Quarterly Report for period ending June 30, 2005
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED JUNE
30, 2005
|
[_] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
|
ALTAIR
NANOTECHNOLOGIES
INC.
(Exact
name of registrant as specified in its charter)
Canada
|
1-12497
|
33-1084375
|
(State
or other jurisdiction of
incorporation)
|
(Commission
File No.)
|
(IRS
Employer Identification
No.)
|
204
Edison Way
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (775) 856-2500
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 [X[
NO
[ ].
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Act). YES [ ]
NO [X]
As
of August 8, 2005 the registrant had 58,919,289 Common Shares
outstanding.
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
29,686,129
|
|
$
|
7,357,843
|
|
Accounts
receivable
|
|
|
380,377
|
|
|
499,599
|
|
Prepaid
expenses and other current assets
|
|
|
94,538
|
|
|
182,595
|
|
Total
current assets
|
|
|
30,161,044
|
|
|
8,040,037
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
420,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
6,579,867
|
|
|
6,513,907
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
932,470
|
|
|
974,877
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
23,200
|
|
|
18,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
38,116,581
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
757,088
|
|
$
|
81,030
|
|
Accrued
liabilities
|
|
|
615,893
|
|
|
295,743
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
-
|
|
Total
current liabilities
|
|
|
1,972,981
|
|
|
376,773
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
2,382,603
|
|
|
2,880,311
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
58,898,789 and 49,775,694 shares issued and
|
|
|
|
|
|
|
|
outstanding at June 30, 2005 and December 31, 2004
|
|
|
91,483,656
|
|
|
65,505,630
|
|
Accumulated
deficit
|
|
|
(57,380,730
|
)
|
|
(53,215,693
|
)
|
Deferred
compensation expense
|
|
|
(166,929
|
)
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
(175,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
33,760,997
|
|
|
12,289,937
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
38,116,581
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
-
|
|
$
|
-
|
|
$
|
695,000
|
|
$
|
-
|
|
Product
sales
|
|
|
42,485
|
|
|
1,221
|
|
|
65,593
|
|
|
2,843
|
|
Commercial
collaborations
|
|
|
160,775
|
|
|
117,244
|
|
|
257,041
|
|
|
234,915
|
|
Contracts
and grants
|
|
|
299,621
|
|
|
35,768
|
|
|
512,827
|
|
|
56,224
|
|
Total
revenues
|
|
|
502,881
|
|
|
154,233
|
|
|
1,530,461
|
|
|
293,982
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
12,461
|
|
|
189
|
|
|
16,007
|
|
|
536
|
|
Research
and development
|
|
|
744,142
|
|
|
595,185
|
|
|
1,525,677
|
|
|
987,855
|
|
Sales
and marketing
|
|
|
190,670
|
|
|
67,579
|
|
|
921,108
|
|
|
199,716
|
|
General
and administrative expenses
|
|
|
1,355,698
|
|
|
1,400,002
|
|
|
2,921,133
|
|
|
2,476,415
|
|
Depreciation
and amortization
|
|
|
251,455
|
|
|
220,314
|
|
|
496,085
|
|
|
441,510
|
|
Total
operating expenses
|
|
|
2,554,426
|
|
|
2,283,269
|
|
|
5,880,010
|
|
|
4,106,032
|
|
Loss
from Operations
|
|
|
2,051,545
|
|
|
2,129,036
|
|
|
4,349,549
|
|
|
3,812,050
|
|
Other
(Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
51,592
|
|
|
48,114
|
|
|
102,292
|
|
|
95,396
|
|
Interest
income
|
|
|
(184,383
|
)
|
|
(23,436
|
)
|
|
(287,659
|
)
|
|
(43,374
|
)
|
Loss
on foreign exchange
|
|
|
324
|
|
|
318
|
|
|
855
|
|
|
717
|
|
Total
other (income) expense, net
|
|
|
(132,467
|
)
|
|
24,996
|
|
|
(184,512
|
)
|
|
52,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
1,919,078
|
|
$
|
2,154,032
|
|
$
|
4,165,037
|
|
$
|
3,864,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
0.03
|
|
$
|
0.04
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
58,814,970
|
|
|
48,740,271
|
|
|
56,524,538
|
|
|
48,036,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Compen-
|
|
Other
|
|
|
|
|
|
Common
Stock
|
|
Accumulated
|
|
sation
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Expense
|
|
Loss
|
|
Total
|
|
BALANCE,
JANUARY 1, 2005
|
|
|
49,775,694
|
|
$
|
65,505,630
|
|
$
|
(53,215,693
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
12,289,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(4,165,037
|
)
|
|
-
|
|
|
-
|
|
|
(4,165,037
|
)
|
Other
comprehensive loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(175,000
|
)
|
|
(175,000
|
)
|
Comprehensive
loss:
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,340,037
|
)
|
Variable
accounting on stock options
|
|
|
-
|
|
|
477,364
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
477,364
|
|
Exercise
of stock options
|
|
|
1,145,500
|
|
|
1,740,190
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,740,190
|
|
Exercise
of warrants
|
|
|
2,879,281
|
|
|
4,259,672
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,259,672
|
|
Issuance
of restricted stock
|
|
|
60,000
|
|
|
171,000
|
|
|
-
|
|
|
(171,000
|
)
|
|
-
|
|
|
-
|
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,071
|
|
|
-
|
|
|
4,071
|
|
Common
stock issued, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs
|
|
|
5,038,314
|
|
|
19,329,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,329,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JUNE 30, 2005
|
|
|
58,898,789
|
|
$
|
91,483,656
|
|
$
|
(57,380,730
|
)
|
$
|
(166,929
|
)
|
$
|
(175,000
|
)
|
$
|
33,760,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,919,078
|
)
|
$
|
(2,154,032
|
)
|
$
|
(4,165,037
|
)
|
$
|
(3,864,789
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
251,455
|
|
|
220,314
|
|
|
496,085
|
|
|
441,510
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
135,426
|
|
|
-
|
|
|
253,700
|
|
Stock
options issued to employees
|
|
|
-
|
|
|
39,001
|
|
|
-
|
|
|
39,001
|
|
Variable
accounting on stock options
|
|
|
(170,975
|
)
|
|
(178,662
|
)
|
|
477,364
|
|
|
(78,078
|
)
|
Securities
received in payment of license fees
|
|
|
-
|
|
|
-
|
|
|
(595,000
|
)
|
|
-
|
|
Amortization
of discount on note payable
|
|
|
51,592
|
|
|
48,114
|
|
|
102,292
|
|
|
95,396
|
|
Amortization
of deferred compensation expense
|
|
|
4,071
|
|
|
-
|
|
|
4,071
|
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
33,393
|
|
|
-
|
|
|
33,393
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(87,276
|
)
|
|
32,826
|
|
|
119,222
|
|
|
(45,406
|
)
|
Prepaid
expenses and other current assets
|
|
|
(9,217
|
)
|
|
69,314
|
|
|
88,057
|
|
|
38,422
|
|
Other
assets
|
|
|
(5,000
|
)
|
|
-
|
|
|
(5,000
|
)
|
|
-
|
|
Trade
accounts payable
|
|
|
482,960
|
|
|
54,090
|
|
|
676,058
|
|
|
191,514
|
|
Accrued
liabilities
|
|
|
(413,361
|
)
|
|
303,473
|
|
|
320,150
|
|
|
350,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,814,829
|
)
|
|
(1,396,743
|
)
|
|
(2,481,738
|
)
|
|
(2,544,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(254,928
|
)
|
|
(142,935
|
)
|
|
(519,638
|
)
|
|
(178,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs
|
|
|
9,400
|
|
|
-
|
|
|
19,329,800
|
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
114,200
|
|
|
32,595
|
|
|
1,740,190
|
|
|
737,709
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
197,335
|
|
|
4,259,672
|
|
|
8,296,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
123,600
|
|
|
229,930
|
|
|
25,329,662
|
|
|
9,034,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(1,946,157
|
)
|
|
(1,309,748
|
)
|
|
22,328,286
|
|
|
6,310,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
31,632,286
|
|
|
11,490,218
|
|
|
7,357,843
|
|
|
3,869,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
29,686,129
|
|
$
|
10,180,470
|
|
$
|
29,686,129
|
|
$
|
10,180,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to the consolidated financial statements.
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. Basis of Preparation of Financial Statements
These
unaudited interim financial statements of Altair Nanotechnologies Inc. and
its
subsidiaries (collectively, “Altair”, “we” or the “Company”) have been prepared
in accordance with the rules and regulations of the United States Securities
and
Exchange Commission (the “Commission”). Such rules and regulations allow the
omission of certain information and footnote disclosures normally included
in
financial statements prepared in accordance with accounting principles generally
accepted in the United States, so long as the statements are not misleading.
In
the opinion of Company management, these financial statements and accompanying
notes contain all adjustments (consisting of only normal recurring items)
necessary to present fairly the financial position and results of operations
for
the periods shown. These interim financial statements should be read in
conjunction with the audited financial statements and notes thereto contained
in
our Annual Report on Form 10-K/A for the year ended December 31, 2004, as filed
with the Commission on March 10, 2005.
The
consolidated financial statements do not include any adjustments relating to
the
recoverability and classification of recorded asset amounts or the amounts
and
classification of liabilities that might be necessary should we be unable to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on
a
timely basis, to obtain additional financing or refinancing as may be required,
to develop commercially viable products and processes, and ultimately to
establish profitable operations. We have financed operations through operating
revenues and through the issuance of equity securities (common stock,
convertible debentures, stock options and warrants), and debt (term notes).
Until we are able to generate positive operating cash flows, additional funds
will be required to support operations. We believe that current working capital,
cash receipts from anticipated sales and funding through sales of common stock
will be sufficient to enable us to fund our ongoing operations for approximately
four to five years
at
current working capital expenditure levels.
The
results of operations for the three- and six-month periods ended June 30, 2005
are not necessarily indicative of the results to be expected for the full year.
Note
2. Summary of Significant Accounting Policies
Net
Loss Per Common Share
-
Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potentially dilutive
shares outstanding during the period. Potentially dilutive shares consist
of the incremental common shares issuable upon the exercise of stock options
and
warrants. Potentially dilutive shares are excluded from the computation
if
their effect is antidilutive. We had a net loss for all periods presented
herein; therefore, none of the stock options and warrants outstanding during
each of the periods presented were included in the computation of diluted loss
per share as they were antidilutive.
