Altair Nanotechnologies, Inc.
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 2006
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[
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________
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ALTAIR
NANOTECHNOLOGIES INC.
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(Exact
name of registrant as specified in its charter)
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Canada
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1-12497
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33-1084375
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(State
or other jurisdiction of incorporation)
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(Commission
File No.)
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(IRS
Employer Identification No.)
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204
Edison Way
Reno,
Nevada 89502-2306
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(Address
of principal executive offices, including zip code)
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Registrant's
telephone number, including area code: (775) 856-2500
[X
] Securities
registered pursuant to Section 12(b) of the Act:
Common
Shares, no par value
(Title
of Class)
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NASDAQ
Capital Market
(Name
of each exchange on which
registered)
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[X] Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES [ ] NO [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES [X] NO [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Report or any amendment to this
Report. [ ]
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 [ ]
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Accelerated
filer [X]
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Non-accelerated
filer [ ]
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): YES [ ] NO [X]
The
aggregate market value of the common shares held by non-affiliates of the
Registrant on June 30, 2006, based upon the closing stock price of the common
shares on the NASDAQ Capital Market of $3.08 per share on June 30, 2006, was
approximately $182,408,288.
Common
Shares held by each officer and director and by each other person who may be
deemed to be an affiliate of the Registrant have been excluded.
As
of
March
5,
2007, the Registrant had
69,999,793 common shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s Proxy Statement on Schedule 14A for the Registrant’s 2007
Annual Meeting of Shareholders are
incorporated by reference in Part III as specified.
INDEX
TO FORM 10-K
PART
I
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1
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Item
1: Business
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1
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Item
1A. Risk Factors
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21
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Item
1B. Unresolved Staff Comments
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30
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Item
2. Properties
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30
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Item
3. Legal Proceedings
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31
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Item
4. Submission of Matters to a Vote of Security Holders
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31
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PART
II
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32
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Item
5. Market for Registrant's Common Equity, Related Stockholder
Matters and
Issuer Purchases of Equity Securities
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32
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Item
6. Selected Financial Data
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34
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Item
7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations
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35
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
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42
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Item
8. Financial Statements and Supplementary Data
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43
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Item
9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure
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43
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Item
9A. Controls and Procedures
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43
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Item
9B. Other Information
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45
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PART
III
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45
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Item
10. Directors and Executive Officers of the Registrant
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45
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Item
11. Executive Compensation
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45
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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45
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Item
13. Certain Relationships and Related Transactions
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45
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Item
14. Principal Accountant Fees and Services
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45
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PART
IV
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46
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Item
15. Exhibits, Financial Statement Schedules and Reports on Form
8-K
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49
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PART
I
This
Annual Report on Form 10-K for the year ended December 31, 2006 (this “Report”)
contains “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that
involve risks and uncertainties. Purchasers of any of the common shares, no
par
value, (the “common shares”) of Altair Nanotechnologies Inc. are cautioned that
our actual results will differ (and may differ significantly) from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those factors discussed herein under
“Item 1A. Risk Factors” and elsewhere in this Report generally. The reader is
also encouraged to review other filings made by us with the Securities and
Exchange Commission (the “SEC”) describing other factors that may affect future
results of the Company.
Unless
the context requires otherwise, all references to “Altair,” “we,” “Altair
Nanotechnologies Inc.,” or the “Company” in this Report refer to Altair
Nanotechnologies Inc. and all of its subsidiaries. Altair currently has one
wholly owned subsidiary, Altair US Holdings, Inc., a Nevada corporation. Altair
US Holdings, Inc. directly or indirectly wholly owns Altairnano, Inc., a Nevada
corporation, Mineral Recovery Systems, Inc., a Nevada corporation (“MRS”), and
Fine Gold Recovery Systems, Inc., a Nevada corporation (“Fine Gold”).
We
have
registered or are in the process of registering the following trademarks: Altair
Nanotechnologies®, Altair Nanomaterials®, Altairnano™, TiNano®, NanoSafe™, Nanocheck©
and
RenaZorb®. Any other trademarks and service marks used in this Report are the
property of their respective holders.
Item
1: Business
We
are a
Canadian corporation, 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 four divisions,
an
Advanced Materials and Power Systems Division, or AMPS Division, a Life Sciences
Division, an Altair Hydrochloride Pigment Process Division, or AHP Division,
and
a Performance Materials Division. Our research, development, production and
marketing efforts are currently directed toward the following primary market
applications that utilize our proprietary technologies:
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o
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The
development, production and sale for testing purposes of electrode
materials for use in a new class of high performance lithium ion
batteries
called lithium nanoTitanate batteries.
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The
design, development, and production of power our NanoSafe brand
nanoTitanate battery cells, batteries, and battery packs as well
as
related design and test services.
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The
co-development of RenaZorb, a test-stage active pharmaceutical ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney
dialysis.
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The
co-development of Renalan, a test-stage active pharmaceutical ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in animals suffering from chronic renal
disease.
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The
marketing and licensing of titanium dioxide pigment production
technology.
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The
testing, development, marketing and/or licensing of nano-structured
ceramic powders for use in various application, such as advanced
performance coatings, air and water purification systems, and nano-sensor
applications.
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We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
In the near term, as we continue to develop and market our products and
technology, contract services will continue to be a substantial component of
our
operating revenues. During the years ended December 31, 2006, 2005 and 2004,
contract services revenues comprised 67%, 70%, and 99%, respectively, of our
operating revenues. In the summary of our business below, we describe our
various research products in connection with our description of the business
segment to which each relates.
Our
Proprietary Nanomaterials and Pigment Process
Most
of
our existing products, potential products and contract research services are
built upon our proprietary nanomaterials and titanium dioxide pigment
technology. We acquired the basis for this technology from BHP Minerals
International, Inc. in 1999 and, over the past six years, have continued to
expand and refine various applications of the technology. Today, we use the
technology in order to produce various finely-sized powders that have current
or
potential applications in a wide range of industries, including pharmaceuticals,
titanium dioxide pigment, and high performance rechargeable batteries Although
the existing and potential applications are varied, each is directly or
indirectly built upon the ingenuity of our management, research and development
staff and engineering team and our proprietary nanomaterials and titanium
dioxide pigment technology.
This
nanomaterials and titanium dioxide pigment technology enables our production
of
conventional titanium dioxide pigment products that are finely sized powders
consisting of titanium dioxide crystals.
These powders approximate 170-300 nanometers in size. This technology is also
capable of producing titanium dioxide and other metal and mixed metal oxide
nanomaterials. These are specialty products with a size range of 10 to 100
nanometers (approximately one tenth the size of conventional titanium dioxide
pigment). The primary products currently being produced in the processing plant
are titanium dioxide, lithium titanate spinel, and lanthanum products
Using
this technology, we are in various stages of research, development and marketing
of numerous products and potential products. We also use this technology to
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
Advanced
Materials and Power Systems
Primary
Products
“NanoSafe”
brand nanoTitanate batteries and electrode materials
We
are
developing, marketing, producing and selling our proprietary rechargeable
lithium ion battery, which we have branded as our NanoSafe
nanoTitanate batteries. We are also seeking to develop, license, manufacture
and
sell our proprietary lithium titanate spinel (“LTO”) electrode materials for use
in batteries being developed by other companies.
As
explained in greater detail below, principal features used to compare
rechargeable batteries including power, rates discharge, energy density, cycle
life, calendar life and recharge time. In laboratory and field tests, our
NanoSafe nanoTitanate batteries have exhibited power, high rates of charge,
wide
operating temperature range, cycle life, and expected calendar life that far
exceed those of rechargeable batteries currently being used for target
applications. We believe that with these strengths our NanoSafe nanoTitanate
batteries are superior alternatives for rechargeable battery uses that require
power, durability and exposure to the elements. These include all types of
electric automobiles, uninterruptible
power
supply, and various power tools.
Target
Markets
According
to
information supplied by JMP Securities
the
market for
power
storage devices
is
approximately $55 billion ($31
billion lead acid, $9 billion alkaline, $8 billion lithium ion, and $7 billion
all other). Lithium ion and advanced technology rechargeable batteries are
expected to gradually increase their share of the world rechargeable battery
market. New developments indicate that high power batteries of this type will
ultimately be developed for application as replacements for lead acid batteries
and Nickel Metal Hydride, or NiMH, batteries in automobiles, electric vehicles,
and hybrid electric vehicles where direct electrical energy for starting and
passing will assist the gasoline engines. Also, the development of power storage
systems for stationary power, electric utility grid services and wind, fuel
cell
and solar generation systems will require enhanced battery
capabilities.
Our
technology provides a fundamental building block for a new generation of
rechargeable batteries. Our
primary market focus is currently the electric vehicle market. With Boshart
Engineering and Phoenix Motorcars, Inc., we have developed a prototype
all-electric sport utility vehicle, or SUV, and a prototype all-electric sport
utility truck, or SUT. Phoenix intends to market these vehicles initially as
fleet vehicle for utility companies. During 2006, we sold $825,000 in battery
pack products to Phoenix for installation in the all-electric SUTs. We have
received a binding order for 2007 for at least $1,040,000 in battery packs
and
projected orders for 2007 of between $16 and $42 million.
We
have
also provided electrode materials, cells, batteries and battery packs to, and
had early stage discussions with, various established automobile companies
which
are in the early stage of evaluating our technology for use in hybrid electric
vehicles and plug-in electric vehicles. These
discussions could lead to commercial relationships that will be characterized
by
a revenue stream consisting of one or more of development funding, materials
manufacturing and royalties.
We
are
focusing our marketing and development efforts on markets presently dominated
by
Nickel Cadmium, or NiCd, and Nickel Metal Hydride, or NiMH, batteries, such
as
automobiles, in which rapid charging, long cycle life and the additional power
from the rapid discharge should prove advantageous; and in stationary power
applications such as uninterruptible power supply, where long calendar life,
low
maintenance and tolerance to temperature extremes should prove advantageous.
Key
Features and Developments
Rechargeable
batteries are made from various materials, each of which has certain
characteristics or tendencies, depending upon how the products are configured.
Some of the key concepts used when comparing rechargeable batteries include
the
following:
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Power:
A battery’s power rating is its ability to deliver current while
maintaining its voltage.
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Discharge:
Discharge refers to the dissipation of a battery’s stored energy as a
result of intended transfer of that energy (either gradually or in
one or
more large bursts) or as a result of the unintended leakage of that
energy. This latter type of leakage is referred to as “self discharge” and
is a
natural tendency of all batteries at a rate that is proportional
to
temperature.
A
“deep discharge” refers to the discharge of substantially all of the
stored energy in a battery between recharges. In general, deep discharges
reduce the cycle life of batteries.
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Energy
density: A
battery’s energy density relates to the total unit volume of materials
comprising a battery that will deliver a watt-hour of energy. A battery
with high energy density will deliver more energy per unit volume
than a
battery with lower energy density.
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Cycle
life: The ability of a rechargeable battery to accept a charge tends
to
diminish as a result of repeat charge/discharge cycles. A battery’s “cycle
life” is the number of times it can be charged and discharged without a
significant reduction in its ability to accept a charge.
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Calendar
life: A battery’s calendar life relates to the period of time that a
battery will preserve its capability to deliver a significant portion
of
its newly built energy storage
capacity.
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Recharge
time: Recharge time is the minimum amount of time it takes to replenish
a
battery’s energy.
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Other
important factors include the cost, safety,
environmental friendliness
and
extreme temperature performance of a battery. Although being on the positive
side of each of the characteristics is desirable in all rechargeable batteries,
the importance of these various characteristics depends primarily upon the
anticipated use of a battery. For example, high power, which is important in
a
hand-held
cordless power tool is
not very
important in a battery designed to power a cell phone because a cell phone
needs
very little power; however, high specific energy may be important in a cell
phone battery because consumers desire to be able to use a cell phone for a
long
time between recharge and want to carry as little weight and volume as possible.
The
principal advance we have made is in the optimization of nano-structured lithium
LTO electrode materials that replace graphite electrode materials used in
the
negative electrode of current
lithium
ion
batteries. When used with a
positive
electrode
from a
common lithium ion battery, battery cells operate at very high charge and
discharge rates. Our current non-optimized cells are capable of recharge times
of 10 minutes to 90%, or more, of initial battery capacity and 10 minute
discharges with 90%, or more, capacity utilizations.
Our
nano-structured LTO is non-reactive with the electrolytes used in common
lithium
ion
systems. This greatly reduces the negative electrode resistance, and thus,
passage of lithium ions to the electrode surface. Since the material is
nano-structured, the surface area available to lithium ions is greatly enhanced
- by up to 100 times - over graphite based systems. The material allows for
a
greatly facilitated, thus rapid, access to the active sites necessary for
battery function. In addition, the small size of the nanoparticles dramatically
reduces the distance from the surface to inner active sites, further reducing
resistance to high rate operation.
These
characteristics permit our battery cells to deliver more power, and recharge
much faster than, other types of rechargeable batteries described in the
subsection entitled “Competition” below.
Our
nano-structured LTO is termed a zero strain material, meaning that the material
essentially does not change shape upon the entry and exit of a lithium ion
into
and from the particle. Since most battery materials suffer from this mechanical
stress and strain (this particle fracturing reduces the life of the battery),
battery calendar
life and cycle life
is
greatly enhanced using our nano-structure LTO.
In
January 2007, we completed 25,000 deep charge/discharge cycles of our innovative
NanoSafe battery cells. Even after 25,000 cycles the cells still retained over
80% of their original charge capacity. This represents a significant improvement
over conventional, commercially available rechargeable battery technologies
such
as lithium ion, NiMH and NiCD. These other commercially available rechargeable
batteries typically retain that level of charge capacity only through
approximately 1,000 deep charge/discharge cycles.
Nano-structured
LTO
offers
a
near-term promise of lithium nano-titanate batteries that exhibit rapid charge
and discharge, longer cycle life and more inherently safe performance than
either currently available NiMH or lithium ion batteries. These results support
the feasibility of a power lithium nano-titanate battery pack half the size
of
those currently being tested for hybrid electric vehicle applications
Our
nano-structured LTO also represents a breakthrough in low- and high-temperature
performance. Nearly 90% of room temperature charge retention is realized at
-30°C
from
Altair’s nano-structured LTO cells. In contrast, common lithium
ion
technology possesses virtually no charging capabilities at this low temperature,
and the rechargeable other battery types described
in the subsection entitled “Competition” below
take 10
to 20 times longer to charge.
We
are
also testing the safety of batteries made using our nano-structured LTO.
Graphite negative electrode materials used in typical lithium ion batteries
are
known to suffer from thermal runaway issues at temperatures above
130°C,
while
lithium titanium spinel oxides are known to be safe for an additional
120°C
or up
to temperatures of about 250°C.
In
May
2006, we completed a safety testing cycle for lithium ion battery products
using
our nano-structure LTO 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 exhibit thermal run away
and 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 nano-structured LTO cells. In comparison, the graphite cells, put to
the same tests, routinely smoked, caught fire and exploded.
On
the
negative side, the current generation of batteries made with our nano-structured
LTO exhibit lower energy density at room temperatures. If density is measured
by
weight, our batteries made with our nano-structured LTO have energy densities
that are better than lead acid NiCd, and NiMH batteries and approximately 70%
of
those of conventional lithium ion batteries.
In
June
2006, we received a purchase order from Phoenix for 35 kilowatt hour (“KWh”)
NanoSafe nanoTitanate battery packs to be used in electric vehicles produced
by
Phoenix and Boshart Engineering. The total value of the purchase order plus
an
additional add-on battery pack was $825,000. The order was successfully
fulfilled by December 31, 2006, and the battery packs delivered met or exceeded
all performance specifications.
On
January 9, 2007, we entered into a multi-year purchase and supply agreement
with
Phoenix for lithium nanoTitanate battery packs to be used in electric vehicles
produced by Phoenix. Contemporaneously, Phoenix placed firm purchase orders
for
35KWh battery pack systems valued at $1,040,000 to be delivered in March and
April of 2007 and placed an indicative blanket purchase order for up to 500
battery pack systems to be delivered during 2007 (projected value between $16
and $42 million). The terms of the purchase and supply agreement include a
three-year exclusivity agreement within the United States that provides Phoenix
with limited, exclusive use of our NanoSafe battery packs in four wheeled,
all-electric vehicles having a gross weight up to 6,000 pounds. Phoenix must
meet minimum battery pack purchases annually to maintain the limited exclusivity
agreement. The minimum commitment to maintain exclusivity for 2007 would provide
$16 million in battery pack sales. Our NanoSafe battery packs manufactured
for
hybrid electric vehicles and plug-in hybrid electric vehicle are excluded from
the exclusivity agreement. Phoenix
issued 1,000,000 shares of its common stock to us in consideration for the
three-year exclusivity agreement described above. The common stock shares
received represented a 16.6% ownership interest in Phoenix at the time of
purchase. Since these shares are not and may never be registered under the
Securities Act or any other state securities laws, a number of factors must
be
considered in establishing a fair value associated with this investment. We
do
not expect to complete this assessment until the end of the first quarter of
2007.
Research,
Testing and Development
In
March
2006, we entered into a two-year joint development agreement with Boshart
Engineering for the design and engineering of a full-speed electric vehicle
to
be powered by our NanoSafe
nanoTitanate batteries. The results of this partnership include the all-electric
SUV and SUT that was introduced at
the
California Air Resources Board Zero Emissions Vehicle Technology Symposium
and
is being
marketed and produced by Phoenix Motorcars. In 2007, the Altair-Boshart
electric vehicle program is expected to include long distance drives at
conventional highway speeds, testing the electric vehicle’s endurance in high
altitudes and extreme weather conditions.
In
September 2006, we signed an agreement with Alcoa’s AFL Automotive business to
jointly develop a battery pack system. This collaboration brings together our
innovative NanoSafe
nanoTitanate
battery technology and AFL Automotive’s expertise in vehicle electrical
distribution systems, power management electronics and its substantial presence
as a world renowned supplier to the automotive market. AFL Automotive is also
a
major supplier of lightweight, high strength aluminum components to the
automotive industry. The agreement provides for the delivery of an integrated
battery pack system for the medium-duty hybrid truck market using our
NanoSafe
nanoTitanate battery technology and AFL Automotive’s electrical interconnect and
application technology to integrate the battery pack system into the vehicle’s
electrical architecture. The scope of the joint development agreement involves
system design, development and prototyping, which are expected to be completed
in 2007.
On
September 9, 2006, approval was finalized on the $2.5 million grant received
from the U.S. Department of Energy. Of the $2.5 million, $2.4 million will
be
available, after the deduction of administrative fees, to fund research for
the
following programs: Battery technology, Nanosensors, and Nanomaterials
characterization. This is a prime grant under which Altair is directly
responsible for the contract administration. The Nanosensors and Nanomaterials
characterization programs are discussed subsequently under the related
divisions. The battery technology program consists of two objectives, 1) Design,
Synthesis, and Testing of Li-ion Hosts for Cathode Service and 2) Development,
Testing, and Demonstration of High Rate Low Temperature Lithium Ion Battery,
funded in the amounts of $508,000 and $606,000 respectively. Objective 1
continues research on optimized anode and cathode materials for high power,
safe, fast charge batteries. The agreement anticipates that this work will
be
accomplished over 24 months. This research will also extend the collaboration
with Rutgers University for prototype cell testing. Objective 2 furthers the
investigation of extreme temperature range battery performance and extends
over
12 months. Of this grant, $1,114,000 is allocated to the battery optimization
program.
In
December 2004, we completed work under Phase I of a National Science Foundation
grant for development of electrode nanomaterials for next generation lithium
ion
power sources. The results of the research, announced on February 10, 2005,
indicated that lithium ion batteries prepared with nano-structured LTO negative
electrode materials exhibit rapid charge and discharge rates, improved cycle
life performance and a decrease in specific energy density when compared to
conventional lithium ion, NiCd and NiMH battery materials. In June 2005, we
were
awarded a grant of $476,850 from the NSF for Phase II. Phase I work was designed
to optimize the negative electrode materials and Phase II is designed to develop
positive electrode materials, thus resulting in matched negative
electrode-positive electrode materials for optimum electrochemical performance.
The research under this grant will continue through September 30, 2007.
At
December 31, 2006, we had approximately $132,157
of work
remaining to be done on this project.
In
addition to our work done under government grants and other development
agreements, we have been conducting our own internal research and development
work on advanced battery materials. In October 2005, we significantly expanded
our battery initiative projects by adding thirteen highly qualified, advanced
battery scientists, engineers, manufacturing and marketing specialists, several
of whom are located at a new facility in central Indiana. At both this and
our
Reno facility, we are installing manufacturing and testing equipment for the
production of prototype lithium nanoTitanate cells, batteries and battery packs
in sufficient quantities to demonstrate end-user products in power tools,
automobiles, trucks and buses. In January 2006, our battery research and
development team successfully completed a testing program for lithium
nanoTitanate battery cells containing our nano-structured LTO electrode
materials. The test results demonstrated that the performance of the LTO lithium
nanoTitanate battery cells exceeded the system-level power requirements set
forth by the U.S. Council for Automotive Research FreedomCAR Energy Storage
System Performance Goals for hybrid electric vehicles, as well as the
system-level power
requirements published by major U.S. automakers. The battery cells using our
nano-structured LTO
materials
in
battery cell tests developed for hybrid electric vehicle applications
demonstrated a useable state-of-charge range twice that of conventional NiMH
batteries presently used in hybrid electric vehicles.
In
April
2005, we signed a partnering agreement with Advanced Battery Technologies,
Inc.,
a U.S. and Chinese-owned company, for the development of lithium polymer
batteries in China. The agreement covered the incorporation of our nano-structured
LTO
electrode materials
into
Advanced
Battery's
existing polymer battery product lines on a testing and development basis.
Advanced Battery Technologies, Inc. has informed us that they continue to make
trial battery products from nano-structured LTO electrode materials and we
remain in discussions regarding new orders for nano-structure LTO electrode
materials. However, the 2005 partnering agreement has expired and Advanced
Battery Technologies, Inc. re-ordered no additional materials during
2006.
