altair_10q-093008.htm
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 SEPTEMBER 30,
2008
|
|
|
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 of incorporation)
|
|
(Commission File
No.)
|
|
(IRS Employer
Identification No.)
|
|
|
|
|
|
|
|
|
|
|
|
204 Edison
Way
Reno,
Nevada 89502
|
|
|
(Address of
principal executive offices, including zip code)
|
|
Registrant’s
telephone number, including area code: (775) 856-2500
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES x NO o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of “accelerated filer”, “large
accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one):
|
Large
accelerated filer o
|
Accelerated
filer x
|
|
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): YES o NO x
As
of October 31, 2008 the registrant had 93,143,271 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)
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
23,730,560 |
|
|
$ |
50,146,117 |
|
Accounts
receivable, net
|
|
|
1,404,567 |
|
|
|
1,317,819 |
|
Stock
subscription receivable
|
|
|
10,000,000 |
|
|
|
- |
|
Notes
receivable from related party
|
|
|
- |
|
|
|
1,638,510 |
|
Product
inventories
|
|
|
98,112 |
|
|
|
- |
|
Prepaid
expenses and other current assets
|
|
|
406,860 |
|
|
|
799,387 |
|
Total
current assets
|
|
|
35,640,099 |
|
|
|
53,901,833 |
|
|
|
|
|
|
|
|
|
|
Investment
in Available for Sale Securities
|
|
|
3,152,294 |
|
|
|
4,564,814 |
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
14,731,906 |
|
|
|
14,548,837 |
|
|
|
|
|
|
|
|
|
|
Patents,
net
|
|
|
656,822 |
|
|
|
720,433 |
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
622,718 |
|
|
|
122,718 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
54,803,839 |
|
|
$ |
73,858,635 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$ |
1,155,972 |
|
|
$ |
7,814,037 |
|
Accrued
salaries and benefits
|
|
|
1,910,307 |
|
|
|
2,239,110 |
|
Accrued
warranty
|
|
|
59,088 |
|
|
|
2,915,990 |
|
Accrued
liabilities
|
|
|
542,284 |
|
|
|
759,644 |
|
Note
payable, current portion
|
|
|
600,000 |
|
|
|
600,000 |
|
Total
current liabilities
|
|
|
4,267,651 |
|
|
|
14,328,781 |
|
|
|
|
|
|
|
|
|
|
Note
Payable, Long-Term Portion
|
|
|
600,000 |
|
|
|
1,200,000 |
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
|
1,153,214 |
|
|
|
1,369,283 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value, unlimited shares authorized;
|
|
|
|
|
|
|
|
|
93,128,271
and 84,068,377 shares issued and
|
|
|
|
|
|
|
|
|
outstanding
at September 30, 2008 and December 31, 2007
|
|
|
170,010,743 |
|
|
|
163,780,176 |
|
Common
stock subscribed
|
|
|
10,000,000 |
|
|
|
- |
|
Additional
paid in capital
|
|
|
5,547,564 |
|
|
|
5,489,604 |
|
Accumulated
deficit
|
|
|
(134,883,533 |
) |
|
|
(111,823,809 |
) |
Accumulated
other comprehensive loss
|
|
|
(1,891,800 |
) |
|
|
(485,400 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
48,782,974 |
|
|
|
56,960,571 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
54,803,839 |
|
|
$ |
73,858,635 |
|
See notes
to the unaudited condensed consolidated financial statements.
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed
in United States Dollars)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$ |
166,325 |
|
|
$ |
1,864,330 |
|
|
$ |
554,862 |
|
|
$ |
3,797,333 |
|
Commercial
collaborations
|
|
|
128,417 |
|
|
|
980,478 |
|
|
|
1,641,948 |
|
|
|
2,062,550 |
|
Contracts
and grants
|
|
|
1,506,873 |
|
|
|
525,326 |
|
|
|
2,576,801 |
|
|
|
1,717,051 |
|
Total
revenues
|
|
|
1,801,615 |
|
|
|
3,370,134 |
|
|
|
4,773,611 |
|
|
|
7,576,934 |
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales - product
|
|
|
59,340 |
|
|
|
2,083,729 |
|
|
|
138,374 |
|
|
|
4,486,467 |
|
Cost
of sales – warranty and inventory reserves
|
|
|
- |
|
|
|
- |
|
|
|
(2,864,837 |
) |
|
|
- |
|
Research
and development
|
|
|
3,320,181 |
|
|
|
4,423,159 |
|
|
|
13,689,739 |
|
|
|
10,659,356 |
|
Sales
and marketing
|
|
|
660,817 |
|
|
|
519,464 |
|
|
|
2,096,087 |
|
|
|
1,309,230 |
|
Notes
receivable extinguishment
|
|
|
- |
|
|
|
- |
|
|
|
1,721,919 |
|
|
|
- |
|
Settlement
and release
|
|
|
3,605,294 |
|
|
|
- |
|
|
|
3,605,294 |
|
|
|
- |
|
General
and administrative
|
|
|
2,755,477 |
|
|
|
2,385,871 |
|
|
|
8,458,592 |
|
|
|
7,597,903 |
|
Depreciation
and amortization
|
|
|
723,371 |
|
|
|
506,970 |
|
|
|
1,936,722 |
|
|
|
1,412,019 |
|
Total
operating expenses
|
|
|
11,124,480 |
|
|
|
9,919,193 |
|
|
|
28,781,890 |
|
|
|
25,464,975 |
|
Loss
from Operations
|
|
|
(9,322,865 |
) |
|
|
(6,549,059 |
) |
|
|
(24,008,279 |
) |
|
|
(17,888,041 |
) |
Other
(Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(22,823 |
) |
|
|
(33,402 |
) |
|
|
(73,077 |
) |
|
|
(99,902 |
) |
Interest
income
|
|
|
179,834 |
|
|
|
214,841 |
|
|
|
810,228 |
|
|
|
850,879 |
|
(Loss)/gain
on foreign exchange
|
|
|
(609 |
) |
|
|
892 |
|
|
|
(4,665 |
) |
|
|
607 |
|
Total
other (expense) income, net
|
|
|
156,402 |
|
|
|
182,331 |
|
|
|
732,486 |
|
|
|
751,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interests’ share
|
|
|
(9,166,463 |
) |
|
|
(6,366,728 |
) |
|
|
(23,275,793 |
) |
|
|
(17,136,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Minority
interests’ share
|
|
|
55,497 |
|
|
|
236,518 |
|
|
|
216,069 |
|
|
|
394,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(9,110,966 |
) |
|
$ |
(6,130,210 |
) |
|
$ |
(23,059,724 |
) |
|
$ |
(16,742,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - Basic and diluted
|
|
$ |
(0.11 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - Basic and diluted
|
|
|
84,635,878 |
|
|
|
70,023,935 |
|
|
|
84,448,743 |
|
|
|
69,741,148 |
|
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
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
84,068,377 |
|
|
$ |
163,780,176 |
|
|
$ |
5,489,604 |
|
|
$ |
(111,823,809 |
) |
|
$ |
(485,400 |
) |
|
$ |
56,960,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(23,059,724 |
) |
|
|
- |
|
|
|
(23,059,724 |
) |
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,406,400 |
) |
|
|
(1,406,400 |
) |
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,466,124 |
) |
Share-based
compensation
|
|
|
193,713 |
|
|
|
1,186,511 |
|
|
|
57,960 |
|
|
|
- |
|
|
|
- |
|
|
|
1,244,471 |
|
Exercise
of stock options
|
|
|
324,211 |
|
|
|
509,438 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
509,438 |
|
Exercise
of warrants
|
|
|
400,224 |
|
|
|
752,114 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
752,114 |
|
Recovery
of short swing profits
|
|
|
|
|
|
|
177,210 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
177,210 |
|
Common
stock subscribed
|
|
|
5,882,353 |
|
|
|
10,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000,000 |
|
Issuance
of restricted stock
|
|
|
141,746 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance
of common stock
|
|
|
2,117,647 |
|
|
|
3,605,294 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,605,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008
|
|
|
93,128,271 |
|
|
$ |
180,010,743 |
|
|
$ |
5,547,564 |
|
|
$ |
(134,883,533 |
) |
|
$ |
(1,891,800 |
) |
|
$ |
48,782,974 |
|
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)
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(23,059,724 |
) |
|
$ |
(16,742,259 |
) |
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,936,722 |
|
|
|
1,412,019 |
|
Minority
interest in operations
|
|
|
(216,069 |
) |
|
|
(394,198 |
) |
Securities
received in payment of license fees
|
|
|
- |
|
|
|
(13,580 |
) |
Share-based
compensation
|
|
|
1,244,471 |
|
|
|
2,563,528 |
|
Loss
on disposal of fixed assets
|
|
|
95,967 |
|
|
|
- |
|
Settlement
and release
|
|
|
3,605,294 |
|
|
|
- |
|
Accrued
interest on notes receivable
|
|
|
(83,409 |
) |
|
|
(46,733 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(86,748 |
) |
|
|
(114,553 |
) |
Accounts
receivable from related party, net
|
|
|
- |
|
|
|
133,501 |
|
Notes
receivable from related party
|
|
|
1,721,919 |
|
|
|
(1,215,703 |
) |
Product
inventories
|
|
|
(98,112 |
) |
|
|
(1,018,718 |
) |
Prepaid
expenses and other current assets
|
|
|
392,527 |
|
|
|
(129,608 |
) |
Other
assets
|
|
|
(500,000 |
) |
|
|
5,061 |
|
Trade
accounts payable
|
|
|
(6,679,863 |
) |
|
|
219,137 |
|
Accrued
salaries and benefits
|
|
|
(328,803 |
) |
|
|
981,691 |
|
Accrued
warranty
|
|
|
(2,856,902 |
) |
|
|
- |
|
Accrued
liabilities
|
|
|
(217,362 |
) |
|
|
243,803 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(25,130,092 |
) |
|
|
(14,116,612 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Sale
of available for sale securities
|
|
|
- |
|
|
|
33,675,000 |
|
Interest
on available for sale securities
|
|
|
6,121 |
|
|
|
(23,041,630 |
) |
Purchase
of property and equipment
|
|
|
(2,130,348 |
) |
|
|
(2,959,244 |
) |
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(2,124,227 |
) |
|
|
7,674,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Expressed
in United States Dollars)
|
|
(Unaudited)
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Issuance
of common shares for cash
|
|
|
- |
|
|
|
3,000,000 |
|
Proceeds
from exercise of stock options
|
|
|
509,438 |
|
|
|
118,824 |
|
Proceeds
from exercise of warrants
|
|
|
752,114 |
|
|
|
91,800 |
|
Proceeds
from recovery of short swing profits
|
|
|
177,210 |
|
|
|
- |
|
Payment
of notes payable
|
|
|
(600,000 |
) |
|
|
(600,000 |
) |
Minority
interest
|
|
|
- |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
838,762 |
|
|
|
4,610,624 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(26,415,557 |
) |
|
|
(1,831,862 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
50,146,117 |
|
|
|
12,679,254 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
23,730,560 |
|
|
$ |
10,847,392 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
126,000 |
|
|
$ |
168,000 |
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
None
|
|
|
None
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
For
the nine months ended September 30, 2008:
|
-
We made property and equipment purchases of $21,798 which are included in
trade accounts payable at September 30, 2008.
