This
Annual Report on Form 10-K for the year ended December 31, 2005 (this
"Form
10-K”)
contains "forward-looking statements" within the meaning of Section 27A of
the
Securities Act of 1933, as amended (the "Securities
Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange
Act"),
that involve risks and uncertainties. Purchasers of any of the common shares,
no
par value, (the "common
shares")
of
Altair Nanotechnologies Inc. are cautioned that our actual results will differ
(and may differ significantly) from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those factors discussed herein under “Item 1A. Risk Factors” and elsewhere in
this Form 10-K generally. The reader is also encouraged to review other filings
made by us with the Securities and Exchange Commission (the "SEC")
describing other factors that may affect future results of the
Company.
Unless
the context requires otherwise, all references to “Altair,”
“we,”
“Altair
Nanotechnologies Inc.,”
or
the "Company"
in this
Form 10-K refer to Altair Nanotechnologies Inc. and all of its subsidiaries.
Altair currently has one wholly-owned subsidiary, Altair US Holdings, Inc.,
a
Nevada corporation. Altair US Holdings, Inc. directly or indirectly wholly-owns
Altair Nanomaterials, Inc., a Nevada corporation, Mineral Recovery Systems,
Inc., a Nevada corporation ("MRS"),
Fine
Gold Recovery Systems, Inc., a Nevada corporation ("Fine
Gold")
and
Tennessee Valley Titanium, Inc., a Nevada corporation.
We
are a
Canadian company, with principal assets and operations in the United States,
whose primary business is developing and commercializing nanomaterial and
titanium dioxide pigment technologies. We also provide contract research
services on select projects where we can utilize our resources to develop
intellectual property and/or new products and technology. Our research,
development, production, marketing and sales efforts are currently directed
toward six market applications that utilize our proprietary
technologies:
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The
marketing and licensing of titanium dioxide pigment production
technology.
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The
marketing and production of nano-structured ceramic powders for
thermal
spray applications.
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The
development of nano-structured ceramic powders for nano-sensor
applications.
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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. Development of this product
is largely
inactive as we seek a business
partner.
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Air
and Water Treatment
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The
development, production and sale of photocatalytic materials for
air and
water cleansing.
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The
marketing of
Nanocheck products for phosphate binding to prevent or reduce algae
growth
in recreational and industrial
water.
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The
development, production and sale of nano-structured lithium titanate
spinel, lithium cobaltate and lithium manganate spinel materials
for high
performance lithium ion batteries.
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The
design and development of power lithium ion battery cells, batteries
and
battery packs as well as related design and test services.
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The
development of materials for photovoltaics and transparent electrodes
for
hydrogen generation and fuel cells.
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Lanthanum
based Pharmaceutical Products
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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.
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The
testing 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
disease.
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Chemical
Delivery Products
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The
development of TiNano Spheres, 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.
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Biocompatible
Materials
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The
development of nanomaterials for use in various products for dental
implants, dental fillings and dental products, as well as biocompatible
coatings on implants.
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We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
In the near term, as we continue to develop and market our products and
technology, contract services will continue to be a substantial component
of our
operating revenues. During the years ended December 31, 2005, 2004 and 2003,
contract services revenues comprised 70%, 99% and 88%, respectively, of our
operating revenues.
Our
Nanomaterials and Titanium Dioxide Pigment Business
Background
and Description of Process
Most
of
our existing products, potential products and contract research services
are
built upon our proprietary nanomaterials and titanium dioxide pigment
technology. We acquired the basis for this technology from BHP Minerals
International, Inc. in 1999 and, over the past six years, have continued
to
expand and refine various applications of the technology. Today, we use the
technology in order to produce various finely-sized powders that have current
or
potential applications in a wide range of industries, including pharmaceuticals,
titanium dioxide pigment, photocatalytic oxidation products, catalyst
structures, protective thermal spray powders, algae control and high performance
rechargeable batteries. Although the existing and potential applications
are
varied, each is directly or indirectly built upon the ingenuity of our
management, research and development staff and engineering team and our
proprietary nanomaterials and titanium dioxide pigment technology.
This
nanomaterials and titanium dioxide pigment technology enables our production
of
conventional titanium dioxide pigment products that are finely-sized powders
consisting of titanium dioxide crystals.
These powders approximate 170-300 nanometers in size. This technology is
also
capable of producing titanium dioxide and other metal and mixed metal oxide
nanomaterials. These are specialty products with a size range of 10 to 100
nanometers (approximately one tenth the size of conventional titanium dioxide
pigment). The primary products currently being produced in the processing
plant
are titanium dioxide, lithium titanate spinel, lanthanum products and stabilized
zirconia nanomaterials. The technology also enables the production of customized
products for catalyst support structures, thermal barrier coating materials
and
porous titanium oxide electrode structures for titanium metal production.
Our
nanomaterials and titanium dioxide pigment technology is fundamentally different
from current commercial processing techniques. Other processes are based
on
either a precipitation of materials from a solution or the formation of
crystallites from molten droplets of titanium oxide generated in high
temperature flame reactors. Our process is a dense-phase crystal growth
technique which controls crystal formation using a combination of mechanical,
fluid dynamics, chemical and thermal control. Our process permits exceptional
control over particle size, shape, and crystalline form. Our titanium dioxide
processing technology produces discrete anatase crystals in nanometer sizes
and
may be doped to be thermally stable up to 800 degrees centigrade. By remaining
stable in high-temperature processing, nanomaterials produced by our titanium
dioxide pigment processing technology retain the desired nanomaterials size
and
crystalline phase. In addition, our technology is designed to minimize process
effluents needing environmental remediation and to accept a wide variety
of
low-cost, naturally occurring titanium feed stocks.
Using
this technology, we are in various stages of research, development and marketing
of numerous products and potential products. We also use this technology
to
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
The following sections describe the research and development services we
provide
and the principal projects we are using our nanomaterials and titanium dioxide
pigment technology to develop.
Contract
Research Services
In
addition to doing research and development work for our own benefit, we provide
these services to others, principally in commercial collaboration arrangements
and under government grants. During 2006, we expect to utilize our nanomaterials
and titanium dioxide pigment technology under the following:
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a
contract with Western Oil Sands, Inc. for the production of titanium
dioxide pigment and pigment-related products from oil sands. We
have
constructed a pilot separation plant for Western Oil Sands, Inc.
in our
Reno, Nevada facility that we are using under contract to develop
the
process for recovering titanium dioxide from oil sands. At December
31,
2005 and 2004, we had approximately $642,000 and $200,000, respectively,
of work remaining to be done on existing
contracts;
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a
contract with Western Michigan University to develop nanosensors
for the
detection of chemical, biological and radiological agents. At December
31,
2005 and 2004, we had approximately $16,000 and $500,000, respectively,
of
work to be done under existing contracts. We expect to continue
the
project under an announced federal earmark grant that is estimated
to
provide $1,000,000 to us over approximately one
year;
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a
grant awarded by the National Science Foundation to fund joint
development
work on next generation lithium ion power sources. At December
31, 2005
and 2004, we had approximately $349,000 and $33,000, respectively,
of work
remaining to be done on existing contracts. The work to be done
under the
contract backlog at December 31, 2005 is expected to run through
June 30,
2007;
and
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an
agreement with the University of Nevada, Las Vegas Research Foundation
to
act as a subcontractor under a $3,000,000 grant awarded to them
by the
U.S. Department of Energy for joint research activities related
to solar
hydrogen production. At
December 31, 2005 and 2004, we had approximately
$623,000 and $400,000, respectively, of work to be done under the
agreement.
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We
expect
that contract research services will be a significant portion of our revenues
in
the short-term but will decline in significance if we are successful in bringing
nanoparticle and other products to market and license our technologies. Total
research and development expenses were $5,073,478, $2,189,150 and $1,961,744
for
the years ended December 31, 2005, 2004 and 2003, respectively, while research
and development costs funded by customers were $1,962,162, $1,144,389 and
$64,249 for the years ended December 31, 2005, 2004 and 2003, respectively.
During
the year ended December 31, 2005, we recorded revenues from four major
customers, each of which accounted for 10% or more of revenues. Revenues
from
Western Michigan University were $481,519; revenues from Western Oil Sands,
Inc.
were $616,515, and revenues from the UNLV Research Foundation were $492,818.
All
of these customers are in the performance materials business segment. Revenues
from Spectrum Pharmaceuticals, Inc., a life sciences segment customer, were
$729,271.
Trademarks
We
have
registered or are in the process of registering the following trademarks:
Altair
Nanotechnologies®, Altair Nanomaterials®, Altairnano™, TiNano®, Nanocheck™ and
RenaZorb®.
The
Performance Materials Division
Primary
Products
The
Altair Hydrochloride Pigment Process (AHPP)
We
have
named the portion of the nanomaterials and titanium dioxide pigment technology
that was developed to produce high quality titanium dioxide pigment the Altair
Hydrochloride Pigment Process
(AHPP). This package of technologies includes four US patents, trade secrets
and
know-how developed over nine years of research and development. The technology
represents a comprehensive process to extract heavy minerals such as titanium
from raw materials, produce a high quality titanium dioxide pigment and minimize
environmental impact.
Key
Features
The
AHPP
is the first new, comprehensive technology to produce titanium dioxide pigment
in over fifty years and takes advantage of new technologies to enable high
quality pigment production. Titanium dioxide pigment is produced in bulk
and is
used principally as a whitener and opacifier for paper, plastics and paint.
The
AHPP uses a
dense-phase crystal growth technique which controls crystal formation using
a
combination of mechanical, fluid dynamics, chemical and thermal control.
A
third
party engineering study suggests that cost associated with this process will
be
lower than costs associated with alternative processes. All hydrochloric
acid
waste streams can be recycled to recover acid, and the waste solids generated
from the purification process are easily manageable iron oxides.
Target
Markets and Marketing Plans/Efforts
We
intend
to benefit from the AHPP through technology license agreements with large
materials companies under which we would receive royalties and other payments.
We do not anticipate being a manufacturer of pigments or competing directly
in
the pigment market. Our market approach has been to target chemical
manufacturing and mining companies who are addressing the market for high
grade
titanium dioxide pigment. In general, European and North American companies
have
substantial investment in traditional chloride- and sulfate-based methods
of
producing pigment and so will be slow to adopt new technology like our AHPP.
However, companies and governments in the developing world have stated that
they
see substantial value in being self-sufficient in titanium dioxide production
both from an economic as well as a political viewpoint. These geographies
are
also swifter to adopt new technology as they have less infrastructure and
investment tied to traditional methods of pigment production.
In
April
2005, we signed a memorandum of understanding with Bateman Engineering NV
(“Bateman”) to form a joint venture combining our hydrochloride pigment process
technology with Bateman’s engineering, design and construction expertise. We
expect that the joint venture, Altair-Bateman Titania, Inc. (“ABT”), will offer
customers an integrated resource for technology development, engineering,
design
and construction of pigment processing projects. We expect that the joint
venture will be funded entirely by Altair and Bateman, with each having equal
shareholding and Altair having voting control. We expect the joint venture
to
help in marketing the AHPP, particularly in developing countries which have
little or no local production capacity.
In
marketing the process, the first step is detailed analysis of the ore to
be
processed to ensure it can produce the quality of titanium dioxide required.
Assuming positive results, this is followed by a process designed to demonstrate
the feasibility of the overall manufacturing process with a small pilot plant,
and then, if successful, a larger scale plant. This is the normal course
for
establishing a new chemical plant that can ultimately produce in excess of
100,000 tons of pigment per year. During each of these phases, we expect
to
receive consulting and engineering study fees through the ABT joint venture.
If
a full plant is constructed, we would expect to begin receiving royalty
payments.
Research,
Testing, Development and Licensing Status
The
AHPP
is substantially developed and, in a test environment, we are able to extract
titanium from raw materials in order to produce a high quality titanium dioxide
pigment. The AHPP is not, however, a one-size-fits-all technology and needs
to
be customized to the particular needs of any potential licensee. As described
below, we have entered into a license with Western Oil Sands, Inc.
(“Western”)
with
respect to the AHPP. In addition to our work with Western, we have submitted
phased development proposals for the testing and economic evaluation of our
titanium pigment production technology to several companies. As illustrated
by
the description of our license with Western below, any license of the AHPP
will
involve various stages of testing and development tailored to the licensee’s
specific needs. Such licenses may involve incremental payments and development
services along the way but will lead to significant revenue only if a full-scale
commercial titanium pigment production facility is constructed.
In
January 2004, we entered into a license agreement with Western with respect
to
its possible use of the AHPP for the production of titanium dioxide pigment
and
pigment-related products at the Athabasca Oil Sands Project in Alberta, Canada,
and elsewhere. Upon execution of the agreement, we granted Western an exclusive,
conditional license to use the AHPP on heavy minerals derived from oil sands
in
Alberta, Canada. The agreement also contemplates a three-phase, five-year
program pursuant to which the parties will work together to further evaluate,
develop and commercialize the AHPP. In the first phase of the program, Western
is expected to spend $650,000 ($500,000 of which is scheduled to be paid
to
Altair for work performed) to evaluate the AHPP and confirm that the AHPP
will
produce pigment from oil sands. During 2004, we received several bulk samples
of
oil sand material from Western, processed them in various configurations
to
obtain mineral concentrates, and processed the concentrates using the AHPP
to
recover the titanium dioxide. We have now completed in excess of 75% of the
work
scope included in phase one with satisfactory results.
In
October 2005, we entered into a phase one extension agreement with Western
that
will extend phase one until December 2006 in order to complete the
characterization and demonstrate mineral recovery feasibility. A pilot plant
has
been constructed to demonstrate mineral recovery and will be used to prepare
bulk ilmenite concentrates for AHPP pilot plant trials.
Assuming
phase one is successful, Western may elect to commence phase two, the
construction of a demonstration titanium pigment production facility using
the
AHPP. If phase two is successful, Western may elect to commence phase three,
the
construction and operation of a full-scale commercial titanium pigment
production facility using the AHPP.
The
scope
of the license granted to Western under the agreement will vary with Western’s
commitment to the project. The initial license, related to use of the AHPP
on
heavy minerals derived from oil sands in Alberta, Canada, will terminate
if
Western fails to complete phase one and will convert to a non-exclusive license
if Western commences phase two but fails to complete, or spend at least $25
million in an effort to complete, phase two.
If
Western completes phase one and commences phase two, Western’s license will be
expanded to include the right to use the AHPP for the production of titanium
dioxide pigment and pigment-related products from oil sands resources, primary
ore resources and titanium deposits in Canada and Minnesota and for the
production of titanium dioxide pigment and pigment-related products from
oil
sands resources world wide. This expanded license will continue on an exclusive
basis if Western completes phase two and completes, or spends at least $50
million in an effort to complete, phase three. This expanded license will
continue, but on a non-exclusive basis, if Western completes phase two but,
after spending more than $5 million but less than $50 million on phase three,
does not complete phase three. If Western does not commence, or spends less
than
$5 million with respect to, phase three, the expanded license
terminates.
If
commercialization occurs, Western is required to pay Altair royalties based
on a
percentage of net sales revenue from any production facility.
Proprietary
Rights
We
have
been awarded four U.S. and several international patents protecting this
technology including: 1) Processing titaniferous ore to titanium dioxide
pigment, 2) Processing aqueous titanium chloride solutions to ultrafine titanium
dioxide, 3) Processing aqueous titanium solutions to titanium dioxide pigment
and 4) Method For Producing Mixed Metal Oxides and Metal Oxide Compounds.
The
U.S. patents expire in 2020 and 2021.
Competition
Existing
chloride pigment technologies are guarded by the top tier producers that
developed the technologies. Licenses are not typically granted by top tier
companies to emerging nation companies because of the complexity of the process
and difficulty in extracting revenues from those countries. By contrast,
we are
willing to license our AHPP. Companies assessing the viability of our process
to
manufacture pigment from their resource are also evaluating alternatives,
including producing mineral concentrates for sale to pigment producers and
producing a high value synthetic rutile to be sold to pigment producers as
feed
stock. They may elect to commercialize either of these alternatives instead
of
producing pigment by the AHPP. We believe there are no competing new
technologies to produce titanium dioxide pigment.
Advanced
Materials and Power Systems Initiative
Key
Concepts
Rechargeable
batteries are made from various materials, each of which has certain
characteristics or tendencies, depending upon how configured. Some of the
key
concepts used when comparing rechargeable batteries include the following:
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Power:
A battery’s power rating is its ability to deliver current while
maintaining its voltage.
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Discharge:
Discharge refers to the dissipation of a battery’s stored energy as a
result of intended transfer of that energy (either gradually
or in one or
more large bursts) or as a result of the unintended leakage of
that
energy. This leakage is referred to as “self discharge” and is a natural
tendency of all batteries for which the rate is proportional
to
temperature. A “deep discharge” refers to the discharge of substantially
all of the stored energy in a battery between recharges. In general,
deep
discharges reduce the cycle life of
batteries.
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Energy
density: A battery’s energy density relates to the total unit volume of
materials comprising a battery that will deliver a watt hour
of energy. A
battery with high energy density will deliver more energy per
unit volume
than a battery with lower energy density.
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Cycle
life: The ability of a rechargeable battery to accept a charge
tends to
diminish as a result of repeat charge/discharge cycles. A battery’s “cycle
life” is the number of times it can be charged and discharged without
a
significant reduction in its ability to accept a charge.
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Calendar
life: A battery’s calendar life relates to the period of time that a
battery will preserve its capability to deliver a significant
portion of
its newly-built energy storage
capacity.
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Recharge
time: Recharge time is the minimum amount of time it takes to
replenish a
battery’s energy.
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Other
important factors include the cost, safety, environmental friendliness
and
extreme temperature performance of a battery. Although being on the positive
side of each of the characteristics is desirable in all rechargeable batteries,
the importance of these various characteristics depends primarily upon
the
anticipated use of a battery. For example, high power, which is important
in a
hand-held cordless power tool is not very important in a battery designed
to
power a cell phone because a cell phone needs very little power; however,
high
specific energy may be important in a cell phone battery because consumers
desire to be able to use a cell phone for a long time between recharge
and want
to carry as little weight and volume as possible.
Background
and Comparison
Prior
to
1990, nickel cadmium (“NiCd”) and lead acid (“PbA”) technologies dominated the
rechargeable battery market. During the 1990’s, nickel metal hydride (“NiMH”)
and lithium ion rechargeable batteries emerged and currently hold high
volume
positions in various markets alongside NiCd and PbA.
NiCd
batteries are inexpensive and fairly rugged, have the longest cycle life
of
currently available rechargeable battery types, work best on deep discharge
cycles and accept recharge at moderately fast rates, but charging rates
must be
reduced by a factor of 5 to 10 at temperatures below 0°C (32°F) and above
30°C (86°F). On the other hand, NiCd batteries suffer from relatively low energy
density and relatively high self discharge rates necessitating charge after
moderate periods of storage. More seriously, NiCd batteries are exceedingly
environmentally unfriendly. The metal cadmium is toxic and causes several
acute
and chronic health effects in humans, including cancer. As a result, NiCd
usage
is being severely restricted and/or phased-out altogether by some
countries.
PbA
batteries are used everyday by anyone who drives an automobile or operates
a
wheel chair, electric scooter or golf cart. They are also the battery-of-choice
for uninterruptible power supplies. PbA is an inexpensive, relatively simple
to
manufacture, mature, reliable technology that possesses a relatively low
self
discharge rate, and the modern sealed versions need little or no maintenance.
However, PbA batteries are quite heavy, giving them very poor weight to
energy
and power ratios, which limit practical use to stationary and wheeled
applications. They also suffer from long recharge times and relatively
low
energy capacities and cannot be stored for long periods in a discharge
state
without service-life failure. In addition, they possess a very limited
deep
discharge cycle life, and thermal runaway can occur with improper charging.
As
with NiCd batteries, the highly toxic metal, lead, and highly corrosive
sulfuric
acid render PbA batteries environmentally unfriendly.
