level which will qualify for one
hundred percent (100%) of the maximum annual bonus amount determined by the
Board or its compensation committee (“Target”), which Target amount may be as
much as two hundred percent (200%) of the Employee’s Annual Base
Salary.
  (2)  Upon
the expiration of a 90-day probationary employee period, the stock was issued,
subject to vesting and Rule 144 restrictions.  The amount shown
in the table represents the award (500,000) at the average market value of $.70
per share on the day of the expiration of the 90-day period (June 1, 2007). The
shares included a vesting schedule.  When Mr. Dodd retired from the
Company on April 18, 2008, 60% of the shares issued were forfeited.
  There are
no stock options outstanding as of October 4, 2007 and no options have been
granted in 2007, but it is contemplated in the future the Company may issue
stock options in the future to officers, directors, advisers and future
employees.
  Director
Compensation
  We have
not paid any compensation to our directors in 2006.Thom Buckly shares - - we
have them listed but not issued.
  Stock
Option Plans
  There is
no stock option plan in effect as of October 4, 2007 and no plans have been
projected for 2007.  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 five meetings duly noticed meetings of the board
during 2008.
  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 97,428,650
shares of our common stock were issued and outstanding as of May
16,
  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%Bert
      Wonnacott
                        
                        
                        350,000
                        
                        
                        
                        0.4%James
      Dodd**
                        
                        
                        500,000
                        
                        
                        
                        0.5%Dr.
      Thomas F. Buckley
                        
                        
                        -
                        
                        
                        
                        -Mr.
      Geoffrey D. Lewis***
                        
                        
                        -
                        
                        
                        
                        -All
      directors and executive officers as a group. (4 persons)
                        
                        
                        28,278,760
                        
                        
                        
                        28.8%
  
  *  Includes
525,000 shares owned by Marcine Holmes, Spouse
 **  Mr.
Dodd retired as the Company’s Chief Financial Officer on April 18,
2008.  60% of these shares were forfeited
 *** Mr.
Lewis resigned as director effective December 31, 2007 .
  ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
  From
October 1, 2005 to July 31, 2007, we leased executive office space in Salt Lake
City, from Mr. Holmes our Chief Operating Officer and a member of our board of
directors.  Since that time we have consolidated our operations in
Salt   Lake and moved personnel to North Carolina so the need for the space
has ended.  Since 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.  Both transactions
were on terms not less favorable to us than what we would have paid to any
unrelated or unaffiliated party.   In 2006, Holmes was reimbursed
for funds advanced related to the formation of the Company and the acquisitions
of HPC. Payments were $103,013 and $258,232, including expense reimbursements,
respectively, for years ended December 31, 2006 and December 31,
2005.
  During
the year ended December 31, 2006, we entered into a Revolving Line of Credit
agreement with three companies controlled by our officers and directors. Total
interest paid under this agreement was $1,661. This line of credit expired on
December 31, 2006.
  Certain
officers and key employees of ours received consulting fees in lieu of, or in
addition to, their annual salary, prior to the merger. Payments for the years
ended December 31, 2006 and December 31, 2005 totaled $354,000 and $322,000,
respectively for Clayson, Holmes and Wonnacott. Effective January 1 2007, all
payment are reflected as salaries rather than consulting fees.
  Director
Independence
  As of the
date of this Report, our common stock traded on the OTC Bulletin Board (the
“Bulletin Board”).  The Bulletin Board 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.
  
  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.