Form 10-Q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
|
|
1934
FOR THE QUARTERLY PERIOD ENDED MARCH
31, 2006
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
|
|
1934
FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
|
ALTAIR
NANOTECHNOLOGIES
INC.
(Exact
name of registrant as specified in its charter)
Canada
|
|
1-12497
|
|
33-1084375
|
(State
or other jurisdiction
|
|
(Commission
File No.)
|
|
(IRS
Employer
|
of
incorporation)
|
|
|
|
Identification
No.)
|
204
Edison Way
Reno,
Nevada 89502
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (775) 856-2500
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES [X]
NO
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer [ ]
|
Accelerated
filer [X]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): YES [ ] NO
[X]
As
of May 3, 2006 the registrant had 59,403,018 Common Shares
outstanding.
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,133,678
|
|
$
|
2,264,418
|
|
Investment
in available for sale securities
|
|
|
17,028,676
|
|
|
20,789,656
|
|
Accounts
receivable
|
|
|
692,664
|
|
|
602,168
|
|
Prepaid
expenses and other current assets
|
|
|
346,868
|
|
|
254,067
|
|
Total
current assets
|
|
|
19,201,886
|
|
|
23,910,309
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
469,000
|
|
|
423,000
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
9,119,988
|
|
|
8,169,445
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
868,859
|
|
|
890,062
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
21,261
|
|
|
71,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
29,680,994
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
919,653
|
|
$
|
808,905
|
|
Accrued
salaries and benefits
|
|
|
899,596
|
|
|
709,349
|
|
Accrued
liabilities
|
|
|
436,518
|
|
|
309,289
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
600,000
|
|
Total
current liabilities
|
|
|
2,855,767
|
|
|
2,427,543
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
1,800,000
|
|
|
2,400,000
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
59,380,019
and 59,316,519 shares issued and
|
|
|
|
|
|
|
|
outstanding
at March 31, 2006 and December 31, 2005
|
|
|
92,117,327
|
|
|
92,126,714
|
|
Additional
paid in capital
|
|
|
746,869
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(67,712,969
|
)
|
|
(63,152,905
|
)
|
Deferred
compensation expense
|
|
|
-
|
|
|
(165,336
|
)
|
Accumulated
other comprehensive loss
|
|
|
(126,000
|
)
|
|
(172,000
|
)
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
25,025,227
|
|
|
28,636,473
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
29,680,994
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
Revenues
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
-
|
|
$
|
695,000
|
|
Product
sales
|
|
|
8,018
|
|
|
23,108
|
|
Commercial
collaborations
|
|
|
330,270
|
|
|
96,266
|
|
Contracts
and grants
|
|
|
207,008
|
|
|
213,206
|
|
Total
revenues
|
|
|
545,296
|
|
|
1,027,580
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
1,266
|
|
|
3,546
|
|
Research
and development
|
|
|
1,948,387
|
|
|
781,535
|
|
Sales
and marketing
|
|
|
393,161
|
|
|
730,438
|
|
General
and administrative
|
|
|
2,611,304
|
|
|
1,565,435
|
|
Depreciation
and amortization
|
|
|
316,871
|
|
|
244,630
|
|
Total
operating expenses
|
|
|
5,270,989
|
|
|
3,325,584
|
|
Loss
from Operations
|
|
|
(4,725,693
|
)
|
|
(2,298,004
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(45,500
|
)
|
|
(50,700
|
)
|
Interest
income
|
|
|
211,303
|
|
|
103,276
|
|
Loss
on foreign exchange
|
|
|
(174
|
)
|
|
(531
|
)
|
Total
other income, net
|
|
|
165,629
|
|
|
52,045
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(4,560,064
|
)
|
$
|
(2,245,959
|
)
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.08
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
59,222,352
|
|
|
54,237,653
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Compen-
|
|
hensive
|
|
|
|
|
|
Common
Stock
|
|
Paid
In
|
|
Accumulated
|
|
sation
|
|
Income
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Expense
|
|
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JANUARY 1, 2006
|
|
|
59,316,519
|
|
$
|
92,126,714
|
|
$
|
-
|
|
$
|
(63,152,905
|
)
|
$
|
(165,336
|
)
|
$
|
(172,000
|
)
|
$
|
28,636,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,560,064
|
)
|
|
-
|
|
|
-
|
|
|
(4,560,064
|
)
|
Other
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46,000
|
|
|
46,000
|
|
Comprehensive
loss:
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,514,064
|
)
|
Share-based
compensation
|
|
|
-
|
|
|
101,974
|
|
|
746,869
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
848,843
|
|
Exercise
of stock options
|
|
|
27,500
|
|
|
53,975
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
53,975
|
|
Issuance
of restricted stock
|
|
|
36,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Elimination
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
expense
|
|
|
-
|
|
|
(165,336
|
)
|
|
-
|
|
|
-
|
|
|
165,336
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2006
|
|
|
59,380,019
|
|
$
|
92,117,327
|
|
$
|
746,869
|
|
$
|
(67,712,969
|
)
|
$
|
-
|
|
$
|
(126,000
|
)
|
$
|
25,025,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,560,064
|
)
|
$
|
(2,245,959
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
316,871
|
|
|
244,630
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
648,339
|
|
Securities
received in payment of license fees
|
|
|
-
|
|
|
(595,000
|
)
|
Amortization
of discount on note payable
|
|
|
-
|
|
|
50,700
|
|
Share-based
compensation
|
|
|
848,843
|
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
21,100
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(90,496
|
)
|
|
206,498
|
|
Prepaid
expenses and other current assets
|
|
|
(92,801
|
)
|
|
97,274
|
|
Other
assets
|
|
|
49,939
|
|
|
-
|
|
Trade
accounts payable
|
|
|
(12,953
|
)
|
|
193,098
|
|
Accrued
salaries and benefits
|
|
|
190,247
|
|
|
138,800
|
|
Accrued
liabilities
|
|
|
127,229
|
|
|
594,711
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(3,202,085
|
)
|
|
(666,909
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Sale
of available for sale securities
|
|
|
3,760,980
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(1,143,610
|
)
|
|
(264,710
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by investing activities
|
|
|
2,617,370
|
|
|
(264,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of
|
|
|
|
|
|
|
|
issuance
costs
|
|
$
|
-
|
|
$
|
19,320,400
|
|
Proceeds
from exercise of stock options
|
|
|
53,975
|
|
|
1,625,990
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
4,259,672
|
|
Payment
of notes payable
|
|
|
(600,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by financing activities
|
|
|
(546,025
|
)
|
|
25,206,062
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1,130,740
|
)
|
|
24,274,443
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
2,264,418
|
|
|
7,357,843
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,133,678
|
|
$
|
31,632,286
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
105,000
|
|
|
None
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
For
the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
-
We issued 36,000 shares of restricted stock to employees having a
fair
value of approximately $122,400 for which no cash will be received.
