UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
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ALTAIR NANOTECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Canada 1-12497 33-1084375
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(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
204 Edison Way
Reno, Nevada 89502-2306
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (775) 856-2500
[ ] Securities registered pursuant to Section 12(b) of the Act: None
[X] Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value Nasdaq SmallCap Market
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(Title of Class) (Name of each exchange on which registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [] NO [X]
The aggregate market value of the common shares held by non-affiliates of
the Registrant on June 30, 2004, based upon the average bid and asked price of
the common shares on the NASDAQ SmallCap Stock Market of $2.30 per share on June
30, 2004, was approximately $111,914,000; however, the Registrant satisfied the
"small business issuer" requirements as of December 31, 2004, and, accordingly,
is not an accelerated filer. Common Shares held by each officer and director and
by each other person who may be deemed to be an affiliate of the Registrant have
been excluded. As of February 16, 2005, the Registrant had 57,993,975 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement on Schedule 14A for the
Registrant's 2005 Annual Meeting of Shareholders are incorporated
by reference in Part III as specified.
INDEX TO FORM 10-K
PART I.......................................................................................................3
Item 1: Business..........................................................................................3
Item 2. Properties.......................................................................................26
Item 3. Legal Proceedings................................................................................27
Item 4. Submission of Matters to a Vote of Security Holders..............................................27
PART II.....................................................................................................28
Item 5. Market for the Common Shares and Related Shareholder Matters.....................................28
Item 6. Selected Financial Data..........................................................................30
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................40
Item 8. Financial Statements and Supplementary Data......................................................40
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............41
Item 9A. Controls and Procedures..........................................................................41
Item 9B. Other Information................................................................................41
PART III....................................................................................................42
Item 10. Directors and Executive Officers of the Registrant...............................................42
Item 11. Executive Compensation...........................................................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................42
Item 13. Certain Relationships and Related Transactions...................................................42
Item 14. Principal Accountant Fees and Services...........................................................42
PART IV.....................................................................................................43
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................43
PART I
Explanatory Note:
This Amendment to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 2004, is being filed solely to include Exhibit 23.1, Consent of
Independent Registered Public Accounting Firm, which was inadvertently omitted
from the prior filing. The remainder of the document is restated exactly as
previously filed.
This Annual Report on Form 10-K for the year ended December 31, 2004
(this "Form 10-K") contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties. Purchasers of any of the
common shares, no par value (the "common shares") of Altair Nanotechnologies
Inc. ("Altair" or the "Company") are cautioned that the Company's actual results
will differ (and may differ significantly) from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those factors discussed herein under "Factors That May
Affect Future Results" and elsewhere in this Form 10-K generally. The reader is
also encouraged to review other filings made by the Company with the Securities
and Exchange Commission (the "SEC") describing other factors that may affect
future results of the Company.
Unless the context requires otherwise, all references to "Altair,"
"we," "Altair Nanotechnologies Inc.," or the "Company" in this Form 10-K 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 Altair
Nanomaterials, Inc., a Nevada corporation, Mineral Recovery Systems, Inc., a
Nevada corporation ("MRS"), Fine Gold Recovery Systems, Inc., a Nevada
corporation ("Fine Gold") and Tennessee Valley Titanium, Inc., a Nevada
corporation.
Item 1: Business
We are a Canadian company, with principal assets and operations in the
United States, whose primary business is developing and commercializing
nanomaterial and titanium dioxide pigment technologies. We also provide contract
research services on select projects where we can utilize our resources to
develop intellectual property and/or new products and technology. We have
recently organized into two divisions, a Life Sciences Division and a
Performance Materials Division, in anticipation of generating a substantial
amount of business activity and revenues from life sciences products,
specifically pharmaceuticals and drug delivery products. During 2004, revenues
from life science products were not significant. Our research, development,
production and marketing efforts are currently directed toward six market
applications that utilize our proprietary technologies:
The Performance Materials Division
o Advanced Materials for Paints, Coatings and Sensors
o The production of titanium dioxide pigments;
o The production of nano-structured powders for thermal spray
applications;
o The production of nano-structured powders for nano-sensor
applications.
o Advanced Materials for Improving Process Technologies
o The development of titanium dioxide electrode structures in
connection with a research program aimed at developing a
lower-cost process for producing titanium metals and related
alloys;
o The development and production of NanoCheck TM phosphate binding
materials for prevention of algae growth.
o Advanced Materials for Alternative Energy
o The development of materials for high performance batteries, fuel
cells and photovoltaics.
The Life Sciences Division
o Pharmaceutical Products
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o The co-development of RenaZorb(TM), a new active pharmaceutical
ingredient, which is designed to be useful in the treatment of
elevated serum phosphate levels in patients undergoing kidney
dialysis.
o Drug Delivery Products
o The development of TiNano SpheresTM are rigid, hollow, porous high
surface area ceramic micro structures that are derived from
Altair's proprietary process technology.
o Dental Materials
o The development of nanomaterials for use in various products for
dental fillings.
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 Nanomaterials and Titanium Dioxide Pigment Business
Background and Description of Process
Most of our existing products, potential products and contract
research services are built upon our proprietary nanomaterials and titanium
dioxide pigment technology. We acquired the basis for this technology from BHP
Minerals International, Inc. in 1999 and, over the past five years, have
continued to expand and refine various applications of the technology. Today, we
use the technology in order to produce various finely-sized powders that have
current or potential applications in a wide range of industries, including
pharmaceuticals, TiO2 pigment, photocatalytic oxidation products, catalyst
structures, protective thermal spray powders, algae control and high performance
rechargeable batteries. Although the existing and potential applications are
varied, each is directly or indirectly built upon the ingenuity of our
management and engineering team and our proprietary nanomaterials and titanium
dioxide pigment technology.
This nanomaterials and titanium dioxide pigment technology enables our
production of conventional titanium dioxide pigment products that are
finely-sized powders consisting of titanium dioxide crystals. These powders
approximate 170-300 nanometers in size. This technology is also capable of
producing titanium dioxide and other metal and mixed metal oxide nanomaterials.
These are specialty products with a size range of 10 to 100 nanometers
(approximately one tenth the size of conventional TiO2 pigment). The primary
products currently being produced in the processing plant are titanium dioxide,
lithium titanate spinel, lanthanum products and stabilized zirconia
nanomaterials. The technology also enables the production of customized products
for catalyst support structures and porous titanium oxide electrode structures
for titanium metal production.
Our nanomaterials and titanium dioxide pigment technology is
fundamentally different from current commercial processing techniques. Other
processes are based on either a precipitation of materials from a solution or
the formation of crystallites from molten droplets of titanium oxide generated
in high temperature flame reactors. Our process is a dense-phase crystal growth
technique which controls crystal formation using a combination of mechanical,
fluid dynamics, chemical and thermal control. Our process permits exceptional
control over particle size, shape, and crystalline form. Our titanium dioxide
processing technology produces discrete anatase crystals in nanometer sizes and
may be doped to be thermally stable up to 800 degrees centigrade. By remaining
stable in high-temperature processing, nanomaterials produced by our titanium
dioxide pigment processing technology retain the desired nanomaterials size and
crystalline phase. In addition, our technology is designed to minimize process
effluents needing environmental remediation and to accept a wide variety of
low-cost, naturally occurring titanium feed stocks.
4
Using this technology, we are in various stages of research,
development and marketing of numerous products and potential products. We also
use this technology to provide contract research services on select projects
where we can utilize our resources to develop intellectual property and/or new
products and technology. The following sections describe the research and
development services we provide and the principal projects we are using our
nanomaterials and titanium dioxide pigment technology to develop.
Contract Research Services
In addition to doing research and development work for our own benefit,
we provide these services to others, principally in commercial collaboration
arrangements and under government grants. During 2005, we will utilize our
nanomaterials and titanium dioxide pigment technology under the following:
o a contract with Western Oil Sands, Inc. for the production of
titanium dioxide pigment and pigment-related products from oil
sands. We have approximately $200,000 of work remaining to be done
on an existing contract and expect to enter into a second phase
contract to do additional work in 2005;
o a contract with Western Michigan University to develop nanosensors
for the detection of chemical, biological and radiological agents.
We have approximately $250,000 of work to be done under existing
contracts in 2005 and approximately $250,000 in 2006;
o a grant awarded by the National Science Foundation to fund joint
development work on next generation lithium ion power sources. We
will receive $33,000 under an existing agreement in 2005 and hope
to receive an additional grant for further development work;
o an agreement with the University of Nevada, Las Vegas Research
Foundation to act as a subcontractor under a $3,000,000 grant
awarded to them by the U.S. Department of Energy for joint
research activities related to solar hydrogen production. We have
approximately $400,000 of work to be done in 2005 under the
agreement; and
o a contract with Titanium Metals Corporation to provide feedstocks
used in the production of titanium metal. We will receive
approximately $60,000 under the existing contract in 2005 and hope
to enter into another contract for further development work.
At December 31, 2003, we had a backlog of work totaling $319,000 under
a contract with Western Michigan University and $141,000 under a contract with
Titanium Metals Corp.
We expect that contract research services will be a significant portion
of our revenues in the short-term but will decline in significance if we are
successful in bringing nanoparticle and other products to market and license our
technologies. During the year ended December 31, 2004, research and development
costs funded by customers were $1,144,389 while such costs funded by Altair were
$954,369. During the year ended December 31, 2003, research and development
costs funded by customers were $64,249 while such costs funded by Altair were
$1,897,495.
During the year ended December 31, 2004, we recorded revenues from
three major customers, each of which accounted for 10% or more of revenues and
all of which were in the performance materials business segment. Revenues from
Western Michigan University were $491,320, revenues from Western Oil Sands, Inc.
were $314,359 and revenues from Titanium Metals Corp. were $152,550.
Trademarks
We have registered or are in the process of registering the following
trademarks: Altair Nanotechnologies, Altair Nanomaterials, Altairnano, TiNano,
Nanocheck, RenaZorb and Altair Hydrochloride Pigment Process. The Performance
Materials Division Primary Products The Altair Hydrochloride TiO2 Pigment
Process(TM) (AHPP)
5
The Performance Materials Division
Primary Products
The Altair Hydrochloride Tio2 Pigment Process (TM) (AHPP)
We have named the portion of the nanomaterials and titanium dioxide
pigment technology that was developed to produce high quality titanium dioxide
pigment the Altair Hydrochloride Pigment Process(TM) (AHPP). This package of
technologies includes three US patents and over eight years of trade secrets and
know-how. The technology represents a comprehensive process to extract titanium
from raw materials, produce a high quality titanium dioxide pigment and minimize
environmental impact.
Key Features
------------
The AHPP is the first new, comprehensive technology to produce titanium
dioxide pigment in over fifty years and takes advantage of new technologies to
enable high quality pigment production. Titanium dioxide pigment is produced in
bulk and is used principally as a whitener and opacifier for paper, plastics and
paint. The AHPP uses a dense-phase crystal growth technique which controls
crystal formation using a combination of mechanical, fluid dynamics, chemical
and thermal control. A third party engineering study suggests that cost
associated with this process will be lower than costs associated with
alternative processes. All hydrochloric acid waste streams can be recycled to
recover acid, and the waste solids generated from the purification process are
easily manageable iron oxides.
Target Markets and Marketing Plans/Efforts
------------------------------------------
We intend to benefit from the AHPP through technology license
agreements with large materials companies under which we would receive royalties
and other payments. We do not anticipate being a manufacturer of pigments or
competing directly in the pigment market. Our market approach has been to target
chemical manufacturing and mining companies who are addressing the market for
high grade titanium dioxide pigment. In general, the Western segments of the
world have substantial investment in traditional chloride and sulphate based
methods of producing pigment so will be slow to adopt new technology like
Altair's AHPP. However, the developing world sees substantial value in being
self-sufficient in titanium dioxide production both from an economic as well as
a political viewpoint. These geographies are also swifter to adopt new
technology as they have less infrastructure and investment tied to traditional
methods of production
Over the last 2 years Altair has developed relationships with potential
and existing major producers of titanium dioxide, the majority of them in Asia.
Several of these negotiations are now at the point where the next step is
detailed analysis of the ore to be processed to ensure it can produce the
quality of titanium dioxide required. Assuming positive results, this will be
followed by a process designed to demonstrate the feasibility of the overall
manufacturing process with a small pilot plant, and then, if successful, a
larger scale plant. This is the normal course for establishing a new chemical
plant that can ultimately produce in excess of 100,000 tons of pigment per year.
During each of these phases, we expect to receive consulting and engineering
study fees. If a full plant is constructed, we would expect to begin receiving
royalty payments.
Research, Testing, Development and Licensing Status
---------------------------------------------------
The AHPP is substantially developed, and, in a test environment, we are
able to extract titanium from raw materials in order to produce a high quality
titanium dioxide pigment. The AHPP is not, however, a one-size-fits-all
6
technology and needs to be customized to the particular needs of any potential
licensee. As described below, we have entered into a license with Western Oil
Sands, Inc. ("WTO") with respect to the AHPP. In addition to our work with WTO,
we have submitted phased development proposals for the testing and economic
evaluation of our titanium pigment production technology to several companies
and have entered into a testing and development license with one of these,
called Avireco, located in Vietnam. Although we have been verbally informed that
two hundred and fifty thousand dollars have now been authorized to begin the
first phase of pilot plant testing, we have not received a formal work
authorization. As illustrated by the description of our license with WTO below,
any license of the AHPP will involved various stages of testing and development
tailored to the licensee's specific needs. Such licenses may involve incremental
payments and development services along the way but will lead to significant
revenue only if a full-scale commercial titanium pigment production facility is
constructed.
In January 2004, we entered into a license agreement with WTO with
respect to its possible use of the AHPP for the production of titanium dioxide
pigment and pigment-related products at the Athabasca Oil Sands Project in
Alberta, Canada, and elsewhere. Upon execution of the agreement, we granted WTO
an exclusive, conditional license to use the AHPP on heavy minerals derived from
oil sands in Alberta, Canada. The agreement also contemplates a three-phase,
five-year program pursuant to which the parties will work together to further
evaluate, develop and commercialize the AHPP. In the first phase of the program,
WTO is expected to spend $650,000 ($500,000 of which is scheduled to be paid to
Altair for work performed) to evaluate the AHPP and confirm that the AHPP will
produce pigment from oil sands. During 2004, we received several bulk samples of
oil sand material from WTO, processed them in various configurations to obtain
mineral concentrates, and processed the concentrates using the AHPP to recover
the titanium dioxide. We have now completed in excess of 50% of the work scope
included in phase one with satisfactory results. Assuming phase one is
successful, WTO may elect to commence phase two, the construction of a
demonstration titanium pigment production facility using the AHPP. If phase two
is successful, WTO may elect to commence phase three, the construction and
operation of a full-scale commercial titanium pigment production facility using
the AHPP.
The scope of the license granted to WTO under the agreement will vary
with WTO's commitment to the project. The initial license, related to use of the
AHPP on heavy minerals derived from oil sands in Alberta, Canada, will terminate
if WTO fails to complete phase one and will convert to a non-exclusive license
if WTO commences phase two but fails to complete, or spend at least $25 million
in an effort to complete, phase two.
If WTO completes phase one and commences phase two, WTO's license will
be expanded to include the right to use the AHPP for the production of titanium
dioxide pigment and pigment-related products from oil sands resources, primary
ore resources and titanium deposits in Canada and Minnesota and for the
production of titanium dioxide pigment and pigment-related products from oil
sands resources world wide. This expanded license will continue on an exclusive
basis if WTO completes phase two and completes, or spends at least $50 million
in an effort to complete phase three. This expanded license will continue, but
on a non-exclusive basis, if WTO completes phase two but, after spending more
than $5 million but less than $50 million on phase three, does not complete
phase three. If WTO does not commence, or spends less than $5 million with
respect to, phase three, the expanded license terminates.
