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 November 4, 2005 the registrant had 58,990,252 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)
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,150,620
|
|
$
|
7,357,843
|
|
Investment
in available for sale securities
|
|
|
15,728,213
|
|
|
-
|
|
Accounts
receivable
|
|
|
514,291
|
|
|
499,599
|
|
Prepaid
expenses and other current assets
|
|
|
376,198
|
|
|
182,595
|
|
Total
current assets
|
|
|
27,769,322
|
|
|
8,040,037
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
496,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
6,698,837
|
|
|
6,513,907
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
911,266
|
|
|
974,877
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
75,200
|
|
|
18,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
35,950,625
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
672,647
|
|
$
|
81,030
|
|
Accrued
liabilities
|
|
|
537,132
|
|
|
295,743
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
-
|
|
Total
current liabilities
|
|
|
1,809,779
|
|
|
376,773
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
2,400,000
|
|
|
2,880,311
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
58,990,252
and 49,775,694 shares issued and
|
|
|
|
|
|
|
|
outstanding
at September 30, 2005 and December 31, 2004
|
|
|
91,603,870
|
|
|
65,505,630
|
|
Accumulated
deficit
|
|
|
(59,557,556
|
)
|
|
(53,215,693
|
)
|
Deferred
compensation expense
|
|
|
(206,468
|
)
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
(99,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
31,740,846
|
|
|
12,289,937
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
35,950,625
|
|
$
|
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
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
-
|
|
$
|
-
|
|
$
|
695,000
|
|
$
|
-
|
|
Product
sales
|
|
|
8,494
|
|
|
3,728
|
|
|
74,087
|
|
|
6,571
|
|
Commercial
collaborations
|
|
|
327,479
|
|
|
140,603
|
|
|
584,520
|
|
|
375,518
|
|
Contracts
and grants
|
|
|
249,432
|
|
|
202,576
|
|
|
762,259
|
|
|
258,800
|
|
Total
revenues
|
|
|
585,405
|
|
|
346,907
|
|
|
2,115,866
|
|
|
640,889
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
1,427
|
|
|
613
|
|
|
17,434
|
|
|
1,149
|
|
Research
and development
|
|
|
1,290,354
|
|
|
520,376
|
|
|
2,816,031
|
|
|
1,508,231
|
|
Sales
and marketing
|
|
|
238,151
|
|
|
46,070
|
|
|
1,159,259
|
|
|
245,786
|
|
General
and administrative
|
|
|
1,146,528
|
|
|
973,080
|
|
|
4,067,661
|
|
|
3,449,495
|
|
Depreciation
and amortization
|
|
|
263,105
|
|
|
226,823
|
|
|
759,190
|
|
|
668,333
|
|
Total
operating expenses
|
|
|
2,939,565
|
|
|
1,766,962
|
|
|
8,819,575
|
|
|
5,872,994
|
|
Loss
from Operations
|
|
|
(2,354,160
|
)
|
|
(1,420,055
|
)
|
|
(6,703,709
|
)
|
|
(5,232,105
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(52,397
|
)
|
|
(50,336
|
)
|
|
(154,689
|
)
|
|
(145,732
|
)
|
Interest
income
|
|
|
227,503
|
|
|
29,706
|
|
|
515,162
|
|
|
73,080
|
|
Gain
(Loss) on foreign exchange
|
|
|
2,228
|
|
|
361
|
|
|
1,373
|
|
|
(356
|
)
|
Total
other income (expense), net
|
|
|
177,334
|
|
|
(20,269
|
)
|
|
361,846
|
|
|
(73,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,176,826
|
)
|
$
|
(1,440,324
|
)
|
$
|
(6,341,863
|
)
|
$
|
(5,305,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.11
|
)
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
58,940,760
|
|
|
49,121,984
|
|
|
57,338,796
|
|
|
48,401,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Expense
|
|
Income
(Loss)
|
|
Total
|
|
BALANCE,
JANUARY 1, 2005
|
|
|
49,775,694
|
|
$
|
65,505,630
|
|
$
|
(53,215,693
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
12,289,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(6,341,863
|
)
|
|
-
|
|
|
-
|
|
|
(6,341,863
|
)
|
Other
comprehensive loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(99,000
|
)
|
|
(99,000
|
)
|
Comprehensive
loss:
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,440,863
|
)
|
Variable
accounting on stock options
|
|
|
-
|
|
|
433,115
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
433,115
|
|
Exercise
of stock options
|
|
|