Proprietary
Rights
We
have
been awarded four U.S. and several international patents protecting this
technology including: 1) Method for producing catalyst structures, 2) Method
for
producing mixed metal oxides and metal oxide compounds, 3) Processing for making
lithium titanate, and 4) Method for making nano-sized and sub-micron-sized
lithium-transition metal oxides. The U.S. patents expire in 2020, 2021 and
2022.
Two new patent applications have been filed recently.
Competition
Advanced
Lithium Ion Batteries.
We are
not aware of any commercial products available with the same characteristics
as
our nano-structured LTO and our NanoSafe
nanoTitanate batteries and battery packs.
A
competitor company has recently announced an advanced Li-Ion battery. This
battery appears to have some advantages over other types of common Li-Ion
batteries, but still lacks the life, extreme safety, and other features that
distinguish NanoSafe batteries from the competition. In addition, we believe,
many large companies, such as automobile manufacturers, are attempting to
develop lithium ion batteries that are suitable for high-power applications
such
as hybrid electric vehicles and plug-in hybrid electric vehicles. Many of these
companies have significant human and financial resources, a well-known brand
name, existing distribution channels and other advantages over us. Were such
companies to develop a product technology with features that are similar or
superior to those of our NanoSafe
nanoTitanate batteries,
that
company would have a significant competitive advantage.
Existing
Technologies.
Lead
acid, NiCd, and NiMH batteries presently dominate our target markets. Lead
acid
batteries are used everyday by anyone who drives an automobile or operates
a
wheel chair, electric scooter or golf cart. They are also the battery-of-choice
for uninterruptible power supplies. Lead acid batteries are an inexpensive,
relatively simple to manufacture, mature, reliable technology that possesses
a
relatively low self discharge rate, and the modern sealed versions need little
or no maintenance. However, lead acid batteries are quite heavy, giving them
very poor weight to energy and
power
ratios,
which
limit practical use to stationary and wheeled applications. They also suffer
from long recharge times and relatively low energy capacities and cannot be
stored for long periods in a discharge state without service-life failure.
In
addition, they possess a very limited deep discharge
cycle
life,
and
thermal runaway can occur with improper charging. The highly toxic metal, lead,
and highly corrosive sulfuric acid in lead acid batteries render them
environmentally unfriendly.
NiCd
batteries are inexpensive and fairly rugged, have
the
longest cycle life of currently available rechargeable battery types,
work
best
on deep discharge cycles and accept recharge at moderately fast rates; however,
charging rates must be reduced by a factor of 5 to 10 at temperatures below
0°C
(32°F)
and
above 30°C (86°F). On the other hand, NiCd
batteries
suffer
from relatively low energy density and relatively high self-discharge rates
necessitating re-charge after moderate periods of storage. More seriously,
NiCd
batteries
are
exceedingly environmentally unfriendly. The metal cadmium is toxic and can
cause
several acute and chronic health effects in humans, including cancer. As a
result, NiCd usage is being severely restricted and/or phased-out altogether
by
some countries.
The
metal
hydride used in NiMH technology is a direct replacement for cadmium in NiCd
batteries. Thus, NiMH batteries
share
and
improve
upon the
attributes of NiCd batteries, yet introduce
problems
of their
own. On
the positive side, NiMH batteries
improve
upon the energy capacity and
power
capabilities of
NiCd
(for the same size cell) by 30% to 40%. Since they
contain
only
mild toxins, NiMH batteries
are
more
environmentally friendly than both lead acid and NiCd
batteries.
Like
NiCd
batteries,
NiMH
batteries
can be
charged in about 3 hours. Charging rates must be reduced by a factor of 5 to
10
at temperatures below 0°C (32°F) and above 40°C (104°F). NiMH batteries
suffer
from
poor deep cycle ability, possessing a recharge capability of the order of 200
to
300 cycles. While NiMH batteries
are
capable of high power discharge, dedicated usage in high current applications
limits cycle life even further. Shelf life is poor, on the order of three years.
As noted above, NiCd batteries possess high self-discharge rates, but this
problem is exacerbated by up to 50% in NiMH systems. NiMH batteries
are
intolerant to elevated temperature and, as a result, performance and capacity
degrade sharply above room temperature. The most serious issue with NiMH
involves safety accompanying recharge. The temperature and internal pressure
of
a NiMH battery
cell
rises sharply as the cell nears 100% state of charge, necessitating the
inclusion of complex cell monitoring electronics and sophisticated charging
algorithms in order to prevent thermal runaway. While NiMH technology is gaining
prominence within the electric vehicle (EV) market and dominates
the hybrid
electric vehicle market, this gain is placing pressures on the limited supply
of
nickel, potentially rendering the technology economically infeasible for these
applications as the demand continues to rise.
Of
all of
the available metals for use as a basis for practical batteries, lithium is
the
most reactive and least dense, allowing for batteries with high specific
energy.
Conventional lithium ion batteries
exhibit
voltages of about 3.6V as compared to about 1.2V for NiCd and NiMH and 2.0V
for
lead acid. There is a relationship between power P, voltage V and current I.
This relationship is best summarized by this formula: P=IV. Power is also
defined as the time rate of energy transfer; thus higher voltages typically
lead
to larger power and / or energy densities. Lithium ion batteries
are
stable, charge
somewhat rapidly (in hours), exhibit
low
self-discharge, and require
very little maintenance. Except as explained below, the safety, cycle life
(about 300 to 400 cycles), calendar life (about 3 years), environmental impact
and power of lithium ion batteries is comparable to those of NiMH and NiCd
batteries.
Conventional,
graphite-based, lithium ion batteries are the batteries of choice in
small
electronics, such as cell phones and portable computers, where high energy
and
light weight are important. These same attributes are desired for electric
vehicle, hybrid electric vehicle, power tool and uninterruptible power supply
markets. However, these applications are principally high power demand
applications and/or pose other demands on usage, such as extremes of
temperature, need for short recharge times, high proportional (to stored energy)
current rates and even longer extended lifetimes. Because
of safety concerns related principally to the presence of graphite, conventional
graphite-based lithium ion batteries sufficiently large for such power uses
are
considered unsafe. In addition, current lithium
ion
technology is capable of about 300 to 400 cycles and has a life of about 3
years, whereas the vehicles in which they are used have lifetimes as long as
10
to 15 years and require many hundreds, even thousands, of charge/discharge
cycles. Conventional
lithium ion batteries also do not function well at extremely hot or cold
temperatures.
Life
Sciences
RenaZorb®
Products
RenaZorb
is a highly active, lanthanum-based nanomaterial with low intestinal solubility
and excellent in-vitro phosphate binding. Animal testing of RenaZorb has been
conducted in dogs, cats and rats; however, no human tests have yet been
conducted. Based upon our initial laboratory and animal testing, we believe
that
RenaZorb may offer the following advantages over competing
products:
|
·
|
Lower
dosage requirements because of better phosphate binding per gram
of drug
compared with existing or currently proposed
drugs;
|
|
·
|
Fewer
and less severe side effects because of less gassing and lower dosage;
and
|
|
·
|
Better
patient compliance because of fewer and smaller
tablets.
|
In
all
animal testing conducted on RenaZorb, which to date included three separate
testing protocols, no adverse side effects were reported. In all testing,
RenaZorb was administered to the animals by mixing the drug with the food they
eat. In no case was there any reduction in the amount of food the animals
consumed when RenaZorb was mixed with the food. The drug appears to be
tasteless.
Target
Markets
Our
pharmaceutical product RenaZorb was developed to treat elevated phosphate levels
in human patients with chronic kidney disease, especially in patients with
end
stage renal disease. According to information published by AnorMED, the
worldwide market for phosphate binders for chronic renal failure patients is
approximately $400 million to $600 million annually.
Research,
Testing and Development
In
the
second quarter of 2002, we initiated research and development efforts directed
toward the utilization of nanomaterials in the pharmaceuticals industry. In
July
2002, we announced the development of a new active pharmaceutical ingredient,
or
API, for the treatment of hyperphosphatemia (elevated serum phosphate levels)
in
patients undergoing kidney dialysis, as well as a new drug delivery system
using
inorganic ceramic nanomaterials. This API, given the name RenaZorb, showed
excellent capacity for phosphate removal in laboratory tests using standard
in-vitro (laboratory) procedures.
In
January 2005, we signed a license agreement with Spectrum Pharmaceuticals,
Inc.,
which grants Spectrum exclusive worldwide rights to develop, market and sell
RenaZorb. Upon signing the license agreement, Spectrum issued to us 100,000
restricted shares of their common stock, purchased 38,314 restricted shares
of
our common stock at the then current market value of $2.61 per share, and also
paid us $100,000 in connection with the license agreement. In June 2006,
Spectrum issued to us 100,000 restricted shares of their common stock at the
then current market value of $3.88 per share in connection with the first
milestone payment due upon
demonstration of satisfactory lanthanum serum levels.
An
additional 40,000 shares were issued in payment of research and development
services provided by us. Additional payments by Spectrum are contingent upon
the
achievement of various milestones in the testing, regulatory approval and sale
of RenaZorb.
Additional,
contingent consideration under the license agreement may include the following:
·
purchases
of a specified dollar amount of common stock of the Company at a premium above
market price upon the reaching of various milestones representing progress
in
the testing and obtaining of regulatory approval for RenaZorb;
·
milestone
payments upon obtaining approval from the FDA and similar regulatory agencies
in
Europe and Japan to market RenaZorb;
·
milestone
payments as certain annual net sales targets are reached;
·
royalty
payments based upon a percentage of net revenue from sales of RenaZorb in each
country (subject to adjustment for combined products and in other circumstances)
as long as patents applicable to that country remain valid; and
·
technology
usage payments thereafter until generic competition emerges.
Assuming
the testing, development and regulatory approvals of RenaZorb proceed at the
rate we expect, the aggregate value of all the first year payments and all
potential stock premiums, milestone payments and other payments to us over
the
first 5-7 years of the license agreement could reasonably range between $9
million and $14 million. Assuming a drug containing RenaZorb receives timely
regulatory approval, the market for phosphate controlling drugs continues to
grow at projected rates, and the product becomes a leader in the market place,
the total revenues to the Company over the life of the license agreement could
exceed $100 million.
RenaZorb
must undergo animal and human testing and receive approval from the FDA in
the
U.S. and similar regulatory bodies in other parts of the world before it can
be
approved for marketing. Human testing typically takes 1 to 2 years and, if
merited by the results of human testing, the process of seeking U.S. regulatory
approval
typically takes between
3
and 5 years; however, timing for FDA and other regulatory approval of drug
candidates is unpredictable. Spectrum, with technical assistance from Altair,
is
responsible for the clinical testing and other activities necessary to obtain
regulatory approval of RenaZorb. Spectrum has begun the process of information
and data collection and presentation required to file an investigational new
drug application with the FDA, which is the first stage of seeking regulatory
approval and is expected to occur during 2007.
Proprietary
Rights
We
have
applied for patent protection for the manufacture of RenaZorb and a wide range
of similar compounds for the application as an orally administered phosphate
binder for patients suffering from end stage renal disease. These patent
applications are “Rare earth metal compounds, methods of making and methods of
using the same,” “Devices for removing phosphate from biological fluids,”
“Processes for making rare earth metal oxycarbonates” and “Rare-earth metal
composites for treating hyperphosphatemia and related methods.”
Competition
Existing
phosphate binders include Tums antacid, which contains calcium carbonate, as
well as aluminum hydroxide-based products such as Gaviscon manufactured by
Glaxo
Smith Kline, both of which are available over the counter. Renagel manufactured
by Genzyme, is available only by prescription. In addition, Fosrenol, another
lanthanum based active pharmaceutical agent developed by Shire Pharmaceuticals
of the UK, is available only by prescription.
While
over-the-counter phosphate binders are relatively inexpensive, they have several
disadvantages. In high doses, calcium carbonate-containing phosphate binders
such as Tums may cause increased blood pressure and increased risk of
cardiovascular disease and are generally not recommended for long-term use
by
dialysis patients. With prolonged use, aluminum hydroxide-based phosphate
binders, such as Gaviscon, may cause toxic neurological effects and are
generally avoided by physicians. Aluminum dementia has been widely reported
in
kidney dialysis patients using these products.
The
prescription phosphate binder Renagel is relatively expensive (approximately
$2,800 per patient per year), has a high dosage requirement (2 x 800 mg or
4 x
400 mg capsules/tablets or more three times per day) and water intake is
required. The most common side effects related to the use of Renagel include
nausea (7% of patients), constipation (2% of patients), diarrhea (4% of
patients), gas or bloating (4% of patients) and heartburn or indigestion (5%
patients).
Fosrenol
was introduced in the United States in January 2005 and, according to a Shire
Pharmaceutical Group news release dated February 20, 2007, has increased its
average share of the total US phosphate binding market to 9% during 2006 from
7%
in 2005. Worldwide sales of Fosrenol during 2006 reportedly totaled $44.8
million, with US sales reportedly being $40.2 million. Fosrenol is marketed
as
large chewable tablets with a proposed dosage of 1.5 to 3.0 grams active drug
per day,
RenaZorb,
which is nanotechnology based, is expected to be developed in a tablet dosage
form with a projected dosage of 0.6 to 3.0 grams API per day. Although we have
done no human testing on RenaZorb, we believe RenaZorb has the potential for
fewer side effects, lower cost and better patient compliance. We base these
possible advantages upon in vitro testing conducted by Altair in which RenaZorb
was compared to lanthanum carbonate tetrahydrate, the API in Fosrenol Our in
vitro testing showed that RenaZorb binds 30% more phosphate per gram of drug
than LCTH, therefore requiring a lower dose. Lower dose often correlates well
with a reduction of observed side effects in chemically related compounds.
In
all animal testing conducted on RenaZorb, which to date included three separate
testing protocols; no adverse side effects were reported. In all testing,
RenaZorb was administered to the animals by mixing the drug with the food they
eat. In no case was there any reduction in the amount of food the animals
consumed when RenaZorb was mixed with the food. The drug appears to be
tasteless.
Renalan
Renalan
is a highly active, lanthanum-based nanomaterial with low intestinal solubility
and excellent in-vitro phosphate binding. Animal testing of RenaZorb/Renalan
has
been conducted in dogs, cats and rats. Based upon our initial laboratory and
animal testing, we believe that Renalan may offer the following
benefits:
|
·
|
Specifically
targeted to address chronic kidney disease in companion
animals
|
|
·
|
Palatable
with normal food intake regime
|
|
·
|
Can
be administered in powder form which can be mixed with the pet’s
food
|
Target
Markets
Renalan
was developed to treat elevated phosphate levels in animals with chronic kidney
disease. According to information published in the Textbook of Veterinary
Internal Medicine by Stephen J. Ettinger, DVM and Edward C. Feldman, DVM, the
dog chronic kidney disease population is variously estimated at between 0.5%
and
7% of population, resulting in a worldwide chronic kidney disease population
of
between 0.75 million and 10.5 million dogs. They go on to state that the cat
chronic kidney disease population is estimated at between 1.6% and 20% of total
population, resulting in a worldwide chronic kidney disease population of
between 2.8 million and 35 million cats. Using the rest of the data in their
textbook and average life expectancy curves yields a worldwide cat chronic
kidney disease population of approximately 4.2 million and a dog chronic kidney
disease population of about 1.2 million.
Research,
Development and Licensing
In
May
2006, we entered into a collaborative research, license and commercialization
agreement with the Elanco Animal Health Division of Eli Lilly and Company.
Under
the terms of the agreement, Elanco has exclusive rights to develop animal health
products using our nanotechnology-based products. The agreement gives Altair
specific rights with respect to the manufacture of these products for Elanco.
Upon successful completion of proof of concept studies performed by Elanco
for
each nanotechnology-based product selected by the joint development committee,
a
$100,000 fee will be charged for the exclusive license rights to develop and
commercialize each of these products. The proof of concept study relating to
the
first product, Renalan, was completed in December 2006 and the related license
fee of $100,000 was received.
Other
payments by Elanco under the contract are contingent upon the achievement of
various milestones in the testing, regulatory approval and sale of each product
selected for development and commercialization. Additional, contingent
consideration under the license agreement may include the following:
·
milestone
payments for each product that is submitted for regulatory acceptance in the
United States, with additional fees due upon regulatory approval;
·
sublicense
revenue based on a percentage of all payments and consideration received from
third parties to whom Elanco has granted a sub-license;
·
royalty
payments based upon a percentage of net sales on a product by product, country
by country basis;
·
performance
bonus based on cumulative net sales targets for each product: and
·
manufacturing
royalties for each product that is manufactured by a 3rd
party to
be paid for the first three years that the product is sold or
distributed.
Renalan
must undergo animal testing and receive approval from the FDA in the U.S. and
similar regulatory bodies in other parts of the world before it can be approved
for marketing as a drug. The
FDA
approval process for companion animal use is expected to take two to three
years
to complete; however timing for FDA and other regulatory approval of drug
candidates is unpredictable. Elanco,
with
technical assistance from Altair, is responsible for the clinical testing and
other activities necessary to obtain regulatory approval of Renalan. Elanco
has
begun the process of information and data collection and presentation required
to commence seeking regulatory approval, which is planned during
2007.
Proprietary
Rights
We
have
filed one U.S. patent application for this product entitled “Compositions and
methods for treating hyperphosphatemia in domestic animals.” Additionally,
Renalan is a compound very similar to RenaZorb and is protected by the patent
applications discussed under “RenaZorb” above.
Competition
In
late
2005, Vetoquinol, a French animal health company, released Epakitin in the
US.
Vetoquinol positions Epakitin as a chitosan-based phosphate binder and uremic
reducer for chronic kidney disease in dogs and cats. The product has not been
on
the market long enough to determine its market strength or
effectiveness.
Secondary
Products and Projects in Life Sciences in Progress
TiNano®
Spheres
Our
proposed chemical delivery system involves depositing active chemicals on or
inside hollow spheres made of titanium dioxide and other metal oxide materials,
including nanomaterials. Our hollow
sphere structures may be able to deliver active chemicals or drugs in a
sustained release fashion because the active component could be “mounted” on
both the outside surface and inside the hollow ball structure. The dissolution
and availability of the surface-mounted active component would likely be
different than the active component inside the hollow spheres. Material inside
the hollow structure would possibly be released more slowly compared to
surface-mounted material.
An
additional potential feature of our nanomaterials-based hollow structures is
that two different active substances could be mounted, one inside the hollow
spheres and another on the surface. This allows the possibility for dual action
pharmaceuticals to be developed using this technology.
Because
of the early stage of development of this chemical delivery system, we are
unable to state with any certainty how (or if) such a delivery system would
be
used and, if used, what the uses for such system would be and what the
comparative advantages, side effects and other aspects of such a delivery system
would be. Nevertheless, we believe that the following uses of a
nanomaterials-based chemical delivery system are feasible:
|
·
|
New
delivery forms for existing drugs;
|
|
·
|
Delivery
methods for new drugs;
|
|
·
|
Enhanced
delivery of hard to dissolve drugs;
|
|
·
|
Delivery
of sustained release drugs; and
|
|
·
|
Delivery
of dual action drugs
|
We
have
filed two patent applications regarding this field including: (1)
“Pharmaceutical composition and structure containing rare earth porous
particles” and (2) “Pharmaceutical composition with controlled surface
area.”
Other
Nanomaterials Research
In
September 2006, the Nanomaterials characterization program was funded by
$311,000 of the $2.5 million Department of Energy grant. This research will
be
conducted in collaboration with the University of California, Santa Barbara,
or
UCSB, to investigate the interaction of our nanomaterials with various
non-aqueous environments. This research will focus on interaction mechanisms
between cells and nanoparticles, with the goal of understanding how specific
chemical, physical, and electrical properties of these nanoparticles influence
that interaction. Our research with UCSB will examine a range of microbes that
have environmental or societal importance. The results of this research are
expected to provide the basis for both 1) predicting potential negative impacts
of specific nanoparticle characteristics on the environment and human health
and
2) developing novel antimicrobial agents and surface treatments that could
defeat antibiotic-resistant strains of harmful microbes.
The
AHP Division
We
have
named the portion of the nanomaterials and titanium dioxide pigment technology
that was developed to produce high quality titanium dioxide pigment the Altair
Hydrochloride Pigment process,
or AHP. This package of technologies includes four US patents, trade secrets
and
know-how developed over nine years of research and development. The technology
represents a comprehensive process to extract heavy minerals such as titanium
from raw materials, produce a high quality titanium dioxide pigment and minimize
environmental impact.
We
believe that AHP is the first new, comprehensive technology to produce titanium
dioxide pigment in over fifty years and takes advantage of new technologies
to
enable high quality pigment production. Titanium dioxide pigment is produced
in
bulk and is used principally as a whitener and opacifier for paper, plastics
and
paint. AHP uses a
dense-phase crystal growth technique that controls crystal formation using
a
combination of mechanical, fluid dynamics, chemical and thermal control.
A
third
party engineering study suggests that costs associated with this process will
be
lower than costs associated with alternative processes. All hydrochloric acid
waste streams can be recycled to recover acid, and the waste solids generated
from the purification process are easily manageable iron oxides.
Target
Markets and Marketing Plans/Efforts
We
intend
to benefit from the AHP through technology license agreements with large
materials companies under which we would receive royalties and other payments
and, in certain situations, partner in the manufacture of pigment for sale.
We
do not anticipate being a manufacturer of pigments or competing directly in
the
pigment market without a substantial partner. Our market approach has been
to
target chemical manufacturing and mining companies who are addressing the market
for high-grade titanium dioxide pigment.
Research,
Testing, Development and Licensing Status
The
AHP
is substantially developed and, in a test environment, we are able to extract
titanium from raw materials in order to produce a high quality titanium dioxide
pigment. The AHP is not, however, a one-size-fits-all technology and needs
to be
customized to the particular needs of any potential application. This
customization will generally involve various stages of testing and development
tailored to the application’s specific needs. Such contractual arrangements may
involve incremental payments and development services along the way but will
lead to significant revenue only if a full-scale commercial titanium pigment
production facility is constructed.