The
metal
hydride used in NiMH technology is a direct replacement for cadmium in
NiCd
batteries. Thus, NiMH batteries share and improve upon the attributes of
NiCd
batteries, yet introduce problems of their own. On the positive side, NiMH
batteries improve upon the energy capacity and power capabilities of NiCd
(for
the same size cell) by 30% to 40%. Since they contain only mild toxins,
NiMH
batteries are more environmentally friendly than both PbA and NiCd batteries.
Like NiCd batteries, NiMH batteries can be charged in about 3 hours. Charging
rates must be reduced by a factor of 5 to 10 at temperatures below 0°C (32°F)
and above 40°C (104°F). NiMH batteries suffer from poor deep cycleability,
possessing a capability of the order of 200 to 300 cycles. While NiMH batteries
are capable of high power discharge, dedicated usage in high current
applications limits cycle life even further. Shelf life is poor, on the
order of
three years. As noted above, NiCd batteries possess high self discharge
rates,
but this problem is exacerbated by up to 50% in NiMH systems. NiMH batteries
are
intolerant to elevated temperature and, as a result, performance and capacity
degrade sharply above room temperature. The most serious issue with NiMH
involves safety accompanying recharge. The temperature and internal pressure
of
a NiMH battery cell rises sharply as the cell nears 100% state of charge,
necessitating the inclusion of complex cell monitoring electronics and
sophisticated charging algorithms in order to prevent thermal runaway.
While
NiMH technology is gaining prominence within the electric vehicle (EV)
market
and dominates the hybrid electric vehicle (HEV) market, this gain is placing
pressures on the limited supply of nickel, potentially rendering the technology
economically infeasible for these applications as the demand continues
to
rise.
Of
all of
the available metals for use as a basis for practical batteries, lithium
is the
most reactive and least dense, allowing for batteries with high specific
energy.
Conventional lithium ion batteries exhibit voltages of about 3.6V as compared
to
about 1.2V for NiCd and NiMH and 2.0V for PbA. There is a relationship
between
power P, voltage V and current I. This relationship is best summarized
by this
formula: P=IV. Power is also defined as the time rate of energy transfer;
thus
higher voltages typically lend to larger power and / or energy densities.
Lithium ion batteries are stable, charge rapidly, exhibit low self discharge,
and require very little maintenance. Except as explained below, the safety,
cycle life (about 300 to 400 cycles), calendar life (about 3 years),
environmental impact and power of lithium ion batteries is comparable to
those
of NiMH and NiCd batteries.
Conventional,
graphite-based, lithium ion batteries are the batteries of choice in small
electronics, such as cell phones and portable computers, where high energy
and
light weight are important. These same attributes are desired for electric
vehicle, hybrid electric vehicle, power tool and uninterruptible power
supply
markets. However, these applications are principally high power demand
applications and/or pose other demands on usage, such as extremes of
temperature, need for short recharge times, high proportional (to stored
energy)
current rates and even longer extended lifetimes. Because of safety concerns
related principally to the presence of graphite, conventional graphite-based
lithium ion batteries sufficiently large for such power uses are considered
unsafe. In addition, current lithium ion technology is capable of about
300 to
400 cycles and a life of about 3 years. But vehicle lifetimes can be as
long as
10 to 15 years and require many hundreds, even thousands, of charge/discharge
cycles. In addition, conventional lithium ion batteries do not function
well at
extremely hot or cold temperatures.
The
safety problems inherent in conventional lithium ion batteries are mostly
explainable in terms of their inability to delivery rapid discharge or
function
in extreme temperatures and stem from the use of graphite as the active
material
in the batteries’ negative electrode. In a lithium battery environment, graphite
becomes very reactive with components of the battery’s electrolyte system. Upon
manufacturing a lithium ion battery and subjecting the battery to its first
charge/discharge cycle, the electrolyte will partially break down at the
negative electrode, forming a passivating layer. This layer serves to protect
the electrode from further electrolyte breakdown, but the layer is highly
electrically resistant to the passage of electrolyte components (the lithium
ions) needed to make the battery functional. This in turn limits the discharge
rates but, more seriously, renders the battery un-chargeable at cold
temperatures. If charging a cell at severely low temperatures is attempted,
two
dangerous conditions may result: (1) lithium plates in sharp projections
called
dendrites can form and contact the positive electrode, electrically shorting
the
cell and possibly resulting in thermal runaway, and (2) plated metallic
lithium
is very reactive with the electrolyte system, which can cause the battery
to
enter thermal runaway.
New
negative electrode materials are needed to solve these problems. In addition,
new positive electrode materials are needed to address the cycle life and
cost
issues associated with current lithium ion technology.
Altair
Developments
The
principal advance we have made is in the optimization of nano-structured
lithium
titanate spinel oxide (“LTO”) electrode materials that replace graphite
electrode materials used in the negative electrode of current lithium ion
batteries. When used with a positive electrode from a common lithium ion
battery, battery cells operate at very high charge and discharge rates.
Our
current non-optimized cells are capable of recharge times of 10 minutes
to 90%
of capacity and 10 minute discharges with 90% capacity utilizations.
Nano-structured
LTO is non-reactive with the electrolytes used in common lithium ion systems.
This greatly reduces the negative electrode resistance, and thus, passage
of
lithium ions to the electrode surface. Since the material is nano-structured,
the surface area available to lithium ions is greatly enhanced - by up
to 100
times - over graphite based systems. The material allows for a greatly
facilitated, thus rapid, access to the active sites necessary for battery
function. In addition, the small size of the nanoparticles dramatically
reduces
the distance from the surface to inner active sites, further reducing resistance
to high rate operation. These characteristics permit our battery cells
to
deliver more power, and recharge much faster than, other types of batteries
described above.
Nano-structured
LTO is termed a zero strain material, meaning that the material essentially
does
not change shape upon the entry and exit of a lithium ion into and from
the
particle. Since most battery materials suffer from this mechanical stress
and
strain (this particle fracturing reduces the life of the battery), battery
calendar life and cycle life is greatly enhanced using Altair’s LTO.
Our
nano-structured LTO also represents a breakthrough in low- and high-temperature
performance. Nearly 90% of room temperature charge retention is realized
at
-30°C from Altair’s nano LTO cells. In contrast, common lithium ion technology
possesses virtually no charging capabilities at this low temperature, and
the
other battery types discussed take 10 to 20 times longer to charge.
Safety
testing has just been initiated on our lithium ion technology. Initial
tests,
including short circuit tests on large format cells, demonstrate the inherent
safety of the Altair technology. Graphite negative electrode materials
are known
to suffer from thermal runaway issues at temperatures above 130°C, while lithium
titanium spinel oxides are known to be safe for an additional 120°C or up to
temperatures of 250°C. Our nano structured LTO cells have been heated to 235°C
and exhibit no dangerous behavior. In addition, our batteries have been
subjected to forced discharge, over charge, over discharge, nail penetration,
crush and drop tests and have exhibited no dangerous behavior. Our batteries
have passed every safety and abuse condition that they have been subjected
to.
Especially under the conditions of forced discharge, over charge, over
discharge, and high temperature abuse testing, conventional lithium ion
batteries typically fail in a violent mode that includes fire and
explosion.
All
rechargeable batteries present a threat to the environment. When recycled
properly, however, batteries made with nano-structure LTO are expected
to have a
lower impact on the environment than existing rechargeable battery types.
On
the
negative side, the current generation of batteries made with our nano-structured
LTO exhibit low energy density. If density is measured by weight, our batteries
made with our nano-structured LTO have energy densities that are better
than PbA
and NiCd batteries and approximately 70% of those of NiMH. Energy densities
of
batteries made with our nano-structured LTO are lower than those of traditional
lithium ion batteries.
The
next
steps in the development program call for the optimization of the positive
electrode materials to complement the work that has been completed on the
negative electrode. This will result in a matched negative electrode/positive
electrode pair. In parallel with the next phase of development, work is
being
conducted with other organizations to provide an electrolyte that will
deliver a
conducting layer consistent with the matched electrodes. This work will
consist
of optimizing the electrolyte for conductivity as well as other physical
properties such as heat dissipation.
Target
Markets and Marketing Plans/Efforts
According
to information supplied by Telcordia (subsidiary of Science Applications
International) the market for rechargeable batteries is approximately $6
billion, $3 billion of which is taken by lithium ion batteries. These lithium
ion rechargeable batteries are expected to gradually increase their share
of the
world rechargeable battery market. New developments indicate that high
power
batteries of this type will ultimately be developed for application as
replacements for lead acid batteries in automobiles, electric vehicles,
and
hybrid automobiles where direct electrical energy for starting and passing
will
assist the gasoline engines. Also, the development of fuel cells and solar
generation systems will require enhanced battery capabilities.
Our
technology provides a fundamental building block for a new generation of
rechargeable batteries. Our marketing efforts are focused on developing
relationships with high volume battery manufacturers who will integrate
our
materials into new battery designs. Early stage discussions have taken
place
with several manufacturers with a view to developing a joint development
program
that will use the Altair electrode materials as the basis for a new generation
of batteries. These discussions could lead to commercial relationships
that will
be characterized by a revenue stream consisting of one of more of development
funding, materials manufacturing and royalties.
We
are
focusing our marketing and development efforts on markets presently dominated
by
NiCd or NiMH 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.
Because of the lower specific energy of the current generation of batteries
made
with our nano-structured LTO, we believe that initial acceptance of our
batteries in the small electronics market will be limited, unless and until
we
can improve the specific energy of our batteries or persuade producers
that the
benefits of extremely rapid recharge exceed the benefits of slow discharge.
Research,
Testing and Development
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, announced on February
10, 2005, indicated that lithium ion batteries prepared with nano-structured
LTO
negative electrode materials exhibit rapid charge and discharge rates,
improved
cycle life performance and a decrease in specific energy density when compared
to conventional lithium ion, NiCd and NiMH 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 negative electrode materials and Phase II is designed
to develop positive electrode materials, thus resulting in matched negative
electrode-positive electrode materials for optimum electrochemical
performance.
In
addition to our work under the NSF grants, we have been conducting our
own
internal research and development work on advanced battery materials. In
October
2005, we significantly expanded our battery initiative projects by adding
thirteen highly qualified, advanced battery scientists, engineers, manufacturing
and marketing specialists, several of whom are located at a new facility
in
central Indiana. At both this and our Reno facility, we are installing
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. In January 2006,
our
battery research and development team successfully completed a testing
program
for lithium ion battery cells containing our nano-structured lithium titanate
electrode materials. The test results demonstrated that the performance
of the
lithium ion battery cells exceeded the system-level power requirements
set forth
by the U.S. Council for Automotive Research FreedomCAR Energy Storage System
Performance Goals for hybrid electric vehicles (HEVs), as well as the
system-level power requirements published by major U.S. automakers. The
battery
cells using our nano-structured LTO materials in battery cell tests developed
for HEV applications demonstrated a useable state-of-charge range twice
that of
conventional NiMH batteries presently used in hybrid electric vehicles.
Nano-structured LTO offers a near-term promise of lithium ion batteries
that
exhibit rapid charge and discharge, longer cycle life and more inherently
safe
performance than either currently available NiMH or lithium ion batteries.
These
results support the feasibility of a power lithium ion battery pack half
the
size of those currently being tested for HEV applications.
In
April
2005, we signed a partnering agreement with Advanced Battery Technologies,
Inc.
(“Advanced Battery”), a U.S. and Chinese-owned company, for the development of
lithium polymer batteries in China. The agreement covers the incorporation
of
our nano-structured LTO electrode materials into Advanced Battery'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 Advanced Battery with sample nano-structured
LTO for
their use in design and development of the batteries. Advanced Battery’s phase I
testing of batteries using our battery electrodes showed that the
nano-structured LTO 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
Advanced Battery 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 in 2006.
Proprietary
Rights
We
have
been issued four U.S. patents: (1) “Process for making lithium titanate”, which
expires in 2022, (2) “Process for making nano-sized and sub-micron sized
lithium-transition metal oxides”, which expires in 2023, (3) “Method for
producing mixed metal oxides and metal oxide compounds”, which expires in 2022,
and (4) “Process for making nano-sized stabilized zirconia”, which expires in
2022. We have also filed a patent application titled “High Performance Lithium
Titanium Spinel for Electrode Material” with Ntera. In October 2004, we were
awarded a European patent for our “Process for Making Lithium Titanate”, a
product used in the development of lithium ion batteries and super
capacitors.
Competition
Competing
technologies are discussed in the “Background and Comparison” subsection above.
There are presently no commercial products available with the same
characteristics as our lithium titanate spinel, but others are conducting
research on similar materials. Based solely on our review of published
information, it appears that our development work is at a more advanced
stage
than others being reported.
Nanocheck™
We
have
developed a compound that has an affinity for certain oxy anions, including
phosphate and arsenate. We believe the best near-term potential application
for
this material is the removal of phosphate from recreational waters, industrial
waters used for cooling and aquariums to arrest the growth of
algae.
Key
Feature
Nanocheck
is a lanthanum-based compound that can be used to treat water for the removal
of
phosphates. It has no reported human health hazards and works effectively
in
existing filtration units without the need of purchasing additional equipment.
The
management of swimming pool water is a difficult and time-consuming task.
The
chemical balance of the water must be carefully monitored to ensure that
it does
not become fouled with algae, or grow too much bacteria. Either of these
will
make the water smell and look unpleasant, and can be a health hazard. Nanocheck
is designed to safely deprive algae of the phosphate nutrients required for
them
to grow and reproduce; and therefore, in conjunction with a commercial
sanitizer, Nanocheck reduces or minimizes algae formation.
Target
Markets and Marketing Plans/Efforts
We
are in
the process of marketing Nanocheck products to companies that already sell
products into the recreational water treatment market including pool and
spa
chemical companies. The marketing effort so far has been focused on the major
suppliers of chemicals to the recreational water market - swimming pools
and
spas, both private and public. These suppliers provide a distribution channel
that has the potential for rapid market entry. When our potential customers
complete the necessary testing, and if we are able to enter into a long-term
relationship with one or more such suppliers, we expect to generate revenue
in
the form of royalties and in connection with our supply of key ingredients.
The
business relations with these companies will result in revenue to Altair
from
royalties and the supply of manufactured Nanocheck. Nanocheck’s ability to bind
with the phosphate in water and effectively “starve” the algae makes it an ideal
adjunct to algaecide-based water treatment. As such it is seen as line extension
for the pool chemical suppliers.
We
are in
discussion with the top three recreational water chemical suppliers. These
discussions are at various stages of maturity and two of the suppliers are
actively testing Nanocheck.
Research,
Testing and Development
We
have
conducted in-house tests for phosphate removal in swimming pool simulations
and
recreational water companies have performed materials and pool testing that
shows effective phosphate removal, pool water turbidity reduction and good
phosphate binding kinetics. Larger scale swimming pool tests being performed
by
a recreational water company began in mid-August 2004 and are continuing.
Delays
occurred, first due to internal issues within the recreational water company
and
then due to the effects of hurricanes in the locale where tests were to be
conducted. As a result, tests are now scheduled through the summer of 2006.
Negotiations with major pool chemical companies are underway and if testing
is
successful and sales agreements are entered into, significant sales of products
incorporating Nanocheck, if any, may begin in 2006.
Proprietary
Rights
We
have
filed two U.S. patent applications for the application of this product entitled
“Rare Earth Compositions and Structures for Removing Phosphates from Water” and
“Ceramic structure for removing toxic elements from water.”
Competition
Pool
chemicals are a commodity market with price, merchandising and small functional
advances providing differentiation. There are already a few other phosphate
binding products on the market. These products are high maintenance, usually
requiring weekly service. We believe that Nanocheck offers high phosphate
binding capacity with a longer service life. Although field trials of Nanocheck
are still under way, early indications are that it can be added to a swimming
pool and then left for a month or two without requiring attention.
Secondary
Products and Research and Development Projects in Progress
Thermal
Spray Grade Powders (TSGP)
We
have
developed thermal spray grade nanomaterial powders that can be applied on
the
surface of metals by standard thermal “gunning” techniques. We have sold
approximately one ton of our powders to F.W. Gartner Thermal Spraying Company
for thermal application onto heavy-duty ball valves. Ball valves made of
solid
titanium alloys have been introduced to control the flow and containment
of hot
acidic slurry solutions in high pressure acid leach technologies applied
to
metal extraction of nickel/cobalt ores. To extend the life of these critical
components, a ceramic coating is applied via a thermal spray process. These
coatings must be impervious to the acidic solution and provide protection
against wear from the abrasive solid particles.
Our
nanomaterials coatings possess enhanced toughness and increased hardness;
these
features contribute to superior abrasive wear resistance over the conventional
coating of the same material. The nanomaterial coatings also demonstrate
improved porosity over standard thermal spray powders making them more resistant
to corrosive attack. We believe that improvements will enable longer periods
between maintenance, repairs and examinations of these critical components,
therefore improving the economics of the industrial application. Such thermal
spray products could be used in a variety of harsh environment applications
such
as aerospace propulsion systems, blades and vanes, medical applications,
textile
and paper machinery, boilers for power plants, waste incinerators, oil and
gas
industry, etc.
In
November 2003, we contracted the National Research Council of Canada to
demonstrate, test and evaluate our powders and prepare specification sheets
of
standard thermal spray gunning instructions to advise specialty thermal spray
shops how to apply our material. The goal of the project was to produce titania
coatings by thermal spraying using nano-structured titania powders developed
by
Altair and compare and contrast to conventional titania powders. The coatings
were characterized and evaluated to determine various characteristics, including
porosity and abrasion resistance. The report, completed in the first quarter
of
2004, concluded that our powders were more abrasion resistant than conventional
powders. Since that time, we have prepared sample packages of our thermal
spray
grade powders for customer testing.
F.W.
Gartner Thermal Spraying Company, Mogas Industries, Inc. and Perpetual
Technologies researchers have reported on the use of our nanomaterial powders
in
tests to determine the bond strength, corrosion and abrasion resistance and
the
porosity after applying ours and competitors’ materials on metal using Vacuum
Plasma Spray and Atmosphere Plasma Spray. The results of these researchers’
tests indicate that our novel coatings possess enhanced toughness and increased
hardness; these features contribute to its superior abrasive wear resistance
over the conventional coating of the same material. Ball valves with the
new
coatings have been introduced into different high pressure acid leach autoclave
installations over the past two years.
We
are
currently in discussions with a potential distributor that has the capability
to
test and qualify our thermal spray products, fund the development of new
products and market the same. The distributor is currently testing two of
our
products. We believe the market for each TSGP product may be 2-5 tons annually
in the near term with possible growth to as much as 20-30 tons per product
annually in the future.
Our
thermal spray grade powders are protected by U.S. Patent titled, “Processing
aqueous titanium chloride solutions to Ultrafine titanium dioxide”, which
expires in 2020. We have also been issued a U.S. Patent titled “Process for
making nano-sized zirconia” which expires on November 2, 2021.
Nanosensors
Program
In
September 2003, we entered into an agreement with Western Michigan University
(“WMU”) to provide research services and materials to support research involving
a technology used in the detection of chemical, biological and radiological
agents. The teaming/research agreement with WMU, funded by the Department
of
Energy (“DOE”), provided for total payments to Altair of $356,500 over a
two-year period. In September 2004, the DOE awarded a stage 2 contract for
the
project under which we will continue joint development work for the design,
synthesis and characterization of nanosensors for chemical, biological and
radiological agents. Altair will receive an additional $672,000 over the
two-year term of the stage 2 contract. WMU and Altair have a teaming agreement
partnership for seeking Federal support for nanotechnology research and
development and will utilize the new grant funding equally.
In
the
fiscal year 2006 congressional direction, Altair was awarded $2.5 million
for
DOE research grants using our nanoparticle technology. Of this amount, $1
million will be committed to the continuance of the nanosensor project with
WMU
and most of the remainder will be utilized in the development and testing
of
battery materials. We expect that contracts for the nanosensor project will
be
in place by mid-2006 and we anticipate that prototype hand-held sensors will
enter the development and demonstration phase in the second quarter of
2006.
Hydrogen
Generation using Solar Energy and Water
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 DOE for joint research activities related to solar
hydrogen production at a refilling station under development in Las Vegas.