1,166,000
|
|
|
1,777,290
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,777,290
|
|
Exercise
of warrants
|
|
|
2,920,244
|
|
|
4,300,635
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,300,635
|
|
Issuance
of restricted stock
|
|
|
90,000
|
|
|
257,400
|
|
|
-
|
|
|
(257,400
|
)
|
|
-
|
|
|
-
|
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,932
|
|
|
-
|
|
|
50,932
|
|
Common
stock issued, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs of $1,617,044
|
|
|
5,038,314
|
|
|
19,329,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,329,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
SEPTEMBER 30, 2005
|
|
|
58,990,252
|
|
$
|
91,603,870
|
|
$
|
(59,557,556
|
)
|
$
|
(206,468
|
)
|
$
|
(99,000
|
)
|
$
|
31,740,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,176,826
|
)
|
$
|
(1,440,324
|
)
|
$
|
(6,341,863
|
)
|
$
|
(5,305,113
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
263,105
|
|
|
226,823
|
|
|
759,190
|
|
|
668,333
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
8,345
|
|
|
-
|
|
|
262,045
|
|
Stock
options issued to employees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,001
|
|
Shares
issued for services
|
|
|
-
|
|
|
178,000
|
|
|
-
|
|
|
178,000
|
|
Variable
accounting on stock options
|
|
|
(44,249
|
)
|
|
(328,770
|
)
|
|
433,115
|
|
|
(406,848
|
)
|
Securities
received in payment of license fees
|
|
|
-
|
|
|
-
|
|
|
(595,000
|
)
|
|
-
|
|
Amortization
of discount on note payable
|
|
|
17,397
|
|
|
48,962
|
|
|
119,689
|
|
|
144,358
|
|
Amortization
of deferred compensation expense
|
|
|
46,861
|
|
|
-
|
|
|
50,932
|
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,393
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(133,914
|
)
|
|
(154,954
|
)
|
|
(14,692
|
)
|
|
(200,360
|
)
|
Prepaid
expenses and other current assets
|
|
|
(281,660
|
)
|
|
(78,121
|
)
|
|
(193,603
|
)
|
|
(39,699
|
)
|
Other
assets
|
|
|
(52,000
|
)
|
|
-
|
|
|
(57,000
|
)
|
|
-
|
|
Trade
accounts payable
|
|
|
(84,441
|
)
|
|
(52,195
|
)
|
|
591,617
|
|
|
139,319
|
|
Accrued
liabilities
|
|
|
(78,761
|
)
|
|
33,257
|
|
|
241,389
|
|
|
384,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(2,524,488
|
)
|
|
(1,558,977
|
)
|
|
(5,006,226
|
)
|
|
(4,103,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of available for sale securities
|
|
|
(15,728,213
|
)
|
|
-
|
|
|
(15,728,213
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(360,871
|
)
|
|
(162,576
|
)
|
|
(880,509
|
)
|
|
(341,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(16,089,084
|
)
|
|
(162,576
|
)
|
|
(16,608,722
|
)
|
|
(341,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs
|
|
|
-
|
|
|
-
|
|
|
19,329,800
|
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
37,100
|
|
|
-
|
|
|
1,777,290
|
|
|
737,709
|
|
Proceeds
from exercise of warrants
|
|
|
40,963
|
|
|
409,505
|
|
|
4,300,635
|
|
|
8,705,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
78,063
|
|
|
409,505
|
|
|
25,407,725
|
|
|
9,443,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(18,535,509
|
)
|
|
(1,312,048
|
)
|
|
3,792,777
|
|
|
4,998,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
29,686,129
|
|
|
10,180,470
|
|
|
7,357,843
|
|
|
3,869,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
11,150,620
|
|
$
|
8,868,422
|
|
$
|
11,150,620
|
|
$
|
8,868,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 of America, 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 Amendment No. 1 to 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
three to four years
at
current working capital expenditure levels.
The
results of operations for the three- and nine-month periods ended September
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.
Cash,
Cash Equivalents and Investment in Available for Sale Securities (short-term)
-
Cash,
cash equivalents and investment
in available for sale securities (short-term) consist principally of bank
deposits, institutional money market funds and corporate notes. Short-term
investments which are highly liquid, have insignificant interest rate risk
and
maturities of 90 days or less are classified as cash and cash equivalents.
