Quarterly Report
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED MARCH
31,
2007
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
|
ALTAIR
NANOTECHNOLOGIES
INC.
(Exact
name of registrant as specified in its charter)
Canada
|
1-12497
|
33-1084375
|
(State
or other jurisdiction
|
(Commission
File No.)
|
(IRS
Employer
|
of
incorporation)
|
|
Identification
No.)
|
204
Edison Way
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (775) 856-2500
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES x NO o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer [ ]
|
Accelerated
filer [X ]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): YES [ ] NO [X]
As
of May 4, 2007 the registrant had 70,020,626 Common Shares
outstanding.
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,322,348
|
|
$
|
12,679,254
|
|
Investment
in available for sale securities
|
|
|
22,436,829
|
|
|
14,541,103
|
|
Accounts
receivable, net
|
|
|
929,769
|
|
|
1,624,825
|
|
Product
inventories
|
|
|
1,019,599
|
|
|
169,666
|
|
Prepaid
expenses and other current assets
|
|
|
292,718
|
|
|
413,390
|
|
Total
current assets
|
|
|
27,001,263
|
|
|
29,428,238
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
1,499,368
|
|
|
1,306,420
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
11,800,801
|
|
|
11,229,406
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
784,044
|
|
|
805,248
|
|
|
|
|
|
|
|
|
|
Notes
Receivable
|
|
|
338,654
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
127,779
|
|
|
21,261
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
41,551,909
|
|
$
|
43,120,573
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
1,645,205
|
|
$
|
1,533,047
|
|
Accrued
salaries and benefits
|
|
|
747,488
|
|
|
840,219
|
|
Accrued
liabilities
|
|
|
461,706
|
|
|
526,596
|
|
Note
payable, current portion
|
|
|
600,000
|
|
|
600,000
|
|
Total
current liabilities
|
|
|
3,454,399
|
|
|
3,499,862
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
1,200,000
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
70,020,626
and 69,079,270 shares issued and
|
|
|
|
|
|
|
|
outstanding
at March 31, 2007 and December 31, 2006
|
|
|
119,116,995
|
|
|
115,989,879
|
|
Additional
paid in capital
|
|
|
2,948,569
|
|
|
2,002,220
|
|
Accumulated
deficit
|
|
|
(85,534,654
|
)
|
|
(80,353,188
|
)
|
Accumulated
other comprehensive loss
|
|
|
366,600
|
|
|
181,800
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
36,897,510
|
|
|
37,820,711
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
41,551,909
|
|
$
|
43,120,573
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
177,390
|
|
$
|
8,018
|
|
Commercial
collaborations
|
|
|
347,288
|
|
|
330,270
|
|
Contracts
and grants
|
|
|
616,254
|
|
|
207,008
|
|
Total
revenues
|
|
|
1,140,932
|
|
|
545,296
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
210,262
|
|
|
1,266
|
|
Research
and development
|
|
|
2,997,327
|
|
|
1,948,387
|
|
Sales
and marketing
|
|
|
380,536
|
|
|
393,161
|
|
General
and administrative
|
|
|
2,611,215
|
|
|
2,611,304
|
|
Depreciation
and amortization
|
|
|
431,058
|
|
|
316,871
|
|
Total
operating expenses
|
|
|
6,630,398
|
|
|
5,270,989
|
|
Loss
from Operations
|
|
|
(5,489,466
|
)
|
|
(4,725,693
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(35,000
|
)
|
|
(45,500
|
)
|
Interest
income
|
|
|
343,368
|
|
|
211,303
|
|
Loss
on foreign exchange
|
|
|
(369
|
)
|
|
(174
|
)
|
Total
other income, net
|
|
|
307,999
|
|
|
165,629
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(5,181,467
|
)
|
$
|
(4,560,064
|
)
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
69,264,018
|
|
|
59,222,352
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
LOSS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Compre-
|
|
|
|
|
|
Common
Stock
|
|
Paid
In
|
|
Accumulated
|
|
hensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JANUARY 1, 2007
|
|
|
69,079,270
|
|
$
|
115,989,879
|
|
$
|
2,002,220
|
|
$
|
(80,353,188
|
)
|
$
|
181,800
|
|
$
|
37,820,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,181,467
|
)
|
|
-
|
|
|
(5,181,467
|
)
|
Other
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
184,800
|
|
|
184,800
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,996,667
|
)
|
Share-based
compensation
|
|
|
-
|
|
|
46,725
|
|
|
964,349
|
|
|
-
|
|
|
-
|
|
|
993,074
|
|
Exercise
of stock options
|
|
|
45,833
|
|
|
80,391
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
80,391
|
|
Common
stock issued
|
|
|
895,523
|
|
|
3,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2007
|
|
|
70,020,626
|
|
$
|
119,116,995
|
|
$
|
2,948,569
|
|
$
|
(85,534,654
|
)
|
$
|
366,600
|
|
$
|
36,897,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,181,467
|
)
|
$
|
(4,560,064
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
431,058
|
|
|
316,871
|
|
Securities
received in payment of license fees
|
|
|
(8,148
|
)
|
|
-
|
|
Securities
received for exclusivity contract
|
|
|
(106,518
|
)
|
|
-
|
|
Share-based
compensation
|
|
|
993,074
|
|
|
848,843
|
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
21,100
|
|
Accrued
interest on notes receivable
|
|
|
(8,654
|
)
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
695,056
|
|
|
(90,496
|
)
|
Product
inventories
|
|
|
(834,647
|
)
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
120,672
|
|
|
(92,801
|
)
|
Other
assets
|
|
|
-
|
|
|
49,939
|
|
Trade
accounts payable
|
|
|
(180,074
|
)
|
|
(12,953
|
)
|
Accrued
salaries and benefits
|
|
|
(92,731
|
)
|
|
190,247
|
|
Accrued
liabilities
|
|
|
(64,890
|
)
|
|
127,229
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(4,237,269
|
)
|
|
(3,202,085
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Sale
of available for sale securities
|
|
|
2,325,000
|
|
|
3,760,980
|
|
Purchase
of available for sale securities
|
|
|
(10,220,726
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(704,302
|
)
|
|
(1,143,610
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by investing activities
|
|
|
(8,600,028
|
)
|
|
2,617,370
|
|
|
|
|
|
|
|
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Expressed
in United States Dollars)
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Issuance
of common shares for cash
|
|
|
3,000,000
|
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
80,391
|
|
|
53,975
|
|
Payment
of notes payable
|
|
|
(600,000
|
)
|
|
(600,000
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used) financing activities
|
|
|
2,480,391
|
|
|
(546,025
|
)
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(10,356,906
|
)
|
|
(1,130,740
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
12,679,254
|
|
|
2,264,418
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
2,322,348
|
|
$
|
1,133,678
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
168,000
|
|
$
|
105,000
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2007:
|
|
|
|
|
|
|
|
-
We made property and equipment purchases of $292,233, which are included
in trade accounts payable at March 31, 2007.
|
-
We had an unrealized gain on available for sale securities of
$184,800.