Investment
in Available for Sale Securities - Available
for sale securities includes
publicly-traded equity investments which are classified as available for sale
and recorded at market using the specific identification method. Unrealized
gains and losses (except for other than temporary impairments) are recorded
in other comprehensive income (loss), which is reported as a component of
stockholders’ equity. We evaluate our investments on a quarterly basis to
determine if a potential other than temporary impairment exists.
Our
evaluation considers the investees’ specific business conditions as well as
general industry and market conditions.
Accumulated
Other Comprehensive Income (Loss) - Accumulated
other comprehensive income (loss) consists entirely of unrealized loss on the
investment in available for sale securities. The components of comprehensive
loss for the three- and six-month periods ended June 30, 2005 and 2004 are
as
follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
loss
|
|
$
|
1,919,078
|
|
$
|
2,154,032
|
|
$
|
4,165,037
|
|
$
|
3,864,789
|
|
Unrealized
loss on investment in available for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sale
securities, net of taxes of $0
|
|
|
177,000
|
|
|
-
|
|
|
175,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
2,096,078
|
|
$
|
2,154,032
|
|
$
|
4,340,037
|
|
$
|
3,864,789
|
|
Long-Lived
Assets - We
evaluate the carrying value of long-term assets, including intangibles, when
events or circumstance indicate the existence of a possible impairment, based
on
projected undiscounted cash flows, and recognize impairment when such cash
flows
will be less than the carrying values. Measurement of the amounts of
impairments, if any, is based upon the difference between carrying value and
fair value. Events or circumstances that could indicate the existence of a
possible impairment include obsolescence of the technology, an absence of market
demand for the product, and/or continuing technology rights protection.
Management believes the net carrying amount of long-lived assets will be
recovered by future cash flows generated by commercialization of the titanium
processing technology.
Deferred
Income Taxes - We
use
the asset and liability approach for financial accounting and reporting for
income taxes. Deferred income taxes are provided for temporary differences
in
the bases of assets and liabilities as reported for financial statement purposes
and income tax purposes. We have recorded a valuation allowance against all
net
deferred tax assets. The valuation allowance reduces deferred tax assets to
an
amount that represents management’s best estimate of the amount of such deferred
tax assets that more likely than not will be realized.
Stock-Based
Compensation - Our
stock
option plans are subject to the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 123, Accounting
for Stock-Based Compensation.
Under
the provisions of SFAS 123, employee and director stock-based compensation
expense can be measured using either the intrinsic-value method
as
prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees,
or the
fair value method described in SFAS 123. We have elected to follow the
accounting provisions of APB 25 for our employee and director stock-based awards
and to furnish the pro forma disclosures required under SFAS 123.
In
calculating pro forma compensation related to employee stock option grants,
the
fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model and the following weighted average
assumptions:
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2005
|
|
2004
|
|
Dividend
yield
|
|
None
|
|
None
|
|
Expected
volatility
|
|
|
106
|
%
|
|
61
|
%
|
Risk-free
interest rate
|
|
|
3.84
|
%
|
|
3.29
|
%
|
Expected
life (years)
|
|
|
3.06
|
|
|
4.20
|
|
To
estimate compensation expense that would be recognized under SFAS 123 for all
stock-based awards, we have used the modified Black-Scholes option pricing
model. If we had accounted for our stock options issued to employees and
directors using the accounting method prescribed by SFAS 123, our net loss
and
loss per share would be as follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
loss (basic and diluted) as reported
|
|
$
|
1,919,078
|
|
$
|
2,154,032
|
|
$
|
4,165,037
|
|
$
|
3,864,789
|
|
Add
(Deduct): change in stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
included
in reported net loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of $0 related tax effects
|
|
|
170,975
|
|
|
139,661
|
|
|
(477,364
|
)
|
|
39,077
|
|
Add:
total stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
method
for all awards, net of $0 related tax effects
|
|
|
196,029
|
|
|
649,218
|
|
|
614,454
|
|
|
964,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss applicable to shareholders
|
|
$
|
2,286,082
|
|
$
|
2,942,911
|
|
$
|
4,302,127
|
|
$
|
4,868,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.03
|
|
$
|
0.04
|
|
$
|
0.07
|
|
$
|
0.08
|
|
Pro
forma
|
|
$
|
0.04
|
|
$
|
0.06
|
|
$
|
0.08
|
|
$
|
0.10
|
|
Revenue
Recognition
- We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred or service has been performed, the fee is fixed and determinable,
and collectibility is probable. During the six months ended June 30,
2005,
our revenues were derived from license fees, product sales, commercial
collaborations and contracts and grants. License fees are recognized
when
the agreement is signed and there are no future obligations. Revenue
for product sales is recognized at the time the purchaser has accepted delivery
of the product. Based on the specific terms and conditions of each
contract/grant, revenues are recognized on a time and materials basis, a
percentage of completion basis and/or a completed contract basis. Revenue under
contracts based on time and materials is recognized at contractually billable
rates as labor hours and expenses are incurred. Revenue under contracts based
on
a fixed fee arrangement is recognized based on various performance measures,
such as stipulated milestones. As these milestones are achieved, revenue
is recognized. From time to time, facts develop that may require us
to
revise our estimated total costs or revenues expected. The cumulative
effect of revised estimates is recorded in the period in which the facts
requiring revisions become known. The full amount of anticipated losses
on
any type of contract is recognized in the period in which it becomes known.
Included
in sales and marketing expenses, for the six months ended June 30, 2005 is
$500,000 that was paid to a consultant in connection with the RenaZorb™ licensing
agreement.
Recent
Accounting Pronouncements - As
described above in Stock-Based
Compensation,
we
account for stock-based compensation awards issued to employees using the
intrinsic value measurement provisions of APB 25. Accordingly, no compensation
expense has been recorded for stock options granted to employees with exercise
prices greater than or equal to the fair value of the underlying common stock
at
the option grant date. On December 16, 2004, the FASB issued Statement of
Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123R”),
Share-Based
Payment,
which
eliminates the alternative of applying the intrinsic value measurement
provisions of APB 25 to stock compensation awards issued to employees. The
new
standard requires enterprises to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. That cost will be recognized over the period during which
an
employee is required to provide services in exchange for the award, known as
the
requisite service period (usually the vesting period).
We
have
not yet quantified the effects of the adoption of SFAS 123R, but it is expected
that the new standard will result in significant stock-based compensation
expense. The pro forma effects on net loss and loss per share if we had applied
the fair value recognition provisions of original SFAS 123 on stock compensation
awards (rather than applying the intrinsic value measurement provisions of
APB
25) are disclosed above in Stock-Based
Compensation.
Although such pro forma effects of applying original SFAS 123 may be indicative
of the effects of adopting SFAS 123R, the provisions of these two statements
differ in some important respects. The actual effects of adopting SFAS 123R
will
be dependent on numerous factors including, but not limited to, the valuation
model chosen by the Company to value stock-based awards, the assumed award
forfeiture rate, the accounting policies adopted concerning the method of
recognizing the fair value of awards over the requisite service period, and
the
transition method (as described below) chosen for adopting SFAS 123R.
SFAS
123R
will be effective for our fiscal year beginning January 1, 2006, and requires
the use of either the Modified Prospective Application Method or the Modified
Retrospective Method. Under the Modified Prospective Method, SFAS 123R
is
applied to new awards and to awards modified, repurchased, or cancelled after
the effective date. Additionally, compensation cost for the portion
of
awards for which the requisite service has not been rendered (such as unvested
options) that are outstanding as of the date of adoption shall be recognized
as
the remaining requisite services are rendered. The compensation cost
relating to unvested awards at the date of adoption shall be based on the
grant-date fair value of those awards as calculated for pro forma disclosures
under the original SFAS123. In addition, companies may use the Modified
Retrospective Application Method. This method may be applied to all
prior
years for which the original SFAS 123 was effective or only to prior interim
periods in the year of initial adoption. If the Modified Retrospective
Application Method is applied, financial statements for prior periods shall
be
adjusted to give effect to the fair-value-based method of accounting for awards
on a consistent basis with the pro forma disclosures required for those periods
under the original SFAS 123.
Overhead
Allocation
-
Facilities overhead, which is comprised primarily of occupancy and related
expenses, is allocated to research and development based on labor
costs.
Deferred
Compensation Expense
- The
issuance of restricted stock under our stock incentive plan is recorded as
deferred compensation expense in the shareholders’ equity section of the balance
sheet and is amortized to expense over the period in which the shares are
subject to restriction.
Reclassifications
- Certain
reclassifications have been made to prior period amounts to conform to
classifications adopted in the current period.
Note
3. Notes Payable
|
|
June
30, 2005
|
|
December
31, 2004
|
|
Note
payable to BHP Minerals
|
|
|
|
|
|
|
|
International,
Inc.
|
|
$
|
2,982,603
|
|
$
|
2,880,311
|
|
Less
current portion
|
|
|
600,000
|
|
|
-
|
|
Long-term
portion of notes payable
|
|
$
|
2,382,603
|
|
$
|
2,880,311
|
|
The
note
payable to BHP Minerals International, Inc. is in the face amount of $3,000,000
and is secured by the property we acquired. Interest on the note does not begin
to accrue until August 8, 2005. As a result, we imputed the interest at a rate
of 11% and reduced the face amount of the note payable by $566,763 at the date
of issuance, an amount that is being amortized to interest expense over the
life
of the note. The first payment of $600,000 of principal plus accrued interest
is
due February 8, 2006. Additional payments of $600,000 plus accrued interest
are
due annually on February 8, 2007 through 2010.
Note
4. Intangible Assets
Our
intangible assets consist of patents and related expenditures associated with
the nanomaterials and titanium dioxide pigment technology. In accordance with
SFAS No. 142, we are amortizing these assets over their useful lives. The
amortized intangible asset balance as of June 30, 2005 was:
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Patents
and related expenditures
|
|
$
|
1,517,736
|
|
$
|
(585,266
|
)
|
$
|
932,470
|
|
The
weighted average amortization period for patents and related expenditures is
approximately 16.5 years. Amortization expense was $42,407 for the six months
ended June 30, 2005, which represented the amortization relating to the
identified amortizable intangible assets. For each of the next five years,
amortization expense relating to intangibles is expected to be $84,816 per
year.