Investments which do not meet the definition of cash equivalents are classified
as held-to-maturity or available-for-sale in accordance with the provisions
of
Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
Investments purchased with the intent to hold for more than one year are
classified as long-term investments.
Investment
in Available for Sale Securities (long-term) - Available
for sale securities (long-term) 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 gain (loss)
on
the investment in available for sale securities. The components of comprehensive
loss for the three- and nine-month periods ended September 30, 2005 and 2004
are
as follows:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
loss
|
|
$
|
2,176,826
|
|
$
|
1,440,324
|
|
$
|
6,341,863
|
|
$
|
5,305,113
|
|
Unrealized
(gain) loss on investment in available
|
|
|
|
|
|
|
|
|
|
for
sale securities, net of taxes of $0
|
|
|
(76,000
|
)
|
|
-
|
|
|
99,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
2,100,826
|
|
$
|
1,440,324
|
|
$
|
6,440,863
|
|
$
|
5,305,113
|
|
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:
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
Dividend
yield
|
|
None
|
|
None
|
|
Expected
volatility
|
|
|
105
|
%
|
|
73
|
%
|
Risk-free
interest rate
|
|
|
3.89
|
%
|
|
4.23
|
%
|
Expected
life (years)
|
|
|
2.83
|
|
|
6.40
|
|
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
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
loss (basic and diluted) as reported
|
|
$
|
(2,176,826
|
)
|
$
|
(1,440,324
|
)
|
$
|
(6,341,863
|
)
|
$
|
(5,305,113
|
)
|
Add
(Deduct): change in stock-based employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
included in reported net loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of $0 related tax effects
|
|
|
44,249
|
|
|
328,770
|
|
|
(433,115
|
)
|
|
367,847
|
|
Add:
total stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
method
for all awards, net of $0 related tax effects
|
|
|
218,260
|
|
|
208,030
|
|
|
832,714
|
|
|
1,172,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss applicable to shareholders
|
|
$
|
(1,914,317
|
)
|
$
|
(903,524
|
)
|
$
|
(5,942,264
|
)
|
$
|
(3,764,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.04
|
)
|
$
|
0.03
|
|
$
|
(0.11
|
)
|
$
|
0.11
|
|
Pro
forma
|
|
$
|
(0.03
|
)
|
$
|
0.04
|
|
$
|
(0.10
|
)
|
$
|
0.14
|
|
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 nine months ended September 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, we have performed all material obligations related
to
the particular milestone payment or other revenue component and 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/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 nine months ended September 30, 2005
is
$500,000 that was paid to a sales and marketing firm in connection with the
RenaZorbTM
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 SFAS 123. 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
|
|
September
30, 2005
|
|
December
31, 2004
|
|
Note
payable to BHP Minerals
|
|
|
|
|
|
|
|
International,
Inc.
|
|
$
|
3,000,000
|
|
$
|
2,880,311
|
|
Less
current portion
|
|
|
(600,000
|
)
|
|
-
|
|
Long-term
portion of notes payable
|
|
$
|
2,400,000
|
|
$
|
2,880,311
|
|
The
note
payable to BHP Minerals International, Inc., in the face amount of $3,000,000,
was entered into on August 8, 2002 and is secured by the property we acquired.
Interest on the note did 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, then amortized that amount to
interest expense from August 8, 2002 through August 8, 2005. 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. We are amortizing
these assets over their useful lives. The amortized intangible asset balance
as
of September 30, 2005 was:
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Patents
and related expenditures
|
|
$
|
1,517,736
|
|
$
|
(606,470
|
)
|
$
|
911,266
|
|
The
weighted average amortization period for patents and related expenditures
is
approximately 16.5 years. Amortization expense, which represents the
amortization relating to the identified amortizable intangible assets, was
$63,611 and $64,270 for the nine months ended September 30, 2005 and 2004,
respectively, and $21,204 and $21,430 for the three months ended September
30,
2005 and 2004, respectively. 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. Through September 30, 2005, ATG
earned $2,833 for certain consulting services and $28,611 in connection with
our
National Science Foundation Phase II grant application.