|
-
We made property and equipment purchases of $123,701 which are included
in
trade accounts payable at March 31, 2006.
|
-
We had an unrealized gain on available for sale securities of
$46,000.
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2005:
|
|
|
|
|
|
|
|
-
None
|
|
|
|
|
|
|
|
(concluded)
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. Basis of Preparation of Consolidated Financial
Statements
These
unaudited interim consolidated financial statements of Altair Nanotechnologies
Inc. and its subsidiaries (collectively, “Altair”, “we” or the “Company”) have
been prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission (the “Commission”). Such rules and
regulations allow the omission of certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, so long as the
statements are not misleading. In the opinion of Company management, these
consolidated financial statements and accompanying notes contain all adjustments
(consisting of only normal recurring items) necessary to present fairly the
financial position and results of operations for the periods shown. These
interim consolidated financial statements should be read in conjunction with
the
audited consolidated financial statements and notes thereto contained in
our Annual
Report on Form 10-K for the year ended December 31, 2005, as filed with the
Commission on March 16, 2006.
The
results of operations for the three-month period ended March 31, 2006 are not
necessarily indicative of the results to be expected for the full year.
Note
2. Summary of Significant Accounting Policies
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 March 31,
2006 and December 31, 2005, we had cash deposits of approximately $0.9 million
and $1.9 million, respectively, in excess of FDIC insurance limits.
Investment
in Available for Sale Securities (long-term) - Available
for sale securities (long-term) includes
publicly-traded equity investments which are classified as available for sale
and recorded at market using the specific identification method. Unrealized
gains and losses (except for other than temporary impairments) are recorded
in
other comprehensive income (loss), which is reported as a component of
stockholders’ equity. We evaluate our investments on a quarterly basis to
determine if a potential other than temporary impairment exists. Our evaluation
considers the investees’ specific business conditions as well as general
industry and market conditions.
Accumulated
Other Comprehensive 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
three-month periods ended March 31, 2006 and 2005 are as follows:
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
|
|
2006
|
|
2005
|
|
Net
loss
|
|
$
|
4,560,064
|
|
$
|
2,245,959
|
|
Unrealized
gain on investment in available
|
|
|
|
|
|
|
|
for
sale securities, net of taxes of $0
|
|
|
(46,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
4,514,064
|
|
$
|
2,245,959
|
|
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.
Deferred
Income Taxes - We
use
the asset and liability approach for financial accounting and reporting for
income taxes. Deferred income taxes are provided for temporary differences
in
the bases of assets and liabilities as reported for financial statement purposes
and income tax purposes. We have recorded a valuation allowance against all
net
deferred tax assets. The valuation allowance reduces deferred tax assets to
an
amount that represents management’s best estimate of the amount of such deferred
tax assets that more likely than not will be realized.
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 allocated to research and development based on labor
costs.
Net
Loss Per Common Share -
Basic
loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted loss per share is computed using
the weighted average number of common and potentially dilutive shares
outstanding during the period. Potentially dilutive shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants. Potentially dilutive shares are excluded from the computation if
their effect is antidilutive. We had a net loss for all periods presented
herein; therefore, none of the stock options and warrants outstanding during
each of the periods presented were included in the computation of diluted loss
per share as they were antidilutive.
Recent
Accounting Pronouncements
-
On
November 10, 2005, the Financial Accounting Standards Board ("FASB") issued
FASB
Staff Position No. FAS 123R-3, Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards
("FSP
123R-3"). The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool ("APIC
pool") related to the tax effects of employee stock-based compensation, and
to
determine the subsequent impact on the APIC pool and consolidated statements
of
cash flows of the tax effects of employee stock-based compensation awards that
are outstanding upon adoption of Statement of Financial Accounting Standards
No.
123 (revised 2004), Share
Based Payment, (“SFAS
123R”). We
are currently evaluating the available transition alternatives of FSP 123R-3.
We
do not believe the adoption of this FSP 123R-3 will have a material impact
on
our 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 period.
Note
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 shares of
Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock received in January
2005. Although the shares are eligible for resale under Rule 144, the Company
currently intends to hold them indefinitely. The shares were received as partial
payment of licensing fees when Spectrum entered into a license agreement for
RenaZorb. 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 March 31,
2006, their fair value was approximately $469,000, representing an unrealized
holding loss of approximately $126,000. We evaluated this investment to
determine if there is an other than temporary impairment at March 31, 2006.