If commercialization occurs, WTO is required to pay Altair royalties
based on a percentage of net sales revenue from any production facility.
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Proprietary Rights
------------------
We have been awarded three U.S. and several international patents
protecting this technology including: 1) Processing titaniferous ore to titanium
dioxide pigment, 2) Processing aqueous titanium chloride solutions to ultrafine
titanium dioxide and 3) Processing aqueous titanium solutions to titanium
dioxide pigment. The U.S. patents expire in 2020.
Competition
-----------
Existing chloride pigment technologies are guarded by the top tier
producers that developed the technologies. Licenses are not typically granted by
top tier companies to emerging nation companies because of the complexity of the
process and difficulty in extracting revenues from those countries. By contrast,
we are willing to license our AHPP. Companies assessing the viability of our
process to manufacture pigment from their resource are also evaluating
alternatives, including producing mineral concentrates for sale to pigment
producers and producing a high value synthetic rutile to be sold to pigment
producers as feed stock. They may elect to commercialize either of these
alternatives instead of producing pigment by the AHPP. We believe there are no
competing new technologies to produce titanium dioxide pigment.
Nanocheck(TM)
We have developed a compound that has an affinity for certain oxy
anions including phosphate and arsenate. We believe the best near-term potential
application for this material is the removal of phosphate from recreational
waters, industrial waters used for cooling and aquariums to arrest the growth of
algae.
Key Feature
-----------
Nanocheck(TM) is a lanthanum based compound that can be used to treat
water for the removal of phosphates as well as a wide range of deleterious
impurities. It has no reported human health hazards and works effectively in
existing filtration units without the need of purchasing additional equipment.
The management of swimming pool water is a difficult and time-consuming
task. The chemical balance of the water must be carefully monitored to ensure
that it does not become fouled with algae, or grow too much bacteria. Either of
these will make the water smell and look unpleasant, and can be a health hazard.
Nanocheck(TM) safely deprives algae of the phosphate nutrients required for them
to reproduce and therefore reduces or minimizes algae formation.
The Safe Drinking Water Act required the EPA to revise the existing 50
parts per billion (ppb) standard for arsenic in drinking water. On January 22,
2001 the EPA adopted a new standard, and public water systems must comply with
the 10 ppb standard beginning January 23, 2006. Significantly high arsenic
levels are found in some rural Western U.S. communities that rely on well water
as a drinking water source. Low-cost, point-of-entry or point-of-use treatments
are required to comply with the new standard. During the second quarter of 2004,
we performed a study using Nanocheck(TM) to remove arsenic from drinking water.
The results of the study indicate that Nanocheck's performance is not
significantly superior to other less costly products that are commercially
available. As a result, we have elected not to pursue this application of
Nanocheck(TM) at this time.
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Target Markets and Marketing Plans/Efforts
------------------------------------------
We are attempting to license and sell the technology to manufacture
Nanocheck(TM) to companies that already sell products into the recreational
water treatment market including pool and spa chemical companies. The marketing
effort so far has been focused on the major suppliers of chemicals to the
recreational water market - swimming pools and spas, both private and public.
These suppliers provide a distribution channel that enables rapid market entry
once Nanocheck(TM) has proven it meets its claims. If we are able to enter into
a long-term relationship with one or more such suppliers, we expect to generate
revenue in the form of royalties and in connection with our supply of key
ingredients. The business relations with these companies will result in revenue
to Altair that results from royalties and the supply of manufactured
Nanocheck(TM). Nanocheck(TM)'s ability to bind with the phosphate in water and
effectively "starve" the algae makes it an ideal adjunct to algaecide based
water treatment. As such it is seen as line extension for the pool chemical
suppliers.
We are in discussion with the top three recreational water chemical
suppliers. These discussions are at various stages of maturity; however two of
the suppliers are actively testing Nanocheck(TM) with promising results so far.
The next step will be to move from controlled testing, begun in the summer of
2004, to large scale field testing with recreational swimming pools in a variety
of climates.
Research, Testing and Development
---------------------------------
We have conducted in-house tests for phosphate removal in swimming pool
simulations, and a recreational water company has performed materials and pool
testing that shows effective phosphate removal, pool water turbidity reduction
and good phosphate binding kinetics. Larger scale swimming pool tests being
performed by a recreational water company began in mid-August 2004 and are
continuing. These were delayed first due to internal issues within the
recreational water company and then due to the effects of hurricanes in the
locale where tests were to be conducted. As a result, tests are now scheduled
through the summer of 2005. Negotiations with major pool chemical companies are
underway and if testing is successful and sales agreements are entered into,
significant sales of products incorporating Nanocheck(TM), if any, may begin in
2006.
Proprietary Rights
------------------
We have filed two U.S. patent applications for the application of this
product entitled "Rare Earth Compositions and Structures for Removing Phosphates
from Water" and "Ceramic structure for removing toxic elements from water."
Competition
-----------
Pool chemicals are a commodity market with price, merchandising and
small functional advances providing differentiation. There are already a few
other phosphate binding products on the market. These products are high
maintenance, usually requiring weekly service. We believe that Nanocheck(TM)
offers high phosphate binding capacity with a long service life. Although field
trials of Nanocheck(TM) are still under way, early indications are that it can
be added to a swimming pool and then left for a month or two without requiring
attention.
Lithium Titanate Spinel
We have developed technologies to manufacture nano-sized specialty
materials to make electrodes for lithium ion batteries that will allow very
9
rapid charging and discharging of these types of batteries. We believe that
advancements in materials availability will ultimately be paired with
advancements in the electrolyte's ability to carry high current density and
result in batteries that can yield very high power and recharge in only a few
minutes. Altair has demonstrated nanomaterials that can accept a full charge
within less than one minute. Altair has now prepared special nano-sized samples
of lithium titanate, lithium manganate, and lithium cobaltate. Some of these
materials, in large crystalline sizes, are currently used by the battery
industry. Nanomaterials are expected to improve the performance of these systems
and enable their use in applications where immediate high power delivery is
necessary.
Key Features
------------
The large specific surface area of Altairnano(TM) Lithium Titanate
Spinel nanoparticle material enables very rapid charge and discharge rates. The
material is durable and is projected to last for thousands of charging cycles.
The next steps in the development program call for the optimization of the
cathode materials to complement the work that has been completed on the anode.
This will result in a matched anode/cathode pair. In parallel with the next
phase of development, work is being conducted with other organizations to
provide an electrolyte that will deliver a conducting layer consistent with the
matched electrodes. This work will consist of optimizing the electrolyte for
conductivity as well as other physical properties such as heat dissipation.
Target Markets and Marketing Plans/Efforts
------------------------------------------
Batteries constitute a $42 billion market worldwide according to
information supplied by Telcordia (Subsidiary of SAI; Science Applications
International). Of that, around $6 billion is rechargeable and $3 billion
includes the market that has, and continues to be taken by, lithium ion
batteries. These lithium ion rechargeable batteries do not develop memory and
fail and are expected to gradually increase their share of the world market. New
developments indicate that high power batteries of this type will ultimately be
developed for application as replacements for lead acid batteries in
automobiles, electric vehicles, and hybrid automobiles where direct electrical
energy for starting and passing will assist the gasoline engines. Also, the
development of fuel cells and solar generation systems will require enhanced
battery capabilities.
Our technology provides a fundamental building block for a new
generation of rechargeable batteries; however we are not battery manufacturers.
Our marketing efforts are focused on developing relationships with high volume
battery manufacturers who will integrate our materials into new battery designs.
Early stage discussions have taken place with several manufacturers with a view
to developing a joint development program that will use the Altair electrode
materials as the basis for a new generation of batteries. These discussions
could lead to commercial relationships that will be characterized by a revenue
stream consisting of one of more of development funding, materials manufacturing
and royalties.
Research, Testing and Development
---------------------------------
We have completed a series of tests in collaboration with the EPFL
Switzerland, Heyrovsky Institute in Prague, Czech Republic and the Xoliox
subsidiary of Ntera, a display and battery technology development company. A
joint patent was filed with Ntera related to electrode performance of
nanoparticles made by Altair. We have extended a marketing agreement with Nissho
Iwai Americas Corporation for product marketing in Japan to leading lithium ion
battery manufacturers.
10
In August 2004, we began work under a $100,000 Small Business
Innovative Research grant awarded by the National Science Foundation to fund
joint development work on next generation lithium ion power sources with
Hosokawa Micron's Nanoparticle Technology Center and Rutgers University's Energy
Storage Research Group. The work was completed in December 2004 and a report
issued on it in January 2005. Our research indicated that our materials provide
a significant improvement over conventional materials in lithium ion batteries.
As a result, we have submitted a proposal for a second phase project totaling
$500,000 to continue and expand the work of phase 1 by making cathode materials
for use with anode materials already produced. The anode and cathode of a
battery are mutually complimentary, one supplying the charge, and the other
acting as the collector of the charge. As such, their chemistry is different but
linked, so the work that has been done so far to optimize the anode materials
now needs to be complemented with work on the cathode materials. This will
result in a matched anode/cathode pair. We have also submitted a proposal for
another project in the amount of $100,000 to improve the manufacturing method
for the materials to make it more scalable and efficient. We expect decisions on
these proposals in July 2005.
Proprietary Rights
------------------
We have filed three patent applications including 1) "Process for
making lithium titanate", 2) "High Performance Lithium Titanium Spinel for
Electrode Material", and 3) "Process for making nano-sized and sub-micron sized
lithium-transition metal oxides". We have also filed a joint patent on
nano-lithium titanate performance with Ntera. In October 2004, we were awarded a
European patent for our "Process for Making Lithium Titanate", a product used in
the development of lithium ion batteries and super capacitors.
Competition
-----------
There are presently no commercial products available with the same
characteristics as our lithium titanate spinel, but others are conducting
research on similar materials. Based solely on our review of published
information, it appears that our development work is at a more advanced stage
than others being reported.
Secondary Products and Research and Development Projects in Progress
Thermal Spray Grade Powders (TSGP)
We have developed thermal spray grade nanomaterial powders that can be
applied on the surface of metals by standard thermal "gunning" techniques. We
have sold approximately one ton of our powders to F.W. Gartner Thermal Spraying
Company for thermal application onto heavy-duty ball valves. Ball valves made of
solid titanium alloys have been introduced to control the flow and containment
of hot acidic slurry solutions in high pressure acid leach technologies applied
to metal extraction of nickel/cobalt ores. To extend the life of these critical
components, a ceramic coating is applied via a thermal spray process. These
coatings must be impervious to the acidic solution and provide protection
against wear from the abrasive solid particles. F.W. Gartner's use of our
nanomaterial powders application was delayed due to technical and political
problems associated with other aspects of the mining prospect.
Our nanomaterials coatings possess enhanced toughness and increased
hardness; these features contribute to superior abrasive wear resistance over
the conventional coating of the same material. The nanomaterial coatings also
demonstrate improved porosity over standard thermal spray powders making them
more resistant to corrosive attack. We believe that improvements will enable
longer periods between maintenance, repairs and examinations of these critical
components therefore improving the economics of the industrial application. Such
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thermal spray products could be used in a variety of harsh environment
applications such as aerospace propulsion systems, blades and vanes, medical
applications, textile and paper machinery, boilers for power plants, waste
incinerators, oil and gas industry, etc.
F.W. Gartner Thermal Spraying Company, Mogas Industries, Inc. and
Perpetual Technologies researchers have reported on the use of our nanomaterial
powders in tests to determine the bond strength, corrosion and abrasion
resistance and the porosity after applying ours and competitors' materials on
metal using Vacuum Plasma Spray and Atmosphere Plasma Spray. The results of
these researchers' tests indicate that our novel coatings possess enhanced
toughness and increased hardness; these features contribute to its superior
abrasive wear resistance over the conventional coating of the same material.
Ball valves with the new coatings have been introduced into different high
pressure acid leach autoclave installations over the past two years.
In November 2003, we contracted the National Research Council of Canada
to demonstrate, test and evaluate our powders and prepare specification sheets
of standard thermal spray gunning instructions to advise specialty thermal spray
shops how to apply our material. The goal of the project was to produce titania
coatings by thermal spraying using nano-structured titania powders developed by
Altair and compare and contrast to conventional titania powders. The coatings
were characterized and evaluated to determine various characteristics, including
porosity and abrasion resistance. The report, completed in the first quarter of
2004, concluded that our powders were more abrasion resistant than conventional
powders. Since that time, we have prepared sample packages of our thermal spray
grade powders for customer testing.
Our thermal spray grade powders are protected by U.S. Patent titled,
"Processing aqueous titanium chloride solutions to Ultrafine titanium dioxide",
which expires in 2020.
Catalyst Support and Electrode Structures for Titanium Metals
In January 2004 we entered into a contract with Titanium Metals
Corporation ("TIMET") to provide custom oxide feedstocks for a novel, four-year,
titanium metal research program funded by the Department of Defense, Defense
Advanced Research Projects Agency ("DARPA"). We became a subcontractor for the
DARPA program with responsibility to design and develop a titanium oxide
electrode structure and supply TIMET optimized titanium oxide feedstock to
produce 50 pounds of titanium metal per day in batch production demonstrations.
During 2004, we provided TIMET with over 100 pounds of titania electrodes in
accordance with the agreement, the first phase of which expired on December 31,
2004. The total value of the contract has been $215,000. TIMET is seeking an
extension of the contract from DARPA in order to continue work. Both our
technology and the FFC Cambridge Process are in a development stage and are not
expected to generate significant revenue for several years, if ever.
The DARPA program seeks to lower the cost of titanium metal and
titanium metal alloys through the use of a new process for making titanium metal
(the "FFC Cambridge Process") and thereby enable a broader market use and lower
the cost of military applications. Under the terms of the DARPA subcontract, we
will attempt to develop a low-cost manufacturing process for titanium dioxide
electrode materials, critical to the successful commercialization of the FFC
Cambridge Process for production of titanium metal. Our unique process for
making the titanium dioxide electrodes may provide a superior feedstock for the
FFC Cambridge Process by enabling the process to work more efficiently.
According to the AMPTIAC Quarterly, a Department of Defense-sponsored
publication, current global production of titanium metal is approximately 50,000
tons per year at a market value of $600 million. AMPTIAC estimates that, due to
the current state of manufacturing, titanium is produced at only about 1/20th of
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its current potential world volume. It is widely believed that a reduction of
cost in the manufacturing process will expand the use of titanium metal in a
wider range of applications that include lightweight armored military vehicles,
the manufacture of automotive components and components for utility plants, oil
and gas drilling, and lightweight and durable consumer goods. Our intent is to
develop a suitable process for making the titanium dioxide electrodes used by
the FFC Cambridge Process but not ultimately to manufacture the electrodes. We
would most likely license the technology for manufacture of the titanium dioxide
electrodes to producers of metal using the FFC Cambridge Process or their
suppliers.
We have been awarded one US patent protecting the catalyst and
electrode structure technologies entitled "Method for producing catalyst
structures", which expires in 2021.
Solid Oxide Fuel Cell ("SOFC") Materials
Our efforts in the fuel cell area have been focused on the development
of materials for the solid oxide fuel cell market. Our materials are novel
precursor ceramic materials used in the construction of a solid oxide fuel cell.