The
agreement, which was effective through December 31, 2005, provided for payments
to Altair of $400,000 for research and development work utilizing nanotechnology
processes for the production and commercialization of solar-based hydrogen
technologies. In November 2005, we were notified that we will receive $750,000
under a grant award from the DOE for collaborative research and development
work
beginning October 1, 2005 and continuing through December 2006.
The
development work is expected to involve, among other tasks, enhancement of
the
solar cell to be used at the proposed refilling station. The solar cell device
converts light and water directly into hydrogen fuel in a highly efficient,
renewable and carbon-free process using photo-catalytic nano-crystalline
thin
films to gather photons of incident light and convert them into electrons
to
directly split water into its constituent elements. We expect to be able
to use
our nanomaterials synthesis technology to develop low cost processing for,
and
further improve the performance of, the thin film electrodes in these solar
cells. Our efforts will focus on iron oxide-based materials and include
development of film deposition methods and synthesis routes for the optimized
metal oxide nanomaterials.
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 novel, four-year, 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. The
DARPA
program sought to lower the cost of titanium metal and titanium metal alloys
through the use of a new process for making titanium metal (the “FFC Cambridge
Process”) and thereby enable a broader market use and lower the cost of military
applications. During the course of the contract, which has now expired, we
provided TIMET with specified quantities of feedstock materials as their
preferred supplier. We currently are seeking alternative sponsors and
partners.
According
to the AMPTIAC Quarterly, a Department of Defense-sponsored publication,
current
global production of titanium metal is approximately 50,000 tons per year
at a
market value of $600 million. AMPTIAC estimates that, due to the current
state
of manufacturing, titanium is produced at only about 1/20th of its current
potential world volume. It is widely believed that a reduction of cost in
the
manufacturing process will expand the use of titanium metal in a wider range
of
applications that include lightweight armored military vehicles, the manufacture
of automotive components and components for utility plants, oil and gas
drilling, and lightweight and durable consumer goods. Our intent is to develop
a
suitable process for making the titanium dioxide electrodes used by the FFC
Cambridge Process but not ultimately to manufacture the electrodes. We would
most likely license the technology for manufacture of the titanium dioxide
electrodes to producers of metal using the FFC Cambridge Process or their
suppliers.
We
have
been awarded one US patent protecting the catalyst and electrode structure
technologies entitled “Method for producing catalyst structures”, which expires
in 2021.
Photocatalytic
Materials
Our
proprietary high-photocatalytic nano titanium dioxide product, irradiated
by
ultraviolet light, accelerates eradication of most airborne bacteria, viruses,
mold, spores and fungi. Ultraviolet light has long been used in hospitals
and
other critical environments to kill bacteria, viruses and other contaminants
and
its benefits are proven and well-known. The oxidizing effect produced by
ultraviolet light and Altair’s nano titanium dioxide converts chemical and
biological contaminants into benign elements - carbon dioxide, water vapor
and
other materials.
Altair
has sold its high-photocatalytic nano titanium dioxide product for use in
air
cleaning devices manufactured and distributed by Genesis Air, Inc. (“Genesis
Air”). The Genesis Air device is being tested in dozens of poor air quality
environments including casinos, meat packing plants, military quarters, bowling
alleys and the like and is designed to simply fit into existing heating,
ventilation and air conditioning systems.
Our
Life Sciences Business
Primary
Products
RenaZorb®
Products
In
the
second quarter of 2002, we initiated research and development efforts directed
toward the utilization of nanomaterials in the pharmaceuticals industry.
In July
2002, we announced the development of a new active pharmaceutical ingredient
(“API”) for the treatment of hyperphosphatemia (elevated serum phosphate levels)
in patients undergoing kidney dialysis, as well as a new drug delivery system
using inorganic ceramic nanomaterials. This API, given the name RenaZorb,
showed
excellent capacity for phosphate removal in laboratory tests using standard
in-vitro (laboratory) procedures.
In
January 2005, we signed a license agreement with Spectrum Pharmaceuticals,
Inc.
(“Spectrum”) which grants Spectrum exclusive worldwide rights to develop, market
and sell RenaZorb. Upon signing the license agreement, Spectrum issued to
us
100,000 restricted shares of their common stock, purchased 38,314 restricted
shares of our common stock at the then current market value of $2.61 per
share,
and also paid us $100,000 in connection with the license agreement. Additional
payments by Spectrum are contingent upon the achievement of various milestones
in the testing, regulatory approval and sale of RenaZorb.
Additional,
contingent consideration under the license agreement may include the following:
|
·
|
purchases
of a specified dollar amount of common stock of the Company at
a premium
above market price upon the reaching of various milestones representing
progress in the testing and obtaining of regulatory approval
for RenaZorb;
|
|
·
|
milestone
payments upon obtaining approval to market RenaZorb from the
FDA and
similar regulatory agencies in Europe and Japan;
|
|
·
|
milestone
payments as certain annual net sales targets are reached;
|
|
·
|
royalty
payments based upon a percentage of net revenue from sales of
RenaZorb in
each country (subject to adjustment for combined products and
in other
circumstances) as long as patents applicable to that country
remain valid;
and
|
|
·
|
technology
usage payments thereafter until generic competition emerges.
|
Assuming
the testing, development and regulatory approvals of RenaZorb proceed at
the
rate reasonably expected by the Company, the aggregate value of all the
first
year payments and all potential stock premiums, milestone payments and
other
payments to the Company over the first 5-7 years of the license agreement
could
reasonably range between $9 million and $14 million. Assuming a drug containing
Renazorb receives timely regulatory approval, the market for phosphate
controlling drugs continues to grow at projected rates, and the product
becomes
a leader in the market place, the total revenues to the Company over the
life of
the license agreement could exceed $100 million.
Key
Features
RenaZorb
is a highly active, lanthanum-based nanomaterial with low intestinal solubility
and excellent in-vitro phosphate binding. Animal testing of RenaZorb has
been
conducted in dogs, cats and rats, but no human tests have yet been conducted.
Based upon our initial laboratory and animal testing, we believe that RenaZorb
may offer the following advantages over competing products:
|
·
|
Lower
dosage requirements because of better phosphate binding per gram
of drug
compared with existing or currently proposed
drugs;
|
|
·
|
Fewer
and less severe side effects because of less gassing and lower
dosage;
and
|
|
·
|
Better
patient compliance because of fewer and smaller
tablets
|
Target
Markets
Our
pharmaceutical product RenaZorb was developed to treat elevated phosphate
levels
in patients with chronic kidney disease, especially in patients with end
stage
renal disease. According to information published by AnorMED, the worldwide
market for phosphate binders for chronic renal failure patients is approximately
$400 million to $600 million annually.
Research,
Testing and Development
RenaZorb
must undergo animal and human testing and receive approval from the FDA in
the
U.S. and similar regulatory bodies in other parts of the world before it
can be
approved for marketing. Human testing typically takes 1 to 2 years and, if
merited by the results of human testing, the process of seeking U.S. regulatory
approval
typically takes between
3
and 5 years. We believe, however, that the FDA’s approval of Fosrenol, a
chemically related drug, by the FDA and other regulatory bodies may accelerate
the approval process for RenaZorb but note that timing for FDA and other
regulatory approval of drug candidates is unpredictable. Spectrum, with
technical assistance from Altair, is responsible for the clinical testing
and
other activities necessary to obtain regulatory approval of
RenaZorb.
We
have
supplied Spectrum with test quantities of RenaZorb in order to conduct in-vivo
animal testing. The
tests
were completed in September 2005 and, although we have been informed that
the
results were positive and we have received a copy of the test results, Altair
has not received the milestone payment of 100,000 shares of Spectrum
Pharmaceuticals, Inc. stock called for in the agreement. Spectrum asserts
that the milestone has not been met. In order to resolve this disagreement
and
the damage claims of both Altair and Spectrum, Altair and Spectrum entered
the
early stages of a dispute resolution process as required by our license
agreement.
In
November 2005, the respective chief executive officers of the two companies
participated in a meeting at which a total settlement of all issues in dispute
was reached. The settlement included the agreement by Spectrum to pay Altair
100,000 shares of Spectrum Pharmaceuticals, Inc. stock and an additional
40,000
shares of Spectrum Pharmaceutical, Inc. stock for payment of certain Altair
claims and rights to certain improvements made by Altair in the preparation
and
performance of lanthanum carbonate chemistries.
In
January 2006, Spectrum notified us that it would not honor the settlement
agreement reached at the November 2005 meeting. Altair and Spectrum re-initiated
the 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 and could lead to the payment or receipt of monetary
damages.
Proprietary
Rights
We
have
applied for patent protection for the manufacture of RenaZorb and a wide
range
of similar compounds for the application as an orally administered phosphate
binder for patients suffering from end stage renal disease. These patent
applications are “Rare earth metal compounds, methods of making and methods of
using the same”, “Devices for removing phosphate from biological fluids”,
“Processes for making rare earth metal oxycarbonates” and “Rare-earth metal
composites for treating hyperphosphatemia and related methods”.
Competition
Existing
phosphate binders include Tums antacid, which contains calcium carbonate,
and
also aluminum hydroxide-based products such as Gaviscon manufactured by Glaxo
Smith Kline, both of which are available over the counter, as well as Renagel
manufactured by Genzyme, which is available only by prescription. In addition,
Fosrenol, another lanthanum based active pharmaceutical agent developed by
Shire
Pharmaceuticals of the UK, received approval from the United States FDA in
October 2004.
While
over-the-counter phosphate binders are relatively inexpensive, they have
several
disadvantages. In high doses, calcium carbonate-containing phosphate binders
such as Tums may cause increased blood pressure and increased risk of
cardiovascular disease and is generally not recommended for long-term use
by
dialysis patients. With prolonged use, aluminum hydroxide-based phosphate
binders, such as Gaviscon, may cause toxic neurological effects and are
generally avoided by physicians. Aluminum dementia has been widely reported
in
kidney dialysis patients using these products.
The
prescription phosphate binder Renagel is relatively expensive (approximately
$2,800 per patient per year), has a high dosage requirement (2 x 800 mg or
4 x
400 mg capsules/tablets or more three times per day) and water intake is
required. The most common side effects related to the use of Renagel include
nausea (7% of patients), constipation (2% of patients), diarrhea (4% of
patients), gas or bloating (4% of patients) and heartburn or indigestion
(5%
patients).
Fosrenol
is marketed as large chewable tablets with a proposed dosage of 1.5 to 3.0
grams
active drug per day. As with all medicines, Fosrenol has some side effects,
primarily associated with the gastrointestinal system including bloating,
GI
upset and vomiting. It has been reported that the use of Fosrenol increases
serum lanthanum levels compared with levels in patients taking a placebo.
RenaZorb, which is nanotechnology based, is expected to be developed in a
tablet
dosage form with a projected dosage of 0.6 to 3.0 grams API per day. Although
we
have done no human testing on RenaZorb, we believe RenaZorb has the potential
for fewer side effects, lower cost and better patient compliance. We base
these
possible advantages upon in vitro testing conducted by Altair in which RenaZorb
was compared to lanthanum carbonate tetrahydrate (“LCTH”), the API in Fosrenol.
Our in vitro testing showed that RenaZorb binds 30% more phosphate per gram
of
drug than LCTH, therefore requiring a lower dose. Lower dose often correlates
well with a reduction of observed side effects in chemically related compounds.
In all animal testing conducted on RenaZorb, which to date included three
separate testing protocols, no adverse side effects were reported. In all
testing, RenaZorb was administered to the animals by mixing the drug with
the
food they eat. In no case was there any reduction in the amount of food the
animals consumed when RenaZorb was mixed with the food. The drug appears
to be
tasteless.
Both
RenaZorb and Fosrenol involve the binding of phosphate by lanthanum compounds.
In fact, the end product of the binding mechanism is identical; lanthanum
phosphate is the product formed. Based on laboratory tests conducted by Altair
comparing RenaZorb with LCTH, the API in Fosrenol, RenaZorb RZB 012, one
of the
two drug candidates, required 30% less drug to bind the same amount of phosphate
and shows less lanthanum going into solution in simulated stomach fluid at
various pH values. In addition, in Altair’s testing, using methods published by
AnorMed, RenaZorb reacts with phosphate more rapidly. In 20 minute simulated
stomach acid tests conducted by Altair, RenaZorb absorbed approximately 140
mg
of
phosphate and LCTH absorbed approximately 60 mg of phosphate.
Renalan
During
2004, we recognized that companion animals (cats and dogs), like humans,
also
suffer from hyperphosphatemia during chronic renal failure. We determined
that
this condition could be treated with similar chemistry to RenaZorb, so we
initiated a project to develop a similar product. We have named this potential
product Renalan. The RenaZorb licensing agreement with Spectrum applies only
to
the human market, thus leaving us free to license the chemistry into the
animal
health market. We are actively pursuing a partner to license the product
and
supply this to the companion animal market. The product could be sold either
as
a drug candidate requiring regulatory approval, or it could be marketed as
a
food supplement which potentially would provide a faster route to market.
There
is no currently established product on the market to specifically address
hyperphosphatemia in animals; however a new over-the-counter product called
Epakitin has just been released in the United States which appears to target
the
complaint.
Key
Features
Renalan
is a highly-active, lanthanum-based nanomaterial with low intestinal solubility
and excellent in-vitro phosphate binding. Animal testing of RenaZorb/Renalan
has
been conducted in dogs, cats and rats. Based upon our initial laboratory
and
animal testing, we believe that Renalan may offer the following
benefits:
|
·
|
Specifically
targeted to address hyperphosphatemia in companion
animals
|
|
·
|
Palatable
with manageable regime
|
|
·
|
Can
be administered in powder form which can be mixed with the pet’s
food
|
Target
Markets
Renalan
was developed to treat elevated phosphate levels in animals with chronic
kidney
disease (CKD). According to information published in the Textbook of Veterinary
Internal Medicine by Stephen J. Ettinger, DVM and Edward C. Feldman, DVM,
the
dog CKD population is variously estimated at between 0.5% and 7% of population,
resulting in a worldwide CKD population of between 0.75 million and 10.5
million
dogs. They go on to state that the cat CKD population is estimated at between
1.6% and 20% of total population, resulting in a worldwide CKD population
of
between 2.8 million and 35 million cats. Using the rest of the data in their
textbook and average life expectancy curves yields a worldwide cat CKD
population of approximately 4.2 million and a dog CKD population of about
1.2
million.
Research,
Testing and Development
Renalan
could be marketed either as a drug or as a food supplement. As a drug, the
product would enter an FDA approval process that would be expected to take
two
years to complete; however timing for FDA and other regulatory approval of
drug
candidates is unpredictable. As a food supplement the product requires no
regulatory approval, and so has the potential to be in the market more rapidly
than as a drug; however, we would be unable to make certain effectiveness
claims
if it were marketed as a food product. Any future animal health company partner
would determine the marketing strategy for the product, and therefore the
level
of additional testing required before the product can enter the market. We
are
in discussions with various animal health companies regarding future development
of Renalan.
Proprietary
Rights
We
have
filed one U.S. patent application for this product entitled “Compositions and
methods for treating hyperphosphatemia in domestic animals”. Additionally,
Renalan
is a compound very similar to RenaZorb and is protected by the patent
applications discussed under “RenaZorb” above.
Competition
There
are
no well established products on the market that specifically target
hyperphosphatemia in companion animals. In late 2005, Vetoquinol, a French
animal health company, released Epakitin in the US. Vetoquinol positions
Epakitin as a
chitosan-based phosphate binder and uremic reducer for chronic kidney disease
in
dogs and cats. The product has not been on the market long enough to determine
its market strength.
Secondary
Products and Research and Development Projects in Progress
TiNano®
Spheres
Our
proposed chemical delivery system involves depositing active chemicals on
or
inside hollow spheres made of titanium dioxide and other metal oxide materials,
including nanomaterials.
Because
of the early stage of development of this chemical delivery system, we are
unable to state with any certainty how (or if) such a delivery system would
be
used and, if used, what the uses for such system would be and what the
comparative advantages, side effects and other aspects of such a delivery
system
would be. Nevertheless, we believe that the following uses of a
nanomaterials-based chemical delivery system are feasible:
|
·
|
New
delivery forms for existing drugs;
|
|
·
|
Delivery
methods for new drugs;
|
|
·
|
Enhanced
delivery of hard to dissolve drugs;
|
|
·
|
Delivery
of sustained release drugs; and
|
|
·
|
Delivery
of dual action drugs
|
Altair’s
hollow sphere structures may be able to deliver active chemicals or drugs
in a
sustained release fashion because the active component could be “mounted” on
both the outside surface and inside the hollow ball structure. The dissolution
and availability of the surface-mounted active component would likely be
different than the active component inside the hollow spheres. Material inside
the hollow structure will possibly be released more slowly compared to
surface-mounted material.
An
additional feature of Altair’s nanomaterials-based hollow structures is that two
different active substances could be mounted, one inside the hollow spheres
and
another on the surface. This allows the possibility for dual action
pharmaceuticals to be developed using this technology.
During
2005, we started early investigation of the potential of TiNano Spheres by
engaging in collaborative research projects with other companies. This research
is at an early stage, and it is premature to determine the market potential
for
this technology.
We
have
filed two patent applications regarding this field including: (1)
“Pharmaceutical composition and structure containing rare earth porous
particles” and (2) “Pharmaceutical composition with controlled surface
area.”
Dental
Materials
During
2005, we engaged a potential commercial partner to determine market suitability
for dental materials utilizing our nano-sized zirconia. We expect the results
from this research during 2006 and at that time we will be able to determine
market potential.
Government
Regulation and Environmental Concerns
Government
Regulation
Most
of
our current and proposed activities are subject to a number of federal, state,
and local laws and regulations concerning machine and chemical safety and
environmental protection. Such laws include, without limitation, the Clean
Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, and
the
Comprehensive Environmental Response Compensation Liability Act. Such laws
require that we take steps to, among other things, maintain air and water
quality standards, protect threatened, endangered and other species of wildlife
and vegetation, preserve certain cultural resources, and reclaim exploration,
mining and processing sites.
Compliance
with federal, state, or local laws or regulations represents a small part
of our
present budget. If we fail to comply with any such laws or regulations, however,
a government entity may levy a fine on us or require us to take costly measures
to ensure compliance. Any such fine or expenditure may adversely affect our
development.
We
are
committed to complying with and, to our knowledge, are in compliance with,
all
governmental regulations. We cannot predict the extent to which future
legislation and regulation could cause us to incur additional operating
expenses, capital expenditures, and/or restrictions and delays in the
development of our products and properties.
Environmental
Regulation and Liability
Any
proposed processing operation at our main operating facility in Reno, Nevada
or
any other property we use will be subject to federal, state, and local
environmental laws. In addition, our cleanup efforts on the Tennessee mineral
property have been, and will continue to be, subject to such environmental
laws.
Under such laws, we may be jointly and severally liable with prior property
owners for the treatment, cleanup, remediation, and/or removal of substances
discovered at any other property used by us, to the extent the substances
are
deemed by the federal and/or state government to be toxic or hazardous
("Hazardous Substances"). Courts or government agencies may impose liability
for, among other things, the improper release, discharge, storage, use,
disposal, or transportation of Hazardous Substances. We use Hazardous Substances
in our testing and operations and, although we employ reasonable practicable
safeguards to prevent any liability under applicable laws relating to Hazardous
Substances, companies engaged in materials production are inherently subject
to
substantial risk that environmental remediation will be required.
Financial
Information about Segments and Foreign Sales
Information
with respect to assets, net sales, loss from operations and depreciation
and
amortization for the performance materials and life sciences segments is
presented in Note 14, Business Segment Information, of Notes to Consolidated
Financial Statements in Part IV.
Information
with respect to foreign and domestic sales and related information is presented
in Note 14, Business Segment Information, of Notes to Consolidated Financial
Statements in Part IV.
Subsidiaries
Altair
Nanotechnologies Inc. was incorporated under the laws of the province of
Ontario, Canada in April 1973 under the name Diversified Mines Limited, which
was subsequently changed to Tex-U.S. Oil & Gas Inc. in February 1981, then
to Orex Resources Ltd. in November 1986, then to Carlin Gold Company Inc.
in
July 1988, then to Altair International Gold Inc. in March 1994, then to
Altair
International Inc. in November 1996 and then to Altair Nanotechnologies Inc.
in
July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated from
the
Ontario Business Corporations Act to Canada’s federal corporate statute, the
Canada Business Corporations Act.