|
-
We had an unrealized loss on available for sale securities of
$1,406,400.
|
-
We issued 143,079 shares of restricted stock to employees and directors
having a fair value of approximately $302,597 for which no cash will be
received.
|
-
We issued 2,117,647 shares of stock as a settlement and release of all
known claims to Al Yousuf, LLC having a fair value of $3,605,294 for which
no cash will be received.
|
-
We received a subscription for 5,882,353 shares of common stock in
exchange for $10,000,000 which was received after the end of the current
reporting period.
|
|
For
the nine months ended September 30, 2007:
|
-
We made property and equipment purchases of $313,716, which are included
in trade accounts payable at September 30, 2007.
|
-
We had an unrealized loss on available for sale securities of
$307,200.
|
-
We issued 75,575 shares of restricted stock to employees having a fair
value of approximately $237,000 for which no cash will be
received.
|
-
We received 1,000,000 shares of common stock valued at $106,518 in
connection with the Phoenix Motorcars, Inc. January 2007 purchase
agreement. The investment was recorded as an offset to deferred
revenue.
|
(concluded)
|
|
See
notes to the unaudited condensed consolidated financial
statements.
|
ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1. Basis of Preparation of 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, 2007, as filed with the Commission on March 14, 2008.
The
results of operations for the nine-month period ended September 30,
2008 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 and cash equivalents consist principally of bank deposits and
institutional money market funds. 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
September 30, 2008 there were no cash deposits in excess of FDIC insurance, and
at December 31, 2007, there were $8.7 million in cash deposits in excess of FDIC
insurance.
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 loss, which is reported as
a component of stockholders’ equity. We evaluate our investments on a
quarterly basis to determine if a potential other than temporary impairment
exists. Our evaluation considers the investees’ specific business
conditions as well as general industry and market conditions.
Accumulated Other Comprehensive
Loss - Accumulated other
comprehensive loss consists entirely of unrealized loss on
the investment in available for sale securities. The components of
comprehensive loss for the nine-month periods ended September 30, 2008 and
2007 are as follows:
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Net
loss
|
|
$ |
23,059,724 |
|
|
$ |
16,742,259 |
|
Unrealized
loss on investment in available
|
|
|
|
|
|
|
|
|
for
sale securities
|
|
|
1,406,400 |
|
|
|
307,200 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
24,466,124 |
|
|
$ |
17,049,459 |
|
Long-Lived Assets - We
evaluate the carrying value of long-term assets, including intangible assets,
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 on the basis 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 collectability is probable. Our revenues were derived from product
sales, commercial collaborations and contracts and grants. Revenue from 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 deliveries 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. Based on specific
customer bill and hold agreements, revenue is recognized when the inventory is
shipped to a third party storage warehouse, the inventory is segregated and
marked as sold, the customer takes the full rights of ownership and title to the
inventory upon shipment to the warehouse per the bill and hold
agreement. When contract terms include multiple components that are
considered separate units of accounting, the revenue is attributed to each
component and revenue recognition may occur at different points in time for
product shipment, installation, and service contracts based on substantial
completion of the earnings process.
Accrued Warranty - We provide
a limited warranty for battery packs and energy storage systems. A
liability is recorded for estimated warranty obligations at the date products
are sold. Since these are new products, the estimated cost of
warranty coverage is based on cell and module life cycle testing and compared
for reasonableness to warranty rates on competing battery
products. As sufficient actual historical data is collected on the
new product, the estimated cost of warranty coverage will be adjusted
accordingly. The liability for estimated warranty obligations may
also be adjusted based on specific warranty issues identified.
Overhead Allocation -
Facilities overhead, which is comprised primarily of occupancy and related
expenses, and fringe benefit expenses are initially recorded in general and
administrative expenses and then allocated to research and development and
product inventories based on relative labor costs.
Minority
Interest – In April 2007, The Sherwin-Williams Company
(“Sherwin”) entered into an agreement with us to form AlSher Titania LLC, a
Delaware limited liability company (“AlSher”). AlSher is a joint
venture combining certain technologies of ours 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. Pursuant to a
Contribution Agreement dated April 24, 2007 among Sherwin, AlSher, and us, we
contributed to AlSher an exclusive license to use our technology (including our
hydrochloride pigment process) for the production of titanium dioxide pigment
and other titanium containing materials (other than battery or nanoelectrode
materials) and certain pilot plant assets with a net book value of
$3,110,000. We received no consideration for the license granted to
AlSher other than our ownership interest in AlSher. 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. As a condition to enter into the second phase of
the joint venture, we agreed to complete the pigment pilot processing plant and
related development activities by January 2008. The 100 ton pigment
pilot processing plant was commissioned in February 2008 and the costs
associated with this effort were partially reimbursed by AlSher. We
contribute any work in process and fixed assets associated with completion of
the pigment pilot processing plant to the AlSher joint venture. For
each reporting period, AlSher is consolidated with our subsidiaries because we
have a controlling interest in AlSher and any inter-company transactions are
eliminated (refer to Note 1 – Basis of Preparation of Consolidated Financial
Statements). The minority shareholder’s interest in the net assets
and net income or loss of AlSher are reported as minority interest in subsidiary
on the condensed consolidated balance sheet and as minority interest share in
the condensed consolidated statement of operations, respectively.
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, as well as
unvested restricted stock. 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 or unvested restricted stock
were included in the computation of diluted loss per share as they were
anti-dilutive.
Recent Accounting Pronouncements
- In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51”. SFAS
No. 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This
Statement also changes the way the consolidated income statement is
presented. It requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of
the consolidated statement income, of the amounts of the consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS
No. 160 will be effective for our Company on January 1, 2009. We do
not believe the adoption of SFAS No. 160 for our consolidated
noncontrolling interest, effective January 1, 2009, will have a material
impact on our consolidated financial
statements.
Reclassifications - Certain
reclassifications have been made to prior period amounts to conform to
classifications adopted in the current period.
Note
3. Fair Value Measurements
On
October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. The FSP
clarifies the application of FASB Statement No. 157, Fair Value Measurements, in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP is effective immediately,
and includes prior period financial statements that have not yet been issued,
and therefore the Company is subject to the provision of the FSP effective
September 30, 2008. The implementation of FSP FAS 157-3 did not affect the
Company’s fair value measurement as of September 30, 2008.
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements, for
all financial instruments accounted for at fair value on a recurring
basis. SFAS 157 establishes a new framework for measuring fair
value and expands related disclosures. Broadly, the SFAS 157
framework requires fair value to be determined based on the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants. SFAS 157 establishes
market or observable inputs as the preferred source of values, followed by
assumptions based on hypothetical transactions in the absence of market
inputs.
The
valuation techniques required by SFAS 157 are based upon observable and
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect our market assumptions.
These two types of inputs create the following fair value
hierarchy:
|
Level 1
-
|
Quoted
prices for identical instruments in active
markets.
|
|
Level 2
-
|
Quoted
prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
|
|
Level 3
-
|
Significant
inputs to the valuation model are
unobservable.
|
We
maintain policies and procedures to value instruments using the best and most
relevant data available.
When
available, we use quoted market prices to determine the fair value of investment
securities, such as our investment in Spectrum stock as discussed below, and
they are included in Level 1. When quoted market prices are
unavailable in the principal or most advantageous market, quoted prices for
similar instruments in active markets are utilized in addition to model-derived
valuations for investments, such as the auction rate notes discussed below, and
they are included in Level 2. We currently do not hold any
investments that require Level 3 evaluations.
Investment
in Available for Sale Securities
Investment
in available for sale securities (long-term) includes auction rate corporate
notes and investments in common stock as discussed below.
The
auction rate corporate notes are long-term instruments with expiration dates
through 2017. Through the third quarter of 2007, the interest was
settled and the rate reset every 7 to 28 days and historically these investments
were classified as short-term investments. However, in the fourth
quarter of 2007 due to a change in the liquidity of the auction rate market,
sell orders have exceeded bid orders in that market, and the interest rate
relating to these investments was reset to a contractual rate of London
Interbank Offering Rate plus 50 basis points. The auction rate
markets have been slow to recover. As such we evaluated these
investments at September 30, 2008 to determine if they were
impaired. Our evaluation included consultation with our investment
advisors, assessment of the strength of the financial institution paying the
interest on these investments, ratings of the underlying collateral, prices of
similar instruments, and current indicative bid prices. Based on this
analysis, we estimate that at September 30, 2008 their fair value was
$2,813,894, representing a cumulative unrealized holding loss of approximately
$1,092,000. Based on our evaluation and our ability and intent to
hold the investment for a reasonable period of time sufficient for an expected
recovery of fair value, we do not consider this investment to be other than
temporarily impaired at September 30, 2008.