In
January 2004, we entered into a license agreement with Western Oil Sands, Inc.,
or Western Oil, with respect to its possible use of the AHP for the production
of titanium dioxide pigment and pigment-related products at the Athabasca Oil
Sands Project in Alberta, Canada, and elsewhere. Upon execution of the
agreement, we granted Western an exclusive, conditional license to use the
AHP
on heavy minerals derived from oil sands in Alberta, Canada. The agreement
also
contemplated a three-phase, five-year program pursuant to which the parties
will
work together to further evaluate, develop and commercialize the AHP. In the
first phase of the program, which was extended through December 2006, we, along
with Western Oil, evaluated the AHP to confirm that the AHP will produce pigment
from oil sands and to complete a characterization study.
During
December 2006, Western Oil requested an additional extension of phase one to
allow them to perform additional characterization of the feedstock source prior
to committing to phase two of the license agreement workscope. In light of
the
broad exclusive license granted to Western Oil in the initial agreement, we
declined to extend the terms of the license in order to preserve our flexibility
in other potential licensing arrangements that may not involve an exclusive
license for Western Oil. Nonetheless, we continue to work with Western Oil,
under a paid contract with approximately $830,000 of work remaining as of
December 31, 2006, to assist them in various development activities associated
with production of a pigment feedsource at a pilot plant located in our
building. We also expect to discuss an alternative license with Western Oil
and/or other partners commencing during the second or third quarter of 2007.
Proprietary
Rights
We
have
been awarded four U.S. and 15 international patents protecting this technology
including: 1) Processing titaniferous ore to titanium dioxide pigment, 2)
Processing aqueous titanium chloride solutions to ultrafine titanium dioxide,
3)
Processing aqueous titanium solutions to titanium dioxide pigment and 4) Method
For Producing Mixed Metal Oxides and Metal Oxide Compounds. The U.S. patents
expire in 2020 and 2021. Two new patent applications have also been filed
recently.
Competition
Existing
pigment production technologies are owned and guarded by the top tier producers
that developed the technologies. Such producers typically do not grant licenses
to competitors. As a result, companies seeking to enter into the pigment
production business generally are required to use alternative technologies.
Companies assessing the viability of our process to manufacture pigment from
their resource are also evaluating alternatives, including producing mineral
concentrates for sale to pigment producers and producing a high value synthetic
rutile to be sold to pigment producers as feed stock. They may elect to
commercialize either of these alternatives instead of producing pigment by
the
AHP. We believe there are no competing new technologies to produce titanium
dioxide pigment.
The
Performance Materials Division
The
products and projects in our Performance Materials Division are all projects
with either limited revenue potential or which are at an early state of research
or development, but which provide, and may continue to provide, supplemental
income and the potential of future products to us.
Air
and Water Treatment
Our
proprietary high-photocatalytic nano titanium dioxide product, irradiated by
ultraviolet light, accelerates eradication of most airborne bacteria, viruses,
mold, spores and fungi. Ultraviolet light has long been used in hospitals and
other critical environments to kill bacteria, viruses and other contaminants
and
its benefits are proven and well known. The oxidizing effect produced by
ultraviolet light and Altair’s nano titanium dioxide converts many chemical and
biological contaminants into benign elements - carbon dioxide, water vapor
and
other materials.
Sample
nano titanium dioxide products have been sold to several potential users for
testing in air and water purification systems. The largest of these testing
programs is being undertaken by Genesis Air, Inc., with devices being tested
in
dozens of poor air quality environments including casinos, meat packing plants,
military quarters, bowling alleys and the like. The Genesis Air device is
designed to fit into existing heating, ventilation and air conditioning
systems.
Nanocheck
is a lanthanum-based compound that can be used to treat recreational and
industrial water for the removal of phosphates to arrest the growth of algae.
It
has no reported human health hazards and works effectively in existing
filtration units without the need of purchasing additional equipment. We are
in
the process of marketing Nanocheck products to companies that already sell
products into the recreational water treatment market - swimming pools and
spas,
both private and public. Nanocheck’s ability to bind with the phosphate in water
and effectively “starve” the algae makes it an ideal adjunct to algaecide-based
water treatment. As such, it is seen as line extension for the pool chemical
suppliers. Potential
customers tested Nanocheck during 2005 and 2006; however, these customers
determined not to license and market the product. Different potential pool
chemical suppliers have begun testing and continue to test market Nanocheck.
If
they elect to license the technology or purchase the products after completing
testing, we
expect
to generate revenue in the form of royalties and in connection with our supply
of key ingredients.
We
have
filed two U.S. patent applications for the application of Nanocheck entitled
“Rare Earth Compositions and Structures for Removing Phosphates from Water” and
“Ceramic structure for removing toxic elements from water.”
Advanced
Performance Coatings
We
have
developed thermal spray grade nanomaterial powders that can be applied as a
coating on the surface of metals by standard thermal “gunning” techniques. Our
nanomaterials coatings possess enhanced toughness and increased hardness; these
features contribute to superior abrasive wear resistance over the conventional
coating of the same material. The nanomaterial coatings also demonstrate
improved porosity over standard thermal spray powders making them more resistant
to corrosive attack. We believe that improvements will enable longer periods
between maintenance, repairs and examinations of these critical components,
therefore improving the economics of the industrial application. Such thermal
spray products could be used in a variety of harsh environment applications
such
as aerospace propulsion systems, blades and vanes, medical applications, textile
and paper machinery, boilers for power plants, waste incinerators, oil and
gas
industry, etc.
In
March
2006, we entered into a supply and distribution agreement with Sulzer Metco,
a
publicly-traded Swiss company involved in the design, manufacture and supply
of
thermal spray materials, equipment and integrated system solutions for the
industrial market. Under the terms of the agreement, the companies are jointly
selecting and managing the commercialization of licensed products comprising
or
incorporating our nano-structured titanium dioxide and nano-structured yttria
stabilized zirconium oxide. When an Altair nano-structured powder is designated
to be supplied under the agreement, Sulzer Metco has the right to be the
exclusive distributor of that product in the spray coating field assuming that
certain purchase and other commitments are met. We believe the market for each
such product may be 2-5 tons annually in the near term with possible growth
to
as much as 20-30 tons per product annually in the future. In light of the
limited size of the potential market, we do not expect these performance
coatings to be a material source of revenue in the long term.
Our
thermal spray grade powders are protected by U.S. Patent titled, “Processing
aqueous titanium chloride solutions to ultrafine titanium dioxide,” which
expires in 2020. We have also been issued a U.S. Patent titled “Process for
making nano-sized zirconia” which expires on November 2, 2021.
Nanosensors
Research Program
Since
September 2003, pursuant to a teaming/research agreement with Western Michigan
University funded by the Department of Energy, we have been engaged in the
development of a technology used in the detection of chemical, biological and
radiological agents. We
generated approximately $15,000 in revenue through December 2006 as part of
this
program. In August 2006, $981,000 of the $2.5 million Department of Energy
research grant received by Altair and its partners was allocated to the
continuation of this program. Of this amount, we expect to receive $481,000
over
the next twelve months, with the remaining $500,000 being earned by Western
Michigan University under a subcontract. The workscope associated with this
grant builds upon the accomplishments and progress made under the prior grants
and will focus on increasing the signal strength and selectivity of the sensing
devices developed. The ultimate goal is to develop a unique nanosensor-based
platform for the error-free, “lab on a chip” detection of chemical, biological
and radiological agents for hazard materials remediation and threat detection.
During 2006, we developed a portable, hand held, sensing device and we are
now
developing a library of sensing molecules for identification of a multiplicity
of agents.
In
August
2006, we signed a subcontract with the University of Reno, Nevada to act as
a
subcontractor under a $1,095,000 grant awarded to them by the Department of
Energy to continue development of nanosensors for the detection of chemical,
biological and radiological agents. This subcontract provides for total payments
to Altair of $250,000 over a 12-month period. This project is an outgrowth
of,
and builds on the research initiated with, the Western Michigan University
program. The overall workscope of this project will focus on homeland security
applications relating to novel fluorescent and electroluminescent receptor
molecules. Our role in the overall project is intended to be the synthesis
and
development of suitable lanthanum and other metal-based nanoparticles for
initiating reactions between target chemical and radiological agents.
Hydrogen
Generation using Solar Energy and Water
In
November 2004, we entered into an agreement with the University of Nevada,
Las
Vegas Research Foundation to act as a subcontractor under a $3,000,000 grant
awarded to them by the Department of Energy for joint research activities
related to solar hydrogen production at a refilling station under development
in
Las Vegas. The agreement, which was effective through December 31, 2005,
provided for payments to Altair of $400,000 for research and development work
utilizing nanotechnology processes for the production and commercialization
of
solar-based hydrogen technologies. In November 2005, we were notified that
we
would receive $750,000 under a grant award from the Department of Energy for
collaborative research and development work beginning October 1, 2005 and
continuing through December 2006. This grant has been extended through March
31,
2007 to allow for completion of the research activities with no adjustment
to
the original amount awarded. As of December 31, 2006, there was $202,892 of
work
remaining to be completed under this grant.
The
development work is expected to involve, among other tasks, enhancement of
the
solar cell to be used at the proposed refilling station. The solar cell device
converts light and water directly into hydrogen fuel in a highly efficient,
renewable and carbon-free process using photo-catalytic nano-crystalline thin
films to gather photons of incident light and convert them into electrons to
directly split water into its constituent elements. As a result of this funding
support, we have acquired several state-of-the-art systems for deposition and
evaluation of thin films used to construct hydrogen generating solar cells.
We
continue to study iron-based oxide materials for solar cell applications
utilizing the afore-mentioned systems, concentrating on enhancing film
performance through addition of doping elements to the iron oxide films and
exploring deposition methods to obtain the best sunlight-to-hydrogen conversion
efficiencies.
Research
and Development Expenses
Total
research and development expenses were $10,077,231, $5,073,478, and $2,189,150
for the years ended December 31, 2006, 2005 and 2004, respectively, while
research and development costs funded by customers were $2,897,859, $1,962,162,
and $1,144,389 for the years ended December 31, 2006, 2005 and 2004,
respectively.
Dependence
on Significant Customers
During
the year ended December 31, 2006, we recorded revenues from five major
customers, each of which accounted for 10% or more of revenues. Revenues from
Western Oil Sands, Inc. in the AHP Division were $1,111,697; Phoenix Motorcar,
Inc. revenues of $825,000 and Department of Energy revenues of $347,904 in
the
AMPS Division; Spectrum Pharmaceuticals, Inc. revenues of $514,840 in the Life
Sciences Division; and revenues from the UNLV Research Foundation of $416,687
in
the Performance Materials Division.
Government
Regulation
Most
of
our current and proposed activities are subject to a number of federal, state,
and local laws and regulations concerning machine and chemical safety and
environmental protection. Such laws include, without limitation, the Clean
Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response Compensation Liability Act. We also subject
to laws governing the packaging and shipment of some of our products, including
our NanoSafe nanoTitanate batteries. Such laws require that we take steps to,
among other things, maintain air and water quality standards, protect
threatened, endangered and other species of wildlife and vegetation, preserve
certain cultural resources, and reclaim processing sites and package potentially
flammable materials in appropriate ways.
Compliance
with federal, state, or local laws or regulations represents a small part of
our
present budget. If we fail to comply with any such laws or regulations, however,
a government entity may levy a fine on us or require us to take costly measures
to ensure compliance. Any such fine or expenditure may adversely affect our
development.
We
are
committed to complying with and, to our knowledge, are in compliance with,
all
governmental regulations. We cannot predict the extent to which future
legislation and regulation could cause us to incur additional operating
expenses, capital expenditures, and/or restrictions and delays in the
development of our products and properties.
Environmental
Regulation and Liability
Any
proposed processing operation at our main operating facility in Reno, Nevada
or
any other property we use will be subject to federal, state, and local
environmental laws. In addition, our cleanup efforts on the Tennessee mineral
property have been, and will continue to be, subject to such environmental
laws.
Under such laws, we may be jointly and severally liable with prior property
owners for the treatment, cleanup, remediation, and/or removal of substances
discovered at any other property used by us, to the extent the substances are
deemed by the federal and/or state government to be toxic or hazardous. Courts
or government agencies may impose liability for, among other things, the
improper release, discharge, storage, use, disposal, or transportation of
hazardous substances. We use hazardous substances in our testing and operations
and, although we employ reasonable practicable safeguards to prevent any
liability under applicable laws relating to hazardous substances, companies
engaged in materials production are inherently subject to substantial risk
that
environmental remediation will be required.
Financial
Information about Segments and Foreign Sales
Information
with respect to assets, net sales, loss from operations and depreciation and
amortization for the performance materials, life sciences, AHP and AMPS segments
is presented in Note 17, Business Segment Information, of Notes to Consolidated
Financial Statements in Part IV.
Information
with respect to foreign and domestic sales and related information is presented
in Note 17, Business Segment Information, of Notes to Consolidated Financial
Statements in Part IV.
Subsidiaries
Altair
Nanotechnologies Inc. was incorporated under the laws of the province of
Ontario, Canada in April 1973 under the name Diversified Mines Limited, which
was subsequently changed to Tex-U.S. Oil & Gas Inc. in February 1981, then
to Orex Resources Ltd. in November 1986, then to Carlin Gold Company Inc. in
July 1988, then to Altair International Gold Inc. in March 1994, then to Altair
International Inc. in November 1996 and then to Altair Nanotechnologies Inc.
in
July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated from the
Ontario Business Corporations Act to Canada’s federal corporate statute, the
Canada Business Corporations Act.
Altair
US
Holdings, Inc. was incorporated by Altair in December 2003 for the purpose
of
facilitating a corporate restructuring and consolidation of all U.S.
subsidiaries under a U.S. holding company. At the completion of the corporate
restructuring, Fine Gold, MRS, and Altairnano, Inc. (f/k/a Altair Nanomaterials,
Inc.) were direct wholly-owned subsidiaries of Altair US Holdings, Inc., while
Tennessee Valley Titanium, Inc. previously a wholly-owned subsidiary of MRS,
has
been dissolved.
Altair
acquired Fine Gold in April 1994. Fine Gold has earned no operating revenues
to
date. Fine Gold acquired the intellectual property associated with the now
defunct Altair jig, a fine particle separation device for use in minerals
processing, in 1996.
Mineral
Recovery Systems, Inc., or MRS, was incorporated by Altair in April, 1987 and
was formerly known as Carlin Gold Company. MRS previously has been involved
in
the exploration for minerals on unpatented mining claims in Nevada, Oregon
and
California and the holding of mineral leases in Tennessee. Other than a single
mineral lease related to the remediation site in Tennessee, MRS does not
continue to hold any properties or leases. The wholly-owned subsidiary of MRS,
Tennessee Valley Titanium, which never held any assets or operations, was
dissolved on July 7, 2006.
Altair
Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned subsidiary of
MRS
and holds all of our interest in our nanomaterials and titanium dioxide pigment
technology and related assets. Altair Nanomaterials Inc. was subsequently
renamed Altairnano, Inc. on July 6, 2006.
Corporate
History
Altair
Nanotechnologies Inc. was incorporated under the laws of the Province of
Ontario, Canada in April 1973 for the purpose of acquiring and exploring mineral
properties. It was redomesticated in July 2002 from the Business Corporations
Act (Ontario) to the Canada Business Corporations Act, a change that causes
Altair to be governed by Canada's
federal corporate statute.
The
change reduced the requirement for resident Canadian directors from 50% to
25%
of the board of directors, which gives us greater flexibility in selecting
qualified nominees to our board.
During
the period from inception through 1994, we acquired and explored multiple
mineral properties. In each case, sub-economic mineralization was encountered
and the exploration was abandoned.
Since
1996, we have leased mineral property near Camden, Tennessee and owned the
rights to the Altair jig. However, we have terminated
our leases on all of the Tennessee mineral properties except for one and are
limiting our expenditures on our centrifugal jig to patent maintenance expenses.
In
November 1999, we acquired all the rights of BHP Minerals International, Inc.,
or BHP, in the nanomaterials and titanium dioxide pigment technologies and
the
nanomaterials and titanium dioxide pigment assets from BHP. We are employing
the
nanomaterials and titanium dioxide pigment technology as a platform for the
sale
of contract services, intellectual property licenses and for the production
and
sale of metal oxide nanoparticles in various applications.
We
have
experienced an operating loss in every year of operation. In the fiscal year
ended December 31, 2006, we experienced a net loss of $17,200,283.
Employees
The
business of Altair is currently managed by Dr. Alan J. Gotcher, President and
Chief Executive Officer of the Company, Mr. Edward Dickinson, Chief Financial
Officer and Dr. Bruce Sabacky, Chief Technology Officer. We have 77 additional
regular employees. We have employment agreements with Messrs. Gotcher, Dickinson
and Sabacky
During
2007, we may hire between 30 - 38 additional employees, primarily in research
and development and
operations. Such additional hiring, if it occurs, will be dependent upon
business conditions.
Available
Information
We
file
annual, quarterly and current reports and other information with the SEC. These
materials can be inspected and copied at the SEC’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549. Copies of these materials may also
be
obtained by mail at prescribed rates from the SEC’s Public Reference Room at the
above address. Information about the Public Reference Room can be obtained
by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of the
SEC’s Internet site is www.sec.gov
We
make
available, free of charge on our Internet website located at www.altairnano.com,
our
most recent Annual Report on Form 10-K, our most recent Quarterly Report on
Form
10-Q, any current reports on Form 8-K filed since our most recent Annual Report
on Form 10-K and any amendments to such reports as soon as reasonably
practicable following the electronic filing of such report with the SEC. In
addition, we provide electronic or paper copies of its filings free of charge
upon request.
Enforceability
of Civil Liabilities Against Foreign Persons
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 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 impose liability in original actions against us or our
directors, officers or experts predicated upon U.S. securities
laws.
Forward-Looking
Statements
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 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.
Item
1A. Risk Factors
An
investment in our common shares and warrants involves significant risks. You
should carefully consider
the
risks described in this Report before making an investment decision. Any of
these risks could materially and adversely affect our business, financial
condition or results of operations. In such case, you may lose all or part
of
your investment. Some factors in this section are forward-looking
statements.
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 $17,681,415 in 2006 and $10,481,853 in 2005. Even if we do
generate operating income in one or more quarters in the future, subsequent
developments in our industry, customer base, business or cost structure, or
an
event such as significant litigation or a significant transaction, may cause
us
to again experience operating 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:
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fluctuations
in the size and timing of customer orders from one quarter to the
next;
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timing
of delivery of our services and products;
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addition
of new customers or loss of existing customers;
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our
ability to commercialize and obtain orders for products we are
developing;
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costs
associated with developing our manufacturing capabilities;
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new
product announcements or introductions by our competitors or potential
competitors;
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the
effect of variations in the market price of our common shares on
our
equity-based compensation expenses;
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acquisitions
of businesses or customers;
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technology
and intellectual property issues associated with our products; and
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general
economic trends, including changes in energy prices, or geopolitical
events such as war or incidents of terrorism.
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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,
2006, 2005 and 2004, contract services revenues comprised 67%, 70%, and 99%,
respectively, of our operating 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:
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Our
pending patent applications may not be granted for various reasons,
including the existence of conflicting patents or defects in our
applications;
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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;
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Parties
to the confidentiality and invention agreements may have such agreements
declared unenforceable or, even if the agreements are enforceable,
may
breach such agreements;
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The
costs associated with enforcing patents, confidentiality and invention
agreements or other intellectual property rights may make aggressive
enforcement cost prohibitive;
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Even
if we enforce our rights aggressively, injunctions, fines and other
penalties may be insufficient to deter violations of our intellectual
property rights; and
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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.
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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.
Few
of
the existing or potential products being developed with our nanomaterials and
titanium dioxide pigment technology are designed for direct use by the ultimate
end user. Phrased differently, most of our products are components of other
products. For example, our nano-structured LTO battery materials and NanoSafe
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 fails to develop, the market for our
component products would be expected to similarly contract or collapse. This
would limit our ability to generate revenues and would 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 nano-structure LTO electrode materials, coating materials and
dental materials, are likely to be developed in collaboration with third
parties, if at all. With respect to these and substantially all other
applications of our technology, the commercialization of a potential application
of our technology is dependent, in part, upon the expertise, resources and
efforts of our commercial partners. This presents certain risks, including
the
following:
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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;
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our
commercial partners may not place the same priority on a project
as we do,
may fail to honor contractual commitments, may not have the level
of
resources, expertise, market strength or other characteristic necessary
for the success of the project, may dedicate only limited resources
and/or
may abandon a development project for reasons, including reasons,
such as
a shift in corporate focus, unrelated to its
merits;
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our
commercial partners may terminate joint testing, development or marketing
projects on the merits of the projects for various reasons, including
determinations that a project is not feasible, cost-effective or
likely to
lead to a marketable end product;
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at
various stages in the testing, development, marketing or production
process, we may have disputes with our commercial partners, which
may
inhibit development, lead to an abandonment of the project or have
other
negative consequences; and
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even
if the commercialization and marketing of jointly developed products
is
successful, our revenue share may be limited and may not exceed our
associated development and operating
costs.
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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, we will not become profitable
and
be able to sustain operations in the long run if we fail to commercialize
several of our potential products.
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:
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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;
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we
may have difficulty integrating the assets, technologies, operations
or
personnel of an acquired company, or retaining the key personnel
of the
acquired company;
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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;
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we
may encounter difficulty entering and competing in new product or
geographic markets or increased competition, including price competition
or intellectual property litigation;
and
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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.
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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 nano-structured LTO electrode materials and NanoSafe
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:
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Further
testing of potential life science products using our technology may
indicate that such products are less effective than existing products,
unsafe, have significant side effects or are otherwise not
viable;
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The
licensees may be unable to obtain FDA or other regulatory approval
for
technical, political or other reasons or, even if it obtains such
approval, may not obtain such approval on a timely basis;
and
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End
products 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.