Note
6. Business Segment 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 nine-month periods ended September 30, 2005 and 2004 is as
follows:
|
|
|
|
(Income)
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
Three
Months Ended September 30, 2005
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
581,515
|
|
$
|
960,275
|
|
$
|
237,746
|
|
$
|
5,645,287
|
|
Life
Sciences
|
|
|
3,890
|
|
|
316,460
|
|
|
446
|
|
|
538,396
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
(138,095
|
)
|
|
-
|
|
|
25,143
|
|
Altair
Jig
|
|
|
-
|
|
|
7,526
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
1,207,994
|
|
|
24,913
|
|
|
29,741,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
585,405
|
|
$
|
2,354,160
|
|
$
|
263,105
|
|
$
|
35,950,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
346,907
|
|
$
|
1,052,190
|
|
$
|
212,477
|
|
$
|
5,263,759
|
|
Life
Sciences
|
|
|
-
|
|
|
(22,686
|
)
|
|
-
|
|
|
-
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
24,539
|
|
|
-
|
|
|
-
|
|
Altair
Jig
|
|
|
-
|
|
|
5,734
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
360,278
|
|
|
14,346
|
|
|
11,274,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
346,907
|
|
$
|
1,420,055
|
|
$
|
226,823
|
|
$
|
16,538,274
|
|
Nine
Months Ended September 30, 2005
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$ |
1,391,095 |
|
$
|
2,310,192
|
|
$
|
690,033
|
|
$
|
5,645,287
|
|
Life
Sciences
|
|
|
724,771
|
|
|
(124,123
|
)
|
|
825
|
|
|
538,396
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
(98,563
|
)
|
|
-
|
|
|
25,143
|
|
Altair
Jig
|
|
|
-
|
|
|
10,708
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
4,605,495
|
|
|
68,332
|
|
|
29,741,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
2,115,866
|
|
$
|
6,703,709
|
|
$
|
759,190
|
|
$
|
35,950,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
640,889
|
|
$
|
3,015,834
|
|
$
|
622,012
|
|
$
|
5,263,759
|
|
Life
Sciences
|
|
|
-
|
|
|
171,168
|
|
|
-
|
|
|
-
|
|
Tennessee
Mineral Property
|
|
|
-
|
|
|
169,018
|
|
|
-
|
|
|
-
|
|
Altair
Jig
|
|
|
-
|
|
|
7,888
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
1,868,197
|
|
|
46,321
|
|
|
11,274,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
640,889
|
|
$
|
5,232,105
|
|
$
|
668,333
|
|
$
|
16,538,274
|
|
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 September 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 three months ended September 30, 2005 and the balance of
their
accounts receivable at September 30, 2005 were as follows:
|
|
Sales
- 3 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
September
30, 2005
|
|
September
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
100,595
|
|
$
|
68,289
|
|
Western
Oil Sands
|
|
|
262,846
|
|
|
272,162
|
|
UNLV
Research Foundation
|
|
|
83,792
|
|
|
58,335
|
|
National
Science Foundation
|
|
|
65,045
|
|
|
-
|
|
For
the
three months ended September 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 September 30, 2004 and the balance of
their
accounts receivable at September 30, 2004 were as follows:
|
|
Sales
- 3 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
September
30, 2004
|
|
September
30, 2004
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
39,310
|
|
$
|
39,310
|
|
Western
Michigan University
|
|
|
153,576
|
|
|
117,451
|
|
Western
Oil Sands
|
|
|
101,013
|
|
|
54,047
|
|
For
the nine months ended September 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 nine months ended September 30, 2005 and the balance of
their
accounts receivable at September 30, 2005 were as follows:
|
|
Sales
- 9 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
September
30, 2005
|
|
September
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
349,034
|
|
$
|
68,289
|
|
Western
Oil Sands
|
|
|
428,080
|
|
|
272,162
|
|
UNLV
Research Foundation
|
|
|
314,847
|
|
|
58,335
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
|
724,271
|
|
|
28,881
|
|
For
the
nine months ended September 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 nine months ended September 30, 2004 and the balance of
their
accounts receivable at September 30, 2004 were as follows:
|
|
Sales
- 9 Months
|
|
Accounts
|
|
|
|
Ended
|
|
Receivable
at
|
|
Customer
|
|
September
30, 2004
|
|
September
30, 2004
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
114,310
|
|
$
|
39,310
|
|
Western
Michigan University
|
|
|
209,800
|
|
|
117,451
|
|
Western
Oil Sands
|
|
|
215,218
|
|
|
54,047
|
|
Revenues
for the three-month periods ended September 30, 2005 and 2004 by geographic
area
were as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
3
Months Ended
|
|
3
Months Ended
|
|
Geographic
information (a):
|
|
September
30, 2005
|
|
September
30, 2004
|
|
|
|
|
|
|
|
United
States
|
|
$
|
310,352
|
|
$
|
245,894
|
|
Canada
|
|
|
274,164
|
|
|
101,013
|
|
Other
foreign countries
|
|
|
889
|
|
|
-
|
|
Total
|
|
$
|
585,405
|
|
$
|
346,907
|
|
|
|
|
|
|
|
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Revenues