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 March 31, 2006.
Note
4. Notes Payable
|
|
March
31, 2006
|
|
December
31, 2005
|
|
Note
payable to BHP Minerals
|
|
|
|
|
|
|
|
International,
Inc.
|
|
$
|
2,400,000
|
|
$
|
3,000,000
|
|
Less
current portion
|
|
|
(600,000
|
)
|
|
(600,000
|
)
|
Long-term
portion of notes payable
|
|
$
|
1,800,000
|
|
$
|
2,400,000
|
|
The
note
payable to BHP Minerals International, Inc., in the face amount of $3,000,000,
was entered into on August 8, 2002 and is secured by the property we acquired.
Interest on the note did not begin to accrue until August 8, 2005. As a result,
we imputed the interest at a rate of 11% and reduced the face amount of the
note
payable by $566,763 at the date of issuance, then amortized that amount to
interest expense from August 8, 2002 through August 8, 2005. The first payment
of $600,000 of principal plus accrued interest was due and paid February 8,
2006. Additional payments of $600,000 plus accrued interest are due annually
on
February 8, 2007 through 2010.
Note
5. Patents
Our
patents are associated with the nanomaterials and titanium dioxide pigment
technology. We are amortizing these assets over their useful lives. The
amortized patents balances as of March 31, 2006 and 2005 were:
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
Patents
and patent applications
|
|
$
|
1,517,736
|
|
$
|
1,517,736
|
|
Less
accumulated amortization
|
|
|
(648,877
|
)
|
|
(564,063
|
)
|
Total
patents and patent applications
|
|
$
|
868,859
|
|
$
|
953,673
|
|
The
weighted average amortization period for patents is approximately 16.5 years.
Amortization expense, which represents the amortization relating to the
identified amortizable patents, was $21,203 and $21,204 for the three months
ended March 31, 2006 and 2005, respectively. For each of the next five years,
amortization expense relating to patents is expected to be approximately $85,000
per year. Management believes the net carrying amount of patents will be
recovered by future cash flows generated by commercialization of the titanium
processing technology.
Note
6. Share-Based
Compensation
We
have a
stock incentive plan, administered by the Board of Directors, that provides
for
the granting of options and restricted shares to employees, officers, directors
and other service providers of the Company. Options granted under the plan
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. The total number of shares authorized to be granted under the plan is
3,000,000. Prior stock option plans, which are now terminated, authorized a
total of 6,600,000 shares, of which options for 5,745,500 were granted and
options for 2,260,200 are outstanding unexercised at March 31,
2006.
Effective
January 1, 2006, we implemented the provisions of SFAS 123R. Under the
provisions of SFAS 123R, we are required to measure the cost of services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost is recognized over the period during which
services are provided in exchange for the award, known as the requisite service
period (usually the vesting period). We have made the transition to SFAS 123R
using the modified prospective method. Under the modified prospective method,
SFAS 123R is applied to new awards and to awards modified, repurchased, or
cancelled after January 1, 2006. 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 January 1, 2006 are being
recognized over the period that the remaining requisite services are
rendered. The compensation cost relating to unvested awards at January 1,
2006 is based on the grant-date fair value of those awards. Under this method
of
implementation, no restatement of prior periods has been made.
The
estimated fair value of equity-based awards, less expected forfeitures, is
amortized over the awards’ vesting period on a straight-line basis. Share-based
compensation expense recognized in the consolidated statements of operations
for
the quarter ended March 31, 2006 related to stock options and restricted stock
was $848,843. This amount includes $180,413 related to restricted stock that
would have been included in the consolidated statements of operations under
the
provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.
We have
not recorded income tax benefits related to equity-based compensation expense
as
deferred tax assets are fully offset by a valuation allowance. The
implementation of SFAS 123R did not have a significant impact on cash flows
from
operations during the quarter ended March 31, 2006.
Stock
Options
In
calculating compensation related to 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:
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
Dividend
yield
|
|
|
None
|
|
Expected
volatility
|
|
|
93
|
%
|
Risk-free
interest rate
|
|
|
4.7
|
%
|
Expected
life (years)
|
|
|
4.67
|
|
A
summary
of the changes in stock options outstanding under our equity-based compensation
plans during the quarter ended March 31, 2006 is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term
(Years)
|
|
Value
|
|
Outstanding
at January 1, 2006
|
|
|
2,533,200
|
|
$
|
2.69
|
|
|
4.8
|
|
$
|
810,650
|
|
Granted
|
|
|
1,050,131
|
|
|
3.38
|
|
|
|
|
|
|
|
Exercised
|
|
|
(27,500
|
)
|
|
1.24
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
(34,000
|
)
|
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2006
|
|
|
3,521,831
|
|
$
|
3.02
|
|
|
6.2
|
|
$
|
3,148,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2006
|
|
|
2,341,706
|
|
$
|
3.06
|
|
|
3.6
|
|
$
|
2,380,303
|
|
The
weighted average grant date fair value of options granted during the quarter
ended March 31, 2006 was $2.33. The total intrinsic value of options exercised
during the quarter ended March 31, 2006 was $63,325.
A
summary
of the status of nonvested shares at March 31, 2006 and changes during the
quarter ended March 31, 2006 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
793,875
|
|
$
|
1.87
|
|
Granted
|
|
|
1,050,131
|
|
|
2.33
|
|
Vested
|
|
|
(657,881
|
)
|
|
2.41
|
|
Canceled/Expired
|
|
|
(6,000
|
)
|
|
1.96
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at March 31, 2006
|
|
|
1,180,125
|
|
$
|
1.98
|
|
As
of
March 31, 2006, there was $1,641,790 of total unrecognized compensation cost
related to nonvested options granted under the plans. That cost is expected
to
be recognized over a weighted average period of 1.1 years. The total fair value
of shares vested during the quarter ended March 31, 2006 was $1,582,880. Cash
received from stock option exercises was $53,975 during the quarter ended March
31, 2006.