Investment
in available for sale securities (long-term) includes 240,000 shares of Spectrum
Pharmaceuticals, Inc. (“Spectrum”) common stock. Although the
Spectrum shares are eligible for resale under Rule 144, we currently intend to
hold them indefinitely. 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 September 30, 2008, their fair value was approximately
$338,400, representing a cumulative unrealized holding loss of
$799,800. We evaluated this investment to determine if there is an
other than temporary impairment at September 30, 2008. Our evaluation
took into consideration published investment analysis, status of drug candidates
in development, analysts’ recommendations, insider trading activity, and other
factors. Based on our evaluation and our ability and intent to hold
the investment for a reasonable period of time sufficient for an expected
recovery of fair value, we do not consider the remaining investment to be other
than temporarily impaired at September 30, 2008.
The
following table presents our assets measured at fair value on a recurring basis
at September 30, 2008:
|
|
Total
at
|
|
|
|
|
|
|
|
Description
|
|
September
30, 2008
|
|
|
Level
1
|
|
|
Level
2
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
$3,152,294
|
|
|
|
$338,400
|
|
|
|
$2,813,894
|
|
Note
4. 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 September 30, 2008 and
December 31, 2007 were:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Patents
and patent applications
|
|
$ |
1,517,736 |
|
|
$ |
1,517,736 |
|
Less
accumulated amortization
|
|
|
(860,914 |
) |
|
|
(797,303 |
) |
Total
patents and patent applications
|
|
$ |
656,822 |
|
|
$ |
720,433 |
|
The
weighted average amortization period for patents is approximately 16.5
years. Amortization expense, which represents the amortization
relating to the identified amortizable patents, for the nine months ended
September 30, 2008 and September 30, 2007, was $63,611 in each
period. 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
5. Acounts Receivable and Notes Receivable from Related
Party
Related
Party Accounts Receivable activity consists of the following:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Beginning
Balance - January
|
|
$ |
- |
|
|
$ |
495,000 |
|
Additions
|
|
|
500,000 |
|
|
|
1,851,894 |
|
Less
cash collected
|
|
|
500,000 |
|
|
|
(2,346,894 |
) |
Ending
Balance
|
|
$ |
- |
|
|
$ |
- |
|
Additions
consisted of the final installment of $500,000 that was billed to AES in June
2008 upon substantial completion of the testing of the prototype packs per the
July 2007 development agreement. Payment was received in July
2008. Refer to discussion in Note 9. Related Party
Transactions.
Related
Party Notes Receivable activity consists of the following:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Beginning
Balance - January
|
|
$ |
1,638,510 |
|
|
$ |
330,000 |
|
Additions
|
|
|
- |
|
|
|
1,219,075 |
|
Plus
interest earned
|
|
|
83,409 |
|
|
|
89,435 |
|
Extinguishment
of notes
|
|
|
(1,721,919 |
) |
|
|
- |
|
Ending
Balance
|
|
$ |
- |
|
|
$ |
1,638,510 |
|
Pursuant
to a letter agreement effective July 2008 with Phoenix Motorcars, Inc., all
accounts receivable and notes receivable relating to the 2007 Purchase and
Supply Agreement were cancelled. Refer to discussion in Note 9.
Related Party Transactions.
Note
6. Accrued Warranty
Accrued
warranty consisted of the following:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Beginning
Balance - January
|
|
$ |
2,915,990 |
|
|
$ |
- |
|
Additions
|
|
|
- |
|
|
|
2,915,990 |
|
Release
from obligation
|
|
|
(2,856,902 |
) |
|
|
- |
|
Ending
Balance
|
|
$ |
59,088 |
|
|
$ |
2,915,990 |
|
We
provided a limited warranty for battery products sold under the January 2007
purchase and supply agreement with Phoenix and the July 2007 AES development
agreement. The balance of $2,915,990 reflects a one-time adjustment
of $2,856,902 to record the provision for warranty claims resulting from our
decision to replace 47 of the Phoenix battery packs manufactured in 2007 due to
a potential module configuration problem that could result in
overheating. The remaining balance of $59,088 reflects the warranty
recorded in connection with the AES prototype battery pack purchase in
2007. Based on an agreement reached between Phoenix and Altair in
July 2008 (refer to Note 9. Related Party Transactions), the Phoenix warranty
liability was reversed.
Note
7. Note Payable
The
current and long term amounts of the note payable are as follows:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
Note
payable to BHP Minerals
|
|
|
|
|
|
|
International,
Inc.
|
|
$ |
1,200,000 |
|
|
$ |
1,800,000 |
|
Less
current portion
|
|
|
(600,000 |
) |
|
|
(600,000 |
) |
Long-term
portion of notes payable
|
|
$ |
600,000 |
|
|
$ |
1,200,000 |
|
The note
payable to BHP Minerals International, Inc., in the face amount of $3,000,000,
was entered into on August 8, 2002 and is secured by the property we
acquired. Interest on the note payable of 7% is due and payable on an
annual basis with each principal installment. The first three
payments of $600,000 of principal plus accrued interest of $105,000, $168,000,
and $126,000 were due and paid on February 8, 2006, 2007 and 2008 respectively.
The final two payments of $600,000 plus accrued interest are due annually on
February 8, 2009 and 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 ours.
The total
compensation cost charged in connection with the stock incentive
plan was $1,239,266 and $2,563,527 for the nine-months ended September
30, 2008 and 2007, respectively. During the nine-months
ended September 30, 2008, 624,640 options vested at a weighted average
price of $2.95. During the nine-months ended September 30, 2007,
875,660 options vested at a weighted average price of $2.88. Cash received
from stock option and warrant exercises was $1,261,552 and $210,624 during the
nine-months ended September 30, 2008 and 2007, respectively.
Stock
Options
The total
number of shares authorized to be granted under the 2005 stock plan was
increased from 3,000,000 to an aggregate of 9,000,000 based on the proposal
approved at the annual and special meeting of shareholders on May
30, 2007. 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 625,400 are outstanding and unexercised
at September 30, 2008. The total number of options relating to the 2005
plan that are outstanding and unexercised at September 30, 2008 is
3,373,768.
Total
options granted for the nine-month periods ended September 30,
2008 and 2007 were 1,937,667 and 1,687,382, respectively. The
weighted average grant date fair value of options granted during the
nine months ended September 30, 2008 and September 30, 2007 was $2.01
and $1.93, respectively.
As of
September 30, 2008, there was $1,557,125 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 1 year as of
September 30, 2008.
Restricted
Stock
During
the nine-months ended September 30, 2008, the Board of Directors granted 143,079
shares of restricted stock under the plan with a weighted average fair value of
$2.11 per share. During the nine-months ended September 30, 2007, the
Board of Directors granted 75,575 shares of restricted stock under the plan with
a weighted average fair value of $3.13 per share.
As of
September 30, 2008 we had $373,266 of total unrecognized compensation
expense related to restricted stock which will be recognized over the weighted
average period of 1.7 years.
Note
9. Related Party Transactions
In
January 2007, we entered into a multi-year purchase and supply agreement with
Phoenix Motorcars, Inc., succeeded by Phoenix MC, Inc. (“Phoenix”) for lithium
Titanate battery pack systems. Pursuant to two letter agreements with
Phoenix effective in July 2008, the 2007 purchase and supply agreement was
cancelled. Both parties also agreed that all representations, warranties,
covenants and obligations arising under the 2007 agreement were terminated and
further that each party holds the other party harmless from any and all claims,
liabilities, charges, demands, grievances, and causes of action of any kind or
nature. These new agreements resulted in:
1.
|
Altair
agreed to ship 47 Generation 1 prototype batteries back to Phoenix for
exclusive use in Phoenix demonstration vehicles. The
batteries are provided to Phoenix “as is” without explicit or implied
warranties.
|
2.
|
A
commitment on the part of Phoenix to provide Altair with ten percent of
the monetized value of any California Air Resources Board ZEV credits for
each vehicle for which it receives
them.
|
3.
|
The
forgiveness of the Phoenix notes payable, associated accrued interest, and
remaining accounts receivable
balance.
|
4.
|
The
reversal of the warranty accrual associated with the 47 recalled
batteries.
|
Additionally
in January 2007, 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 did not make the minimum
battery pack purchases required to retain their exclusivity in
2007. The common stock shares received represented a 16.6% ownership
interest in Phoenix. The investment was recorded at $106,518 with the
offset to deferred revenue, which was recognized on a straight-line basis until
our agreement was terminated in July 2008.
In March
2008, Phoenix Motorcars, Inc. completed a merger, wherein the surviving
corporation, Phoenix MC, Inc. became a wholly owned subsidiary of All Electric,
LLC (“AELLC”). On March 19, 2008, Phoenix MC, Inc. announced receipt
of their next round of funding provided by Al Yousuf, LLC and The AES
Corporation. These changes resulted in conversion of our 1,000,000
common share investment in Phoenix Motorcars, Inc. to ownership of 2,000 units
in AELLC and diluted our ownership percentage in Phoenix to 2.1%. At
September 30, 2008, there was no deferred revenue relating to the unamortized
investment. Based on managements’ review of the estimated valuation
of Phoenix presented in the February 21, 2008 Merger Agreement and consideration
of their subsequent round of funding, management believes that the investment
was not impaired at March 31, 2008. Management is not aware of any
significant changes in circumstances that would impact the value of the
investment as of September 30, 2008.
On July
20, 2007, we entered into a multi-year Joint Development and Equipment Purchase
Agreement with AES Energy Storage, LLC (“AES”), a subsidiary of global power
leader The AES Corporation. A member of the executive management team
of AES also serves on our board of directors. Under the terms of the
agreement we will work jointly with AES to develop a suite of energy storage
solutions for purchase by AES and potentially third parties. On
August 3, 2007, we received an initial $1,000,000 order, of which $500,000 was
prepaid, in connection with the AES Joint Development and Equipment Purchase
Agreement for a 500 kilowatt-hour energy storage product. This
product was designed and manufactured at our Indiana facilities, and was
completed in December 2007. The final installment of $500,000 was
billed in June 2008 upon substantial completion of the testing of the prototype
packs, of which payment was received in July 2008.
On April
20, 2008, we executed an Amended and Restated Agreement to recover Short-Swing
Profits with Al Yousuf LLC. Section 16 of the Securities and Exchange
Act of 1934 requires directors, officers and 10% beneficial owners of ours to
disgorge any short-swing profits realized on a non-exempt purchase and sale of
our securities within any six-month period. Consistent with the terms
of the Recovery Agreement, we received wire transfers (less wire transfer fees)
in the amount of $177,210.