Altair
US
Holdings, Inc. was incorporated by Altair in December 2003 for the purpose
of
facilitating a corporate restructuring and consolidation of all U.S.
subsidiaries under a U.S. holding company. At the completion of the corporate
restructuring, Fine Gold, MRS and Altair Nanomaterials, Inc. were direct
wholly-owned subsidiaries of Altair US Holdings, Inc., while Tennessee Valley
Titanium, Inc. remained a wholly-owned subsidiary of MRS.
Fine
Gold
was acquired by Altair in April 1994. Fine Gold has earned no operating revenues
to date. Fine Gold acquired the intellectual property associated with the
Altair
jig, a fine particle separation device for use in minerals processing, in
1996.
Altair intends that Fine Gold will hold and maintain jig technology rights,
including patents.
MRS
was
incorporated by Altair in April, 1987 and was formerly known as Carlin Gold
Company. MRS previously has been involved in the exploration for minerals
on
unpatented mining claims in Nevada, Oregon and California. All mining claims
have now been abandoned. MRS currently holds, directly or indirectly, all
of
Altair’s interest in the Tennessee mineral property, where we formerly held
mineral leases on approximately 14,000 acres. We have terminated the mineral
leases on all but approximately 1,300 acres as of December 31, 2005 and will
terminate these remaining leases as soon as possible. The wholly-owned
subsidiary of MRS, Tennessee Valley Titanium, does not have any assets or
operations.
Altair
Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned subsidiary
of MRS
and holds all of the Company’s interest in our nanomaterials and titanium
dioxide pigment technology and related assets.
Corporate
History
Altair
Nanotechnologies Inc. was incorporated under the laws of the Province of
Ontario, Canada in April 1973 for the purpose of acquiring and exploring
mineral
properties. It was redomesticated in July 2002 from the Business Corporations
Act (Ontario) to the Canada Business Corporations Act, a change which causes
Altair to be governed by Canada's
federal corporate statute.
The
change reduced the requirement for resident Canadian directors from 50% to
25%
of the board of directors, which gives us greater flexibility in selecting
qualified nominees to our board.
During
the period from inception through 1994, we acquired and explored multiple
mineral properties. In each case, sub-economic mineralization was encountered
and the exploration was abandoned.
Since
1996, we have leased mineral property near Camden, Tennessee and owned the
rights to the Altair jig. However, we are
disposing of the Tennessee mineral properties and limiting our expenditures
on
our centrifugal jig to patent maintenance expenses.
In
November 1999, we acquired all the rights of BHP Minerals International,
Inc.
(“BHP”)
in the
nanomaterials and titanium dioxide pigment technologies and the nanomaterials
and titanium dioxide pigment assets from BHP. We are employing the nanomaterials
and titanium dioxide pigment technology as a platform for the sale of contract
services, intellectual property licenses and for the production and sale
of
metal oxide nanoparticles in various applications.
We have experienced an operating loss in every year of operation. In the
fiscal
year ended December 31, 2005, we experienced a net loss of
$9,937,212.
Employees
The
business of Altair is currently managed by Dr. Alan J. Gotcher, President
and
Chief Executive Officer of the Company, Mr. Edward Dickinson, Chief Financial
Officer, Mr. Douglas Ellsworth, Senior Vice President, Dr. Bruce Sabacky,
Vice
President of Research and Engineering and Mr. Roy Graham, Senior Vice President.
We have 56 additional regular employees and one full-time temporary employee
in
research and development. We have employment agreements with Messrs. Gotcher,
Dickinson, Ellsworth, Sabacky and Graham.
During
2006, we may hire up to 25 additional employees, primarily in research and
development and
operations. Such additional hiring, if it occurs, will be dependent upon
business conditions.
Available
Information
The
Company files annual, quarterly and current reports and other information
with
the SEC. These materials can be inspected and copied at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of these
materials may also be obtained by mail at prescribed rates from the SEC’s Public
Reference Room at the above address. Information about the Public Reference
Room
can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an
Internet site that contains reports, proxy and information statements, and
other
information regarding issuers that file electronically with the SEC. The
address
of the SEC’s Internet site is www.sec.gov.
The
Company makes available, free of charge on its Internet website located at
www.altairnano.com,
its
most recent Annual Report on Form 10-K, its most recent Quarterly Report
on Form
10-Q, any current reports on Form 8-K filed since the Company’s most recent
Annual Report on Form 10-K and any amendments to such reports as soon as
reasonably practicable following the electronic filing of such report with
the
SEC. In addition, the Company provides electronic or paper copies of its
filings
free of charge upon request.
Forward-looking
Statements
This
Form 10-K contains various forward-looking statements. 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. When considering such forward-looking statements,
you should keep in mind the risk factors noted in Item 1A and other cautionary
statements throughout this Form 10-K and our other filings with the Commission.
You should also 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. If one
or more risks identified in this Form 10-K or any other applicable filings
materializes, or any other underlying assumptions prove incorrect, our actual
results may vary materially from those anticipated, estimated, projected,
or
intended.
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 $10,481,853 in 2005 and $6,904,955 in 2004.
We
will
continue to experience a net operating loss until, and if, 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
significant 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 intellectual
proprietary 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 our proprietary
intellectual property 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.
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
RenaZorb.
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 RenaZorb, 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
RenaZorb and
applies for and receives marketing approval from the FDA and similar regulatory
agencies worldwide, begins marketing products containing RenaZorb 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 RenaZorb 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 RenaZorb
for
technical, political or other reasons or, even if it obtains such
approval, may not obtain such approval on a timely
basis;
|
|
·
|
products
containing RenaZorb 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 RenaZorb;
|
|
·
|
the
arbitration currently ongoing (see Item 3, Legal Proceedings) could
seriously delay commercialization of RenaZorb:
and
|
|
·
|
prior
to or following regulatory approval, superior products may be developed
and introduced into the market.
|
If
any of
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
lithium titanate spinel, with potential application in the rechargeable battery
market, has not been commercialized and may not generate significant
revenue.
We
are
still testing and developing our lithium titanate spinel nanomaterial
technology, which has potential applications in rechargeable batteries. Although
we have entered a partnering agreement with Advanced Battery Technologies,
Inc.
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.
We have
not entered into written partnering or development agreements with any other
battery manufacturers or end users. Even if Advanced Battery 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;
|
|
·
|
marketing
and branding efforts by us, a potential strategic partner or others
may be
insufficient to attract a sufficient number of customers;
and
|
|
·
|
competitors
may have developed, or be in the process of developing, batteries
or
materials that are better suited to our target markets than batteries
using our materials.
|
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 our 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 was due and
paid
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
March 3, 2006, we had approximately $19.5 million in cash, an amount sufficient
to fund our ongoing operations for approximately 2-3 years
at
current working capital expenditure levels.
However, we may use our existing capital sooner than projected in connection
with capital expenditures, transactions, litigation or other events that
are not
currently reflected in our projections. 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 mineral property that we leased in Tennessee. Under such laws,
we may
be jointly and severally liable with prior property owners 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, Edward Dickinson,
our Chief Financial Officer, Douglas Ellsworth and Roy Graham, our Senior
Vice
Presidents and Dr. 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 have key man insurance on the lives of Dr. Gotcher
and Dr. Sabacky. We do not have agreements requiring any of our key personnel
to
remain with our company.
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 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.
We
have a substantial
number of warrants and options outstanding and may issue a significant number
of
additional shares upon exercise thereof.
As
of
March 3, 2006, there were outstanding warrants to purchase up to 1,318,556
shares of common stock and options to purchase up to 2,541,200 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.
The
market price of our common stock may increase or decrease dramatically at
any
time for any or no 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 product developments, 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; and
|
|
·
|
Economic
and other external market factors, such as a general decline in
market
prices due to poor economic indicators or investor
distrust.
|
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.
None
Our
corporate headquarters is located at 204 Edison Way, Reno, Nevada 89502 in
a
building we purchased in August 2002. Our nanomaterials and titanium dioxide
pigment assets are located in this building which contains approximately
80,000
square feet of production, laboratory, testing and office space. We have
pledged
our corporate headquarters and associated land to secure a promissory note
we
issued to BHP Minerals International, Inc. in the amount of $3,000,000, at
an
interest rate of 7%. The first payment of $600,000 of principal plus accrued
interest on such promissory note was due and paid February 8, 2006.
In
addition, we lease 4,744 square feet of office and laboratory space
in the
Flagship Enterprise Center Building located at 2701 Enterprise Drive in
Anderson, Indiana. The
space
is used for the production of prototype batteries and battery cells. The
lease
was entered into in October 2005 for an initial term of three years with
the
option for subsequent one-year renewals. Total
rent for the leased premises, including normal utilities, real estate taxes
and
common area fees is scheduled to be $7,907 per month during the first year
(increasing to $8,302 per month during the second year and $8,697 per month
during the third year). This rent is net of a 20% rent subsidy offered by
local
government entities. In exchange for that rent subsidy, the Company has agreed
that operations conducted at the leased premises will remain in Madison County,
Indiana for at least three years after the expiration of the three-year subsidy
period. In addition to the government rent subsidy, Landlord has authorized
a
$100,000 rental credit, the net effect of which is to giving the Company
free
rent during the first year of the Lease.
We
also
maintain a registered office at 360 Bay Street, Suite 500, Toronto, Ontario
M5H
2V6. We do not lease any space for, or conduct any operations out of, the
Toronto, Ontario registered office.
We
believe that the existing offices and test facilities of Altair and its
subsidiaries are adequate for our current needs. In the event that alternative
or additional office space is required, we believe we could obtain additional
space on commercially acceptable terms.
As
mentioned above in Subsidiaries,
we have
terminated the mineral leases on all but approximately 1,300 acres of our
Tennessee mineral property and intend to terminate the remaining leases as
soon
as possible. Remediation work on the 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. Future remediation costs are not expected
to be significant.
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.
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. The Company accepted an Offer of Judgment against Mr. Moerck, where
he
agreed that he breached his Employee Confidential Information and Inventions
Agreement and he has complied with all terms of the Offer of Judgment, including
the return of all Company Confidential Information. This suit has now officially
been concluded.
On
July 29, 2005, the Company was served with a
complaint in the matter of Louis Schnur v. Al Moore, Altair Nanotechnologies,
Inc. and Does 1 through 10, filed in the U.S. District court, Central District
of California. 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. On
February 23, 2006, The Company announced that the lawsuit titled Louis Schnur
v.
Al Moore, Altair Nanotechnologies Inc. and Does 1 through 10 filed on or
about
July 26, 2005, has been dropped by Mr. Schnur with prejudice and without
any
monetary remuneration to Mr. Schnur. Also, Mr. Schnur, Mr. Moore and Altair
Nanotechnologies Inc. have signed a Mutual Agreement that there will be no
additional lawsuits pertaining to the allegations made in the Louis Schnur
v. Al
Moore, Altair Nanotechnologies, and Does 1 through 10 suit. Additionally
the
Mutual Agreement prevents any lawsuit or claim over anything that has occurred
or any allegations made prior to the signing of the Mutual Agreement. The
Company reiterates that Altairnano management had not breached its fiduciary
duties to its shareholders and that the lawsuit was completely without merit.
This suit has now officially been concluded without any finding of wrongdoing
by
Altair and with no monetary award or settlement made to Mr. Schnur.
The
Company and Spectrum Pharmaceuticals, Inc. (“Spectrum”) are parties to an
arbitration arising out of a License Agreement between the parties. After
Altair
notified Spectrum of several claims it had for compensation under the Agreement,
Spectrum formally initiated the arbitration by filing its claims
for unspecified breach of contract damages on September 30, 2005. The
Company answered by denying all of Spectrum’s claims for relief and bringing
counterclaims of its own, including specific performance of a milestone payment
for 100,000 shares of Spectrum common stock. On November 28, 2005, the chief
executive officers of the parties and their counsel met and reached an oral
settlement agreement that, despite Spectrum's claims for $2,000,000 in
unspecified damages, resolved all issues in the arbitration without
any payment of funds by either company and a payment to Altair of 40,000
shares of Spectrum stock. The oral agreement was reduced to writing by the
parties’ legal counsel, but Spectrum has refused to sign the written agreement.
Spectrum now continues to seek monetary damages based upon alleged breaches
of
the License Agreement. The Company is requesting that the arbitration panel
enforce the parties’ oral settlement agreement, or, in the alternative, dismiss
all of Spectrum’s claims and award the Company damages in its
counterclaims.
The
arbitration is occurring under the auspices of the American Arbitration
Association (“AAA”). The AAA has appointed a three-person panel of arbitrators,
and has stated that the arbitration will take place in Irvine, California.
No
proceedings have yet occurred in front of the AAA panel. Because the arbitration
is in its early stages, the likelihood of an unfavorable outcome and an estimate
of the amount or range of potential loss is not known.
We
did
not submit any matters to a vote of security holders during the fourth quarter
of the 2005 fiscal year.
Market
Price
Our
common shares are traded on the Nasdaq Capital Market under the symbol "ALTI."
The following table sets forth, for the periods indicated, the high and low
sales prices for our common shares, as reported on our principal trading
market
at the time.
|
Fiscal
Year Ended December 31, 2004
|
Low
|
|
High
|
|
1st
Quarter
|
$2.20
|
|
$4.40
|
|
2nd
Quarter
|
$2.05
|
|
$3.58
|
|
3rd
Quarter
|
$0.95
|
|
$2.37
|
|
4th
Quarter
|
$1.50
|
|
$3.17
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2005
|
Low
|
|
High
|
|
1st
Quarter
|
$1.93
|
|
$6.52
|
|
2nd
Quarter
|
$2.53
|
|
$4.38
|
|
3rd
Quarter
|
$2.40
|
|
$3.40
|
|
4th
Quarter
|
$1.93
|
|
$2.82
|
The
last
sale price of our common shares, as reported on the Nasdaq Capital Market
on
March 3, 2006, was $3.65 per share.
Outstanding
Shares and Number of Shareholders
As
of
March 3, 2006, the number of common shares outstanding was 59,352,519 held
by
approximately 500 holders of record. In addition, as of the same date, we
have
reserved 3,606,000 common shares for issuance upon exercise of options that
have
been, or may be, granted under our employee stock option plans and 1,318,556
common shares for issuance upon exercise of outstanding warrants.
Dividends
We
have
never declared or paid cash dividends on our common shares. Moreover, we
currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying any dividends on our common shares in
the
foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We
have
stock option plans administered by the Board of Directors that provide for
the
granting of options to employees, officers, directors and other service
providers of the Company. All option plans have been approved by security
holders. The following table sets forth certain information with respect
to
compensation plans under which equity securities are authorized for issuance
at
December 31, 2005:
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
Plan
Category
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
2,533,200
|
$2.69
|
3,568,000
|
Equity
compensation plans not approved by security
holders
|
None
|
N/A
|
None
|
Total
|
2,533,200
|
$2.69
|
3,568,000
|
Recent
Sales of Unregistered Securities
Except
as
previously reported, we did not sell any securities in transactions that
were
not registered under the Securities Act in the quarter ended December 31,
2005.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common shares is Equity Transfer Services,
Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario, M5H
4C3.
Canadian
Taxation Considerations
Dividends
paid on common shares owned by non-residents of Canada are subject to Canadian
withholding tax. The rate of withholding tax on dividends under the Income
Tax
Act (Canada) (the "Act")
is
25%. However, Article X of the reciprocal tax treaty between Canada and the
United States of America (the "Treaty")
generally limits the rate of withholding tax on dividends paid to United
States
residents to 15%. The Treaty further generally limits the rate of withholding
tax to 5% if the beneficial owner of the dividends is a U.S. corporation
which
owns at least 10% of the voting shares of the Company.
If
the
beneficial owner of the dividend carries on business in Canada through a
permanent establishment in Canada, or performs in Canada independent personal
services from a fixed base in Canada, and the shares of stock with respect
to
which the dividends are paid is effectively connected with such permanent
establishment or fixed base, the dividends are taxable in Canada as business
profits at rates which may exceed the 5% or 15% rates applicable to dividends
that are not so connected with a Canadian permanent establishment or fixed
base.
Under the provisions of the Treaty, Canada is permitted to apply its domestic
law rules for differentiating dividends from interest and other
disbursements.
A capital gain realized on the disposition of common shares by a person resident
in the United States ("a
non-resident")
will
be subject to tax under the Act if the shares held by the non-resident are
"taxable Canadian property." In general, common shares will be taxable Canadian
property if the particular non-resident used (or in the case of a non-resident
insurer, used or held) the Common Stock in carrying on business in Canada
or
where at any time during the five-year period immediately preceding the
realization of the gain, not less than 25% of the issued and outstanding
shares
of any class or series of shares of the Company, which were listed on a
prescribed stock exchange, were owned by the particular non-resident, by
persons
with whom the particular non-resident did not deal at arms' length, or by
any
combination thereof. If common shares constitute taxable Canadian property,
relief nevertheless may be available under the Treaty. Under the Treaty,
gains
from the alienation of common shares owned by a non-resident who has never
been
resident in Canada generally will be exempt from Canadian capital gains tax
if
the shares do not relate to a permanent establishment or fixed base which
the
non-resident has or had in Canada, and if not more than 50% of the value
of the
shares was derived from real property (which includes rights to explore for
or
to exploit mineral deposits) situated in Canada.
The
following table sets forth selected consolidated financial information with
respect to the Company and its subsidiaries for the periods indicated. The
data
is derived from financial statements prepared in accordance with accounting
principles generally accepted in the United States (“U.S.
GAAP”).
The
selected financial data should be read in conjunction with the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and accompanying notes
included herein. All amounts are stated in U.S. dollars.
For
the Year Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,806,535
|
|
$
|
1,151,892
|
|
$
|
72,851
|
|
$
|
253,495
|
|
$
|
42,816
|
|
Operating
expenses
|
|
$
|
(13,288,388
|
)
|
$
|
(8,056,847
|
)
|
$
|
(5,858,061
|
)
|
$
|
(8,110,206
|
)
|
$
|
(6,064,348
|
)
|
Interest
expense
|
|
$
|
(207,189
|
)
|
$
|
(194,180
|
)
|
$
|
(454,415
|
)
|
$
|
(1,151,388
|
)
|
$
|
(1,881,077
|
)
|
Interest
income
|
|
$
|
750,306
|
|
$
|
96,229
|
|
$
|
1,879
|
|
$
|
2,105
|
|
$
|
148,980
|
|
Gain
(Loss) on foreign exchange
|
|
$
|
1,524
|
|
$
|
626
|
|
$
|
(193
|
)
|
$
|
(835
|
)
|
$
|
(402
|
)
|
Loss
on extinguishment of debt
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(914,667
|
)
|
$
|
-
|
|
Net
Loss
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
$
|
(9,921,496
|
)
|
$
|
(7,754,031
|
)
|
Basic
and diluted net loss per common share
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
$
|
(0.40
|
)
|
$
|
(0.39
|
)
|
Cash
dividends declared per common share
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
21,482,766
|
|
$
|
7,663,264
|
|
$
|
3,565,039
|
|
$
|
(204,365
|
)
|
$
|
(81,154
|
)
|
Total
assets
|
|
$
|
33,464,016
|
|
$
|
15,547,021
|
|
$
|
11,659,754
|
|
$
|
8,914,405
|
|
$
|
10,853,243
|
|
Current
liabilities
|
|
$
|
(2,427,543
|
)
|
$
|
(376,773
|
)
|
$
|
(397,141
|
)
|
$
|
(604,503
|
)
|
$
|
(714,689
|
)
|
Long-term
obligations
|
|
$
|
(2,400,000
|
)
|
$
|
(2,880,311
|
)
|
$
|
(2,686,130
|
)
|
$
|
(3,905,040
|
)
|
$
|
(1,462,060
|
)
|
Net
shareholders' equity
|
|
$
|
(28,636,473
|
)
|
$
|
(12,289,937
|
)
|
$
|
(8,576,483
|
)
|
$
|
(4,404,862
|
)
|
$
|
(8,676,494
|
)
|
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Overview
We
are a
Canadian company, with principal assets and operations in the United States,
whose primary business is developing and commercializing nanomaterial 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:
|
o
|
The
marketing and licensing 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. Development of this product
is largely
inactive as we seek a business
partner.
|
|
·
|
Air
and Water Treatment
|
|
o
|
The
development, production and sale of photocatalytic materials for
air and
water cleansing.
|
|
o
|
The
marketing of
Nanocheck products for phosphate binding to prevent or reduce algae
growth
in recreational and industrial
water.
|
|
o
|
The
development, production and sale of nano-structured lithium titanate
spinel, lithium cobaltate and lithium manganate spinel materials
for high
performance lithium ion batteries.
|
|
o
|
The
design and development of power lithium ion battery cells, batteries
and
battery packs as well as related design and test services.
|
|
o
|
The
development of materials for photovoltaics and transparent electrodes
for
hydrogen generation and fuel cells.
|
|
·
|
Lanthanum
based 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
testing 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
disease.
|
|
·
|
Chemical
Delivery Products
|
|
o
|
The
development of TiNano Spheres, 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
implants, dental fillings and dental products, as well as biocompatible
coatings on implants.
|
We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
Our
revenues have been, and we expect them to continue to be, generated by license
fees, product sales, commercial collaborations and contracts and grants.