Restricted
Stock
The
2005
Stock Incentive Plan provides for the granting of other incentive awards in
addition to stock options. During the quarter ended March 31, 2006, the Board
of
Directors granted 36,000 shares of restricted stock under the plan with a
weighted average fair value of $3.39 per share. The shares vest over a
three-year period and are subject to the employee’s continued service to the
Company. Prior to the implementation of SFAS 123R, we recorded the issuance
of
restricted stock with an offsetting entry to a contra-equity account and
amortized the balance over the vesting period. Effective January 1, 2006, we
changed our accounting method to comply with SFAS 123R and eliminated the
contra-equity account. Compensation cost for restricted stock is now recognized
in the financial statements on a pro rata basis over the vesting
period.
A
summary
of the changes in restricted stock outstanding during the quarter ended March
31, 2006 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
96,500
|
|
$
|
2.82
|
|
Granted
|
|
|
36,000
|
|
|
3.39
|
|
Vested
|
|
|
-
|
|
|
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at March 31, 2006
|
|
|
132,500
|
|
$
|
2.98
|
|
As
of
March 31, 2006, we had $164,523 of total unrecognized compensation expense,
net
of estimated forfeitures, related to restricted stock which will be recognized
over the weighted average period of 1.8 years.
Pro
Forma Information for Periods Prior to 2006
In
periods prior to the fiscal year ending December 31, 2006, we followed the
disclosure-only provisions of SFAS 123, Accounting
for Stock-Based Compensation,
(“SFAS
123”). The following table illustrates the effect on net income and earnings per
share for the quarter ended March 31, 2005 as if the fair value recognition
provisions of SFAS 123 had been applied to options granted during the
period:
|
|
Three
Months
|
|
|
|
Ended
|
|
|
|
March
31, 2005
|
|
Net
loss (basic and diluted) as reported
|
|
$
|
2,245,959
|
|
Deduct:
stock-based employee compensation expense included in
|
|
|
|
|
reported
net loss, net of income taxes of $0
|
|
|
(648,339
|
)
|
Add:
total stock-based employee compensation expense determined
|
|
|
|
|
under
fair value based method for all awards, net of income taxes of $0
|
|
|
347,036
|
|
Pro
forma net loss applicable to shareholders
|
|
$
|
1,944,656
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
As
reported
|
|
$
|
0.04
|
|
Pro
forma
|
|
$
|
0.04
|
|
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:
|
|
Three
Months
|
|
|
|
Ended
|
|
|
|
March
31, 2005
|
|
Dividend
yield
|
|
|
None
|
|
Expected
volatility
|
|
|
103
|
%
|
Risk-free
interest rate
|
|
|
3.86
|
%
|
Expected
life (years)
|
|
|
2.83
|
|
Note
7. 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. 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 quarter ended March 31, 2006, we paid ATG $7,600 in
connection with our National Science Foundation Phase II grant application
and
we accrued $18,200 for certain consulting services.
Note
8. Business Segment Information
Management
views the Company as operating in three business segments: Performance
Materials, Advanced Materials and Power Systems (“AMPS”) and Life Sciences.
Reportable segment data reconciled to the consolidated financial statements
as
of and for the three-month periods ended March 31, 2006 and March 31, 2005
is as
follows:
|
|
|
|
(Income)
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
Three
Months Ended
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
March
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
434,370
|
|
$
|
928,893
|
|
$
|
254,048
|
|
$
|
5,691,822
|
|
AMPS
|
|
|
110,926
|
|
|
887,838
|
|
|
32,814
|
|
|
2,436,236
|
|
Life
Sciences
|
|
|
-
|
|
|
136,527
|
|
|
2,353
|
|
|
598,727
|
|
Corporate
and other
|
|
|
-
|
|
|
3,317,731
|
|
|
27,656
|
|
|
20,954,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
545,296
|
|
$
|
5,270,989
|
|
$
|
316,871
|
|
$
|
29,680,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
299,247
|
|
$
|
994,179
|
|
$
|
220,897
|
|
$
|
4,992,143
|
|
AMPS
|
|
|
33,333
|
|
|
96,550
|
|
|
-
|
|
|
33,333
|
|
Life
Sciences
|
|
|
695,000
|
|
|
(604,491
|
)
|
|
2,690
|
|
|
706,739
|
|
Corporate
and other
|
|
|
-
|
|
|
1,811,766
|
|
|
21,043
|
|
|
34,402,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,027,580
|
|
$
|
2,298,004
|
|
$
|
244,630
|
|
$
|
40,134,772
|
|
In
the
table above, corporate and other expense in the (Income) Loss From Operations
column includes such expenses as investor relations, business consulting,
general legal expense, accounting and audit, general insurance expense,
shareholder information expense and general office expense.