Virtually every ceramic material used as functional components of the fuel
conversion element of this type of cell can be manufactured by Altair's basic
process for making nanomaterials. Raw materials used by the Altair process are
in the category of commodity chemicals available on a worldwide basis. Altair is
engaged in a process of attempting to demonstrate that 1) using its proprietary
nanotechnology, the cost of raw materials for a solid oxide fuel cell can be
reduced to below $20 per kilowatt. 2) using the specially prepared
nanomaterials, all fuel cell elements can be made from tape cast components, and
3) several fuel cells can be stacked in a single fuel conversion unit. Stages 1
and 2 have been demonstrated in concept and are being improved, and stage 3 is
under development now. Altair has operated its fuel cell with hydrogen as a
fuel. The Massachusetts Institute of Technology ("MIT") has completed the final
stage of adding a compatible ceramic catalyst to the cell under contract with
Altair. The catalyst developed by MIT is intended to overcome the high cost of
the platinum catalyst in the solid oxide fuel cell.
We have successfully completed our single cell program, and we do not
have any ongoing research or development activities specifically for this
program. We have been awarded one U.S. patent for the application of this
product entitled "Method for producing catalyst structures." The patent expires
in 2021. The fundamental research is complete and testing confirmed the
feasibility of our concept. The project is on hold while Altair searches for
partners and/or funding to help defer further costs of development.
Nanosensors Program
In September 2003, we entered into an agreement with Western Michigan
University ("WMU") to provide research services and materials to support
research involving a technology used in the detection of chemical, biological
and radiological agents. The teaming/research agreement with WMU, funded by the
Department of Energy ("DOE"), provides for total payments to Altair of $356,500
over a two-year period. Through 2004, we received $288,000 in connection with
this research agreement. In September 2004, the DOE awarded a stage 2 contract
for the project under which we will continue joint development work for the
design, synthesis and characterization of nanosensors for chemical, biological
and radiological agents. Altair will receive an additional $672,000 over the
two-year term of the stage 2 contract. WMU and Altair have a joint partnership
for seeking Federal support for nanotechnology research and development and will
utilize the new grant funding equally.
Hydrogen Generation using Solar Energy and Water
In November 2004, we entered into an agreement with the University of
Nevada, Las Vegas Research Foundation to act as a subcontractor under a
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$3,000,000 grant awarded to them by the U.S. Department of Energy for joint
research activities related to solar hydrogen production at a refilling station
under development in Las Vegas. The agreement, which is effective through
December 31, 2005, provides for payments to Altair of $400,000 for research and
development work utilizing nanotechnology processes for the production and
commercialization of solar-based hydrogen technologies. The agreement has a work
scope totaling $500,000 and contains a cost-sharing provision that requires
Altair to share project costs in the amount of $100,000.
Hydrogen Solar LLC ("Hydrogen Solar") and Altair will act as research
and product development partners on the project utilizing nanotechnology
processes. Under Phase 1 of the project, the parties plan to develop a hydrogen
refilling station. Under Phase 2, the parties plan to expand the capabilities of
the station by developing a high pressure, more efficient electrolyser using
Hydrogen Solar's Tandem CellTM. This device converts light and water directly
into hydrogen fuel in a highly efficient, renewable and carbon-free process
using photo-catalytic nano-crystalline thin films to gather photons of incident
light and convert them into electrons to directly split water into its
constituent elements. We expect to be able to use our nanomaterials synthesis
technology to develop low cost processing for, and further improve, the
performance of the thin film electrode in the front section of the Tandem
CellTM. Our efforts will focus on iron oxide-based materials and include
development of film deposition methods and synthesis routes for the optimized
metal oxide nanomaterials.
The Life Sciences Division
Primary Product
RenaZorb(TM)
In the second quarter of 2002, we initiated research and development
efforts directed toward the utilization of nanomaterials in the pharmaceuticals
industry. In July 2002, we announced the development of a new active
pharmaceutical ingredient ("API") for the treatment of hyperphosphatemia
(elevated serum phosphate levels) in patients undergoing kidney dialysis, as
well as a new drug delivery system using inorganic ceramic nanomaterials. This
API, given the name RenaZorb(TM), showed excellent capacity for phosphate
removal in laboratory tests using standard in-vitro (laboratory) procedures.
Animal testing of this product was initiated in late 2002 and was completed
during the first quarter of 2003. Results of this pre-clinical animal testing
confirmed the efficacy for phosphate binding. In September 2004, we completed a
pre-clinical animal study of RenaZorb(TM) which was conducted to determine its
phosphate binding efficiency. The results indicated that RenaZorb(TM) bound more
phosphate per gram of drug than Renagel, a drug currently on the market, and
Fosrenol, a drug of similar compounds produced by Shire Pharmaceuticals Group
plc ("Shire"). Fosrenol was approved by the FDA on October 26, 2004.
In January 2005, we signed a licensing agreement with Spectrum
Pharmaceuticals, Inc. ("Spectrum") which grants Spectrum exclusive worldwide
rights to develop, market and sell RenaZorb(TM). Upon signing the agreement,
Spectrum issued to us 100,000 restricted shares of their common stock, purchased
38,314 restricted shares of our common stock at the then current market value of
$2.61 per share, and also paid us $100,000 in connection with the licensing
agreement. Additional payments by Spectrum are contingent upon the achievement
of various milestones in the testing, regulatory approval and sale of
RenaZorb(TM). Assuming that planned milestones are achieved, we may receive cash
and restricted shares of Spectrum common stock with a combined value of
approximately $1.3 million in 2005, between $9 million and $14 million over the
first 5-7 years and in excess of $100 million over the life of the agreement.
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Key Features
------------
RenaZorb(TM) is a highly active, lanthanum-based nanomaterial with low
intestinal solubility and excellent in vitro phosphate binding. Animal testing
of RenaZorb(TM) has been conducted in dogs and rats, but no human tests have yet
been conducted. Based upon our initial laboratory and animal testing, we believe
that RenaZorb(TM) may offer the following advantages over competing products:
o Lower dosage requirements because of better phosphate binding per
gram of drug compared with existing or currently proposed drugs;
o Fewer and less severe side effects because of less gassing and
lower dosage; and
o Better patient compliance because of fewer and smaller tablets
Target Markets
--------------
Our pharmaceutical product RenaZorb(TM) was developed to treat elevated
phosphate levels in patients with chronic kidney disease, especially in patients
with end stage renal disease. According to information published by AnorMED, the
worldwide market for phosphate binders for chronic renal failure patients is
approximately $400 million to $600 million annually.
Research, Testing and Development
---------------------------------
RenaZorb(TM) must undergo animal and human testing and receive approval
from the FDA in the U.S. and similar regulatory bodies in other parts of the
world before it can be approved for marketing. Human testing typically takes 1
to 2 years and, if merited by the results of human testing, the process of
seeking U.S. regulatory approval typically takes between 3 and 5 years. We
believe, however, that the FDA's approval of Fosrenol(TM), a chemically related
drug, by the FDA and other regulatory bodies may accelerate the approval process
for RenaZorb(TM) but note that timing for FDA and other regulatory approval of
drug candidates is unpredictable. Spectrum, with technical assistance from
Altair, is responsible for the clinical testing and other activities necessary
to obtain regulatory approval of RenaZorb(TM).
Proprietary Rights
------------------
We have applied for patent protection for the manufacture of
RenaZorb(TM) and a wide range of similar compounds for the application as an
orally administered phosphate binder for patients suffering from end stage renal
disease.
Competition
-----------
Existing phosphate binders include Tums(TM) antacid, which contains
calcium carbonate, and also aluminum hydroxide-based products such as
Gaviscon(TM) manufactured by Glaxo Smith Kline, both of which are available over
the counter, as well as Renagel(TM) manufactured by Genzyme, which is available
only by prescription. In addition, Fosrenol(TM), another lanthanum based active
pharmaceutical agent developed by Shire Pharmaceuticals ("Shire") of the UK, has
received certain foreign regulatory approvals and received approval from the
United States FDA in October 2004.
While over the counter phosphate binders are relatively inexpensive,
they have several disadvantages. Calcium carbonate-containing phosphate binders,
such as Tums(TM), in high doses, may cause increased blood pressure and
increased risk of cardiovascular disease and is generally not recommended for
long-term use by dialysis patients. With prolonged use, aluminum hydroxide-based
phosphate binders, such as Gaviscon(TM), may cause toxic neurological effects
and are generally avoided by physicians. Aluminum dementia has been widely
reported in kidney dialysis patients using these products.
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The prescription phosphate binder Renagel(TM) is relatively expensive
(approximately $2,800 per patient per year), has a high dosage requirement (2 x
800 mg or 4 x 400 mg capsules/tablets or more three times per day) and water
intake is required. The most common side effects related to the use of
Renagel(TM) include nausea (7% of patients), constipation (2% of patients),
diarrhea (4% of patients), gas or bloating (4% of patients) and heartburn or
indigestion (5% patients).
Fosrenol(TM) is marketed as large chewable tablets with a proposed
dosage of 1.5 to 3.0 grams active drug per day. As with all medicines,
Fosrenol(TM) has some side effects, primarily associated with the
gastrointestinal system including bloating, GI upset and vomiting. It has been
reported that the use of Fosrenol does increase serum lanthanum levels compared
with levels in patients taking a placebo. RenaZorb(TM), which is nanotechnology
based, is expected to be developed in a tablet dosage form with a projected
dosage of 0.6 to 3.0 grams API per day. Although we have done no human testing
on RenaZorb(TM), we believe RenaZorb(TM) has the potential for fewer side
effects, lower cost and better patient compliance. We base these possible
advantages upon in vitro testing conducted by Altair in which RenaZorb was
compared to lanthanum carbonate tetrahydrate ("LCTH"), the API in Fosrenol. Our
in vitro testing showed that RenaZorb binds 30% more phosphate per gram of drug
than LCTH, therefore requiring a lower dose. Lower dose often correlates well
with a reduction of observed side effects in chemically related compounds. In
all animal testing conducted on RenaZorb(TM), which to date included three
separate testing protocols, no adverse side effects were reported. In all
testing, RenaZorb(TM) was administered to the animals by mixing the drug with
the food they eat. In no case was there any reduction in the amount of food the
animals consumed when RenaZorb(TM) was mixed with the food. The drug appears to
be tasteless.
Both RenaZorb(TM) and Fosrenol(TM) involve the binding of phosphate by
lanthanum compounds. In fact, the end product of the binding mechanism is
identical; lanthanum phosphate is the product formed. Based on laboratory tests
conducted by Altair comparing RenaZorb(TM) with LCTH, the API in Fosrenol(TM),
RenaZorb(TM) RZB 012, one of the two drug candidates, required 30% less drug to
bind the same amount of phosphate and shows less lanthanum going into solution
in simulated stomach fluid at various pH values. In addition, in Altair's
testing, using methods published by AnorMed, RenaZorb(TM) reacts with phosphate
more rapidly. In 20 minute simulated stomach acid tests conducted by Altair,
RenaZorb(TM) absorbed approximately 140 mg of phosphate and LCTH absorbed
approximately 60 mg of phosphate.
Secondary Products and Research and Development Projects in Progress
TiNano Spheres(TM)
Our proposed drug delivery system involves depositing drugs on or
inside hollow "wiffle ball" -like spheres made of titanium dioxide and other
metal oxide materials, including nanomaterials.
Because of the early stage of development of this drug delivery system,
we are unable to state with any certainty how (or if) such drug delivery system
would be used and, if used, what the uses for such system would be and what the
comparative advantages, side effects and other aspects of such drug delivery
system would be. Nevertheless, based upon our early testing, we believe that the
following uses of a nanomaterials-based drug delivery system are feasible:
o New delivery forms for existing drugs;
o Delivery methods for new drugs;
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o Enhanced delivery of hard to dissolve drugs;
o Delivery of sustained release drugs; and
o Delivery of dual action drugs
Altair's hollow sphere "wiffle ball" like structures can deliver active
chemicals or drugs in a sustained release fashion because the active component
can be "mounted" on both the outside surface and inside the hollow ball
structure. The dissolution and availability of the surface-mounted active
component will be different than the active component inside the hollow spheres.
Material inside the hollow structure will possibly be released more slowly
compared to surface-mounted material. An additional feature of Altair's
nanomaterials based hollow "wiffle ball"-like structures is that two different
active substances could be mounted, one inside the hollow spheres and another on
the surface. This allows the possibility for dual action pharmaceuticals to be
developed using this technology.
To date, our research on drug delivery systems involving the use of
nanomaterials has been limited to coating known drugs on the surface of and
inside titanium dioxide micron-sized materials and nanomaterials. We have not
done any animal or human testing with our new drug delivery systems and do not
have the expertise, resources or capacity to complete such testing. In 2005, we
hope to undertake a joint development program with a pharmaceutical company to
conduct additional testing and development of our drug delivery system using the
pharmaceutical company's drug compounds.
During 2004, we tested the "wiffle ball"-like structure in a model drug
delivery system for narcotic and other Class 2 drugs that is potentially
non-abuseable and less prone to common "street" abuse techniques. The results of
our tests did not meet our expectations and we have deferred further testing of
the system for this application.
We have filed two patent applications regarding this field including:
1) "Pharmaceutical composition and structure containing rare earth porous
particles" and 2) "Pharmaceutical composition with controlled surface area."
Dental Materials
We are working with a research consortium sponsored by the National
Institutes of Health to strengthen polymer-based dental fillings utilizing our
nano-sized zirconia. Test results to date have been promising. We are continuing
development work and will provide a larger sample of our materials in the first
quarter of 2005 for further testing.
Tennessee Mineral Property
The Tennessee mineral property presently consists of approximately
3,950 acres of land containing fine, heavy minerals that we have leased in or
near Camden, Tennessee since 1996.
Between 1996 and 2000, we conducted various tests and pre-feasibility
studies on approximately 14,000 acres of property in Tennessee on which we held
mineral leases. In 2000, we constructed a spiral-based pilot plant for testing
at the Tennessee mineral property. Although test results were generally
consistent with expectations, during 2002 and 2003, we significantly curtailed
our testing on the Tennessee mineral property in order to conserve capital.
During that same period, we actively sought to enter into joint venture or other
relationships with larger mining operations that could provide capital and other
resources necessary to complete testing of the Tennessee mineral property and,
if merited, develop a mine on the property. Such efforts were not successful.
17
During 2004, our board of directors made the decision to terminate the
mineral leases, dispose of the related assets and remediate the subject property
to the extent required by regulatory authorities. Consequently, we have
terminated the mineral leases on approximately 4,750 acres as of December 31,
2004 and expect to terminate the leases on the remaining 3,950 acres during the
first six months of 2005. In October 2004, we filed a reclamation and closure
plan with the Tennessee Department of Environment and Conservation and are now
in discussions with them toward finalizing the plan. We are also in discussions
with potential purchasers of the pilot plant assets. We expect that costs
associated with the abandonment of the Tennessee mineral property will equal or
not significantly exceed any proceeds from the disposition of related assets.
The Altair Jig
We hold certain intellectual property rights with respect to, and have
built several demonstration models of the Altair jig. The Altair jig segregates
particles based on differences in their specific gravity. A conventional jig
separates a slurry of mineral particles as it flows across the top of a screen.
Water is periodically pulsed up through the screen to eliminate interparticle
friction and allow differential settling according to the variations in the net
specific gravities of the ore. Heavier minerals are allowed to pass downward
through the screen while lighter materials flow across the screen to a discharge
point. The Altair jig operates according to conventional jig principles except
that the screen surface is cylindrical and is rotated to subject the particles
to centrifugal forces.
In September 2003, we entered into a technology license agreement with
Bateman Luxembourg SA ("Bateman") for the manufacture, installation and
operation of the Altair jig. Bateman is expected to have exclusive use of the
Altair jig for specifically identified applications in selected territories
throughout the world. Bateman is currently testing the jig and has not used it
in commercial operations. If and when Bateman utilizes the Altair jig in
commercial applications, it is required to compensate Altair through a licensing
fee for each project managed by Bateman that utilizes the Altair jig. The
compensation, if any, is based on Bateman's profits generated through
utilization of the Altair jig and will vary based on the size and scope of the
individual projects.