Management believes the net carrying amount of intangible assets will be
recovered by future cash flows generated by commercialization of the titanium
processing technology.
Note
5. Related Party Transactions
On
December 31, 2003, we entered into a consulting agreement with Advanced
Technology Group LLC (“ATG”), whose managing partner is David King, a Director
of the Company. The agreement stipulates that ATG will furnish consulting
services in reviewing potential federal grant opportunities and providing
proposal development assistance on selected programs for a period of one year.
The agreement was subsequently extended for an additional year through December
31, 2005. Under the terms of the agreement, ATG is paid on a contingency basis
at a rate of 6% of the first $1,000,000 in grant monies secured from
applications prepared in any calendar year plus 3.5% of any cumulative amounts
over $1,000,000. ATG also agreed to provide consulting services at a rate of
$200 per hour upon request of the Company. In March 2005, ATG performed certain
consulting services for us for which we paid $2,833.
Note
6. Business Segment Information
In
accordance with SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information,
management views the Company as operating in four business segments: Performance
Materials, Life Sciences, Tennessee Mineral Property, and the Altair Jig.
Reportable segment data reconciled to the consolidated financial statements
as
of and for the three- and six-month periods ended June 30, 2005 and 2004 is
as
follows:
|
|
|
|
(Income)
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$ |
476,999 |
|
$ |
259,186 |
|
$ |
228,133 |
|
$ |
5,493,323 |
|
Life
Sciences
|
|
|
25,882 |
|
|
89,008 |
|
|
303 |
|
|
457,294 |
|
Tennessee
Mineral Property
|
|
|
- |
|
|
36,318 |
|
|
- |
|
|
18,200 |
|
Altair
Jig
|
|
|
- |
|
|
732 |
|
|
- |
|
|
- |
|
Corporate
and other
|
|
|
- |
|
|
1,666,301 |
|
|
23,019 |
|
|
32,147,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$ |
502,881 |
|
$ |
2,051,545 |
|
$ |
251,455 |
|
$ |
38,116,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$ |
154,234 |
|
$ |
1,057,227 |
|
$ |
205,926 |
|
$ |
5,126,306 |
|
Life
Sciences
|
|
|
- |
|
|
170,947 |
|
|
- |
|
|
- |
|
Tennessee
Mineral Property
|
|
|
- |
|
|
82,079 |
|
|
- |
|
|
- |
|
Altair
Jig
|
|
|
- |
|
|
18 |
|
|
- |
|
|
- |
|
Corporate
and other
|
|
|
- |
|
|
818,765 |
|
|
14,388 |
|
|
12,555,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$ |
154,234 |
|
$ |
2,129,037 |
|
$ |
220,314 |
|
$ |
17,681,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
809,579
|
|
$
|
1,349,915
|
|
$
|
449,030
|
|
$
|
5,493,323
|
|
Life
Sciences
|
|
|
720,882
|
|
|
(440,583
|
)
|
|
2,993
|
|
|
457,294
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
39,533
|
|
|
-
|
|
|
18,200
|
|
Altair
Jig
|
|
|
-
|
|
|
3,182
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
3,397,503
|
|
|
44,062
|
|
|
32,147,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,530,461
|
|
$
|
4,349,549
|
|
$
|
496,085
|
|
$
|
38,116,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
293,982
|
|
$
|
1,963,644
|
|
$
|
409,535
|
|
$
|
5,126,306
|
|
Life
Sciences
|
|
|
-
|
|
|
193,854
|
|
|
-
|
|
|
-
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
144,479
|
|
|
-
|
|
|
-
|
|
Altair
Jig
|
|
|
-
|
|
|
2,154
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
1,507,919
|
|
|
31,975
|
|
|
12,555,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
293,982
|
|
$
|
3,812,050
|
|
$
|
441,510
|
|
$
|
17,681,494
|
|
In
the
table above, corporate and other expense in the (Income) Loss From Operations
column includes such expenses as investor relations, business consulting,
general legal expense, accounting and audit, general insurance expense,
non-employee and employee variable accounting stock option compensation expense,
shareholder information expense and general office expense.
For
the three months ended June 30, 2005, we had sales to three major customers,
each of which accounted for 10% or more of revenues. Total sales to these
customers for the three months ended June 30, 2005 and the balance of their
accounts receivable at June 30, 2005 were as follows:
|
|
Sales
- 3 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
138,730
|
|
$
|
98,930
|
|
Western
Oil Sands
|
|
|
69,854
|
|
|
56,674
|
|
UNLV
Research Foundation
|
|
|
160,890
|
|
|
104,702
|
|
For
the three months ended June 30, 2004, we had sales to three major customers,
each of which accounted for 10% or more of revenues. Total sales to these
customers for the three months ended June 30, 2004 and the balance of their
accounts receivable at June 30, 2004 were as follows:
|
|
Sales
- 3 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
June
30, 2004
|
|
June
30, 2004
|
|
Performance
Materials Division:
|
|
|
|
Western
Oil Sands
|
|
$
|
71,534
|
|
$
|
16,651
|
|
Western
Michigan University
|
|
|
35,768
|
|
|
27,511
|
|
Kumba
Resources
|
|
|
20,000
|
|
|
-
|
|
For
the
six months ended June 30, 2005, we had sales to four major customers, each
of
which accounted for 10% or more of revenues. Total sales to these customers
for
the six months ended June 30, 2005 and the balance of their accounts receivable
at June
30,
2005 were as follows:
|
|
Sales
- 6 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
248,439
|
|
$
|
98,930
|
|
Western
Oil Sands, Inc.
|
|
|
165,235
|
|
|
56,674
|
|
UNLV
Research Foundation
|
|
|
231,054
|
|
|
104,702
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
|
720,881
|
|
|
25,881
|
|
For
the
six months ended June 30, 2004, we had sales to three major customers, each
of
which accounted for 10% or more of revenues. Total sales to these customers
for
the six months ended June 30, 2004 and the balance of their
accounts receivable at June 30, 2004 were as follows:
|
|
Sales
- 6 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
June
30, 2004
|
|
June
30, 2004
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
75,000
|
|
$
|
-
|
|
Western
Michigan University
|
|
|
56,224
|
|
|
27,511
|
|
Western
Oil Sands, Inc.
|
|
|
114,205
|
|
|
16,651
|
|
Revenues
for the three-month periods ended June 30, 2005 and 2004 by geographic area
were
as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
3
Months Ended
|
|
3
Months Ended
|
|
Geographic
information (a):
|
|
June
30, 2005
|
|
June
30, 2004
|
|
|
|
|
|
|
|
United
States
|
|
$
|
416,527
|
|
$
|
62,699
|
|
Canada
|
|
|
82,354
|
|
|
71,534
|
|
Other
foreign countries
|
|
|
4,000
|
|
|
20,000
|
|
Total
|
|
$
|
502,881
|
|
$
|
154,233
|
|
|
|
|
|
|
|
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Revenues
for the six-month periods ended June 30, 2005 and 2004 by geographic area were
as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
6
Months Ended
|
|
6
Months Ended
|
|
Geographic
information (a):
|
|
June
30, 2005
|
|
June
30, 2004
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,363,404
|
|
$
|
179,777
|
|
Canada
|
|
|
166,416
|
|
|
114,205
|
|
Other
foreign countries
|
|
|
641
|
|
|
-
|
|
Total
|
|
$
|
1,530,461
|
|
$
|
293,982
|
|
|
|
|
|
|
|
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Note
7. Investment in Available for Sale Securities
Investment
in available for sale securities consists of 100,000 restricted shares of
Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock received in January
2005. The shares were received as partial payment of licensing fees when
Spectrum entered into a license agreement for RenaZorbTM.
On
receipt, the shares were recorded at their market value of $595,000 as measured
by their closing price on the Nasdaq SmallCap Stock Market. At June 30, 2005,
their fair value was $420,000, representing an unrealized holding loss of
$175,000. We do not believe that there is an other than temporary impairment
at
June 30, 2005. As of August 12, 2005, $90,000 of the unrealized holding loss
has
been recovered.
Note
8. Other Transactions
On
February 14, 2005, we sold 5,000,000 common shares to institutional investors.
The sales were made at $4.05 per share with net proceeds to the Company, after
expenses, of approximately $19.2 million. The placement agent also received
a
warrant to purchase 250,000 shares of our common stock at $5.27 per share.
The
warrant has a four-year term. Using a Black-Scholes pricing model, we estimate
these warrants have a value of approximately $581,000 at their date of
issuance.
In
May
2005, shareholders approved the 2005 Stock Incentive Plan (the “Plan”) under
which 3,000,000 common shares are available for issuance to employees, officers
and directors of Altair as well as selected service providers. In June 2005,
the
Board of Directors granted 60,000 shares of restricted stock under the Plan.
A
total of 30,000 shares vest on the later of March 21, 2006 or the date of the
2006 annual shareholders meeting of the Company, and the remaining 30,000 shares
vest on the later of March 21, 2007 or the date of the 2007 annual shareholders
meeting of the Company. The shares were recorded as deferred compensation
expense in the shareholders’ equity section of the balance sheet at their fair
value on the date of issue and are being amortized to expense over the vesting
period.
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
following discussion summarizes the material changes in our financial condition
between December 31, 2004 and June 30, 2005 and the material changes in our
results of operations and financial condition between the three- and six-month
periods ended June 30, 2004 and June 30, 2005. This discussion should be read
in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in the Company’s Annual Report on Form 10-K/A for
the year ended December 31, 2004.
Overview
We
are a
Canadian company, with principal assets and operations in the United States,
whose primary business is developing and commercializing advanced ceramic
nanomaterials and titanium dioxide pigment technologies. We are organized into
two divisions, a Performance Materials Division and a Life Sciences Division.