For
the
three months ended March 31, 2006, we had sales to three major customers, each
of which accounted for 10% or more of revenues. Total sales to these customers
for the three months ended March 31, 2006 and the balance of their accounts
receivable at March 31, 2006 were as follows:
|
|
Sales
- 3 Months Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
March
31, 2006
|
|
March
31, 2006
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
279,630
|
|
$
|
253,111
|
|
UNLV
Research Foundation
|
|
$
|
80,806
|
|
$
|
53,850
|
|
|
|
|
|
|
|
|
|
AMPS
Division:
|
|
|
|
|
|
|
|
National
Science Foundation
|
|
$
|
81,406
|
|
$
|
85,489
|
|
For
the
three months ended March 31, 2005, we had sales to two major customers, each
of
which accounted for 10% or more of revenues. Total sales to these customers
for
the three months ended March 31, 2005 and the balance of their accounts
receivable at March 31, 2005 were as follows:
|
|
Sales
- 3 Months Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
March
31, 2005
|
|
March
31, 2005
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Michigan University
|
|
$
|
109,709
|
|
$
|
30,938
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
695,000
|
|
$
|
-
|
|
Revenues
for the three-month periods ended March 31, 2006 and 2005 by geographic area
were as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
3
Months Ended
|
|
3
Months Ended
|
|
Geographic
information (a):
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
United
States
|
|
$
|
212,614
|
|
$
|
931,893
|
|
Canada
|
|
|
282,802
|
|
|
95,381
|
|
Other
foreign countries
|
|
|
49,880
|
|
|
305
|
|
Total
|
|
$
|
545,296
|
|
$
|
1,027,580
|
|
|
|
|
|
|
|
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q (this “Report”) 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. Risk Factors” and other cautionary statements throughout this Report
and our other filings with the SEC. 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 Report
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.
Overview
The
following discussion summarizes the material changes in our financial condition
between December 31, 2005 and March 31, 2006 and the material changes in our
results of operations and financial condition between the three-month periods
ended March 31, 2006 and March 31, 2005. This discussion should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2005.
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 three divisions,
a
Performance Materials Division, an Advanced Materials and Power Systems 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 development-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
research and 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
research and 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,
revenues from product sales, commercial collaborations and contracts and grants
increased significantly, 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. During
2006, we will continue to make substantial battery initiative expenditures
for
the acquisition of equipment and production of batteries, battery cells and
battery packs for test and development.
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,
power tool, stationary power and military specialty battery industries
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 an arbitration 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 during 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.
Recent
Business Developments
Advanced
Materials and Power Systems Division
On
March
7, 2006, we entered into a four-year joint development agreement with Electro
Energy, Inc. (“Electro Energy”) for the design, manufacture and marketing of
high power lithium ion batteries and battery systems. Under the terms of the
agreement, Altair and Electro Energy plan to jointly develop a new generation
of
rechargeable batteries based on our advanced nano-structured electrode materials
and Electro Energy's bipolar cell design. Target markets will initially be
portable devices, including hand-held power tool applications. We believe that
the combined technologies will create a range of new lithium ion batteries
that
are expected to enable hand-held power tool manufacturers to deliver end user
products with improved functionality and cost performance. If the companies
are
successful in developing these new lithium ion battery products, power tools
using these batteries are expected to weigh less, recharge in minutes versus
hours, and have a significantly improved cycle life.
On
March
8, 2006, we entered into a two-year joint development agreement with Boshart
Engineering (“Boshart”) for the design and engineering of a full-speed electric
vehicle (EV) to be powered by an Altair rechargeable advanced lithium ion
battery system. Under the terms of the agreement, Altair and Boshart plan to
jointly develop a prototype EV utilizing Altair's battery technology and
Boshart's engineering, conversion and vehicle testing services. The
Altair-Boshart EV program is expected to include long distance drives at
conventional highway speeds, testing the EV's endurance in high altitudes and
extreme weather conditions. Road testing of the EV is expected to begin by
the
fourth quarter of 2006.
Performance
Materials Division
Thermal
Spray Grade Powders
On
March
27, 2006 we entered into a supply and distribution agreement with Sulzer Metco,
a publicly-traded Swiss company involved in the design, manufacture and supply
of thermal spray materials, equipment and integrated system solutions for the
industrial market. Under the terms of the agreement, the companies plan to
jointly select and manage the commercialization of licensed products comprising
or incorporating Altair nano-structured titanium dioxide and nano-structured
yttria stabilized zirconium oxide. The parties will also develop a five-year
marketing and distribution plan outlining projected purchase quantities,
pricing, and marketing plans for the products. When an Altair nano-structured
powder is designated to be supplied under the agreement, Sulzer Metco has the
right to be the exclusive distributor of that product in the spray coating
field
assuming that certain purchase and other commitments are met.
Life
Sciences Division
We
entered into a collaborative research, license and commercialization agreement
with the Elanco Animal Health Division of Eli Lilly and Company (“Elanco”) on
May 2, 2006. Under the terms of the agreement, Elanco has exclusive rights
to
develop animal health products using our nanotechnology-based products. Payments
may be made to us as predefined development and testing milestones are met,
including submission to the FDA, FDA approval, market introduction and product
sales. The agreement gives Altair specific rights with respect to the
manufacture of products for Elanco.
Liquidity
and Capital Resources
Current
and Expected Liquidity
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. We do not presently have any plans to pursue additional debt
or equity financing during 2006 but may do so if deemed necessary or appropriate
in light of market conditions and business needs. 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, and future payments are due
annually on February 8, 2007 through 2010.
Our
cash
and short-term investments decreased by $4,891,720, from $23,054,074 at December
31, 2005 to $18,162,354 at March 31, 2006, due primarily to the incurrence
of
operating expenses (approximately $3,200,000) purchases of property and
equipment (approximately $1,200,000) and payment of notes payable ($600,000).
During
the quarter ended March 31, 2006, our cash used in operations was $3,202,085.
Unusual or infrequently occurring payments made during the first quarter of
2006
included approximately $400,000 of facility repair costs associated with a
flood
at our Reno, Nevada headquarters and annual employee bonus payments of $418,000.
