UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION
13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June
30, 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
o.
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 o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): YES
o NO
x
As
of August 1, 2006 the registrant had 59,588,061 Common Shares
outstanding.
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,678,372
|
|
$
|
2,264,418
|
|
Investment
in available for sale securities
|
|
|
12,764,844
|
|
|
20,789,656
|
|
Accounts
receivable
|
|
|
474,446
|
|
|
602,168
|
|
Prepaid
expenses and other current assets
|
|
|
392,076
|
|
|
254,067
|
|
Total
current assets
|
|
|
15,309,738
|
|
|
23,910,309
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
906,124
|
|
|
423,000
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
9,902,278
|
|
|
8,169,445
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
847,655
|
|
|
890,062
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
21,261
|
|
|
71,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
26,987,056
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
1,792,032
|
|
$
|
808,905
|
|
Accrued
salaries and benefits
|
|
|
920,844
|
|
|
709,349
|
|
Accrued
liabilities
|
|
|
467,969
|
|
|
309,289
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
600,000
|
|
Total
current liabilities
|
|
|
3,780,845
|
|
|
2,427,543
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
1,800,000
|
|
|
2,400,000
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;59,461,393 and
59,316,519 shares issued and outstanding
at June
30, 2006 and December 31, 2005
|
|
|
92,232,886
|
|
|
92,126,714
|
|
Additional
paid in capital
|
|
|
877,512
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(71,501,987
|
)
|
|
(63,152,905
|
)
|
Deferred
compensation expense
|
|
|
-
|
|
|
(165,336
|
)
|
Accumulated
other comprehensive loss
|
|
|
(202,200
|
)
|
|
(172,000
|
)
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
21,406,211
|
|
|
28,636,473
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
26,987,056
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
364,720
|
|
$
|
-
|
|
$
|
364,720
|
|
$
|
695,000
|
|
Product
sales
|
|
|
2,640
|
|
|
42,485
|
|
|
10,658
|
|
|
65,593
|
|
Commercial
collaborations
|
|
|
389,236
|
|
|
160,775
|
|
|
719,506
|
|
|
257,041
|
|
Contracts
and grants
|
|
|
300,232
|
|
|
299,621
|
|
|
507,240
|
|
|
512,827
|
|
Total
revenues
|
|
|
1,056,828
|
|
|
502,881
|
|
|
1,602,124
|
|
|
1,530,461
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
1,450
|
|
|
12,461
|
|
|
2,716
|
|
|
16,007
|
|
Research
and development
|
|
|
2,205,265
|
|
|
744,142
|
|
|
4,153,652
|
|
|
1,525,677
|
|
Sales
and marketing
|
|
|
618,422
|
|
|
190,670
|
|
|
1,011,583
|
|
|
921,108
|
|
General
and administrative
|
|
|
1,796,853
|
|
|
1,355,698
|
|
|
4,408,157
|
|
|
2,921,133
|
|
Depreciation
and amortization
|
|
|
363,247
|
|
|
251,455
|
|
|
680,118
|
|
|
496,085
|
|
Total
operating expenses
|
|
|
4,985,237
|
|
|
2,554,426
|
|
|
10,256,226
|
|
|
5,880,010
|
|
Loss
from Operations
|
|
|
(3,928,409
|
)
|
|
(2,051,545
|
)
|
|
(8,654,102
|
)
|
|
(4,349,549
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(42,000
|
)
|
|
(51,592
|
)
|
|
(87,500
|
)
|
|
(102,292
|
)
|
Interest
income
|
|
|
181,522
|
|
|
184,383
|
|
|
392,825
|
|
|
287,659
|
|
Loss
on foreign exchange
|
|
|
(131
|
)
|
|
(324
|
)
|
|
(305
|
)
|
|
(855
|
)
|
Total
other income, net
|
|
|
139,391
|
|
|
132,467
|
|
|
305,020
|
|
|
184,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(3,789,018
|
)
|
$
|
(1,919,078
|
)
|
$
|
(8,349,082
|
)
|
$
|
(4,165,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
59,290,242
|
|
|
58,814,970
|
|
|
59,256,485
|
|
|
56,524,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Paid
In
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,349,082
|
)
|
|
-
|
|
|
-
|
|
|
(8,349,082
|
)
|
Other
comprehensive loss net of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(30,200
|
)
|
|
(30,200
|
)
|
Comprehensive
loss:
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,379,282
|
)
|
Share-based
compensation
|
|
|
-
|
|
|
129,835
|
|
|
877,512
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,007,347
|
|
Exercise
of stock options
|
|
|
66,999
|
|
|
141,673
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
141,673
|
|
Issuance
of restricted stock
|
|
|
77,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Elimination
of deferred compensation expense
|
|
|
-
|
|
|
(165,336
|
)
|
|
-
|
|
|
-
|
|
|
165,336
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JUNE 30, 2006
|
|
|
59,461,393
|
|
$
|
92,232,886
|
|
$
|
877,512
|
|
$
|
(71,501,987
|
)
|
$
|
-
|
|
$
|
(202,200
|
)
|
$
|
21,406,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the unaudited
condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,789,018
|
)
|
$
|
(1,919,078
|
)
|
$
|
(8,349,082
|
)
|
$
|
(4,165,037
|
)
|
Adjustments
to reconcile net loss to net cash used in
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
363,247
|
|
|
251,455
|
|
|
680,118
|
|
|
496,085
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
(170,975
|
)
|
|
-
|
|
|
477,364
|
|
Securities
received in payment of license fees
|
|
|
(513,324
|
)
|
|
-
|
|
|
(513,324
|
)
|
|
(595,000
|
)
|
Amortization
of discount on note payable
|
|
|
-
|
|
|
51,592
|
|
|
-
|
|
|
102,292
|
|
Share-based
compensation
|
|
|
158,504
|
|
|
4,071
|
|
|
1,007,347
|
|
|
4,071
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
-
|
|
|
21,101
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
218,218
|
|
|
(87,276
|
)
|
|
127,722
|
|
|
119,222
|
|
Prepaid
expenses and other current assets
|
|
|
(45,208
|
)
|
|
(9,217
|
)
|
|
(138,009
|
)
|
|
88,057
|
|
Other
assets
|
|
|
-
|
|
|
(5,000
|
)
|
|
49,939
|
|
|
(5,000
|
)
|
Trade
accounts payable
|
|
|
492,835
|
|
|
482,960
|
|
|
479,882
|
|
|
676,058
|
|
Accrued
salaries and benefits
|
|
|
21,248
|
|
|
(12,062
|
)
|
|
211,495
|
|
|
(150,862
|
)
|
Accrued
liabilities
|
|
|
31,451
|
|
|
(401,299
|
)
|
|
158,680
|
|
|
471,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(3,062,047
|
)
|
|
(1,814,829
|
)
|
|
(6,264,131
|
)
|
|
(2,481,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of available for sale securities
|
|
|
7,039,020
|
|
|
-
|
|
|
10,800,000
|
|
|
-
|
|
Purchase
of available for sale securities
|
|
|
(2,775,186
|
)
|
|
-
|
|
|
(2,775,187
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(744,791
|
)
|
|
(254,928
|
)
|
|
(1,888,400
|
)
|
|
(519,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by investing activities
|
|
|
3,519,043
|
|
|
(254,928
|
)
|
|
6,136,413
|
|
|
(519,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of issuance costs
|
|
$
|
-
|
|
$
|
9,400
|
|
$
|
-
|
|