Our research, development, production and marketing efforts are currently
directed toward six market applications that utilize our proprietary
technologies:
The
Performance Materials Division.
|
o
|
The
marketing of titanium dioxide pigment production
technology.
|
|
o
|
The
marketing and production of nano-structured ceramic powders for thermal
spray applications.
|
|
o
|
The
development of nano-structured ceramic powders for nano-sensor
applications.
|
|
o
|
The
development of titanium dioxide electrode structures in connection
with a
research program aimed at developing a lower-cost process for producing
titanium metals and related alloys.
|
|
·
|
Air
and Water Treatment
|
|
o
|
The
development of photocatalytic materials for air
cleansing.
|
|
o
|
The
marketing, licensing and production of Nanocheck TM
products for phosphate binding to prevent or reduce algae
growth.
|
|
o
|
The
development of materials for high performance batteries, photovoltaics
and
transparent electrodes for hydrogen generation and fuel
cells.
|
The
Life Sciences Division.
|
·
|
Pharmaceutical
Products
|
|
o
|
The
co-development of RenaZorb™, a test-stage active pharmaceutical
ingredient, which is designed to be useful in the treatment of elevated
serum phosphate levels in patients undergoing kidney
dialysis.
|
|
o
|
The
co-development of Renalan, a test stage active pharmaceutical ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in companion animals suffering from chronic renal
failure.
|
|
·
|
Chemical
Delivery Products
|
|
o
|
The
development of TiNano SpheresTM,
which are rigid, hollow, porous, high surface area ceramic micro
structures that are derived from Altair’s proprietary process technology
for the delivery of chemicals, drugs and biocides.
|
|
·
|
Biocompatible
Materials
|
|
o
|
The
development of nanomaterials for use in various products for dental
fillings and dental products.
|
We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property for our core technology and/or new
products.
We
have
generated, and expect to continue to generate, revenues from license fees,
product sales, commercial collaborations, contracts and grants.
We
have discontinued work on both the Tennessee
mineral property and Altair jig segments and are in the process of disposing
of
the mineral leases and other property in Tennessee.
General
Outlook
During
the six-month period ended June 30, 2005, we licensed RenaZorb™ to Spectrum
Pharmaceuticals, Inc. (“Spectrum”) and recognized $695,000 of licensing revenue
in connection with the licensing agreement. Prior to this transaction,
substantially
all of our revenues came from commercial collaborations, grants and other
research or development work which we have undertaken primarily in order to
benefit from the resulting technology. Our gross profit margins on such research
and development work is very low, and in order that we may be profitable in
the
long run, our business plan focuses on the development of products and
technologies that we expect will eventually bring a substantial amount of
higher-margin revenues from licensing, product sales and other sources.
As
we
attempt to significantly expand our revenues from licensing, sales and other
sources, some of the key near-term events that will affect our long term success
prospects include the following:
|
·
|
Spectrum
must complete animal testing of our RenaZorb™ product demonstrating
specified result levels for RenaZorb™, which we expect to be performed by
September 2005. Successful completion of this milestone under our
license
agreement with Spectrum will result in Spectrum’s release of the
associated milestone payment to Altair, an additional 100,000 restricted
shares of Spectrum common stock. In the meantime, Altair and Spectrum
are
continuing with their development work, and Altair will receive additional
revenues if and when specified milestone results are
achieved.
|
|
·
|
Licensing
and product purchase commitments for our Nanocheck™ swimming pool product
are currently under discussion. Successful completion of potential
license
agreement(s) and product purchase commitments are essential for the
commercialization of the Nanocheck™ product, which could bring
manufacturing and licensing revenue in late 2005, 2006 and
beyond.
|
|
·
|
The
initial phase of work for the Western Oil Sands license agreement
is
expected to be complete by December 31, 2005. In order for this project
to
move toward commercialization, we must successfully complete the
initial
phase, it must be determined that the oil sands tailings have sufficient
economic value to allow the process to be viable, and Western Oil
Sands
must decide to proceed with phase two.
|
|
·
|
We
have completed phase one work under a National Science Foundation
grant to
produce materials enabling a next generation of rechargeable batteries
and
have been awarded a phase two grant of $476,850. The ultimate
commercialization of our battery materials will be dependant upon
our
ability to secure a technology license or similar agreement with
one or
more battery manufacturers. We have entered into a development agreement
or material evaluation agreement with a number of battery manufacturers
and are currently in discussions with other battery manufacturers
but
cannot project when, or if, we will enter into a commercialization
agreement with respect to our battery materials technology and what
the
terms of such agreement may be.
|
Although
it is not essential that all of these projects be successful in order to permit
substantial long-term revenue growth, we believe that full commercialization
of
several of our technologies will be necessary in order to expand our revenues
enough to create a likelihood of our becoming profitable in the long term.
We
are optimistic with respect to our current key projects, as well as others
we
are pursuing, but recognize that, with respect to each, there are development,
marketing, partnering and other risks to be overcome.
Recent
Business Developments
Performance
Materials Division
Altair
Hydrochloride Pigment Process
Altair
has entered into an additional agreement with Western Oil Sands, Inc.
(“Western”) to provide pilot plant and office space within our facilities for
Western’s five employees and consultants to facilitate on-site collaboration
between the two companies in furthering the engineering study of manufacturing
titanium dioxide pigment from Western’s tar sand tailings using the Altair
Hydrochloride Pigment Process. Revenues from leasing the office and pilot plant
space are expected to be minor.
Thermal
Spray Grade Powders
During
the quarter ended June 30, 2005, we made additional shipments of titanium
dioxide coating materials for thermal spray applications, and we began marketing
of our yttria stabilized zirconia coating powders for the industrial engine
market where potential applications could include coatings for turbine blades
used in power production turbines.
Catalyst
Support and Electrode Structures for Titanium Metals
In
January 2004, we entered into a contract with Titanium Metals Corporation
(“TIMET”) to provide custom oxide feedstocks for a titanium metal research
program funded by the Department of Defense, Defense Advanced Research Projects
Agency (“DARPA”). We became a subcontractor for the DARPA program with
responsibility to design and develop a titanium oxide electrode structure and
supply TIMET optimized titanium oxide feedstock to produce 50 pounds of titanium
metal per day in batch production demonstrations. During 2005, we have provided
TIMET with over 100 pounds of titania electrode materials in accordance with
the
agreement. This agreement has been extended by TIMET, and we will continue
to
ship titanium dioxide feedstock materials to TIMET as requested for this
research and development project.
Air
Cleansing
In
February 2005, we entered into a partnership agreement with Genesis Air to
develop specialized, surface activated, nano-sized titanium dioxide compounds
for use in an innovative HVAC air cleaning system. Under the terms of the
partnership agreement, Altair is providing Genesis with product design services,
proprietary nano-sized titanium dioxide materials and ongoing chemical
engineering support services. Genesis filtration systems incorporating Altair
nanomaterials are being tested in 12 sites worldwide.
Lithium
Ion Battery Electrode Materials
In
December 2004, we completed work under Phase I of a National Science Foundation
(“NSF”) grant for development of electrode nanomaterials for next generation
lithium ion power sources. The results of the research indicated that lithium
ion batteries prepared with nano-structured lithium titanate spinel anode
materials exhibit rapid charge and discharge rates, improved cycle life
performance and a decrease in specific energy density when compared to
conventional lithium ion, nickel cadmium and nickel metal hydride battery
materials.
On
June
30, 2005, we announced that we received a grant of $476,850 from the NSF for
Phase II. Phase I work was designed to optimize the anode electrode materials
and Phase II is designed to develop cathode electrode materials, thus resulting
in matched anode-cathode electrode materials for optimum electrochemical
performance.
We
are
focusing our marketing and development efforts on markets presently dominated
by
nickel cadmium or nickel metal hydride batteries, such as power tools and
automobiles, in which rapid charging, long cycle life and the additional power
from the rapid discharge should prove advantageous. Secondarily, we intend
to
pursue markets, such as cell phone batteries, presently dominated by lithium
ion
batteries, which are characterized by slow charge and discharge rates and high
specific energy density. A battery with high specific energy density requires
less volume per Watt hour and, if the discharge rate is limited, discharges
slower than a battery with low specific energy density. We believe that, as
our
battery materials improve and the market realizes the benefits of our rapid
charge/discharge “contrarian strategy,” our battery materials will become
competitive in markets presently dominated by lithium ion batteries; however,
because of the importance presently placed on specific energy density in such
markets, we expect that our best short-term opportunities do not lie in this
area.
Further,
another aspect of our development focus is on product life, initially cycle
life, then charge retention and calendar life. In cycle life, each
charge/discharge cycle tends to cause a loss of capacity. Controlling this
rate
of capacity loss is essential to producing batteries that have 3,000 to 5,000
cycle life, important for electric vehicles. Charge retention life describes
how
fast a charged lithium ion battery loses it charge in storage. Calendar life
describes how quickly lithium ion batteries lose their charge over time, whether
in use or in storage.
In
April
2005, we signed a partnering agreement with Advanced Battery Technologies,
Inc.
(“ABAT”), a U.S. and Chinese-owned company, for the development of lithium
polymer batteries in China. The agreement covers the incorporation of our
battery electrode nanomaterials into ABAT's existing polymer battery product
lines on a testing and development basis. It specifically focuses on development
of high power, lithium polymer batteries for use in electric vehicles where
long
life cycles and fast charge times are desirable. We have provided ABAT with
sample nanomaterials for their use in design and development of the batteries.
ABAT’s phase I testing of batteries using our battery electrodes showed
significantly improved recharging capability. We are currently producing
additional anode materials at ABAT’s request. We anticipate that ABAT will be
able to produce batteries for testing in standard battery test protocols and
in
real world tests using electric vehicles (i.e. cars and buses) in late 2005.
Hydrogen
Generation
In
November 2004, we entered into an agreement with the University of Nevada,
Las
Vegas Research Foundation to act as a subcontractor under a $3,000,000 grant
awarded to them by the U.S. Department of Energy for joint research activities
related to solar hydrogen production at a refilling station under development
in
Las Vegas. The agreement, which is effective through December 31, 2005, provides
for payments to Altair of $400,000 for research and development work utilizing
nanotechnology processes for the production and commercialization of solar-based
hydrogen technologies. In connection with this, we are providing thin films
of
transparent iron oxide for use in solar generation cells. The project is on
track for completion by December 31, 2005.
Manufacturing
Operations
We
have
created a manufacturing group within Altair to provide production control,
quality assurance, current good manufacturing practices (cGMP) capabilities
and
to address issues related to the possible production of large, multiple-product
orders for lithium ion anode and cathode electrode materials and for
NanoCheckTM,
RenaZorbTM
and
Renalan products.