The amount of cash we use in operations is dependent on the amount and mix
of
revenues we generate. In the first quarter of 2006, revenues were $545,296,
which included $8,018 of product sales. Although we expect quarterly revenues
to
increase during the remainder of the year, and we expect product sales to become
a larger percentage of the sales mix, we cannot be certain that this will occur.
Our
objective is to manage cash expenditures in a manner consistent with rapid
product development that leads to the generation of revenues in the shortest
possible time. We believe we have adequate cash resources, and availability
of
additional capital if needed, to continue product development until
higher-margin revenues and positive cash flow can be generated.
At
May 3,
2006, we had 59,403,018 common shares issued and outstanding. As of that same
date, there were outstanding warrants to purchase up to 1,318,556 shares of
common stock and options to purchase up to 3,503,832 shares of common
stock.
Capital Commitments
We
intend to purchase equipment for both our Reno,
Nevada and Anderson, Indiana facilities for use in the development of advanced
battery materials and production of prototype batteries and battery packs.
We
expect to spend approximately $800,000 for this equipment and related facility
upgrades during the quarter ended June 30, 2006.
The
following table discloses aggregate information
about our contractual obligations and the periods in which payments are due
as
of March 31, 2006:
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Contractual
Obligations
|
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
5
Years
|
|
Notes
Payable
|
|
$
|
2,400,000
|
|
$
|
600,000
|
|
$
|
1,200,000
|
|
$
|
600,000
|
|
$
|
-
|
|
Interest
on Notes Payable
|
|
|
420,000
|
|
|
168,000
|
|
|
210,000
|
|
|
42,000
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
739,767
|
|
|
739,767
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Facilities
and Property Leases
|
|
|
277,404
|
|
|
109,742
|
|
|
167,662
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
1,224,947
|
|
|
1,224,947
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
5,062,118
|
|
$
|
2,842,456
|
|
$
|
1,577,662
|
|
$
|
642,000
|
|
$
|
-
|
|
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements at March 31, 2006.
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 taxes.
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
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
March 31, 2006, the carrying value of these assets was $9,664,740,
or 33%
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.
|
|
·
|
Share-Based
Compensation. We have a stock incentive plan which provides for the
issuance of common stock options to employees and service providers.
We
calculate compensation expense under SFAS 123R using a 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 6 of Notes to Consolidated Financial Statements, are appropriate
and
reasonable.
|
|
·
|
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. Historically, our
revenues have been 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 overhead allocated to research and
development projects may be chargeable when invoicing customers under
certain research and development
contracts.
|
|
·
|
Allowance
for Doubtful Accounts. The allowance for doubtful accounts is based
on our
assessment of the collectibility of specific customer accounts and
the
aging of accounts receivable. We analyze historical bad debts, the
aging of customer accounts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer
payment patterns when evaluating the adequacy of the allowance for
doubtful accounts. From period to period, differences in judgments
or estimates utilized may result in material differences in the amount
and
timing of our bad debt expenses.
|
|
·
|
Deferred
Income Taxes. 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
there is
insufficient basis for projecting that the Company will realize the
benefits of these deductible differences as of March 31, 2006.
Management has, therefore, established a full valuation allowance
against
its net deferred income tax assets as of March 31,
2006.
|
Results
of Operations
Three
Months Ended March 31, 2006 Compared to Three Months Ended March 31,
2005
The
net
loss for the quarter ended March 31, 2006, which was the first quarter of our
2006 fiscal year, totaled $4,560,064 ($.08 per share) compared to a net loss
of
$2,245,959 ($.04 per share) in the first quarter of 2005.
Total
revenues for the three months ended March 31, 2006 were $545,296 compared to
$1,027,580 for the same period of 2005. During
the first quarter of 2005, we recorded $695,000 of license fee revenue in
connection with the license of Renazorb to Spectrum Pharmaceuticals, Inc. There
were no comparable license fee revenues in the first quarter of 2006.
Revenues
from commercial collaborations increased by $234,004, from $96,266 in the first
quarter of 2005, to $330,270 in the first quarter of 2006. Revenues from Western
Oil Sands increased by approximately $184,000 due to the expanded scope of
the
project. In addition, we invoiced $50,000 to Avireco in connection with an
agreement to test ore samples using our pigment processing
technology.
Research
and development (“R&D”) expenses increased by $1,166,852, from $781,535 in
the first quarter of 2005 to $1,948,387 in the same quarter of 2006. Labor
and
overhead costs increased by approximately $462,000 due to the addition of 22
new
employees. Expenditures for materials, supplies and other operating costs
(exclusive of labor) for the battery initiative increased by approximately
$603,000, and other R&D operations increased by approximately
$102,000.
Sales
and
marketing expenses decreased by $337,277, from $730,438 in the first quarter
of
2005 to $393,161 in the first quarter of 2006. In the first quarter of 2005,
we
paid a $500,000 fee to RBC Capital Markets in connection with the Renazorb
licensing agreement; no comparable fees were paid in 2006. Expenses otherwise
increased due to the addition of five new employees.
General
and administrative expenses increased by $1,045,869, from $1,565,435 in first
quarter of 2005 to $2,611,304 in the first quarter of 2006. We incurred
approximately $400,000 of expenses associated with a flood at our headquarters
in Reno, Nevada in January 2006. Legal fees increased by approximately $173,000
due to an increase in patent work and general corporate matters. Share-based
compensation expense, a non-cash item, increased by approximately $201,000,
primarily as a result of implementing SFAS 123R as of January 1, 2006. Employee
additions had the effect of increasing expense by approximately $91,000, and
general corporate expenses increased by a net amount of approximately $180,000.