for the nine-month periods ended September 30, 2005 and 2004 by geographic
area
were as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
9
Months Ended
|
|
9
Months Ended
|
|
Geographic
information (a):
|
|
September
30, 2005
|
|
September
30, 2004
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,673,756
|
|
$
|
425,671
|
|
Canada
|
|
|
440,580
|
|
|
215,218
|
|
Other
foreign countries
|
|
|
1,530
|
|
|
-
|
|
Total
|
|
$
|
2,115,866
|
|
$
|
640,889
|
|
|
|
|
|
|
|
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Note
7. Investment in Available for Sale Securities
Investments
in available for sale securities (short-term) consist of auction rate corporate
notes. The notes are long-term instruments with expiration dates through
2043. Interest is settled and the rate is reset every 7 to 28
days.
Investment
in available for sale securities (long-term) consists of 100,000 restricted
shares of Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock received in
January 2005. The shares are "restricted securities," as defined in Rule
144 and are not registered for resale. They will be eligible for
resale under Rule 144 beginning in January 2006. 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 September
30,
2005, their fair value was $496,000, representing an unrealized holding loss
of
$99,000. We do not believe that there is an other than temporary impairment
at
September 30, 2005.
Note
8. Other Transactions
On
February 15, 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. Through September
30, 2005, the Board of Directors has granted 90,000 shares of restricted
stock
under the Plan. 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 September 30, 2005 and the material changes
in our
results of operations and financial condition between the three- and nine-month
periods ended September 30, 2004 and September 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 for the year ended December 31, 2004, as amended.
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
research programs 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
in
recreational and industrial water.
|
|
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 nine-month period ended September 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 margin 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™. The tests were completed in
September 2005 and, although we have been informed orally that
the results
were positive, we have not yet received a copy of the test results
and
Altair has not received the milestone payment of 100,000 shares
of
Spectrum Pharmaceuticals, Inc. stock. Altair and Spectrum entered the
early stages of a dispute resolution process as required by our
license
agreement. This process may delay the product development process and
our receipt of our next milestone
payment.
|
|
·
|
We
are in discussions with American and European animal health companies
with
respect to development and licensing of Renalan, a potential drug
for
treatment of phosphate in dogs and cats with chronic renal disease.
In order to commence production and sale of Renalan, we must license
the
product to an animal health company and it must successfully complete
the
testing and possibly the approval process of the FDA and/or other
regulatory agencies.
|
|
·
|
We
must begin receiving commercial orders for NanoCheckTM
from
pool chemical companies. We are continuing to prepare for the market
introduction of NanoCheckTM later this year or next year.
Testing of
NanoCheckTM
products
in pools owned or serviced by pool chemical companies that are
major
suppliers to the recreational water market is continuing, but we
do not
anticipate that we will generate significant commercial sales of the
product in 2005.
|
|
·
|
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
must successfully develop a profitable battery materials business.
The
ultimate commercialization of our battery materials will be dependent
upon
our ability to secure a technology license, product sales agreements
or
similar agreements 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. We subsequently entered into an agreement
with
Western for the design and construction of the pilot separation plant in
our
Reno Nevada facility. Revenues from leasing the office and pilot plant space
are
expected to be minor.
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 the course of the
contract, we provided TIMET with specified quantities of feedstock materials
as
their preferred supplier. We currently have reservations about the rate of
progress of the project and, accordingly, are seeking alternative sponsors
and
partners.
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. In June 2005, we were awarded 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”, as well as the benefits of using
environmentally friendly nano titanate spinal, our battery materials could
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 and hybrid-electric vehicles.