During 2004, our Board of Directors determined to suspend all
expenditures on the Altair jig. We continue to hold rights under the Batemen
agreement and certain intellectual property rights with respect to the Altair
jig but are not making efforts to further develop or market the Altair jig and
do not expect to generate substantial revenue from the licensing or disposition
of the Altair jig. All jig-related assets have been written off of our balance
sheet.
Government Regulation and Environmental Concerns
Government Regulation
Most of our current and proposed activities are subject to a number of
federal, state, and local laws and regulations concerning machine and chemical
safety and environmental protection. Such laws include, without limitation, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
and the Comprehensive Environmental Response Compensation Liability Act. Such
laws require that we take steps to, among other things, maintain air and water
quality standards, protect threatened, endangered and other species of wildlife
and vegetation, preserve certain cultural resources, and reclaim exploration,
mining and processing sites.
Compliance with federal, state, or local laws or regulations represents
a small part of our present budget. If we fail to comply with any such laws or
regulations, however, a government entity may levy a fine on us or require us to
take costly measures to ensure compliance. Any such fine or expenditure may
adversely affect our development.
18
We are committed to complying with and, to our knowledge, are in
compliance with, all governmental regulations. We cannot predict the extent to
which future legislation and regulation could cause us to incur additional
operating expenses, capital expenditures, and/or restrictions and delays in the
development of our products and properties.
Environmental Regulation and Liability
Any proposed processing operation at our main operating facility in
Reno, Nevada or any other property we use will be subject to federal, state, and
local environmental laws. In addition, our cleanup efforts on the Tennessee
mineral property have been, and will continue to be, subject to such
environmental laws. Under such laws, we may be jointly and severally liable with
prior property owners for the treatment, cleanup, remediation, and/or removal of
substances discovered at any other property used by us, to the extent the
substances are deemed by the federal and/or state government to be toxic or
hazardous ("Hazardous Substances"). Courts or government agencies may impose
liability for, among other things, the improper release, discharge, storage,
use, disposal, or transportation of Hazardous Substances. We use Hazardous
Substances in our testing and operations and, although we employ all reasonably
practicable safeguards to prevent any liability under applicable laws relating
to Hazardous Substances, companies engaged in materials production are
inherently subject to substantial risk that environmental remediation will be
required.
Financial Information about Segments
Information with respect to assets, net sales, loss from operations and
depreciation and amortization for the performance materials, life sciences,
Tennessee mineral property and Altair jig segments is presented in Note 13,
Business Segment Information, of Notes to Consolidated Financial Statements in
Part IV.
Subsidiaries
Altair Nanotechnologies Inc. was incorporated under the laws of the
province of Ontario, Canada in April 1973 under the name Diversified Mines
Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in February
1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold Company
Inc. in July 1988, then to Altair International Gold Inc. in March 1994, then to
Altair International Inc. in November 1996 and then to Altair Nanotechnologies
Inc. in July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated
from the Ontario Business Corporations Act to Canada's federal corporate
statutes, the Canada Business Corporations Act.
Altair US Holdings, Inc. was incorporated by Altair in December 2003
for the purpose of facilitating a corporate restructuring and consolidation of
all U.S. subsidiaries under a U.S. holding company. At the completion of the
corporate restructuring, Fine Gold, MRS and Altair Nanomaterials, Inc. were
direct wholly-owned subsidiaries of Altair US Holdings, Inc., while Tennessee
Valley Titanium, Inc. remained a wholly-owned subsidiary of MRS.
Fine Gold was acquired by Altair in April 1994. Fine Gold has earned no
operating revenues to date. Fine Gold acquired the intellectual property
associated with the Altair jig, a fine particle separation device for use in
minerals processing, in 1996. Altair intends that Fine Gold will hold and
maintain jig technology rights, including patents.
19
MRS was incorporated by Altair in April, 1987 and was formerly known as
Carlin Gold Company. MRS previously has been involved in the exploration for
minerals on unpatented mining claims in Nevada, Oregon and California. All
mining claims have now been abandoned. MRS currently holds, directly or
indirectly, all of Altair's interest in the Tennessee mineral property. Its
wholly-owned subsidiary, Tennessee Valley Titanium, does not presently have any
assets or operations.
Altair Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned
subsidiary of MRS and holds all of the Company's interest in our nanomaterials
and titanium dioxide pigment technology and related assets.
Corporate History
Altair Nanotechnologies Inc. was incorporated under the laws of the
Province of Ontario, Canada in April 1973 for the purpose of acquiring and
exploring mineral properties. It was redomesticated in July 2002 from the
Business Corporations Act (Ontario) to the Canada Business Corporations Act, a
change which causes Altair to be governed by Canada's federal corporate statute.
The change reduced the requirement for resident Canadian directors from 50% to
25% of the board of directors, which gives us greater flexibility in selecting
qualified nominees to our board.
During the period from inception through 1994, we acquired and explored
multiple mineral properties. In each case, sub-economic mineralization was
encountered and the exploration was abandoned.
Since 1996, we have leased mineral property near Camden, Tennessee and
owned the rights to the Altair jig. However, we are disposing of the Tennessee
mineral properties and limiting our expenditures on our centrifugal jig to
patent maintenance expenses.
In November 1999, we acquired all the rights of BHP Minerals
International, Inc. ("BHP") in the nanomaterials and titanium dioxide pigment
technologies and the nanomaterials and titanium dioxide pigment assets from BHP.
We are employing the nanomaterials and titanium dioxide pigment technology as a
platform for the sale of contract services, intellectual property licenses and
for the production and sale of metal oxide nanoparticles in various
applications.
We have experienced an operating loss in every year of operation. In
the fiscal year ended December 31, 2004, we experienced a net loss of
$7,002,280.
Employees
The business of Altair is currently managed by Dr. Alan J. Gotcher,
Chief Executive Officer of the Company, Dr. Rudi E. Moerck, President of the
Company, Mr. Douglas Ellsworth, Senior Vice President of the Company and
President of Altair Nanomaterials, Inc., Mr. Roy Graham, Senior Vice President,
and Mr. Edward Dickinson, Chief Financial Officer. We have 23 additional regular
employees and five full-time temporary employees in research and development,
operations and administration. We have employment agreements with Messrs.
Gotcher, Ellsworth, Graham and Dickinson.
During 2005, we expect to hire the five temporary employees, who are
primarily working in research and development, as regular employees, and we may
hire as many as five additional employees, primarily in operations and sales.
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Forward-looking Statements
This Form 10-K 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 the following
section and other cautionary statements throughout this Form 10-K and our other
filings with the 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 Form
10-K 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.
Among the key factors that may have a direct bearing on our operating
results are risks and uncertainties described under "Factors That May Affect
Future Results," including those attributable to the absence of profits, risks
related to our proposed development and exploitation of our nanomaterials and
titanium dioxide pigment technology and nanomaterials and titanium dioxide
pigment assets and uncertainties regarding our ability to obtain capital
sufficient to continue our operations and pursue our proposed business strategy.
Factors that May Affect Future Results
We may continue to experience significant losses from operations.
We have experienced a loss from operations in every fiscal year since
our inception. Our losses from operations were $6,904,955 in 2004 and $5,785,210
in 2003. We will continue to experience a net operating loss until, and if, the
applications of our nanomaterials and titanium dioxide pigment technology begin
generating revenues in excess of our operating expenses. Even if any or all
applications of the nanomaterials and titanium dioxide pigment technology begin
generating significant revenues, the revenues may not exceed our costs of
production and operating expenses. We may not ever realize a profit from
operations.
Our patents and other protective measures may not adequately protect our
proprietary intellectual property, and we may be infringing on the rights of
others.
--------------------------------------------------------------------------------
We regard our intellectual property, particularly our proprietary
rights in our nanomaterials and titanium dioxide pigment technology, as critical
to our success. We have received various patents, and filed other patent
applications, for various applications and aspects of our nanomaterials and
titanium dioxide pigment technology and other intellectual property. In
addition, we generally enter into confidentiality and invention agreements with
our employees and consultants. Such patents and agreements and various other
measures we take to protect our intellectual property from use by others may not
be effective for various reasons, including the following:
o Our pending patent applications may not be granted for various
reasons, including the existence of similar patents or defects in
the applications;
o 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;
o Parties to the confidentiality and invention agreements may have
such agreements declared unenforceable or, even if the agreements
21
are enforceable, may breach such agreements;
o The costs associated with enforcing patents, confidentiality and
invention agreements or other intellectual property rights may
make aggressive enforcement cost prohibitive;
o Even if we enforce our rights aggressively, injunctions, fines and
other penalties may be insufficient to deter violations of our
intellectual property rights; and
o Other persons may independently develop proprietary information
and techniques that, although functionally equivalent or superior
to our intellectual proprietary information and techniques, do not
breach our patented or unpatented proprietary rights.
Because the value of our company and common stock is rooted primarily in our
proprietary intellectual property rights, our inability to protect our
proprietary intellectual property rights or gain a competitive advantage from
such rights could have a material adverse effect on our business.
In addition, we may inadvertently be infringing on the proprietary
rights of other persons and may be required to obtain licenses to certain
intellectual property or other proprietary rights from third parties. Such
licenses or proprietary rights may not be made available under acceptable terms,
if at all. If we do not obtain required licenses or proprietary rights, we could
encounter delays in product development or find that the development or sale of
products requiring such licenses is foreclosed.
We have a substantial number of warrants and options outstanding and may issue a
significant number of additional shares upon exercise thereof.
--------------------------------------------------------------------------------
As of February 16, 2005, there were outstanding warrants to purchase up
to 1,657,452 shares of common stock and options to purchase up to 3,014,700
shares of common stock. The existence of such warrants and options, and any
additional warrants and options we issue in the future, may hinder future equity
offerings, and the exercise of such warrants and options may further dilute the
interests of all shareholders. The shares of common stock issuable upon the
exercise of many of our outstanding warrants are subject to resale registration
statements, and all of our options are subject to a registration statement on
Form S-8. Accordingly, future resale of the shares of common stock issuable on
the exercise of such warrants and options in most cases occurs immediately after
exercise and may have an adverse effect on the prevailing market price of the
shares of common stock.
Our competitors have more resources than we do, which may give them a
competitive advantage.
--------------------------------------------------------------------------------
We have limited financial and other resources and, because of our early
stage of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. Because of
their size, resources, reputation, history and other factors, certain of our
competitors may be able to exploit acquisition, development and joint venture
opportunities more rapidly, easily or thoroughly than we can. In addition,
potential customers may choose to do business with our more established
competitors, without regard to the comparative quality of our products, because
of their perception that our competitors are more stable, are more likely to
complete various projects, are more likely to continue as a going concern and
lend greater credibility to any joint venture.
We may not be able to generate substantial revenues from the licensing of
RenazorbTM.
--------------------------------------------------------------------------------
On January 28, 2005, we entered into a license agreement with Spectrum
Pharmaceuticals, Inc. under which we granted Spectrum the exclusive worldwide
22
rights to develop, market and sell RenazorbTM, a potential drug candidate for
patients with kidney disease, for human therapeutic and diagnostic applications.
Under the terms of the license, we will not generate substantial recurring
revenues unless and until Spectrum completes clinical testing of RenazorbTM and
applies for and receives marketing approval from the FDA and similar regulatory
agencies worldwide, begins marketing products containing RenazorbTM and
experiences substantial, sustained market penetration with such products. There
are substantial risks associated with that process, including the following:
o further testing conducted by Spectrum may indicate that RenazorbTM
is less effective than existing products, is unsafe, has
significant side effects or is otherwise not viable;
o Spectrum may be unable to obtain FDA or other regulatory approval
of RenazorbTM for technical, political or other reasons or, even
if it obtains such approval, may not obtain such approval on a
timely basis;
o products containing RenazorbTM may not be accepted in the market
for various reasons, including questions about its efficacy,
safety and side effects or because of poor marketing by Spectrum;
o Spectrum may terminate the license agreement, experience financial
or other problems or otherwise fail to effectively test, seek
approval for and market RenazorbTM; and
o prior to or following regulatory approval, superior products may
be developed and introduced into the market.
If any or the foregoing risks, or other risks associated with
developing pharmaceutical products were to occur, we would not receive
substantial, recurring revenue from our license with Spectrum.
Our nanomaterial technology with potential applications in rechargeable
batteries is still in a developmental stage.
--------------------------------------------------------------------------------
We are still testing and developing our AltairnanoTM Lithium Titanate
Spinel nanomaterial technology, which has potential applications in rechargeable
batteries. Even if we complete the testing and development of our technology, we
lack the ability to integrate the technology into a commercial battery product
without the assistance of a strategic partner. In addition, even if we are able
to enter into an agreement with a strategic partner to commercialize the
technology:
o products utilizing the technology, all of which would still need
to be developed, may never be completed;
o products utilizing the technology may not exhibit expected charge
or discharge rates or durability or may otherwise not prove
competitive with existing technologies or those being created by
other persons;
o products incorporating the technology may not meet the distinct
needs of potential customers, applications or industries; and
o marketing and branding efforts by us, a potential strategic
partner or others may be insufficient to attract a sufficient
number of customers.
We may not benefit from licenses to use our technology for titanium dioxide
pigment production.
--------------------------------------------------------------------------------
Because of our relatively small size and limited resources, we do not
plan to use our titanium processing technology for large-scale production of
titanium dioxide pigments. We have entered into discussions with various
minerals and materials companies about licensing our technology to such entities
for large-scale production of titanium dioxide pigments. To date, we have
entered into a license agreement with only one such entity, Western Oil Sands,
Inc. Under our license agreement with Western Oil Sands, we expect to receive a
limited amount of revenue during the early testing and development phase of the
23
agreement but will receive significant royalties only if Western Oil Sands and
licensees of Western Oil Sands determine in their discretion, after testing at a
demonstration plant, to construct or license the construction of a full-scale
titanium pigment production facility. If we enter into other license agreements,
we expect that, as with the Western Oil Sands agreement, we would not receive
significant revenues from such licenses unless and until feasibility testing
yielded positive results and the licensee determined, in its discretion, to
construct and operate a titanium pigment production facility.
We may not be able to sell nanoparticles produced using the nanomaterials and
titanium dioxide pigment technology.
--------------------------------------------------------------------------------
We plan to use the nanomaterials and titanium dioxide pigment
technology to produce titanium dioxide nanoparticles. Titanium dioxide
nanoparticles and other products we intend to initially produce with the
nanomaterials and titanium dioxide pigment technology generally must be
customized for a specific application working in cooperation with the end user.
We are still testing and customizing our titanium dioxide nanoparticle products
for various applications and have no long-term agreements with end users to
purchase any of our titanium dioxide nanoparticle products. We may be unable to
recoup our investment in the nanomaterials and titanium dioxide pigment
technology and nanomaterials and titanium dioxide pigment equipment for various
reasons, including the following:
o products utilizing our titanium dioxide nanoparticle products,
most of which are in the research or development stage, may not be
completed or, if completed, may not be readily accepted by
expected end users;
o we may be unable to customize our titanium dioxide nanoparticle
products to meet the distinct needs of potential customers;
o potential customers may purchase from competitors because of
perceived or actual quality or compatibility differences;
o our marketing and branding efforts may be insufficient to attract
a sufficient number of customers; and
o because of our limited funding, we may be unable to continue our
development efforts until a strong market for nanoparticles
develops.
Our costs of production may be too high to permit profitability.
--------------------------------------------------------------------------------
We have not produced any pigments, nanoparticles or other products
using our nanomaterials and titanium dioxide pigment technology and equipment on
a commercial basis. Our actual costs of production, or those of our licensees,
may exceed those of competitors and, even if our costs of production are lower,
competitors may be able to sell titanium dioxide and other products at a lower
price than is economical for us or our licensees.