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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 two payments of $600,000 of principal plus accrued interest were due
and
paid on February 8, 2006 and February 8, 2007. Additional payments of $600,000
plus accrued interest are due annually on February 8, 2008 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
December 31, 2006, we had approximately $27.2 million in cash, cash equivalents
and short-term investments. 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 companies in one or more of our lines of
business;
|
|
•
|
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 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 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, and Dr. Bruce Sabacky, our Chief Technology
Officer. 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 approximate 18 month 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
1B. Unresolved
Staff Comments
None
Item
2. Properties
Our
corporate headquarters is located at 204 Edison Way, Reno, Nevada 89502 in
a
building we purchased in August 2002. Our nanomaterials and titanium dioxide
pigment assets are located in this building, which contains approximately
100,000 square feet of production, laboratory, testing and office space. We
have
pledged our corporate headquarters and associated land to secure a promissory
note we issued to BHP Minerals International, Inc. in the amount of $3,000,000,
at an interest rate of 7%. Payments of $600,000 plus accrued interest are due
on
February 8 of each of 2006 through 2010.
In
addition, we lease an aggregate 8,199 square feet of office and laboratory
space
in the
Flagship Enterprise Center Building located at 2701 Enterprise Drive in
Anderson, Indiana under five separate leases. The
space
is used for the production of prototype batteries and battery cells. The initial
lease was entered into in October 2005 for an initial term of three years with
the option for subsequent one-year renewals. We have also entered into
supplemental leases for additional office space on August 1, 2006 (an additional
1200 square feet; expires July 31, 2009 with a single one-year renewal term),
September 1, 2006 (an additional 440 square feet; expires August 31, 2009 with
a
single one-year renewal term) February 1, 2007 (an additional 1,375 square
feet,
expires January 31, 2009 with a single one-year renewal term), and February
1,
2007 (an additional 440 square feet; expires August 31, 2009 with a single
one-year renewal term). Total
rent for the combined leased premises, including normal utilities, real estate
taxes and common area fees is approximately $12,409 per month and scheduled
to
increase between 4% - 5% annually. This rent is net of a 20% rent subsidy
offered by local government entities. In exchange for that rent subsidy, we
have
agreed that operations conducted at the leased premises will remain in Madison
County, Indiana for at least three years after the expiration of the three-year
subsidy period.
We
also
maintain a registered office at 360 Bay Street, Suite 500, Toronto, Ontario
M5H
2V6. We do not lease any space for, or conduct any operations out of, the
Toronto, Ontario registered office.
Based
on
the volume of orders received in early 2007, we plan to expand the current
manufacturing facilities to meet the increased demand. In the event that
alternative or additional office and manufacturing space is required, we believe
we could obtain additional space on commercially acceptable terms.
We
have
terminated the mineral leases on all but the primary lease for our Tennessee
mineral property that is subject to remediation. Remediation work on the
properties has been completed and reviewed by the applicable regulatory
authorities. Final inspections and full release is expected to occur in spring
2007. Future remediation costs are not expected to be significant.
Item
3. Legal
Proceedings
We
are
not subject to any pending legal proceedings other than ordinary routine
litigation incidental our business.
Item
4. Submission
of Matters to a Vote of Security Holders
We
did
not submit any matters to a vote of security holders during the fourth quarter
of the 2006 fiscal year.
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Market
Price
Our
common shares are traded on the NASDAQ Capital Market under the symbol "ALTI."
The following table sets forth, for the periods indicated, the high and low
sales prices for our common shares, as reported on our principal trading market
at the time.
Fiscal
Year Ended December 31, 2005
|
Low
|
|
High
|
1st
Quarter
|
$1.93
|
|
$6.52
|
2nd
Quarter
|
$2.53
|
|
$4.38
|
3rd
Quarter
|
$2.40
|
|
$3.40
|
4th
Quarter
|
$1.93
|
|
$2.82
|
|
|
|
|
Fiscal
Year Ended December 31, 2006
|
Low
|
|
High
|
1st
Quarter
|
$1.98
|
|
$3.74
|
2nd
Quarter
|
$2.69
|
|
$4.21
|
3rd
Quarter
|
$2.80
|
|
$3.82
|
4th
Quarter
|
$2.52
|
|
$3.83
|
The
last
sale price of our common shares, as reported on the NASDAQ Capital Market on
March 5, 2007, was $3.76
per
share.
Outstanding
Shares and Number of Shareholders
As
of
March 5, 2007, the number of common shares outstanding was 69,999,793 held
by
approximately 440 holders of record. In addition, as of the same date, we have
reserved 411,836 common shares for issuance upon exercise of options that have
been, or may be, granted under our employee stock option plans and 3,256,525
common shares for issuance upon exercise of outstanding warrants.
Dividends
We
have
never declared or paid cash dividends on our common shares. Moreover, we
currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying any dividends on our common shares in the
foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We
have
stock option plans administered by the Compensation Committee of our Board
of
Directors that provide for the granting of options to employees, officers,
directors and other service providers of the Company. Security holders have
approved all option plans. The following table sets forth certain information
with respect to compensation plans under which equity securities are authorized
for issuance at December 31, 2006:
|
Number
of securities
to
be issued upon
exercise
of outstanding
options,
warrants
and
rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding securities
reflected
in column (a))
|
Plan
Category
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved
by
security holders
|
3,278,222
|
$3.06
|
1,641,029
|
Equity
compensation plans not approved
by
security holders
|
None
|
N/A
|
None
|
Total
|
3,278,222
|
$3.06
|
1,641,029
|
Recent
Sales of Unregistered Securities
Except
as
previously reported, we did not sell any securities in transactions that were
not registered under the Securities Act in the quarter ended December 31,
2006.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common shares is Equity Transfer Services,
Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario, M5H
4C3.
Canadian
Taxation Considerations
Dividends
paid on common shares owned by non-residents of Canada are subject to Canadian
withholding tax. The rate of withholding tax on dividends under the Income
Tax
Act (Canada) (the “Act”) is 25%. However, Article X of the reciprocal tax treaty
between Canada and the United States of America (the “Treaty”) generally limits
the rate of withholding tax on dividends paid to United States residents to
15%.
The Treaty further generally limits the rate of withholding tax to 5% if the
beneficial owner of the dividends is a U.S. corporation that owns at least
10%
of the voting shares of the Company.
If
the
beneficial owner of the dividend carries on business in Canada through a
permanent establishment in Canada, or performs in Canada independent personal
services from a fixed base in Canada, and the shares of stock with respect
to
which the dividends are paid is effectively connected with such permanent
establishment or fixed base, the dividends are taxable in Canada as business
profits at rates which may exceed the 5% or 15% rates applicable to dividends
that are not so connected with a Canadian permanent establishment or fixed
base.
Under the provisions of the Treaty, Canada is permitted to apply its domestic
law rules for differentiating dividends from interest and other
disbursements.
A
capital
gain realized on the disposition of common shares by a person resident in the
United States (“a non-resident”) will be subject to tax under the Act if the
shares held by the non-resident are “taxable Canadian property.” In general,
common shares will be taxable Canadian property if the particular non-resident
used (or in the case of a non-resident insurer, used or held) the Common Stock
in carrying on business in Canada or where at any time during the five-year
period immediately preceding the realization of the gain, not less than 25%
of
the issued and outstanding shares of any class or series of shares of the
Company, which were listed on a prescribed stock exchange, were owned by the
particular non-resident, by persons with whom the particular non-resident did
not deal at arms' length, or by any combination thereof. If common shares
constitute taxable Canadian property, relief nevertheless may be available
under
the Treaty. Under the Treaty, gains from the alienation of common shares owned
by a non-resident who has never been resident in Canada generally will be exempt
from Canadian capital gains tax if the shares do not relate to a permanent
establishment or fixed base which the non-resident has or had in Canada, and
if
not more than 50% of the value of the shares was derived from real property
(which includes rights to explore for or to exploit mineral deposits) situated
in Canada.
Item
6. Selected
Financial Data
The
following table sets forth selected consolidated financial information with
respect to the Company and its subsidiaries for the periods indicated The data
is derived from financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). The
selected financial data should be read in conjunction with the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and accompanying notes
included herein. All amounts are stated in U.S. dollars.
For
the Year Ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,323,960
|
|
$
|
2,806,535
|
|
$
|
1,151,892
|
|
$
|
72,851
|
|
$
|
253,495
|
|
Operating
expenses
|
|
$
|
(22,005,375
|
)
|
$
|
(13,288,388
|
)
|
$
|
(8,056,847
|
)
|
$
|
(5,858,061
|
)
|
$
|
(8,110,206
|
)
|
Interest
expense
|
|
$
|
(171,500
|
)
|
$
|
(207,189
|
)
|
$
|
(194,180
|
)
|
$
|
(454,415
|
)
|
$
|
(1,151,388
|
)
|
Interest
income
|
|
$
|
654,182
|
|
$
|
750,306
|
|
$
|
96,229
|
|
$
|
1,879
|
|
$
|
2,105
|
|
Gain
(Loss) on foreign exchange
|
|
$
|
(1,550
|
)
|
$
|
1,524
|
|
$
|
626
|
|
$
|
(193
|
)
|
$
|
(835
|
)
|
Loss
on extinguishment of debt
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(914,667
|
)
|
Net
Loss
|
|
$
|
(17,200,283
|
)
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
$
|
(9,921,496
|
)
|
Basic
and diluted net loss per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
share
|
|
$
|
(0.29
|
)
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
$
|
(0.40
|
)
|
Cash
dividends declared per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
share
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
25,928,376
|
|
$
|
21,482,766
|
|
$
|
7,663,264
|
|
$
|
3,565,039
|
|
$
|
(204,365
|
)
|
Total
assets
|
|
$
|
43,120,573
|
|
$
|
33,464,016
|
|
$
|
15,547,021
|
|
$
|
11,659,754
|
|
$
|
8,914,405
|
|
Current
liabilities
|
|
$
|
(3,499,862
|
)
|
$
|
(2,427,543
|
)
|
$
|
(376,773
|
)
|
$
|
(397,141
|
)
|
$
|
(604,503
|
)
|
Long-term
obligations
|
|
$
|
(1,800,000
|
)
|
$
|
(2,400,000
|
)
|
$
|
(2,880,311
|
)
|
$
|
(2,686,130
|
)
|
$
|
(3,905,040
|
)
|
Net
shareholders' equity
|
|
$
|
(37,820,711
|
)
|
$
|
(28,636,473
|
)
|
$
|
(12,289,937
|
)
|
$
|
(8,576,483
|
)
|
$
|
(4,404,862
|
)
|
Item
7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
Overview
We
are a
Canadian corporation, 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 four divisions,
an
Advanced Materials and Power Systems Division, or AMPS, a Life Sciences
Division, an Altair Hydrochloride Pigment Process Division, or AHP, and a
Performance Materials Division. Our research, development, production and
marketing efforts are currently directed toward four primary market applications
that utilize our proprietary technologies:
|
o
|
The
development, production and sale for testing purposes of electrode
materials for use in a new class of high performance lithium ion
batteries
called lithium nanoTitanate batteries.
|
|
o
|
The
design, development, and production of power our NanoSafe brand
nanoTitanate battery cells, batteries, and battery packs as well
as
related design and test services.
|
|
o
|
The
co-development of RenaZorb, a test-stage active pharmaceutical ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney
dialysis.
|
|
o
|
The
co-development of Renalan, a test-stage active pharmaceutical ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in animals suffering from chronic renal
disease.
|
|
·
|
AHP:
The marketing and licensing of titanium dioxide pigment production
technology.
|
|
·
|
Advanced
Materials: The testing, development, marketing and/or licensing of
nano-structured ceramic powders for use in various application, such
for
advanced performance coatings, air and water purification systems,
and
nano-sensor applications.
|
We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
In the near term, as we continue to develop and market our products and
technology, contract services will continue to be a substantial component of
our
operating revenues. During the years ended December 31, 2006, 2005 and 2004,
contract services revenues comprised 67%, 70%, and 99%, respectively, of our
operating revenues. In the summary of our business below, we describe our
various research products in connection with our description of the business
segment to which each relates.
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) agreements under which we provide laboratory space, and provide
services, in connection with testing and development related to the use of
our
AHP to produce 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, (4) provide research utilizing
nanotechnology processes for the production and commercialization of solar-based
hydrogen technologies, (5) produce battery packs, and (6) provide research
to
further develop battery electrode materials, nanosensors, and nanomaterials
characterization. In addition, we have entered into a licensing agreement for
RenaZorb, our pharmaceutical candidate for treatment of chronic renal failure
in
humans; we have licensed all potential pharmaceutical products for animal
applications and we have made product sales consisting principally of battery
packs and lithium titanate. 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 and animal application licensees in
obtaining regulatory approval for the drugs, or other products, 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. Revenues from
product sales, commercial collaborations and contracts and grants increased
significantly in 2006 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 NanoSafe
nanoTitanate battery materials to be a source of such higher-margin revenues.
Consequently, during 2006, we continued to expand the scope of our AMPS Division
by (1) hiring additional staff and increasing temporary personnel to handle
production demand (2) leasing additional laboratory and production space in
Indiana, and (3) acquiring test and production
equipment.
As
we
attempt to significantly expand our revenues from licensing, manufacturing,
sales and other sources, some of the key near-term events that will affect
our
long-term success prospects include the following:
|
·
|
We
must continue the development work on our nano-structured LTO electrode
materials, produce sufficient quantities of batteries and battery
cells
for test purposes, obtain satisfactory test results and successfully
market the materials. Toward that end, we have hired additional employees,
have constructed test and production facilities and are purchasing
equipment. Our intent is to initially market our nano-structured
LTO
electrode materials to the automotive industry where we must be able
to
demonstrate to prospective customers that our nano-structured LTO
electrode materials offer significant advantages over existing
technologies.
|
|
·
|
On
January 9, 2007, we entered into a multi-year purchase and supply
agreement with Phoenix Motorcars, Inc. for NanoSafe nanoTitanate
battery
packs to be used in electric vehicles produced by Phoenix.
Contemporaneously, Phoenix placed a firm purchase order for $1,040,000
in
NanoSafe nanoTitanate battery packs and projected orders for 2007
of
between $16 and $42 million for the remainder of 2007. The agreement
provides Phoenix with limited exclusivity in the all electric vehicle
market during a three-year period. In order to maintain exclusivity,
Phoenix must purchase at least $16 million in battery packs during
2007.
Phoenix must be successful in their business strategy and we must
build
and deliver battery packs on a scale we have never before achieved,
in
order to fully benefit from this purchase
agreement.
|
|
·
|
Spectrum and
Elanco must
begin the testing and application processes necessary to receive
FDA approval
of our RenaZorb and
Renalan products, respectively. Toward that end, we must manufacture
RenaZorb and Renalan under pharmaceutical industry guidelines to
augment
such testing.
|
|
·
|
We
have commenced and are continuing discussions with Western Oil Sands
and
other potential partners with regard to licensing our AHP pigment
process.
Successful completion of such discussions is integral to continuing
development of AHP.
|
Although
it is not essential that all of these projects be successful in order to permit
substantial long-term revenue growth, we believe that full commercialization
of
several of our technologies will be necessary in order to expand our revenues
enough to create a likelihood of our becoming profitable in the long term.
We
are optimistic with respect to our current key projects, as well as others
we
are pursuing, but recognize that, with respect to each, there are development,
marketing, partnering and other risks to be overcome.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Our
cash
and short-term investments increased from $23,054,074 at December 31, 2005
to
$27,220,357 at December 31, 2006. On December 18, 2006, we sold 9,259,259 of
our
common shares for net proceeds to us of approximately $22.9 million. This
increase was offset by cash used to fund operations and purchase fixed assets
of
approximately $18.9 million during 2006.
We
intend
to use these funds for working capital, capital expenditures, research and
development activities and the acquisition of other technologies. Net cash
used
in operations was $14,437,783 in 2006, and we expect to
remain
at the same level
in 2007
based upon budgeted revenues, expenditures, and cashflows. We currently have
contracts in place that are expected to generate approximately $3,273,000 of
revenues in 2007, and we expect to substantially add to this amount by entering
into new contracts and increasing product sales. However, this increase in
revenues will be dependent on our ability to secure customer contracts and
successfully market our NanoSafe nanoTitanate batteries, nano-structured LTO,
Nanocheck,
thermal spray, and other products.
During
2006, we continued making significant expenditures for our battery initiative,
added staff and equipment for the manufacture of nanoparticle products,
increased the capital investment in plant equipment relating to pigment process
development and increased our sales and marketing efforts. In 2007, we intend
to
increase spending for the battery initiative, manufacturing of the potential
drug candidates, and pigment process development. We estimate
that
our current cash and short-term investments balance is sufficient to support
our
operations for approximately two
years
based on 2007 budgeted cashflow projections.
Historically,
we have financed operations primarily through the issuance of equity securities
(common shares, convertible debentures, stock options and warrants) and by
the
issuance of debt. In
light
of our recent public offering and strategic private placement of securities,
we
do not presently have any plans to pursue additional debt or equity financing
during 2007 but reserve the right to do so if deemed necessary in connection
with an unexpected business opportunity or need. We do not have any commitments
with respect to future financing and may, or may not, be able to obtain such
financing on reasonable terms, or at all. We have a single note payable in
the
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 two payments of $600,000 of principal plus accrued interest
were due and paid on February 8, 2006 and February 8, 2007. Future payments
of
principal and interest are due annually on February 8, 2008 through
2010.
Capital
Commitments and Expenditures
The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of December 31,
2006:
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Contractual
Obligations
|
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
5
Years
|
|
Notes
Payable
|
|
$
|
2,400,000
|
|
$
|
600,000
|
|
$
|
1,200,000
|
|
$
|
600,000
|
|
$
|
-
|
|
Interest
on notes payable
|
|
|
420,000
|
|
|
168,000
|
|
|
210,000
|
|
|
42,000
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
1,195,014
|
|
|
1,189,614
|
|
|
5,400
|
|
|
-
|
|
|
-
|
|
Facilities
and Property Leases
|
|
|
408,868
|
|
|
221,321
|
|
|
187,547
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
461,295
|
|
|
461,295
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
4,885,176
|
|
$
|
2,640,229
|
|
$
|
1,602,947
|
|
$
|
642,000
|
|
$
|
-
|
|
|
The
major
capital expenditures during 2006 were $1,705,000 for construction of dry rooms
and purchase of equipment for the battery initiative, $1,721,000 for production
equipment, $845,000 for pilot plant equipment associated with pigment
development, $163,000 for equipment for the UNLV solar hydrogen project, and
$109,000 of improvements and other capital expenditures at corporate
headquarters. At December 31, 2006, we had $392,971 of outstanding commitments
for capital additions, of which approximately 55% are for production equipment,
and 34% are for equipment being purchased under the University of Las Vegas
grant.
In
2007,
we plan to spend approximately $5.5 million on equipment and leasehold
improvements primarily in the Life Sciences and AHP Divisions.
Critical
Accounting Policies and Estimates
Management
based the following discussion and analysis of our financial condition and
results of operations on our consolidated financial statements. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our critical accounting policies and estimates, including those
related to long-lived assets, stock-based compensation, revenue recognition,
overhead allocation, allowance for doubtful accounts and deferred income tax.
We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements. These judgments and estimates affect the reported amounts of assets
and liabilities and the reported amounts of revenues and expenses during the
reporting periods. Changes to these judgments and estimates could adversely
affect the Company’s future results of operations and cash flows.
|
·
|
Long-Lived
Assets. Our long-lived assets consist principally of the nanomaterials
and
titanium dioxide pigment assets, the intellectual property (patents
and
patent applications) associated with them, and a building. Included
in these long-lived assets are those that relate to our research
and
development process. These assets are initially evaluated for
capitalization based on Statement of Financial Accounting Standards
(“SFAS”) No. 2, Accounting
for Research and Development Costs.
If the assets have alternative future uses (in research and development
projects or otherwise), they are capitalized when acquired or constructed;
if they do not have alternative future uses, they are expensed as
incurred. At
December 31, 2006, the carrying value of these assets was $11,701,867,
or
27% 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 that 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 9
of
Notes to the 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, in accordance with
the
Securities and Exchange Commission “Staff
Accounting Bulletin No. 104 - Revenue Recognition in Financial
Statements”.
During 2006, our revenues were derived from four sources: license
fees,
commercial collaborations, contract research and development and
product
sales. License fees are recognized when the agreement is signed, we
have performed all material obligations related to the particular
milestone payment or other revenue component and the earnings process
is
complete. Revenue for product sales is recognized upon delivery of
the
product, unless specific contractual terms dictate otherwise. Based
on the
specific terms and conditions of each contract/grant, revenues are
recognized on a time and materials basis, a percentage of completion
basis
and/or a completed contract basis. Revenue under contracts based
on time
and materials is recognized at contractually billable rates as labor
hours
and expenses are incurred. Revenue under contracts based on a fixed
fee
arrangement is recognized based on various performance measures,
such as
stipulated milestones. As these milestones are achieved, revenue is
recognized. From time to time, facts develop that may require us to
revise our estimated total costs or revenues expected. The
cumulative effect of revised estimates is recorded in the period
in which
the facts requiring revisions become known. The full amount of
anticipated losses on any type of contract is recognized in the period
in
which it becomes known.
|
|
·
|
Overhead
Allocation. Facilities overhead, which is comprised primarily of
occupancy
and related expenses, is initially recorded in general and administrative
expenses and then allocated monthly to research and development expense
based on labor costs. Facilities overheads allocated to research
and
development projects may be chargeable when invoicing customers under
certain research and development
contracts.
|
|
·
|
Allowance
for Doubtful Accounts. The allowance for doubtful accounts is based
on our
assessment of the collectibility of specific customer accounts and
the
aging of accounts receivable. We analyze historical bad debts, the
aging of customer accounts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer
payment patterns when evaluating the adequacy of the allowance for
doubtful accounts. From period to period, differences in judgments
or estimates utilized may result in material differences in the amount
and
timing of our bad debt expenses.
|
|
·
|
Deferred
Income Tax. Income taxes are accounted for using the asset and liability
method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the
period
that includes the enactment date. Future tax benefits are subject to
a valuation allowance when management is unable to conclude that
its
deferred income tax assets will more likely than not be realized
from the
results of operations. We have recorded a valuation allowance to
reflect the estimated amount of deferred income tax assets that may
not be
realized. The ultimate realization of deferred income tax assets
is
dependent upon generation of future taxable income during the periods
in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making
this
assessment. Based on the historical taxable income and projections
for
future taxable income over the periods in which the deferred income
tax
assets become deductible, management believes it more likely than
not that
the Company will not realize benefits of these deductible differences
as
of December 31, 2006. Management has, therefore, established a full
valuation allowance against its net deferred income tax assets as
of
December 31, 2006. Due to the significant increase in common shares
issued
and outstanding from 2004 through 2006, Section 382 of the Internal
Revenue Code may provide significant limitations on the utilization
of our
net operating loss carryforwards. As a result of these limitations,
a
portion of these loss and credit carryovers may expire without being
utilized.
|
Results
of Operations
Fiscal
Year 2006 vs. 2005
Revenues
increased by $1,517,425 from $2,806,535 in 2005 to $4,323,960 in 2006, while
operating expenses increased by $8,716,987, from $13,288,388 in 2005 to
$22,005,375 in 2006. As a result, our loss from operations increased by
$7,199,562, from $10,481,853 in 2005 to $17,681,415 in 2006.