Charge
retention life describes how fast a charged lithium ion battery loses its
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 that the
nano-structured electrode materials are performing as anticipated and have
significantly improved recharging capability. We received an order for and
have
shipped 2,200 pounds of lithium titanate spinel electrode nanomaterials to
ABAT
for use in their development program for polymer lithium ion batteries for
electric vehicles. These
materials are intended for use in the construction of developmental polymer
lithium ion batteries designated to power one electric bus and one electric
sedan. We expect road testing of the batteries in these vehicles late in
the
fourth quarter of 2005.
We
have
significantly expanded our battery initiative projects by adding thirteen
highly
qualified, advanced battery scientists, engineers, manufacturing and marketing
specialists, several of whom will be located at a new facility in central
Indiana. At both this and our Reno facility, we plan to install manufacturing
equipment for the production of prototype lithium ion cells, batteries and
battery packs in sufficient quantities to demonstrate end-user products in
power
tools, automobiles, trucks and buses.
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 (“DOE”) 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. On November 1, 2005, we announced that
we
will receive $750,000 under a Phase III grant award from the DOE for
collaborative research and development work beginning October 1, 2005 and
continuing through December 2006.
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. The
tests
were completed in September 2005 and, although we have been informed orally
that
the results were positive, we have not yet received a copy of the test results
and Altair has not received the milestone payment of 100,000 shares of Spectrum
Pharmaceuticals, Inc. stock. Altair and Spectrum entered the early stages
of a
dispute resolution process as required by our license agreement. This process
may delay the product development process and our receipt of our next milestone
payment.
Renalan
Products
We
are
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 disease. Renalan, as a phosphate
binder, has the potential to alleviate hyperphosphatemia, a condition associated
with chronic renal disease in companion animals.
Other
Developments
The
remediation work on the Tennessee mineral properties has been substantially
completed. Certain re-vegetation measures, the planting of small trees, cannot
be completed until late winter 2006. Once completed, the applicable regulatory
authorities will review and, if acceptable, approve completion of remediation
work and a multi-year monitoring plan.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Our
cash
and short-term investments increased from $7,357,843 at December 31, 2004
to
$26,878,833 at September 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.
Our
average net cash outflow increased from $530,000 per month during the calendar
year 2004 to $650,000 per month for the nine months ended September 30, 2005
due
primarily to an increase in employees, increased expenses for patent work,
an
increase in internal R&D projects, capital asset expenditures, and
compliance with the Sarbanes-Oxley Act. Our monthly cash outflow is expected
to
increase during the fourth quarter of 2005, primarily as the result of hiring
additional employees and increasing capital expenditures.
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
four
contracts in place that are expected to generate revenues during the fourth
quarter of 2005. These are:
|
·
|
a
contract with Western Oil Sands, Inc. for a testing program related
to the
production of titanium dioxide pigment and pigment-related products
from
oil sands.
|
|
·
|
a
contract with Western Michigan University to develop nanosensors
for the
detection of chemical, biological and radiological agents.
|
|
·
|
an
agreement with the University of Nevada, Las Vegas Research Foundation
to
act as a subcontractor under a grant awarded to them by the U.S.
Department of Energy for joint research activities related to solar
hydrogen production.
|
|
·
|
a
contract with NSF for Phase II work on the development of advanced
battery
materials which began October 1, 2005.
|
We
had
anticipated receiving a milestone payment from Spectrum Pharmaceuticals,
Inc. in
the form of 100,000 shares of common stock during the fourth quarter of 2005.
As
explained above, receipt of this payment during 2005 now appears
questionable.
At
November 4, 2005, we had 58,990,252 common shares issued and outstanding.
As of
that same date, there were outstanding warrants to purchase up to 1,826,490
shares of common stock and options to purchase up to 2,556,200 shares of
common
stock.
Capital
Commitments
We
intend
to purchase equipment for both our Reno, Nevada and Anderson, Indiana facilities
for use in the development of advanced battery materials and production
of
prototype batteries and battery packs. We expect to spend approximately
$2
million for this equipment and related facility upgrades through June 30,
2006.