On
October 6, 2008, we entered into a Stock Purchase and Settlement Agreement dated
as of September 30, 2008 with Al Yousuf, LLC, a United Arab Emirates limited
liability company (the "Investor"). Pursuant to the agreement, we agreed to
issue an aggregate of 8,000,000 common shares to the Investor. Of such Shares,
5,882,353 shares were acquired on October 14, 2008 by the Investor at a purchase
price of $1.70 per share, for an aggregate purchase price of $10,000,000. The
remaining 2,117,647 shares were issued upon execution of the agreement in
exchange for a release by the Investor of all potential claims arising from
design concerns related to battery packs delivered to Phoenix Motorcars, Inc. in
2007, our related offer of a warranty replacement and inventory write-off, and
any other known claims existing as of the date of the Agreement. Under the
Purchase Agreement dated November 29, 2007 between us and the Investor, pursuant
to which the Investor purchased $40 million in common shares, we made certain
representations and warranties related to our inventory, warranty reserve and
similar matters that were affected by the write-off of battery inventories and
warranty offer announced in March 2008 (refer to Note 10).
Note
10. Other Transactions
In
connection with the Stock Purchase and Settlement Agreement with Al Yousuf, LLC
2,117,647 shares of common stock were issued at a fair value of $1.70 that were
agreed upon as part of arms length negotiations, and were recorded as settlement
expense in Operating Expense for the nine months ended September 30,
2008. Additionally, a stock subscription for the $10,000,000 was
recorded as of September 30, 2008 (refer to Note 12).
On
October 14, 2008, we expanded our Board of Directors to an aggregate of eight
directors and appointed Iqbal Al Yousuf to fill the vacancy. Mr. Al
Yousuf was also appointed to the Board’s Compensation Nominating and Governance
Committee.
Note
11. Business Segment Information
Management
views the Company as operating in three business segments: Power and
Energy Group, Performance Materials and Life Sciences.
The Power
and Energy Group develops, produces, and sells nano-structured LTO, nano lithium
Titanate, battery cells, battery packs, and provides related design and test
services. The Performance Materials segment produces advanced
materials for coatings, sensors, alternative energy devices and markets and
licenses our titanium dioxide pigment production technology. The Life
Sciences segment produces pharmaceutical products.
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 the nine-month periods ended September 30, 2008 and
September 30, 2007 is as follows:
|
|
|
|
|
Loss/(Income)
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
From
|
|
|
and
|
|
|
|
|
Nine
Months Ended
|
|
Net
Sales
|
|
|
Operations
|
|
|
Amortization
|
|
|
Assets
|
|
September
30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
and Energy Group
|
|
$ |
3,366,102 |
|
|
$ |
4,915,217 |
|
|
$ |
882,719 |
|
|
$ |
8,389,489 |
|
Performance
Materials
|
|
|
653,317 |
|
|
|
2,579,075 |
|
|
|
878,999 |
|
|
|
4,636,415 |
|
Life
Sciences
|
|
|
754,192 |
|
|
|
407,860 |
|
|
|
66,407 |
|
|
|
1,680,658 |
|
Corporate
|
|
|
- |
|
|
|
16,106,127 |
|
|
|
108,597 |
|
|
|
40,097,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$ |
4,773,611 |
|
|
$ |
24,008,279 |
|
|
$ |
1,936,722 |
|
|
$ |
54,803,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power
and Energy Group
|
|
$ |
4,754,769 |
|
|
$ |
6,475,302 |
|
|
$ |
605,841 |
|
|
$ |
9,567,691 |
|
Performance
Materials
|
|
|
1,962,077 |
|
|
|
1,927,529 |
|
|
|
684,824 |
|
|
|
5,806,332 |
|
Life
Sciences
|
|
|
860,088 |
|
|
|
(147,129 |
) |
|
|
22,202 |
|
|
|
1,501,868 |
|
Corporate
|
|
|
- |
|
|
|
9,632,339 |
|
|
|
99,152 |
|
|
|
17,840,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
$ |
7,576,934 |
|
|
$ |
17,888,041 |
|
|
$ |
1,412,019 |
|
|
$ |
34,715,932 |
|
In the
table above, corporate expense in the Loss/(Income) 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
nine months ended September 30, 2008, we had sales to four major customers, each
of which accounted for 10% or more of revenues. Total sales to these customers
for the nine months ended September 30, 2008 and the balance of their accounts
receivable at September 30, 2008 were as follows:
|
|
Sales
|
|
|
Accounts
Receivable and
|
|
|
|
Nine
Months Ended
|
|
|
Notes
Receivable at
|
|
Customer
|
|
September
30, 2008
|
|
|
September
30, 2008
|
|
Power and Energy Group:
|
|
|
|
|
|
|
Office
of Naval Research
|
|
$ |
2,142,529 |
|
|
$ |
1,143,354 |
|
AES
|
|
|
500,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Life Sciences Division:
|
|
|
|
|
|
|
|
|
Elanco
Animal Health/Eli Lilly
|
|
$ |
622,804 |
|
|
$ |
- |
|
For the
nine months ended September 30, 2007, we had sales to four major customers, each
of which accounted for 10% or more of revenues. Total sales to these customers
for the nine months ended September 30, 2007 and the balance of their accounts
receivable at September 30, 2007 were as follows:
|
|
Sales
|
|
|
Accounts
Receivable and
|
|
|
|
Nine
Months Ended
|
|
|
Notes
Receivable at
|
|
Customer
|
|
September
30, 2007
|
|
|
September
30, 2007
|
|
Power and Energy Group:
|
|
|
|
|
|
|
Phoenix
Motorcars, Inc.
|
|
$ |
3,067,121 |
|
|
$ |
1,953,936 |
|
Department
of Energy
|
|
|
595,264 |
|
|
|
167,400 |
|
|
|
|
|
|
|
|
|
|
Performance Materials
Division:
|
|
|
|
|
|
|
|
|
Western
Oil Sands
|
|
$ |
897,829 |
|
|
$ |
100,858 |
|
Department
of Energy
|
|
|
472,268 |
|
|
|
15,958 |
|
|
|
|
|
|
|
|
|
|
Life Sciences Division:
|
|
|
|
|
|
|
|
|
Elanco
Animal Health/Eli Lilly
|
|
$ |
727,629 |
|
|
$ |
294,600 |
|
Department
of Energy
|
|
|
127,565 |
|
|
|
23,025 |
|
Sales for
the nine-month periods ended September 30, 2008 and 2007 by geographic area were
as follows:
|
|
Sales
|
|
|
Sales
|
|
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
Geographic
information (a):
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
United
States
|
|
$ |
4,375,113 |
|
|
$ |
6,253,966 |
|
Canada
|
|
|
248,676 |
|
|
|
904,774 |
|
Other
foreign countries
|
|
|
149,822 |
|
|
|
418,194 |
|
Total
|
|
$ |
4,773,611 |
|
|
$ |
7,576,934 |
|
|
|
(a)
Revenues are attributed to countries based on location of
customer. |
|
Note
12. Subsequent Events
In
October 2008, Al Yousuf, LLC, a United Arab Emirates limited liability company,
privately purchased 5,882,353 shares or the Company’s common stock at a price of
$1.70 per share as agreed upon as part of arms length negotiations, for an
aggregate purchase price of $10,000,000. The $10,000,000 cash
was received on October 14, 2008 and the 5,882,353 shares were subsequently
issued.
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 Part II – Other Information, “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.
Unless
the context requires otherwise, all references to “Altair,” “we,” “Altair
Nanotechnologies Inc.,” or the “Company” in this Report refer to Altair
Nanotechnologies Inc. and all of its subsidiaries. Altair
currently has one wholly owned subsidiary, Altair US Holdings, Inc., a Nevada
corporation. Altair US Holdings, Inc. directly or indirectly wholly
owns Altairnano, Inc., a Nevada corporation, Mineral Recovery Systems, Inc., a
Nevada corporation, Fine Gold Recovery Systems, Inc., a Nevada corporation and a
controlling interest in AlSher Titania LLC (“AlSher Titania”), a joint venture
with The Sherwin-Williams Company (“Sherwin-Williams”). We have
registered or are in the process of registering the following trademarks: Altair
Nanotechnologies®, Altair Nanomaterials®, Altairnano™, TiNano®, Nanocheck® and
RenaZorb®. Any other trademarks and service marks used in this Report
are the property of their respective holders.
Overview
The
following discussion summarizes the material changes in our financial condition
between December 31, 2007 and September 30, 2008 and the material changes in our
results of operations and financial condition between the three-month and
nine-month periods ended September 30, 2008 and September 30,
2007. This discussion should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31,
2007.
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 three divisions, a
Power and Energy Group, a Performance Materials Division and a Life Sciences
Division. Our research, development, production and marketing efforts
are currently directed toward three primary market applications that utilize our
proprietary technologies:
Power and
Energy Group
·
|
The
design, development, and production of our nano-lithium Titanate battery
cells, batteries, and battery packs as well as related design and test
services.
|
·
|
The
development, production and sale for testing purposes of electrode
materials for use in a new class of high performance lithium ion batteries
called nano-lithium Titanate
batteries.
|
Performance
Materials Division
·
|
Through
AlSher Titania, the development and production of 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
testing, development, marketing and/or licensing of
nano-structured ceramic powders for use in various applications, such as
advanced performance coatings, air and water purification systems, and
nano-sensor applications.
|
Life
Sciences Division
·
|
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 human patients undergoing kidney
dialysis.
|
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
to further develop battery electrode materials, nano-sensors, and nano-materials
characterization, (2) to participate in a joint venture combining the
technologies of the partners 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 advanced materials applications, (3) to develop a suite of
energy storage solutions for the stationary power market, (4) to develop battery
backup power systems for military applications and (5) to develop battery power
systems for Army artillery units. In addition, we have entered into a
licensing agreement for RenaZorb, our pharmaceutical candidate for treatment of
chronic renal failure in humans; and we have made product sales consisting
principally of alumina, battery cells and battery modules. 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 licensees
in obtaining regulatory approval for the drugs, or other products, the
successful commercialization of our completed large scale stationary power tests
in connection with energy storage devices, and the success of our marketing
efforts with respect to both product sales and technology licenses.