$
|
19,329,800
|
|
Proceeds
from exercise of stock options
|
|
|
87,698
|
|
|
114,200
|
|
|
141,673
|
|
|
1,740,190
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,259,672
|
|
Payment
of notes payable
|
|
|
-
|
|
|
-
|
|
|
(600,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by financing activities
|
|
|
87,698
|
|
|
123,600
|
|
|
(458,327
|
)
|
|
25,329,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash
equivalents
|
|
|
544,694
|
|
|
(1,946,157
|
)
|
|
(586,046
|
)
|
|
22,328,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,133,678
|
|
|
31,632,286
|
|
|
2,264,418
|
|
|
7,357,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,678,372
|
|
$
|
29,686,129
|
|
$
|
1,678,372
|
|
$
|
29,686,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
None
|
|
|
None
|
|
$
|
105,000
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
For
the three months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
We issued 56,875 shares of restricted stock to employees having
a fair
value of approximately $180,000 for which no cash will be received.
|
-
We made property and equipment purchases of $503,245 which are
included in
trade accounts payable at June 30, 2006.
|
-
We had an unrealized gain on available for sale securities of
$15,800.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
We issued 56,875 shares of restricted stock to employees having
a fair
value of approximately $180,000 for which no cash will be received.
|
-
We made property and equipment purchases of $503,245 which are
included in
trade accounts payable at June 30, 2006.
|
-
We had an unrealized loss on available for sale securities of
$30,200.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(concluded)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. Basis of Preparation of Condensed Consolidated Financial
Statements
These
unaudited interim condensed 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 condensed consolidated financial statements and accompanying
notes contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position
and results of operations for the periods shown. These interim condensed
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.
Effective
July 7, 2006, the Company’s Altair Nanomaterials, Inc. subsidiary changed its
name to Altairnano, Inc. The Company’s Tennessee Valley Titanium, Inc.
subsidiary, which had no assets or operations, was dissolved on the same
date.
The
results of operations for the three- and six-month periods ended June 30,
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 June 30,
2006 and December 31, 2005, we had cash deposits of approximately $0.6 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
and six-month periods ended June 30, 2006 and 2005 are as
follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2006
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
loss
|
|
$
|
3,789,018
|
|
$
|
1,919,078
|
|
$
|
8,349,082
|
|
$
|
4,165,037
|
|
Unrealized
(gain) loss on investment in available for
sale securities, net of taxes of $0
|
|
|
(15,800
|
)
|
|
-
|
|
|
30,200
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
3,773,218
|
|
$
|
1,919,078
|
|
$
|
8,379,282
|
|
$
|
4,165,037
|
|
Long-Lived
Assets - We
evaluate the carrying value of long-term assets, including intangible assets,
when events or circumstances 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. Our revenues are 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 was 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 share-based compensation, and
to
determine the subsequent impact on the APIC pool and consolidated statements
of
cash flows of the tax effects of employee share-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 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 and 140,000 shares received in June 2006. Although the shares are eligible
for resale under Rule 144, the Company currently intends to hold them
indefinitely. In addition, the 140,000 shares acquired in June 2006 are subject
to a contractual provisions preventing sale prior to June 2007. The shares
were
received as payment of licensing and product improvement fees in connection
with
a license agreement for RenaZorb. On receipt, the shares were recorded at
their
market value of $1,085,000 as measured by their closing price on the Nasdaq
Capital Market. At June 30, 2006, their fair value was approximately $936,000,
representing an unrealized holding loss of approximately $149,000. We evaluated
this investment to determine if there is an other than temporary impairment
at
June 30, 2006. Our evaluation took into consideration published investment
analysis, levels of 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 June 30, 2006.
Note
4. Note Payable
|
|
June
30, 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 7% 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 June 30, 2006 and 2005 were:
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
Patents
|
|
$
|
1,517,736
|
|
$
|
1,517,736
|
|
Less
accumulated amortization
|
|
|
(670,081
|
)
|
|
(585,266
|
)
|
Total
patents
|
|
$
|
847,655
|
|
$
|
932,470
|
|
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 $42,407 for each of the six months ended
June 30, 2006 and 2005 and was $21,203 and $21,204 for the three month periods
ended June 30, 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, which 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, under which we may not make future grants,
authorized a total of 6,600,000 shares, of which options for 5,745,500 were
granted and options for 2,233,600 are outstanding and unexercised at June
30,
2006.
Effective
January 1, 2006, we adopted 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 three- and six-month periods ended June 30, 2006 related to stock options
and restricted stock was $158,504 ($0.00 per share) and $1,007,347 ($0.02
per
share), respectively. The amount of expense for the three- and six-month
periods
ended June 30, 2006 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 was
$15,208 ($0.00 per share) and $83,982 ($0.00 per share), respectively. 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 six months ended June 30, 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
|
|
Six
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2006
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
Expected
volatility
|
|
|
93%
|
|
|
93%
|
|
Risk-free
interest rate
|
|
|
5.0%
|
|
|
4.7%
|
|
Expected
term (years)
|
|
|
4.19
|
|
|
4.63
|
|
The
computation of expected volatility used in the Black-Scholes option-pricing
model is based on the historical volatility of our share price. The expected
term is estimated based on a review of historical employee exercise behavior
with respect to option grants.