We
currently have agreements in place to (1) provide research involving a
technology used in the detection of chemical, biological and radiological
agents, (2) license and evaluate our pigment production process for the
production of titanium dioxide pigment
and pigment-related products from titanium-bearing oil sands, (3) supply
nano-sized anode and cathode materials for design and development of high
capacity lithium ion battery and super capacitor applications, and (4) provide
research utilizing nanotechnology processes for the production and
commercialization of solar-based hydrogen technologies. In addition, we have
entered into a licensing agreement for RenaZorb, our potential pharmaceutical
product, and we have made product sales consisting principally of battery
materials and thermal spray products. Future revenues will depend on the
success
of our contracted projects, the results of our other research and development
work, the success of the RenaZorb licensee
in obtaining FDA approval for the drug, and the success of our marketing
efforts
with respect to both product sales and technology licenses.
General
Outlook
We
have
generated net losses in each fiscal year since incorporation. In fiscal 2005,
we
generated our first licensing revenues when we licensed RenaZorb to Spectrum.
Revenues from product sales, commercial collaborations and contracts and
grants
increased significantly in 2005 but operating expenses also increased as
we
added employees and committed additional funds to our customer contracts,
battery initiative, pigment process technology and sales and marketing efforts.
Our
gross
profit margins on customer contracts for research and development work are
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,
manufacturing, product sales and other sources. We expect our advanced battery
materials to be a source of such higher-margin revenues. Consequently, during
2005, we greatly expanded the scope of our battery initiative by (1) hiring
thirteen highly qualified advanced battery scientists, engineers, manufacturing
and marketing specialists, (2) leasing office, laboratory and production
space
in Indiana, and (3) acquiring test and production
equipment.
As
we
attempt to significantly expand our revenues from licensing, manufacturing,
sales and other sources, some of the key near-term events that will affect
our
long term success prospects include the following:
|
·
|
We
must continue the development work on our advanced battery materials,
produce sufficient quantities of batteries and battery cells for
test
purposes, obtain satisfactory test results and successfully market
the
materials. Toward that end, we have hired additional employees,
are
constructing test and production facilities and are purchasing
equipment.
Our intent is to initially market our battery materials to the
automotive
industry where we must be able to demonstrate to prospective customers
that our lithium battery materials offer significant advantages
over
existing technologies.
|
|
·
|
Spectrum
must begin the testing and application processes necessary to receive
FDA
approval of our RenaZorb product. Animal testing of RenaZorb was
completed
in September 2005 and, although we have been informed that the
results
were positive and we have received a copy of the test results,
Altair has
not received the milestone payment of 100,000 shares of Spectrum
Pharmaceuticals, Inc. stock called for in the agreement. Altair
and
Spectrum entered the early stages of a dispute resolution process
as
required by our license agreement. This process will likely delay
the
product development process and our receipt of our next milestone
payment.
|
|
·
|
Licensing
and product purchase commitments for our Nanocheck swimming pool
product
are currently under discussion. Successful completion of potential
license
agreement(s) and product purchase commitments are essential for
the
commercialization of the Nanocheck product, which could bring
manufacturing and licensing revenue in 2006.
|
|
·
|
The
initial phase of work for the Western Oil Sands license agreement
has been
expanded and will run through December 31, 2006. We must successfully
complete the initial phase, and Western Oil Sands must decide to
proceed
with phase 2 work for this project to continue to move toward
commercialization.
|
|
·
|
In
April 2005, we entered into a joint venture with Bateman Engineering
NV
(“Bateman”) to combine our hydrochloride pigment process technology with
Bateman’s engineering, design and construction expertise. The joint
venture, Altair-Bateman Titania, Inc., will offer customers an
integrated
resource for technology development, engineering, design and construction
of pigment processing projects. We anticipate that the joint venture
will
be funded entirely by Altair and Bateman, with each having equal
shareholding and Altair having voting control. We expect to make
a
significant capital investment in the venture and, in order to
recover our
investment, we must be successful in licensing the pigment process
technology.
|
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.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Our
cash
and short-term investments increased from $7,357,843 at December 31, 2004
to
$23,054,074 at December 31, 2005. In early February 2005, the market price
of
our common shares increased significantly. As a result, 2,839,281 warrants
and
379,000 options were exercised, resulting in cash proceeds to us of $4,903,487.
During the remainder of 2005, additional warrants and stock options were
exercised, resulting in additional cash proceeds of $1,753,980. Additionally,
on
February 14, 2005, we sold 5,000,000 of our common shares which had been
previously registered in a shelf registration for net proceeds to us of
approximately $19.3 million.
We
intend
to use these funds for working capital, capital expenditures, research and
development activities and the acquisition of other technologies. Net cash
used
in operations was $7,833,268 in 2005, and we expect this amount to remain
approximately the same in 2006. We currently have contracts in place that
are
expected to generate approximately $1,453,000 of revenues in 2006, and we
expect
to substantially add to this amount by entering into new contracts and
increasing product sales. However, this increase in revenues will be dependent
on our ability to secure customer contracts and successfully market our
Nanocheck,
thermal spray, battery material and other products.
Cash outflows will increase in 2006 due primarily to staff additions, operating
expense increases and increased capital expenditures. During
2005, we began making significant expenditures for our battery initiative,
added
staff and equipment for the manufacture of nanoparticle products and increased
our sales and marketing efforts. In 2006, we intend to significantly increase
spending for the battery initiative and pigment process development. We
estimate
that
our current cash and short-term investments balance is sufficient to support
our
operations for approximately 2-3 years at projected revenue and expenditure
levels.
Historically,
we have financed operations primarily through the issuance of equity securities
(common shares, convertible debentures, stock options and warrants) and by
the
issuance of debt. In light of our recent public offering of securities, we
do
not presently have any plans to pursue additional debt or equity financing
during 2006 but reserve the right to do so if deemed necessary in connection
with an unexpected business opportunity or need. We
do not
have any commitments with respect to future financing and may, or may not,
be
able to obtain such financing on reasonable terms, or at all. We have a single
note payable in the principal amount of $3,000,000 that does not contain
any
restrictive covenants with respect to the issuance of additional debt or
equity
securities by Altair. The first principal payment of $600,000 plus accrued
interest was due and paid on February 8, 2006. Future payments of principal
and
interest are due annually on February 8, 2007 through 2010.
Capital
Commitments and Expenditures
The
following table discloses aggregate information about our contractual
obligations including notes payable, mineral lease payments, contractual
service
agreements, facilities lease payments and unfulfilled purchase orders, and
the
periods in which payments are due as of December 31, 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*
|
|
|
86,386
|
|
|
81,586
|
|
|
4,800
|
|
|
-
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
789,631
|
|
|
777,131
|
|
|
12,500
|
|
|
-
|
|
|
-
|
|
Facilities
Leases
|
|
|
206,872
|
|
|
31,626
|
|
|
175,246
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
1,208,662
|
|
|
1,208,662
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
5,816,551
|
|
$
|
2,804,005
|
|
$
|
1,686,546
|
|
$
|
1,326,000
|
|
$
|
-
|
|
*
Although we expect to terminate all mineral leases as soon as is
practicable, the obligations are included here because they are
not yet
terminated.
|
The
major
capital expenditures during 2005 were $1,480,000 for construction of dry
rooms
and purchase of equipment for the battery initiative, $356,000 for equipment
for
the UNLV solar hydrogen project, $275,000 for production equipment, $198,000
for
pigment production equipment, $113,000 for new accounting software and network
equipment and $106,000 for equipment for the WMU nanosensor project. At December
31, 2005, we had $1,195,000 of outstanding commitments for capital additions,
of
which approximately 90% are for the battery initiative.
Critical
Accounting Policies and Estimates
Management
based the following discussion and analysis of our financial condition and
results of operations 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, stock-based compensation, revenue recognition,
overhead allocation, allowance for doubtful accounts and deferred income
tax. 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 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 them, and a building. Included
in these long-lived assets are those that relate to our research
and
development process. These assets are initially evaluated for
capitalization based on Statement of Financial Accounting Standards
("SFAS") No. 2, Accounting
for Research and Development Costs.
If the assets have alternative future uses (in research and development
projects or otherwise), they are capitalized when acquired or constructed;
if they do not have alternative future uses, they are expensed
as
incurred. At
December 31, 2005, the carrying value of these assets was $8,746,543,
or
26% 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 three 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 Accounting Principles Board (“APB”) Opinion No. 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 Notes to Consolidated
Financial Statements, 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 (“SFAS 123R”) that
eliminates the alternative of applying the intrinsic value measurement
provisions of APB 25. We are required to adopt SFAS 123R 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 service has been performed, the fee is
fixed and
determinable, and collectibility is probable. During 2005, our
revenues were derived from four sources: license fees, commercial
collaborations, contract research and development and product sales.
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.
|
|
·
|
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 overheads 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.
|
|
·
|
Deferred
Income Tax. Income taxes are accounted for using the asset and
liability
method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to
be
recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in
the period
that includes the enactment date. Future tax benefits are subject to
a valuation allowance when management is unable to conclude that
its
deferred income tax assets will more likely than not be realized
from the
results of operations. The Company has recorded a valuation
allowance to reflect the estimated amount of deferred income tax
assets
that may not be realized. The ultimate realization of deferred
income tax
assets is dependent upon generation of future taxable income during
the
periods in which those temporary differences become deductible.
Management
considers projected future taxable income and tax planning strategies
in
making this assessment. Based on the historical taxable income
and
projections for future taxable income over the periods in which
the
deferred income tax assets become deductible, management believes
it more
likely than not that the Company will not realize benefits of these
deductible differences as of December 31, 2005. Management has,
therefore, established a full valuation allowance against its net
deferred
income tax assets as of December 31,
2005.
|
Results
of Operations
Fiscal
Year 2005 vs. 2004
Revenues
increased by $1,654,643 in 2005 over 2004, while operating expenses increased
by
$5,231,541. As a result, our loss from operations increased by $3,576,898,
from
$6,904,955 in 2004 to $10,481,853 in 2005.
In
January 2005, we licensed Renazorb to Spectrum and received $695,000 of license
revenues, the first license revenues received by Altair.
Contract
and grant revenues increased from $591,890 in 2004 to $1,136,439 in 2005,
principally as a result of billings under an agreement with the University
of
Nevada, Las Vegas Research Foundation that was entered into in November 2004.
Revenues in connection with this agreement increased by approximately $460,000
from 2004 to 2005.
Commercial
collaborations revenues increased from $552,499 in 2004 to $825,723 in 2005
due
to increased billings to Western Oil Sands for design and construction of
a
pilot plant and increased staff time spent on the project.
Product
sales increased from $7,503 in 2004 to $149,373 in 2005 as a result of sales
of
battery materials and thermal spray materials.
Research
and development (“R&D”)
expense increased by $2,884,328, from $2,189,150 in 2004 to $5,073,478 in
2005.
We made a significant resource commitment to the battery initiative project
beginning in early 2005 and in addition, during the fourth quarter of 2005,
we
hired thirteen employees with extensive scientific, engineering, manufacturing
and marketing experience in the battery industry. As a result, expenditures
for
the battery initiative increased by $1,298,660 in 2005. We also increased
our
commitment to pigment process technology development with a resulting increase
in expenditures of $256,914. Expenditures for contract and grant work increased
primarily as a result of new grants received in late 2004 and in 2005.
Expenditures under the National Science Foundation grant for development
of
advanced battery materials increased by $121,388 in 2005, expenditures under
the
UNLV Research Foundation grant for development of solar hydrogen generation
cells increased by $170,412 and expenditures under the Western Michigan
University grant for development of nanosensors increased by $59,690 in 2005.
The scope of work under phase 1 of the Western Oil Sands contract was expanded
in 2005 and we also constructed a pilot plant for the project. As a result,
charges under the contract increased by $256,050 in 2005. In April 2005,
we
entered into a joint venture with Bateman Engineering NV to promote the
development of the pigment process technology and we incurred $136,403 of
expenses during the year in connection with the venture. The remaining increase
in R&D expenditures of approximately $584,000 was incurred for management,
facilities, equipment and other support functions for R&D.
Sales
and
marketing expenses increased by $1,204,544, from $335,221 in 2004 to $1,539,765
in 2005. The increase is due to payment of a $500,000 fee to RBC Capital
Markets
in connection with the RenaZorb licensing agreement, increased payroll expense
resulting from the addition of five new employees and increased business
development activities.
General
and administrative expenses increased by $944,892, from $4,626,562 in 2004
to
$5,571,454 in 2005. Consulting costs incurred to comply with the Sarbanes-Oxley
Act increased by $632,010 in 2005; legal fees associated with patent work
and
general corporate matters increased by $454,485; stock option compensation
expense and deferred compensation expense associated with restricted stock
issuances, both non-cash items, increased by $390,566; rents paid for additional
laboratory space increased by $156,000; utilities increased by $68,106 due
primarily to increased production and R&D activity; payroll expense
increased by approximately $100,000 due mainly to staff additions and increased
labor overhead costs and recruiting, and relocation expense increased by
$96,902
as a result of staff additions. These increases were partially offset by
a
decrease in investor relations expense of $687,709 resulting from a
cutback
in our investor relations programs, and a decrease in general consulting
of
$260,587.
Interest
income increased by $654,077, from $96,229 in 2004 to $750,306 in 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.
Fiscal
Year 2004 vs. 2003
Our
revenues increased significantly from $72,851 in 2003 to $1,151,892 in 2004
as a
result of new customer contracts we entered into under which we provided
research and development work on a variety of projects.
Cash
used
in operations increased by $1,615,302 from $4,004,805 in 2003 to $5,620,108
in
2004 due to increased R&D and general and administrative (“G&A”)
expenses. We added staff in R&D in order to meet the workload created by new
customer contracts and we added staff in G&A primarily to meet the
requirements of the Sarbanes-Oxley Act. Other increases in these expenses
are
discussed below.
Operating
losses increased from $5,785,210 in 2003 to $6,904,955 in 2004. Although
revenues increased significantly in 2004, this increase was more than offset
by
increases in R&D and G&A expenses.
Revenues
from commercial collaborations increased by $524,803, from $27,696 in 2003
to
$552,499, in 2004. Revenues in 2003 were derived from two customers. In late
2003 and during 2004, we entered into new contracts which generated the
substantial increase in revenues. Our commercial collaborations included
projects to (1) provide
custom oxide feedstocks for a titanium metal research program funded by the
Department of Defense, (2) license and evaluate our pigment production process
for the production of titanium dioxide pigment
and pigment-related products from titanium-bearing oil sands, (3) develop
advanced aerospace materials, and (4) evaluate our pigment production process
for the production of titanium dioxide pigment from titanium-bearing
minerals.
Revenues
from contracts and grants increased by $555,337, from $36,553 in 2003 to
$591,890, in 2004. We had one customer contract in place during the last
half of
2003, and we entered into two additional contracts during 2004. Our contracts
and grants revenues were generated by projects to (1) provide research involving
a technology used in the detection of chemical, biological and radiological
agents, (2) supply nano-sized anode and cathode materials for design and
development of high capacity lithium ion battery and super capacitor
applications, and (3) provide research utilizing nanotechnology processes
for
the production and commercialization of solar-based hydrogen
technologies.
Increased
customer contract work was the primary driver behind the increase in R&D
expenses in 2004. R&D labor costs increased by $339,410 in 2004 due to the
addition of four R&D employees, the cost of temporary employees doing
R&D work, salary increases for existing employees and an increase in the
cost of employee benefit plans. RenaZorb development expenses increased by
$157,300 in 2004 as a result of animal testing, laboratory and other costs.
Out-of-pocket costs for customer projects increased by $220,819 in 2004 due
to
the increase in the amount of customer contract work being done. These increases
were partially offset by a decrease in stock option expense allocable to
R&D
of approximately $264,000 as a result of a reduction in value of repriced
stock
options. Repriced stock options are revalued at each reporting date based
on the
market price of our common shares on that date. Any increase or decrease
in the
value of the options is recorded in the accounts. We also experienced a decrease
in development expenses for other products of approximately $60,000 and a
decrease in minerals R&D of approximately $224,000. During
2004, our
board
of directors made the decision to dispose of the Tennessee mineral properties.
In accordance with this, we began terminating the mineral leases and prepared
plans for remediation of the property and sale of the pilot plant. As of
December 31, 2004, we had terminated the mineral leases on 4,750 acres out
of a
total of approximately 8,700 acres originally under lease.
Sales
and
marketing expenses increased by $120,843, from $214,378 in 2003 to $335,221
in
2004, primarily as a result of additional labor costs for time spent on sales
and marketing activities.
Our
general and administrative expenses increased by $1,825,111, from $2,801,451
in
2003 to $4,626,562 in 2004. G&A labor increased by $483,161 in 2004 due to
salary increases, employee bonuses, an increase in the cost of employee benefit
plans and the net addition of three new employees. Investor relations expenses
increased by $305,681 in 2004 as a result of increased investor relations
programs aimed at increasing investor awareness of Altair. In 2004, we incurred
an expense of $235,000, representing the value of common shares issued to
a
shareholder in connection with an agreement with a shareholder resolving
various
issues, including claims for reimbursement for payments allegedly made by
the
shareholder for and on behalf of the Company and a dispute over registration
rights of certain common shares owned by the shareholder. Consulting fees
increased by $270,000 in 2004, primarily as a result of consultants hired
to
assist with marketing and product development in both the performance materials
and life sciences divisions. Legal expenses increased by $257,467 in 2004,
due
to patent costs associated with performance materials and life sciences
products, and a settlement agreement involving a shareholder. Accounting
fees
increased by $123,897 in 2004, primarily as a result of costs associated
with
the Sarbanes-Oxley Act. General office expenses increased by $172,258 in
2004,
primarily as a result of additional purchases of office supplies and equipment
as well as higher costs for utilities, telephone, postage and printing. Director
fees and expenses increased by $108,579 in 2004 due to the addition of two
non-employee directors and an increase in the fees paid to directors. Insurance
expense increased by $64,872 in 2004 as a result of increased premiums for
liability insurance. Shareholder information expenses increased by $43,031
in
2004 due to annual report printing and mailing costs; the number of shareholders
owning our stock increased substantially in 2004. These increases were partially
offset by a decrease in stock option expense of approximately $194,000 which
occurred due to a reduction in value of repriced stock options.
Interest
expense decreased by $260,235, from $454,415 in 2003 to $194,180 in 2004.
The
decrease is due to the payoff of our note payable to Doral 18, LLC in September
2003.
Interest
income increased by $94,350, from $1,879 in 2003 to $96,229 in 2004, as a
result
of increased invested cash balances.
Not
Applicable.
Supplementary
Data
The
following Supplementary Financial Information for the fiscal quarters ended
March 31, June 30, September 30 and December 31 in each of the years 2004
and
2005 were derived from our unaudited quarterly consolidated financial statements
filed by us with the SEC in our Quarterly Reports on Form 10-Q with respect
to
such periods (except for 4th quarter data).