Life
Sciences Division
RenaZorb™
Products
In
January 2005, we signed a licensing agreement with Spectrum which grants them
exclusive worldwide rights to develop, market and sell RenaZorb™. We have
supplied Spectrum with test quantities of RenaZorb™ in order to conduct in-life
animal testing. They expect to complete this testing by the end of summer 2005
in preparation for pre-Investigational New Drug consultations with the
FDA.
Renalan
Products
We
are
also conducting third-party discussions toward the potential licensing of
Renalan (similar chemistry to RenaZorb™) for use in companion animal
applications, primarily dogs and cats with chronic renal failure. Renalan,
as a
phosphate binder, has the potential to alleviate hyperphosphatemia, a condition
associated with chronic renal failure in companion animals.
TiNanoSpheresTM
We
have
identified initial target applications where TiNanoSpheresTM
may be
used as a chemical delivery device. These include cancer therapy, where
TiNanoSpheresTM
may be
used as a drug delivery mechanism targeting very localized areas of the human
body, and cell-based immune response applications such as viral vaccine
delivery. We are currently negotiating agreements for investigation and possible
testing of these and other applications.
Other
Developments
With
respect to the Tennessee mineral property, we are continuing our efforts to
terminate leases. Our remediation plan, which is expected to cost between
$100,000 and $200,000, has been approved by the applicable regulatory
authorities. We expect to perform the remediation work during the third quarter
of 2005 and will then be responsible for site monitoring for a period of two
years. In May 2005, we completed the sale of the pilot plant processing
equipment and reserved the proceeds for payment of remediation costs.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Our
cash
and short-term investments increased from $7,357,843 at December 31, 2004 to
$29,686,129 at June 30, 2005 due primarily to the sale of 5,000,000 common
shares on February 14, 2005, which provided net proceeds of $19.2 million,
and
the exercise of stock options and warrants which provided $6.1 million. We
intend to use these funds for working capital, capital expenditures, research
and development activities and the possible acquisition of other technologies.
We
expect
to see an increase in our net cash outflow to approximately $550,000 per month
in 2005 compared to average cash outflow of $530,000 per month in 2004. During
the second half of 2004 and the first half of 2005, we added eleven new
employees in both technical and administrative positions in order to meet the
demand for contract research services, comply with regulatory requirements
and
improve our marketing capabilities. This increase in staffing, combined with
increased expenses for patent work, other
internal R&D projects, capital asset expenditures, and compliance with the
Sarbanes-Oxley Act, will significantly increase our expenses. However, we expect
an increase in revenue in 2005 that will largely offset these increased expense
levels.
During
the remainder of 2005, we expect to generate revenues from licensing, product
sales, commercial collaborations, contracts and grants by utilizing our
nanomaterials and titanium dioxide pigment technology. We currently have five
contracts in place that will generate revenues in 2005. These are:
|
·
|
a
licensing agreement with Spectrum Pharmaceuticals, Inc. for
RenaZorb™
under which we realized $695,000 of revenue in the first quarter
of 2005.
We expect to receive approximately $500,000 of additional revenue
during
the remainder of 2005 in the form of restricted shares of Spectrum
common
stock, contingent on successful completion of animal
testing.
|
|
·
|
a
contract with Western Oil Sands, Inc. for the production of titanium
dioxide pigment and pigment-related products from oil sands. We have
approximately $30,000 of work remaining to be done on an existing
contract
and expect to enter into a second phase contract for additional work
in
late 2005 or early 2006.
|
|
·
|
a
contract with Western Michigan University to develop nanosensors
for the
detection of chemical, biological and radiological agents. We have
approximately $10,000 of work to be done under existing contracts
during
the remainder of 2005.
|
|
·
|
an
agreement with the University of Nevada, Las Vegas Research Foundation
to
act as a subcontractor under a $3,000,000 grant awarded to them by
the
U.S. Department of Energy for joint research activities related to
solar
hydrogen production. We have approximately $150,000 of work remaining
to
be done in 2005 under the
agreement.
|
|
·
|
a contract
with NSF for Phase II work on the development of advanced battery
materials which begins October 1, 2005. We expect to generate
approximately $80,000 of revenues during the remainder of 2005 in
connection with this contract.
|
In
addition to these existing collaborations, contracts and grants, we hope to
commence generating revenue from certain of our products, including
NanocheckTM,
a
lanthanum-based compound that can be used to treat water for the removal of
a
wide range of deleterious impurities, and yttria stabilized zirconia, a product
that may be used in solid oxide fuel cells and as a thermal barrier coating.
Contributions to total revenues from these products during 2005 will not likely
be significant, but such increases may lay the foundation for more substantial
revenue in future years.
At
August
8, 2005, we had 58,919,289 common shares issued and outstanding. As of that
same
date, there were outstanding warrants to purchase up to 1,867,453 shares of
common stock and options to purchase up to 2,514,200 shares of common
stock.
Capital
Commitments
The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of June 30,
2005:
Contractual
Obligations |
|
Total
|
|
Less
Than 1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5
Years
|
|
Notes
Payable
|
|
$
|
3,000,000
|
* |
$
|
600,000
|
|
$
|
1,200,000
|
|
$
|
1,200,000
|
|
$
|
-
|
|
Interest
on notes payable
|
|
|
525,000
|
|
|
105,000
|
|
|
294,000
|
|
|
126,000
|
|
|
-
|
|
Mineral
Leases**
|
|
|
124,509
|
|
|
40,362
|
|
|
56,548
|
|
|
27,599
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
326,803
|
|
|
289,303
|
|
|
37,500
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
94,985
|
|
|
94,985
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
4,071,297
|
|
$
|
1,129,650
|
|
$
|
1,588,048
|
|
$
|
1,353,599
|
|
$
|
-
|
|
*
Before discount of $17,397.
|
|
|
|
|
|
|
|
|
|
|
**
Although we expect to terminate substantially all mineral leases
by the
end of 2005, the obligations are included here because they are
not yet
terminated.
|
Critical
Accounting Policies and Estimates
The
following discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements. The preparation
of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our critical accounting policies and estimates, including those
related to long-lived assets and stock-based compensation. We base our estimates
on historical experience and on various other assumptions that we believe to
be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We
believe that the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Company’s future results of operations and cash flows.
|
·
|
Long-Lived
assets. Our long-lived assets consist principally of the nanomaterials
and
titanium dioxide pigment assets, the intellectual property (patents
and
patent applications) associated with those assets, and a building.
At June
30, 2005, the carrying value of these assets was $7,512,339, or 20%
of
total assets. We evaluate the carrying value of long-lived assets
when
events or circumstances indicate that an impairment may exist. In
our
evaluation, we estimate the net undiscounted cash flows expected
to be
generated by the assets, and recognize impairment when such cash
flows
will be less than the carrying values. Events or circumstances that
could
indicate the existence of a possible impairment include obsolescence
of
the technology, an absence of market demand for the product, and/or
the
partial or complete lapse of technology rights protection.
|
|
·
|
Stock-Based
Compensation. We have stock option plans which provide for the issuance
of
common stock options to employees and service providers. Although
SFAS No.
123, Accounting
for Stock Based Compensation,
encourages entities to adopt a fair-value-based method of accounting
for
stock options and similar equity instruments, it also allows an entity
to
continue measuring compensation cost for stock-based compensation
for
employees and directors using the intrinsic-value method of accounting
prescribed by APB 25, Accounting
for Stock Issued to Employees.
We have elected to follow the accounting provisions of APB 25 and
to
furnish the pro forma disclosures required under SFAS 123 for employees
and directors, but we also issue warrants and options to non-employees
that are recognized as expense when issued in accordance with the
provisions of SFAS 123. We calculate compensation expense under SFAS
123
using a modified Black-Scholes option pricing model. In so doing,
we
estimate certain key assumptions used in the model. We believe the
estimates we use, which are presented in Note 2 of the Notes to
Consolidated Financial Statements included above in this Form 10-Q,
are
appropriate and reasonable. As explained in Note 2 to the Consolidated
Financial Statements, the Financial Accounting Standards Board has
issued
a revision to SFAS 123 that eliminates the alternative of applying
the
intrinsic value measurement provisions of APB 25. We are required
to adopt
the revised SFAS 123 no later than January 1, 2006. Although we have
not
yet quantified the effects of adoption, it is expected that the new
standard will result in significant additional expense, depending
upon the
nature and amount of stock-based compensation awards which may be
granted.
|
|
·
|
Revenue
Recognition. We recognize revenue when persuasive evidence of an
arrangement exists, delivery has occurred or the service has been
performed, the fee is fixed and determinable, and collectibility
is
probable. During the six months ended June 30, 2005, our
revenues
were derived from license fees, product sales, commercial collaborations
and contracts and grants. License fees are recognized when
the
earnings process is complete. Revenue for product sales is recognized
at
the time the purchaser has accepted delivery of the product. Based
on the
specific terms and conditions of each contract or grant, revenues
are
recognized on a time and materials basis, a percentage of completion
basis
and/or a completed contract basis. Revenue under contracts based
on time
and materials is recognized at contractually billable rates as labor
hours
and expenses are incurred. Revenue under contracts based on a fixed
fee
arrangement is recognized based on various performance measures,
such as
stipulated milestones. As these milestones are achieved,
revenue is
recognized. From time to time, facts develop that may require
us to
revise our estimated total costs or revenues expected. The
cumulative effect of revised estimates is recorded in the period
in which
the facts requiring revisions become known. The full amount
of
anticipated losses on any type of contract is recognized in the period
in
which it becomes known.
|
|
·
|
Overhead
Allocation. Facilities overhead, which is comprised primarily of
occupancy
and related expenses, is initially recorded in general and administrative
expenses and then allocated monthly to research and development expense
based on labor costs. Facilities overhead allocated to research and
development projects may be chargeable when invoicing customers under
certain research and development
contracts.
|
|
·
|
Allowance
for Doubtful Accounts. The allowance for doubtful accounts is based
on our
assessment of the collectibility of specific customer accounts and
the
aging of accounts receivable. We analyze historical bad debts,
the
aging of customer accounts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer
payment patterns when evaluating the adequacy of the allowance for
doubtful accounts. From period to period, differences in
judgments
or estimates utilized may result in material differences in the amount
and
timing of our bad debt expenses.
|
Results
of Operations
Three
Months Ended June 30, 2005 Compared to Three Months Ended June 30,
2004
The
net
loss for the quarter ended June 30, 2005, which was the second quarter of our
2005 fiscal year, totaled $1,919,078 ($.03 per share) compared to a net loss
of
$2,154,032 ($.04 per share) in the second quarter of 2004.