On
September 30, 2008, we entered into a Stock Purchase and Settlement Agreement
that was signed October 6, 2008 with Al Yousuf, LLC, a United Arab Emirates
limited liability company (the "Investor"). Pursuant to the agreement, we agreed
to issue an aggregate of 8,000,000 common shares to the Investor. Of such
Shares, 5,882,353 shares were acquired by the Investor at a purchase price of
$1.70 per share that were agreed upon as part of arms length negotiations, for
an aggregate purchase price of $10,000,000. The remaining 2,117,647 shares were
issued upon execution of the Agreement in exchange for a release by the Investor
of all potential claims arising from design concerns related to battery packs
delivered to Phoenix Motorcars, Inc. in 2007, our related offer of a warranty
replacement and inventory write-off, and any other known claims existing as of
the date of the agreement. Under the Purchase Agreement dated November 29, 2007
between us and the Investor, pursuant to which the Investor purchased $40
million in common shares, we made certain representations and warranties related
to our inventory, warranty reserve and similar matters that were affected by the
write-off of battery inventories and warranty offer announced in March
2008.
The
current financial markets and general economic environment are substantially
weaker at present than they were during 2007. New credit availability
is severely constrained and those companies producing products for individual
consumer use have seen their sales negatively impacted. Altair’s
products are targeted primarily at the military and large power producers that
have not been negatively impacted to the same degree as these consumer oriented
companies. Consequently, we have not seen a slackening of interest
from the prospective and existing customers with whom we are
working. Further, we do not see a need in the near term to tap into
the credit markets and have sufficient cash for operations into
2010.
General
Outlook
We have
generated net losses in each fiscal year since incorporation. In
fiscal 2007, revenues from product sales, commercial collaborations and
contracts and grants began to increase significantly, but operating expenses
also increased significantly as we added employees and committed additional
funds to our customer contracts, battery initiative, and pigment process
technology. 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 nano-lithium Titanate battery cells, packs and
energy storage devices to be our major source of such higher-margin revenues in
the long term. In 2007, we increased spending for the battery
initiative, manufacturing of the potential drug candidates, and pigment process
development. During 2008, we have narrowed our focus to concentrate
on our battery initiatives which we believe represent greater near term revenue
opportunity. We are maintaining presence in both Life Science and
Performance Material programs aligning resources on those with relatively
near-term prospects for generating a positive contribution to our
earnings.
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:
·
|
In
July 2007, we entered into a multi-year development and equipment purchase
agreement with AES Energy Storage, LLC, a subsidiary of global power
leader, The AES Corporation. Under the terms of the deal, we
are working jointly with AES to develop a suite of energy storage
solutions specifically for AES. The first two one-megawatt
prototype stationary battery packs were manufactured at our Indiana
facility and were completed according to the delivery schedule in December
2007. These packs have been connected to the electric grid in
Indiana and full testing has been completed and validated by an
external, independent agency. The testing was conducted to
demonstrate the applicability of our large platform technology to
frequency regulation, a key service currently provided by power plants to
the electric grid. Results showed the battery system
successfully met the program’s milestones, and the independent agency
suggests that the technology could be used for a number of other utility
applications. We expect our development relationship with AES
to continue through 2008 and beyond. In July 2007, AES made an
investment in our company and is therefore a related
party.
|
·
|
Spectrum
must begin the testing and application processes necessary to receive FDA
approval of RenaZorb and related products. Spectrum has begun
the process of information and data collection and presentation required
to file an investigational new drug application with the FDA, which is a
condition precedent to commencing human testing and the first stage of
seeking regulatory approval. We do not expect the application
to be filed until 2009. In order for RenaZorb to be successful
in the foreseeable future, it is important that Spectrum, with our
assistance, submit its investigation new drug application by early 2009
and continue with testing.
|
·
|
The
AlSher Titania joint venture was formed to develop and produce titanium
dioxide pigment for use in paint and coatings. We confirmed our
assumptions about the process’ capabilities and have generated
considerable operating data from our 100 ton per year pilot plant,
commissioned in February 2008. We have compiled the necessary
information for an engineering data package analysis and recommendation on
next steps. Proper scale up will require a substantial capital
investment to build a plant with at least an order of magnitude greater
capacity than the existing pilot plant. AlSher will require,
and is currently seeking, a partner or partners to participate in the next
phase. While several companies with considerable raw material
resources have expressed interest in our process, none have made
commitments to date. Without such a commitment, it will be
difficult for AlSher to independently fund the next scale up
investment.
|
·
|
In
January 2008, we entered into a development agreement with the Office of
Naval Research for $2,490,000. This is a cost reimbursement
agreement whereby we will develop a proof of concept battery system
consisting of two 50-80 kilowatt-hour batteries. Testing
results through September 30, 2008 have been very positive with successful
completion expected in November 2008. This development work is
required to qualify for further military grants with the Office of Naval
Research. Although we have not entered into the ONR phase II
contract yet, the U.S. congress has appropriated funding in the
budget for this effort.
|
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 overcome.
Recent Business
Developments
Power
and Energy Group
In
September 2008, we accepted a purchase order from DesignLine International USA
(DLI) for the delivery of four complete battery module sets. These
hybrid electric vehicle (HEV) battery packs will be used in demonstration buses
for three city transit customers, and one for a modular testing
program. The DLI HEV bus operates in an electric-only mode for
as much as 30 percent of its range and provides a 100 percent improvement in
fuel economy over a diesel bus, with fuel savings of up to 6,000 gallons per
year. We anticipate an initial ramp-up in orders in the HEV transit
market with the completion of a successful demonstration program with
DLI. Any subsequent orders from DLI are expected to be for cells
only, with DLI taking full responsibility for module and pack
assembly.
In June
2008, we received an order from BAE Systems for $349,000 to develop 32 batteries
in support of the US Army’s artillery upgrade program. We plan to
deliver the batteries in Q4 2008. Revenue will be recognized upon
acceptance by BAE Systems.
In August
2007, we received an initial $1,000,000 order in connection with the AES Joint
Development and Equipment Purchase Agreement for a 500 kilowatt-hour energy
storage product. In accordance with this purchase order, two
one-megawatt stationary battery packs (energy equivalent for each pack based on
anticipated operational time is 250 kilowatt-hours of energy) were completed
according to the delivery schedule in December 2007. A testing
program was developed and validated by KEMA, Inc., an independent agency and
executed by AES personnel and subcontractors. KEMA’s testing
completed during the second quarter of 2008 showed the battery system
successfully met the program’s specifications. The demonstration also
suggests that the technology could be used for several other utility
applications. There were no inherent design limitations identified in
its application within the designed one-megawatt power handling
range. Fast-responding, high-efficiency energy storage systems such as
these are anticipated to create a more resilient grid and allow for increased
use of variable generating sources such as wind and solar by power
providers. We expect our development relationship with AES to
continue through 2008 and beyond. Also as a result of the impartial
successful test results reported by KEMA, we have made inroads into other
potential customer opportunities that we expect to develop over the next 12
months.
We are in
advanced negotiations with BAE Systems Marine Limited and the UK Ministry of
Defense (MoD) to develop a battery system for use in the British submarine
fleet. We plan to perform the necessary design and testing work by
end of Q1 2009. It is anticipated that the successful completion of
this initial work will lead to subsequent production orders from the
MoD.
In
January 2007, we entered into a multi-year purchase and supply agreement with
Phoenix for nano lithium Titanate battery packs to be used in electric vehicles
produced by Phoenix. Due to a slow down in the production relating
primarily to delays in Phoenix obtaining funding, projected orders for 2007 were
not achieved. In 2008, after becoming aware of a potential module
configuration problem in the first-generation Phoenix battery packs manufactured
in 2007, we agreed to replace 47 of the existing packs sold to Phoenix by means
of a credit against re-designed second-generation battery packs and related
engineering services. While modeling and design of the modules for
the second-generation battery packs is essentially complete, final testing and
pre-production activities were delayed pending ongoing negotiations with Phoenix
regarding a new supply agreement. In July 2008, we signed two
agreements with Phoenix. The first agreement called for us to ship
the original 47 battery packs purchased by Phoenix in 2007 back to Phoenix for
use exclusively in demonstration vehicles with the addition of a new safety
system by Phoenix in each of those vehicles. The second agreement
formally terminated the 2007 supply agreement and mutually released each party
from any claims under that agreement. Based on the principles of this
later agreement, Altair reversed the $2.8 million warranty liability associated
with the battery recall and wrote off a $1.7 million note payable due to Altair
from Phoenix.
Life
Sciences
In August
2008, we and Elanco Animal Health, a division of Eli Lilly and Company
("Elanco"), terminated the Development Services Agreement entered into by them
in September 2007 and related license agreements. Since all rights
granted to Elanco under the original agreements reverted to us with the
termination of those agreements, we have since explored licensing this
technology and product to other interested parties with no
success. As a result we have ceased all efforts in this area and
eliminated the costs associated with the Elanco development
program. We are continuing to work with Spectrum, however, under the
terms of our agreement with them.
Performance
Materials
In April
2007, a new company, called AlSher Titania LLC was formed. AlSher Titania
represents a joint venture with Sherwin-Williams, one of the world's leading
manufacturers of paint and durable coatings. Construction of the 100
ton pigment processing pilot plant in connection with the joint venture
agreement was completed, and the plant was commissioned in February
2008. Testing under the piloting program commenced, and although
results to date have been positive, we have curtailed full operations at this
time. Considerable data has been generated and is being compiled for
an engineering data package analysis and recommendation on next
steps. Based on review of this package, its impact on financial
projections, and input from our partner, we will consider whether to undertake a
more detailed engineering cost study by early 2009 relating to the potential
scale up to a significantly larger demonstration plant. AlSher is
actively seeking a partner or partners to participate in the next
phase. Several companies with raw materials resources have indicated
interest in the technology, but none has been willing to make any commitment up
to now. Without additional capital it is unlikely that AlSher will be
able to independently fund this effort.
We were
recently awarded a $1.8 million grant by the Department of Defense to pursue
development of a nano-sensor project with
Western Michigan University. This project and similar
activities will continue into the foreseeable future as long as they are able to
make a positive contribution to our financial position, but they are not the
focus area of the Company.