Supplementary
Financial Information by Quarter, 2005 and 2004
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
Year
Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,027,580
|
|
$
|
502,881
|
|
$
|
585,405
|
|
$
|
690,669
|
|
Operating
Expenses
|
|
$
|
3,325,584
|
|
$
|
2,554,426
|
|
$
|
2,939,565
|
|
$
|
4,468,813
|
|
Net
Loss
|
|
$
|
(2,245,959
|
)
|
$
|
(1,919,078
|
)
|
$
|
(2,176,826
|
)
|
$
|
(3,595,349
|
)
|
Loss
per Common Share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
139,749
|
|
$
|
154,233
|
|
$
|
346,907
|
|
$
|
511,003
|
|
Operating
Expenses
|
|
$
|
1,822,763
|
|
$
|
2,283,269
|
|
$
|
1,766,962
|
|
$
|
2,183,853
|
|
Net
Loss
|
|
$
|
(1,710,757
|
)
|
$
|
(2,154,032
|
)
|
$
|
(1,440,324
|
)
|
$
|
(1,697,167
|
)
|
Loss
per Common Share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Loss per common share is computed independently for each of the
quarters
presented. Therefore, the sum of the quarterly loss per common
share
amounts does not necessarily equal the total for the
year.
|
Financial
Statements
The
financial statements required by this Item appear on pages F-5 through F-27
of
this Form 10-K.
The
information called for by this item was previously reported on a Current
Report
on Form 8-K filed with the SEC on August 24, 2005 which discloses the
termination of our engagement of Deloitte & Touche LLP and on a Current
Report on Form 8-K filed with the SEC on September 30, 2005 which discloses
the
engagement of Perry-Smith LLP as the Company's accountants.
No
report
of Deloitte & Touche LLP on the financial statements of the Company for the
fiscal years ended December 31, 2003 or December 31, 2004 contained an
adverse
opinion or a disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope, or accounting principles.
During
the fiscal years ended December 31, 2003 and December 31, 2004, and during
the
interim period between January 1, 2005 and the date of the Form 8-K filed
on
August 24, 2005, there were no disagreements with Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreement, if not resolved
to the satisfaction of Deloitte & Touche LLP, would have caused it to make
reference to the subject matter of the disagreements in its reports. There
were
no “reportable events,” as described in Item 304(a)(1)(v) of Regulation S-K,
during the fiscal years ended December 31, 2003 and December 31, 2004,
and from
January 1, 2005 to the date of this Report.
Disclosure
Controls and Procedures.
Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted
an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”), as of December 31, 2005. Based upon this
evaluation, our chief executive officer and our chief financial officer have
concluded that, as of December 31, 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.
Internal
Control Over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934, as amended. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding
the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial
reporting includes those written policies and procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of
America;
|
|
·
|
provide
reasonable assurance that our receipts and expenditures are being
made
only in accordance with authorization of our management;
and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could
have a
material effect on our consolidated financial
statements.
|
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies
as
identified.
Our
management assessed the effectiveness our internal control over financial
reporting as of December 31, 2005. Our management’s assessment was based on
criteria for effective internal control over financial reporting described
in
“Internal Control - “Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Our management’s assessment included
an evaluation of the design of our internal control over financial reporting
and
testing of the operational effectiveness of our internal control over financial
reporting. Our management reviewed the results of its assessment with the
Audit
Committee of our Board of Directors. Based on this assessment, our management
determined that, as of December 31, 2005, we maintained effective internal
control over financial reporting.
Perry-Smith
LLP, independent registered public accounting firm, who audited and reported
on
our consolidated financial statements included in this report, has issued
an
attestation report on management’s assessment of internal control over financial
reporting. This attestation report appears on pages F-2 and F-3 of this
report.
Changes
In Internal Control Over Financial Reporting.
There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls
over
financial reporting that occurred during the fourth quarter of fiscal 2005
that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
None.
The
information required by this Item is incorporated by reference to the section
entitled “Election of Directors” in the Company’s definitive proxy statement to
be filed with the SEC.
The
information required by this Item is incorporated by reference to the section
entitled “Executive Compensation” in the Company’s definitive proxy statement to
be filed with the SEC.
The
information required by this Item is incorporated by reference to the section
entitled “Security Ownership of Certain Beneficial Owners and Management” in the
Company’s definitive proxy statement to be filed with the SEC.
The
information required by this Item is incorporated by reference to the section
entitled “Certain Relationships and Related Transactions” in the Company’s
definitive proxy statement to be filed with the SEC.
The
information required by this Item is incorporated by reference to the section
entitled “Principal Accounting Fees and Services” in the Company’s definitive
proxy statement to be filed with the SEC.
(a)
Documents
Filed
1. Financial
Statements.
The
following Consolidated Financial Statements of the Company and Auditors’ Report
are filed as part of this Annual Report on Form 10-K:
|
·
|
Report
of Independent Registered Public Accounting
Firm
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Internal Control
over
Financial Reporting
|
|
·
|
Report
of Former Independent Registered Public Accounting
Firm
|
|
·
|
Consolidated
Balance Sheets, December 31, 2005 and
2004
|
|
·
|
Consolidated
Statements of Operations for Each of the Three Years in the Period
Ended
December 31, 2005
|
|
·
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Loss for Each of the
Three Years in the Period Ended December 31,
2005
|
|
·
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the Period
Ended
December 31, 2005
|
|
·
|
Notes
to Consolidated Financial
Statements
|
2. Financial
Statement Schedule.
Not
applicable.
3.
Exhibit
List.
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
|
|
|
|
|
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 Amendment No. 1 to Annual Report on Form
10-K/A filed
with the SEC on March 10, 2005. **
|
|
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate
|
|
Incorporated
by reference to Registration Statement on Form 10-SB filed with
the SEC on
November 25, 1996. **
|
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
|
|
|
|
|
4.2
|
|
Amended
and Restated Shareholder Rights Plan dated October 15, 1999,
between the
Company and Equity Transfer Services, Inc.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on November 19, 1999. **
|
|
|
|
|
|
10.1
|
|
Altair
International Inc. Stock Option Plan adopted by shareholders
on May 10,
1996
|
|
Incorporated
by reference to the Company's Registration Statement on Form
S-8, File No.
333-33481filed with the SEC on July 11, 1997.
|
|
|
|
|
|
10.2
|
|
1998
Altair International Inc. Stock Option Plan adopted by Shareholders
on
June 11, 1998
|
|
Incorporated
by reference to the Company’s Definitive Proxy Statement on Form 14A filed
with the SEC on May 12, 1998. **
|
|
|
|
|
|
10.3
|
|
Altair
Nanotechnologies Inc. 2005 Stock Incentive Plan
|
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8, File No.
333-125863, filed with the SEC on June 16, 2005.
|
|
|
|
|
|
10.4
|
|
Installment
Note dated August 8, 2002 (re Edison Way property)
|
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February
7, 2003.
|
|
|
|
|
|
10.5
|
|
Trust
Deed dated August 8, 2002 (re Edison Way property)
|
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February
7, 2003.
|
|
|
|
|
|
10.6
|
|
Technology
License Agreement dated September 29, 2003, with Bateman Luxembourg
SA
*
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC on November 14, 2003.
|
|
|
|
|
|
10.7
|
|
License
Agreement for Altair TiO2 Pigment Technology between Altair
Nanotechnologies, Inc. and Western Oil Sands, Inc. *
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 3, 2004. **
|
|
|
|
|
|
10.8
|
|
Settlement
Agreement with Louis Schnur et al
|
|
Incorporated
by reference to the Company’s Amendment No. 2 to Registration Statement on
Form S-3, File No. 333-117125, filed with the SEC on July 30,
2004.
|
|
|
|
|
|
10.9
|
|
Employment
Agreement of Douglas Ellsworth
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC November 15, 2004.**
|
|
|
|
|
|
10.10
|
|
Employment
Agreement of Edward Dickinson
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006. **
|
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
|
|
|
|
|
10.11
|
|
Employment
Agreement of Alan J. Gotcher, Ph.D.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006.**
|
|
|
|
|
|
10.12
|
|
License
Agreement dated January 28, 2005 with Spectrum Pharmaceuticals,
Inc.*
|
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the
SEC on February 4, 2005.**
|
|
|
|
|
|
10.13
|
|
Letter
Agreement dated February 11, 2005 between the Company and Maxim
Group LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed by the
Company on
February 15, 2005. **
|
|
|
|
|
|
10.14
|
|
Subcontract
between the UNLV Research Foundation and Altair Nanomaterials,
Inc.
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC August 15, 2005. **
|
|
|
|
|
|
10.15
|
|
Lease
(Indiana Office) with Flagship Enterprise Center
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC November 14, 2005. **
|
|
|
|
|
|
21
|
|
List
of Subsidiaries
|
|
Incorporated
by reference from Item 1 of this report.
|
|
|
|
|
|
23.1
|
|
Consent
of Perry-Smith LLP
|
|
Filed
herewith.
|
|
|
|
|
|
23.2
|
|
Consent
of Deloitte & Touche LLP
|
|
Filed
herewith.
|
|
|
|
|
|
24
|
|
Powers
of Attorney
|
|
Included
in the Signature Page hereof.
|
|
|
|
|
|
31.1
|
|
Rule
13-14(a)/15d-14a Certification of Chief Executive Officer
|
|
Filed
herewith
|
|
|
|
|
|
31.2
|
|
Rule
13-14(a)/15d-154a Certification of Chief Financial Officer
|
|
Filed
herewith
|
|
|
|
|
|
32.1
|
|
Section
1350 Certification of Chief Executive Officer
|
|
Filed
herewith
|
|
|
|
|
|
32.2
|
|
Section
1350 Certification of Chief Financial Officer
|
|
Filed
herewith
|
*Portions
of this Exhibit have been omitted pursuant to Rule 24b-2, are filed
separately with the SEC and are subject to a confidential treatment
request.
**
SEC
File
No.
1-12497.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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, on March 15, 2006.
|
|
|
|
ALTAIR
NANOTECHNOLOGIES, INC. |
|
|
|
|
By: |
/s/ Alan
J.
Gotcher |
|
|
|
Alan
J.
Gotcher,
President and Chief Executive
Officer
|
Date: March 15, 2006
POWER
OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Form 10-K
has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature to this Form 10-K appears below hereby
constitutes and appoints Alan J. Gotcher and Edward Dickinson, and each of
them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form
10-K
or the amendments thereto and each of the undersigned does hereby ratify
and
confirm all that said attorney-in-fact and agent, or his substitutes, shall
do
or cause to be done by virtue hereof.
Signature
|
|
Title
|
|
Date
|
/s/
Alan J. Gotcher
Alan
J. Gotcher
|
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
March
15, 2006
|
|
|
|
|
|
/s/
Edward Dickinson
Edward
Dickinson
|
|
Chief
Financial Officer and Secretary (Principal Financial and Accounting
Officer)
|
|
March
15, 2006
|
|
|
|
|
|
/s/
Michel Bazinet
Michel
Bazinet
|
|
Director
|
|
March
15, 2006
|
|
|
|
|
|
/s/
Jon N. Bengtson
Jon
N. Bengtson
|
|
Director
|
|
March
15, 2006
|
|
|
|
|
|
/s/
James I. Golla
James
I. Golla
|
|
Director
|
|
March
15, 2006
|
|
|
|
|
|
/s/
George Hartman
George
Hartman
|
|
Director
|
|
March
15, 2006
|
|
|
|
|
|
/s/
Christopher E. Jones
Christopher
E. Jones
|
|
Director
|
|
March
15, 2006
|
|
|
|
|
|
/s/
David King
David
King
|
|
Director
|
|
March
15, 2006
|
|
Altair
Nanotechnologies Inc.
and
Subsidiaries
Consolidated
Financial Statements as of December 31, 2005 and 2004 and for Each of
the Three Years in the Period Ended December 31, 2005 and Report
of
Independent Registered Public Accounting Firm
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
|
Page |
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER
FINANCIAL REPORTING
|
F-2-F-3 |
|
|
REPORT
OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-4 |
|
|
FINANCIAL
STATEMENTS:
|
|
|
|
Consolidated
Balance Sheets, December 31, 2005 and 2004
|
F-5
|
|
|
Consolidated
Statements of Operations for Each of the Three Years in
the Period Ended December 31, 2005
|
F-6 |
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for
Each of the Three Years in the Period Ended December 31,
2005
|
F-7-F-8
|
|
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2005
|
F-9-F-10 |
|
|
Notes
to Consolidated Financial Statements
|
F-11-F-27
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Shareholders and Board of Directors
Altair
Nanotechnologies, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheet of Altair Nanotechnologies,
Inc. and subsidiaries (the "Company") as of December 31, 2005 and the related
consolidated statements of operations, changes in shareholders' equity and
comprehensive loss and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, based on our audit, the consolidated financial statements referred
to
above present
fairly, in all material respects, the consolidated financial position of
the
Company as of December
31, 2005 and the consolidated results of their operations and their cash
flows
for the year ended December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company's internal
control over financial reporting
as of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework
issued
by
the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated March 9, 2006 expressed an unqualified opinion on management's
assessment of the effectiveness
of the Company's internal control over financial reporting and an unqualified
opinion on the
effectiveness of the Company's internal control over financial
reporting.
/s/
PERRY-SMITH
LLP
Sacramento,
California
March
9,
2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Shareholders and Board of Directors
Altair
Nanotechnologies, Inc. and Subsidiaries
We
have
audited management's assessment, included in the accompanying Management's
Report
on
Internal Control Over Financial Reporting, that Altair Nanotechnologies,
Inc.
and subsidiaries
(the "Company") maintained effective internal control over financial reporting
as of December
31, 2005, based on criteria established in Internal
Control—Integrated Framework issued
by
the
Committee of Sponsoring Organizations of the Treadway Commission (the "COSO
criteria"). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness
of the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting
was
maintained in
all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control,
and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for
our
opinion.
A
company's internal control over financial reporting is a process designed
to
provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. A company's
internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of
the company; (2) provide reasonable assurance that transactions are recorded
as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America,
and
that receipts and expenditures of the company are being made only in accordance
with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention
or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to
the
risk that controls may become inadequate because of changes in conditions,
or
that the degree of
compliance with the policies or procedures may deteriorate.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
(Continued)
In
our
opinion, management's assessment that the Company maintained effective internal
control
over financial reporting as of December 31, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the COSO criteria.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company
as of December 31, 2005, and the related consolidated statements of operations,
changes in shareholders' equity and comprehensive
loss, and cash flows for the year then ended and our report dated March 9,
2006
expressed
an unqualified opinion.
Sacramento,
California
March
9,
2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Altair
Nanotechnologies Inc.
Reno,
Nevada
We
have
audited the accompanying consolidated balance sheet of Altair Nanotechnologies
Inc. and subsidiaries (the “Company”) as of December 31, 2004, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the years ended December 31, 2004 and 2003. These financial statements
are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all
material
respects, the financial position of the Altair Nanotechnologies Inc. and
subsidiaries as of December 31, 2004, and the results of their operations
and
their cash flows for the years ended December 31, 2004 and 2003, in conformity
with accounting principles generally accepted in the United States of
America.