A
summary
of the changes in stock options outstanding under our equity-based compensation
plans during the six months ended June 30, 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
|
|
|
1,155,131
|
|
|
3.36
|
|
|
|
|
|
|
|
Exercised
|
|
|
(66,999
|
)
|
|
1.82
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(42,363
|
)
|
|
2.39
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2006
|
|
|
3,578,969
|
|
$
|
3.03
|
|
|
6.1
|
|
$
|
2,199,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2006
|
|
|
2,466,094
|
|
$
|
3.09
|
|
|
5.0
|
|
$
|
1,753,215
|
|
The
weighted average grant date fair value of options granted during the three-
and
six-month periods ended June 30, 2006 was $3.36 and $3.15, respectively.
The
total intrinsic value of options exercised during the three- and six-month
periods ended June 30, 2006 was $64,052 and $127,377, respectively.
A
summary
of the status of nonvested shares at June 30, 2006 and changes during the
six
months ended June 30, 2006 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
793,875
|
|
$
|
1.87
|
|
Granted
|
|
|
1,155,131
|
|
|
2.32
|
|
Vested
|
|
|
(824,131
|
)
|
|
3.55
|
|
Forfeited/Expired
|
|
|
(12,000
|
)
|
|
3.11
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at June 30, 2006
|
|
|
1,112,875
|
|
$
|
1.94
|
|
As
of
June 30, 2006, there was $1,157,281 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 one year. The total fair
value
of options vested during the three- and six-month periods ended June 30,
2006
was $374,033 and $1,956,913, respectively. Cash received from stock option
exercises for the three- and six-month periods ended June 30, 2006 was $87,698
and $121,673, respectively.
Restricted
Stock
Our
stock
incentive plan provides for the granting of other incentive awards in addition
to stock options. During the six months ended June 30, 2006, the Board of
Directors granted 56,875 shares of restricted stock under the plan with a
weighted average fair value of $3.17 per share. During the three months ended
June 30, 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. Restricted
shares have the same voting and dividend rights as the Company’s unrestricted
common shares, vest over a two-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 six months ended
June
30, 2006 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
132,500
|
|
$
|
2.82
|
|
Granted
|
|
|
56,875
|
|
|
3.17
|
|
Vested
|
|
|
(47,000
|
)
|
|
2.87
|
|
Forfeited/Expired
|
|
|
(15,000
|
)
|
|
2.88
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at June 30, 2006
|
|
|
127,375
|
|
$
|
2.95
|
|
As
of
June 30, 2006, we had $331,315 of total unrecognized compensation expense,
net
of estimated forfeitures, related to restricted stock which will be recognized
over the weighted average period of 1.9 years.
Pro
Forma Information for Periods Prior to 2006
In
periods prior to 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 three- and six-month periods ended June 30, 2005 as if the
fair
value recognition provisions of SFAS 123 had been applied to options granted
during the period:
|
|
Three
Months
|
|
Six
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Net
loss as reported
|
|
$
|
1,919,078
|
|
$
|
4,165,037
|
|
|
|
|
|
|
|
|
|
Add
(Deduct): stock-based employee compensation expense included
in reported
net loss,
net
of income taxes of $0
|
|
|
170,975
|
|
|
(477,364
|
)
|
Add:
total stock-based employee compensation expense determined under
fair value based
method
for all awards, net of income taxes of $0
|
|
|
196,029
|
|
|
614,454
|
|
Pro
forma net loss
|
|
$
|
2,286,082
|
|
$
|
4,302,127
|
|
|
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.03
|
|
$
|
0.07
|
|
Pro
forma
|
|
$
|
0.04
|
|
$
|
0.08
|
|
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
|
|
Six
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
Expected
volatility
|
|
|
103%
|
|
|
106%
|
|
Risk-free
interest rate
|
|
|
3.70%
|
|
|
3.84%
|
|
Expected
term (years)
|
|
|
2.83
|
|
|
3.06
|
|
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 from February 2004 through May 31, 2006. 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 period January 1, 2006
through May 31, 2006, we paid ATG $5,722 in connection with our National
Science
Foundation Phase II grant application and $25,800 for certain consulting
services. Dr. King left the Altair board of directors effective June 1, 2006
and
is no longer a related party.
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. The
Performance Materials segment produces advanced materials for paints, coatings,
sensors, power systems and materials for improving process technologies.
The
AMPS segment develops and products materials for lithium ion batteries, battery
cells and systems and materials for research related to hydrogen generation
and
fuel cells. The Life Sciences segment produces pharmaceutical products, drug
delivery products and dental materials.