Total
revenues for the three months ended June 30, 2005 were $502,881. Revenues
from contracts and grants increased by $263,853, from $35,768 in the quarter
ended June 30, 2004 to $299,621 in the same quarter of 2005. Revenues were
generated under two contracts to (1) provide research involving a technology
used in the detection of chemical, biological and radiological agents, and
(2)
provide research utilizing nanotechnology processes for the production and
commercialization of solar-based hydrogen technologies. At June 30, 2005, our
backlog of work under existing contracts was approximately $884,000. We
anticipate that $250,000 to $300,000 of this work may be completed during the
remainder of 2005.
Revenues
from commercial collaborations increased from $117,244 in the second quarter
of
2004 to $160,775 in the second quarter of 2005 as a result of work on a project
to provide custom oxide feedstocks for a titanium metal research program funded
by the Department of Defense, billings for work on the joint development of
NanocheckTM
and
billings to Spectrum Pharmaceuticals in connection with RenazorbTM.
Product
sales increased by $41,264, from $1,221 in the second quarter of 2004 to $42,485
in the second quarter of 2005, primarily due to increased sales of thermal
spray
grade powders and sales of NanocheckTM.
Research
and development (“R&D”) expenses increased by $148,957, from $595,185 in the
quarter ended June 30, 2004 to $744,142 in the same quarter of 2005. Labor
costs
increased significantly, from $216,000 in the second quarter of 2004 to $364,000
in the same quarter of 2005 due to new employee additions, salary increases
and
benefit cost increases. Costs also increased primarily as a result of
expenditures on new contract R&D projects, including battery materials and
materials for use in solar hydrogen production, increased expenditures for
internal R&D and temporary employees hired for R&D
projects.
Sales
and
marketing expenses increased by $123,091, from $67,579 in the second quarter
of
2004 to $190,670 in the second quarter of 2005. The increase is due to increased
payroll expense resulting from the addition of a senior vice president of sales
and marketing in January 2005 and increased business development activities.
General
and administrative expenses decreased by $44,304, from $1,400,002 in second
quarter of 2004 to $1,355,698 in the second quarter of 2005. Investor relations
expense decreased by $320,000 as a result of a cutback in our investor relations
programs; general consulting decreased by $160,000 and stock option compensation
expense decreased by $31,000. These decreases were partially offset by an
increase in legal expenses of $125,000, primarily due to increased patent
attorney fees paid in connection with patent work and increased attorney fees
in
connection with regulatory work. Consulting fees associated with Sarbanes-Oxley
Act compliance increased by $170,000; shareholder information expenses increased
by $35,000 and payroll expense increased by $123,000 as a result of additional
staff, salary increases and benefit cost increases.
Interest
income increased by $160,947, from $23,436 in the second quarter of 2004 to
$184,383 in the second quarter of 2005 due to the significant increase in cash
available for investment that was generated through the sale of common shares
and the exercise of warrants and options in early 2005.
Six
Months Ended June 30, 2005 Compared to Six Months Ended June 30,
2004
For
the
six months ended June 30, 2005, the net loss was $4,165,037 ($.07 per share)
compared to a net loss of $3,864,789 ($.08 per share) for the same period of
2004.
Total
revenues for the six months ended June 30, 2005 were $1,530,461. Included in
revenues was $695,000 representing the initial license fee paid by Spectrum
Pharmaceuticals in connection with the license of RenazorbTM.
Contract and grant revenues increased by $456,603, from $56,224 in the six
months ended June 30, 2004 to $512,827 in the same period of 2005. The increase
is due to increased revenues under the Western Michigan University contract
(nanosensor technology) and new agreements with the University of Nevada, Las
Vegas Research Foundation (solar hydrogen generation) and the NSF (advanced
battery materials). Product sales increased by $62,750, from $2,843 in the
six
months ended June 30, 2004 to $65,593 in the same period of 2005, primarily
due
to increased sales of thermal spray grade powders and sales of
NanocheckTM.
R&D
expenses increased by $537,822, from $987,855 in the six months ended June
30,
2004 to $1,525,677 in the same period of 2005. Labor costs increased from
$444,000 in the six months ended June 30, 2004 to $686,000 in the same period
of
2005 due to new employee additions, salary increases and benefit cost increases.
Costs also increased primarily as a result of expenditures on new contract
R&D projects, including battery materials and materials for use in solar
hydrogen production, increased expenditures for internal R&D and temporary
employees hired for R&D projects.
Sales
and
marketing expenses increased by $721,392, from $199,716 in the six months ended
June 30, 2004 to $921,108 in the same period of 2005. The increase is due to
payment of a $500,000 fee to a consultant in connection with the
RenaZorbTM
licensing agreement and increased payroll expense resulting from the addition
of
a senior vice president of sales and marketing in January 2005 and increased
business development activities.
G&A
expenses increased by $444,718, from $2,476,415 in the six months ended June
30,
2004 to $2,921,133 in the same period of 2005. Stock option compensation
expense, a non-cash item, increased by $500,678, from $(23,313) in the six
months ended June 30, 2004 to $477,365 in the same period of 2005 due to an
increase in value of stock options repriced in prior years. Legal expense
increased by $239,947, from $271,911 in the six months ended June 30, 2004
to
$511,858 in the same period of 2005 due to increased patent attorney fees paid
in connection with patent work and increased attorney fees in connection with
regulatory work. Payroll increased from $838,000 in the six months ended June
30, 2004 to $1,160,000 in the same period of 2005 due to staff increases, salary
increases and increased costs for employee benefits. In addition, consulting
fees associated with Sarbanes-Oxley Act compliance increased by $173,000. These
increases were partially offset by decreases in certain expenses. Investor
relations expense decreased by $463,000 as a result of a cutback in our investor
relations programs and general consulting decreased by $231,000. In addition,
facilities overhead costs transferred from G&A to R&D increased by
$63,000.
Interest
income increased by $244,285, from $43,374 in the six months ended June 30,
2004
to $287,659 in the same period of 2005 due to the significant increase in cash
available for investment that was generated through the sale of common shares
and the exercise of warrants and options in early 2005.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q (this “Report”) contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements can be identified by the use of the forward-looking words
"anticipate," "estimate," "project," "likely," "believe," "intend," "expect,"
or
similar words. These statements discuss future expectations, contain projections
regarding future developments, operations, or financial conditions, or state
other forward-looking information. Statements in this report regarding the
ability of the Company to raise working capital necessary to fund our
operations, development of the nanomaterials and titanium dioxide pigment
processing technology and assets (including for pharmaceutical and battery
uses), and other future activities are forward-looking statements. You should
keep in mind that all forward-looking statements are based on management’s
existing beliefs about present and future events outside of management’s control
and on assumptions that may prove to be incorrect.
Among
the
key factors that may have a direct bearing on the Company's future results
and
value are various risks and uncertainties including, but not limited to, the
following:
We
may continue to experience significant losses from operations.
We
have
experienced a loss from operations in every fiscal year since our inception.
Our
losses from operations were $6,904,955 in 2004 and $4,349,549 in the six months
ended June 30, 2005. We
will
continue to experience a net operating loss at least until the applications
of
our nanomaterials and titanium dioxide pigment technology begin generating
revenues in excess of our operating expenses. Even if any or all applications
of
the nanomaterials and titanium dioxide pigment technology begin generating
such
revenues, the revenues may not exceed our costs of production and operating
expenses. We may not ever realize a profit from operations.
Our
patents and other protective measures may not adequately protect our proprietary
intellectual property, and we may be infringing on the rights of others.
We
regard
our intellectual property, particularly our proprietary rights in our
nanomaterials and titanium dioxide pigment technology, as critical to our
success. We have received various patents, and filed other patent applications,
for various applications and aspects of our nanomaterials and titanium dioxide
pigment technology and other intellectual property. In addition, we generally
enter into confidentiality and invention agreements with our employees and
consultants. Such patents and agreements and various other measures we take
to
protect our intellectual property from use by others may not be effective for
various reasons, including the following:
|
·
|
Our
pending patent applications may not be granted for various reasons,
including the existence of similar patents or defects in the
applications;
|
|
·
|
The
patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other
reasons;
|
|
·
|
Parties
to the confidentiality and invention agreements may have such agreements
declared unenforceable or, even if the agreements are enforceable,
may
breach such agreements;
|
|
·
|
The
costs associated with enforcing patents, confidentiality and invention
agreements or other intellectual property rights may make aggressive
enforcement cost prohibitive;
|
|
·
|
Even
if we enforce our rights aggressively, injunctions, fines and other
penalties may be insufficient to deter violations of our intellectual
property rights; and
|
|
·
|
Other
persons may independently develop proprietary information and techniques
that, although functionally equivalent or superior to our proprietary
intellectual information and techniques, do not breach our patented
or
unpatented proprietary rights.
|
Because
the value of our company and common stock is rooted primarily in our proprietary
intellectual property rights, our inability to protect these rights, or gain
a
competitive advantage from such rights, could have a material adverse effect
on
our business.
In
addition, we may inadvertently be infringing on the proprietary rights of other
persons and may be required to obtain licenses to certain intellectual property
or other proprietary rights from third parties. Such licenses or proprietary
rights may not be made available under acceptable terms, if at all. If we do
not
obtain required licenses or proprietary rights, we could encounter delays in
product development or find that the development or sale of products requiring
such licenses is foreclosed.
We
have a substantial number of warrants and options outstanding and may issue
a
significant number of additional shares upon exercise
thereof.
As
of
August 8, 2005, there were outstanding warrants to purchase up to 1,867,453
shares of common stock and options to purchase up to 2,514,200 shares of common
stock.
The
existence of such warrants and options, and any additional warrants and options
we issue in the future, may hinder future equity offerings, and the exercise
of
such warrants and options may further dilute the interests of all shareholders.
The shares of common stock issuable upon the exercise of many of our outstanding
warrants are subject to resale registration statements, and all of our options
are subject to a registration statement on Form S-8. Accordingly, future resale
of the shares of common stock issuable on the exercise of such warrants and
options in most cases occurs immediately after exercise and may have an adverse
effect on the prevailing market price of the shares of common
stock.