/s/
DELOITTE & TOUCHE LLP
Salt
Lake
City, Utah
March
7,
2005
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Expressed
in United States Dollars)
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,264,418
|
|
$
|
7,357,843
|
|
Investment
in available for sale securities
|
|
|
20,789,656
|
|
|
-
|
|
Accounts
receivable
|
|
|
602,168
|
|
|
499,599
|
|
Prepaid
expenses and other current assets
|
|
|
254,067
|
|
|
182,595
|
|
Total
current assets
|
|
|
23,910,309
|
|
|
8,040,037
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
423,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
8,169,445
|
|
|
6,513,907
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
890,062
|
|
|
974,877
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
71,200
|
|
|
18,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
33,464,016
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
808,905
|
|
$
|
81,030
|
|
Accrued
salaries and benefits
|
|
|
709,349
|
|
|
154,558
|
|
Accrued
liabilities
|
|
|
309,289
|
|
|
141,185
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
-
|
|
Total
current liabilities
|
|
|
2,427,543
|
|
|
376,773
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
2,400,000
|
|
|
2,880,311
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
4,827,543
|
|
|
3,257,084
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Notes 7, 10 and 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
59,316,519
and 49,775,694 shares issued and
|
|
|
|
|
|
|
|
outstanding
at December 31, 2005 and December 31, 2004
|
|
|
92,126,714
|
|
|
65,505,630
|
|
Accumulated
deficit
|
|
|
(63,152,905
|
)
|
|
(53,215,693
|
)
|
Deferred
compensation expense
|
|
|
(165,336
|
)
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
(172,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
28,636,473
|
|
|
12,289,937
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
33,464,016
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Expressed
in United States Dollars)
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Revenues
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
695,000
|
|
$
|
-
|
|
$
|
-
|
|
Product
sales
|
|
|
149,373
|
|
|
7,503
|
|
|
8,602
|
|
Commercial
collaborations
|
|
|
825,723
|
|
|
552,499
|
|
|
27,696
|
|
Contracts
and grants
|
|
|
1,136,439
|
|
|
591,890
|
|
|
36,553
|
|
Total
revenues
|
|
|
2,806,535
|
|
|
1,151,892
|
|
|
72,851
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
69,489
|
|
|
1,361
|
|
|
1,731
|
|
Research
and development
|
|
|
5,073,478
|
|
|
2,189,150
|
|
|
1,961,744
|
|
Sales
and marketing
|
|
|
1,539,765
|
|
|
335,221
|
|
|
214,378
|
|
General
and administrative
|
|
|
5,571,454
|
|
|
4,626,562
|
|
|
2,801,451
|
|
Depreciation
and amortization
|
|
|
1,034,202
|
|
|
904,553
|
|
|
878,757
|
|
Total
operating expenses
|
|
|
13,288,388
|
|
|
8,056,847
|
|
|
5,858,061
|
|
Loss
from Operations
|
|
|
(10,481,853
|
)
|
|
(6,904,955
|
)
|
|
(5,785,210
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(207,189
|
)
|
|
(194,180
|
)
|
|
(454,415
|
)
|
Interest
income
|
|
|
750,306
|
|
|
96,229
|
|
|
1,879
|
|
Gain
(loss) on foreign exchange
|
|
|
1,524
|
|
|
626
|
|
|
(193
|
)
|
Total
other income (expense), net
|
|
|
544,641
|
|
|
(97,325
|
)
|
|
(452,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(9,937,212
|
)
|
|
(7,002,280
|
)
|
|
(6,237,939
|
)
|
Preferential
Warrant Dividend
|
|
|
-
|
|
|
-
|
|
|
(592,486
|
)
|
Net
Loss Applicable to Shareholders
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,830,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
57,766,557
|
|
|
48,677,283
|
|
|
36,222,026
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(Expressed
in United States Dollars)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Expense
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JANUARY 1, 2003
|
|
|
30,244,348
|
|
$
|
43,787,850
|
|
$
|
(39,382,988
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
4,404,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
64,346
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
64,346
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
903,668
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
903,668
|
|
Shares
issued under Employee Stock Purchase Plan
|
|
|
873,480
|
|
|
606,675
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
606,675
|
|
Stock
warrants issued
|
|
|
-
|
|
|
101,416
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
101,416
|
|
Preferential
warrant dividend
|
|
|
-
|
|
|
592,486
|
|
|
(592,486
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares
issued for settlement of debt
|
|
|
695,052
|
|
|
280,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
280,000
|
|
Shares
issued for interest
|
|
|
277,169
|
|
|
133,315
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133,315
|
|
Shares
issued for services
|
|
|
213,102
|
|
|
89,297
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
89,297
|
|
Exercise
of stock options
|
|
|
478,100
|
|
|
488,836
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
488,836
|
|
Exercise
of warrants
|
|
|
3,210,328
|
|
|
3,417,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,417,109
|
|
Common
stock issued
|
|
|
7,196,783
|
|
|
4,324,898
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,324,898
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(6,237,939
|
)
|
|
-
|
|
|
-
|
|
|
(6,237,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2003
|
|
|
43,188,362
|
|
|
54,789,896
|
|
|
(46,213,413
|
)
|
|
-
|
|
|
-
|
|
|
8,576,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
270,560
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
270,560
|
|
Modification
of stock options issued to employee
|
|
|
-
|
|
|
39,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,000
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
136,212
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
136,212
|
|
Shares
issued for services
|
|
|
200,000
|
|
|
413,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
413,000
|
|
Exercise
of stock options
|
|
|
561,900
|
|
|
902,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
902,109
|
|
Exercise
of warrants
|
|
|
5,825,432
|
|
|
8,954,853
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,954,853
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(7,002,280
|
)
|
|
-
|
|
|
-
|
|
|
(7,002,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2004
|
|
|
49,775,694
|
|
|
65,505,630
|
|
|
(53,215,693
|
)
|
|
-
|
|
|
-
|
|
|
12,289,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued) |
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(Expressed
in United States Dollars)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
Expense
|
|
Loss
|
|
Total
|
|
BALANCE,
DECEMBER 31, 2004
|
|
|
49,775,694
|
|
$
|
65,505,630
|
|
$
|
(53,215,693
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
12,289,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
(9,937,212
|
)
|
|
-
|
|
|
-
|
|
|
(9,937,212
|
)
|
Other
comprehensive loss, net of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(172,000
|
)
|
|
(172,000
|
)
|
Comprehensive
loss:
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,109,212
|
)
|
Modification
of stock options issued to employees
|
|
|
-
|
|
|
56,060
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
56,060
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
297,138
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
297,138
|
|
Exercise
of stock options
|
|
|
1,204,500
|
|
|
1,828,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,828,900
|
|
Exercise
of warrants
|
|
|
3,201,511
|
|
|
4,828,567
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,828,567
|
|
Issuance
of restricted stock
|
|
|
96,500
|
|
|
272,155
|
|
|
-
|
|
|
(272,155
|
)
|
|
-
|
|
|
-
|
|
Amortization
of deferred compensation expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,819
|
|
|
-
|
|
|
106,819
|
|
Common
stock issued, net of issuance
costs
of $2,081,989
|
|
|
5,038,314
|
|
|
19,338,264
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,338,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2005
|
|
|
59,316,519
|
|
$
|
92,126,714
|
|
$
|
(63,152,905
|
)
|
$
|
(165,336
|
)
|
$
|
(172,000
|
)
|
$
|
28,636,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(concluded)
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in United States Dollars)
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,034,202
|
|
|
904,553
|
|
|
878,757
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
270,560
|
|
|
64,346
|
|
Modification
of stock options issued to employees
|
|
|
56,060
|
|
|
39,000
|
|
|
-
|
|
Shares
issued for interest
|
|
|
-
|
|
|
-
|
|
|
133,315
|
|
Shares
issued for services
|
|
|
-
|
|
|
413,000
|
|
|
89,297
|
|
Issuance
of stock warrants
|
|
|
-
|
|
|
-
|
|
|
101,416
|
|
Variable
accounting on stock options
|
|
|
297,138
|
|
|
136,212
|
|
|
903,668
|
|
Securities
received in payment of license fees
|
|
|
(595,000
|
)
|
|
-
|
|
|
-
|
|
Amortization
of discount on note payable
|
|
|
119,689
|
|
|
194,182
|
|
|
181,090
|
|
Amortization
of deferred compensation expense
|
|
|
106,819
|
|
|
-
|
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
81,203
|
|
|
34,716
|
|
|
25,661
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(102,569
|
)
|
|
(486,275
|
)
|
|
119,535
|
|
Prepaid
expenses and other current assets
|
|
|
(71,472
|
)
|
|
(103,408
|
)
|
|
(56,589
|
)
|
Other
assets
|
|
|
(53,000
|
)
|
|
-
|
|
|
-
|
|
Trade
accounts payable
|
|
|
507,978
|
|
|
(4,225
|
)
|
|
(247,461
|
)
|
Accrued
salaries and benefits
|
|
|
554,791
|
|
|
56,371
|
|
|
(60,203
|
)
|
Accrued
liabilities
|
|
|
168,104
|
|
|
(72,514
|
)
|
|
100,302
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(7,833,268
|
)
|
|
(5,620,108
|
)
|
|
(4,004,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of available for sale securities
|
|
|
(27,089,656
|
)
|
|
-
|
|
|
-
|
|
Sale
of available for sale securities
|
|
|
6,300,000
|
|
|
-
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(2,466,230
|
)
|
|
(748,680
|
)
|
|
(92,400
|
)
|
Proceeds
received from sale of property and equipment
|
|
|
-
|
|
|
-
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(23,255,886
|
)
|
|
(748,680
|
)
|
|
(87,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in United States Dollars)
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of issuance costs
|
|
$
|
19,338,262
|
|
$
|
-
|
|
$
|
4,324,898
|
|
Issuance
of shares under Employee Stock Purchase Plan
|
|
|
-
|
|
|
-
|
|
|
606,675
|
|
Proceeds
from exercise of stock options
|
|
|
1,828,900
|
|
|
902,109
|
|
|
488,836
|
|
Proceeds
from exercise of warrants
|
|
|
4,828,567
|
|
|
8,954,853
|
|
|
3,417,109
|
|
Payment
of notes payable
|
|
|
-
|
|
|
-
|
|
|
(1,120,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
25,995,729
|
|
|
9,856,962
|
|
|
7,717,518
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(5,093,425
|
)
|
|
3,488,174
|
|
|
3,624,988
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
7,357,843
|
|
|
3,869,669
|
|
|
244,681
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
2,264,418
|
|
$
|
7,357,843
|
|
$
|
3,869,669
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
None
|
|
|
None
|
|
$
|
140,009
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
For
the year ended December 31, 2005:
-
We made
property and equipment purchases of $219,897 which are included in trade
accounts payable at December 31, 2005.
-
We
issued 96,500 shares of restricted stock to employees and directors having
a
fair value of $272,155 for which no cash will be received. (See Note
8).
For
the year ended December 31, 2004:
-
None
For
the year ended December 31, 2003:
-
We
issued 695,052 common shares to Doral 18, LLC in payment of $280,000 of
principal on our note payable. The conversion of the note resulted in additional
interest expense of $133,315.
-
On or
about June 2, 2003, we repriced warrants, held by a shareholder, for 796,331
common shares. The repriced warrants have an incremental fair value of
$176,472
and have been accounted for as a preferential warrant dividend.
-
In
September 2003, we entered an agreement with a shareholder wherein the
shareholder agreed to exercise 631,882 warrants that had an exercise price
of
$1.00 each. In return, we issued the shareholder 631,882 new warrants having
an
exercise price of $1.75 each. The new warrants have a fair value of $416,014
and
have been accounted for as a preferential warrant dividend.
(concluded)
See
notes
to the consolidated financial statements.
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
(Expressed
in United States Dollars)
1.
|
DESCRIPTION
OF BUSINESS AND BASIS OF
PRESENTATION
|
Description
of Business —
We are a
Canadian company, with principal assets and operations in the United States,
whose primary business is developing and commercializing nanomaterial and
titanium dioxide pigment technologies. We also provide contract research
services on select projects where we can utilize our resources to develop
intellectual property and/or new products and technology.
Principles
of Consolidation — The
consolidated financial statements include the accounts of Altair
Nanotechnologies Inc. and its subsidiaries which include (1) Altair US Holdings,
Inc., (2) Mineral Recovery Systems, Inc. (“MRS”), (3) Fine Gold Recovery
Systems, Inc. (“FGRS”), (4) Altair Nanomaterials, Inc. (“ANI”), and (5)
Tennessee Valley Titanium, Inc. (“TVT”), (collectively referred to as the
“Company”), all of which are 100% owned. All of the subsidiaries are
incorporated in the United States of America. Intercompany transactions and
balances have been eliminated in consolidation.
Basis
of Presentation — The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements for the years ended December 31, 2005, 2004 and 2003,
we
incurred net losses of $9,937,212, $7,002,280 and $6,237,939, respectively.
At
December 31, 2005 and 2004, we had stockholders’ equity of $28,636,473 and
$12,289,937, respectively.
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 continue as a going concern through
2007.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of Estimates — The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that we make estimates and assumptions that affect the reported
amounts
of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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.
Our
cash
balances are maintained in bank accounts that are insured by the Federal
Deposit
Insurance Corporation (“FDIC”) up to a maximum of $100,000. At December 31, 2005
and 2004, we had cash deposits of approximately $1.9 million and $300,000,
respectively, in excess of FDIC insurance limits.
Investment
in Available for Sale Securities (long-term) — Investments
acquired with the intent to hold for more than one year are classified as
long-term investments. 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.
Accounts
Receivable — Accounts
receivable consists of amounts due from customers for services and product
sales, net of an allowance for losses. We determine the allowance for doubtful
accounts by reviewing each customer account and specifically identifying
any
potential for loss. Management determined that all amounts due were fully
collectible as of December 31, 2005 and 2004. Accordingly, there is no allowance
for losses reflected in our financial statements. Actual losses related to
collection of accounts receivable for the years ended December 31, 2005,
2004
and 2003 were insignificant.
Property,
Plant and Equipment — Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the following
useful lives:
Furniture
and office equipment
|
|
3-7
years
|
Vehicles
|
|
5
years
|
Nanoparticle
production equipment
|
|
5-10
years
|
Building
and improvements
|
|
30
years
|
Patents
— Patents
related to the nanoparticle production technology are carried at cost and
amortized on a straight-line basis over their estimated useful lives, which
range from 14 to 17 years.
Research
and Development Expenditures —
The
costs of materials, equipment, or facilities that are acquired or constructed
for a particular research and development project and that have no alternative
future uses (in other research and development projects or otherwise) are
expensed as research and development costs at the time the costs are incurred.
Research and development expenditures related to materials and equipment
or
facilities that are acquired or constructed for research and development
activities and that have alternative future uses (in research and development
projects or otherwise) are capitalized when acquired or constructed.
Research and development expenditures, which include the cost of materials
consumed in research and development activities, salaries, wages and other
costs
of personnel engaged in research and development, costs of services performed
by
others for research and development on behalf of the company and indirect
costs
are expensed as research and development costs when incurred.
Foreign
Currency Translation — Asset
and
liability accounts, which are originally recorded in the appropriate local
currencies, are translated into U.S. dollars at year-end exchange rates.
Revenue
and expense accounts are translated at the average exchange rates for the
period. Transaction gains and losses are included in the accompanying
consolidated statements of operations. Substantially all of our assets are
located in the United States of America.
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 is 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
accordance with APB 25, we use the variable accounting method to record expense
associated with modifications of stock options issued to employees. Variable
accounting requires that changes in the intrinsic value of such modifications
be
recorded as periodic income or expense.
We
account for stock options and warrants issued to non-employees in accordance
with SFAS 123. In calculating compensation related to non-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:
|
2005
|
|
2004
|
|
2003
|
Dividend
yield
|
None
|
|
None
|
|
None
|
Expected
volatility
|
107%
|
|
61%
|
|
65%
|
Risk-free
interest rate
|
3.70%
|
|
3.17%
|
|
2.33%
|
Expected
life (years)
|
1.72
|
|
5.40
|
|
4.10
|
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:
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Net
loss applicable to shareholders, as reported
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,830,425
|
)
|
Deduct:
stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
expense
included in reported net loss applicable
|
|
|
|
|
|
|
|
|
|
|
to
shareholders, net of $0 related tax effects
|
|
|
353,198
|
|
|
445,772
|
|
|
903,668
|
|
(Add):
total stock-based employee compensation
|
|
|
|
|
|
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
|
|
|
|
|
|
method
for all awards, net of $0 related tax effects
|
|
|
(1,502,731
|
)
|
|
(1,536,945
|
)
|
|
(590,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss applicable to shareholders
|
|
$
|
(11,086,745
|
)
|
$
|
(8,093,453
|
)
|
$
|
(6,517,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
Pro
forma
|
|
$
|
(0.19
|
)
|
$
|
(0.17
|
)
|
$
|
(0.18
|
)
|
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:
|
2005
|
|
2004
|
|
2003
|
Dividend
yield
|
None
|
|
None
|
|
None
|
Expected
volatility
|
103%
|
|
61%
|
|
65%
|
Risk-free
interest rate
|
3.99%
|
|
3.55%
|
|
3.16%
|
Expected
life (years)
|
2.83
|
|
5.30
|
|
5.00
|
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.
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 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.
Overhead
Allocation —
Facilities overhead, which is comprised primarily of occupancy and related
expenses, is initially recorded in general and administrative expenses and
then
allocated to research and development based on labor costs.
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, as discussed in Note 8, were included in the
computation of diluted loss per share as they were antidilutive. Stock
options and warrants to purchase a total of 4,097,756, 7,865,431 and 14,122,431
shares of common stock were excluded from the calculations of diluted loss
per
share for the years ended December 31, 2005, 2004 and 2003,
respectively.
Accumulated
Other Comprehensive Loss — Accumulated
other comprehensive loss consists entirely of unrealized loss on the investment
in available for sale securities. The components of comprehensive loss for
the
years
ended December 31, 2005, 2004 and 2003
are as
follows:
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Net
loss
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
Unrealized
gain (loss) on investment in available
|
|
|
|
|
|
|
for
sale securities, net of taxes of $0
|
|
|
(172,000
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(10,109,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
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 income tax assets.
The
valuation allowance reduces deferred income tax assets to an amount that
represents management’s best estimate of the amount of such deferred income tax
assets that more likely than not will be realized.
Fair
Value of Financial Instruments — Our
financial instruments such as cash and cash equivalents and long-term debt,
when
valued using market interest rates, would not be materially different from
the
amounts presented in the consolidated financial statements.
Deferred
Compensation Expense —
The
issuance of restricted stock under our stock incentive plan is recorded at
its
intrinsic value 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.
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), Share-Based
Payment
(“SFAS
123R”) which eliminates the alternative of applying the intrinsic value
measurement provisions of Opinion 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
Opinion 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.
In
March
2004, the FASB Emerging Issues Task Force ("EITF") reached consensus on several
issues being addressed in EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.
The
consensus provides guidance for evaluating whether an investment is
other-than-temporarily impaired and was effective for other-than-temporary
impairment evaluations made in reporting periods beginning after June 15,
2004.
The disclosure provisions of EITF 03-1 continue to be effective for the
Company's consolidated financial statements for the year ended December 31,
2005.
On
November 3, 2005, the FASB issued FASB Staff Position ("FSP") Nos. FAS 115-1
and
FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.
This
FSP addresses the determination as to when an investment is considered impaired,
whether that impairment is other than temporary, and the measurement of an
impairment loss. This FSP also includes accounting considerations subsequent
to
the recognition of an other-than-temporary impairment and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. This FSP nullifies certain requirements
of
EITF Issue 03-1, and supersedes EITF Topic No. D-44, Recognition
of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose
Cost Exceeds Fair Value.
The
guidance in this FSP amends FASB Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
The FSP
is effective for reporting periods beginning after December 15, 2005. The
Company does not anticipate any material impact to its financial condition
or
results of operations as a result of the adoption of this guidance.
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
Accounting
Changes and Error Corrections
("SFAS
154"), which replaces Accounting Principles Board Opinions No. 20, Accounting
Changes
and SFAS
No. 3, Reporting
Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion
No. 28.
SFAS
154 provides guidance on the accounting for and reporting of accounting changes
and error corrections. It requires retrospective application to prior periods'
financial statements for changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of SFAS 154 to have a material impact
on its consolidated financial position, results of operations or cash
flows.
Reclassifications
— Certain
reclassifications have been made to prior period amounts to conform to
classifications adopted in the current year.
3.
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 Capital Market. At December 31, 2005,
their
fair value was $423,000, representing an unrealized holding loss of $172,000.
We
evaluated this investment to determine if there is an other than temporary
impairment at December 31, 2005. Our evaluation took into consideration
published investment analysis, a recent substantial increase in institutional
ownership of the investee’s common stock and other factors. Based on our
evaluation and our ability and intent to hold the investment for a reasonable
period of time sufficient for an expected recovery of fair value, we do not
consider this investment to be other than temporarily impaired at December
31,
2005.
4.
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following as of December 31, 2005 and
2004:
|
|
2005
|
|
2004
|
|
Machinery
and equipment
|
|
$
|
9,977,474
|
|
$
|
7,743,357
|
|
Building
|
|
|
2,430,952
|
|
|
2,335,979
|
|
Furniture,
office equipment & other
|
|
|
377,716
|
|
|
201,314
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,786,142
|
|
|
10,280,650
|
|
Less
accumulated depreciation
|
|
|
(4,616,697
|
)
|
|
(3,766,742
|
)
|
Total
property and equipment
|
|
$
|
8,169,445
|
|
$
|
6,513,907
|
|
Depreciation
expense for the years ended December 31, 2005, 2004, and 2003 totaled $949,387,
$818,861 and $793,077, respectively.
Patents
consisted of the following at December 31, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Patents
and patent applications
|
|
$
|
1,517,736
|
|
$
|
1,517,736
|
|
Less
accumulated depreciation
|
|
|
(627,674
|
)
|
|
(542,859
|
)
|
Total
patents and patent applications
|
|
$
|
890,062
|
|
$
|
974,877
|
|
All
patents are being amortized on a straight-line basis over their useful lives
with a
weighted
average amortization period of approximately 16.5 years. Amortization expense
was $84,815, $85,692 and $85,680 for the years ended December 31, 2005, 2004
and
2003, respectively, which represented the amortization relating to the
identified intangible assets still required to be amortized under SFAS 142.
For
each of the next five years, amortization expense relating to intangibles
is
expected to be approximately $85,000 per year.
Accrued
liabilities consisted of the following at December 31, 2005 and
2004:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
87,500
|
|
$
|
-
|
|
Accrued
use tax
|
|
|
50,866
|
|
|
2,689
|
|
Accrued
property tax
|
|
|
27,600
|
|
|
23,046
|
|
Accrued
mineral lease payments
|
|
|
77,936
|
|
|
62,153
|
|
Accrued
reclamation costs
|
|
|
20,500
|
|
|
21,607
|
|
Other
|
|
|
44,887
|
|
|
31,690
|
|
|
|
$
|
309,289
|
|
$
|
141,185
|
|
Notes
payable consisted of the following at December 31, 2005 and 2004:
|
|
2005
|
|
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
|
|
On
August
8, 2002, we entered into a purchase and sale agreement with BHP Minerals
International, Inc. (“BHP”) wherein we purchased the land, building and fixtures
in Reno, Nevada where our titanium processing assets are located. In connection
with this transaction, BHP also agreed to terminate our obligation to pay
royalties associated with the sale or use of the titanium processing technology.
In return, 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. Interest did not begin to
accrue until August 8, 2005. As a result, we imputed interest and reduced
the
face amount of the note payable by $566,763, which was then amortized to
interest expense from inception of the note 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.
8.
STOCK
OPTIONS, RESTRICTED STOCK AND WARRANTS
Stock
Options —
We have
a 1996 Stock Option Plan, a 1998 Stock Option Plan and a 2005 Stock Incentive
Plan, all administered by the Board of Directors and providing for the granting
of options to employees, officers, directors and other service providers
of the
Company. Options granted under the plans generally are granted with an exercise
price equal to the market value of a common share at the date of grant, have
five- or ten-year terms and typically vest over periods ranging from immediately
to three years from the date of grant.