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
-
We issued 36,000 shares of restricted stock to employees having a
fair
value of approximately $122,400
for which no cash will be received.
|
-
We made property and equipment purchases of $123,701, which are included
in trade accounts payable at March 31, 2006.
|
-
We had an unrealized gain on available for sale securities of
$46,000.
|
(concluded)
|
|
|
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO CONDESNED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. Basis of Preparation of Consolidated Financial
Statements
These
unaudited interim condensed consolidated financial statements of Altair
Nanotechnologies Inc. and its subsidiaries (collectively, “Altair”, “we” or the
“Company”) have been prepared in accordance with the rules and regulations of
the United States Securities and Exchange Commission (the “Commission”). Such
rules and regulations allow the omission of certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America,
so long as the statements are not misleading. In the opinion of Company
management, these consolidated financial statements and accompanying notes
contain all adjustments (consisting of only normal recurring items) necessary
to
present fairly the financial position and results of operations for the periods
shown. These unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31, 2006, as filed with the
Commission on March 13, 2007.
The
results of operations for the three-month period ended March 31, 2007 are not
necessarily indicative of the results to be expected for the full year.
Note
2. Summary of Significant Accounting Policies
Cash,
Cash Equivalents and Investment in Available for Sale Securities (short-term)
-
Cash,
cash equivalents and investment
in available for sale securities (short-term) consist principally of bank
deposits, institutional money market funds and corporate notes. Short-term
investments that are highly liquid, 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 March 31, 2007
and December 31, 2006, we had cash deposits of approximately $2.1million and
$3.0 million, respectively, in excess of FDIC insurance limits.
Investment
in Available for Sale Securities (long-term) - Available
for sale securities (long-term) includes
publicly traded equity investments that are classified as available for sale
and
recorded at market using the specific identification method. Unrealized gains
and losses (except for other than temporary impairments) are recorded in other
comprehensive income (loss), which is reported as a component of stockholders’
equity. We evaluate our investments on a quarterly basis to determine if a
potential other than temporary impairment exists. Our evaluation considers
the
investees’ specific business conditions as well as general industry and market
conditions.
Inventory
- The
Company values its inventories at the lower of cost (first-in, first-out method)
or market. We employ a full absorption procedure using standard cost techniques,
which approximates actual cost. The standards are customarily reviewed and
adjusted annually.
Accumulated
Other Comprehensive Loss - Accumulated
other comprehensive loss consists entirely of unrealized loss on the investment
in available for sale securities. The components of comprehensive loss for
the
three-month periods ended March 31, 2007 and 2006 are as follows:
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
|
|
2007
|
|
2006
|
|
Net
loss
|
|
$
|
5,181,467
|
|
$
|
4,560,064
|
|
Unrealized
gain on investment in available
|
|
|
|
|
|
|
|
for
sale securities, net of taxes of $0
|
|
|
(184,800
|
)
|
|
(46,000
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
4,996,667
|
|
$
|
4,514,064
|
|
Long-Lived
Assets - We
evaluate the carrying value of long-term assets, including intangibles, when
events or circumstance indicate the existence of a possible impairment, based
on
projected undiscounted cash flows, and recognize impairment when such cash
flows
will be less than the carrying values. Measurement of the amounts of
impairments, if any, is based upon the difference between carrying value and
fair value. Events or circumstances that could indicate the existence of a
possible impairment include obsolescence of the technology, an absence of market
demand for the product, and/or continuing technology rights protection.
Deferred
Income Taxes - We
use
the asset and liability approach for financial accounting and reporting for
income taxes. Deferred income taxes are provided for temporary differences
in
the bases of assets and liabilities as reported for financial statement purposes
and income tax purposes. We have recorded a valuation allowance against all
net
deferred tax assets. The valuation allowance reduces deferred tax assets to
an
amount that represents management’s best estimate of the amount of such deferred
tax assets that more likely than not will be realized.
Revenue
Recognition
- We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred or service has been performed, the fee is fixed and determinable,
and collectibility is probable. Our revenues were derived
from product sales, commercial collaborations and contracts and
grants. 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. Payments received in advance relating to
the
future performance of services or delivery of products are deferred until the
performance of the service is complete or the product is shipped. Upfront
payments received in connection with certain rights granted in contractual
arrangements are deferred and amortized over the related time period over which
the benefits are received.
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 and product inventories based on labor
costs.
Net
Loss Per Common Share -
Basic
loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted loss per share is computed using
the weighted average number of common and potentially dilutive shares
outstanding during the period. Potentially dilutive shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants. Potentially dilutive shares are excluded from the computation if
their effect is anti-dilutive. We had a net loss for all periods presented
herein; therefore, none of the stock options and warrants outstanding during
each of the periods presented were included in the computation of diluted loss
per share as they were anti-dilutive.
Recent
Accounting Pronouncements
- In
April 2007, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(“SFAS
159”), which will become effective for the first fiscal year that begins after
November 15, 2007. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. Any unrealized gains and losses
associated with the instruments or other balances for which the fair value
option has been elected are reported in earnings at each subsequent reporting
date. We
do not
believe the adoption of SFAS 159 will have a material impact on our financial
position, results of operations or cash flows.
Reclassifications
- Certain
reclassifications have been made to prior period amounts to conform to
classifications adopted in the current period.
Note
3. Investment in Available for Sale Securities
Investments
in available for sale securities (short-term) consist of auction rate corporate
notes. The notes are long-term instruments with expiration dates through 2041.
Interest is settled and the rate is reset every 7 to 28 days.
Investment
in available for sale securities (long-term) consists of 240,000 shares of
Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock. Although the Spectrum
shares are eligible for resale under Rule 144, the Company currently intends
to
hold them indefinitely. Additionally, 140,000 of the 240,000 shares are subject
to a contractual provisions preventing sale prior to June 2007. The shares
were
received as partial payment of licensing fees when Spectrum entered into a
license agreement for RenaZorb in January 2005 and in payment of the first
milestone achieved in June 2006. On receipt, the shares were recorded at their
market value of $1,138,200 as measured by their closing price on the Nasdaq
Capital Market. At March 31, 2007, their fair value was approximately
$1,504,800, representing an unrealized holding gain of approximately $366,600.