The
accounting policies of these business segments are the same as described
in Note
2 to the unaudited condensed consolidated financial statements Reportable
segment data reconciled to the consolidated financial statements as of and
for
the three- and six-month periods ended June 30, 2006 and June 30, 2005 is
as
follows:
|
|
|
|
(Income)
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
Three
Months Ended
|
|
Revenues
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
June
30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
467,422
|
|
$
|
945,752
|
|
$
|
259,910
|
|
$
|
6,280,763
|
|
AMPS
|
|
|
78,799
|
|
|
1,393,748
|
|
|
71,581
|
|
|
2,462,564
|
|
Life
Sciences
|
|
|
510,607
|
|
|
(447,556
|
)
|
|
2,353
|
|
|
1,041,927
|
|
Corporate
and Other
|
|
|
-
|
|
|
2,036,465
|
|
|
29,403
|
|
|
17,201,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,056,828
|
|
$
|
3,928,409
|
|
$
|
363,247
|
|
$
|
26,987,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
476,999
|
|
$
|
155,266
|
|
$
|
228,133
|
|
$
|
5,493,323
|
|
AMPS
|
|
|
-
|
|
|
103,920
|
|
|
-
|
|
|
-
|
|
Life
Sciences
|
|
|
25,882
|
|
|
89,008
|
|
|
303
|
|
|
457,294
|
|
Corporate
and Other
|
|
|
-
|
|
|
1,703,351
|
|
|
23,019
|
|
|
32,165,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
502,881
|
|
$
|
2,051,545
|
|
$
|
251,455
|
|
$
|
38,116,581
|
|
|
|
|
|
(Income)
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
Six
Months Ended
|
|
Revenues
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
June
30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
901,791
|
|
$
|
1,874,647
|
|
$
|
513,958
|
|
$
|
6,280,763
|
|
AMPS
|
|
|
189,725
|
|
|
2,281,586
|
|
|
104,396
|
|
|
2,462,564
|
|
Life
Sciences
|
|
|
510,608
|
|
|
(311,030
|
)
|
|
4,705
|
|
|
1,041,927
|
|
Corporate
and Other
|
|
|
-
|
|
|
4,808,899
|
|
|
57,059
|
|
|
17,201,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,602,124
|
|
$
|
8,654,102
|
|
$
|
680,118
|
|
$
|
26,987,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
776,246
|
|
$
|
1,149,444
|
|
$
|
449,030
|
|
$
|
5,493,323
|
|
AMPS
|
|
|
33,333
|
|
|
200,471
|
|
|
-
|
|
|
|
|
Life
Sciences
|
|
|
720,882
|
|
|
(440,583
|
)
|
|
2,993
|
|
|
457,294
|
|
Corporate
and Other
|
|
|
-
|
|
|
3,440,217
|
|
|
44,062
|
|
|
32,165,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,530,461
|
|
$
|
4,349,549
|
|
$
|
496,085
|
|
$
|
38,116,581
|
|
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 June 30, 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 June 30, 2006 and the balance of their accounts
receivable at June 30, 2006 were as follows:
|
|
Revenues
-
3
Months Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
June
30, 2006
|
|
June
30, 2006
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
240,758
|
|
$
|
170,236
|
|
UNLV
Research Foundation
|
|
$
|
222,448
|
|
$
|
156,022
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
510,608
|
|
$
|
-
|
|
For
the
three months ended June 30, 2005, we had sales to three major customers,
each of
which accounted for 10% or more of revenues. Total sales to these customers
for
the three months ended June 30, 2005 and the balance of their accounts
receivable at June 30, 2005 were as follows:
|
|
Revenues
-
3
Months Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Michigan University
|
|
$
|
138,730
|
|
$
|
98,930
|
|
Western
Oil Sands
|
|
$
|
69,854
|
|
$
|
56,674
|
|
UNLV
Research Foundation
|
|
$
|
160,890
|
|
$
|
104,702
|
|
For
the
six months ended June 30, 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 six months ended June 30, 2006 and the balance of their accounts receivable
at June 30, 2006 were as follows:
|
|
Revenues
-
6
Months Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
June
30, 2006
|
|
June
30, 2006
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
520,388
|
|
$
|
170,236
|
|
UNLV
Research Foundation
|
|
$
|
303,254
|
|
$
|
156,022
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
510,608
|
|
$
|
-
|
|
For
the
six months ended June 30, 2005, we had sales to four major customers, each
of
which accounted for 10% or more of revenues. Total sales to these customers
for
the six months ended June 30, 2005 and the balance of their accounts receivable
at June 30, 2005 were as follows:
|
|
Revenues
-
6
Months Ended
|
|
Accounts
Receivable
at
|
|
Customer
|
|
June
30, 2005
|
|
June
30, 2005
|
|
Performance
Materials Division:
|
|
|
|
|
|
Western
Michigan University
|
|
$
|
248,439
|
|
$
|
98,930
|
|
Western
Oil Sands
|
|
$
|
165,235
|
|
$
|
56,674
|
|
UNLV
Research Foundation
|
|
$
|
231,054
|
|
$
|
104,702
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
720,881
|
|
$
|
25,881
|
|
Revenues
for the three-month periods ended June 30, 2006 and 2005 by geographic area
were
as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
3
Months Ended
|
|
3
Months Ended
|
|
Geographic
information (a):
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
United
States
|
|
$
|
816,578
|
|
$
|
416,527
|
|
Canada
|
|
|
240,250
|
|
|
82,354
|
|
Other
foreign countries
|
|
|
-
|
|
|
4,000
|
|
Total
|
|
$
|
1,056,828
|
|
$
|
502,881
|
|
|
|
|
|
|
|
|
|
Revenues
for the six-month periods ended June 30, 2006 and 2005 by geographic area
were
as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
6
Months Ended
|
|
6
Months Ended
|
|
Geographic
information (a):
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,029,192
|
|
$
|
1,363,404
|
|
Canada
|
|
|
523,052
|
|
|
166,416
|
|
Other
foreign countries
|
|
|
49,880
|
|
|
641
|
|
Total
|
|
$
|
1,602,124
|
|
$
|
1,530,461
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2006 and the material changes in our
results of operations and financial condition between the three-and six-month
periods ended June 30, 2006 and June 30, 2005. This discussion should be
read in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in the Company’s Annual Report on Form 10-K 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.
|
·
|
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 for testing purposes 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 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 have continued 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,
product 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
and
battery systems, produce sufficient quantities of batteries and
battery
cells for test purposes, obtain satisfactory test results and successfully
market the materials and systems. Toward that end, we have hired
additional employees, have constructed test and production facilities
and
are purchasing equipment. Our intent is to initially market our
battery
materials and battery systems to the automotive, stationary power
and
military specialty battery industries where we must be able to
demonstrate
to prospective customers that our battery materials and battery
systems
offer significant advantages over existing
technologies.
|
|
|
·
|
Spectrum
must successfully complete the testing and application processes
necessary
to receive FDA approval of our RenaZorb product. Animal testing
of
RenaZorb was completed in September 2005 with positive results.
However,
as a result of disagreements over certain contractual issues, Altair
and
Spectrum entered an arbitration dispute resolution process. A settlement
was not reached until early June 2006, thereby delaying the product
development process and receipt of the next milestone payment.
On June 22,
2006, Altair received the milestone payment of 100,000 shares of
Spectrum
common stock called for in the agreement and an additional 40,000
shares
of common stock in payment of product improvement fees. Following
the
settlement, Spectrum appears to have re-focused on the product
development
process.
|
|
|
·
|
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.
|
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
In
June
2006, we received a purchase order from Phoenix Motorcars, Inc. (“Phoenix”) for
lithium ion battery packs to be used in electric vehicles produced by Phoenix.