Stock
option activity for the years ended December 31, 2005, 2004, and 2003 is
summarized as follows:
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Outstanding
at beginning of year
|
|
|
3,293,700
|
|
$
|
2.28
|
|
|
3,668,600
|
|
$
|
3.11
|
|
|
4,061,700
|
|
$
|
3.83
|
|
Granted
during the year
|
|
|
687,000
|
|
|
3.30
|
|
|
1,055,000
|
|
|
2.03
|
|
|
1,010,000
|
|
|
1.10
|
|
Cancelled/
Expired
|
|
|
(243,000
|
)
|
|
3.06
|
|
|
(868,000
|
)
|
|
5.31
|
|
|
(925,000
|
)
|
|
6.20
|
|
Exercised
|
|
|
(1,204,500
|
)
|
|
1.53
|
|
|
(561,900
|
)
|
|
1.61
|
|
|
(478,100
|
)
|
|
1.02
|
|
Outstanding
at end of year
|
|
|
2,533,200
|
|
$
|
2.69
|
|
|
3,293,700
|
|
$
|
2.28
|
|
|
3,668,600
|
|
$
|
3.11
|
|
Options
exercisable at year end
|
|
|
1,739,325
|
|
$
|
2.59
|
|
|
2,708,700
|
|
$
|
2.41
|
|
|
3,181,100
|
|
$
|
3.38
|
|
Weighted
average fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
granted during the year
|
|
|
|
|
$
|
2.11
|
|
|
|
|
$
|
1.15
|
|
|
|
|
$
|
0.51
|
|
The
following table summarizes information about stock options outstanding at
December 31, 2005:
|
|
Stock
Options Outstanding
|
|
Stock
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
Range
of
|
|
|
|
Contractual
|
|
Exercise
|
|
|
|
Exercise
|
|
Exercise
Prices
|
|
Shares
|
|
Life
(Years)
|
|
Price
|
|
Shares
|
|
Price
|
|
$.80
to $1.53
|
|
|
874,000
|
|
|
4.8
|
|
$
|
1.10
|
|
|
774,000
|
|
$
|
1.11
|
|
$2.00
to $2.25
|
|
|
538,000
|
|
|
4.3
|
|
|
2.18
|
|
|
309,125
|
|
|
2.17
|
|
$2.56
to $3.62
|
|
|
369,000
|
|
|
6.9
|
|
|
3.13
|
|
|
116,500
|
|
|
2.96
|
|
$4.07
to $6.125
|
|
|
752,200
|
|
|
4.1
|
|
|
4.71
|
|
|
539,700
|
|
|
4.92
|
|
|
|
|
2,533,200
|
|
|
4.8
|
|
$
|
2.69
|
|
|
1,739,325
|
|
$
|
2.59
|
|
In
March
2006, we issued 250,641 stock options to employees under the Company’s bonus
plan. These are deemed issued in 2005 and are included in pro forma compensation
under SFAS 123 in Note 2.
We
have
elected to follow the measurement provisions of APB 25, under which no
recognition of expense is required in accounting for stock options granted
to
employees and directors for which the exercise price equals or exceeds the
fair
market value of the stock at the grant date. Generally, stock options are
granted at an option price at or greater than fair market value on the date
of
grant. We recorded compensation expense, as a component of general and
administrative expense, of $297,138, $136,212 and $903,668 for stock options
that had been previously repriced and are accounted for under variable
accounting in accordance with APB 25 for the year ended December 31, 2005,
2004
and 2003, respectively. In addition, we recorded $56,060 and $39,000 as a
component of general and administrative expense for the year ended December
31,
2005 and 2004, respectively, for employee options for which the expiration
date
was extended.
We
follow
the measurement provisions of SFAS 123 for stock options issued to
non-employees. We recorded compensation expense, as a component of general
and
administrative expense, of $0, $270,560 and $64,346, for stock options granted
to non-employees for the years ended December 31, 2005, 2004, and 2003,
respectively.
Restricted
Stock — The
2005
Stock Incentive Plan provides for the granting of other incentive awards
in
addition to stock options. During the year ended December 31, 2005, the Board
of
Directors granted 96,500 shares of restricted stock under the plan with a
weighted average fair value of $2.82 per share. The shares vest over two-
or
three-year periods. Compensation cost for restricted stock is recognized
in the
financial statements on a pro rata basis over the vesting period. During
the
year ended December 31, 2005, we recorded $106,819 of compensation cost in
general and administrative expense which represented the pro rata vesting
of
restricted shares issued.
Warrants
— Warrant
activity for the years ended December 31, 2005, 2004, and 2003 is summarized
as
follows:
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
|
Outstanding
at beginning of year
|
|
|
4,571,731
|
|
$
|
1.90
|
|
|
10,453,831
|
|
$
|
1.71
|
|
|
9,170,171
|
|
$
|
1.92
|
|
Issued
|
|
|
250,000
|
|
|
5.27
|
|
|
60,000
|
|
|
2.50
|
|
|
5,331,827
|
|
|
1.31
|
|
Expired
|
|
|
(101,667
|
)
|
|
3.41
|
|
|
(116,668
|
)
|
|
3.14
|
|
|
(837,839
|
)
|
|
2.72
|
|
Exercised
|
|
|
(3,201,508
|
)
|
|
1.51
|
|
|
(5,825,432
|
)
|
|
1.54
|
|
|
(3,210,328
|
)
|
|
1.38
|
|
Outstanding
at end of year
|
|
|
1,518,556
|
|
$
|
3.17
|
|
|
4,571,731
|
|
$
|
1.90
|
|
|
10,453,831
|
|
$
|
1.71
|
|
Currently
exercisable
|
|
|
1,518,556
|
|
$
|
3.17
|
|
|
4,571,731
|
|
$
|
1.90
|
|
|
10,453,831
|
|
$
|
1.71
|
|
The
following table summarizes information about warrants outstanding at December
31, 2005:
|
|
Warrants
Outstanding
|
|
Warrants
Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
Range
of
|
|
|
|
Contractual
|
|
Exercise
|
|
|
|
Exercise
|
|
Exercise
Prices
|
|
Warrants
|
|
Life
(Years)
|
|
Price
|
|
Warrants
|
|
Price
|
|
$1.00
to $2.00
|
|
|
650,224
|
|
|
2.0
|
|
$
|
1.85
|
|
|
650,224
|
|
$
|
1.85
|
|
$2.50
to $3.50
|
|
|
343,332
|
|
|
0.9
|
|
|
3.09
|
|
|
343,332
|
|
|
3.09
|
|
$4.00
to $5.265
|
|
|
525,000
|
|
|
1.7
|
|
|
4.86
|
|
|
525,000
|
|
|
4.86
|
|
|
|
|
1,518,556
|
|
|
1.6
|
|
$
|
3.17
|
|
|
1,518,556
|
|
$
|
3.17
|
|
The
warrants were issued in conjunction with debt offerings, issuance of common
stock, and payment for outside services. To estimate costs related to the
issuance of warrants, we have used the Black-Scholes option pricing model
and
the following assumptions for warrants issued during the year ended December
31,
2005: expected life of 1.72 years, volatility of 107%, annual rate of quarterly
dividends of 0 and risk free interest rate of 3.7%. Warrant costs of $639,459
for the year ended December 31, 2005 were recorded as common stock issuance
costs. Warrants issued during the years ended December 31, 2004 and 2003
were
issued as components of equity offerings. The warrants expire on various
dates
ranging from May 2006 to February 2009.
On
February 14, 2005, we sold 5,000,000 common shares to institutional investors.
The sales were made at $4.05 per share with net proceeds to the Company,
after
expenses, of approximately $19.3 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
that the warrant has a value of $639,459; this amount was recorded as common
stock issuance costs.
On
or
about June 2, 2003, we reduced the exercise price of 796,331 warrants to
$1.00
per share. As a result of these repricings, we recorded a preferential warrant
dividend of $176,472 as of the repricing date. The warrants had been previously
issued with exercise prices ranging from $2.50 to $4.50.
In
September 2003, we entered into an agreement with a shareholder wherein the
shareholder agreed to exercise 631,882 warrants that had an exercise price
of
$1.00 each. In return, we issued to the shareholder 631,882 new warrants
having
an exercise price of $1.75 each. The new warrants have a fair value of $416,014
and were recorded as a preferential warrant dividend.
On
August
6, 2002, we adopted an Employee Stock Purchase Plan (“ESPP”) which allows
employees to purchase common shares at the fair market value through payroll
deductions. Through December 31, 2003, a total of 864,584 common shares were
issued under the ESPP at prices ranging from $0.33 to $2.10 per share. No
shares
were issued under the ESPP in 2004. The ESPP terminated on August 31,
2004.
Operating
Leases — We
lease
certain premises for office space and other corporate purposes. Operating
lease
commitments at December 31, 2005 were:
Year
ending December 31:
2006
|
$
31,626
|
2007
|
$
96,970
|
2008
|
$
78,276
|
Lease
expense for the years ended December 31, 2005, 2004, and 2003 totaled $181,549,
$28,207 and $33,239, respectively.
Because
of the net operating losses and a valuation allowance on deferred tax assets,
there was no provision for income taxes recorded in the accompanying
consolidated financial statements for each of the three years in the period
ended December 31, 2005.
A
reconciliation of the federal statutory income tax rate (35%) and our effective
income tax rates is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
Federal
statutory income taxes (benefit)
|
|
$
|
(3,478,025
|
)
|
$
|
(2,450,798
|
)
|
$
|
(2,390,649
|
)
|
Expiration
of net operating loss carryforwards
|
|
|
(61,123
|
)
|
|
-
|
|
|
-
|
|
Other,
net
|
|
|
91,109
|
|
|
3,875
|
|
|
3,821
|
|
Valuation
allowance
|
|
|
3,448,039
|
|
|
2,446,923
|
|
|
2,386,828
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
The
components of the deferred tax assets consisted of the following as of December
31, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
13,645,639
|
|
$
|
10,570,378
|
|
Basis
difference in long-lived assets
|
|
|
414,591
|
|
|
175,722
|
|
Other
|
|
|
158,271 |
|
|
- |
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
14,218,501
|
|
|
10,746,100
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Accrued
vacation
|
|
|
-
|
|
|
(35,838
|
)
|
Total
deferred tax liabilities
|
|
|
-
|
|
|
(35,838
|
)
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(14,218,501
|
)
|
|
(10,710,262
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
The
net
operating loss carryforwards total $38,942,190 as of December 31, 2005 and
will
expire at various dates as follows:
2006-2010
|
$
2,101,479
|
2011-2015
|
$
1,376,501
|
2016-2020
|
$
4,776,779
|
2021-2025
|
$30,687,431
|
Due
to
the significant increase in common stock issued and outstanding from 2003
through 2005, Section 382 of the Internal Revenue Code may provide significant
limitations on the utilization of net operating loss carryforwards of the
Company. As a result of these limitations, a portion of these loss and
credit
carryovers may expire without being utilized.
12.
COMMITMENTS
AND CONTINGENCIES
Contingencies —
The
Company is subject to claims in the normal course of business. Management,
after consultation with legal counsel, believes that liabilities, if any,
resulting from such claims will not materially effect the Company’s financial
position or results of operations.
Litigation
— We
are
currently not aware of any investigations, claims, or lawsuits which we believe
could have a material adverse effect on our consolidated financial position
or
on our consolidated results of operations.
Significant
Contracts — In
September 2003, we entered into an agreement with Western Michigan University
(“WMU”) to provide research services and materials to support research involving
a technology used in the detection of chemical, biological and radiological
agents. In
September 2004, the Department of Energy (“DOE”) awarded a stage 2 contract for
the project under which we are continuing joint development work for the
design,
synthesis and characterization of nanosensors for chemical, biological and
radiological agents. Altair will receive an additional $672,000 over the
two-year term of the stage 2 contract. Revenues of $481,519 were recorded
in
2005 under this contract as a component of contracts and grants revenues
in the
consolidated statements of operations.
In
January 2004, we entered into a license agreement with Western Oil Sands,
Inc.
with respect to its possible use of the Altair Hydrochloride Pigment Process
(“AHPP”) for the production of titanium dioxide pigment and pigment-related
products at the Athabasca Oil Sands Project in Alberta, Canada, and elsewhere.
Upon execution of the agreement, we granted Western Oil Sands an exclusive,
conditional license to use the AHPP on heavy minerals derived from oil sands
in
Alberta, Canada. The agreement also contemplates a three-phase, five-year
program pursuant to which the parties will work together to further evaluate,
develop and commercialize the AHPP. In the first phase of the program, Western
Oil Sands and Altair will evaluate the AHPP and confirm that the AHPP will
produce pigment from oil sands. Assuming phase one is successful, Western
Oil
Sands may elect to commence phase two, the construction of a demonstration
titanium pigment production facility using the AHPP. If phase two is successful,
Western Oil Sands may elect to commence phase three, the construction and
operation of a full-scale commercial titanium pigment production facility
using
the AHPP.
Revenues
of $616,515 were recorded in 2005 under this contract as a component of
commercial collaborations revenues in the consolidated statements of
operations.
In
June
2004, we were awarded a National Science Foundation grant of $100,000 to
fund
joint development work on next generation lithium ion power sources with
Hosokawa Micron’s Nanoparticle Technology Center and Rutgers University’s Energy
Storage Research Group. The grant was effective July 1, 2004 and
we
completed work under Phase I in December 2004. 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. Revenues of $162,102 were recorded in 2005 under
this contract as a component of contracts and grants revenues in the
consolidated statements of operations.
In
November 2004, we entered into an agreement with the University of Nevada,
Las
Vegas Research Foundation (“UNLVRF”) to act as a subcontractor under a
$3,000,000 grant awarded to them by the DOE for joint research activities
related to solar hydrogen production at a refilling station under development
in
Las Vegas. The agreement provides for payments to Altair of $400,000 for
research and development work utilizing nanotechnology processes for the
production and commercialization of solar-based hydrogen technologies. In
November 2005, we entered into an agreement with UNLVRF for collaborative
research and development work under a Phase III grant award from the DOE
that
provides for payments to Altair of $750,000 for work beginning October 1,
2005
and continuing through December 2006.
Revenues
of $492,818 were recorded in 2005 under this contract as a component of
contracts and grants revenues in the consolidated statements of
operations.
In
January 2005, we signed a licensing agreement with Spectrum Pharmaceuticals,
Inc. (“Spectrum”) which grants Spectrum exclusive worldwide rights to develop,
market and sell RenaZorb™. Upon signing the agreement, Spectrum issued to us
100,000 restricted shares of their common stock at the then market value
of
$5.95 per share, purchased 38,314 restricted shares of our common stock at
the
then current market value of $2.61 per share, and also paid us $100,000 in
connection with the licensing agreement. Additional payments by Spectrum
are
contingent upon the achievement of various milestones in the testing, regulatory
approval and sale of RenaZorb™. Revenues of $729,271 were recorded in 2005 under
this contract, of which $695,000 was recorded as a component of license fees
revenues in the consolidated statements of operations.
In
November 2005, we were awarded a $250,000 grant from the Indiana Advanced
Energy
Technologies Program initiative. The Indiana Energy Group, a division of
the Office of the Indiana Lieutenant Governor, administers the program. The
grant funding must be used to manufacture products containing products that
are
not currently in the U.S. market and that are above industry standard in
terms
of energy efficiency (e.g. hybrid automobiles, fuel cells) and/or incorporate
an
innovative technology, such as nanotechnology, that allows the product to
save
energy. We will use the grant funding to install production and test
equipment for product application development in our development and
manufacturing center in Anderson, Indiana. Pilot manufacturing is anticipated
to
begin by the end of the first quarter of 2006.
13.
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 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. During the year ended December 31, 2004, we paid ATG $6,000
in fees
in connection with securing a $100,000 grant from the National Science
Foundation and $4,500 in fees for consulting work in connection with product
marketing. During the year ended December 31, 2005, ATG earned $2,833 for
certain consulting services and $28,611 in connection with our National Science
Foundation Phase II grant application, which is recorded as a component of
accrued liabilities on the consolidated balance sheets at December 31,
2005.
14.
BUSINESS
SEGMENT INFORMATION
Management
views the Company as operating in two business segments: Performance Materials
and Life Sciences. The Performance Materials segment produces advanced materials
for paints, coatings, sensors, power systems, alternative energy devices
and
materials for improving process technologies. The Life Sciences segment produces
pharmaceutical products, drug delivery products and dental materials.
The
accounting policies of these business segments are the same as described
in Note
2 to the consolidated financial statements. Reportable segment data reconciled
to the consolidated financial statements as of and for the fiscal years ended
December 31, 2005, 2004, and 2003 is as follows:
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
2005:
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
2,081,764
|
|
$
|
4,418,912
|
|
$
|
933,273
|
|
$
|
7,173,902
|
|
Life
Sciences
|
|
|
724,771
|
|
|
191,149
|
|
|
5,506
|
|
|
500,914
|
|
Corporate
and other
|
|
|
-
|
|
|
5,871,793
|
|
|
95,423
|
|
|
25,789,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
2,806,535
|
|
$
|
10,481,853
|
|
$
|
1,034,202
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
1,151,892
|
|
$
|
4,475,013
|
|
$
|
839,974
|
|
$
|
5,567,685
|
|
Life
Sciences
|
|
|
-
|
|
|
250,855
|
|
|
1,307
|
|
|
104,534
|
|
Corporate
and other
|
|
|
-
|
|
|
2,179,087
|
|
|
63,272
|
|
|
9,874,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,151,892
|
|
$
|
6,904,955
|
|
$
|
904,553
|
|
$
|
15,547,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
72,851
|
|
$
|
2,771,433
|
|
$
|
809,344
|
|
$
|
5,362,003
|
|
Life
Sciences
|
|
|
-
|
|
|
51,451
|
|
|
-
|
|
|
-
|
|
Corporate
and other
|
|
|
-
|
|
|
2,962,326
|
|
|
69,413
|
|
|
6,297,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
72,851
|
|
$
|
5,785,210
|
|
$
|
878,757
|
|
$
|
11,659,754
|
|
In
the
table above, corporate and other expense in the Loss From Operations column
includes such expenses as business consulting, general legal expense, accounting
and audit, general insurance expense, non-employee and employee variable
accounting stock option compensation expense, shareholder information expense,
investor relations, and general office expense.
For
the
year ended December 31, 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 year ended December 31, 2005 and the balance of their accounts receivable
at
December 31, 2005 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
December
31, 2005
|
|
December
31, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
481,519
|
|
$
|
118,478
|
|
Western
Oil Sands
|
|
$
|
616,515
|
|
$
|
166,031
|
|
UNLV
Research Foundation
|
|
$
|
492,818
|
|
$
|
160,053
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
729,271
|
|
$
|
30,881
|
|
For
the
year ended December 31, 2004, we had sales to three major customers, each
of
which accounted for 10% or more of revenues and all of which were made in
the
performance materials business segment. Total sales to these customers for
the
year ended December 31, 2004 and the balance of their accounts receivable
at
December 31, 2004 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
December
31, 2004
|
|
December
31, 2004
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
152,550
|
|
$
|
39,382
|
|
Western
Michigan University
|
|
$
|
491,320
|
|
$
|
319,739
|
|
Western
Oil Sands
|
|
$
|
314,359
|
|
$
|
67,191
|
|
For
the
year ended December 31, 2003, we had sales to three major customers, each
of
which accounted for 10% or more of revenues and all of which were made in
the
performance materials business segment. Total sales to these customers for
the
year ended December 31, 2003 and the balance of their accounts receivable
at
December 31, 2003 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
December
31, 2003
|
|
December
31, 2003
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
9,000
|
|
$
|
-
|
|
Western
Michigan University
|
|
$
|
36,553
|
|
$
|
12,620
|
|
New
Zealand Steel
|
|
$
|
18,696
|
|
$
|
-
|
|
Revenues
for the years ended December 31, 2005, 2004 and 2003 by geographic area were
as
follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
Year
Ended
|
|
Geographic
information (a):
|
|
December
31, 2005
|
|
December
31, 2004
|
|
December
31, 2003
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
2,101,551
|
|
$
|
817,052
|
|
$
|
52,442
|
|
Canada
|
|
|
641,515
|
|
|
314,540
|
|
|
174
|
|
Other
foreign countries
|
|
|
63,468
|
|
|
20,300
|
|
|
20,236
|
|
Total
|
|
$
|
2,806,534
|
|
$
|
1,151,892
|
|
$
|
72,851
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Revenues
are attributed to countries based on location of customer.
|
|
|
|
In
January 2006, a rainstorm in the Western Nevada area caused significant flooding
in Reno, including our office and plant facility at 204 Edison Way. Although
the
interruption to our business activities was minor, we experienced damage
to our
building and certain equipment. Costs associated with the flood are expected
to
be approximately $450,000.
F-27