Our
competitors have more resources than we do, which may give them a competitive
advantage.
We
have
limited financial and other resources and, because of our early stage of
development, have limited access to capital. We compete or may compete against
entities that are much larger than we are, have more extensive resources than
we
do and have an established reputation and operating history. Because of their
size, resources, reputation, history and other factors, certain of our
competitors may be able to exploit acquisition, development and joint venture
opportunities more rapidly, easily or thoroughly than we can. In addition,
potential customers may choose to do business with our more established
competitors, without regard to the comparative quality of our products, because
of their perception that our competitors are more stable, are more likely to
complete various projects, are more likely to continue as a going concern and
lend greater credibility to any joint venture.
We
may not be able to generate substantial revenues from the licensing of
RenaZorbTM.
On
January 28, 2005, we entered into a license agreement with Spectrum
Pharmaceuticals, Inc. under which we granted Spectrum the exclusive worldwide
rights to develop, market and sell RenaZorbTM,
a
potential drug candidate for patients with kidney disease, for human therapeutic
and diagnostic applications. Under the terms of the license, we will not
generate substantial recurring revenues unless and until Spectrum completes
clinical testing of RenaZorbTM
and
applies for and receives marketing approval from the FDA and similar regulatory
agencies worldwide, begins marketing products containing RenaZorbTM
and
experiences substantial, sustained market penetration with such products. There
are substantial risks associated with that process, including the following:
|
·
|
further
testing conducted by Spectrum may indicate that RenaZorbTM
is
less effective than existing products, is unsafe, has significant
side
effects or is otherwise not viable;
|
|
·
|
Spectrum
may be unable to obtain FDA or other regulatory approval of
RenaZorbTM
for technical, political or other reasons or, even if it obtains
such
approval, may not obtain such approval on a timely
basis;
|
|
·
|
products
containing RenaZorbTM
may not be accepted in the market for various reasons, including
questions
about its efficacy, safety and side effects or because of poor marketing
by Spectrum;
|
|
·
|
Spectrum
may terminate the license agreement, experience financial or other
problems or otherwise fail to effectively test, seek approval for
and
market RenaZorbTM;
and
|
|
·
|
prior
to or following regulatory approval, superior products may be developed
and introduced into the market.
|
If
any or
the foregoing risks, or other risks associated with developing pharmaceutical
products were to occur, we would not receive substantial, recurring revenue
from
our license with Spectrum.
Our
nanomaterial technology with potential applications in rechargeable batteries
has not been incorporated into any commercial
products.
We
are
still testing and developing our AltairnanoTM
Lithium
Titanate Spinel nanomaterial technology, which has potential applications in
rechargeable batteries. Although we have entered a partnering agreement with
ABAT for the development of lithium polymer batteries in China and have supplied
them with nanomaterials for their
use
in design and development of the batteries, the project is in the early stages
and substantial design, development and testing work remains to be done. Even
if
ABAT or other potential partners are successful in producing battery products
with our nanomaterial technology:
|
·
|
batteries
utilizing the technology may not exhibit expected charge rates, discharge
rates or durability run time or other feature when used in real world
applications; batteries incorporating the technology may not meet
the
distinct needs of potential customers, applications or industries
or
otherwise prove competitive with existing technologies or technologies
under development on account of technical limitations such as a short
run
time between charges or excessive heat generation;
and
|
|
·
|
marketing
and branding efforts by us, a potential strategic partner or others
may be
insufficient to attract a sufficient number of
customers.
|
We
may not benefit from licenses to use our technology for titanium dioxide pigment
production.
Because
of our relatively small size and limited resources, we do not plan to use our
titanium processing technology for large-scale production of titanium dioxide
pigments. We have entered into discussions with various minerals and materials
companies about licensing our technology to such entities for large-scale
production of titanium dioxide pigments. To date, we have entered into a license
agreement with only one such entity, Western Oil Sands, Inc. Under our license
agreement with Western Oil Sands, we expect to receive a limited amount of
revenue during the early testing and development phase of the agreement but
will
receive significant royalties only if Western Oil Sands and licensees of Western
Oil Sands determine in their discretion, after testing at a demonstration plant,
to construct or license the construction of a full-scale titanium pigment
production facility. If we enter into other license agreements, we expect that,
as with the Western Oil Sands agreement, we would not receive significant
revenues from such licenses unless and until feasibility testing yielded
positive results and the licensee determined, in its discretion, to construct
and operate a titanium pigment production facility.
We
may not be able to sell nanoparticles produced using the nanomaterials and
titanium dioxide pigment technology.
We
plan
to use the nanomaterials and titanium dioxide pigment technology to produce
titanium dioxide nanoparticles. Titanium dioxide nanoparticles and other
products we intend to initially produce with the nanomaterials and titanium
dioxide pigment technology generally must be customized for a specific
application working in cooperation with the end-user. We are still testing
and
customizing our titanium dioxide nanoparticle products for various applications
and have no long-term agreements with end-users to purchase any of our titanium
dioxide nanoparticle products. We may be unable to recoup our investment in
the
nanomaterials and titanium dioxide pigment technology and nanomaterials and
titanium dioxide pigment equipment for various reasons, including the following:
|
·
|
products
utilizing our titanium dioxide nanoparticle products, most of which
are in
the research or development stage, may not be completed or, if completed,
may not be readily accepted by expected
end-users;
|
|
·
|
we
may be unable to customize our titanium dioxide nanoparticle products
to
meet the distinct needs of potential customers;
|
|
·
|
potential
customers may purchase from competitors because of perceived or actual
quality or compatibility
differences;
|
|
·
|
our
marketing and branding efforts may be insufficient to attract a sufficient
number of customers; and
|
|
·
|
because
of our limited funding, we may be unable to continue our development
efforts until a strong market for nanoparticles develops.
|
Our
costs of production may be too high to permit
profitability.
We
have
not produced any pigments, nanoparticles or other products using our
nanomaterials and titanium dioxide pigment technology and equipment on a
commercial basis. Our actual costs of production, or those of our licensees,
may
exceed those of competitors. Even if our costs of production are lower,
competitors may be able to sell titanium dioxide and other products at a lower
price than is economical for us or our licensees.
We
have issued a $3,000,000 note to secure the purchase of the land and the
building where our nanomaterials and titanium dioxide pigment assets are
located.
In
August
2002, we entered into a purchase and sale agreement with BHP Minerals
International Inc. to purchase the land, building and fixtures in Reno, Nevada
where our nanomaterials and titanium dioxide pigment assets are located. In
connection with this transaction, we issued to BHP a note in the amount of
$3,000,000, at an interest rate of 7%, secured by the property we acquired.
The
first payment of $600,000 of principal plus accrued interest is due February
8,
2006. Additional payments of $600,000 plus accrued interest are due annually
on
February 8, 2007 through 2010. If we fail to make the required payments on
the
note, BHP has the right to foreclose and take the property. If this should
occur, we would be required to relocate our primary operating assets and
offices, causing a significant disruption in our business.
We
may not be able to raise sufficient capital to meet future
obligations.
As
of
August 8, 2005, we had $28.3 million in cash, an amount which we believe will
be
sufficient to fund our ongoing operations for approximately four to five
years
at
current expenditure levels.
However, we may use our existing capital sooner than projected in connection
with an acquisition or joint venture transaction, litigation or other unplanned
event. We may also use more capital than projected as we expand our research,
development and marketing efforts. Unless we experience a significant increase
in revenue, we will need to raise additional capital in the future in order
to
sustain our ongoing operations, continue unfinished testing and additional
development work and, if certain of our products have been commercialized,
produce and market such products.
We
may
not be able to obtain the amount of additional capital needed or may be forced
to pay an extremely high price for capital. Factors affecting the availability
and price of capital may include the following:
|
·
|
market
factors affecting the availability and cost of capital
generally;
|
|
·
|
the
price, volatility and trading volume of our shares of common stock;
|
|
·
|
our
financial results, particularly the amount of revenue we are generating
from operations;
|
|
·
|
the
amount of our capital needs;
|
|
·
|
the
market’s perception of nanotechnology and/or chemical
stocks;
|
|
·
|
the
economics of projects being pursued;
and
|
|
·
|
the
market’s perception of our ability to generate revenue through the
licensing or use of our nanoparticle technology for pharmaceutical,
pigment production, nanoparticle production and other
uses.
|
If
we are
unable to obtain sufficient capital or are forced to pay a high price for
capital, we may be unable to meet future obligations or adequately exploit
existing or future opportunities, and may be forced to discontinue
operations.
Operations
using the nanomaterials and titanium dioxide pigment technology or our Tennessee
mineral property may lead to substantial environmental
liability.
Virtually
any prior or future use of the nanomaterials and titanium dioxide pigment
technology is subject to federal, state and local environmental laws. In
addition, we have constructed a pilot plant on, and are in the process of
reclaiming, our Tennessee mineral property. Under such laws, we may be jointly
and severally liable for the treatment, cleanup, remediation and/or removal
of
any hazardous substances discovered at any property we use. In addition, courts
or government agencies may impose liability for, among other things, the
improper release, discharge, storage, use, disposal or transportation of
hazardous substances.
Certain
of our experts and directors reside in Canada and may be able to avoid civil
liability.
We
are a
Canadian corporation, and three of our directors and our Canadian legal counsel
are residents of Canada. As a result, investors may be unable to effect service
of process upon such persons within the United States and may be unable to
enforce court judgments against such persons predicated upon civil liability
provisions of the U.S. securities laws. It is uncertain whether Canadian courts
would (i) enforce judgments of U.S. courts obtained against us or such
directors, officers or experts predicated upon the civil liability provisions
of
U.S. securities laws or (ii) impose liability in original actions against us
or
our directors, officers or experts predicated upon U.S. securities
laws.
We
are dependent on key personnel.
Our
continued success will depend to a significant extent on the services of Dr.
Alan J. Gotcher, our Chief Executive Officer and President, Douglas Ellsworth
and Roy Graham, our Senior Vice Presidents and Edward Dickinson, our Chief
Financial Officer. The loss or unavailability of any or all of these individuals
could have a material adverse effect on our business and the market price of
our
shares of common stock. We do not carry key man insurance on the lives of any
of
our personnel.