The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of September 30,
2005:
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Contractual
Obligations
|
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
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*
|
|
|
126,251
|
|
|
96,851
|
|
|
21,550
|
|
|
7,850
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
169,991
|
|
|
144,991
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
Facilities
Leases
|
|
|
210,872
|
|
|
12,000
|
|
|
198,872
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
282,642
|
|
|
282,642
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
4,314,756
|
|
$
|
1,241,484
|
|
$
|
1,739,422
|
|
$
|
1,333,850
|
|
$
|
-
|
|
*
Although we expect to terminate all mineral leases as soon as
is
practicable, 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
September 30, 2005, the carrying value of these assets was approximately
$7,337,000, 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 nine months ended September 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, we have performed all material obligations
related to the particular milestone payment or other revenue component
and
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 September 30, 2005 Compared to Three Months Ended September
30,
2004
The
net
loss for the quarter ended September 30, 2005, which was the third quarter
of
our 2005 fiscal year, totaled $2,176,826 ($.04 per share) compared to a net
loss
of $1,440,324 ($.03 per share) in the third quarter of 2004.
Total
revenues for the three months ended September 30, 2005 were $585,405 compared
to
$346,907 for the same period of 2004. Revenues
from contracts and grants increased by $46,856, from $202,576 in the quarter
ended September 30, 2004 to $249,432 in the same quarter of 2005. Revenues
were
generated under three contracts to (1) provide research, under a contract
with
Western Michigan University, involving a technology used in the detection
of
chemical, biological and radiological agents, (2) provide research for the
University of Nevada, Las Vegas Research Foundation utilizing nanotechnology
processes for the production and commercialization of solar-based hydrogen
technologies, and (3) supply nano-sized anode and cathode materials for design
and development of high capacity lithium ion battery and super capacitor
applications under a contract with the National Science Foundation. At September
30, 2005, our backlog of work under existing contracts was approximately
$635,000.
Revenues
from commercial collaborations increased by $186,876, from $140,603 in the
third
quarter of 2004 to $327,479 in the third quarter of 2005. The increase is
due to
additional revenues from the Western Oil Sands project resulting from billings
for the design and construction of a pilot separation plant.
Research
and development (“R&D”) expenses increased by $769,978, from $520,376 in the
third quarter of 2004 to $1,290,354 in the same quarter of 2005. Labor costs
increased from approximately $334,000 in the third quarter of 2004 to
approximately $419,000 in the same quarter of 2005 due to new employee additions
and salary 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 $192,081, from $46,070 in the third quarter
of
2004 to $238,151 in the third quarter of 2005. The increase is due to staff
increases and increased business development activities.
General
and administrative ("G&A") expenses increased by $173,448, from $973,080 in
third quarter of 2004 to $1,146,528 in the third quarter of 2005. Stock option
compensation expense, a non-cash item, increased by approximately $285,000,
from
approximately $(329,000) in the third quarter of 2004 to $(44,000) in the
third
quarter of 2005, due to an increase in value of stock options repriced in
prior
years, and consulting fees increased by approximately $317,000 due primarily
to
costs related to compliance with the Sarbanes-Oxley Act These increases were
partially offset by a decrease in investor relations expense of approximately
$208,000 as a result of a cutback in our investor relations programs and
a
decrease in other general and office expenses of approximately $225,000.
Interest
income increased by $197,797, from $29,706 in the third quarter of 2004 to
$227,503 in the third 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.
Nine
months Ended September 30, 2005 Compared to Nine months Ended September 30,
2004
For
the
nine months ended September 30, 2005, the net loss was $6,341,863 ($.11 per
share) compared to a net loss of $5,305,113 ($.11 per share) for the same
period
of 2004.
Total
revenues for the nine months ended September 30, 2005 were $2,115,866 compared
to $640,889 for the same period in 2004. 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 $503,459, from $258,800 in the nine
months ended September 30, 2004 to $762,259 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). Commercial collaborations revenues increased
by
$209,002, from $375,518 in the nine months ended September 30, 2004 to $584,520
in the same period of 2005. The increase is due to additional revenues from
the
Western Oil Sands project resulting from billings for the design and
construction of a pilot separation plant. Product sales increased by $67,516,
from $6,571 in the nine months ended September 30, 2004 to $74,087 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 $1,307,800, from $1,508,231 in the nine months ended
September 30, 2004 to $2,816,031 in the same period of 2005. Labor costs
increased from approximately $784,000 in the nine months ended September
30,
2004 to approximately $1,066,000 in the same period of 2005 due to new employee
additions and salary 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 $913,473, from $245,786 in the nine months
ended
September 30, 2004 to $1,159,259 in the same period of 2005. The increase
is due
to payment of a $500,000 fee to RBC Capital Markets in connection with the
RenaZorbTM
licensing agreement, increased payroll expense resulting from additional
staff
and increased business development activities.