Liquidity
and Capital Resources
Current
and Expected Liquidity
Historically,
we have financed operations primarily through the issuance of equity securities
(common shares, convertible notes, stock options and warrants) and by the
issuance of debt. In order to finance our existing operations and
development plans, as well as to respond to any new business or acquisition
opportunity, we will be required to raise capital in the future. We
do not have any commitments with respect to future financing and may, or may
not, be able to obtain such financing on reasonable terms, or at
all. We have a single note payable in the original principal amount
of $3,000,000 that does not contain any restrictive covenants with respect to
the issuance of additional debt or equity securities by Altair. The
first three payments of $600,000 of principal plus accrued interest were due and
paid on February 8, 2006, 2007, and 2008. The total outstanding note
payable balance is $1,200,000. Future payments of principal and
interest are due annually on February 8, 2009 and 2010.
Our cash
and short-term investments decreased by $26,415,557, from $50,146,117 at
December 31, 2007 to $23,730,560 at September 30, 2008, due primarily to
net cash used in operations (approximately $25,130,000) purchases of property
and equipment (approximately $2,130,000), and payment of notes payable
($600,000). This decrease was partially offset by the receipt of
proceeds resulting from the exercise of stock options and warrants and recovery
of short swing profits (totaling approximately $1,439,000). As of
September 30, 2008, we entered into a purchase and settlement agreement with Al
Yousuf LLC. One of the provisions of that agreement was the issuance
of 2,117,647 shares of common stock to Al Yousuf LLC in exchange for a release
of potential breach of contract and other claims related to their 2007
investment. As part of the agreement Al Yousuf LLC also committed to
an additional $10 million investment in the Company. This investment
was received on October 14, 2008.
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. At this time our sales volume is low and we are
averaging a monthly cash outlay of $2,000,000. We anticipate
beginning to close significant contracts and ramping up production by mid
2009. These events are expected to move us closer to cash flow
breakeven, expanding our options for external financing to sustain our
growth.
At
October 31, 2008, we had 93,143,271 common shares issued and
outstanding. As of that same date, there were outstanding warrants to
purchase up to 741,482 common shares and options to purchase up to 3,953,584
common shares.
Capital Commitments
The following table discloses aggregate information
about our contractual obligations and the periods in which payments are due as
of September 30, 2008:
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual
Obligations
|
|
Total
|
|
|
1
Year
|
|
|
1-3
Years
|
|
|
4-5
Years
|
|
|
5
Years
|
|
Notes
Payable
|
|
$ |
1,200,000 |
|
|
$ |
600,000 |
|
|
$ |
600,000 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest
on notes payable
|
|
|
126,000 |
|
|
|
84,000 |
|
|
|
42,000 |
|
|
|
- |
|
|
|
- |
|
Contractual
Service Agreements
|
|
|
1,299,818 |
|
|
|
1,299,818 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Facilities
and Property Leases
|
|
|
1,145,411 |
|
|
|
340,406 |
|
|
|
581,877 |
|
|
|
223,128 |
|
|
|
- |
|
Unfulfilled
Purchase Orders
|
|
|
1,566,845 |
|
|
|
1,566,845 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Contractual Obligations
|
|
$ |
5,338,074 |
|
|
$ |
3,891,069 |
|
|
$ |
1,223,877 |
|
|
$ |
223,128 |
|
|
$ |
- |
|
In 2007, we anticipated that a total of approximately
$4.8 million would be spent on labor, equipment and building improvements and
other implementation expenses related to preparations to manufacture our
pharmaceutical products. As of
September 30, 2008, approximately $47,000 was spent in the third quarter
of 2008 for a cumulative total of $2,046,000 incurred project to date through
September 30, 2008. As a result of the contract termination with
Elanco in August 2008 as discussed in the General Outlook, all expenditures
associated with this product have been substantially curtailed.
Beginning in the second quarter of 2008, we have revised
our capital acquisition policy to lease capital purchases that meet our business
case criteria. As a result a
reduction in capital expenditures
is
anticipated through the end of 2008.
Off-Balance Sheet
Arrangements
There
were no off-balance sheet arrangements at September 30, 2008.
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, share-based compensation, revenue recognition,
accrued warranty, overhead allocation, minority interest, 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 vary 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.
·
|
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 collectability 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. Payments received in advance relating
to the future performance of services or deliveries of products are
deferred until the performance of the service is complete or the product
is shipped. Based on specific customer bill and hold
agreements, revenue is recognized when the inventory is shipped to a third
party storage warehouse, the inventory is segregated and marked as sold,
the customer takes the full rights of ownership and title to the inventory
upon shipment to the warehouse per the bill and hold
agreement. When contract terms include multiple components that
are considered separate units of accounting, the revenue is attributed to
each component and revenue recognition may occur at different points in
time for product shipment, installation, and service contracts based on
substantial completion of the earnings
process.
|
·
|
Accrued
Warranty. We provide a limited warranty for battery packs and
energy storage systems. A liability is recorded for estimated
warranty obligations at the date products are sold. Since these
are new products, the estimated cost of warranty coverage is based on cell
and module life cycle testing and compared for reasonableness to warranty
rates on competing battery products. As sufficient actual historical
data is collected on the new product, the estimated cost of warranty
coverage will be adjusted accordingly. The liability for
estimated warranty obligations may also be adjusted based on specific
warranty issues identified.
|
·
|
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 are appropriate and
reasonable.
|
·
|
Allowance
for Doubtful Accounts. The allowance for doubtful accounts is
based on our assessment of the collectability 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.
|
·
|
Product
Inventories. We value our 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.
|
·
|
Long-Lived
Assets. Our long-lived assets consist principally of the
nano-materials 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 September 30, 2008, the carrying
value of these assets was $13,897,623, or 25% 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.
|
·
|
Minority
Interest – In April 2007, we entered into an agreement with
Sherwin-Williams to form AlSher Titania LLC, a Delaware limited liability
company. AlSher Titania is a joint venture combining certain
technologies of ours and Sherwin-Williams 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. Pursuant
to a Contribution Agreement dated April 24, 2007 among Sherwin-Williams,
AlSher Titania and us, we contributed to AlSher Titania an exclusive
license to use our technology (including our hydrochloride pigment
process) for the production of titanium dioxide pigment and other titanium
containing materials (other than battery or nano-electrode materials) and
certain pilot plant assets with a net book value of
$3,110,000. We received no consideration for the license
granted to AlSher Titania other than our ownership interest in AlSher
Titania. Sherwin-Williams agreed to contribute to AlSher
Titania cash and a license agreement related to a technology for the
manufacture of titanium dioxide using the digestion of ilmenite in
hydrochloric acid. As a condition to enter into the second
phase of the joint venture, we agreed to complete the pigment pilot
processing plant and related development activities by January
2008. The 100 ton pigment pilot processing plant was
commissioned in February 2008 and the costs associated with this effort
were partially reimbursed by AlSher Titania. We contribute any
work in process and fixed assets associated with completion of the pigment
pilot processing plant to the AlSher Titania joint venture. For
each reporting period, AlSher Titania is consolidated with our
subsidiaries because we have a controlling interest in AlSher Titania and
any inter-company transactions are eliminated (refer to Note 1 – Basis of
Preparation of Consolidated Financial Statements). The minority
shareholder’s interest in the net assets and net income or loss of AlSher
Titania are reported as minority interest in subsidiary on the condensed
consolidated balance sheet and as minority interest share in the condensed
consolidated statement of operations,
respectively.
|
·
|
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.
|
·
|
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 our
deferred income tax assets will more likely than not be realized from the
results of operations. We have recorded a valuation allowance to
reflect the estimated amount of deferred income tax assets that may not be
realized. The ultimate realization of deferred income tax assets is
dependent upon generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based on the historical taxable income and projections for
future taxable income over the periods in which the deferred income tax
assets become deductible, management believes there is insufficient basis
for projecting that we will realize the benefits of these deductible
differences as of September 30, 2008. Management has, therefore,
established a full valuation allowance against our net deferred income tax
assets as of September 30, 2008.
|
Results of
Operations
Three
Months Ended September 30, 2008 Compared to Three Months Ended September 30,
2007
The net
loss for the quarter ended September 30, 2008, which was the third quarter of
our 2008 fiscal year, totaled $9,110,966 ($0.11 per share) compared to a
net loss of $6,130,210 ($0.09 per share) in the third quarter of
2007.
Total
revenues for the quarter ended September 30, 2008 were $1,801,615 compared to
$3,370,134 for the same period of 2007. The decrease in revenue is
due to a reduction of $1,698,005 in product revenues primarily due to the
absence of battery pack sales to the transportation segment in
2008.
Commercial
Collaborations revenue decreased $852,061, from $980,478 in the third quarter of
2007 to $128,417 in the same quarter of 2008. This is due to a
decrease of $308,409 resulting from the conclusion of the July 2007 development
agreement with AES, a decrease of $300,207 by Western Oil Sands due to their
relocation to another facility in May 2008 and the termination of the contract
with Elanco Animal Health in July 2008 resulting in a decrease of
$244,600.
Contract
and Grant revenues increased $981,547 relating to $1,495,675 recognized in
connection with a new grant received in January 2008 from the Office of Naval
Research. This increase is offset by decreased revenues from several
other grants as the grants concluded during the second and third quarters of
2008.
Cost of
sales - product decreased by $2,024,389, from $2,083,729 in the third quarter of
2007 to $59,340 in the same quarter of 2008. This change is driven by
an overall decrease in product sales as discussed above.
Research
and development, expense decreased by $1,102,978, from $4,423,159 in the third
quarter of 2007 to $3,320,181 in the same quarter of 2008. Costs
decreased in the following business units: 1) $405,454 in Performance Materials
due to reduced material purchases of $271,260 associated with the pigment pilot
plant and $106,677 due to the relocation of Western Oil Sands to another
facility in May 2008; 2) $352,766 in Power and Energy Group primarily as a
result of the completion of the Phoenix development project in Q1 2008; and 3)
Life Science costs reduced by $94,325 as the grants that concluded in Q1
2008. Research and development costs associated
with non-billable internal projects decreased $327,813.