We have issued a $3,000,000 note to secure the purchase of the land and the
building where our nanomaterials and titanium dioxide pigment assets are
located.
--------------------------------------------------------------------------------
In August 2002, we entered into a purchase and sale agreement with BHP
Minerals International Inc. to purchase the land, building and fixtures in Reno,
Nevada where our nanomaterials and titanium dioxide pigment assets are located.
In connection with this transaction, we issued to BHP a note in the amount of
$3,000,000, at an interest rate of 7%, secured by the property we acquired. The
first payment of $600,000 of principal plus accrued interest is due February 8,
2006. Additional payments of $600,000 plus accrued interest are due annually on
February 8, 2007 through 2010. If we fail to make the required payments on the
note, BHP has the right to foreclose and take the property. If this should
occur, we would be required to relocate our primary operating assets and
offices, causing a significant disruption in our business.
24
We may not be able to raise sufficient capital to meet future obligations.
--------------------------------------------------------------------------------
As of February 16, 2005, we had $31 million in cash, an amount
sufficient to fund our ongoing operations for approximately 4-5 years at current
working capital expenditure levels. However, we may use our existing capital
sooner than projected in connection with an unanticipated transaction,
litigation or another unplanned event. We may also use more capital than
projected as we expand our research, development and marketing efforts. Unless
we experience a significant increase in revenue, we will need to raise
additional capital in the future in order to sustain our ongoing operations,
continue unfinished testing and additional development work and, if certain of
our products have been commercialized, produce and market such products.
We may not be able to obtain the amount of additional capital needed or
may be forced to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include the following:
o market factors affecting the availability and cost of capital
generally;
o the price, volatility and trading volume of our shares of common
stock;
o our financial results, particularly the amount of revenue we are
generating from operations;
o the amount of our capital needs;
o the market's perception of nanotechnology and/or chemical stocks;
o the economics of projects being pursued; and
o the market's perception of our ability to generate revenue through
the licensing or use of our nanoparticle technology for
pharmaceutical, pigment production, nanoparticle production and
other uses.
If we are unable to obtain sufficient capital or are forced to pay a
high price for capital, we may be unable to meet future obligations or
adequately exploit existing or future opportunities, and may be forced to
discontinue operations.
Operations using the nanomaterials and titanium dioxide pigment technology or
our Tennessee mineral property may lead to substantial environmental liability.
--------------------------------------------------------------------------------
Virtually any prior or future use of the nanomaterials and titanium
dioxide pigment technology is subject to federal, state and local environmental
laws. In addition, we have constructed a pilot plant on, and are in the process
of reclaiming, our Tennessee mineral property. Under such laws, we may be
jointly and severally liable with prior property owners for the treatment,
cleanup, remediation and/or removal of any hazardous substances discovered at
any property we use. In addition, courts or government agencies may impose
liability for, among other things, the improper release, discharge, storage,
use, disposal or transportation of hazardous substances.
Certain of our experts and directors reside in Canada and may be able to avoid
civil liability.
--------------------------------------------------------------------------------
We are a Canadian corporation, and three of our directors and our
Canadian legal counsel are residents of Canada. As a result, investors may be
unable to effect service of process upon such persons within the United States
and may be unable to enforce court judgments against such persons predicated
upon civil liability provisions of the U.S. securities laws. It is uncertain
whether Canadian courts would (i) enforce judgments of U.S. courts obtained
against us or such directors, officers or experts predicated upon the civil
liability provisions of U.S. securities laws or (ii) impose liability in
original actions against us or our directors, officers or experts predicated
upon U.S. securities laws.
25
We are dependent on key personnel.
--------------------------------------------------------------------------------
Our continued success will depend to a significant extent on the
services of Dr. Alan J. Gotcher, our Chief Executive Officer, Dr. Rudi Moerck,
our President, Douglas Ellsworth and Roy Graham, our Senior Vice Presidents and
Edward Dickinson, our Chief Financial Officer. The loss or unavailability of any
or all of these individuals could have a material adverse effect on our business
and the market price of our shares of common stock. We do not carry key man
insurance on the lives of any of our personnel and do not have agreements
requiring any of them to remain with our company.
We may issue substantial amounts of additional shares without stockholder
approval.
--------------------------------------------------------------------------------
Our articles of incorporation authorize the issuance of an unlimited
number of shares of common stock that may be issued without any action or
approval by our stockholders. In addition, we have two stock option plans and a
stock purchase plan that have potential for diluting the ownership interests of
our stockholders. The issuance of any additional shares of common stock would
further dilute the percentage ownership of Altair held by existing stockholders.
The market price of our common stock may increase or decrease dramatically at
any time for any or no apparent reason.
--------------------------------------------------------------------------------
The market price of our common stock, like that of the securities of
other early stage companies, may be highly volatile. Our stock price may change
dramatically as the result of announcements of our quarterly results, new
products or innovations by us or our competitors, uncertainty regarding the
viability of the nanomaterials and titanium dioxide pigment technology,
significant customer contracts, significant litigation or other factors or
events that would be expected to affect our business, financial condition,
results of operations and future prospects. In addition, the market price for
our common stock may be affected by various factors not directly related to our
business or future prospects, including the following:
o 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;
o A single acquisition or disposition, or several related
acquisitions or dispositions, of a large number of our shares;
o The interest of the market in our business sector, without regard
to our financial condition, results of operations or business
prospects;
o Positive or negative statements or projections about our company,
or our industry, by analysts, stock gurus and other persons;
o 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;
o Economic and other external market factors, such as a general
decline in market prices due to poor economic indicators or
investor distrust; and
o Speculation by short sellers of our common stock or other persons
who stand to profit from a rapid increase or decrease in the price
of our common stock.
We have never declared a cash dividend and do not intend to declare a cash
dividend in the foreseeable future.
--------------------------------------------------------------------------------
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings, if any, for use in our business
and, therefore, do not anticipate paying dividends on our common stock in the
foreseeable future.
26
Item 2. Properties
Our corporate headquarters is located at 204 Edison Way, Reno, Nevada
89502 in a building we purchased in August 2002. Our nanomaterials and titanium
dioxide pigment assets are located in this building which contains approximately
80,000 square feet of production, laboratory, testing and office space. We have
pledged our corporate headquarters and associated land to secure a promissory
note we issued to BHP Minerals International, Inc. in the amount of $3,000,000,
at an interest rate of 7%. The first payment of $600,000 of principal plus
accrued interest on such promissory note is due February 8, 2006.
We also maintain a registered office at 56 Temperance Street, Toronto,
Ontario M5H 3V5. We do not lease any space for, or conduct any operations out
of, the Toronto, Ontario registered office.
We believe that the existing offices and test facilities of Altair and
its subsidiaries are adequate for our current needs. In the event that
alternative or additional office space is required, we believe we could obtain
additional space on commercially acceptable terms.
As mentioned above in Tennessee Mineral Property, we have terminated
the mineral leases on approximately 4,750 acres of our Tennessee mineral
property and intend to terminate the leases on the remaining 3,950 acres during
the first quarter of 2005. We are also working with the Tennessee Department of
Environment and Conservation to finalize a plan for remediation of the property
and are in discussions with potential purchasers of the pilot plant assets. When
we have terminated all of the mineral leases, performed the required remediation
and disposed of the plant assets, we will no longer have any properties in
Tennessee. We expect to accomplish this during the first half of 2005.
Item 3. Legal Proceedings
We are from time to time involved in routine litigation incidental to
the conduct of our business. We are currently not involved in any suit, action
or other legal proceedings which management believes will materially and
adversely affect the business or operations of Altair or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of security holders during the
fourth quarter of the 2004 fiscal year.
27
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters
Market Price
Our common shares are traded on the Nasdaq SmallCap Market under the
symbol "ALTI." The following table sets forth, for the periods indicated, the
high and low sales prices for our common shares, as reported on our principal
trading market at the time.
Fiscal Year Ended December 31, 2003 Low High
--------- ----------
1st Quarter $0.31 $0.56
2nd Quarter $0.30 $1.48
3rd Quarter $0.73 $1.65
4th Quarter $1.12 $2.90
Fiscal Year Ended December 31, 2004 Low High
--------- ----------
1st Quarter $2.20 $4.40
2nd Quarter $2.05 $3.58
3rd Quarter $0.95 $2.37
4th Quarter $1.50 $3.17
The last sale price of our common shares, as reported on the Nasdaq
SmallCap Market, on February 16, 2005 was $4.28 per share.
Outstanding Shares and Number of Shareholders
As of February 16, 2005, the number of common shares outstanding was
57,993,975 held by approximately 500 holders of record. In addition, as of the
same date, we have reserved 3,962,700 common shares for issuance upon exercise
of options that have been, or may be, granted under our employee stock option
plans and 1,657,452 common shares for issuance upon exercise of outstanding
warrants.
Dividends
We have never declared or paid cash dividends on our common shares.
Moreover, we currently intend to retain any future earnings for use in our
business and, therefore, do not anticipate paying any dividends on our common
shares in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
We have stock option plans administered by the Board of Directors that
provide for the granting of options to employees, officers, directors and other
service providers of the Company. All option plans have been approved by
security holders. We also have an Employee Stock Purchase Plan ("ESPP") which
allows employees to purchase common shares through payroll deductions when, as
and if determined by our board of directors. The ESPP, which is a broadly-based
plan open to all employees, other than executive officers, has not been approved
by shareholders. The following table sets forth certain information with respect
to compensation plans under which equity securities are authorized for issuance
at December 31, 2004:
28
---------------------------------- -------------------- -------------------- -----------------------
Number of securities
Number of remaining available
securities to be for future issuance
issued upon Weighted-average under equity
exercise of exercise price of compensation plans
outstanding outstanding (excluding securities
options, warrants options, warrants reflected in column
and rights and rights (a))
Plan Category (a) (b) (c)
---------------------------------- -------------------- -------------------- -----------------------
Equity compensation plans 3,293,700 $2.28 1,048,000
approved by security holders
---------------------------------- -------------------- -------------------- -----------------------
Equity compensation plans not
approved by security holders None N/A 348,552
---------------------------------- -------------------- -------------------- -----------------------
Total 3,293,700 $2.28 1,396,552
---------------------------------- -------------------- -------------------- -----------------------
Recent Sales of Unregistered Securities
Except as previously reported, we did not sell any securities in
transactions that were not registered under the Securities Act in the quarter
ended December 31, 2004.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common shares is Equity
Transfer Services, Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario,
M5H 4C3.
Canadian Taxation Considerations
Dividends paid on common shares owned by non-residents of Canada are
subject to Canadian withholding tax. The rate of withholding tax on dividends
under the Income Tax Act (Canada) (the "Act") is 25%. However, Article X of the
reciprocal tax treaty between Canada and the United States of America (the
"Treaty") generally limits the rate of withholding tax on dividends paid to
United States residents to 15%. The Treaty further generally limits the rate of
withholding tax to 5% if the beneficial owner of the dividends is a U.S.
corporation which owns at least 10% of the voting shares of the Company.
If the beneficial owner of the dividend carries on business in Canada
through a permanent establishment in Canada, or performs in Canada independent
personal services from a fixed base in Canada, and the shares of stock with
respect to which the dividends are paid is effectively connected with such
permanent establishment or fixed base, the dividends are taxable in Canada as
business profits at rates which may exceed the 5% or 15% rates applicable to
dividends that are not so connected with a Canadian permanent establishment or
fixed base. Under the provisions of the Treaty, Canada is permitted to apply its
domestic law rules for differentiating dividends from interest and other
disbursements.
29
A capital gain realized on the disposition of common shares by a person
resident in the United States ("a non-resident") will be subject to tax under
the Act if the shares held by the non-resident are "taxable Canadian property."
In general, common shares will be taxable Canadian property if the particular
non-resident used (or in the case of a non-resident insurer, used or held) the
Common Stock in carrying on business in Canada or where at any time during the
five-year period immediately preceding the realization of the gain, not less
than 25% of the issued and outstanding shares of any class or series of shares
of the Company, which were listed on a prescribed stock exchange, were owned by
the particular non-resident, by persons with whom the particular non-resident
did not deal at arms' length, or by any combination thereof. If common shares
constitute taxable Canadian property, relief nevertheless may be available under
the Treaty. Under the Treaty, gains from the alienation of common shares owned
by a non-resident who has never been resident in Canada generally will be exempt
from Canadian capital gains tax if the shares do not relate to a permanent
establishment or fixed base which the non-resident has or had in Canada, and if
not more than 50% of the value of the shares was derived from real property
(which includes rights to explore for or to exploit mineral deposits) situated
in Canada.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial
information with respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP"). The selected financial data should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
accompanying notes included herein. All amounts are stated in U.S. dollars.
For the Year Ended December 31, 2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
STATEMENTS OF OPERATIONS
------------------------
Revenues $ 1,151,892 $ 72,851 $ 253,495 $ 42,816 $ --
Operating Expenses $ 8,056,847 $ 5,858,061 $ 8,110,206 $ 6,064,348 $ 6,647,367
Interest expense $ 194,180 $ 454,415 $ 1,151,388 $ 1,881,077 $ 215,216
Interest Income $ (96,229) $ (1,879) $ (2,105) $ (148,980) $ (83,440)
Loss (Gain) on foreign exchange $ (626) $ 193 $ 835 $ 402 $ (864,669)
Loss on extinguishment of debt $ -- $ -- $ 914,667 $ -- $ --
Net Loss $ 7,002,280 $ 6,237,939 $ 9,921,496 $ 7,754,031 $ 5,914,474
Basic and diluted net loss per
common share $ 0.14 $ 0.19 $ 0.40 $ 0.39 $ 0.34
Cash dividends declared per
common share $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA
------------------
Working capital $ 7,663,264 $ 3,565,039 $ (204,365) $ (81,154) $ 234,714
Total assets $ 15,547,021 $ 11,659,754 $ 8,914,405 $ 10,853,243 $ 16,651,770
Long-term obligations $ 2,880,311 $ 2,686,130 $ 3,905,040 $ 1,462,060 $ 2,689,493
Current liabilities $ 376,773 $ 397,141 $ 604,503 $ 714,689 $ 3,741,366
Net shareholders' equity $ 12,289,937 $ 8,576,483 $ 4,404,862 $ 8,676,494 $ 10,220,911
30
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Overview
We are a Canadian company, with principal assets and operations in the
United States, whose primary business is developing and commercializing
nanomaterial and titanium dioxide pigment technologies. We have recently
organized into two divisions, a Life Sciences Division and a Performance
Materials Division, in anticipation of generating a substantial amount of
business activity and revenues from life sciences products, specifically
pharmaceuticals and drug delivery products. During 2004, revenues from life
science products were not significant. Our research, development, production and
marketing efforts are currently directed toward six market applications that
utilize our proprietary technologies:
The Performance Materials Division.
-----------------------------------
o Advanced Materials for Paints, Coatings and Sensors
o The production of titanium dioxide pigments;
o The production of nano-structured powders for thermal spray
applications;
o The production of nano-structured powders for nano-sensor
applications.
o Advanced Materials for Improving Process Technologies
o The development of titanium dioxide electrode structures in
connection with a research program aimed at developing a
lower-cost process for producing titanium metals and related
alloys;
o The development and production of NanoCheck TM phosphate binding
materials for prevention of algae growth.
o Advanced Materials for Alternative Energy
o The development of materials for high performance batteries, fuel
cells and photovoltaics.
The Life Sciences Division.