Product
sales increased from $149,373 in 2005 to $961,380 in 2006 due to our first
sales
of battery packs to Phoenix Motorcars, Inc. Of the 11 battery packs ordered,
four were shipped and seven were billed and held by us based upon the written
request of Phoenix, which complied with the revenue recognition criteria
described in the Securities and Exhange Commission “Staff Accounting Bulletin
No. 104 - Revenue Recognition in Financial Statements”.
Commercial
collaborations revenues increased from $825,723 in 2005 to $1,420,151 in 2006
primarily due to $495,182 of increased billings to Western Oil Sands resulting
from an amendment to their license and development agreement signed in October
2005 and an increase of $115,848 in RenaZorb development revenues paid by
Spectrum Pharmaceuticals.
Contract
and grant revenues increased from $1,136,439 in 2005 to $1,477,709 in 2006,
principally as a result of billings of $746,438 under the $2.5 million
Department of Energy Earmark that was effective in September 2006 and $66,266
under the $250,000 Indiana Advanced Energy Technologies Program grant awarded
in
November 2005. This increase was partially offset by a reduction in the revenues
of $466,200 for the August 2004 subcontract with Western Michigan University
that was fully expended in February 2006.
Research
and development, or R&D, expense
increased by $5,003,753, from $5,073,478 in 2005 to $10,077,231 in 2006. During
2006, the battery initiative, which was initially staffed in the fourth quarter
of 2005, was expanded over the year to include three new employees and
performance of the research to develop and improve our nano-structured LTO
and
cell design utilized in the NanoSafe nanoTitanate batteries. As a result,
expenditures for the battery initiative increased by $2,707,214 in 2006. In
addition, pre-production and commercialization costs relating to LTO increased
by $992,038. We also increased our commitment to pigment process technology
in
2006 by hiring a full time General Manager and developing a pilot plant, with
a
resulting increase in expenditures of $830,398. Expenditures for contract and
grant work increased by $588,329 primarily as a result of the new $2.5 million
Department of Energy earmark effective in September 2006. These increases were
partially offset by decreases in other research and development
activities.
Sales
and
marketing expenses increased by $339,018 from $1,539,765 in 2005 to $1,878,783
in 2006. Excluding the payment of a $500,000 fee in 2005 to RBC Capital Markets
in connection with the RenaZorb licensing agreement, sales and marketing
expenses increased by $839,018 in 2006.
This
increase reflects the addition of two positions on the sales team to focus
on
the Life Sciences and AMPS Divisions
of
$218,247, and expenses incurred of $620,771 to promote our
“NanoSafe”nanoTitanate batteries installed in our prototype all electric vehicle
and the expansion of general corporate marketing activities.
General
and administrative expenses increased by $1,923,726, from $5,571,454 in 2005
to
$7,495,180 in 2006. Stock based compensation expense, a non-cash item, increased
by $1,539,788 as a result of implementing FAS 123 (R); we
incurred approximately $401,484 of expenses associated with a flood at our
headquarters in Reno, Nevada in January 2006; legal
fees associated with patent work increased by $328,807; and payroll expense
increased by approximately $140,700 due mainly to staff additions. These
increases were partially offset by a decrease of $509,082 in Sarbanes Oxley
compliance costs from 2005, the first year of implementation.
Interest
income decreased by $96,124, from $750,306 in 2005 to $654,182 in 2006. On
average a higher level of cash was available for investment in
2005.
Fiscal
Year 2005 vs. 2004
Revenues
increased by $1,654,643 in 2005, from $1,151,892 in 2004 to $2,806,535 in 2005,
while operating expenses increased by $5,231,541. As a result, our loss from
operations increased by $3,576,898, from $6,904,955 in 2004 to $10,481,853
in
2005.
In
January 2005, we licensed RenaZorb to Spectrum and received $695,000 of license
revenues, the first license revenues received by Altair.
Contract
and grant revenues increased from $591,890 in 2004 to $1,136,439 in 2005,
principally as a result of billings under an agreement with the University
of
Nevada, Las Vegas Research Foundation that was entered into in November 2004.
Revenues in connection with this agreement increased by approximately $460,000
from 2004 to 2005.
Commercial
collaborations revenues increased from $552,499 in 2004 to $825,723 in 2005
due
to increased billings to Western Oil Sands for design and construction of a
pilot plant and increased staff time spent on the project.
Product
sales increased from $7,503 in 2004 to $149,373 in 2005 as a result of sales
of
battery materials and thermal spray materials.
R&D
expense increased by $2,884,328, from $2,189,150 in 2004 to $5,073,478 in 2005.
We made a significant resource commitment to the battery initiative project
beginning in early 2005. During the fourth quarter of 2005, we hired thirteen
employees with extensive scientific, engineering, manufacturing and marketing
experience in the battery industry. As a result, expenditures for the battery
initiative increased by $1,298,660 in 2005. We also increased our commitment
to
pigment process technology development with a resulting increase in expenditures
of $256,914. Expenditures for contract and grant work increased primarily as
a
result of new grants received in late 2004 and in 2005. Expenditures under
the
National Science Foundation grant for development of advanced battery materials
increased by $121,388 in 2005, expenditures under the UNLV Research Foundation
grant for development of solar hydrogen generation cells increased by $170,412
and expenditures under the Western Michigan University grant for development
of
nanosensors increased by $59,690 in 2005. The scope of work under phase 1 of
the
Western Oil Sands contract was expanded in 2005 and we also constructed a pilot
plant for the project. As a result, charges under the contract increased by
$256,050 in 2005. In April 2005, we entered into a joint venture with Bateman
Engineering NV to promote the development of the pigment process technology
and
we incurred $136,403 of expenses during the year in connection with the venture.
The remaining increase in R&D expenditures of approximately $584,000 was
incurred for management, facilities, equipment and other support functions
for
R&D.
Sales
and
marketing expenses increased by $1,204,544,
from $335,221 in 2004 to $1,539,765 in 2005. The increase is due to payment
of a
$500,000 fee to RBC Capital Markets in connection with the RenaZorb licensing
agreement, increased payroll expense resulting from the addition of five new
employees and increased business development activities.
General
and administrative expenses increased by $944,892, from $4,626,562 in 2004
to
$5,571,454 in 2005. Consulting costs incurred to comply with the Sarbanes-Oxley
Act increased by $632,010 in 2005; legal fees associated with patent work and
general corporate matters increased by $454,485; stock option compensation
expense and deferred compensation expense associated with restricted stock
issuances, both non-cash items, increased by $390,566; rents paid for additional
laboratory space increased by $156,000; utilities increased by $68,106 due
primarily to increased production and R&D activity; payroll expense
increased by approximately $100,000 due mainly to staff additions and increased
labor overhead costs and recruiting, and relocation expense increased by $96,902
as a result of staff additions. These increases were partially offset by a
decrease in investor relations expense of $687,709 resulting from a
cutback
in our investor relations programs, and a decrease in general consulting of
$260,587.
Interest
income increased by $654,077, from $96,229 in 2004 to $750,306 in 2005 due
to
the significant increase in cash available for investment that was generated
through the sale of common shares and the exercise of warrants and options
in
early 2005.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk
Not
Applicable.
Item
8. Financial
Statements and Supplementary Data.
Supplementary
Data
The
following Supplementary Financial Information for the fiscal quarters ended
March 31, June 30, September 30 and December 31 in each of the years 2006 and
2005 was derived from our unaudited quarterly consolidated financial statements
filed by us with the SEC in our Quarterly Reports on Form 10-Q with respect
to
such periods (except for 4th quarter data).
Supplementary
Financial Information by Quarter, 2006 and
2005
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
Year
Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
545,296
|
|
$
|
1,056,828
|
|
$
|
749,898
|
|
$
|
1,971,938
|
|
Operating
Expenses
|
|
$
|
5,270,989
|
|
$
|
4,985,237
|
|
$
|
4,908,681
|
|
$
|
6,840,468
|
|
Net
Loss
|
|
$
|
(4,560,064
|
)
|
$
|
(3,789,018
|
)
|
$
|
(4,054,686
|
)
|
$
|
(4,796,515
|
)
|
Loss
per Common Share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.08
|
)
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,027,580
|
|
$
|
502,881
|
|
$
|
585,405
|
|
$
|
690,669
|
|
Operating
Expenses
|
|
$
|
3,325,584
|
|
$
|
2,554,426
|
|
$
|
2,939,565
|
|
$
|
4,468,813
|
|
Net
Loss
|
|
$
|
(2,245,959
|
)
|
$
|
(1,919,078
|
)
|
$
|
(2,176,826
|
)
|
$
|
(3,595,349
|
)
|
Loss
per Common Share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
(1)
Loss per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly loss per common share
amounts does not necessarily equal the total for the
year.
|
Financial
Statements
The
financial statements required by this Item appear on pages F-5 through F-27
of
this Report.
Item
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
The
information called for by this item was previously reported on a Current Report
on Form 8-K filed with the SEC on August 24, 2005, which discloses the
termination of our engagement of Deloitte & Touche LLP, and on a Current
Report on Form 8-K filed with the SEC on September 30, 2005, which discloses
the
engagement of Perry-Smith LLP as the Company’s accountants.
Item
9A. Controls
and Procedures
Disclosure
Controls and Procedures.
Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”), as of December 31, 2006. Based upon this
evaluation, our chief executive officer and our chief financial officer have
concluded that, as of December 31, 2006, our disclosure controls and procedures
were effective in ensuring that information required to be disclosed by the
Company in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods required by governing rules
and
forms.
Internal
Control Over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934, as amended. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial
reporting includes those written policies and procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of
America;
|
|
·
|
provide
reasonable assurance that our receipts and expenditures are being
made
only in accordance with authorization of our management;
and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could
have a
material effect on our consolidated financial
statements.
|
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.
Our
management assessed the effectiveness our internal control over financial
reporting as of December 31, 2006. Our management’s assessment was based on
criteria for effective internal control over financial reporting described
in
“Internal Control - “Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Our management’s assessment included
an evaluation of the design of our internal control over financial reporting
and
testing of the operational effectiveness of our internal control over financial
reporting. Our management reviewed the results of its assessment with the Audit
Committee of our Board of Directors. Based on this assessment, our management
determined that, as of December 31, 2006, we maintained effective internal
control over financial reporting.
Perry-Smith
LLP, independent registered public accounting firm, who audited and reported
on
our consolidated financial statements included in this report, has issued an
attestation report on management’s assessment of internal control over financial
reporting. This attestation report appears on pages F-2 and F-3 of this
report.
Changes
In Internal Control Over Financial Reporting.
There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls over
financial reporting that occurred during the fourth quarter of fiscal 2006
that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item
9B. Other
Information
None.
PART
III
Item
10. Directors
and Executive Officers of the Registrant
The
information required by this Item is incorporated by reference to the section
entitled “Election of Directors” in the Company’s definitive proxy statement to
be filed with the SEC.
Item
11. Executive
Compensation
The
information required by this Item is incorporated by reference to the section
entitled “Executive Compensation” in the Company’s definitive proxy statement to
be filed with the SEC.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information required by this Item is incorporated by reference to the section
entitled “Security Ownership of Certain Beneficial Owners and Management” in the
Company’s definitive proxy statement to be filed with the SEC.
Item
13. Certain
Relationships and Related Transactions
The
information required by this Item is incorporated by reference to the section
entitled “Certain Relationships and Related Transactions” in the Company’s
definitive proxy statement to be filed with the SEC.
Item
14. Principal Accountant Fees and Services
The
information required by this Item is incorporated by reference to the section
entitled “Principal Accounting Fees and Services” in the Company’s definitive
proxy statement to be filed with the SEC.
PART
IV
Item
15. Exhibits,
Financial Statement Schedules and Reports on Form 8-K
|
1. |
Financial
Statements.
The following Consolidated Financial Statements of the Company and
Auditors’ Report are filed as part of this Annual Report on Form
10-K:
|
|
·
|
Report
of Independent Registered Public Accounting
Firm
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Internal Control
over
Financial Reporting
|
|
·
|
Report
of Former Independent Registered Public Accounting
Firm
|
|
·
|
Consolidated
Balance Sheets, December 31, 2006 and
2005
|
|
·
|
Consolidated
Statements of Operations for Each of the Three Years in
the Period Ended December 31,
2006
|
|
·
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Loss for Each of the
Three Years in the Period Ended December 31,
2006
|
|
·
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the Period
Ended
December 31, 2006
|
|
·
|
Notes
to Consolidated Financial
Statements
|
|
2. |
Financial
Statement Schedule.
Not applicable.
|
Exhibit
List.
See
the
Exhibit Index following the signature page hereof.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, on March 13, 2007.
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. |
|
|
|
|
By: |
/s/ Alan
J.
Gotcher |
|
|
|
Alan
J. Gotcher,
President
and Chief Executive Officer
Date:
March 13, 2007
|
POWER
OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the following
persons in the capacities and on the dates indicated have signed this Report.
Each person whose signature to this Report appears below hereby constitutes
and
appoints Alan J. Gotcher and Edward Dickinson, and each of them, as his true
and
lawful attorney-in-fact and agent, with full power of substitution, to sign
on
his behalf individually and in the capacity stated below and to perform any
acts
necessary to be done in order to file all amendments and post-effective
amendments to this Report, and any and all instruments or documents filed as
part of or in connection with this Form Report or the amendments thereto and
each of the undersigned does hereby ratify and confirm all that said
attorney-in-fact and agent, or his substitutes, shall do or cause to be done
by
virtue hereof.
Signature
|
Title
|
|
Date
|
|
|
|
|
/s/
Alan J. Gotcher
Alan
J. Gotcher
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
March
13, 2007
|
|
|
|
|
/s/
Edward Dickinson
Edward
Dickinson
|
Chief
Financial Officer and Secretary (Principal Financial and Accounting
Officer)
|
|
March
13, 2007
|
|
|
|
|
/s/
Michel Bazinet
Michel
Bazinet
|
Director
|
|
March
13, 2007
|
|
|
|
|
/s/
Jon N. Bengtson
Jon
N. Bengtson
|
Director
|
|
March
13, 2007
|
|
|
|
|
/s/
James I. Golla
James
I. Golla
|
Director
|
|
March
13, 2007
|
|
|
|
|
/s/
George Hartman
George
Hartman
|
Director
|
|
March
13, 2007
|
|
|
|
|
/s/
Christopher E. Jones
Christopher
E. Jones
|
Director
|
|
March
13, 2007
|
|
|
|
|
/s/
Pierre Lortie
Pierre
Lortie
|
Director
|
|
March
13, 2007
|
Exhibit
Index
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/
Filed
Herewith (and Sequential Page
#)
|
3.1
|
|
Articles
of Continuance
|
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC
on July
18, 2002.**
|
3.2
|
|
Bylaws
|
|
Incorporated
by reference to the Amendment No. 1 to Annual Report on Form 10-K/A
filed
with the SEC on March 10, 2005.
**
|
4.1
|
|
Form
of Common Stock Certificate
|
|
Incorporated
by reference to Registration Statement on Form 10-SB filed with the
SEC on
November 25, 1996.
**
|
4.2
|
|
Amended
and Restated Shareholder Rights Plan dated October 15, 1999, between
the
Company and Equity Transfer Services, Inc.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on November 19, 1999.
**
|
10.1
|
|
Altair
International Inc. Stock Option Plan adopted by shareholders
on May 10, 1996
|
|
Incorporated
by reference to the Company's Registration Statement on Form S-8,
File No.
333-33481 filed with the SEC on July 11, 1997.
|
10.2
|
|
1998
Altair International Inc. Stock Option Plan adopted
by
Shareholders on June 11, 1998
|
|
Incorporated
by reference to the Company’s Definitive Proxy Statement on Form 14A filed
with the SEC on May 12, 1998.
**
|
10.3
|
|
Altair
Nanotechnologies Inc. 2005 Stock Incentive Plan
|
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8, File No.
333-125863, filed with the SEC on June 16, 2005.
|
10.4
|
|
Installment
Note dated August 8, 2002 (re Edison Way property)
|
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February 7,
2003.
|
10.5
|
|
Trust
Deed dated August 8, 2002 (re Edison Way property)
|
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February 7,
2003.
|
10.6
|
|
Employment
Agreement of Edward Dickinson
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006. **
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/
Filed
Herewith (and Sequential Page
#)
|
10.7
|
|
Employment
Agreement of Alan J. Gotcher, Ph.D.
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006.**
|
10.8
|
|
Employment
Agreement of Bruce J. Sabacky
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on June 6, 2006**
|
10.9
|
|
License
Agreement dated January 28, 2005 with Spectrum Pharmaceuticals, Inc.*
|
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the
SEC on February 4, 2005.**
|
10.10
|
|
Letter
Agreement dated February 11, 2005 between the Company and Maxim Group
LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed by the Company
on
February 15, 2005.
**
|
10.11
|
|
Subcontract
between the UNLV Research Foundation and Altair Nanomaterials,
Inc.
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC August 15, 2005.
**
|
10.12
|
|
Lease
dated October 1, 2005 (Main Indiana Office) with Flagship Enterprise
Center
|
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC November 14, 2005.
**
|
10.13
|
|
Lease
dated August 1, 2006 (Indiana Office Additional Space) with Flagship
Enterprise Center
|
|
Filed
herewith.**
|
10.14
|
|
Lease
dated September 1, 2007 (Indiana Office Additional Space) with Flagship
Enterprise Center
|
|
Filed
herewith.**
|
10.15
|
|
Addendum
dated February 1, 2007 (re Indiana Office Additonal 440 sq ft. Space)
with
Flagship Enterprise Center
|
|
Filed
herewith.**
|
10.16
|
|
Addendum
dated February 1, 2007 (re Indiana Office Additonal 1,375 sq ft.
Space)
with Flagship Enterprise Center
|
|
Filed
herewith.**
|
10.17
|
|
Placement
Agent Agreement with Cowen and Company, LLC
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on December 13, 2006.
**
|
10.18
|
|
Purchase
and Supply Agreement with Phoenix Motorcars, Inc.*
|
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on January 12, 2007.
**
|
10.19
|
|
Department
of Energy Grant Agreement
|
|
Filed
herewith.**
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by Reference/
Filed
Herewith (and Sequential Page
#)
|
10.20
|
|
2007
Annual Executive Incentive Bonus Plan*
|
|
Filed
herewith.
|
21
|
|
List
of Subsidiaries
|
|
Incorporated
by reference from Item 1 of this report.
|
23.1
|
|
Consent
of Perry-Smith LLP
|
|
Filed
herewith.
|
23.2
|
|
Consent
of Deloitte & Touche LLP
|
|
Filed
herewith.
|
24
|
|
Powers
of Attorney
|
|
Included
in the Signature Page hereof.
|
31.1
|
|
Rule
13-14(a)/15d-14a Certification of Chief Executive Officer
|
|
Filed
herewith.
|
31.2
|
|
Rule
13-14(a)/15d-15a Certification of Chief Financial Officer
|
|
Filed
herewith.
|
32.1
|
|
Section
1350 Certification of Chief Executive Officer
|
|
Filed
herewith.
|
32.2
|
|
Section
1350 Certification of Chief Financial Officer
|
|
Filed
herewith.
|
*Portions
of this Exhibit have been omitted pursuant to Rule 24b-2, are filed
separately with the SEC and are subject to a confidential treatment
request.
**
SEC
File
No.
1-12497.
Altair
Nanotechnologies Inc.
and
Subsidiaries
Consolidated
Financial Statements as of December 31, 2006 and 2005 and for Each of
the Three Years in the Period Ended December 31, 2006 and Reports
of
Independent Registered Public Accounting Firms
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL
OVER
FINANCIAL REPORTING
|
F-2-F-3
|
|
|
REPORT
OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-4
|
|
|
FINANCIAL
STATEMENTS:
|
|
|
|
Consolidated
Balance Sheets, December 31, 2006 and 2005
|
F-5
|
|
|
Consolidated
Statements of Operations for Each of the Three Years in the Period
Ended December 31, 2006
|
F-6
|
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for Each
of the Three Years in the Period Ended December 31, 2006
|
F-7-F-8
|
|
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the Period
Ended December 31, 2006
|
F-9-F-10
|
|
|
Notes
to Consolidated Financial Statements
|
F-11-F-31
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Shareholders and Board of Directors
Altair
Nanotechnologies, Inc. and Subsidiaries
We
have
audited the consolidated balance sheets of Altair
Nanotechnologies, Inc. and subsidiaries (the
"Company") as of December 31, 2006 and 2005 and the related consolidated
statements of operations, changes in stockholders' equity and comprehensive
gain
(loss) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as
of December 31, 2006 and 2005 and the consolidated results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company's internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated March 7, 2007 expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
/s/
Perry-Smith LLP
Sacramento,
California
March
7,
2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Shareholders and Board of Directors
Altair
Nanotechnologies, Inc. and Subsidiaries
We
have
audited management's assessment, included in the accompanying Management Report
on Internal Control Over Financial Reporting, that Altair Nanotechnologies,
Inc.
and subsidiaries (the "Company") maintained effective internal control over
financial reporting as of December 31, 2006, based on criteria established
in
Internal
Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO
criteria"). The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
A
company's internal control over financial reporting includes those policies
and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States
of
America, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection
of
unauthorized acquisition, use, or disposition of the company's assets that
could
have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management's assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on the COSO criteria. Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2006, based on the COSO
criteria.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
(Continued)
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company
as of December 31, 2006, and the related consolidated statements of operations,
changes in shareholders' equity and comprehensive gain (loss), and cash flows
for the year then ended and our report dated March 7, 2007 expressed an
unqualified opinion.