We
may issue substantial amounts of additional shares without stockholder
approval.
Our
articles of incorporation authorize the issuance of an unlimited number of
shares of common stock that may be issued without any action or approval by
our
stockholders. In addition, we have various stock option plans and stock purchase
plans that have potential for diluting the ownership interests of our
stockholders. The issuance of any additional shares of common stock would
further dilute the percentage ownership of our company held by existing
stockholders.
The
market price of our common stock may increase or decrease dramatically at any
time for any or no rational reason.
The
market price of our common stock, like that of the securities of other early
stage companies, may be highly volatile. Our stock price may change dramatically
as the result of announcements of our quarterly results, new products or
innovations by us or our competitors, uncertainty
regarding the viability of the nanomaterials and titanium dioxide pigment
technology,
significant customer contracts, significant litigation or other factors or
events that would be expected to affect our business, financial condition,
results of operations and future prospects. In addition, the market price for
our common stock may be affected by various factors not directly related to
our
business or future prospects, including the following:
|
·
|
Intentional
manipulation of our stock price by existing or future shareholders
or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
|
|
·
|
A
single acquisition or disposition, or several related acquisitions
or
dispositions, of a large number of our shares, including by short
sellers
covering their position;
|
|
·
|
The
interest of the market in our business sector, without regard to
our
financial condition, results of operations or business prospects;
|
|
·
|
Positive
or negative statements or projections about our company or our industry,
by analysts, stock gurus and other
persons;
|
|
·
|
The
adoption of governmental regulations or government grant programs
and
similar developments in the United States or abroad that may enhance
or
detract from our ability to offer our products and services or affect
our
cost structure;
|
|
·
|
Economic
and other external market factors, such as a general decline in market
prices due to poor economic indicators or investor distrust;
and
|
|
·
|
Speculation
by short sellers of our common stock or other persons who stand to
profit
from a rapid increase or decrease in the price of our common
stock.
|
We
have never declared a cash dividend and do not intend to declare a cash dividend
in the foreseeable future.
We
have
never declared or paid cash dividends on our common stock. We currently intend
to retain any future earnings, if any, for use in our business and, therefore,
do not anticipate paying dividends on our common stock in the foreseeable
future.
We
are subject to various regulatory regimes, and may be adversely affected by
allegations that we have not complied with governing rules and
laws.
In
light
of our status as a public company and our lines of business, we are subject
to a
variety of laws and regulatory regimes in addition to those applicable to all
businesses generally. For example, we are subject to the reporting
requirements applicable to Canadian and United States reporting issuers, such
as
the Sarbanes-Oxley Act of 2002, the rules of the Nasdaq SmallCap Market and
certain state and provincial securities laws. We are also subject to state
and
federal environmental, health and safety laws, and rules governing department
of
defense contracts Such laws and rules change frequently and
are
often complex. In connection with such laws, we are subject to periodic
audits, inquiries and investigations. Any such audits, inquiries and
investigations may divert considerable financial and human resources and
adversely affect our execution of our business plan. In addition,
through such audits, inquiries and investigations, we or a regulator have from
time to time determined, and may in the future determine, that we are out of
compliance with one or more governing rules or laws. Remedying such
non-compliance may divert additional financial and human resources.
In
addition, in the future, we may be subject to a formal charge or determination
that we have materially violated a governing law, rule or regulation.
Any
charge, and particularly any determination, that we had materially violated
a
governing law would likely have a material adverse effect on the market price
of
our stock, our ability to execute our business plan and our ability to retain
and attract qualified management.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
We
do not
have any derivative instruments, commodity instruments, or other financial
instruments for trading or speculative purposes, nor are we presently at
material risk for changes in interest rates on foreign currency exchange
rates.
Item
4. Controls
and Procedures
(a) Based
on
the evaluation of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by
paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer and our
chief financial officer have concluded that, as of June 30, 2005, our disclosure
controls and procedures were effective.
(b) We
are
not presently required to conduct quarterly evaluations of our internal control
over financial reporting pursuant to paragraph (d) of Rules 13a-15 or 15d-15
promulgated under the Exchange Act. We are, however, in the process of
designing, evaluating and implementing internal controls in anticipation of
the
date when we will become subject to such evaluation requirements. In connection
with this, effective January 1, 2005, we implemented a new financial software
system and, through June 2005, have implemented attendant operating controls
that substantially enhance the controls over the processing, recording and
reporting of financial transactions.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
In
June
2005, the Company filed a Complaint against Rudi E. Moerck, former President
and
a director of the Company, alleging breach of his Employee Confidential
Information and Inventions Agreement (the “Information Agreement”) and seeking
declaratory relief, injunctive relief and damages. Specifically, the Company
requested that Mr. Moerck be ordered to assign his rights in certain patent
applications to the Company, return all Company proprietary information in
his
possession to the Company and to delete/destroy Mr. Moerck’s copies of all such
information. Mr. Moerck filed a timely Answer to the Complaint. Subsequently,
in
late July 2005, Mr. Moerck offered to have judgment entered against him in
the
case. The Company is evaluating Mr. Moerck’s offer and is confident that the
case can be resolved in the near future in a manner that will fully preserve
and
protect the Company’s interests in its proprietary information.
On
July
29, 2005, the Company was served by mail with a complaint in the matter of
Louis
Schnur v. Al Moore, Altair Nanotechnologies, Inc. and Does 1 through 10, filed
in the U.S. District court, Central District of California. The complaint
alleges that Mr. Moore visited the offices of the Company together with William
P. Long, our former CEO, on February 7-8, 2005, that they received nonpublic
information related to the Company’s battery electrode materials program during
the course of such visit, that Mr. Moore proceeded to contact Mr. Schnur and
offer to purchase 100,000 shares at $2.25 per share, that such offer was
accepted by Mr. Schnur without knowledge of the nonpublic information and that,
following the Company’s release of such information in its February 10, 2005
press release regarding its battery materials program, the price of the
Company’s common stock increased dramatically. Mr. Schnur alleges that such
facts constitute a violation of Rule 10b-5 by Mr. Moore and the Company,
constitute a violation of Section 20A of the Securities Exchange Act of 1934,
as
amended, by Mr. Moore and the Company, constitute common law fraud by Mr. Moore
and constitute a breach of a fiduciary duty by the Company. Mr. Schnur seeks
$375,000 in damages, punitive damages, costs and other relief as the court
deems
proper, all for himself.
The
Company believes that Mr. Moore is a long-term acquaintance of Mr. Schnur and
has acted at the request of Mr. Schnur at various times, including in connection
with the February 2005 visit to the Company. Mr. Moore and Mr. Long did, in
fact, visit the Company on or about February 7 and/or 8, 2005 and, in the course
of such visit, received a standard investor presentation from management. The
Company does not believe that Mr. Moore received any material, nonpublic
information in the course of his visit and believes that the material factual
and legal claims of the complaint are baseless. The Company is disappointed
that
Mr. Schnur continues to force the Company to expend time and resources in
responding to his personal agenda and expects to aggressively defend the
lawsuit.
Item
4. Submission of Matters to a Vote of Security Holders.
We
held
an Annual Meeting of Shareholders on May 26, 2005 at which the shareholders
considered and voted as follows on the items described below:
|
1.
|
The
shareholders considered whether to elect the following persons as
directors, each to serve until the next annual meeting of shareholders
and
until his respective successor shall have been duly elected and shall
qualify:
|
Name
of Nominee
|
Votes
For
|
Votes
Withheld/Abstentions
|
Broker
Non-Votes
|
Michel
Bazinet
|
48,132,790
|
114,408
|
-0-
|
Jon
Bengtson
|
47,971,274
|
275,924
|
-0-
|
James
Golla
|
48,124,190
|
123,008
|
-0-
|
Alan
J. Gotcher
|
48,133,990
|
113,208
|
-0-
|
George
Hartman
|
47,972,374
|
274,824
|
-0-
|
Christopher
Jones
|
47,969,474
|
277,724
|
-0-
|
David
King
|
47,970,174
|
277,024
|
-0-
|
|
2.
|
The
shareholders considered whether to appoint Deloitte & Touche, LLP as
auditors and authorize the Board of Directors to fix their remuneration.
There were 47,856,782 votes cast in favor, no votes cast against,
138,101
votes withheld, and no broker non-votes, which vote was sufficient
for
approval.
|
|
3.
|
The
shareholders considered a proposal to approve the Altair Nanotechnologies
Inc. 2005 Stock Incentive Plan. There were 2,797,232 votes cast in
favor,
1,477,248 votes cast against, 86,226 votes withheld, and 43,886,492
broker
non-votes, which vote was sufficient for
approval.
|
|
4.
|
The
shareholders considered a proposal to approve a bylaw amendment increasing
the quorum requirement for shareholders meeting from two shareholders
to
33⅓ % of the shares entitled to vote at the meeting. There were 4,168,195
votes cast in favor, 133,593 votes cast against, 58,918 votes withheld,
and 43,886,492 broker non-votes, which vote was sufficient for
approval.
|
Item
6. Exhibits
|
a) |
See
Exhibit Index attached hereto following the signature
page.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
Altair
Nanotechnologies Inc. |
|
|
|
Date: August
15, 2005 |
By: |
/s/ Alan
J. Gotcher |
|
|
|
Alan
J. Gotcher, Chief Executive Officer |
|
|
|
|
|
Date: August
15, 2005 |
By: |
/s/ Edward
H. Dickinson |
|
|
|
Edward
H. Dickinson, Chief Financial Officer |
EXHIBIT
INDEX
|
|
|
|
|
|
Exhibit
No.
|
|
Exhibit
|
|
Incorporated
by Reference/ Filed Herewith
|
10.1
|
|
Subcontract
between the UNLV Research Foundation and Altair Nanomaterials,
Inc.
|
|
Filed
herewith
|
31.1
|
|
Section
302 Certification of Chief Executive Officer
|
|
Filed
herewith
|
31.2
|
|
Section
302 Certification of Chief Financial Officer
|
|
Filed
herewith
|
32.1
|
|
Section
906 Certification of Chief Executive Officer
|
|
Filed
herewith
|
32.2
|
|
Section
906 Certification of Chief Financial Officer
|
|
Filed
herewith
|
29