Note
4. Product Inventories
Product
inventories consist of the following:
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
769,143
|
|
$
|
-
|
|
Work
in Process
|
|
|
-
|
|
|
112,500
|
|
Finished
Goods
|
|
|
250,456
|
|
|
-
|
|
Demo
Units
|
|
|
-
|
|
|
57,165
|
|
Total
Product Inventories
|
|
$
|
1
,019,599
|
|
$
|
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 March 31, 2007, inventory consisted of the labor,
materials, and overhead to produce the battery packs associated with the
$1,040,000 Phoenix purchase order. As of December 31, 2006, work in process
consisted primarily of battery cells and modules in various stages of the
manufacturing process.
Note
5. Patents
Our
patents are associated with the nanomaterials and titanium dioxide pigment
technology. We are amortizing these assets over their useful lives. The
amortized patents balances as of March 31, 2007 and December 31, 2006
were:
|
|
March
31,
2007
|
|
December
31,
2006
|
|
Patents
and patent applications
|
|
$
|
1,517,736
|
|
$
|
1,517,736
|
|
Less
accumulated amortization
|
|
|
(733,692
|
)
|
|
(712,488
|
)
|
Total
patents and patent applications
|
|
$
|
784,044
|
|
$
|
805,248
|
|
The
weighted average amortization period for patents is approximately 16.5 years.
Amortization expense,
which
represents the amortization relating to the identified amortizable patents,
was
$21,204 for the three months ended March 31, 2007 and 2006. For each of the
next
five years, amortization expense relating to patents is expected to be
approximately $85,000 per year. Management believes the net carrying amount
of
patents will be recovered by future cash flows generated by commercialization
of
the titanium processing technology.
Note
6. Notes
Receivable
On
December 31, 2006, we received a $330,000 unsecured note receivable from Phoenix
Motorcars, Inc. 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. The balance of the note including accrued interest
was
$338,654 at March 31, 2007.
Note
7. Notes Payable
The
current and long term amount of the note payable are as follows:
|
|
March
31,
2007
|
|
December
31,
2006
|
|
Note
payable to BHP Minerals
|
|
|
|
|
|
|
|
International,
Inc.
|
|
$
|
1,800,000
|
|
$
|
2,400,000
|
|
Less
current portion
|
|
|
(600,000
|
)
|
|
(600,000
|
)
|
Long-term
portion of notes payable
|
|
$
|
1,200,000
|
|
$
|
1,800,000
|
|
The
note
payable to BHP Minerals International, Inc., in the face amount of
$3,000,000,
was
entered into on August 8, 2002 and is secured by the property we acquired 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.
Note
8. Stock-Based
Compensation
We
have a
stock incentive plan, administered by the Board of Directors, which provides
for
the granting of options and restricted shares to employees, officers, directors
and other service providers of the Company. Options granted under the plan
generally are granted with an exercise price equal to the market value of a
common share at the date of grant, have five- or ten-year terms and typically
vest over periods ranging from immediately to three years from the date of
grant. The 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.
The
total
number of shares authorized to be granted under the 2005 stock plan is
3,000,000. Prior stock option plans, which are now terminated, authorized a
total of 6,600,000 shares, of which options for 5,745,500 were granted and
options for 1,895,600 are outstanding unexercised at March 31, 2007. The total
compensation cost charged in connection with these plans was $993,074 and
$848,843 for the quarter ending March 31, 2007 and March 31, 2006, respectively.
Of this amount, $149,777 and $116,304 were recognized in connection with
restricted stock and options granted to non-employees for the quarter ending
March 31, 2007 and March 31, 2006, respectively.
Stock
Options
In
calculating compensation related to stock option grants, the fair value of
each
stock option is estimated on the date of grant using the Black-Scholes
option-pricing model and the following weighted average
assumptions:
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
Dividend
yield
|
|
|
None
|
|
|
None
|
|
Expected
volatility
|
|
|
87%
|
|
|
93%
|
|
Risk-free
interest rate
|
|
|
4.6%
|
|
|
4.7%
|
|
Expected
life (years)
|
|
|
4.84
|
|
|
4.67
|
|
A
summary
of the changes in stock options outstanding under our equity-based compensation
plans during the quarter ended March 31, 2007 is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term
(Years)
|
|
Value
|
|
Outstanding
at January 1, 2007
|
|
|
3,278,222
|
|
$
|
3.06
|
|
|
5.9
|
|
$
|
1,366,105
|
|
Granted
|
|
|
1,302,882
|
|
|
2.10
|
|
|
|
|
|
|
|
Exercised
|
|
|
(45,833
|
)
|
|
1.23
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(23,147
|
)
|
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2007
|
|
|
4,512,124
|
|
$
|
2.96
|
|
|
6.9
|
|
$
|
2,435,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2007
|
|
|
3,053,611
|
|
$
|
3.05
|
|
|
5.7
|
|
$
|
1,850,664
|
|
Shares
issued to non-employees reflected in the table above include 605,000 shares
outstanding at January 1, 2007, and 92,000 shares granted resulting in 697,000
shares outstanding and 560,667 exercisable at March 31, 2007.
The
weighted average grant date fair value of options granted was $1.86 and $2.33
during the quarter ended March 31, 2007 and March 31, 2006, respectively. The
total intrinsic value of options exercised was $65,008 and $63,325 during the
quarter ended March 31, 2007 and March 31, 2006, respectively.
A
summary
of the status of non-vested shares at March 31, 2007 and changes during the
quarter ended March 31, 2007 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2007
|
|
|
877,542
|
|
$
|
1.98
|
|
Granted
|
|
|
1,302,882
|
|
|
2.10
|
|
Vested
|
|
|
(716,494
|
)
|
|
1.00
|
|
Forfeited/Expired
|
|
|
(5,417
|
)
|
|
3.26
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at March 31, 2007
|
|
|
1,458,513
|
|
$
|
2.78
|
|
As
of
March 31, 2007, there was $1,532,515 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 .7 years as of March 31, 2007.
The total fair value of shares vested was $1,014,603 and $1,582,880 during
the
quarter ended March 31, 2007 and March 31, 2006, respectively. Cash received
from stock option exercises was $80,391 and $53,975 during the quarter ended
March 31, 2007 and March 31, 2006, respectively.
Restricted
Stock
Our
stock
incentive plan provides for the granting of other incentive awards in addition
to stock options. During the quarter ended March 31, 2007, the Board of
Directors did not grant any shares of restricted stock under the plan. During
the quarter ended March 31, 2006, the Board of Directors granted 36,000 shares
of restricted stock under the plan with a weighted average fair value of $3.39
per share. 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. Compensation cost
for restricted stock is recognized in the financial statements on a pro rata
basis over the vesting period.