Phoenix is using the engineering services of Boshart Engineering, Inc., based
in
Ontario, California, to develop the battery integration, validation,
certification and regulatory testing for the vehicles. Delivery of the battery
packs will commence in September 2006 and be completed in December 2006.
The
total value of the purchase order is $750,000.
In
May
2006, we completed a safety testing cycle for lithium ion battery products
using
our nano lithium titanium oxide (“nLTO”) that replaces the graphite used in
"standard" lithium ion batteries. In the safety testing cycle, we subjected
our
batteries to temperatures up to 240o
C, which
is more than 100o
C above
the temperature at which graphite-based batteries can explode. In addition,
we
performed high-rate overcharge, puncture, crush, drop and other comparative
tests alongside a wide range of graphite-based battery cells with no
malfunctions, explosions or safety concerns exhibited by our nLTO cells.
In comparison, the graphite cells, put to the same tests, routinely smoked,
caught fire and exploded.
The
tests
demonstrated that negative electrode material made with our nLTO rather than
graphite represents a significant step forward in the effort to develop lithium
ion batteries that are safe enough to be used in electric-powered and hybrid
electric vehicles. Although lithium ion batteries are the predominant power
source for cell phones, laptop computers and many other small electronic
devices, safety concerns related to the potential for explosion, typically
caused by charging malfunctions or extremes of temperature, have been an
obstacle to using lithium ion batteries to power electric and hybrid electric
vehicles.
Performance
Materials Division
In
April
2005, we signed a memorandum of understanding with respect to a joint
venture with Bateman Engineering NV (“Bateman”) to combine our hydrochloride
pigment processing technology with Bateman’s engineering, design and
construction expertise. The joint venture, Altair-Bateman Titania, Inc.,
was
established to offer customers an integrated resource for technology
development, engineering, design and construction of pigment processing
projects. During the second quarter of 2006, we and Bateman began
discussions regarding changing our relationship from a joint venture to a
more
independent relationship. Although discussions are ongoing, our current
expectation is that we will work closely with Bateman on existing and future
projects involving our hydrochloride pigment processing technology but that
Bateman's engineering services and our technology will be provided through
separate entities rather than through the joint venture.
Life
Sciences Division
During
2005, we entered into arbitration with Spectrum in order to settle a dispute
over issues arising from our license agreement. On June 7, 2006, we resolved
the
dispute and, on June 22, 2006, we received 100,000 shares of Spectrum common
stock for a milestone payment and an additional 40,000 shares for product
development improvements, the total shares having an approximate value of
$516,000 at June 30, 2006.
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. In the near future, as additional capital is needed, we
expect
to rely primarily on the sale of equity securities, including related derivative
securities. We
do not
have any commitments with respect to future financing and may, or may not,
be
able to obtain such financing.
We
have a
single note payable in an original 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 $8,610,858, from $23,054,074 at December
31, 2005 to $14,443,216 at June 30, 2006, due primarily to the loss from
operations (approximately $6,264,000) purchases of property and equipment
(approximately $1,888,000) and payment of notes payable ($600,000).
During
the six months ended June 30, 2006, our cash used in operations was $6,264,132.
Unusual or infrequently occurring payments made during the first six months
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 six months ended June 30, 2006, revenues
were $1,602,124, which included $10,658 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 increased 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
August
1, 2006, we had 59,588,061 common shares issued and outstanding. As of that
same date, there were outstanding warrants to purchase up to 960,222 shares
of
common stock and options to purchase up to 3,488,719 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 $535,000
for this equipment and related facility upgrades during the quarter ended
September 30, 2006.
The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of June 30,
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
|
|
|
1,245,883
|
|
|
1,245,883
|
|
|
0
|
|
|
-
|
|
|
-
|
|
Facilities
and Property Leases
|
|
|
277,054
|
|
|
129,316
|
|
|
147,738
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
843,315
|
|
|
843,315
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
5,186,252
|
|
$
|
2,986,514
|
|
$
|
1,557,738
|
|
$
|
642,000
|
|
$
|
-
|
|
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements at June 30, 2006.
Critical
Accounting Policies and Estimates
Management
based the following discussion and analysis of our financial condition and
results of operations on our condensed 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, share-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. 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
June 30, 2006, the carrying value of these assets was $10,424,000, or 39%
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 stock options, restricted stock and other awards 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 Condensed 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 as of June 30, 2006 for projecting that the
Company
will realize the benefits of these deductible differences as of
June 30,
2006. Management has, therefore, established a full valuation
allowance against its net deferred income tax assets as of June
30,
2006.
|
Results
of Operations
Three
Months Ended June 30, 2006 Compared to Three Months Ended June 30,
2005
The
net
loss for the quarter ended June 30, 2006, which was the second quarter of
our
2006 fiscal year, totaled $3,789,018 ($.06 per share) compared to a net loss
of
$1,919,078 ($.03 per share) in the second quarter of 2005.
Total
revenues for the quarter ended June 30, 2006 were $1,056,828 compared to
$502,881 for the same period of 2005. During
the second quarter of 2006, we recorded $364,720 of license fee revenue in
connection with the license of RenaZorb to Spectrum. There were no comparable
license fee revenues in the second quarter of 2005.
Revenues
from commercial collaborations increased by $228,461, from $160,775 in the
second quarter of 2005, to $389,236 in the second quarter of 2006. Revenues
from
Western Oil Sands increased by approximately $171,000 due to the expanded
scope
of the project.
Research
and development expenses increased by $1,461,123, from $744,142 in the second
quarter of 2005 to $2,205,265 in the same quarter of 2006. Within research
and
development, labor and overhead costs increased by approximately $534,000
due to
the addition of 25 new employees. Expenditures for materials, supplies and
other
operating costs (exclusive of labor) for the battery initiative increased
by
approximately $696,000, and other research and development operations increased
by approximately $231,000.
Sales
and
marketing expenses increased by $427,752, from $190,670 in the second quarter
of
2005 to $618,422 in the second quarter of 2006. The increase is due to the
addition of two new sales and marketing employees and an increase in marketing
efforts by staff in other company departments.
General
and administrative expenses increased by $441,155 from $1,355,698 in the
second
quarter of 2005 to $1,796,853 in the same period of 2006. Legal fees increased
by approximately $80,000 due to an increase in patent work and general corporate
matters. Share-based compensation expense, a non-cash item, increased by
approximately $325,000, primarily as a result of implementing SFAS 123R as
of
January 1, 2006, and employee bonuses increased by approximately $452,000.