Sales and
marketing expense increased by $141,353, from $519,464 in the third quarter of
2007 to $660,817 in the same quarter of 2008. This increase reflects
the retention of consultants primarily relating to business development and
product marketing.
General
and administrative expenses increased by $369,606, from $2,385,871 in the third
quarter of 2007 to $2,755,477 in the same quarter of 2008. This
increase is primarily related to the separation provision for our former Vice
President and Chief Patent Counsel that occurred in September 2008.
Depreciation
and amortization increased by $216,401, from $506,970 in third quarter of 2007
to $723,371 in the same quarter of 2008. The increase in depreciation
is a result of the commission of the pigment pilot plant associated with AlSher
joint venture in February 2008 and expansion of production capabilities at the
Indiana facility.
Minority
interest decreased by $181,021, from $236,518 in the third quarter 2007 to
$55,497 in the same quarter of 2008. This decrease reflects
Sherwin-Williams minority interest share of the AlSher Titania joint venture’s
loss for the quarter ending September 30, 2008. Their share of the
loss has been reduced due to the completion of a research and development
services contract in January 2008.
Nine
Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
2007
The net
loss for the nine months ended September 30, 2008 totaled $23,059,724
($0.27 per share) compared to a net loss of $16,742,259 ($0.24 per share)
in the same period of 2007.
Total
revenues for the nine months ended September 30, 2008 were $4,773,611 compared
to $7,576,934 for the same period of 2007. Product revenues decreased
$3,242,471 primarily due to the absence of battery pack sales to the
transportation segment in 2008.
Revenues
from Commercial Collaborations decreased $420,602 due primarily to the
relocation of Western Oil Sands to another facility in May 2008.
Revenues
from contracts and grants increased by $859,750 relating to $2,142,529
recognized in connection with a new grant received in January 2008 from the
Office of Naval Research. This increase is offset by decreased
revenues from several other grants as the grants concluded during the second and
third quarters of 2008.
Cost of
sales - product decreased by $4,348,093, from $4,486,467 in the third quarter of
2007 to $138,374 in the same quarter of 2008. This change is driven
by an overall decrease in product sales of $3,242,471 as discussed
above.
Cost of
sales – warranty and inventory reserves decreased by $2,864,837 primarily due to
a letter agreement effective July 2008 with Phoenix, whereby the 2007 purchase
and supply agreement was terminated and the parties resolved all outstanding
issues with respect to the warranty associated with the 47 battery packs sold in
2007.
Research
and development expenses increased by $3,030,383, from $10,659,356 for the nine
months ended September 30, 2007 to $13,689,739 in the same period of
2008. Labor costs increased $1,254,393 due to merit increases in Q1
2008 and an increase in benefit costs. Power and Energy Group
expenses increased $2,573,234 as follows: 1) $1,073,184 in materials
relating to 2008 customer purchase orders and development agreements; 2)
$521,681 for completion of the testing of the AES product in conjunction with
the July 2007 development agreement; and 3) $923,816 of engineering and other
research and development activities. Performance Materials costs
decreased $535,586 due to the Department of Energy Grant conclusion in
December 2007 and $179,361 due to the relocation of Western Oil Sands to
another facility in May 2008. Life Sciences increased $178,708
primarily due to RenaZorb and animal pharmaceutical candidate research
expenses. Expenses relating to internal research and development
activities decreased $440,366.
Sales and
marketing expenses increased by $786,857, from $1,309,230 for the nine months
ended September 30, 2007 to $2,096,087 in the same period of
2008. The increase relates primarily to an increase in consulting
relating to business development and product marketing initiatives.
Depreciation
and amortization increased by $524,703, from $1,412,019 for the nine months
ended September 30, 2007 to $1,936,722 in the same time period of
2008. The increase in depreciation is primarily attributed to the
commission of the pigment pilot plant associated with the AlSher joint venture
in February 2008.
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 president and our chief financial officer have
concluded that, as of September 30, 2008, our disclosure controls and procedures
were effective in ensuring that information required to be disclosed by us in
reports that we file 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 controls 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, 2007.
We have
made immaterial edits and updated the financial and other data referenced in the
risk factors as of a recent practicable date.
Risk
Factors
An investment in our common shares 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 $17,888,041 in 2007 and $24,008,279 for the nine
months ended September 30, 2008. 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:
·
|
fluctuations
in the size and timing of customer orders from one quarter to the
next;
|
·
|
timing
of delivery of our services and
products;
|
·
|
addition
of new customers or loss of existing
customers;
|
·
|
our
ability to commercialize and obtain orders for products we are
developing;
|
·
|
costs
associated with developing our manufacturing
capabilities;
|
·
|
new
product announcements or introductions by our competitors or potential
competitors;
|
·
|
the
effect of variations in the market price of our common shares on our
equity-based compensation expenses;
|
·
|
warranty
claims or product recalls that exceed
expectations;
|
·
|
acquisitions
of businesses or customers;
|
·
|
technology
and intellectual property issues associated with our
products;
|
·
|
general
economic trends, including changes in energy prices, or geopolitical
events such as war or incidents of terrorism;
and
|
·
|
loss
of key employees, or our inability to attract appropriate new employees to
meet expected growth.
|
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,
2007, 2006 and 2005, contract services revenues comprised 55%, 67%, and 70%,
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 have potential for higher
margins and more rapid growth, increasing in coming years. If we are not
successful in significantly expanding our revenues from higher margin products
and services, our revenue growth will be slow, and it is unlikely that we will
achieve profitability.
Our
patents and other protective measures may not adequately protect our proprietary
intellectual property, and we may be infringing on the rights of
others.
We regard
our intellectual property, particularly our proprietary rights in our
nanomaterials and titanium dioxide pigment technology, as critical to our
success. We have received various patents, and filed other patent applications,
for various applications and aspects of our nanomaterials and titanium dioxide
pigment technology and other intellectual property. In addition, we generally
enter into confidentiality and invention agreements with our employees and
consultants. Such patents and agreements and various other measures we take to
protect our intellectual property from use by others may not be effective for
various reasons, including the following:
·
|
our
pending patent applications may not be granted for various reasons,
including the existence of conflicting patents or defects in our
applications;
|
·
|
the
patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other
reasons;
|
·
|
parties
to the confidentiality and invention agreements may have such agreements
declared unenforceable or, even if the agreements are enforceable, may
breach such agreements;
|
·
|
the
costs associated with enforcing patents, confidentiality and invention
agreements or other intellectual property rights may make aggressive
enforcement cost prohibitive;
|
·
|
even
if we enforce our rights aggressively, injunctions, fines and other
penalties may be insufficient to deter violations of our intellectual
property rights; and
|
·
|
other
persons may independently develop proprietary information and techniques
that, although functionally equivalent or superior to our intellectual
proprietary information and techniques, do not breach our patented or
unpatented proprietary rights.
|
Because
the value of our company and common shares is rooted primarily in our
proprietary intellectual property rights, our inability to protect our
proprietary intellectual property rights or gain a competitive advantage from
such rights could harm our ability to generate revenues and, as a result, our
business and operations.
In
addition, we may inadvertently be infringing on the proprietary rights of other
persons and may be required to obtain licenses to certain intellectual property
or other proprietary rights from third parties. Such licenses or proprietary
rights may not be made available under acceptable terms, if at all. If we do not
obtain required licenses or proprietary rights, we could encounter delays in
product development or find that the development or sale of products requiring
such licenses is foreclosed.
Because
our products are generally components of end products, the viability of many or
our products is tied to the success of third parties' existing and potential end
products.
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 lithium Titanate battery materials
and batteries are designed for use in end-user products such as electric
vehicles, hybrid electric vehicles and other potential products. Other potential
products and processes we and our partners are developing using our technology,
such as titanium dioxide pigments, life sciences 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:
·
|
we
may not be able to enter into development, licensing, supply and other
agreements with commercial partners with appropriate resources, technology
and expertise on reasonable terms or at
all;
|
·
|
our
commercial partners may not place the same priority on a project as we do,
may fail to honor contractual commitments, may not have the level of
resources, expertise, market strength or other characteristics 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;
|
·
|
our
commercial partners may be in the early stages of development and may not
have sufficient liquidity to invest in joint development projects, expand
their businesses and purchase our products as expected or honor
contractual commitments;
|
·
|
our
commercial partners may terminate joint testing, development or marketing
projects on the merits of the projects for various reasons, including
determinations that a project is not feasible, cost-effective or likely to
lead to a marketable end product;
|
·
|
at
various stages in the testing, development, marketing or production
process, we may have disputes with our commercial partners, which may
inhibit development, lead to an abandonment of the project or have other
negative consequences; and
|
·
|
even
if the commercialization and marketing of jointly developed products is
successful, our revenue share may be limited and may not exceed our
associated development and operating
costs.
|
As a
result of the actions or omissions of our commercial partners, or our inability
to identify and enter into suitable arrangements with qualified commercial
partners, we may be unable to commercialize apparently viable products on a
timely and cost-effective basis, or at all.
If
we acquire or invest in other companies, assets or technologies and we are not
able to integrate them with our business, or we do not realize the anticipated
financial and strategic goals for any of these transactions, our financial
performance may be impaired.
As part
of our growth strategy, we routinely consider acquiring or making investments in
companies, assets or technologies that we believe are strategic to our business.
We do not have extensive experience in integrating new businesses or
technologies, and if we do succeed in acquiring or investing in a company or
technology, we will be exposed to a number of risks, including:
·
|
we
may find that the acquired company or technology does not further our
business strategy, that we overpaid for the company or technology or that
the economic conditions underlying our acquisition decision have
changed;
|
·
|
we
may have difficulty integrating the assets, technologies, operations or
personnel of an acquired company, or retaining the key personnel of the
acquired company;
|
·
|
our
ongoing business and management's attention may be disrupted or diverted
by transition or integration issues and the complexity of managing
geographically or culturally diverse
enterprises;
|
·
|
we
may encounter difficulty entering and competing in new product or
geographic markets or increased competition, including price competition
or intellectual property litigation;
and
|
·
|
we
may experience significant problems or liabilities associated with product
quality, technology and legal contingencies relating to the acquired
business or technology, such as intellectual property or employment
matters.
|
In
addition, from time to time we may enter into negotiations for acquisitions or
investments that are not ultimately consummated. These negotiations could result
in significant diversion of management time, as well as substantial
out-of-pocket costs. If we were to proceed with one or more significant
acquisitions or investments in which the consideration included cash, we could
be required to use a substantial portion of our available cash. 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.