A
summary
of the changes in restricted stock outstanding during the quarter ended March
31, 2007 is presented below:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested
shares at January 1, 2007
|
|
|
120,207
|
|
$
|
2.96
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
-
|
|
Forfeited/Expired
|
|
|
(4,000
|
)
|
|
2.81
|
|
|
|
|
|
|
|
|
|
Non-vested
shares at March 31, 2007
|
|
|
116,207
|
|
$
|
2.97
|
|
Non-vested
shares relating to non-employees reflected in the table above include 81,875
shares outstanding at January 1, 2007 and at March 31, 2007.
As
of
March 31, 2007 we had $344,777 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.
Note
9. Other Transactions
In
March
2007, The AES Corporation (“AES”), one of the world’s largest global power
companies, privately purchased 895,523 unregistered common shares of the Company
at a price of $3.35 per share. Total proceeds received relating to the purchase
were $3,000,000. No underwriting commission was paid in connection with this
transaction. 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. Due to additional time required by AES to review
the registration statement and prepare related documents, the registration
statement was not filed until April 10, 2007.
Note
10. Income
Taxes
In
June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48 “Accounting for Uncertainty in Income Taxes- an interpretation of
FASB Statement 109”. FIN 48 establishes a single model to address accounting for
uncertain tax positions. FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides
guidance on de-recognition, measurement classification, interest and penalties,
accounting in interim periods, disclosure and transition. Upon adoption as
of
January 1, 2007, we had no uncertain tax positions. However, in reviewing
the U.S. and Canadian income tax treatment of certain expenses we concluded
that
errors had been made in the allocation of those expenses between the U.S. and
Canadian entities.
Based
on
our review, we determined that the gross amount of the Canadian deferred tax
asset is overstated by approximately $1 million. This deferred tax asset has
been fully reserved and, therefore, there will be no net income tax affect
on
the financial statements relating to this correction. The Canadian net operating
loss will be reduced by approximately $2.8 million as a result of filing amended
returns.
For
U.S.
tax purposes, the gross deferred tax asset has been understated for expense
items that should be recorded on the U.S. books. Although the gross amount
of
the deferred tax asset will be increased as a result of the expenses to be
recorded on the U.S. books, the additional amount of the deferred tax
asset will also be fully reserved. The additional expenses to be recorded
on the U.S. books during 2007 will increase the U.S. net operating loss by
approximately $1.6 million.
Note
11. Related Party Transactions
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 was expected to ship in March and April 2007. Due to a delay in receipt
of
the pre-payment amounts due from Phoenix pending their receipt of additional
funding, no shipments were made in March or April. This order is now expected
to
ship by the end of the second quarter. Total accounts receivable and long term
notes receivable including accrued interest (see Note 7) due from Phoenix at
March 31, 2007 totaled $96,276 and $338,654, respectively.
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. Phoenix must meet minimum battery pack purchases, annually, to
maintain the limited exclusivity agreement through its expiration in December
2009. The common stock shares received represent a 16.6% ownership interest
in
Phoenix. The investment was recorded at $106,518 (see Note 3) with the offset
to
deferred revenue, which will be recognized on a straight-line basis over the
three year term of the exclusivity period. Total revenue of $8,876 was
recognized during the three month period ended March 31, 2007 and the ending
balance of deferred revenue was $97,642.
Note
12. 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 the fourth quarter of 2006, AMPS and AHP. The activity
relating to these business units was previously included in Performance
Materials. For all quarters presented, this activity has been reclassified
out
of Performance Materials and reported in the new business units.
The
Performance Materials segment produces advanced materials for coatings, sensors,
alternative energy devices and materials for improving process technologies.
Beginning in the first quarter of 2007, sales of nano-structured lithium
titanate spinel ("LTO") were moved to Performance Materials out of the AMPS
segment. All previous activity has been reclassed accordingly. The Life Sciences
segment produces pharmaceutical products, drug delivery products and dental
materials. The AMPS segment develops,
produces, and sells 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 unaudited condensed consolidated financial statements. Reportable
segment data reconciled to the consolidated financial statements as of and
for
the three-month period ended March 31, 2007 and March 31, 2006 is as
follows:
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
Loss
From
|
|
and
|
|
|
|
Three
Months Ended
|
|
Net
Sales
|
|
Operations
|
|
Amortization
|
|
Assets
|
|
March
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
546,732
|
|
$
|
295,064
|
|
$
|
160,688
|
|
$
|
5,339,327
|
|
AMPS
|
|
|
263,006
|
|
|
1,476,103
|
|
|
111,500
|
|
|
4,543,798
|
|
AHP
|
|
|
319,871
|
|
|
277,287
|
|
|
119,876
|
|
|
2,471,124
|
|
Life
Sciences
|
|
|
11,323
|
|
|
123,875
|
|
|
6,520
|
|
|
1,693,734
|
|
Corporate
and other
|
|
|
-
|
|
|
3,317,137
|
|
|
32,475
|
|
|
27,503,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
1,140,932
|
|
$
|
5,489,466
|
|
$
|
431,058
|
|
$
|
41,551,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Materials
|
|
$
|
154,740
|
|
$
|
792,991
|
|
$
|
254,048
|
|
$
|
5,315,626
|
|
AMPS
|
|
|
110,926
|
|
|
887,838
|
|
|
32,814
|
|
|
2,436,236
|
|
AHP
|
|
|
279,630
|
|
|
135,902
|
|
|
-
|
|
|
376,196
|
|
Life
Sciences
|
|
|
-
|
|
|
136,527
|
|
|
2,353
|
|
|
598,727
|
|
Corporate
and other
|
|
|
-
|
|
|
2,772,435
|
|
|
27,656
|
|
|
20,954,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$
|
545,296
|
|
$
|
4,725,693
|
|
$
|
316,871
|
|
$
|
29,680,994
|
|
In
the
table above, corporate and other expense in the Loss From Operations column
includes such expenses as investor relations, business consulting, general
legal
expense, accounting and audit, general insurance expense, shareholder
information expense and general office expense.