/s/
Perry-Smith LLP
Sacramento,
California
March
7,
2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Altair
Nanotechnologies Inc.
Reno,
Nevada
We
have
audited the accompanying consolidated statements of operations, stockholders’
equity, and cash flows of Altair Nanotechnologies Inc. and subsidiaries (the
"Company") for the year ended December 31, 2004. These financial statements
are
the responsibility of the Company's management. Our responsibility is to
express
an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all material
respects, the results of operations and cash flows of Altair Nanotechnologies
Inc. and subsidiaries for the year ended December 31, 2004, in conformity
with
accounting principles generally accepted in the United States of
America.
/s/
DELOITTE & TOUCHE LLP
Salt
Lake
City, Utah
March
7,
2005
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(Expressed
in United States Dollars)
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,679,254
|
|
$
|
2,264,418
|
|
Investment
in available for sale securities
|
|
|
14,541,103
|
|
|
20,789,656
|
|
Accounts
receivable
|
|
|
1,624,825
|
|
|
602,168
|
|
Product
Inventories
|
|
|
169,666
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
413,390
|
|
|
254,067
|
|
Total
current assets
|
|
|
29,428,238
|
|
|
23,910,309
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
1,306,420
|
|
|
423,000
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
11,229,406
|
|
|
8,169,445
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
805,248
|
|
|
890,062
|
|
|
|
|
|
|
|
|
|
Notes
Receivable
|
|
|
330,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
21,261
|
|
|
71,200
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
43,120,573
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
1,533,047
|
|
$
|
808,905
|
|
Accrued
salaries and benefits
|
|
|
840,219
|
|
|
709,349
|
|
Accrued
liabilities
|
|
|
526,596
|
|
|
309,289
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
600,000
|
|
Total
current liabilities
|
|
|
3,499,862
|
|
|
2,427,543
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
1,800,000
|
|
|
2,400,000
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
5,299,862
|
|
|
4,827,543
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Notes 9, 13 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
69,079,270
and 59,316,519 shares issued and
|
|
|
|
|
|
|
|
outstanding
at December 31, 2006 and December 31, 2005
|
|
|
115,989,879
|
|
|
92,126,714
|
|
Additional
paid in capital
|
|
|
2,002,220
|
|
|
|
|
Accumulated
deficit
|
|
|
(80,353,188
|
)
|
|
(63,152,905
|
)
|
Deferred
compensation expense
|
|
|
-
|
|
|
(165,336
|
)
|
Accumulated
other comprehensive gain/(loss)
|
|
|
181,800
|
|
|
(172,000
|
)
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
37,820,711
|
|
|
28,636,473
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
43,120,573
|
|
$
|
33,464,016
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Expressed
in United States Dollars)
|
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
License
fees
|
|
$
|
464,720
|
|
$
|
695,000
|
|
$
|
-
|
|
Product
sales
|
|
|
961,380
|
|
|
149,373
|
|
|
7,503
|
|
Commercial
collaborations
|
|
|
1,420,151
|
|
|
825,723
|
|
|
552,499
|
|
Contracts
and grants
|
|
|
1,477,709
|
|
|
1,136,439
|
|
|
591,890
|
|
Total
revenues
|
|
|
4,323,960
|
|
|
2,806,535
|
|
|
1,151,892
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
1,034,431
|
|
|
69,489
|
|
|
1,361
|
|
Research
and development
|
|
|
10,077,231
|
|
|
5,073,478
|
|
|
2,189,150
|
|
Sales
and marketing
|
|
|
1,878,783
|
|
|
1,539,765
|
|
|
335,221
|
|
General
and administrative
|
|
|
7,495,180
|
|
|
5,571,454
|
|
|
4,626,562
|
|
Depreciation
and amortization
|
|
|
1,519,750
|
|
|
1,034,202
|
|
|
904,553
|
|
Total
operating expenses
|
|
|
22,005,375
|
|
|
13,288,388
|
|
|
8,056,847
|
|
Loss
from Operations
|
|
|
(17,681,415
|
)
|
|
(10,481,853
|
)
|
|
(6,904,955
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(171,500
|
)
|
|
(207,189
|
)
|
|
(194,180
|
)
|
Interest
income
|
|
|
654,182
|
|
|
750,306
|
|
|
96,229
|
|
(Loss)/gain
on foreign exchange
|
|
|
(1,550
|
)
|
|
1,524
|
|
|
626
|
|
Total
other income (expense), net
|
|
|
481,132
|
|
|
544,641
|
|
|
(97,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(17,200,283
|
)
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.29
|
)
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
59,709,487
|
|
|
57,766,557
|
|
|
48,677,283
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements.
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
LOSS
|
(Expressed
in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Paid
In
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Expense
|
|
Gain
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JANUARY 1, 2004
|
|
|
43,188,362
|
|
$
|
54,789,896
|
|
$
|
-
|
|
$
|
(46,213,413
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
8,576,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to non- employees
|
|
|
-
|
|
|
270,560
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
270,560
|
|
Modification
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
to employee
|
|
|
-
|
|
|
39,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,000
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
136,212
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
136,212
|
|
Shares
issued for services
|
|
|
200,000
|
|
|
413,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
413,000
|
|
Exercise
of stock options
|
|
|
561,900
|
|
|
902,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
902,109
|
|
Exercise
of warrants
|
|
|
5,825,432
|
|
|
8,954,853
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,954,853
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,002,280
|
)
|
|
-
|
|
|
-
|
|
|
(7,002,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2004
|
|
|
49,775,694
|
|
$
|
65,505,630
|
|
|
-
|
|
$
|
(53,215,693
|
)
|
|
-
|
|
|
-
|
|
$
|
12,289,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,937,212
|
)
|
|
-
|
|
|
-
|
|
|
(9,937,212
|
)
|
Other
comprehensive loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(172,000
|
)
|
|
(172,000
|
)
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,109,212
|
)
|
Modification
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
to employees
|
|
|
-
|
|
|
56,060
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
56,060
|
|
Variable
accounting on stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
|
|
|
-
|
|
|
297,138
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
297,138
|
|
Exercise
of stock options
|
|
|
1,204,500
|
|
|
1,828,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,828,900
|
|
Exercise
of warrants
|
|
|
3,201,511
|
|
|
4,828,567
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,828,567
|
|
Issuance
of restricted stock
|
|
|
96,500
|
|
|
272,155
|
|
|
-
|
|
|
-
|
|
|
(272,155
|
)
|
|
-
|
|
|
-
|
|
Amortization
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
compensation
expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,819
|
|
|
-
|
|
|
106,819
|
|
Common
stock issued, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs of $2,081,989
|
|
|
5,038,314
|
|
|
19,338,264
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,338,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2005
|
|
|
59,316,519
|
|
$
|
92,126,714
|
|
$
|
-
|
|
$
|
(63,152,905
|
)
|
$
|
(165,336
|
)
|
$
|
(172,000
|
)
|
$
|
28,636,473
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
LOSS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Compen-
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Paid
In
|
|
Accumulated
|
|
sation
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Expense
|
|
Gain
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2005
|
|
|
59,316,519
|
|
$
|
92,126,714
|
|
$
|
-
|
|
$
|
(63,152,905
|
)
|
$
|
(165,336
|
)
|
$
|
(172,000
|
)
|
$
|
28,636,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,200,283
|
)
|
|
-
|
|
|
-
|
|
|
(17,200,283
|
)
|
Other
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
353,800
|
|
|
353,800
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16,846,483
|
)
|
Share-based
compensation
|
|
|
-
|
|
|
281,514
|
|
|
2,002,220
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,283,734
|
|
Exercise
of stock options
|
|
|
189,449
|
|
|
347,653
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
347,653
|
|
Exercise
of warrants
|
|
|
236,168
|
|
|
455,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455,670
|
|
Issuance
of restricted stock
|
|
|
77,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Elimination
of deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
expense (upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adoption
of new accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
standard)
|
|
|
-
|
|
|
(165,336
|
)
|
|
-
|
|
|
-
|
|
|
165,336
|
|
|
-
|
|
|
-
|
|
Common
stock issued, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
costs of $2,056,336
|
|
|
9,259,259
|
|
|
22,943,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,943,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
DECEMBER 31, 2006
|
|
|
69,079,270
|
|
$
|
115,989,879
|
|
$
|
2,002,220
|
|
$
|
(80,353,188
|
)
|
$
|
-
|
|
$
|
181,800
|
|
$
|
37,820,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(concluded)
|
See
notes to the consolidated financial statements.
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Expressed
in United States Dollars)
|
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(17,200,283
|
)
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,519,750
|
|
|
1,034,202
|
|
|
904,553
|
|
Variable
accounting on stock options
|
|
|
-
|
|
|
297,138
|
|
|
136,212
|
|
Securities
received in payment of license fees
|
|
|
(529,620
|
)
|
|
(595,000
|
)
|
|
-
|
|
Amortization
of discount on note payable
|
|
|
-
|
|
|
119,689
|
|
|
194,182
|
|
Share-based
compensation
|
|
|
2,283,734
|
|
|
162,880
|
|
|
309,560
|
|
Shares
issued for services
|
|
|
-
|
|
|
-
|
|
|
413,000
|
|
Loss
on disposal of fixed assets
|
|
|
107,276
|
|
|
81,203
|
|
|
34,716
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(1,022,657
|
)
|
|
(102,569
|
)
|
|
(486,275
|
)
|
Product
inventories
|
|
|
(169,666
|
)
|
|
-
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
(159,323
|
)
|
|
(71,472
|
)
|
|
(103,408
|
)
|
Notes
receivable
|
|
|
(330,000
|
)
|
|
-
|
|
|
-
|
|
Other
assets
|
|
|
49,939
|
|
|
(53,000
|
)
|
|
-
|
|
Trade
accounts payable
|
|
|
664,890
|
|
|
507,978
|
|
|
(4,225
|
)
|
Accrued
salaries and benefits
|
|
|
130,870
|
|
|
554,791
|
|
|
56,371
|
|
Accrued
liabilities
|
|
|
217,307
|
|
|
168,104
|
|
|
(72,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(14,437,783
|
)
|
|
(7,833,268
|
)
|
|
(5,620,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Sale
of available for sale securities
|
|
|
30,150,000
|
|
|
6,300,000
|
|
|
-
|
|
Purchase
of available for sale securities
|
|
|
(23,901,446
|
)
|
|
(27,089,656
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(4,542,921
|
)
|
|
(2,466,230
|
)
|
|
(748,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,705,633
|
|
|
(23,255,886
|
)
|
|
(748,680
|
)
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Expressed
in United States Dollars)
|
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of
|
|
|
|
|
|
|
|
|
|
|
issuance
costs
|
|
$
|
22,943,663
|
|
$
|
19,338,262
|
|
$
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
347,653
|
|
|
1,828,900
|
|
|
902,109
|
|
Proceeds
from exercise of warrants
|
|
|
455,670
|
|
|
4,828,567
|
|
|
8,954,853
|
|
Payment
of notes payable
|
|
|
(600,000
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
23,146,986
|
|
|
25,995,729
|
|
|
9,856,962
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
10,414,836
|
|
|
(5,093,425
|
)
|
|
3,488,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
2,264,418
|
|
|
7,357,843
|
|
|
3,869,669
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
12,679,254
|
|
$
|
2,264,418
|
|
$
|
7,357,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
105,000
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
For
the year ended December 31, 2006:
|
|
|
|
|
|
-
We issued 77,875 shares of restricted stock to employees and directors
having a fair value of approximately $281,000
for which no cash will be received.
|
-
We made property and equipment purchases of $59,252 which are included
in
trade accounts payable at December 31, 2006.
|
-
We had unrealized gains on available for sale securities of
$353,800.
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2005:
|
|
|
|
|
|
-
We made property and equipment purchases of $219,897 which are included
in
trade accounts payable at December 31, 2006.
|
-
We issued 96,500 shares of restricted stock to employees and directors
having a fair value of $272,155 for which no cash will
be received.
|
-
We had an unrealized loss on available for sale securities of
$172,000.
|
|
|
|
|
|
|
For
the year ended December 31, 2004:
|
|
|
|
|
|
-
None
|
|
|
|
|
|
|
|
|
|
|
(concluded)
|
|
|
|
|
|
|
See
notes to the consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
(Expressed
in United States Dollars)
1.
|
DESCRIPTION
OF BUSINESS AND BASIS OF
PRESENTATION
|
Description
of Business —
We are a
Canadian company, with principal assets and operations in the United States
of
America, whose primary business is developing and commercializing nanomaterial
and titanium dioxide pigment technologies. We also provide contract research
services on select projects where we can utilize our resources to develop
intellectual property and/or new products and technology. Our primary facilities
are located in Reno, Nevada, of approximately 100,000 square feet, and in
Anderson, Indiana, of approximately 8,000 square feet.
Principles
of Consolidation — The
consolidated financial statements include the accounts of Altair
Nanotechnologies Inc. and its subsidiaries which include (1) Altair US Holdings,
Inc., (2) Mineral Recovery Systems, Inc. (“MRS”), (3) Fine Gold Recovery
Systems, Inc. (“FGRS”), and (4) Altairnano, Inc. (“ANI”), (collectively referred
to as the “Company”), all of which are 100% owned. All of the subsidiaries are
incorporated in the United States of America. Intercompany transactions and
balances have been eliminated in consolidation.
Basis
of Presentation — The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements for the years ended December 31, 2006, 2005 and 2004,
we
incurred net losses of $17,200,283, $9,937,212 and $7,002,280, respectively.
At
December 31, 2006 and 2005, we had stockholders’ equity of $37,820,711 and
$28,636,473, respectively.
The
consolidated financial statements do not include any adjustments relating to
the
recoverability and classification of recorded asset amounts or the amounts
and
classification of liabilities that might be necessary should we be unable to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on
a
timely basis, to obtain additional financing or refinancing as may be required,
to develop commercially viable products and processes, and ultimately to
establish profitable operations. We have financed operations through operating
revenues and through the issuance of equity securities (common stock,
convertible debentures, stock options and warrants), and debt (term notes).
Until we are able to generate positive operating cash flows, additional funds
will be required to support operations. We believe that current working capital,
cash receipts from anticipated sales and funding through anticipated option
and
warrant exercises will be sufficient to enable us to continue as a going concern
through mid-2008.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of Estimates — The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that we make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash,
Cash Equivalents and Investment in Available for Sale Securities
(short-term) — Cash,
cash equivalents and investment
in available for sale securities (short-term) consist principally of bank
deposits, institutional money market funds and corporate notes. Short-term
investments that are highly liquid and have insignificant interest rate risk
and
maturities of 90 days or less are classified as cash and cash equivalents.
Investments that do not meet the definition of cash equivalents are classified
as held-to-maturity or available-for-sale.
Our
cash
balances are maintained in bank accounts that are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to a maximum of $100,000. At December 31, 2006
and 2005, we had cash deposits of approximately $3.0 million and $1.9 million,
respectively, in excess of FDIC insurance limits.
Investment
in Available for Sale Securities (long-term) — Investments
acquired with the intent to hold for more than one year are classified as
long-term investments. Available for sale securities (long-term) includes
publicly-traded equity investments which are classified as available for sale
and recorded at market value using the specific identification method Unrealized
gains and losses (except for other than temporary impairments) are recorded
in
other comprehensive income (loss), which is reported as a component of
stockholders’ equity. We evaluate our investments on a quarterly basis to
determine if a potential other than temporary impairment exists. Our evaluation
considers the investees’ specific business conditions as well as general
industry and market conditions.
Accounts
Receivable — Accounts
receivable consists of amounts due from customers for services and product
sales, net of an allowance for losses. We determine the allowance for doubtful
accounts by reviewing each customer account and specifically identifying any
potential for loss. The allowance for doubtful accounts at December 31, 2006
is
$62,185. As of December 31, 2005 and December 31, 2004, Management determined
that all amounts due were fully collectible accordingly; no allowance was booked
in those years. Actual losses related to collection of accounts receivable
for
the years ended December 31, 2006, 2005 and 2004 were
insignificant.
Inventory
- The
Company values its inventories generally at the lower of cost (first-in,
first-out method) or market. We employ a full absorption procedure using
standard cost techniques. The standards are customarily reviewed and adjusted
annually.
Property,
Plant and Equipment — Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the following
useful lives:
Furniture
and office equipment
|
3-7
years
|
Vehicles
|
5
years
|
Nanoparticle
production equipment
|
5-10
years
|
Building
and improvements
|
30
years
|
Patents
— Patents
related to the nanoparticle production technology are carried at cost and
amortized on a straight-line basis over their estimated useful lives, which
range from 14 to 17 years.
Notes
Receivable (long-term) - Notes
receivable consists of amounts due from customers for services and product
sales, net of an allowance on notes receivable. We determine an allowance on
notes receivable based on a review of the customer’s financial status performed
on a bi-annual basis. Notes receivable are also reviewed to determine if
discounts are required to be booked for notes that are not issued at prevailing
market rates. At December 31, 2006, no allowance or discounts were required
to
be recorded. Interest income is calculated and recognized according to the
contractual terms of the notes receivable. In the event an allowance on notes
receivable is required or the note is in default, the accrual of interest income
will be discontinued. The accrual of interest income resumes if the customer’s
financial status indicates that collection is likely or the default is
cured.
Research
and Development Expenditures —
The
costs of materials, equipment, or facilities that are acquired or constructed
for a particular research and development project and that have no alternative
future uses (in other research and development projects or otherwise) are
expensed as research and development costs at the time the costs are incurred.
Research and development expenditures related to materials and equipment or
facilities that are acquired or constructed for research and development
activities and that have alternative future uses (in research and development
projects or otherwise) are capitalized when acquired or constructed.
Research and development expenditures, which include the cost of materials
consumed in research and development activities, salaries, wages and other
costs
of personnel engaged in research and development, costs of services performed
by
others for research and development on behalf of the company and indirect costs
are expensed as research and development costs when incurred.
Foreign
Currency Translation — Asset
and
liability accounts, which are originally recorded in the appropriate local
currencies, are translated into U.S. dollars at year-end exchange rates. Revenue
and expense accounts are translated at the average exchange rates for the
period. Transaction gains and losses are included in the accompanying
consolidated statements of operations. Substantially all of our assets are
located in the United States of America.
Stock-Based
Compensation — As
of
January 1, 2006, we adopted the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 123 (R), Accounting
for Stock-Based Compensation.
Under
the provisions of SFAS 123 (R), 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). Prior to January 1, 2006, the Company
accounted for those plans under the recognition and measurement provisions
of
APB “Opinion” No. 25, Accounting
for Stock Issued to Employees,
and
related Interpretations, as permitted by FASB Statement No 123, Accounting
for Stock-Based Compensation.
We
have
made the transition to SFAS 123 (R) using the modified prospective method.
Under
the modified prospective method, SFAS 123 (R) 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.
As
a
result of adopting Statement 123 (R) on January 1, 2006, the Company’s net loss
for the year ended December 31, 2006 is $1,907,711 higher than if it had
continued to account for share-based compensation under Opinion 25. Basic and
diluted loss per share for the year ended December 31, 2006 would have been
$(0.26), if the Company had not adopted Statement 123 (R), compared to reported
basic and diluted earnings per share of $(0.29). We have not recorded income
tax
benefits related to equity-based compensation expense as deferred tax assets
are
fully offset by a valuation allowance. As a result, the implementation of SFAS
123 (R) did not impact the Statement of Cash Flows for the year ended December
31, 2006.
The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of Statement 123
to
options granted under the company’s stock option plans for the years ended
December 31, 2005 and 2004. For purposes of this pro forma disclosure, the
value
of the options is estimated using a Black-Scholes option-pricing model and
amortized to expense over the options’ vesting periods.
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
Net
loss, as reported
|
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
Deduct:
stock-based employee compensation
|
|
|
|
|
|
|
|
expense
included in reported net loss, net
|
|
|
|
|
|
|
|
of
$0 related tax effects
|
|
|
353,198
|
|
|
445,772
|
|
(Add):
total stock-based employee compensation
|
|
|
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
|
|
|
method
for all awards, net of $0 related tax effects
|
|
|
(1,502,731
|
)
|
|
(1,536,945
|
)
|
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(11,086,745
|
)
|
$
|
(8,093,453
|
)
|
|
|
|
|
|
|
|
|
Loss
per common share (basic and diluted):
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
Pro
forma
|
|
$
|
(0.19
|
)
|
$
|
(0.17
|
)
|
Long-Lived
Assets — We
evaluate the carrying value of long-term assets, including intangibles, when
events or circumstance indicate the existence of a possible impairment, based
on
projected undiscounted cash flows, and recognize impairment when such cash
flows
will be less than the carrying values. Measurement of the amounts of
impairments, if any, is based upon the difference between carrying value and
fair value. Events or circumstances that could indicate the existence of a
possible impairment include obsolescence of the technology, an absence of market
demand for the product, and/or continuing technology rights protection.
Revenue
Recognition —
We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred or service has been performed, the fee is fixed and determinable,
and collectibility is probable in accordance with the Securities and Exchange
Commission “Staff Bulletin no. 104”. 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 upon delivery of the product, unless specific contractual
terms dictate otherwise. Based on the specific terms and conditions of each
contract/grant, revenues are recognized on a time and materials basis, a
percentage of completion basis and/or a completed contract basis. Revenue under
contracts based on time and materials is recognized at contractually billable
rates as labor hours and expenses are incurred. Revenue under contracts based
on
a fixed fee arrangement is recognized based on various performance measures,
such as stipulated milestones. As these milestones are achieved, revenue
is recognized. From time to time, facts develop that may require us to
revise our estimated total costs or revenues expected. The cumulative
effect of revised estimates is recorded in the period in which the facts
requiring revisions become known. The full amount of anticipated losses on
any type of contract is recognized in the period in which it becomes
known.