These
increases were partially offset by a decrease in consulting expense of
approximately $252,000 related to compliance with Sarbanes-Oxley rules, which
was largely accomplished during 2005, and a decrease in general corporate
expenses of approximately $164,000.
Six
Months Ended June 30, 2006 Compared to Six Months Ended June 30,
2005
The
net
loss for the six months ended June 30, 2006 totaled $8,349,082 ($.14 per
share)
compared to a net loss of $4,165,037 ($.07 per share) in the same period
of
2005.
Total
revenues for the six months ended June 30, 2006 were $1,602,124 compared
to
$1,530,461 for the same period of 2005. We recorded license fee revenues
of
$695,000 during the six months ended June 30, 2005 upon receipt of 100,000
shares of Spectrum common stock. The stock was issued to us in payment of
license fees for RenaZorb. During the second quarter of 2006, we recorded
$364,720 of additional license fee revenues from Spectrum. Although we received
140,000 shares of Spectrum common stock in 2006 as opposed to 100,000 shares
in
2005, the amount recorded as revenues decreased due to a decline in the market
value per share at the dates of the transactions.
Revenues
from commercial collaborations increased by $462,465, from $257,041 in the
six
months ended June 30, 2005, to $719,506 in the same period of 2006. Revenues
from Western Oil Sands increased by approximately $355,000 due to the expanded
scope of the project. Revenues from Spectrum increased by approximately $120,000
due to a higher level of billable product development efforts.
Research
and development expenses increased by $2,627,975, from $1,525,677 in the
six
months ended June 30, 2005 to $4,153,652 in the same period of 2006. Within
research and development, labor and overhead costs increased by approximately
$996,000 due to the addition of 25 new employees. Expenditures for materials,
supplies and other operating costs (exclusive of labor) for the battery
initiative increased by approximately $1,144,000, and other research and
development operations increased by approximately $488,000.
Sales
and
marketing expenses increased by $90,475, from $921,108 in the six months
ended
June 30, 2005 to $1,011,583 in the same period of 2006. We experienced a
small
increase in expense in the first six months of 2006 due to an increase in
payroll expense resulting from additional sales and marketing employees.
This
increase was largely offset due to the fact that, in the six months ended
June
30, 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. .
General
and administrative expenses increased by $1,487,024 from $2,921,133 in the
six
months ended June 30, 2005 to $4,408,157 in the same period 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 $252,000
due to an increase in patent work and general corporate matters. Share-based
compensation expense, a non-cash item, increased by approximately $526,000,
primarily as a result of implementing SFAS 123R as of January 1, 2006 and
employee bonuses increased by approximately $362,000. General corporate expenses
increased by a net amount of approximately $132,000. These increases were
partially offset by a decrease in consulting expense of approximately $185,000
related to compliance with Sarbanes-Oxley rules, which was largely accomplished
during 2005.
Interest
income increased by $105,166, from $287,659 in the six months ended June
30,
2005 to $392,825 in the same period 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 or foreign currency exchange
rates.
Item
4. Controls
and Procedures
(a) Based
on
the evaluation of our "disclosure controls and procedures" (as defined in
the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by
paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer and
our
chief financial officer have concluded that, as of June 30, 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 under “Risk
Factors”
reflect
certain material changes from the “Risk Factors” identified in Item 1A of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the
“Form 10-K”), including changes identified in the “Material Changes in Risk
Factors” subsection of Item 1A of our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006 filed with the SEC on May 10, 2006, which
disclosure is incorporated herein by reference, and the following:
We
have
added risk factors titled as follows:
·
|
Our
quarterly operating results have fluctuated significantly in the
past and
will continue to fluctuate in the future, which could cause our
stock
price to decline.
|
·
|
Our
revenues have historically been generated from low-margin contract
research services; if we cannot expand revenues from other products
and
services, our business will fail.
|
·
|
If
we acquire or invest in other companies, assets or technologies
and we are
not able to integrate them with our business, or we do not realize
the
anticipated financial and strategic goals for any of these transactions,
our financial performance may be
impaired.
|
·
|
We
intend to expand our operations and increase our expenditures in
an effort
to grow our business. If we are unable to achieve or manage significant
growth and expansion, or if our business does not grow as we expect,
our
operating results may
suffer.
|
We
have
materially altered the risk factor titled as follows:
·
|
We
are subject to various regulatory regimes, and may be adversely
affected
by inquiries, investigations and allegations that we have not complied
with governing rules and laws.
|
We
have
deleted the risk factor titled as follows:
·
|
We
have a substantial number of warrants and options outstanding and
may
issue a significant number of additional shares upon the exercise
thereof.
|
Risk
Factors
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 below 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.
We
may continue to experience significant losses from
operations.
We
have
experienced a net loss in every fiscal year since our inception. Our losses
from
operations were $10,481,853 in 2005 and $8,654,102 in the six months ended
June
30, 2006. Even if we do generate net income in one or more quarters in the
future, subsequent developments in our industry, customer base, business
or cost
structure or expenses associated with our operations, or an event such as
significant litigation or a significant transaction may cause us to again
experience net losses. We may never become profitable for the long-term,
or even
for any quarter.
Our
quarterly operating results have fluctuated significantly in the past and
will
continue to fluctuate in the future, which could cause our stock price to
decline.
Our
quarterly operating results have fluctuated significantly in the past, and
we
believe that they will continue to fluctuate in the future, due to a number
of
factors, many of which are beyond our control. If in future periods our
operating results do not meet the expectations of investors or analysts who
choose to follow our company, our stock price may fall. Factors that may
affect
our quarterly operating results include the following:
·
|
fluctuations
in the size and timing of customer service orders from one quarter
to the
next;
|
·
|
timing
of delivery of our services and products;
|
·
|
addition
of new customers or loss of existing customers;
|
·
|
our
ability to commercialize and obtain orders for products we are
developing;
|
·
|
costs
associated with developing our manufacturing capabilities;
|
·
|
new
product announcements or introductions by our competitors or potential
competitors;
|
·
|
the
effect of variations in the market price of our common shares on
our
equity-based compensation expenses;
|
·
|
acquisitions
of businesses or customers;
|
·
|
technology
and intellectual property issues associated with our products;
and
|
·
|
general
economic trends, including changes in energy prices, or geopolitical
events such as war or incidents of terrorism.
|
Our
revenues have historically been generated from low-margin contract research
services; if we cannot expand revenues from other products and services,
our
business will fail.