For
the
three months ended March 31, 2007, we had sales to three major customers, each
of which accounted for 10% or more of revenues. Total sales to these customers
for the three months ended March 31, 2007 and the balance of their accounts
receivable at March 31, 2007 were as follows:
|
|
Sales
- 3 Months Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
March
31, 2007
|
|
March
31, 2007
|
|
Performance
Materials Division:
|
|
|
|
|
|
|
|
University
of Las Vegas Research Foundation
|
|
$
|
216,537
|
|
$
|
211,237
|
|
Department
of Energy
|
|
$
|
188,953
|
|
$
|
76,451
|
|
|
|
|
|
|
|
|
|
AMPS
Division:
|
|
|
|
|
|
|
|
Department
of Energy
|
|
$
|
178,415
|
|
$
|
25,201
|
|
|
|
|
|
|
|
|
|
AHP
Division:
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
319,872
|
|
$
|
200,430
|
|
For
the
three months ended March 31, 2006, we had sales to three major customers, each
of which accounted for 10% or more of revenues. Total sales to these customers
for the three months ended March 31, 2006 and the balance of their accounts
receivable at March 31, 2006 were as follows:
|
|
Sales
- 3 Months Ended
|
|
Accounts
Receivable at
|
|
Customer
|
|
March
31, 2006
|
|
March
31, 2006
|
|
Performance
Materials Division:
|
|
|
|
|
|
|
|
University
of Las Vegas Research Foundation
|
|
$
|
80,806
|
|
$
|
53,850
|
|
|
|
|
|
|
|
|
|
AMPS
Division:
|
|
|
|
|
|
|
|
National
Science Foundation
|
|
$
|
81,406
|
|
$
|
85,489
|
|
|
|
|
|
|
|
|
|
AHP
Division:
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$
|
279,630
|
|
$
|
253,111
|
|
Revenues
for the three-month periods ended March 31, 2007 and 2006 by geographic area
were as follows:
|
|
Revenues
-
|
|
Revenues
-
|
|
|
|
3
Months Ended
|
|
3
Months Ended
|
|
Geographic
information (a):
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
|
|
|
|
United
States
|
|
$
|
742,237
|
|
$
|
212,614
|
|
Canada
|
|
|
321,872
|
|
|
282,802
|
|
Other
foreign countries
|
|
|
76,823
|
|
|
49,880
|
|
Total
|
|
$
|
1,140,932
|
|
$
|
545,296
|
|
(a)
Revenues are attributed to countries based on location of
customer.
|
Note
13. Subsequent Events
On
April
24, 2007, the Company and The Sherwin-Williams Company (“Sherwin”) entered into
agreements related to the formation of AlSher Titania LLC, a Delaware limited
liability company (“AlSher”). AlSher is a joint venture combining certain
technologies of the Company and Sherwin in order to develop and produce titanium
dioxide pigment for use in paint and coatings and nano titanium dioxide
materials for use in a variety of applications, including those related to
removing contaminants from air and water.
The
agreements include a Contribution Agreement dated April 24, 2007 (the
“Contribution Agreement”) among Altairnano, Inc., an indirect wholly-owned
subsidiary of the Company (“Altairnano”), Sherwin and AlSher. Pursuant to the
Contribution Agreement, Altairnano contributed to AlSher Titania the rights
set
forth in the Altair License described below and certain pilot plants assets
with
a book value net of depreciation of $3,110,000, and Sherwin agreed to contribute
to AlSher cash and a license agreement related to a technology for the
manufacture of titanium dioxide using the digestion of ilmenite in hydrochloric
acid.
Pursuant
to a License Agreement dated April 24, 2007 (the “Altair License”) between
Altairnano and AlSher, Altairnano granted AlSher an exclusive license to use
Altairnano’s technology (including its hydrochloride pigment process) for the
production of titanium dioxide pigment and other titanium containing materials
(other than battery or nanoelectrode materials). Altairnano receives no
consideration for the license granted to AlSher other than its ownership
interest in AlSher. Improvements in the technology are licensed back to
Atlairnano subject to a royalty equal to the greater of 5% of the net sales
price of derivative products or 10% of the gross margin on such products. Absent
early termination, the terms of the Altair License with respect to each licensed
patent extends through the expiration of such patent. The Altair License also
addresses ownership of existing and developed intellectual property, rights
with
respect to maintenance and protection of underlying patents and intellectual
property, early termination, confidentiality and other standard items.
As
part
of the transaction, the Company agreed to guarantee the obligations of its
subsidiary, Altairnano Inc., under the various agreements. The parties entered
into an operating agreement, supply agreements, additional license agreement,
a
services agreement and other documents. As a condition to enter into the second
phase of the joint venture, the Company agreed to complete its pigment pilot
processing plant and related development activities by January 2008. The costs
associated with this effort are expected to be partially reimbursed by
AlSher.
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q (this “Report”) contains various forward-looking
statements. Such statements can be identified by the use of the forward-looking
words "anticipate," "estimate," "project," "likely," "believe," "intend,"
"expect," or similar words. These statements discuss future expectations,
contain projections regarding future developments, operations, or financial
conditions, or state other forward-looking information. When considering such
forward-looking statements, you should keep in mind the risk factors noted
in
“Item 1A. Risk Factors” and other cautionary statements throughout this Report
and our other filings with the Securities and Exchange Commission. You should
also keep in mind that all forward-looking statements are based on management’s
existing beliefs about present and future events outside of management’s control
and on assumptions that may prove to be incorrect. If one or more risks
identified in this Report or any other applicable filings materializes, or
any
other underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, projected, or
intended.
Overview
The
following discussion summarizes the material changes in our financial condition
between December 31, 2006 and March 31, 2007 and the material changes in our
results of operations between the three-month periods ended March 31, 2007
and
March 31, 2006. This discussion should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2006.
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:
|
·
|
AMPS:
The design, development, and production of 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. In April 2007, the AlSher Titania joint venture was formed
for
the purpose of developing and producing titanium dioxide pigment.
Initial
pilot plant trials are scheduled to be completed in early 2008 (See
Subsequent Events Note 13).
|
|
o
|
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. As part of the AlSher Titania joint venture, an exclusive
license was granted to AlSher Titania to produce nano titanium dioxide
materials that will be purchased by the Company for internal development
and commercial sales (See Subsequent Events Note 13).
|
|
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.
|
We
also
provide contract research services on select projects where we can utilize
our
resources to develop intellectual property and/or new products and technology.
Our
revenues have been, and we expect them to continue to be, generated by license
fees, product sales, commercial collaborations and contracts and grants. We
currently have agreements in place to (1) provide research involving a
technology used in the detection of chemical, biological and radiological
agents, (2) provide laboratory space and 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;
have entered into a joint venture to develop and produce titanium dioxide
pigment for use in paint and coatings and nano titamium dioxide materials for
use in a variety of advanced materials 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, the
successful completion of pilot plant operations in connection with AlSher
Titania, and the success of our marketing efforts with respect to both product
sales and technology licenses.
General
Outlook
We
have
generated net losses in each fiscal year since incorporation. In fiscal 2006,
revenues from product sales, commercial collaborations and contracts and grants
increased significantly, but operating expenses also increased as we added
employees and committed additional funds to our customer contracts, battery
initiative, pigment process technology and sales and marketing efforts.
Our
gross
profit margins on customer contracts for research and development work are
very
low, and in order that we may be profitable in the long run, our business plan
focuses on the development of products and technologies that we expect will
eventually bring a substantial amount of higher-margin revenues from licensing,
manufacturing, product sales and other sources. We expect our 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. In
2007,
we intend to increase spending for the battery initiative, manufacturing of
the
potential drug candidates, and pigment process development.