G&A
expenses increased by $618,166, from $3,449,495 in the nine months ended
September 30, 2004 to $4,067,661 in the same period of 2005. Stock option
compensation expense, a non-cash item, increased by approximately $840,000,
from
approximately $(407,000) in the nine months ended September 30, 2004 to
approximately $433,000 in the same period of 2005 due to an increase in value
of
stock options repriced in prior years. Legal expense increased by approximately
$372,000, from approximately $404,000 in the nine months ended September
30,
2004 to approximately $776,000 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. In addition, consulting fees increased
by approximately $570,000 due primarily to costs related to compliance with
the
Sarbanes-Oxley Act. These increases were partially offset by decreases in
certain expenses. Investor relations expense decreased by approximately $671,000
as a result of a cutback in our investor relations programs and general
consulting decreased by approximately $209,000. In addition, facilities overhead
costs transferred from G&A to R&D increased by approximately $100,000
and audit fees decreased by approximately $53,000.
Interest
income increased by $442,082, from $73,080 in the nine months ended September
30, 2004 to $515,162 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 $6,703,709 in the nine
months
ended September 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
November 4, 2005, there were outstanding warrants to purchase up to 1,826,490
shares of common stock and options to purchase up to 2,556,200 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
Advanced Battery Technologies, Inc. (“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 features 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 for various applications. 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
sustained 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
November 4, 2005, we had $25.2 million in cash and short-term investments,
an
amount which we believe will be sufficient to fund our ongoing operations
for
approximately three to four 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,
our Senior Vice President Edward Dickinson, our Chief Financial Officer,
and
Bruce Sabacky, our Vice President of Research and Engineering. 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 Capital 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 September 30, 2005, our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods required by governing rules and forms.
(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 September 2005, have implemented attendant operating
controls that substantially enhance the controls over the processing, recording
and reporting of financial transactions. Testing of our key internal controls
has commenced and will be updated as required in the fourth quarter of
2005.
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, Mr. Moerck executed and delivered the requested patent
application assignments. As of October 4, 2005, the Company executed a
settlement agreement with Mr. Moerck, which the Company believes will fully
preserve and protect the Company’s interests in its proprietary information.
Prior to the execution of the Settlement Agreement, Mr. Moerck provided
the Company with several Offers of Judgment against him in this case.
Effectiveness of the settlement agreement is conditioned upon the occurrence
of
certain events and, accordingly, there is a possibility that the matter will
be
re-opened in the future.
Please
refer to the discussion in PART II, Item 1. of the Company's Form 10-Q for
the
quarter ended June 30, 2005 regarding Louis Schnur v. Al Moore, Altair
Nanotechnologies, Inc. and Does 1 through 10. On October 13, 2005 the
Company filed a counterclaim (the "Company's Counterclaim) against Mr. Schnur
for declaratory relief, asking the Court to issue a declaration that:
(1) Altair did not improperly disclose material, non-public information in
violation of any statute; (2) Altair did not breach its fiduciary duties
to its shareholders; and (3) Altair had no duty or ability to prevent an
individual from purchasing Altair common stock from an individual
shareholder. Mr. Schnur timely filed an Answer to the Company's
Counterclaim on November 2, 2005 and the Company's Counterclaim is now
pending.
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: November
14, 2005 |
By: |
/s/ Alan
J. Gotcher |
|
|
|
Alan
J. Gotcher, Chief Executive Officer |
|
|
|
|
|
Date: November
14, 2005 |
By: |
/s/ Edward
H. Dickinson |
|
|
|
Edward
H. Dickinson, Chief Financial Officer |
EXHIBIT
INDEX
|
|
|
|
|
|
Exhibit
No.
|
|
Exhibit
|
|
Incorporated
by Reference/ Filed Herewith
|
3.1
|
|
Articles
of Continuance
|
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC
on July
18, 2002.
|
3.2
|
|
Bylaws
|
|
Incorporated
by reference to the Annual Report on Form 10-K for the year ended
December
31, 2004 filed with the SEC on March 9, 2005
|
10.1
|
|
Lease
(Indiana Office) with Flagship Enterprise Center
|
|
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