Overhead
Allocation —
Facilities overhead, which is comprised primarily of occupancy and related
expenses, is initially recorded in general and administrative expenses and
then
allocated to research and development based on labor costs.
Net
Loss per Common Share —
Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potentially dilutive
shares outstanding during the period. Potentially dilutive shares consist
of the incremental common shares issuable upon the exercise of stock options
and
warrants. Potentially dilutive shares are excluded from the computation if
their effect is antidilutive. We had a net loss for all periods presented
herein; therefore, none of the stock options and warrants outstanding during
each of the periods presented, as discussed in Notes 9 and 10, were included
in
the computation of diluted loss per share as they were antidilutive. Stock
options and warrants to purchase a total of 6,534,747, 4,097,756, and 7,865,431
shares of common stock were excluded from the calculations of diluted loss
per
share for the years ended December 31, 2006, 2005 and 2004,
respectively.
Accumulated
Other Comprehensive Gain/(Loss) — Accumulated
other comprehensive gain/(loss) consists entirely of unrealized gain/(loss)
on
the investment in available for sale securities. The components of comprehensive
loss for the years
ended December 31, 2006, 2005 and 2004
are as
follows:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Net
loss
|
|
$
|
(17,200,283
|
)
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
Unrealized
gain (loss) on investment
|
|
|
|
|
|
|
in
available for sale securities,
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
353,800
|
|
|
(172,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(16,846,483
|
)
|
$
|
(10,109,212
|
)
|
$
|
(7,002,280
|
)
|
Deferred
Income Taxes — We
use
the asset and liability approach for financial accounting and reporting for
income taxes. Deferred income taxes are provided for temporary differences
in
the bases of assets and liabilities as reported for financial statement purposes
and income tax purposes. We have recorded a valuation allowance against all
net
deferred income tax assets.
The
valuation allowance reduces deferred income tax assets to an amount that
represents management’s best estimate of the amount of such deferred income tax
assets that more likely than not will be realized.
Fair
Value of Financial Instruments — Our
financial instruments such as cash and cash equivalents and long-term debt,
when
valued using market interest rates, would not be materially different from
the
amounts presented in the consolidated financial statements.
Recent
Accounting Pronouncements —
On
November 10, 2005, the Financial Accounting Standards Board ("FASB") issued
FASB
Staff Position No. FAS 123R-3, Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards
("FSP
123R-3"). The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool ("APIC
pool") related to the tax effects of employee stock-based compensation, and
to
determine the subsequent impact on the APIC pool and consolidated statements
of
cash flows of the tax effects of employee stock-based compensation awards that
are outstanding upon adoption of Statement of Financial Accounting Standards
No.
123 (revised 2004), Share
Based Payment, (“SFAS
123R”). This Staff Position is not applicable since the Company historically has
never generated a profit and tax deductions were never taken relating to
stock-based compensation. The APIC pool balance will be established at such
a
time that the Company becomes profitable and all net operating loss
carryforwards are either utilized or expired. We also have not recorded income
tax benefits related to equity-based compensation expense as deferred tax assets
are fully offset by a valuation allowance. The impact of income tax benefits
related to equity-based compensation expense on the deferred tax assets,
valuation allowance, and net operating losses will however, be disclosed in
Note
13 - Income Taxes.
In
June
2006, the FASB issued FASB interpretation No. 48 (FIN48), Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109.
FIN
48
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with FASB Statement No. 109,
Accounting
for Income Taxes.
FIN 48
also prescribes a recognition threshold and measurement standard for the
financial statement recognition and measurement of an income tax position taken
or expected to be taken in a tax return. In addition, FIN 48 provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
The
provisions of FIN 48 will be effective for the Company on January 1, 2007 and
are to be applied to all tax positions upon initial application of this
standard. Only tax positions that meet the more-likely-than-not recognition
threshold at the effective date may be recognized or continue to be recognized
upon adoption. The cumulative effect of applying the provisions of FIN 48 will
be reported as an adjustment to the opening balance of retained earnings for
the
fiscal year of adoption. The Company is currently evaluating the impact of
its
adoption of FIN 48 and has not yet determined the effect on its earnings or
financial position.
In
September 2006, the Securities and Exchange Commission published Staff
Accounting Bulleting No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.
The
interpretations in this Staff Accounting Bulleting are being issued to address
diversity in practice in quantifying financial statement misstatements and
the
potential under current practice to build up improper amounts on the balance
sheet. This guidance will apply to the first fiscal year ending after November
15, 2006. The adoption of SAB 108 did not have a material impact on our
financial position, results of operations or cash flows.
In
December 2006, the Financial Accounting Standards Board (“FASB”) released
Statement of Financial Accounting Standards No. 157 - Fair
Value Measurements.
This
statement defines fair value in generally accepted accounting principles
(“GAAP”), and expands disclosures about fair value measurements. This standard
applies under other accounting pronouncements that require or permit fair value
measurements and is intended to increase consistency and comparability. This
statement shall be effective for financial statements issued for fiscal years
beginning after November 15, 2007. The adoption of FASB 157 is not expected
to
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 year.
3. |
INVESTMENT
IN AVAILABLE FOR SALE
SECURITIES
|
Investments
in available for sale securities (short-term) consist of auction rate corporate
notes. The notes are long-term instruments with expiration dates through 2043.
Interest is settled and the rate is reset every 7 to 28 days.
Investment
in available for sale securities (long-term) consists of 100,000 shares of
Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock received in January
2005 and 140,000 shares received in June 2006. The 100,000 shares are eligible
for resale under Rule 144. The 140,000 shares acquired in June 2006 are subject
to a contractual provision preventing sale prior to June 2007. The Company
currently intends to hold these investments indefinitely. The shares were
received as payment of licensing and product improvement fees in connection
with
a license agreement for RenaZorb. Upon receipt, the shares were recorded at
their market value as measured by their closing price on the NASDAQ Capital
Market, resulting in a recorded basis of $1,138,200. At December 31, 2006,
their
fair value was approximately $1,320,000, representing an unrealized holding
gain
of approximately $181,800.
Inventory
consisted of the following at December 31, 2006 and 2005:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Work
in Process
|
|
$
|
112,500
|
|
$
|
-
|
|
Demonstration
Units
|
|
|
57,165
|
|
|
-
|
|
Total
Product Inventories
|
|
$
|
169,666
|
|
$
|
-
|
|
As
products reach the commercialization stage, the related inventory is recorded.
The costs associated with products undergoing research and development are
expensed as incurred. As of December 31, 2006 work in process consisted
primarily of battery cells and modules in various stages of the manufacturing
process.
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment consisted of the following as of December 31, 2006 and
2005:
|
|
2006
|
|
2005
|
|
Machinery
and equipment
|
|
$
|
13,198,410
|
|
$
|
9,977,474
|
|
Building
& improvements
|
|
|
3,319,806
|
|
|
2,430,952
|
|
Furniture,
office equipment & other
|
|
|
548,368
|
|
|
377,716
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,066,584
|
|
|
12,786,142
|
|
Less
accumulated depreciation
|
|
|
(5,837,178
|
)
|
|
(4,616,697
|
)
|
Total
property and equipment
|
|
$
|
11,229,406
|
|
$
|
8,169,445
|
|
Depreciation
expense for the years ended December 31, 2006, 2005, and 2004 totaled
$1,434,935, $949,387, and $818,861, respectively.
Patents
consisted of the following at December 31, 2006 and 2005:
|
|
2006
|
|
2005
|
|
Patents
and patent applications
|
|
$
|
1,517,736
|
|
$
|
1,517,736
|
|
Less
accumulated amortization
|
|
|
(712,488
|
)
|
|
(627,674
|
)
|
Total
patents and patent applications
|
|
$
|
805,248
|
|
$
|
890,062
|
|
All
patents are being amortized on a straight-line basis over their useful lives
with a
weighted
average amortization period of approximately 16.5 years. Amortization expense
was $84,814, $84,815 and $85,692 for the years ended December 31, 2006, 2005
and
2004, respectively. For each of the next five years, amortization expense
relating to intangibles is expected to be approximately $85,000 per year.
On
December 31, 2006, we received a $330,000 unsecured notes receivable from
Phoenix Motorcars, Inc. (see Note 16) in connection with the sale of battery
packs, which bears interest at 10.5%. The principal and interest are due by
December 30, 2008 with no pre-payment penalty.
Accrued
liabilities consisted of the following at December 31, 2006 and
2005:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
154,000
|
|
$
|
87,500
|
|
Accrued
use tax
|
|
|
13,209
|
|
|
50,866
|
|
Accrued
property tax
|
|
|
36,057
|
|
|
27,600
|
|
Accrued
mineral lease payments
|
|
|
62,372
|
|
|
77,936
|
|
Accrued
reclamation costs
|
|
|
14,410
|
|
|
20,500
|
|
Accrued
straight line rent
|
|
|
42,143
|
|
|
13,279
|
|
Deferred
revenue
|
|
|
194,391
|
|
|
10,150
|
|
Other
|
|
|
10,014
|
|
|
21,458
|
|
|
|
$
|
526,596
|
|
$
|
309,289
|
|
Notes
payable consisted of the following at December 31, 2006 and 2005:
|
|
2006
|
|
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
|
|
On
August
8, 2002, we entered into a purchase and sale agreement with BHP Minerals
International, Inc. (“BHP”), wherein we purchased the land, building and
fixtures in Reno, Nevada where our titanium processing assets are located.
In
connection with this transaction, BHP also agreed to terminate our obligation
to
pay royalties associated with the sale or use of the titanium processing
technology. In return, we issued to BHP a note in the amount of $3,000,000,
at
an interest rate of 7%, secured by the property we acquired. Interest did not
begin to accrue until August 8, 2005. As a result, we imputed interest and
reduced the face amount of the note payable by $566,763, which was then
amortized to interest expense from inception of the note through August 8,
2005.
The first two payments of $600,000 of principal plus accrued interest were
due
and paid on February 8, 2006 and February 8, 2007. Additional payments of
$600,000 plus accrued interest are due annually on February 8, 2008 through
2010.
10.
|
STOCK
BASED COMPENSATION
|
At
December 31, 2006, 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.
This
plan is described in more detail below. The compensation cost that has been
charged against income for this plan was $2,008,271 for the year ended 2006.
Of
this amount, $433,763 was recognized in connection with restricted stock and
options granted to non-employees.
In
2005
and 2004, we followed the measurement provisions of SFAS 123 for stock options
issued to non-employees utilizing a Black-Scholes option-pricing model. We
recorded compensation expense of $0, and $270,560, for stock options granted
to
non-employees for the years ended December 31, 2005 and 2004, respectively.
The
amount of expense related to restricted stock, included in the consolidated
statements of operations under the provisions of APB Opinion No. 25, at December
31, 2005 and 2004 was $106,819 and $0, respectively. During the years ended
2005
and 2004, the variable accounting method to record expense associated with
modifications of stock options was utilized in accordance with APB 25 Variable
accounting requires that changes in the intrinsic value of such modifications
be
recorded as periodic income or expense. We recorded compensation expense of
$353,198 and $175,212 related to modified stock options for the year ended
December 31, 2005 and 2004, respectively.
Stock
Options —
The
total number of shares authorized to be granted under the 2005 stock incentive
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 1,945,600 are outstanding and unexercised at
December 31, 2006. Options granted under the plans generally are granted with
an
exercise price equal to the market value of a common share at the date of grant,
have five- or ten-year terms and typically vest over periods ranging from
immediately to three years from the date of grant. The estimated fair value
of
equity-based awards, less expected forfeitures, is amortized over the awards’
vesting period utilizing the graded vesting method. Under this method, unvested
amounts begin amortizing at the beginning of the month in which the options
are
granted.
In
calculating compensation recorded related to stock option grants for the year
ended December 31, 2006, 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: dividend yield none; expected volatility of 94%,
risk-free interest rate of 4.8%, and expected term (years) of 4.61. 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 and future expectations of
employee exercise behavior.
In
the
years ended December 31, 2005 and 2004, the fair value of compensation expense
relating to non-employee stock option grants was estimated on the date of the
grant in accordance with FAS123 using the Black-Scholes option-pricing model
and
the following weighted average assumptions:
|
2005
|
|
2004
|
Dividend
yield
|
None
|
|
None
|
Expected
volatility
|
107%
|
|
61%
|
Risk-free
interest rate
|
3.70%
|
|
3.17%
|
Expected
life (years)
|
1.72
|
|
5.40
|
A
summary
of option activity under our equity-based compensation plans as of December
31,
2006, and changes during the year then ended 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
|
|
|
1,312,131
|
|
|
3.33
|
|
|
|
|
|
|
|
Exercised
|
|
|
(189,449
|
)
|
|
1.83
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(377,660
|
)
|
|
3.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
3,278,222
|
|
$
|
3.06
|
|
|
5.9
|
|
$
|
1
,366,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2006
|
|
|
2,400,680
|
|
$
|
3.09
|
|
|
4.7
|
|
$
|
1,177,713
|
|
Shares
issued to non-employees reflected in the table above include 470,000 shares
outstanding at January 1, 2006, 150,000 shares granted, and 15,000 shares
exercised during the year ended December 31, 2006, resulting in 605,000 shares
outstanding and 507,500 exercisable at December 31, 2006.
The
weighted-average grant-date fair value of options granted during 2006 was $2.29.
The weighted-average grant-date fair value of options calculated in accordance
with FAS 123 granted during 2005 and 2004 was $2.11 and $1.15, respectively.
The
total intrinsic value of options exercised during the years ended December
31,
2006, 2005, and 2004 was $314,010, $3,103,587, and $658,722,
respectively.
A
summary
of the status of nonvested shares at December 31, 2006 and changes during the
year then ended, is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
793,875
|
|
$
|
1.87
|
|
Granted
|
|
|
1,312,131
|
|
|
3.33
|
|
Vested
|
|
|
(995,714
|
)
|
|
3.37
|
|
Forfeited/Expired
|
|
|
(232,750
|
)
|
|
2.99
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at December 31, 2006
|
|
|
877,542
|
|
$
|
2.97
|
|
Non-vested
shares relating to non-employees reflected in the table above include 125,000
shares outstanding at January 1, 1006, 150,000 shares granted and 177,500 shares
exercised during the year ended December 31, 2006, resulting in 97,500
non-vested shares outstanding at December 31, 2006.
As
of
December 31, 2006, there was $719,973 of total unrecognized compensation cost
related to non-vested 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 year ended December 31, 2006 was $2,226,825.
Cash
received from warrant and stock option exercises for the years ended December
31, 2006, 2005, and 2004 was $803,323, $6,657,467, and $9,856,962, respectively.
Restricted
Stock
Our
stock
incentive plan provides for the granting of other incentive awards in addition
to stock options. During the year ended December 31, 2006, the Board of
Directors approved grants of 56,875 shares of restricted stock under the plan
with a weighted average fair value of $3.17 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 FAS 123 (R), 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 FAS 123 (R) 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 year ended December
31, 2006 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2006
|
|
|
96,500
|
|
$
|
2.82
|
|
Granted
|
|
|
92,875
|
|
|
3.17
|
|
Vested
|
|
|
(54,168
|
)
|
|
2.76
|
|
Forfeited/Expired
|
|
|
(15,000
|
)
|
|
2.88
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at December 31, 2006
|
|
|
120,207
|
|
$
|
2.96
|
|
Non-vested
shares relating to non-employees reflected in the table above include 60,000
shares outstanding at January 1, 2006, 56,875 shares granted and 35,000 shares
vested during the year ended December 31, 2006, resulting in 81,875 non-vested
shares outstanding at December 31, 2006.
As
of
December 31, 2006, we had
$356,017
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.
Warrants
— Warrant
activity for the years ended December 31, 2006, 2005, and 2004 is summarized
as
follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
|
Outstanding
at beginning of year
|
|
|
1,518,556
|
|
$
|
3.17
|
|
|
4,571,731
|
|
$
|
1.90
|
|
|
10,453,831
|
|
$
|
1.71
|
|
Issued
|
|
|
2,546,301
|
|
|
2.76
|
|
|
250,000
|
|
|
5.27
|
|
|
60,000
|
|
|
2.50
|
|
Expired
|
|
|
(572,164
|
)
|
|
3.63
|
|
|
(101,667
|
)
|
|
3.41
|
|
|
(116,668
|
)
|
|
3.14
|
|
Exercised
|
|
|
(236,168
|
)
|
|
1.93
|
|
|
(3,201,508
|
)
|
|
1.51
|
|
|
(5,825,432
|
)
|
|
1.54
|
|
Outstanding
at end of year
|
|
|
3,256,525
|
|
$
|
2.84
|
|
|
1,518,556
|
|
$
|
3.17
|
|
|
4,571,731
|
|
$
|
1.90
|
|
Currently
exercisable
|
|
|
3,256,525
|
|
$
|
2.84
|
|
|
1,518,556
|
|
$
|
3.17
|
|
|
4,571,731
|
|
$
|
1.90
|
|
The
following table summarizes information about warrants outstanding at December
31, 2006:
|
|
Warrants
Outstanding and Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
Range
of
|
|
|
|
Contractual
|
|
Exercise
|
|
Exercise
Prices
|
|
Warrants
|
|
Life
(Years)
|
|
Price
|
|
$1.00
to $2.49
|
|
|
400,224
|
|
|
1.7
|
|
$
|
1.88
|
|
$2.50
to $3.49
|
|
|
2,374,819
|
|
|
1.0
|
|
|
2.69
|
|
$3.50
to $5.265
|
|
|
481,482
|
|
|
3.5
|
|
|
4.36
|
|
|
|
|
3,256,525
|
|
|
1.4
|
|
$
|
2.84
|
|
Except
as
noted below, the warrants were issued in conjunction with debt and equity
offerings. The warrants expire on various dates ranging from December 2007
to
December 2011.
Warrants
Issued in Payment of Services
The
cost
associated with warrants issued as payment for outside services is estimated
on
the date of issuance using the Black-Scholes option-pricing model.
For
the
year ending December 31, 2006, 231,482 warrants were issued in connection with
the December 18, 2006 common stock offering at a strike price of 125% of the
stock price on the issuance date, as a result, no intrinsic value existed at
the
issuance date. The following assumptions were used to value the warrant cost
of
$275,464, recorded as common stock issuance cost: expected life of 2.57 years,
volatility of 79%, annual rate of quarterly dividends of $0 and risk free
interest rate of 5.01%.
All of
these warrants are outstanding at December 31, 2006.
For
the
year ending December 31, 2005, 250,000 warrants were issued in connection with
the February 14, 2005 common stock offering at a strike price of approximately
106% of the stock price on the issuance date, as a result, no intrinsic value
existed at the issuance date. The following assumptions were used to value
the
warrant cost of $639,459, recorded as common stock issuance cost: expected
life
of 1.72 years, volatility of 107%, annual rate of quarterly dividends of $0
and
risk free interest rate of 3.07%.
All of
these warrants are outstanding at December 31, 2006.
On
December 18, 2006, we sold 9,259,259 common shares to institutional investors.
The sales were made at $2.70 per share with net proceeds to the Company, after
expenses, of $22,943,664. Warrants with a one year expiration were also issued
as a component of this offering to purchase 2,314,819 shares of stock at a
price
of $2.70 per share. The placement agent also received a warrant to purchase
231,482 shares of our common stock at $3.38 per share. The warrant has a
five-year term. Using a Black-Scholes pricing model, we estimated that the
warrant has a value of $275,464; this amount was recorded as common stock
issuance costs.
On
February 14, 2005, we sold 5,000,000 common shares to institutional investors.
The sales were made at $4.05 per share with net proceeds to the Company, after
expenses, of approximately $19.3 million. The placement agent also received
a
warrant to purchase 250,000 shares of our common stock at $5.27 per share.
The
warrant has a four-year term. Using a Black-Scholes pricing model, we estimated
that the warrant has a value of $639,459; this amount was recorded as common
stock issuance costs.
Operating
Leases — We
lease
certain premises for office space and other corporate purposes. Operating lease
commitments at December 31, 2006 were:
Year
ending December 31:
|
|
|
|
2007
|
|
$
|
155,299
|
|
2008
|
|
|
152,373
|
|
2009
|
|
|
33,365
|
|
Total
|
|
$
|
341,037
|
|
Lease
expense for the years ended December 31, 2006, 2005, and 2004 totaled $116,146,
$181,549, and $28,207, respectively.
Because
of the net operating losses and a valuation allowance on deferred tax assets,
there was no provision for income taxes recorded in the accompanying
consolidated financial statements for each of the three years in the period
ended December 31, 2006.
A
reconciliation of the federal statutory income tax rate (35%) and our effective
income tax rates is as follows:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Federal
statutory income taxes (benefit)
|
|
$
|
(6,020,099
|
)
|
$
|
(3,478,025
|
)
|
$
|
(2,450,798
|
)
|
Expiration
of net operating loss carryforwards
|
|
|
96,350
|
|
|
(61,123
|
)
|
|
-
|
|
Other,
net
|
|
|
259,940
|
|
|
91,109
|
|
|
3,875
|
|
True
up to 2005 tax return
|
|
|
(1,771,202
|
)
|
|
-
|
|
|
-
|
|
Exercise
of incentive stock options
|
|
|
483,092
|
|
|
-
|
|
|
-
|
|
Valuation
allowance
|
|
|
6,951,919
|
|
|
3,448,039
|
|
|
2,446,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
The
components of the deferred tax assets consisted of the following as of December
31, 2006 and 2005:
|
|
2006
|
|
2005
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
20,631,046
|
|
$
|
13,645,639
|
|
Basis
difference in intangible assets
|
|
|
1,207,112
|
|
|
1,250,727
|
|
Other,
net
|
|
|
246,453
|
|
|
158,271
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
22,084,611
|
|
|
15,054,637
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Basis
difference in property, plant,
|
|
|
|
|
|
|
|
and
equipment
|
|
|
(790,361
|
)
|
|
(836,136
|
)
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
|
(790,361
|
)
|
|
(836,136
|
)
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(21,294,250
|
)
|
|
(14,218,501
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
Our
operating loss carryforwards include losses generated in the United States
of
America and in Canada. The net operating loss carryforwards total $58,945,846
as
of December 31, 2006 and will expire at various dates as follows:
2007-2011
|
|
$
|
5,144,779
|
|
2012-2016
|
|
|
5,764,930
|
|
2017-2021
|
|
|
8,836,431
|
|
2022-2026
|
|
|
39,199,706
|
|
Due
to
the significant increase in common stock issued and outstanding from 2004
through 2006, Section 382 of the Internal Revenue Code may provide significant
limitations on the utilization of net operating loss carryforwards of the
Company. As a result of these limitations, a portion of these loss and credit
carryovers may expire without being utilized.