As
we
attempt to significantly expand our revenues from licensing, manufacturing,
sales and other sources, some of the key near-term events that will affect
our
long-term success prospects include the following:
|
·
|
We
must continue the development work on our 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
lithium
titanate spinel (“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. Shipments
of
battery packs relating to the firm order will not be made until the
second
quarter 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
support
such testing.
|
|
·
|
We
have formed a joint venture with The Sherwin-Williams Company to
develop
and produce titanium dioxide pigment for use in paint and coatings.
The
success of this joint venture and initial pilot plant trials is integral
to continuing development and the ultimate commercialization 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.
Recent
Business Developments
Advanced
Materials and Power Systems Division
In
January 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
35 kilowatt hour (“KWh”) 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). Due
to a
delay in receipt of the pre-payment amounts due from Phoenix pending their
receipt of additional funding, no shipments were made in March or April. This
order is now expected to ship by the end of the second quarter. 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 vehicles 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 and were valued at $106,518 (Refer to Note 3 to the Consolidated
Unaudited Financial Statements).
In
February 2007, we formed a strategic alliance with UQM Technologies, Inc.,
a
developer and manufacturer of power dense, high efficiency electric motors,
generators and power electronic controllers for the automotive, aerospace,
medical, military and industrial markets. The alliance pairs UQM’s electric
motor, power generator and power electronic products that are small,
lightweight, highly efficient, and offer high torque and high speed in a single
package, with Altairnano’s NanoSafeÔ
battery
packs that are safe, possess rapid charge and discharge rates, have exceptional
performance at high and low temperature extremes and exhibit long cycle life.
The transportation market is expected to experience rapid technological change
resulting in further electrification of vehicles. As a result, a wide array
of
possible product opportunities are expected to develop in electric
transportation and other related markets, including products for electric
propulsion, power generation, power management and conversion and on-board
energy storage. By collaborating on product development opportunities, both
companies can potentially accelerate the commercialization of their proprietary
technologies as well as develop optimized solutions that require motive power,
on-board energy storage and power generation.
AHP
Division
In
April
2007, a new company, called AlSher Titania LLC.(“AlSher”), was formed.
AlSher represents a joint venture with The Sherwin-Williams Company, one of
the
world's leading manufacturers of paint and durable coatings. AlSher will combine
the Altairnano Hydrochloride Pigment (AHP) process and the Sherwin-Williams
Hychlor Pigment (SWHP) process and other technologies to develop and produce
high quality titanium dioxide pigment for use in paint and coatings, and nano
titanium dioxide materials for use in a variety of applications including those
related to removing contaminants from air and water.
The
new
AlSher Titania pigment process is designed to produce titanium dioxide pigment
at a significantly lower price point — both in terms of capital outlay and
operating costs — as compared to sulfate and chloride-based technologies
currently in use. Equally important is the improved environmental
acceptability of the new materials and their production processes, as compared
to current technologies. White titanium dioxide pigment is mainly used in the
production of paints, plastics, and paper and the total world market is valued
at approximately $9 billion US, with a projected annual growth rate of
approximately three percent.
Performance
Materials
In
January 2007, Sulzer Metco placed a $75,000 order for TiO2
thermal
spray grade powder to be delivered during the first and second quarters of
2007.
The thermal spray grade powder material will support a product roll-out by
Sulzer Metco scheduled for May 2007.
During
March 2007 we executed a $356,000 subcontract with the University of Nevada,
Las
Vegas for follow-on work related to the solar hydrogen project being funded
by
the U.S. Department of Energy. Work is scheduled through December 31, 2007.
The
development project will involve enhancement of the solar cell to be used at
the
proposed hydrogen filling station located in Las Vegas, Nevada. The solar 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.
Life
Sciences
In
December 2006, Elanco Animal Health Division of Eli Lilly and Company completed
a proof of concept study relating to our Renalan drug candidate product for
the
treatment of renal disease in companion animals. As a result, we earned a
$100,000 milestone payment under our license agreement with Elanco. We continue
to support Elanco and Spectrum in development of Renalan and RenaZorb,
respectively, and seeking product approvals from the FDA.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Historically,
we have financed operations primarily through the issuance of equity securities
(common shares, convertible debentures, stock options and warrants) and by
the
issuance of debt. We do not presently have any plans to pursue additional debt
or equity financing during 2007 however, we may be required to raise additional
capital in the near term and reserve the right to do so in connection with
a
business opportunity, transaction or other event not anticipated by our current
budget. We
do not
have any commitments with respect to future financing and may, or may not,
be
able to obtain such financing on reasonable terms, or at all. We have a single
note payable in the principal amount of $3,000,000 that does not contain any
restrictive covenants with respect to the issuance of additional debt or equity
securities by Altair. The first 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.
Our
cash
and short-term investments decreased by $2,461,180, from $27,220,357 at December
31, 2006 to $24,759,177 at March 31, 2007, due primarily to the incurrence
of
operating expenses (approximately $4,200,000) purchases of property and
equipment (approximately $704,000) and payment of notes payable ($600,000).
This
decrease was partially offset by the receipt of $3,000,000 in connection with
the private placement of common shares purchased by The AES Corporation in
March
2007.
During
the quarter ended March 31, 2007, our cash used in operations was $4,237,269.
Unusual or infrequently occurring payments made during the first quarter of
2007
included annual employee bonus payments of $461,014.
The
amount of cash we use in operations is dependent on the amount and mix of
revenues we generate. In the first quarter of 2007, revenues were $1,140,932,
which included $177,390 of product sales. Although we expect quarterly revenues
to increase during the remainder of the year, and we expect product sales to
become a larger percentage of the sales mix, we cannot be certain that this
will
occur.
Our
objective is to manage cash expenditures in a manner consistent with rapid
product development that leads to the generation of revenues in the shortest
possible time. We believe we have adequate cash resources, and availability
of
additional capital if needed, to continue product development until
higher-margin revenues and positive cash flow can be generated.
At
May 4,
2007, we had 70,020,626
common shares issued and outstanding. As of that same date, there were
outstanding warrants to purchase up to 3,256,525 common shares and options
to
purchase up to 4,637,124
common
shares.