Historically,
a significant portion of our revenues has come from contract research services
for businesses and government agencies. During the years ended December 31,
2005, 2004 and 2003, contract services revenues comprised 70%, 99% and 88%,
respectively, of our operating revenues, and during the first six months
of
2006, contract service revenues comprised 77% of our revenues. Contract services
revenue is low margin and unlikely to grow at a rapid pace. Our business
plan
anticipates revenues from product sales and licensing, both of which are
higher
margin than contract services and have potential for rapid growth, increasing
in
coming years. If we are not successful in significantly expanding our revenues
from higher margin products and services, our revenue growth will be slow
and it
is unlikely that we will achieve profitability.
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
|
|
|
·
|
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 shares 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 harm our ability to generate revenues and, as a result,
our
business and operations.
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 of our products are components of other
products. For example, our lithium titanate spinel battery materials and
batteries are designed for use in end-user products such as electric vehicles,
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. This would
limit
our ability to generate revenues and harm our business and
operations.
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:
·
|
we
may not be able to enter into development, licensing, supply and
other
agreements with commercial partners with appropriate resources,
technology
and expertise on reasonable terms or at
all;
|
·
|
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;
|
|
|
·
|
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;
|
|
|
·
|
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; and
|
|
|
·
|
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 harm our business, operations and
financial condition.
If
we acquire or invest in other companies, assets or technologies and we are
not
able to integrate them with our business, or we do not realize the anticipated
financial and strategic goals for any of these transactions, our financial
performance may be impaired.
As
part
of our growth strategy, we routinely consider acquiring or making investments
in
companies, assets or technologies that we believe are strategic to our business.
We do not have extensive experience in integrating new businesses or
technologies, and if we do succeed in acquiring or investing in a company
or
technology, we will be exposed to a number of risks, including:
•
|
we
may find that the acquired company or technology does not further
our
business strategy, that we overpaid for the company or technology
or that
the economic conditions underlying our acquisition decision have
changed;
|
•
|
we
may have difficulty integrating the assets, technologies, operations
or
personnel of an acquired company, or retaining the key personnel
of the
acquired company;
|
•
|
our
ongoing business and management’s attention may be disrupted or diverted
by transition or integration issues and the complexity of managing
geographically or culturally diverse enterprises;
|
•
|
we
may encounter difficulty entering and competing in new product
or
geographic markets or increased competition, including price competition
or intellectual property litigation; and
|
•
|
we
may experience significant problems or liabilities associated with
product
quality, technology and legal contingencies relating to the acquired
business or technology, such as intellectual property or employment
matters.
|
In
addition, from time to time we may enter into negotiations for acquisitions
or
investments that are not ultimately consummated. These negotiations could
result
in significant diversion of management time, as well as substantial
out-of-pocket costs. If we were to proceed with one or more significant
acquisitions or investments in which the consideration included cash, we
could
be required to use a substantial portion of our available cash. To the extent
we
issue shares of capital stock or other rights to purchase capital stock,
including options and warrants, existing stockholders might be diluted. In
addition, acquisitions and investments may result in the incurrence of debt,
large one-time write-offs, such as acquired in-process research and development
costs, and restructuring charges.
We
intend to expand our operations and increase our expenditures in an effort
to
grow our business. If we are unable to achieve or manage significant growth
and
expansion, or if our business does not grow as we expect, our operating results
may suffer.
During
the past year, we have significantly increased our research and development
expenditures in an attempt to accelerate the commercialization of certain
products, particularly our lithium titanate spinel battery materials and
battery
systems. Our business plan anticipates continued additional expenditure on
development, manufacturing and other growth initiatives. We may not achieve
significant growth. If achieved, significant growth would place increased
demands on our management, accounting systems, network infrastructure and
systems of financial and internal controls. We may be unable to expand
associated resources and refine associated systems fast enough to keep pace
with
expansion, especially as we expand into multiple facilities at distant
locations. If we fail to ensure that our management, control and other systems
keep pace with growth, we may experience a decline in the effectiveness and
focus of our management team, problems with timely or accurate reporting,
issues
with costs and quality controls and other problems associated with a failure
to
manage rapid growth, all of which would harm our results of operations.
Our
competitors have more resources than we do, which may give them a competitive
advantage.
We
have
limited financial, personnel 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
will 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 licensing
arrangements, including the following:
·
|
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;
|
|
|
·
|
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
|
|
|
·
|
End
products for which FDA approval is obtained, if any, 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 condition.
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. In-house or outsourced manufacturing is becoming
an
increasingly significant part of our business. 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:
·
|
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;
|
|
|
·
|
Raw
materials used in the manufacturing process, labor and other key
inputs
may become scarce and expensive, causing our costs to exceed cost
projections and associated revenues;
|
|
|
·
|
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;
and
|
|
|
·
|
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.
|
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
affect 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
June 30, 2006, we had approximately $14.4 million in cash, cash equivalents
and
short-term investments, 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 significant capital commitments related to our business
development plan. 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, construct and operate facilities for the production
of those products.
We
may
not be able to obtain the amount of additional capital needed or may be forced
to pay an extremely high price for capital. Factors affecting the availability
and price of capital may include the following:
·
|
market
factors affecting the availability and cost of capital
generally;
|
|
|
·
|
the
price, volatility and trading volume of our common
shares;
|
|
|
·
|
our
financial results, particularly the amount of revenue we are generating
from operations;
|
|
|
·
|
the
amount of our capital needs;
|
|
|
·
|
the
market’s perception of nanotechnology and/or chemical
stocks;
|
|
|
·
|
the
economics of projects being pursued; and
|
|
|
·
|
the
market’s perception of our ability to execute our business plan and any
specific projects identified as uses of
proceeds;
|
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.
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 are in the process of reclaiming mineral property that we leased
in
Tennessee. Under applicable environmental 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. If we incur any significant
environmental liabilities, our ability to execute our business plan and our
financial condition would be harmed.