As
our commercial orders increase, 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 battery
systems. Our business plan anticipates continued additional expenditure on
development, manufacturing and other growth initiatives. We may not achieve
significant growth despite such expenditures. 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 the timeliness and accuracy of our
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 sciences 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 sciences
products, and expect to enter into additional licensing and/or supply agreements
in the future. Most of the potential life sciences applications of
our technologies are subject to regulation by the FDA and similar regulatory
bodies. In general, license agreements in the life sciences area call
for milestone payments as certain milestones related to the development of the
products and the obtaining of regulatory approval are met; however, the receipt
by the licensor of substantial recurring revenues is generally tied to the
receipt of marketing approval from the FDA and the amount of revenue generated
from the sale of end products. There are substantial risks
associated with licensing arrangements, including the following:
·
|
further
testing of potential life science products using our technology may
indicate that such products are less effective than existing products,
unsafe, have significant side effects or are otherwise not
viable;
|
·
|
the
licensees may be unable to obtain FDA or other regulatory approval for
technical, political or other reasons or, even if a licensee obtains such
approval, it may obtain such approval much later than expected or
projected; and
|
·
|
end
products for which FDA approval is obtained, if any, may fail to obtain
significant market share for various reasons, including questions about
efficacy, need, safety and side effects or because of poor marketing by
the licensee.
|
If any of
the foregoing risks, or other risks associated with our life sciences products
were to occur, we would not receive substantial, recurring revenue from our life
sciences division, which would adversely affect our overall business, operations
and financial condition.
As
manufacturing becomes a larger part of our operations, we will become exposed to
accompanying risks and liabilities.
We have
not produced any pigments, nanoparticles or other products using our
nanomaterials and titanium dioxide pigment technology and equipment on a
sustained commercial basis. In-house or outsourced manufacturing is
becoming an increasingly significant part of our business. If and as
manufacturing becomes a larger part of our business, we will become increasingly
subject to various risks associated with the manufacturing and supply of
products, including the following:
·
|
if
we fail to supply products in accordance with contractual terms, including
terms related to time of delivery and performance specifications, we may
become liable for replacement, direct, special, consequential and other
damages, even if manufacturing or delivery was
outsourced;
|
·
|
raw
materials used in the manufacturing process, labor and other key inputs
may become scarce and expensive, causing our costs to exceed cost
projections and associated
revenues;
|
·
|
manufacturing
processes typically involve large machinery, fuels and chemicals, any or
all of which may lead to accidents involving bodily harm, destruction of
facilities and environmental contamination and associated
liabilities;
|
·
|
as
our manufacturing operations expand, we expect that a significant portion
of our manufacturing will be done overseas, either by third-party
contractors or in a plant owned by us. Any manufacturing done
overseas presents risks associated with quality control, currency exchange
rates, foreign laws and customs, timing and loss risks associated with
overseas transportation and potential adverse changes in the political,
legal and social environment in the host county;
and
|
·
|
we
may have, and may be required to, make representations as to our right to
supply and/or license intellectual property and to our compliance with
laws. Such representations are usually supported by indemnification
provisions requiring us to defend our customers and otherwise make them
whole if we license or supply products that infringe on third-party
technologies or violate government
regulations.
|
Any
failure to adequately manage risks associated with the manufacture and supply of
materials and products could lead to losses (or small gross profits) from that
segment of our business and/or significant liabilities, which would adversely
affect our business, operations and financial condition.
We
may not be able to raise sufficient capital to meet future
obligations.
As of
September 30,
2008, we had approximately $23.7 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 in the immediate future, we will
need to raise additional capital in order to sustain our ongoing operations,
continue unfinished testing and additional development work and, if certain of
our products are commercialized, construct and
operate facilities for the production of those
products.
We may
not be able to obtain the amount of additional capital needed or may be forced
to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include the following:
·
|
market
factors affecting the availability and cost of capital
generally;
|
·
|
the
price, volatility and trading volume of our common
shares;
|
·
|
our
financial results, particularly the amount of revenue we are generating
from operations;
|
·
|
the
amount of our capital needs;
|
·
|
the
market's perception of companies in one or more of our lines of
business;
|
·
|
the
economics of projects being pursued;
and
|
·
|
the
market's perception of our ability to execute our business plan and any
specific projects identified as uses of
proceeds.
|
If we are
unable to obtain sufficient capital or are forced to pay a high price for
capital, we may be unable to meet future obligations or adequately exploit
existing or future opportunities.
Our
past and future operations may lead to substantial environmental
liability.
Virtually
any prior or future use of our nanomaterials and titanium dioxide pigment
technology is subject to federal, state and local environmental laws. In
addition, we are in the process of reclaiming mineral property that we leased in
Tennessee. Under applicable environmental laws, we may be jointly and
severally liable with prior property owners for the treatment, cleanup,
remediation and/or removal of any hazardous substances discovered at any
property we use. In addition, courts or government agencies may impose liability
for, among other things, the improper release, discharge, storage, use, disposal
or transportation of hazardous substances. If we incur any
significant environmental liabilities, our ability to execute our business plan
and our financial condition would be harmed.
Certain
of our experts and directors reside in Canada and may be able to avoid civil
liability.
We are a
Canadian corporation, and several 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 our
senior management and key scientists. We have key man insurance on
the life of Dr. Sabacky. We do not have agreements requiring any of
our key personnel to remain with our company. The loss or
unavailability of any or all of these individuals would harm our ability to
execute our business plan, maintain important business relationships and
complete certain product development initiatives, which would harm our
business.
We
may issue substantial amounts of additional shares without stockholder
approval.
Our
articles of incorporation authorize the issuance of an unlimited number of
common shares that may be issued without any action or approval by our
stockholders. In addition, we have various stock option plans that
have potential for diluting the ownership interests of our
stockholders. The issuance of any additional common shares would
further dilute the percentage ownership of our company held by existing
stockholders.
The
market price of our common shares is highly volatile and may increase or
decrease dramatically at any time.
The
market price of our common shares may be highly volatile. Our stock price may
change dramatically as the result of announcements of product developments, new
products or innovations by us or our competitors, uncertainty regarding the
viability of the nanomaterials and titanium dioxide pigment technology or any of
our product initiatives, significant customer contracts, significant litigation
or other factors or events that would be expected to affect our business,
financial condition, results of operations and future prospects. In
addition, the market price for our common shares may be affected by various
factors not directly related to our business or future prospects, including the
following:
·
|
intentional
manipulation of our stock price by existing or future shareholders or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
|
·
|
a
single acquisition or disposition, or several related acquisitions or
dispositions, of a large number of our shares, including by short sellers
covering their position;
|
·
|
the
interest of the market in our business sector, without regard to our
financial condition, results of operations or business
prospects;
|
·
|
positive
or negative statements or projections about our company or our industry,
by analysts, stock gurus and other
persons;
|
·
|
the
adoption of governmental regulations or government grant programs and
similar developments in the United States or abroad that may enhance or
detract from our ability to offer our products and services or affect our
cost structure; and
|
·
|
economic
and other external market factors, such as a general decline in market
prices due to poor economic indicators or investor
distrust.
|
We
have never declared a cash dividend and do not intend to declare a cash dividend
in the foreseeable future.
We have
never declared or paid cash dividends on our common shares. We
currently intend to retain any future earnings, if
any, for use in our business and, therefore, do not anticipate paying dividends
on our common shares in the foreseeable future.
We
are subject to various regulatory regimes, and may be adversely affected by
inquiries, investigations and allegations that we have not complied with
governing rules and laws.
In light
of our status as a public company and our lines of business, we are subject to a
variety of laws and regulatory regimes in addition to those applicable to all
businesses generally. For example, we are subject to the reporting
requirements applicable to Canadian and United States reporting issuers, such as
the Sarbanes-Oxley Act of 2002, the rules of the NASDAQ Capital Market and
certain state and provincial securities laws. We are also subject to state and
federal environmental, health and safety laws, and rules governing department of
defense contracts. Such laws and rules change frequently and are often
complex. In connection with such laws, we are subject to periodic audits,
inquiries and investigations. Any such audits, inquiries and
investigations may divert considerable financial and human resources and
adversely affect the execution of our business plan.
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. We may also be subject to lawsuits as a result of
alleged violation of the securities laws or governing corporate laws. Any
charge or allegation, and particularly any determination, that we had materially
violated a governing law would harm our ability to enter into business
relationships, recruit qualified officers and employees and raise
capital.
Item
4. Other Information
Item
5. 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.
|
|
|
Altair
Nanotechnologies Inc.
|
|
|
|
|
|
|
|
|
|
November
7, 2008
|
|
By: /s/ Terry
M. Copeland
|
|
Date
|
|
Terry
M. Copeland, President and CEO
|
|
|
|
|
|
|
|
|
|
November
7, 2008
|
|
By: /s/ John
Fallini
|
|
Date
|
|
John
Fallini, Chief Financial Officer
|
EXHIBIT
INDEX
|
|
|
|
|
|
Exhibit
No.
|
|
Exhibit
|
|
Incorporated
by Reference/ Filed Herewith
|
3.1
|
|
Articles
of Continuance
|
|
Incorporated
by reference to the Current Report on Form 8-K filed with the SEC on July
18, 2002, File No. 001-12497
|
3.2
|
|
Bylaws
|
|
Incorporated
by reference to the Annual Report on Form 10-K for the year ended December
31, 2004 filed with the SEC on March 9, 2005, File No.
001-12497
|
31.1
|
|
Section
302 Certification of Chief Executive Officer
|
|
Filed
herewith
|
31.2
|
|
Section
302 Certification of Chief Financial Officer
|
|
Filed
herewith
|
32.1
|
|
Section
906 Certification of Chief Executive Officer
|
|
Filed
herewith
|
32.2
|
|
Section
906 Certification of Chief Financial Officer
|
|
Filed
herewith
|
34