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Contingencies —
The
Company is subject to claims in the normal course of business. Management,
after consultation with legal counsel, believes that liabilities, if any,
resulting from such claims will not materially effect the Company’s financial
position or results of operations.
Litigation
— We
are
currently not aware of any investigations, claims, or lawsuits that we believe
could have a material adverse effect on our consolidated financial position
or
on our consolidated results of operations.
Significant
Contracts — In
September 2003, we entered into an agreement with Western Michigan University
to
provide research services and materials to support research involving a
technology used in the detection of chemical, biological and radiological
agents. In
September 2004, the Department of Energy awarded a stage 2 contract for the
project under which we are continuing joint development work for the design,
synthesis and characterization of nanosensors for chemical, biological and
radiological agents. Revenues of $15,276 and $481,519 were recorded in 2006
and
2005, respectively, under this contract as a component of contracts and grants
revenues in the consolidated statements of operations.
In
January 2004, we entered into a license agreement with Western Oil Sands, Inc.,
or Western Oil, with respect to its possible use of the AHP for the production
of titanium dioxide pigment and pigment-related products at the Athabasca Oil
Sands Project in Alberta, Canada, and elsewhere. Upon execution of the
agreement, we granted Western Oil an exclusive, conditional license to use
the
AHP on heavy minerals derived from oil sands in Alberta, Canada. The agreement
also contemplated a three-phase, five-year program pursuant to which the parties
will work together to further evaluate, develop and commercialize the AHP.
In
the first phase of the program, which was extended through December 2006, along
with Western Oil, we evaluated the AHP to confirm that the AHP will produce
pigment from oil sands and to complete a characterization study.
During
December 2006, Western Oil requested an additional extension of phase one to
allow them to perform additional characterization of the feedstock source prior
to committing to phase two of the license agreement workscope. In light of
the
broad exclusive license granted to Western Oil in the initial agreement, we
declined to extend the terms of the license in order to preserve our flexibility
on other potential licensing arrangements that may not involve an exclusive
license for Western Oil. Nonetheless, we continue to work with Western Oil,
under a paid contract with approximately $200,000 of work remaining as of
December 31, 2006, to assist them in various development activities associated
with production of a pigment feedsource at a pilot plant located in our
building. Revenues of $1,111,697 and $616,515 were recorded in 2006 and 2005,
respectively, under this contract as a component of commercial collaborations
revenues in the consolidated statement of operations.
In
June
2004, we were awarded a National Science Foundation grant of $100,000 to fund
joint development work on next generation lithium ion power sources with
Hosokawa Micron’s Nanoparticle Technology Center and Rutgers University’s Energy
Storage Research Group. The grant was effective July 1, 2004 and
we
completed work under Phase I in December 2004. The results of the research
indicated that lithium ion batteries prepared with nano-structured lithium
titanate spinel anode materials exhibit rapid charge and discharge rates,
improved cycle life performance and a decrease in specific energy density when
compared to conventional lithium ion, nickel cadmium and nickel metal hydride
battery materials. In June 2005, we were awarded a grant of $476,850 from the
NSF for Phase II. Phase I work was designed to optimize the anode electrode
materials and Phase II is designed to develop cathode electrode materials,
thus
resulting in matched anode-cathode electrode materials for optimum
electrochemical performance. Revenues of $215,924 and $162,102 were recorded
in
2006 and 2005, respectively, under this contract as a component of contracts
and
grants revenues in the consolidated statements of operations.
In
November 2004, we entered into an agreement with the University of Nevada,
Las
Vegas Research Foundation (“UNLVRF”) to act as a subcontractor under a
$3,000,000 grant awarded to them by the Department of Energy for joint research
activities related to solar hydrogen production at a refilling station under
development in Las Vegas. The agreement provides for payments to Altair of
$400,000 for research and development work utilizing nanotechnology processes
for the production and commercialization of solar-based hydrogen technologies.
In November 2005, we entered into an agreement with UNLVRF for collaborative
research and development work under a Phase III grant award from the Department
of Energy that provides for payments to Altair of $750,000 for work beginning
October 1, 2005 and continuing through December 2006. This
grant has been extended through March 31, 2007 to allow for completion of the
research activities with no adjustment to the original amount awarded
Revenues
of $416,687 and $492,818 were recorded in 2006 and 2005, respectively, under
this contract as a component of contracts and grants revenues in the
consolidated statements of operations.
In
January 2005, we executed a licensing agreement with Spectrum Pharmaceuticals,
Inc. (“Spectrum”) that grants Spectrum exclusive worldwide rights to develop,
market and sell RenaZorb™. Under the agreement, Spectrum issued to us 100,000
restricted shares of their common stock at the then market value of $5.95 per
share, purchased 38,314 restricted shares of our common stock at the then
current market value of $2.61 per share, and also paid us $100,000 in connection
with the licensing agreement. In June 2006, Spectrum issued to us 100,000
restricted shares of their common stock at the then current market value of
$3.88 per share in connection with the first milestone payment due upon
demonstration of satisfactory lanthanum serum levels. An additional 40,000
shares were issued with the same terms, in payment of research and development
services provided by us. Additional payments by Spectrum are contingent upon
the
achievement of various milestones in the testing, regulatory approval and sale
of RenaZorb™. Revenues of $514,840 and $729,271 were recorded in 2006 and 2005
under this contract, respectively, of which $364,720 and $695,000 were recorded
as a component of license fees revenues and $150,120 and $34,271 were recorded
as a component of commercial collaborations revenues in the consolidated
statements of operations for 2006 and 2005, respectively.
In
November 2005, we were awarded a $250,000 grant from the Indiana Advanced Energy
Technologies Program initiative. The Indiana Energy Group, a division of
the Office of the Indiana Lieutenant Governor, administers the program. The
grant funding must be used to manufacture products containing products that
are
not currently in the U.S. market and that are above industry standard in terms
of energy efficiency (e.g. hybrid automobiles, fuel cells) and/or incorporate
an
innovative technology, such as nanotechnology, that allows the product to save
energy. The grant funding was used to install production and test
equipment for product application development in our development and
manufacturing center in Anderson, Indiana. The pilot manufacturing facilities
were completed in January 2006 and $250,000 of deferred revenue was recorded.
This revenue will be recognized over the average life of the underlying capital
assets. Revenue of $66,266 was recognized in 2006 as a component of contracts
and grants revenue in the consolidated statements of operations.
In
May
2006, we entered into a collaborative research, license and commercialization
agreement with the Elanco Animal Health Division of Eli Lilly and Company
(“Elanco”). Under the terms of the agreement, Elanco has exclusive rights to
develop animal health products using our nanotechnology-based products. The
agreement gives Altair specific rights with respect to the manufacture of these
products for Elanco. Upon successful completion of proof of concept studies
performed by Elanco for each nanotechnology based product selected by the joint
development committee, a $100,000 fee will be charged for the exclusive license
rights to develop and commercialize each of these products. The proof of concept
study relating to the first product, Renalan, was completed in December 2006
and
the related license fee of $100,000 was received. Other
payments by Elanco under the contract are contingent upon the achievement of
various milestones in the testing, regulatory approval and sale of each product
selected for development and commercialization.
In
August
2006, we signed an agreement with the University of Reno, Nevada to act as
a
subcontractor under a $1,095,000 grant awarded to them by the Department of
Energy to continue development of nanosensors for the detection of chemical,
biological and radiological agents. This agreement provides for total payments
to Altair of $250,000 over a 12-month period. This project is an outgrowth
of
and builds on the research initiated with the earmarks provided to Western
Michigan University by the Department of Energy in their 2002-2003 and 2003-2004
budgets. The overall workscope of this project will focus on homeland security
applications specifically relating to novel fluorescent and electroluminescent
receptor molecules. The Company’s portion of the overall project is intended to
be the synthesis and development of suitable lanthanum and other metal-based
nanoparticles for initiating reactions between target chemical and radiological
agents. Revenue
of $17,118 was recognized in 2006 as a component of contracts and grants revenue
in the consolidated statements of operations.
In
September 2006, we were awarded a $2.5 million grant from the Department of
Energy, of which $2.4 million, will be available, after the deduction of
administrative fees, to fund research for the following programs: Battery
technology, Nanosensors, and Nanomaterials characterization. The agreement
anticipates that this work will be accomplished over the next 12 - 24 months.
This is a prime grant under which Altair is directly responsible for the
contract administration. The various programs associated with this grant are
described below:
|
·
|
the
Nanosensors program, funded by $981,000 of the Department of Energy
grant,
will extend the existing collaboration with Western Michigan University
to
continue the development of a sensing system for detecting chemical,
biological and radiological agents over a period of 12 months. The
workscope associated with this grant builds upon the accomplishments
and
progress made under the 2004 Western Michigan University Department
of
Energy Nanosensor grant, to focus on increasing the signal strength
and
selectivity of the sensing devices developed. The ultimate goal is
to
develop a unique nanosensor-based platform for the error-free, “lab on a
chip” detection of chemical, biological and radiological agents for hazard
materials remediation and threat detection;
|
|
·
|
the
Battery technology program consists of two objectives, 1) Design,
Synthesis, and Testing of Li-ion Hosts for Cathode Service and 2)
Development, Testing, and Demonstration of High Rate Low Temperature
Lithium Ion Battery, funded in the amounts of $508,000 and $606,000
respectively. Objective 1 continues research on optimized anode and
cathode materials for high power, safe, fast charge batteries. The
agreement anticipates that this work will be accomplished over 24
months.
This research will also extend the collaboration with Rutgers University
for prototype cell testing through November 2008. Objective 2 furthers
the
investigation of extreme temperature range battery performance and
extends
over 12 months;
|
|
·
|
the
Nanomaterials characterization program was funded by $311,000 of
the
Department of Energy Grant. This research will be conducted in
collaboration with the University of California, Santa Barbara (“UCSB”),
to investigate the interaction of Altairnano’s nanomaterials with various
non-aqueous environments over a 12 month period. This research will
focus
on interaction mechanisms between cells and nanoparticles, with the
goal
of understanding how specific chemical, physical, and electrical
properties of these nanoparticles influence that interaction. Our
research
with UCSB will examine a range of microbes that have environmental
or
societal importance. The results of this research are expected to
provide
the basis for both 1) predicting potential negative impacts of specific
nanoparticle characteristics on the environment and human health
and 2)
developing novel antimicrobial agents and surface treatments that
could
defeat antibiotic-resistant strains of harmful
microbes.
|
16.
|
RELATED
PARTY TRANSACTIONS
|
On
December 31, 2003, we entered into a consulting agreement with Advanced
Technology Group LLC (“ATG”), whose managing partner is David King, a Director
of the Company. The agreement stipulates that ATG will furnish consulting
services in reviewing potential federal grant opportunities and providing
proposal development assistance on selected programs for a period of one year.
The agreement was subsequently extended through December 31, 2005. Under the
terms of the agreement, ATG is paid on a contingency basis at a rate of 6%
of
the first $1,000,000 in grant monies secured from applications prepared in
any
calendar year plus 3.5% of any cumulative amounts over $1,000,000. ATG also
agreed to provide consulting services at a rate of $200 per hour upon request
of
the Company. During the year ended December 31, 2004, we paid ATG $6,000 in
fees
in connection with securing a $100,000 grant from the National Science
Foundation and $4,500 in fees for consulting work in connection with product
marketing. During the year ended December 31, 2005, ATG earned $2,833 for
certain consulting services and $28,611 in connection with our National Science
Foundation Phase II grant application,
of
which $7,153 was paid and $21,458 was recorded as a component of accrued
liabilities on the consolidated balance sheets at December 31, 2005. During
the
year ended December 31, 2006, additional payments of $11,444 relating to the
National Science Foundation Phase II grant application and payments for general
consulting services of $25,800 were made.
On
June
1, 2006, we entered into a new consulting agreement with ATG, which replaced
the
December 2003 agreement. This agreement provides for the payment of a fixed
quarterly fee of $7,500 for a minimum of 40 hours of service per quarter.
Pre-approved hours incurred over 40 are billed at a rate of $200 per hour,
and
hours of service provided in excess of 120 are billed at a rate of $250 per
hour. During the period June 1, 2006 through December
31, 2006 payments under the June 2006 agreement totaled $27,101. David King
left
the Altair board of directors effective June 1, 2006 and is no longer a related
party.
As
described in Note 18 Subsequent Events, in January 2007 Phoenix Motorcars,
Inc.,
a significant customer, issued 1,000,000 shares of its common stock to us in
consideration for a three-year exclusivity agreement included as a provision
of
the multi-year purchase and supply contract. Total sales of battery packs to
Phoenix, all recorded during the fourth quarter of 2006 totaled $825,000. Total
accounts receivable and long term notes receivable (see Note 7) due from Phoenix
at December 31, 2006 totaled $495,000 and $330,000, respectively.
17.
|
BUSINESS
SEGMENT INFORMATION
|
Management
views the Company as operating in four business segments: Performance Materials,
Life Sciences, Advanced Materials and Power Systems (“AMPS”)
and an Altair Hydrochloride Pigment Process Division (“AHP”).
Two of
these divisions were formed in 2006, AMPS and AHPP. The activity relating to
these business units was previously included in Performance Materials For all
years presented, this activity has been reclassed out of Performance Materials
and reported in the new business units.
The
Performance Materials segment produces advanced materials for paints, coatings,
sensors, power systems, alternative energy devices and materials for improving
process technologies. The Life Sciences segment produces pharmaceutical
products, drug delivery products and dental materials. The AMPS segment
develops,
produces, and sells nano-structured LTO, nanoTitanate, NanoSafe battery cells,
and battery packs and provides related design and test services. The AHP segment
markets and licenses our titanium dioxide pigment production
technology.
The
accounting policies of these business segments are the same as described in
Note
2 to the consolidated financial statements. Reportable segment data reconciled
to the consolidated financial statements as of and for the fiscal years ended
December 31, 2006, 2005, and 2004 is as follows:
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
(Gain)/Loss
From
|
|
and
|
|
|
|
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
1,033,894
|
|
$
|
1,037,451
|
|
$
|
1,083,207
|
|
$
|
6,375,103
|
|
Life
Sciences
|
|
|
614,840
|
|
|
(117,724
|
)
|
|
11,691
|
|
|
1,473,793
|
|
AMPS
|
|
|
1,513,650
|
|
|
5,324,403
|
|
|
305,743
|
|
|
3,651,917
|
|
AHP
|
|
|
1,161,576
|
|
|
1,015,145
|
|
|
-
|
|
|
1,170,993
|
|
Corporate
|
|
|
-
|
|
|
10,422,140
|
|
|
119,109
|
|
|
30,448,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
4,323,960
|
|
$
|
17,681,415
|
|
$
|
1,519,750
|
|
$
|
43,120,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
1,214,527
|
|
$
|
3,758,541
|
|
$
|
932,390
|
|
$
|
5,591,246
|
|
Life
Sciences
|
|
|
724,771
|
|
|
191,149
|
|
|
5,506
|
|
|
543,059
|
|
AMPS
|
|
|
225,722
|
|
|
146,383
|
|
|
883
|
|
|
1,361,597
|
|
AHP
|
|
|
641,515
|
|
|
513,988
|
|
|
-
|
|
|
171,271
|
|
Corporate
|
|
|
-
|
|
|
5,871,792
|
|
|
95,423
|
|
|
25,796,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
2,806,535
|
|
$
|
10,481,853
|
|
$
|
1,034,202
|
|
$
|
33,464,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
769,145
|
|
$
|
4,182,239
|
|
$
|
839,974
|
|
$
|
5,500,494
|
|
Life
Sciences
|
|
|
-
|
|
|
250,855
|
|
|
1,307
|
|
|
104,534
|
|
AMPS
|
|
|
68,388
|
|
|
76,266
|
|
|
-
|
|
|
-
|
|
AHP
|
|
|
314,359
|
|
|
216,508
|
|
|
-
|
|
|
67,191
|
|
Corporate
|
|
|
-
|
|
|
2,179,087
|
|
|
63,272
|
|
|
9,874,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,151,892
|
|
$
|
6,904,955
|
|
$
|
904,553
|
|
$
|
15,547,021
|
|
In
the
table above, corporate and other expense in the Loss From Operations column
includes such expenses as business consulting, general legal expense, accounting
and audit, general insurance expense, stock-based
compensation expense, shareholder information expense, investor relations,
and
general office expense.
For
the
year ended December 31, 2006, we had sales to five major customers, each of
which accounted for 10% or more of revenues. Total sales to these customers
for
the year ended December 31, 2006 and the balance of their accounts receivable
at
December 31, 2006 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
December
31, 2006
|
|
December
31, 2006
|
|
Performance
Materials Division:
|
|
|
|
UNLV
Research Foundation
|
|
$
|
416,687
|
|
$
|
28,369
|
|
Department
of Energy
|
|
$
|
398,533
|
|
$
|
284,049
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
514,840
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
AMPS
Division:
|
|
|
|
|
|
|
|
Department
of Energy
|
|
$
|
347,904
|
|
$
|
270,692
|
|
Phoenix
Motorcars, Inc.
|
|
$
|
825,000
|
|
$
|
495,000
|
|
|
|
|
|
|
|
|
|
AHP
Division:
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
1,111,697
|
|
$
|
313,415
|
|
For
the
year ended December 31, 2005, we had sales to four major customers, each of
which accounted for 10% or more of revenues. Total sales to these customers
for
the year ended December 31, 2005 and the balance of their accounts receivable
at
December 31, 2005 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
December
31, 2005
|
|
December
31, 2005
|
|
Performance
Materials Division:
|
|
|
|
Western
Michigan University
|
|
$
|
481,519
|
|
$
|
118,478
|
|
UNLV
Research Foundation
|
|
$
|
492,818
|
|
$
|
160,053
|
|
|
|
|
|
|
|
|
|
Life
Sciences Division:
|
|
|
|
|
|
|
|
Spectrum
Pharmaceuticals, Inc.
|
|
$
|
729,271
|
|
$
|
30,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AHP
Division:
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
616,515
|
|
$
|
166,031
|
|
For
the
year ended December 31, 2004, we had sales to three major customers, each of
which accounted for 10% or more of revenues. Total sales to these customers
for
the year ended December 31, 2004 and the balance of their accounts receivable
at
December 31, 2004 were as follows:
|
|
Sales
- Year Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
December
31, 2003
|
|
December
31, 2003
|
|
Performance
Materials Division:
|
|
|
|
Titanium
Metals Corp.
|
|
$
|
152,550
|
|
$
|
39,382
|
|
Western
Michigan University
|
|
$
|
491,320
|
|
$
|
319,739
|
|
|
|
|
|
|
|
|
|
AHP
Division:
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
314,359
|
|
$
|
67,191
|
|
Revenues
for the years ended December 31, 2006, 2005 and 2004 by geographic area were
as
follows:
|
|
|
|
|
|
|
|
Geographic
information (a):
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
3,101,481
|
|
$
|
2,101,552
|
|
$
|
817,052
|
|
Canada
|
|
|
1,114,869
|
|
|
641,515
|
|
|
314,540
|
|
Other
foreign countries
|
|
|
107,610
|
|
|
63,468
|
|
|
20,300
|
|
Total
|
|
$
|
4,323,960
|
|
$
|
2,806,535
|
|
$
|
1,151,892
|
|
(a) Revenues
are attributed to countries based on location of customer.
|
|
|
18.
|
SUBSEQUENT
EVENTS (UNAUDITED)
|
In
January 2007, we entered into a multi-year purchase and supply agreement with
Phoenix Motorcars, Inc. (“Phoenix”) for up to 500 battery pack systems. The
initial order of battery pack systems, valued at $1,040,000, has been received
and is expected to ship in March and April 2007. Under the terms of the
agreement, Phoenix will purchase all battery packs for its electric vehicles
from us. Additionally, Phoenix issued 1,000,000 shares of its common stock
in
consideration for the three-year exclusivity agreement within the United States
of America included in the contract. The exclusivity agreement provides Phoenix
with limited, exclusive use of Altairnano’s NanoSafe battery packs in
four-wheel, all-electric vehicles having a gross weight up to 6,000 pounds.
The
NanoSafe battery packs manufactured by us for hybrid electric vehicles and
plug-in electric vehicles are excluded from the exclusivity agreement Phoenix
must meet minimum battery pack purchases, annually, to maintain the limited
exclusivity agreement through its expiration in December 2009. The minimum
commitment to maintain exclusivity for 2007 would provide $16 million in battery
pack sales. The common stock shares received represent a 16.6% ownership
interest in Phoenix. Since these shares are not and may never be registered
under the Securities and Exchange Act or any other state securities laws, a
number of factors must be considered in establishing a fair value associated
with this investment. The Company expects to complete this assessment in the
first quarter of 2007.
In
March
2007, AES Corporation, one of the world’s largest global power companies,
privately purchased 895,523 unregistered shares of the Company’s common stock at
a price of $3.35 per share. The Company agreed to prepare and file a
registration statement to register the shares within 30 days of the closing
date
of the transaction, which was effective on March 5, 2007.
F-31