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, Dr. Bruce Sabacky, our Chief Technology Officer
and
Douglas Ellsworth and Roy Graham, our Senior Vice Presidents. 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. The loss or
unavailability of any or all of these individuals would harm our ability
to
execute our business plan, maintain important business relationships and
complete certain product development initiatives, which would harm our
business.
We
may issue substantial amounts of additional shares without stockholder
approval.
Our
articles of incorporation authorize the issuance of an unlimited number of
common shares 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 common shares would further dilute the percentage ownership
of
our company held by existing stockholders.
The
market price of our common shares is highly volatile and may increase or
decrease dramatically at any time.
The
market price of our common shares 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 or
any of
our product initiatives, 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 shares may be affected by various factors
not
directly related to our business or future prospects, including the following:
·
|
Intentional
manipulation of our stock price by existing or future shareholders
or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
|
|
|
·
|
A
single acquisition or disposition, or several related acquisitions
or
dispositions, of a large number of our shares, including by short
sellers
covering their position;
|
|
|
·
|
The
interest of the market in our business sector, without regard to
our
financial condition, results of operations or business
prospects;
|
|
|
·
|
Positive
or negative statements or projections about our company or our
industry,
by analysts, stock gurus and other persons;
|
|
|
·
|
The
adoption of governmental regulations or government grant programs
and
similar developments in the United States or abroad that may enhance
or
detract from our ability to offer our products and services or
affect our
cost structure; and
|
|
|
·
|
Economic
and other external market factors, such as a general decline in
market
prices due to poor economic indicators or investor
distrust.
|
We
have never declared a cash dividend and do not intend to declare a cash dividend
in the foreseeable future.
We
have
never declared or paid cash dividends on our common shares. 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 shares in the foreseeable
future.
We
are subject to various regulatory regimes, and may be adversely affected
by
inquiries, investigations and 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.
For
example, on March 30, 2005, we received a letter of inquiry from the SEC
requesting information relating to a press release we issued on February
10,
2005, in which we announced developments in a rechargeable battery technology
that incorporates our lithium titanate battery materials. After providing
the
requested information, we received a follow up letter of inquiry dated August
2,
2005 requesting additional information related to our battery programs, emails
of certain affiliates, certain transactions and recent earnings calls. We
provided the information to the SEC in a series of letters sent during September
and October 2005. We have not been contacted by the SEC since providing all
requested information in October 2005 or been notified of any ongoing activity
or pending proceeding. The absence of any additional letters of inquiry related
to the matter for an approximately one-year period suggests to us that the
inquiry may be completed; however, we have received no notice from the SEC
with
respect to the status of the inquiry and are uncertain as to its status.
Based
upon advice of counsel that the SEC frequently does not apprise a company
whether an inquiry has been terminated or is ongoing, we expect to remain
uncertain in the foreseeable future. Our response to the SEC inquiry diverted
considerable financial and human resources, which harmed our ability to execute
our business plan for a time, and leaves a level of uncertainty going forward,
which may harm our ability to enter into business relationships, recruit
qualified officers and employees and raise capital.
Through
such audits, inquiries and investigations, we or a regulator may determine
that
we are out of compliance with one or more governing rules or laws.
Remedying such non-compliance diverts 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 harm our ability to enter into
business relationships, recruit qualified officers and employees and raise
capital.
Item
4. Submission of Matters to a Vote of Security Holders.
We
held
an Annual Meeting of Shareholders on June 1, 2006 at which the shareholders
considered and voted as follows on the items described below:
1.
|
The
shareholders considered whether to elect the
following persons as directors, each to serve until the next annual
meeting of shareholders and until his respective successor shall
have been
duly elected and shall
qualify:
|
Name
of Nominee
|
|
Votes
For
|
|
Votes
Withheld/Abstentions
|
|
Broker
Non-Votes
|
|
Michel
Bazinet
|
|
|
48,351,710
|
|
|
704,351
|
|
|
-0-
|
|
Jon
Bengtson
|
|
|
48,325,865
|
|
|
730,196
|
|
|
-0-
|
|
James
Golla
|
|
|
48,257,938
|
|
|
798,123
|
|
|
-0-
|
|
Alan
J. Gotcher
|
|
|
48,349,282
|
|
|
706,779
|
|
|
-0-
|
|
George
Hartman
|
|
|
48,172,060
|
|
|
884,001
|
|
|
-0-
|
|
Christopher
Jones
|
|
|
48,351,876
|
|
|
704,185
|
|
|
-0-
|
|
On
June
1, 2006 following the shareholders meeting, the Board of Directors of the
Company appointed Pierre Lortie as a member of the Board of Directors of
the
Company. Mr. Lortie was also appointed as Chairman of the Compensation Committee
of the Board of Directors.
|
2.
|
The
shareholders considered whether to appoint Perry-Smith, LLP as
independent
auditors and authorize the Audit Committee of the Board of Directors
to
fix their remuneration. There were 48,398,224 votes cast in favor,
no
votes cast against, 657,837 votes withheld, and no broker non-votes,
which
vote was sufficient for approval.
|
Item
6. Exhibits
See
Exhibit Index attached hereto following the signature page.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
Altair
Nanotechnologies Inc.
|
|
|
|
|
|
|
|
|
|
August
7, 2006
|
|
By:
/s/ Alan J. Gotcher
|
|
Date
|
|
Alan
J. Gotcher, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
August
7, 2006
|
|
By:
/s/ Edward H. Dickinson
|
|
Date
|
|
Edward
H. Dickinson, Chief Financial
Officer
|
EXHIBIT
INDEX
|
|
|
|
|
|
Exhibit
No.
|
|
Exhibit
|
|
Incorporated
by Reference/ Filed Herewith
|
3.1
|
|
Articles
of Continuance
|
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC
on July
18, 2002, File No. 001-12497
|
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,
File No. 001-12497
|
31.1
|
|
Section
302 Certification of Chief Executive Officer
|
|
Filed
herewith
|
31.2
|
|
Section
302 Certification of Chief Financial Officer
|
|
Filed
herewith
|
32.1
|
|
Section
906 Certification of Chief Executive Officer
|
|
Filed
herewith
|
32.2
|
|
Section
906 Certification of Chief Financial Officer
|
|
Filed
herewith
|
_________________________________________
33