Interest
income increased by $108,027, from $103,276 in the first quarter of 2005 to
$211,303 in the first quarter of 2006 due to the significant increase in cash
available for investment that was generated through the sale of common shares
in
February 2005, the exercise of warrants and options in early 2005 and a higher
rate of return on invested cash.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
We
do not
have any derivative instruments, commodity instruments, or other financial
instruments for trading or speculative purposes, nor are we presently at
material risk for changes in interest rates on foreign currency exchange rates.
Item
4. Controls
and Procedures
(a) Based
on
the evaluation of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by
paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer and our
chief financial officer have concluded that, as of March 31, 2006, our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods required by governing rules and forms.
(b) There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Exchange Act
Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1A. Risk Factors
Material
Changes in Risk Factors
The
Risk
Factors set forth below do not reflect any material changes from the “Risk
Factors” identified in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 (the “Form 10-K”), except as follows: In the Form 10-K,
certain of the Risk Factors identified risks associated with a particular
agreement or project, such as our license of Renazorb to Spectrum
Pharmaceuticals, our development agreement with Advanced Battery Materials
or
our license agreement with Western Oil Sands. As we enter into additional
license, supply and collaboration agreements with our business partners, and
as
we achieve greater diversity in our product platform and the identity and type
of our business partners, we believe that it is more appropriate to identify
risks associated with a type of project or type of relationship, rather than
on
a project-by-project basis. Accordingly, the Risk Factors set forth in this
Report do not include the project-specific risk factors identified above, but
include additional Risk Factors captioned as follows:
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·
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Because
our products are generally components of end products, the viability
of
many or our products is tied to the success of third parties’ existing and
potential end products.
|
|
·
|
The
commercialization of many of our technologies is dependent upon the
efforts of commercial partners and other third parties over which
we have
no or little control.
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·
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We
will not generate substantial revenues from our life science products
unless proposed products receive FDA approval and achieve substantial
market penetration.
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·
|
As
manufacturing becomes a larger part of our operations, we will become
exposed to accompanying risks and liabilities.
|
We
have
also included immaterial edits and updates to other Risk Factors.
Risk
Factors
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 $4,725,693 in the three
months ended March 31, 2006. 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 conflicting patents or defects in our
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
|
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·
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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.
Because
our products are generally components of end products, the viability of many
or
our products is tied to the success of third parties’ existing and potential end
products.
None
of
the existing or potential products being developed with our nanomaterials and
titanium dioxide pigment technology is designed for direct use by the ultimate
end user. Phrased differently, all such products are components of other
products. For example, our lithium titanate spinel battery materials and battery
design services are designed to improve the performance of lithium ion
rechargeable batteries expected to be produced and distributed by third parties.
In turn, these batteries will be designed for use in end-user products such
as
power tools, hybrid electric vehicles and other potential products. Other
potential products and processes we and our partners are developing using our
technology, such as titanium dioxide pigments, life science materials, air
and
water treatment products, and coatings, are similarly expected to be components
of third-party products. As a result, the market for our products is dependent
upon third parties creating or expanding markets for their end-user products
that utilize our products. If such end-user products are not developed, or
the
market for such end-user products contracts or collapses, the market for our
component products would be expected to similarly contract or collapse.
The
commercialization of many of our technologies is dependent upon the efforts
of
commercial partners and other third parties over which we have no or little
control.
We
do not
have the expertise or resources to commercialize all potential applications
of
our nanomaterials and titanium dioxide pigment technology. For example, we
do
not have the resources necessary to complete the testing of, and obtain FDA
approval for, Renazorb and other potential life sciences products or to
construct a commercial facility to use our titanium dioxide pigment production
technology. Other potential applications of our technology, such as those
related to our lithium titanate spinel battery materials, coating materials
and
dental materials, are likely to be developed in collaboration with third
parties, if at all. With respect to these and substantially all other
applications of our technology, the commercialization of a potential application
of our technology is dependent, in part, upon the expertise, resources and
efforts of our commercial partners. This presents certain risks, including
the
following:
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·
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We
may not be able to enter into development, licensing, supply and
other
agreements with commercial partners with appropriate resources, technology
and expertise;
|
|
·
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Our
commercial partners may not place the same priority on a project
as we do,
may fail to honor contractual commitments, may not have the level
of
resources, expertise, market strength or other characteristic necessary
for the success of the project, may dedicate only limited resources
and/or
may abandon a development project for reasons (such as a shift in
corporate focus) unrelated to its
merits;
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·
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Our
commercial partners may terminate joint testing, development or marketing
projects on the merits of the projects for various reasons, including
determinations that a project is not feasible, cost-effective or
likely to
lead to a marketable end product.
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·
|
At
various stages in the testing, development, marketing or production
process, we may have disputes with our commercial partners, which
may
inhibit development, lead to an abandonment of the project or have
other
negative consequences.
|
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·
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Even
if the commercialization and marketing of jointly developed products
is
successful, our revenue share may be limited and may not exceed our
associated development and operating costs.
|
As
a
result of the actions or omissions of our commercial partners, or our inability
to identify and enter into suitable arrangements with qualified commercial
partners, we may be unable to commercialize apparently viable products on a
timely and cost-effective basis, or at all. Our business is not dependent upon
a
single application of our technology; however, a failure to commercialize
several of our potential products would have a material adverse effect on our
business, operations and financial condition.
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 generate substantial revenues from our life science products unless
proposed products receive FDA approval and achieve substantial market
penetration.
We
have
entered into development and license agreements with respect to RenaZorb, a
potential drug candidate for humans with kidney disease, and other life science
products, and expect to enter into additional licensing and/or supply agreements
in the future. Most of the potential life sciences applications of our
technologies are subject to regulation by the FDA and similar regulatory bodies.