Capital
Commitments
The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of March 31,
2007:
|
|
|
|
Less
Than
|
|
|
|
|
|
After
|
|
Contractual
Obligations
|
|
Total
|
|
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
5
Years
|
|
Notes
Payable
|
|
$
|
1,800,000
|
|
$
|
600,000
|
|
$
|
1,200,000
|
|
$
|
-
|
|
$
|
-
|
|
Interest
on notes payable
|
|
|
252,000
|
|
|
126,000
|
|
|
126,000
|
|
|
-
|
|
|
-
|
|
Contractual
Service Agreements
|
|
|
1,570,760
|
|
|
1,488,529
|
|
|
82,231
|
|
|
-
|
|
|
-
|
|
Facilities
and Property Leases
|
|
|
352,754
|
|
|
209,833
|
|
|
142,921
|
|
|
-
|
|
|
-
|
|
Unfulfilled
Purchase Orders
|
|
|
2,657,658
|
|
|
2,657,658
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Contractual Obligations
|
|
$
|
6,633,172
|
|
$
|
5,082,020
|
|
$
|
1,551,151
|
|
$
|
-
|
|
$
|
-
|
|
In
connection with the formation of the AlSher Titania joint venture, the Company
committed to completion of its pigment processing pilot plant and expects to
commission the plant by late 2007. Total capital expenditures, labor and
development costs associated with this effort are expected to total
approximately $3.9
million,
which
will be partially reimbursed by AlSher. Through March 31, 2007, approximately
$371,000 of costs associated
with the pigment processing pilot plant have been incurred.
We
also
intend to purchase equipment for our Reno, Nevada facility for use in the
development and expansion of our current advanced battery materials production
capabilities. We expect to spend approximately $350,000
for this
equipment and approximately $200,000 for down payments on equipment and building
improvements relating to manufacture of our pharmaceutical products during
the
quarter ended June 30, 2007.
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements at March 31, 2007.
Critical
Accounting Policies and Estimates
Management
based the following discussion and analysis of our financial condition and
results of operations on our unaudited condensed consolidated financial
statements. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our critical accounting policies
and estimates, including those related to inventory, long-lived assets,
stock-based compensation, revenue recognition, overhead allocation, allowance
for doubtful accounts and deferred income taxes. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements. These judgments and estimates affect the reported amounts of assets
and liabilities and the reported amounts of revenues and expenses during the
reporting periods. Changes to these judgments and estimates could adversely
affect our future results of operations and cash flows.
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Product
Inventories. The Company values its inventories at the lower of cost
(first-in, first-out method) or market. We employ a full absorption
procedure using standard cost techniques, which approximates actual
cost.
The standards are customarily reviewed and adjusted
annually.
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Long-Lived
Assets. Our long-lived assets consist principally of the nanomaterials
and
titanium dioxide pigment assets, the intellectual property (patents
and
patent applications) associated with them, and a building. Included
in these long-lived assets are those that relate to our research
and
development process. These assets are initially evaluated for
capitalization based on Statement of Financial Accounting Standards
No. 2,
Accounting
for Research and Development Costs.
If the assets have alternative future uses (in research and development
projects or otherwise), they are capitalized when acquired or constructed;
if they do not have alternative future uses, they are expensed as
incurred. At
March 31, 2007, the carrying value of these assets was $12,209,137,
or 29%
of total assets. We evaluate the carrying value of long-lived assets
when
events or circumstances indicate that 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.
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Share-Based
Compensation. We have a stock incentive plan that provides for the
issuance of common stock options to employees and service providers.
We
calculate compensation expense under SFAS 123R using a Black-Scholes
option pricing model. In so doing, we estimate certain key assumptions
used in the model. We believe the estimates we use, which are presented
in
Note 8 of Notes to Consolidated Financial Statements, are appropriate
and
reasonable.
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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”.
Historically, our revenues have been derived from four sources: license
fees, commercial collaborations, contract research and development
and
product sales. License fees are recognized when the agreement is
signed, we have performed all material obligations related to the
particular milestone payment or other revenue component and the earnings
process is complete. Revenue for product sales is recognized 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.
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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
and product inventories based on labor costs. Facilities overhead
allocated to research and development projects may be chargeable
when
invoicing customers under certain research and development
contracts.
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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.
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Deferred
Income Taxes. Income taxes are accounted for using the asset and
liability
method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carry-forwards. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the
period
that includes the enactment date. Future tax benefits are subject to
a valuation allowance when management is unable to conclude that
its
deferred income tax assets will more likely than not be realized
from the
results of operations. The Company has recorded a valuation
allowance to reflect the estimated amount of deferred income tax
assets
that may not be realized. The ultimate realization of deferred income
tax
assets is dependent upon generation of future taxable income during
the
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies
in
making this assessment. Based on the historical taxable income and
projections for future taxable income over the periods in which the
deferred income tax assets become deductible, management believes
there is
insufficient basis for projecting that the Company will realize the
benefits of these deductible differences as of March 31, 2007.
Management has, therefore, established a full valuation allowance
against
its net deferred income tax assets as of March 31,
2007.
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Results
of Operations
Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2006
The
net
loss for the quarter ended March 31, 2007, which was the first quarter of our
2007 fiscal year, totaled $5,181,467 ($.07 per share) compared to a net loss
of
$4,560,064 ($.08 per share) in the first quarter of 2006.
Total
revenues for the quarter ended March 31, 2007 were $1,140,932 compared to
$545,296 for the same period of 2006. Product
revenues increased by $169,372, from $8,018 in the first quarter of 2006 to
$177,390 in the first quarter of 2007. During the first quarter of 2007, we
recorded approximately $165,400 of product revenues associated with NanoSafe
nanoTitanate battery materials, alumina and prototype cells. There were no
comparable product revenues in the first quarter of 2006. Additionally, sales
of
other TiO2 related products increased by approximately $4,000 for the quarter
ending March 31, 2007 over the prior year quarter.
Revenues
from contracts and grants increased by $409,246, from $207,008 in the first
quarter of 2006, to $616,254 in the first quarter of 2007. Revenues associated
with the subcontract with the University of Nevada, Las Vegas increased by
$135,700 primarily due to equipment billed in the first quarter of 2007.
Revenues of $367,400 were recorded in connection with the $2.5 million
Department of Energy earmark in the first quarter of 2007. In the prior year,
revenues associated with this grant were not recorded until September 2006.
These increases were offset by $15,300 due to the completion of the Western
Michigan University grant and by $79,100 due to the completion of a subcontract
with Rutgers University to provide testing services associated with the National
Science Foundation grant in 2006.
Cost
of
product sales increased by $208,995, from $1,266 in the first quarter of 2006
to
$210,262 in the same quarter of 2007. This increase is driven by the changes
in
product sales discussed in the paragraph above.
Research
and development (“R&D”) expenses increased by $1,048,940, from $1,948,387 in
the first quarter of 2006 to $2,997,327 in the same quarter of 2007. Labor
and
overhead costs increased by approximately $492,000 due to the addition of 24
new
employees. Expenditures for materials, supplies and other operating costs
(exclusive of labor) for the battery initiative increased by approximately
$393,000 and other R&D operations increased by approximately $164,000
primarily due to costs incurred in connection with the $2.5 million Department
of Energy earmark that was not effective in the first quarter of
2006.