---------------------------
o Pharmaceutical Products
o The co-development of RenaZorb(TM), a test-stage active
pharmaceutical ingredient, which is designed to be useful in the
treatment of elevated serum phosphate levels in patients
undergoing kidney dialysis.
o Drug Delivery Products
o The development of TiNano SpheresTM, which are rigid, hollow,
porous, high surface area ceramic micro structures that are
derived from Altair's proprietary process technology.
o Dental Materials
o The development of nanomaterials for use in various products for
dental fillings.
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.
We currently have agreements in place to (1) provide research involving
a technology used in the detection of chemical, biological and radiological
agents, (2) provide custom oxide feedstocks for a titanium metal research
program funded by the Department of Defense, (3) license and evaluate our
pigment production process for the production of TiO2 pigment and
pigment-related products from titanium-bearing oil sands, (4) supply nano-sized
anode and cathode materials for design and development of high capacity lithium
31
ion battery and super capacitor applications, and (5) provide research utilizing
nanotechnology processes for the production and commercialization of solar-based
hydrogen technologies. In addition, we have entered into a licensing agreement
for RenaZorbTM, our potential pharmaceutical product. Future revenues will
depend on the success of these projects, the results of our other research and
development work, the success of the RenaZorbTM licensee in obtaining FDA
approval for the drug, and the success of our marketing efforts.
General Outlook
We have generated net losses in each fiscal year since incorporation.
Our revenues in fiscal 2004 were $1,152,000, representing a significant increase
over our revenues of $73,000 in fiscal 2003. Total operating expenses for fiscal
2004 were $8,056,847. Substantially all of our revenues in 2004 came from
commercial collaborations, grants and other research or development work which
we have undertaken primarily in order to benefit from resulting technology. Our
gross profit margins on such research and development work is 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.
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:
o We must complete animal testing of our RenaZorb(TM) product
demonstrating specified result levels of our RenaZorb(TM) product,
which we expect to be performed during the first half of 2005.
Successful completion of this milestone under our license
agreement with Spectrum will result in Spectrum's release of the
associated milestone payment to Altair, 100,000 shares of Spectrum
common stock, and enable Spectrum to begin the testing and
application processes necessary to receive FDA approval.
o Licensing and product purchase commitments for our Nanocheck(TM)
swimming pool product are currently under discussion. Successful
completion of potential license agreement(s) and product purchase
commitments are essential for the commercialization of the
Nanocheck(TM) product, which could bring manufacturing and
licensing revenue in late 2005 or 2006.
o The initial phase of work for the Western Oil Sands License
agreement is approximately 50% complete. We must successfully
complete the initial phase, and Western Oil Sands must decide to
proceed with phase 2 work for this project to continue to move
toward commercialization.
o We have completed phase one work under a National Science
Foundation grant to produce materials enabling a next generation
of rechargeable batteries and have applied for a phase two grant
of $500,000. Phase two grants are scheduled to be announced during
July 2005. The ultimate commercialization of our battery materials
will be dependant upon our ability to secure a technology license
or similar agreement with one or more battery manufacturers. We
are currently in discussions with several such manufacturers and
cannot project when, or if, we will enter into a partnering
agreement with respect to our batter materials technology and what
the terms of such agreement may be.
o Although its 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
32
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 other we are pursuing, but recognize that,
with respect to each, there are development, marketing, partnering
and other risks to be overcome.
Restructuring Progress
In June 2004, we reorganized the Company in order to concentrate
resources on the nanomaterials and titanium dioxide pigment business. The
reorganization involved the creation of the Performance Materials Division and
the Life Sciences Division and the commencement of a process of narrowing down
the number of projects within those divisions and selecting certain projects for
increased near-term focus and effort. The reorganization also involved the
decision to discontinue our mineral processing business, particularly that
aspect related to our Tennessee mineral properties. During 2004, we terminated
the mineral leases on approximately 4,750 acres and expect to terminate the
leases on the remaining 3,950 acres during the first six months of 2005. In
October 2004, we filed a reclamation and closure plan with the Tennessee
Department of Environment and Conservation and are now in discussions with them
toward finalizing the plan. We are also in discussions with potential purchasers
of the pilot plant assets. We expect that costs associated with the abandonment
of the Tennessee mineral property will equal or exceed any proceeds from the
disposition of related assets.
Liquidity and Capital Resources
Current and Expected Liquidity
Our cash position was significantly enhanced during 2004 and through
February 2005. During 2004, we received $8,955,000 from the exercise of warrants
and $902,000 from the exercise of options. In early February 2005, the market
price of our common shares increased significantly. As a result, 2,839,281
warrants and 379,000 options were exercised, resulting in cash proceeds to us of
$4,903,487. Additionally, on February 14, 2005, we sold 5,000,000 of our common
shares which had been previously registered in a shelf registration for net
proceeds to us of $19.2 million. As of February 16, 2005, we had cash and cash
equivalents on hand of approximately $31 million, an amount sufficient to fund
our operations for approximately 4-5 years at projected operating levels.
We intend to use these funds for working capital, capital expenditures,
research and development activities and the acquisition of other technologies.
Net cash used in operations was $5,620,000 in 2004 and we expect this amount to
remain approximately the same in 2005. Although we expect cash outflows to
increase in 2005 due primarily to staff additions and increased capital
expenditures, as outlined in the following paragraphs, we expect a similar
increase in revenues as a result of increased contract R&D work, product sales
and licensing revenues.
In 2005, we expect to generate revenues from commercial collaborations,
contracts and grants by utilizing our nanomaterials and titanium dioxide pigment
technology. We currently have six contracts in place that will generate revenues
in 2005. These are:
o a licensing agreement with Spectrum Pharmaceuticals for
RenaZorb(TM) under which we expect to receive approximately $1.3
million during 2005;
o a contract with Western Oil Sands, Inc. for the production of
titanium dioxide pigment and pigment-related products from oil
sands. We have approximately $200,000 of work remaining to be done
on an existing contract and expect to enter into a second phase
contract to do additional work in 2005.
33
o a contract with Western Michigan University to develop nanosensors
for the detection of chemical, biological and radiological agents.
We have approximately $250,000 of work to be done under existing
contracts in 2005.
o a grant awarded by the National Science Foundation to fund joint
development work on next generation lithium ion power sources. We
will receive $33,000 under an existing agreement in 2005 and hope
to receive an additional grant for further development work.
o an agreement with the University of Nevada, Las Vegas Research
Foundation to act as a subcontractor under a $3,000,000 grant
awarded to them by the U.S. Department of Energy for joint
research activities related to solar hydrogen production. We have
approximately $400,000 of work to be done in 2005 under the
agreement.
o a contract with Titanium Metals Corporation to provide feedstocks
used in the production of titanium metal. We will receive
approximately $60,000 under the existing contract in 2005 and hope
to enter into another contract for further development work.
In addition, to these existing collaborations, contracts and grants, we
hope to commence generating revenue from certain of our products, including
Nanocheck (TM), a lanthanum-based compound that can be used to treat water for
the removal of a wide range of deleterious impurities, and yttria stabilized
zirconia, a product that may be used in solid oxide fuel cells and as a thermal
barrier coating. Contributions to total revenues from these products during 2005
will not likely be significant, but such increases may lay the foundation for
more substantial revenue in future years.
In addition, we will generate revenue through the licensing of
RenaZorb(TM), a potential drug that may be useful in phosphate control in kidney
dialysis patients. In January 2005, we signed a RenaZorb(TM) licensing agreement
with Spectrum Pharmaceuticals, Inc. ("Spectrum") which grants Spectrum exclusive
worldwide rights to develop, market and sell RenaZorb(TM). Upon signing the
agreement, Spectrum issued to us 100,000 restricted shares of their common stock
and purchased 38,314 restricted shares of our common stock at the then current
market value of $2.61 per share, and also paid us $100,000 in connection with
the licensing agreement. Additional payments by Spectrum are contingent upon the
achievement of various milestones in the testing, regulatory approval and sale
of RenaZorb(TM). Assuming that planned milestones are achieved, we may receive
payments of approximately $1.3 million in 2005, between $9 million and $14
million over the first 5-7 years and in excess of $100 million over the life of
the agreement. We expect that most of the revenue generated during 2005 from our
RenaZorb(TM) license will be in the form of restricted shares of Spectrum common
stock, and, as a result, such revenue will be non-cash.
Historically, we have financed operations primarily through the
issuance of equity securities (common shares, convertible debentures, stock
options and warrants) and by the issuance of debt. In light of our recent public
offering of securities, we do not presently have any plans to pursue additional
debt or equity financing during 2005 but reserve the right to do so if deemed
necessary in connection with an unexpected business opportunity or need. We do
not have any commitments with respect to future financing and may, or may not,
be able to obtain such financing on reasonable terms, or at all. We have a
single note payable in the 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.
Capital Commitments and Expenditures
The following table discloses aggregate information about our
contractual obligations including notes payable, mineral lease payments,
facilities lease payments and contractual service agreements, and the periods in
which payments are due as of December 31, 2004:
34
Less Than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
------------------------------ ---------- ---------- ---------- ---------- ----------
Notes Payable $3,000,000* $ -- $1,200,000 $1,200,000 $ 600,000
Interest on notes payable 525,000 -- 273,000 210,000 42,000
Mineral Leases 284,575 47,815 96,181 69,097 71,482
Contractual Service Agreements 651,650 589,150 62,500 -- --
Unfulfilled Purchase Orders 161,151 161,151 -- -- --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $4,622,376 $ 798,116 $1,631,681 $1,479,097 $ 713,482
========== ========== ========== ========== ==========
* Before discount of $119,689.
During 2003, our capital expenditures consisted of pilot plant
extraction columns and a company vehicle which totaled $92,000. In 2004, we
spent $310,000 for equipment used in our nanosensor project with Western
Michigan University, $165,000 for computer equipment and software, $105,000 for
a centrifuge used in production of RenaZorb(TM), $97,000 for equipment used in
making titanium dioxide disks for the Timet project and $72,000 for other
equipment. During 2005, we expect to spend $800,000 to upgrade our laboratories
and purchase new equipment for them, $100,000 for production equipment, $80,000
for pilot plant equipment, $67,000 for computers and software, $27,000 for
building improvements and $130,000 for other equipment. At December 31, 2004, we
had no significant commitments for capital asset expenditures.
Critical Accounting Policies and Estimates
Management based the following discussion and analysis of our financial
condition and results of operations on our consolidated financial statements.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our critical accounting policies and estimates,
including those related to long-lived assets, stock-based compensation, revenue
recognition, overhead allocation and allowance for doubtful accounts. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Company's future results of operations and cash flows.
o Long-Lived assets. Our long-lived assets consist principally of the
nanomaterials and titanium dioxide pigment assets, the intellectual
property (patents and patent applications) associated with them, and a
building. Included in these long-lived assets are long-lived assets
that relate to our research and development process. These assets are
initially evaluated for capitalization based on Statement of Financial
Accounting Standards ("SFAS") No. 2, Accounting for Research and
Development Costs. If the assets have alternative future uses (in
research and development projects or otherwise), they are capitalized
35
when acquired or constructed; if they do not have alternative future
uses, they are expensed as incurred. At December 31, 2004, the carrying
value of these assets was $7,309,635, or 47% of total assets. We
evaluate the carrying value of long-lived assets when events or
circumstances indicate that an impairment may exist. In our evaluation,
we estimate the net undiscounted cash flows expected to be generated by
the assets, and recognize impairment when such cash flows will be less
than the carrying values. Events or circumstances that could indicate
the existence of a possible impairment include obsolescence of the
technology, an absence of market demand for the product, and/or the
partial or complete lapse of technology rights protection.
o Stock-Based Compensation. We have two stock option plans which provide
for the issuance of common stock options to employees and service
providers. Although SFAS No. 123, Accounting for Stock Based
Compensation, encourages entities to adopt a fair-value-based method of
accounting for stock options and similar equity instruments, it also
allows an entity to continue measuring compensation cost for
stock-based compensation for employees and directors using the
intrinsic-value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. We have elected to follow the accounting provisions of APB
25 and to furnish the pro forma disclosures required under SFAS 123 for
employees and directors, but we also issue warrants and options to
non-employees that are recognized as expense when issued in accordance
with the provisions of SFAS 123. We calculate compensation expense
under SFAS 123 using a modified Black-Scholes option pricing model. In
so doing, we estimate certain key assumptions used in the model. We
believe the estimates we use, which are presented in Note 2 of Notes to
Consolidated Financial Statements, are appropriate and reasonable. As
explained in Note 2 to the Consolidated Financial Statements, the
Financial Accounting Standards Board has issued a revision to SFAS 123
that eliminates the alternative of applying the intrinsic value
measurement provisions of APB 25. We are required to adopt the revised
SFAS 123 no later than July 1, 2005. Although we have not yet
quantified the effects of adoption, it is expected that the new
standard will result in significant additional expense depending upon
the nature and amount of stock-based compensation awards which may be
granted.
o Revenue Recognition. We recognize revenue when persuasive evidence of
an arrangement exists, delivery has occurred or service has been
performed, the fee is fixed and determinable, and collectibility is
probable. During 2004, our revenues were derived principally from three
sources: commercial collaborations, contract research and development
and product sales. 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 for product sales is recognized at the time the purchaser has
accepted delivery of the product. 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 are recognized in
the period in which they become known.
o 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
36
development expense based on labor costs. Facilities overheads
allocated to research and development projects may be chargeable when
invoicing customers under certain research and development contracts.
o Allowance for Doubtful Accounts. The allowance for doubtful accounts is
based on our assessment of the collectibility of specific customer
accounts and the aging of accounts receivable. We analyze historical
bad debts, the aging of customer accounts, customer concentrations,
customer credit-worthiness, current economic trends and changes in our
customer payment patterns when evaluating the adequacy of the allowance
for doubtful accounts. From period to period, differences in judgments
or estimates utilized may result in material differences in the amount
and timing of our bad debt expenses.
Results of Operations
Fiscal Year 2004 vs. 2003
Our revenues increased significantly from $73,000 in 2003 to $1,152,000
in 2004 as a result of new customer contracts we entered into under which we
provide research and development ("R&D") work on a variety of projects. See Note
13, Business Segment Information, in Notes to Consolidated Financial Statements,
for sales and accounts receivable information with respect to major customers.
We anticipate that revenues will increase in 2005 over 2004 as a result of
increased contract R&D work, product sales and licensing revenues.
Cash used in operations increased by $1,617,000 from $4,005,000 in 2003
to $5,620,000 in 2004 due to increased R&D and general and administrative
("G&A") expenses. We added staff in R&D in order to meet the workload created by
new customer contracts and we added staff in G&A primarily to meet the
requirements of the Sarbanes-Oxley Act. Other increases in these expenses are
discussed below. We believe the staffing additions and certain other
expenditures in 2004 have significantly strengthened the Company's R&D
capabilities and enhanced our ability to grow the business. We expect cash used
in operations to remain at approximately the same level in 2005. However, to the
extent that we can generate increased product sales and licensing revenues,
which provide higher profit margins than contract R&D, our cash flow will be
improved. We do not, however, expect to generate positive cash flow in 2005.
Operating losses increased from $5,785,210 in the 2003 fiscal year to
$6,904,955 in the 2004 fiscal year. Although revenues increased significantly in
2004, this increase was more than offset by increases in R&D and G&A expenses.
Revenues from commercial collaborations increased by $524,803, from
$27,696 in 2003 to $552,499, in 2004. Revenues in 2003 were derived from two
customers. In late 2003 and during 2004, we entered into new contracts which
generated the substantial increase in revenues. Our commercial collaborations
now include projects to (1) provide custom oxide feedstocks for a titanium metal
research program funded by the Department of Defense, (2) license and evaluate
our pigment production process for the production of TiO2 pigment and
pigment-related products from titanium-bearing oil sands, (3) develop advanced
aerospace materials, and (4) evaluate our pigment production process for the
production of TiO2 pigment from titanium-bearing minerals.