In general, license agreements in the life sciences area call for milestone
payments as certain milestones related to the development of the products and
the obtaining of regulatory approval are met; however, the receipt by the
licensor of substantial recurring revenues is generally tied to the receipt
of
marketing approval from the FDA and the amount of revenue generated from the
sale of end products. There are substantial risks associated with the
arrangements, including the following:
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·
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further
testing of potential life science products using our technology may
indicate that such products are less effective than existing products,
unsafe, have significant side effects or are otherwise not
viable;
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|
·
|
the
licensee may be unable to obtain FDA or other regulatory approval
for
technical, political or other reasons or, even if it obtains such
approval, may not obtain such approval on a timely basis; and
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|
·
|
end
products may fail to obtain significant market share for various
reasons,
including questions about efficacy, need, safety and side effects
or
because of poor marketing by the
licensee;
|
If
any of
the foregoing risks, or other risks associated with our life science products
were to occur, we would not receive substantial, recurring revenue from our
life
science division, which would adversely affect our overall business, operations
and financial conditions.
As
manufacturing becomes a larger part of our operations, we will become exposed
to
accompanying risks and liabilities.
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. We expect, however, that in-house or outsourced
manufacturing will become an increasing part of our business in the future.
If
and as manufacturing becomes a larger part of our business, we will become
increasingly subject to various risks associated with the manufacturing and
supply of products, including the following:
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·
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If
we fail to supply products in accordance with contractual terms,
including
terms related to time of delivery and performance specifications,
we may
become liable for direct, special, consequential and other damages,
even
if manufacturing or delivery was
outsourced;
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·
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Raw
materials used in the manufacturing process, labor and other key
inputs
may become scarce and expensive, causing our costs to exceed projections
and associated revenues;
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·
|
Manufacturing
processes typically involve large machinery, fuels and chemicals,
any or
all of which may lead to accidents involving bodily harm, destruction
of
facilities and environmental contamination and associated liabilities.
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·
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We
may have, and may be required to, make representations as to our
right to
supply and/or license intellectual property and to our compliance
with
laws. Such representations are usually supported by indemnification
provisions, requiring us to defend our customers and otherwise make
them
whole if we license or supply products that infringe on third-party
technologies or violate government regulations.
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Any
failure to adequately manage risks associated with the manufacture and supply
of
materials and products could lead to losses (or small gross profits) from that
segment of our business and/or significant liabilities, which would adversely
effect our business, operations and financial condition.
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 May
3, 2006, we had approximately $17.0 million in cash, an amount sufficient to
fund our ongoing operations for approximately two years
at
current working capital expenditure levels.
In the
last few quarters, however, our recurring expenses have increased significantly,
and we have made various significant capital commitments. As we take additional
steps to enhance our commercialization and marketing efforts, or respond to
acquisition opportunities or potential adverse events, our use of working
capital may increase significantly. In any such event, absent a comparatively
significant increase in revenue, we will need to raise additional capital in
order to sustain our ongoing operations, continue unfinished testing and
additional development work and, if certain of our products are 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:
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·
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market
factors affecting the availability and cost of capital
generally;
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·
|
the
price, volatility and trading volume of our shares of common stock;
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·
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our
financial results, particularly the amount of revenue we are generating
from operations;
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·
|
the
amount of our capital needs;
|
|
·
|
the
market’s perception of nanotechnology and/or chemical
stocks;
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|
·
|
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.
Our
past and future operations may lead to substantial environmental
liability.
Virtually
any prior or future use of our 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 May
3, 2006, there were outstanding warrants to purchase up to 1,318,556 shares
of
common stock and options to purchase up to 3,503,832 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:
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·
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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;
|
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·
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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;
|
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·
|
The
interest of the market in our business sector, without regard to
our
financial condition, results of operations or business prospects;
|
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·
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Positive
or negative statements or projections about our company or our industry,
by analysts, stock gurus and other
persons;
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·
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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 the execution of our business plan. In addition,
through such audits, inquiries and investigations, we or a regulator have from
time to time determined, and may in the future determine, that we are out of
compliance with one or more governing rules or laws. Remedying such
non-compliance may divert additional financial and human resources. In
addition, in the future, we may be subject to a formal charge or determination
that we have materially violated a governing law, rule or regulation. Any
charge, and particularly any determination, that we had materially violated
a
governing law would likely have a material adverse effect on the market price
of
our stock, our ability to execute our business plan and our ability to retain
and attract qualified management.
Item
6. Exhibits
a) See
Exhibit Index attached hereto following the signature page.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Altair
Nanotechnologies Inc.
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May
10, 2006
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By:
/s/ Alan J. Gotcher
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Date
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Alan
J. Gotcher, Chief Executive Officer
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May
10, 2006
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By:
/s/ Edward H. Dickinson
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Date
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Edward
H. Dickinson, Chief Financial
Officer
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EXHIBIT
INDEX
|
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Exhibit
No.
|
|
Exhibit
|
|
Incorporated
by Reference/ Filed Herewith
|
3.1
|
|
Articles
of Continuance
|
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC
on July
18, 2002.
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3.2
|
|
Bylaws
|
|
Incorporated
by reference to the Annual Report on Form 10-K for the year ended
December
31, 2004 filed with the SEC on March 9, 2005
|
31.1
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Section
302 Certification of Chief Executive Officer
|
|
Filed
herewith
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31.2
|
|
Section
302 Certification of Chief Financial Officer
|
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Filed
herewith
|
32.1
|
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Section
906 Certification of Chief Executive Officer
|
|
Filed
herewith
|
32.2
|
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Section
906 Certification of Chief Financial Officer
|
|
Filed
herewith
|
_______________