Depreciation
and amortization increased by $114,187, from $316,871 in first quarter of 2006
to $431,058 in the first quarter of 2007. The increase in depreciation reflects
the addition of approximately $3,000,000 in lab and production equipment since
March 2006, primarily relating to expansion of production capabilities at the
Indiana and Reno facilities.
Interest
income increased by $132,065, from $211,303 in the first quarter of 2006 to
$343,368 in the first quarter of 2007 due to an increase in cash available
for
investment of approximately $5.4 million that was generated through the sale
of
common shares in December 2006 and the private sale of stock to The AES
Corporation in March 2007.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
We
do not
have any derivative instruments, commodity instruments, or other financial
instruments for trading or speculative purposes, nor are we presently at
material risk for changes in interest rates on foreign currency exchange rates.
Item
4. Controls
and Procedures
(a) Based
on
the evaluation of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by
paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer and our
chief financial officer have concluded that, as of March 31, 2007, our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods required by governing rules and forms.
(b) There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Exchange Act
Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1A. Risk Factors
Material
Changes in Risk Factors
The
Risk Factors set forth below do not reflect any material changes from the “Risk
Factors” identified in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 (the “Form 10-K”).
Immaterial
edits and the financial and other data referenced in the risk factors have
been
updated as of a recent practicable date.
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 loss in every fiscal year since our inception. Our losses from
operations were $17,681,415 in 2006 and $5,181,467 in the quarter ended March
31, 2007. 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. If we issue
shares of capital stock or other rights to purchase capital stock, including
options and warrants, existing stockholders would 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:
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If
we fail to supply products in accordance with contractual terms,
including
terms related to time of delivery and performance specifications,
we may
become liable for direct, special, consequential and other damages,
even
if manufacturing or delivery was
outsourced;
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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;
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Manufacturing
processes typically involve large machinery, fuels and chemicals,
any or
all of which may lead to accidents involving bodily harm, destruction
of
facilities and environmental contamination and associated liabilities;
and
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We
may have, and may be required to, make representations as to our
right to
supply and/or license intellectual property and to our compliance
with
laws. Such representations are usually supported by indemnification
provisions requiring us to defend our customers and otherwise make
them
whole if we license or supply products that infringe on third-party
technologies or violate government
regulations.
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Any
failure to adequately manage risks associated with the manufacture and supply
of
materials and products could lead to losses (or small gross profits) from that
segment of our business and/or significant liabilities, which would adversely
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
March
31,
2007, we
had approximately $24.8
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:
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market
factors affecting the availability and cost of capital
generally;
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the
price, volatility and trading volume of our common
shares;
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our
financial results, particularly the amount of revenue we are generating
from operations;
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the
amount of our capital needs;
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the
market's perception of companies in one or more of our lines of
business;
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the
economics of projects being pursued;
and
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the
market's perception of our ability to execute our business plan and
any
specific projects identified as uses of
proceeds.
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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, 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:
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Intentional
manipulation of our stock price by existing or future shareholders
or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
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A
single acquisition or disposition, or several related acquisitions
or
dispositions, of a large number of our shares, including by short
sellers
covering their position;
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The
interest of the market in our business sector, without regard to
our
financial condition, results of operations or business
prospects;
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Positive
or negative statements or projections about our company or our industry,
by analysts, stock gurus and other persons;
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The
adoption of governmental regulations or government grant programs
and
similar developments in the United States or abroad that may enhance
or
detract from our ability to offer our products and services or affect
our
cost structure; and
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Economic
and other external market factors, such as a general decline in market
prices due to poor economic indicators or investor
distrust.
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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. In addition,
through such audits, inquiries and investigations, we or a regulator have from
time to time determined, and may in the future determine, that we are out of
compliance with one or more governing rules or laws. Remedying such
non-compliance may divert additional financial and human resources. In
addition, in the future, we may be subject to a formal charge or determination
that we have materially violated a governing law, rule or regulation. Any
charge, and particularly any determination,
that we had materially violated a governing law would likely have a material
adverse effect on the market price of our stock, our ability to execute our
business plan.
For
example, on March 30, 2005, we received a letter of inquiry from the SEC
requesting information relating to a press release we issued on February 10,
2005, in which we announced developments in a rechargeable battery technology
that incorporates our lithium titanate battery materials. After providing the
requested information, we received a follow up letter of inquiry dated August
2,
2005 requesting additional information related to our battery programs, emails
of certain affiliates, certain transactions and recent earnings calls. We
provided the information to the SEC in a series of letters sent during September
and October 2005. We have not been contacted by the SEC since providing all
requested information in October 2005 or been notified of any ongoing activity
or pending proceeding. The absence of any additional letters of inquiry related
to the matter for an
approximately 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
5. Other Information
On
March
6, 2007, we entered into a Subcontract with the University of Las Vegas (“UNLV”)
with respect to the Department of Energy project entitled “High Efficiency
Generation of Hydrogen Fuels Using Solar Thermo Chemical Splitting of Water”.
Under this agreement, we are required to perform work related to the project
with an aggregate labor and other costs of $356,500 for which UNLV is required
to give us reimbursement, and we are required to cost share the remaining
$98,950 of project costs.
Item
6. Exhibits
a) See
Exhibit Index attached hereto following the signature page.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Altair
Nanotechnologies Inc.
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May
10, 2007
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By:
/s/ Alan J. Gotcher
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Date
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Alan
J. Gotcher, Chief Executive Officer
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May
10, 2007
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By:
/s/ Edward H. Dickinson
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Date
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Edward
H. Dickinson, Chief Financial Officer
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EXHIBIT
INDEX
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Exhibit
No.
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Exhibit
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Incorporated
by Reference/ Filed Herewith
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3.1
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Articles
of Continuance
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Incorporated
by reference to the Current Report on Form 8-K filed with the SEC
on July
18, 2002.
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3.2
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Bylaws
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Incorporated
by reference to the Annual Report on Form 10-K for the year ended
December
31, 2004 filed with the SEC on March 9, 2005
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10.1
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Subcontract
dated March 6, 2007 with U.N.L.V.
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Filed
herewith
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31.1
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Section
302 Certification of Chief Executive Officer
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Filed
herewith
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31.2
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Section
302 Certification of Chief Financial Officer
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Filed
herewith
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32.1
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Section
906 Certification of Chief Executive Officer
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Filed
herewith
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32.2
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Section
906 Certification of Chief Financial Officer
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Filed
herewith
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33