Revenues from contracts and grants increased by $555,337, from $36,553
in 2003 to $591,890, in 2004. We had one customer contract in place during the
last half of 2003, and we entered into two additional contracts during 2004. Our
contracts and grants revenues are now generated by projects to (1) provide
research involving a technology used in the detection of chemical, biological
and radiological agents, (2) supply nano-sized anode and cathode materials for
design and development of high capacity lithium ion battery and super capacitor
applications, and (3) provide research utilizing nanotechnology processes for
the production and commercialization of solar-based hydrogen technologies.
37
Increased customer contract work was the primary driver behind the
increase in R&D expenses in 2004. R&D labor costs increased by $340,000 from
$768,000 in 2003 to $1,108,000 in 2004 due to the addition of four R&D
employees, the cost of temporary employees doing R&D work, salary increases for
existing employees and an increase in the cost of employee benefit plans.
RenaZorb(TM) development expenses increased by $157,000 from $4,000 in 2003 to
$161,000 in 2004 as a result of animal testing, laboratory and other costs.
Out-of-pocket costs for customer projects increased by $221,000 from $3,000 in
2003 to $224,000 in 2004 due to the increase in the amount of customer contract
work being done. These increases were partially offset by a decrease in stock
option expense allocable to R&D of $264,000 as a result of a reduction in value
of repriced stock options. Repriced stock options are revalued at each reporting
date based on the market price of our common shares on that date. Any increase
or decrease in the value of the options is recorded in the accounts. We also
experienced a decrease in development expenses for other products of
approximately $60,000 and a decrease in minerals R&D of $224,000. During 2004,
our board of directors made the decision to dispose of the Tennessee mineral
properties. In accordance with this, we began terminating the mineral leases and
prepared plans for remediation of the property and sale of the pilot plant. As
of December 31, 2004, we had terminated the mineral leases on 4,750 acres out of
a total of approximately 8,700 acres originally under lease. We expect to
terminate the remaining mineral leases in 2005.
Our general and administrative expenses increased by $2,036,346, from
$3,015,829 in 2003 to $5,052,175 in 2004. G&A labor increased by $604,000 from
$1,269,000 in 2003 to $1,873,000 in 2004 due to salary increases, employee
bonuses, an increase in the cost of employee benefit plans and the net addition
of three new employees. Investor relations expenses increased by $305,000, from
$225,000 in 2003 to $530,000 in 2004, as a result of increased investor
relations programs aimed at increasing investor awareness of Altair. In 2004, we
incurred an expense of $235,000 representing the value of common shares issued
to a shareholder in connection with an agreement resolving certain issues raised
by the shareholder. Consulting fees increased by $270,000, from $93,000 in 2003
to $363,000 in 2004, primarily as a result of consultants hired to assist with
marketing and product development in both the performance materials and life
sciences divisions. Legal expenses increased by $257,000, from $293,000 in 2003
to $550,000 in the 2004, due to patent costs associated with performance
materials and life sciences products, and a settlement agreement involving a
shareholder. Accounting fees increased by $124,000, from $112,000 during 2003 to
$236,000 in 2004, primarily as a result of costs associated with the
Sarbanes-Oxley Act. General office expenses increased by $172,000, from $387,000
in 2003 to $559,000 in 2004, primarily as a result of additional purchases of
office supplies and equipment as well as higher costs for utilities, telephone,
postage and printing. Director fees and expenses increased by $108,000, from
$16,000 in 2003 to $124,000 in 2004, due to the addition of two non-employee
directors and an increase in the fees paid to directors. Insurance expense
increased by $65,000, from $154,000 in 2003 to $219,000 in 2004, as a result of
increased premiums for liability insurance. Shareholder information expenses
increased by $43,000, from $69,000 in 2003 to $112,000 in 2004, due to annual
report printing and mailing costs; the number of shareholders owning our stock
increased substantially in 2004. These increases were partially offset by a
decrease in stock option expense of $194,000 which occurred due to a reduction
in value of repriced stock options.
Interest expense decreased by $260,235, from $454,415 in 2003 to
$194,180 in 2004. The decrease is due to the payoff of our note payable to Doral
18, LLC in September 2003.
Interest income increased by $94,350, from $1,879 in 2003 to $96,229 in
2004, as a result of increased invested cash balances. Cash balances increased
early in 2005, due to the exercise of a significant number of warrants and
options.
38
Fiscal Year 2003 vs. 2002
During 2003, we generated $36,553 of revenues for research services
involving a technology used in the detection of chemical, biological and
radiological agents. This work was conducted under an agreement funded by a
government grant. Revenues from commercial collaborations decreased by $90,874,
from $118,570 in 2002 to $27,696 in 2003, due to a decline in business activity.
Revenues from product sales decreased by $126,323, from $134,925 in 2002 to
$8,602 in 2004 due to a decrease in sales of thermal spray grade powders,
lithium titanate and titanium dioxide nanoparticles.
During 2003, we concentrated our research and development efforts on
nanotechnology and materials science, specifically TiO2 pigment, TiO2 electrodes
for titanium metal, pharmaceutical delivery structures, pharmaceuticals, dental
materials and nanostructured materials for lithium ion batteries and fuel cells.
Total research and development expenses increased by $420,169, from $1,541,575
in 2002 to $1,961,744 in 2003. The suspension of development work on the
Tennessee mineral properties and jig allowed us to reassign certain employees
from those efforts to other research and development work, primarily titanium
pigment process development. As a result of this, our nanotechnology and
materials R&D increased by $338,000, from $628,000 in 2002 to $966,000 in 2003.
In addition, stock option expense increased by $377,000 from $0 in 2002 to
$377,000 in 2003 as a result of an increase in the value of repriced options,
and facilities overheads increased by $148,000 as a result of the purchase of
our headquarters building in Reno, Nevada in August 2002. These increases were
partially offset by a decrease in minerals R&D expenses related to the Tennessee
mineral properties. These expenses declined by $443,000, from $599,000 in 2002
to $156,000 in 2003, as we significantly reduced our expenditures for minerals
R&D in 2003 in order to conserve cash for operating requirements and development
of the nanomaterials and titanium dioxide pigment technology.
General and administrative expenses increased by $257,984, from
$2,757,845 in 2002 to $3,015,829 in 2003. Consulting fees decreased by $176,000,
from $347,000 in 2002 to $171,000 in 2003. We issued stock options and warrants
in 2002 and 2003 in payment for a portion of our consulting fees, primarily for
assistance with financing. The options and warrants issued in 2002 had a fair
value of $219,000 whereas the options and warrants issued in 2003 had a fair
value of $92,000. In addition to this, cash payments for consulting decreased by
$49,000 due to a decrease in services purchased. Accounting fees decreased by
$18,000, from $127,000 in 2002 to $109,000 in 2003, due to a decrease in audit
fees. We also experienced a decrease in general office expenses of $295,000,
from $711,000 in 2002 to $416,000 in 2003, and a decrease in technical operating
costs of $104,000, from $357,000 in 2002 to $253,000 in 2003, both of which
occurred as a result of our efforts to reduce operating costs. Offsetting these
decreases was an increase in investor relations expenses of $236,000, from
$53,000 in 2002 to $289,000 in 2003, as a result of increased investor relations
programs aimed at increasing investor awareness of Altair. Also, insurance
expense increased by $11,000, from $143,000 in 2002 to $154,000 in 2003, as a
result of increased premiums for liability insurance, and stock option expense
increased by $527,000, from $0 in 2002 to $527,000 in 2003 as a result of an
increase in the value of repriced options. In addition, legal fees increased by
$58,000, from $235,000 in 2002 to $293,000 in 2003, due to patent work,
financing transactions and general corporate matters.
During the year ended December 31, 2002, we recorded $1,080,000 of
interest expense for interest accruals, amortization of debt issuance costs and
amortization of debt discount on the Doral 18, LLC ("Doral") note. In November
2002, we entered into a new note with Doral (see Note 6 to the consolidated
financial statements), the balance of unamortized debt issuance costs was
written off as a component of loss on extinguishment of debt and no further
amortization of debt discount costs was incurred. In September 2003, we paid the
remaining balance due on the Doral note. As a result of all this, interest
expense decreased by $696,973 from $1,151,388 in 2002 to $454,415 in 2003.
39
Preferential warrant dividend increased by $543,820, from $48,666 in
2002 to $592,486 in 2003. On June 2, 2003, we reduced the exercise price of
796,331 outstanding warrants held by a shareholder to $1.00 per share. As a
result, we recorded a preferential warrant dividend of $176,472 as of the
repricing date. The warrants had been previously issued with exercise prices
ranging from $2.50 to $3.50. In addition, in September 2003, we issued 631,882
warrants to a shareholder which had a fair value of $416,014 and was recorded as
a preferential warrant dividend.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Supplementary Data
The following Supplementary Financial Information for the fiscal
quarters ended March 31, June 30, September 30 and December 31 in each of the
years 2003 and 2004 were derived from our unaudited quarterly consolidated
financial statements filed by us with the SEC in our Quarterly Reports on Form
10-Q with respect to such periods (except for 4th quarter data).
Supplementary Financial Information by Quarter, 2004 and 2003
(Unaudited)
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
Year Ended December 31, 2004:
Revenues $ 139,749 $ 154,233 $ 346,907 $ 511,003
Operating Expenses $1,822,763 $2,283,269 $1,766,962 $2,183,853
Net Loss $1,710,757 $2,154,032 $1,440,324 $1,697,167
Loss per Common Share: (1)
Basic and Diluted $ 0.04 $ 0.04 $ 0.03 $ 0.03
Year Ended December 31, 2003:
Revenues $ 20,277 $ 4,434 $ 17,318 $ 30,822
Operating Expenses $1,217,278 $1,193,110 $1,205,762 $2,241,911
Net Loss (2) $1,316,994 $1,334,591 $1,329,471 $2,256,883
Loss per Common Share: (1)
Basic and Diluted $ 0.04 $ 0.04 $ 0.05 $ 0.06
(1) Loss per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly loss per common share amounts
does not necessarily equal the total for the year.
(2) The increase in net loss from the quarter ended September 30, 2003 to the
quarter ended December 31, 2003 is primarily the result of $870,000 of expense
associated with stock options that were repriced in prior periods. The Company
uses the variable accounting method to account for repricing of stock options
and the market price of the Company's stock increased substantially in the
quarter ended December 31, 2003.
40
Financial Statements
The financial statements required by this Item appear on pages F-1
through F-21 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures
The information required by this Item is incorporated by reference to
the Section entitled "Principal Accountant Fees and Services" in the Company's
definitive proxy statement to be filed with the Commission.
a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of December 31, 2004. Based on this evaluation, our principal
executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to our Company (including
its consolidated subsidiaries) required to be included in our reports
filed or submitted under the Exchange Act.
b) There were no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our
internal controls over financial reporting that occurred during the
fourth quarter of fiscal 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
Pursuant to Nasdaq Stock Market Rule 4350(a), the Company is disclosing
herein that, prior to September 30, 2004, the Company relied upon an exemption
from the requirements of Nasdaq Stock Market Rule 4350(f). Nasdaq Stock Market
Rule 4350(f) requires that each issuer have a minimum quorum requirement for its
shareholders meetings of at least 33 1/3% of the outstanding shares of its
voting stock. Prior to September 30, 2004, Altair's quorum requirement was that
two shareholders be present, in person or by proxy, at a shareholders meeting.
Altair requested, and relied upon, the exemption from Nasdaq Stock
Market Rule 4350(f) prior to September 30, 2004 on the basis that a greater
quorum requirement would be contrary to generally accepted business practices in
Canada and under the Canadian Business Corporations Act (the "CBCA"). Altair is
incorporated under the CBCA. The CBCA contains no quorum requirement for
shareholders meetings where a quorum requirement is designated in the
corporation's bylaws. Consistent with the CBCA, the rules of Canada's largest
stock exchange, the Toronto Stock Exchange, contain no quorum requirement. As a
result, it is commercially acceptable practice for corporations incorporated
under the CBCA and other corporations listed on the Toronto Stock Exchange to
have a quorum requirement for shareholders meetings that is the same as, or
similar to, the former quorum requirement of Altair. As of September 30, 2004,
the Company amended its bylaws in order to increase its quorum requirement to
33 1/3% of its outstanding common shares.
41
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement to be filed with the
Commission.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement to be filed with the Commission.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to
the section entitled "Auditor Fees and Services" in the Company's definitive
proxy statement to be filed with the Commission.
42
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed
1. Financial Statements. The following Consolidated Financial
Statements of the Company and Auditors' Report are filed as part of this Annual
Report on Form 10-K:
o Report of Independent Registered Public Accounting Firm
o Consolidated Balance Sheets, December 31, 2004 and 2003
o Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 2004
o Consolidated Statements of Shareholders' Equity for Each
of the Three Years in the Period Ended December 31, 2004
o Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 2004
o Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Not applicable.
3. Exhibit List
Incorporated by Reference/
Exhibit No. Description Filed Herewith (and Sequential Page #)
----------- ----------- --------------------------------------
3.1 Articles of Continuance Incorporated by reference to the Current Report on
Form 8-K filed with the SEC on July 18, 2002.
3.2 Bylaws Filed herewith
4.1 Form of Common Stock Certificate Incorporated by reference to Registration
Statement on Form 10-SB filed with the Commission
on November 25, 1996, File No. 1-12497.
4.2 Amended and Restated Shareholder Rights Incorporated by reference to the Company's Plan
dated October 15, 1999, between the dated October 15, 1999, between the Current Report
Company and Equity Transfer Services, Inc. on Form 8-K filed with the Company and Equity
Transfer Services, Inc. Commission on November 19,
1999, File No. 1-12497.
10.1 Altair International Inc. Stock Option Plan Incorporated by reference to the Company's adopted
adopted by shareholders on May 10, 1996 by shareholders on May 10, 1996 Registration
Statement on Form S-8 filed with the Commission on
July 11, 1997.
43
10.2 1998 Altair International Inc. Stock Option Incorporated by reference to the Company's Plan
Plan adopted by Shareholders on June 11, 1998 adopted by Shareholders on June 11, Definitive
Proxy Statement on Form 14A filed 1998 with the
Commission on May 12, 1998.
10.3 2003 Employee Wage Stock Purchase Plan Incorporated by reference to the Company's
Registration Statement on Form S-8, File No.
333-108419, filed with the Commission on September
2, 2003.
10.4 Form of Renegotiated Mineral Lease Incorporated by reference to the Company's Annual
Report on Form 10-K filed with the Commission
March 24, 2004.
10.5 Purchase and Sale Agreement dated August 8, Incorporated by reference to the Company's
2002 between the Company and BHP Minerals Amendment No. 1 to Registration Statement on Form
International Inc. (re Edison Way property) S-2, File No. 333-102592, filed with the
Commission on February 7, 2003.
10.6 Installment Note dated August 8, 2002 (re Incorporated by reference to the Company's
Edison Way property) on February 7, 2003. Amendment No. 1 to Registration Statement on Form
S-2, File No. 333-102592, filed with the
Commission on February 7, 2003.
10.7 Trust Deed dated August 8, 2002 (re Edison Incorporated by reference to the Company's
Way property) Amendment No. 1 to Registration Statement on Form
S-2, File No. 333-102592, filed with the
Commission on February 7, 2003.
10.8 Technology License Agreement dated Incorporated by reference to the Company's
September 29, 2003, with Bateman Luxembourg Quarterly Report on Form 10-Q filed with the
SA * Commission November 14, 2003.
10.9 Memorandum of Understanding dated as of Incorporated by reference to the Company's
April 21, 2003, with Titanium Metals Quarterly Report on Form 10-Q filed with the
Corporation * Commission November 14, 2003.
10.10 Western Michigan University Project Incorporated by reference to the Company's
Agreement dated August 15, 2003 Quarterly Report on Form 10-Q filed with the
Commission November 14, 2003.
10.11 Technology Investment Agreement dated Incorporated by reference to the Company's Current
January 8, 2004 between Titanium Metals Report on Form 8-K filed with the Commission on
Corporation and Altair Nanomaterials, Inc. * February 3, 2004.
10.12 License Agreement for Altair TiO2 Pigment Incorporated by reference to the Company's Current
Technology between Altair Nanotechnologies, Report on Form 8-K filed with the Commission on
Inc. and Western Oil Sands, Inc. * February 3, 2004.
44
10.13 Memorandum of Understanding with Incorporated by reference to the Company's Annual
Hosokawa Nano Particle Technology Center Report on Form 10-K filed with the Commission
(USA) March 24, 2004.
10.14 Settlement Agreement with Louis Schnur et al Incorporated by reference to the Company's
Amendment No. 2 to Registration Statement on Form
S-3, File No. 333-117125, filed with the SEC on
July 30, 2004.
10.15 Employment Agreement of Douglas Ellsworth Incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed with the
Commission November 15, 2004.
10.16 Employment Agreement of Edward Dickinson Incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed with the
Commission November 15, 2004.
10.17 Employment Agreement of Alan J. Gotcher, Incorporated by reference to the Company's
Ph.D. Quarterly Report on Form 10-Q filed with the
Commission November 15, 2004.
10.18 License Agreement dated January 28, 2005 Incorporated by reference from the Company's
10.18 with Spectrum Pharmaceuticals, Inc.* Current Report on Form 8-K filed with the
Commission on February 4, 2005
10.19 Letter Agreement dated February 11, 2005 Incorporated by reference from the Current Report
between the Company and Maxim Group LLC on Form 8-K filed by the Company on February 15,
2005
21 List of Subsidiaries
Incorporated by reference from Item 1 of this report.
23.1 Consent of Deloitte & Touche LLP Filed herewith.
24 Powers of Attorney Included in the Signature Page hereof.
31.1 Rule 13-14(a)/15d-14a Certification of Filed herewith
Chief Executive Officer
31.2 Rule 13-14(a)/15d-154a Certification of Filed herewith
Chief Financial Officer
32.1 Section 1350 Certification of Chief Filed herewith
Executive Officer
32.2 Section 1350 Certification of Chief Filed herewith
Financial Officer
*Portions of this Exhibit have been omitted pursuant to Rule 24b-2, are filed
separately with the SEC and are subject to a confidential treatment request.
45
(b) Reports on Form 8-K
On November 12, 2004, we filed a Form 8-K to file a press
release announcing results of operations and financial
condition for the third quarter of fiscal year 2004.
(c) Exhibits
Exhibits to this Report are attached following page F-22
hereof.
(d) Financial Statement Schedule. Not applicable.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 9, 2005.
ALTAIR NANOTECHNOLOGIES INC.
By: /s/ Alan J. Gotcher
--------------------------------
Alan J. Gotcher,
Chief Executive Officer
Date: March 9, 2005
POWER OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature to this Form 10-K appears below
hereby constitutes and appoints Alan J. Gotcher and Edward Dickinson, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form 10-K
or the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Alan J. Gotcher Chief Executive Officer and March 9, 2005
--------------------------- Director (Principal Executive
Alan J. Gotcher Officer)
March 9, 2005
______________________ Director
Rudi E. Moerck
/s/ Edward Dickinson Chief Financial Officer and March 9, 2005
--------------------------- Secretary (Principal Financial
Edward Dickinson and Accounting Officer)
/s/ Michel Bazinet Director March 9, 2005
---------------------------
Michel Bazinet
/s/ Jon N. Bengtson Director March 9, 2005
---------------------------
Jon N. Bengtson
47
/s/ James I. Golla Director March 9, 2005
---------------------------
James I. Golla
/s/ George Hartman Director March 9, 2005
---------------------------
George Hartman
/s/ Christopher E. Jones Director March 9, 2005
---------------------------
Christopher E. Jones
/s/ David King Director March 9, 2005
------------------
David King
48
Altair Nanotechnologies Inc.
and Subsidiaries
Consolidated Financial Statements as of December 31, 2004 and 2003 and for
Each of the Three Years in the Period Ended December 31, 2004 and Report of
Independent Registered Public Accounting Firm
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
TABLE OF CONTENTS
---------------------------------------------------------------------------------------------------
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2004 and 2003 F-2
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 2004 F-3
Consolidated Statements of Stockholders' Equity for Each of the Three Years
in the Period Ended December 31, 2004 F-4
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended December 31, 2004 F-5-F-7
Notes to Consolidated Financial Statements F-8-F-22
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Altair Nanotechnologies Inc.
Reno, Nevada
We have audited the accompanying consolidated balance sheets of Altair
Nanotechnologies Inc. and subsidiaries (the "Company") as of December 31, 2004
and 2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Altair Nanotechnologies Inc. and
subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DELOITTE & TOUCHE LLP
-----------------------------------
Salt Lake City, Utah
March 7, 2005
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
December 31, December 31,
2004 2003
------------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 7,357,843 $ 3,869,669
Accounts receivable, net 499,599 13,324
Prepaid expenses and other current assets 182,595 79,187
------------ ------------
Total current assets 8,040,037 3,962,180
Property, Plant and Equipment, net 6,513,907 6,618,805
Patents, net 974,877 1,060,569
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 15,547,021 $ 11,659,754
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 81,030 $ 85,255
Accrued liabilities 295,743 311,886
------------ ------------
Total current liabilities 376,773 397,141
------------ ------------
Note Payable, Long-Term Portion 2,880,311 2,686,130
------------ ------------
Commitments and Contingencies (Notes 6, 8, 9, and 11)
Stockholders' Equity
Common stock, no par value, unlimited shares
authorized; 49,775,694 and 43,188,362 shares
issued and outstanding at December 31, 2004
and 2003 65,505,630 54,789,896
Accumulated deficit (53,215,693) (46,213,413)
------------ ------------
Total Stockholders' Equity 12,289,937 8,576,483
------------ ------------
Total Liabilities and Stockholders' Equity $ 15,547,021 $ 11,659,754
============ ============
See notes to the consolidated financial statements.
F-2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
Year Ended December 31,
-------------------------------------------
2004 2003 2002
------------ ------------ ------------
Revenues:
Product sales $ 7,503 $ 8,602 $ 134,925
Commercial collaborations 552,499 27,696 118,570
Contracts & grants 591,890 36,553 --
------------ ------------ ------------
Total revenues 1,151,892 72,851 253,495
------------ ------------ ------------
Operating Expenses
Cost of product sales 1,361 1,731 53,122
Research and development 2,098,758 1,961,744 1,541,575
General and administrative expenses 5,052,175 3,015,829 2,757,845
Depreciation and amortization 904,553 878,757 997,708
Asset impairment -- -- 2,759,956
------------ ------------ ------------
Total operating expenses 8,056,847 5,858,061 8,110,206
------------ ------------ ------------
Loss from Operations 6,904,955 5,785,210 7,856,711
------------ ------------ ------------
Other (Income) Expense:
Interest expense 194,180 454,415 1,151,388
Interest income (96,229) (1,879) (2,105)
Loss (gain) on foreign exchange (626) 193 835
Loss on extinguishment of debt -- -- 914,667
------------ ------------ ------------
Total other expense, net 97,325 452,729 2,064,785
------------ ------------ ------------
Net loss 7,002,280 6,237,939 9,921,496
Preferential Warrant Dividend -- 592,486 48,666
------------ ------------ ------------
Net Loss Applicable to Shareholders $ 7,002,280 $ 6,830,425 $ 9,970,162
============ ============ ============
Loss per common share - Basic and diluted $ 0.14 $ 0.19 $ 0.40
============ ============ ============
Weighted average shares - Basic and diluted 48,677,283 36,222,026 24,975,837
============ ============ ============
See notes to the consolidated financial statements.
F-3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in United States Dollars)
Common Stock
---------------------------
Stated Accumulated
Shares Amount Deficit Total
------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 2002 22,694,142 $ 38,089,320 $(29,412,826) $ 8,676,494
Stock options issued to non-employees -- 27,601 -- 27,601
Shares issued under Employee Stock
Purchase Plan 161,550 92,183 -- 92,183
Stock warrants issued -- 347,773 -- 347,773
Preferential warrant dividend -- 48,666 (48,666) --
Shares issued for settlement of debt 1,500,090 975,000 -- 975,000
Shares issued for interest 299,304 292,208 -- 292,208
Shares issued for services 400,000 279,500 -- 279,500
Exercise of warrants 286,169 300,477 -- 300,477
Common stock issued 4,903,093 3,335,122 -- 3,335,122
Net loss -- -- (9,921,496) (9,921,496)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2002 30,244,348 43,787,850 (39,382,988) 4,404,862
Stock options issued to non-employees -- 64,346 -- 64,346
Variable accounting on stock options -- 903,668 -- 903,668
Shares issued under Employee Stock
Purchase Plan 873,480 606,675 -- 606,675
Stock warrants issued -- 101,416 -- 101,416
Preferential warrant dividend -- 592,486 (592,486) --
Shares issued for settlement of debt 695,052 280,000 -- 280,000
Shares issued for interest 277,169 133,315 -- 133,315
Shares issued for services 213,102 89,297 -- 89,297
Exercise of stock options 478,100 488,836 -- 488,836
Exercise of warrants 3,210,328 3,417,109 -- 3,417,109
Common stock issued 7,196,783 4,324,898 -- 4,324,898
Net loss -- -- (6,237,939) (6,237,939)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2003 43,188,362 54,789,896 (46,213,413) 8,576,483
(continued)
F-4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in United States Dollars) (continued)
BALANCE, DECEMBER 31, 2003 43,188,362 54,789,896 (46,213,413) 8,576,483
Stock options issued to non-employees -- 270,560 -- 270,560
Modification of stock options issued to
employee -- 39,000 -- 39,000
Variable accounting on stock options -- 136,212 -- 136,212
Shares issued for services 200,000 413,000 -- 413,000
Exercise of stock options 561,900 902,109 -- 902,109
Exercise of warrants 5,825,432 8,954,853 -- 8,954,853
Net loss -- -- (7,002,280) (7,002,280)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2004 49,775,694 $ 65,505,630 $(53,215,693) $ 12,289,937
============ ============ ============ ============
See notes to the consolidated financial statements.
F-4(A)
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Year Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(7,002,280) $(6,237,939) $(9,921,496)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 904,553 878,757 997,708
Shares issued for services 413,000 89,297 203,500
Shares issued for interest -- 133,315 292,208
Stock options issued to non-employees 270,560 64,346 27,601
Modification of stock options issued to employee 39,000 -- --
Variable accounting on stock options 136,212 903,668 --
Issuance of stock warrants -- 101,416 108,556
Amortization of discount on note payable 194,182 181,090 384,616
Amortization of debt issuance costs -- -- 404,567
Asset impairment -- -- 2,759,956
Loss on extinguishment of debt -- -- 914,667
Loss on disposal of fixed assets 34,716 25,661 --
Changes in assets and liabilities:
Accounts receivable (486,275) 119,535 (128,705)
Prepaid expenses and other current assets (103,408) (56,589) 6,899
Other assets -- -- (2,000)
Trade accounts payable (4,225) (247,461) (30,974)
Accrued liabilities (16,143) 40,099 107,072
Deferred revenue -- -- (40,972)
----------- ----------- -----------
Net cash used in operating activities (5,620,108) (4,004,805) (3,916,797)
----------- ----------- -----------
(continued)
F-5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Year Ended December 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (748,680) (92,400) (2,525,916)
Proceeds received from sale of property and
equipment -- 4,675 --
----------- ----------- -----------
Net cash used in investing activities (748,680) (87,725) (2,525,916)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs -- 4,324,898 3,335,122
Issuance of shares under Employee Stock
Purchase Plan -- 606,675 92,183
Proceeds from exercise of stock options 902,109 488,836 --
Proceeds from exercise of warrants 8,954,853 3,417,109 300,477
Issuance of related party notes -- -- 6,243
Issuance of notes payable -- -- 2,505,040
Payment of notes payable -- (1,120,000) --
Payment of related party notes -- -- (149,243)
Payment on capital lease -- -- (2,312)
----------- ----------- -----------
Net cash provided by financing activities 9,856,962 7,717,518 6,087,510
----------- ----------- -----------
Net increase (decrease) in cash and equivalents 3,488,174 3,624,988 (355,203)
Cash and cash equivalents, beginning of year 3,869,669 244,681 599,884
----------- ----------- -----------
Cash and cash equivalents, end of year $ 7,357,843 $ 3,869,669 $ 244,681
=========== =========== ===========
Supplemental disclosures:
Cash paid for interest None $ 140,009 None
=========== =========== ===========
Cash paid for income taxes None None None
=========== =========== ===========
(continued)
F-6
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Supplemental schedule of non-cash investing and financing activities:
For the year ended December 31, 2004:
-------------------------------------
- None
For the year ended December 31, 2003:
-------------------------------------
- We issued 695,052 common shares to Doral 18, LLC in payment of $280,000 of
principal on our note payable. The conversion of the note resulted in additional
interest expense of $133,315 (See Note 6).
- On or about June 2, 2003, we repriced warrants, held by a shareholder, for
796,331 common shares. The repriced warrants have an incremental fair value of
$176,472 and have been accounted for as a preferential warrant dividend.
- In September 2003, we entered an agreement with a shareholder wherein the
shareholder agreed to exercise 631,882 warrants that had an exercise price of
$1.00 each. In return, we issued the shareholder 631,882 new warrants having an
exercise price of $1.75 each. The new warrants have a fair value of $416,014 and
have been accounted for as a preferential warrant dividend.
For the year ended December 31, 2002:
-------------------------------------
- We issued 50,000 common shares in payment of financing fees associated with
the Doral 18, LLC 2001 Note. The common shares had a fair value of $76,000 which
was recorded as debt issue cost on the balance sheet.
- In connection with the extinguishment of the Doral 18, LLC 2001 Note, we
issued 1,500,000 shares of our common stock to reduce our note payable balance
by $600,000. We also issued to Doral 18, LLC a warrant for 750,000 common shares
that had a fair value of $239,217, as determined by the Black-Scholes pricing
model. As a result of this transaction, we recorded a loss on extinguishment of
debt of $914,667.
- We entered into a note payable with BHP with a face amount of $3,000,000.
There is no interest due on the note for the first 36 months. As a result, we
imputed the interest and reduced the face amount of the note payable by
$566,763. The imputed interest expense for the period was $24,786.
- We repriced warrants, held by a shareholder, for 582,500 common shares.
The repriced warrants have an incremental fair value of $48,666 and have been
accounted for as a preferential warrant dividend.
(concluded)
See notes to the consolidated financial statements.
F-7
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business-- We are a Canadian company, with principal
assets and operations in the United States, whose primary business is developing
and commercializing nanomaterial and titanium dioxide pigment technologies. We
also provide contract research services on select projects where we can utilize
our resources to develop intellectual property and/or new products and
technology.
Through September 30, 2004, we considered ourselves to be a development
stage company. However, our contract research business, utilizing our
proprietary nanoparticle production technology, has grown considerably through
new research and development contracts. We believe that the contracts entered
into and the revenues generated from them establish our nanoparticle production
technology as a commercially accepted technology. Accordingly, effective October
1, 2004, we no longer consider ourselves to be a development stage company.
Principles of Consolidation--The consolidated financial statements
include the accounts of Altair Nanotechnologies Inc. and its subsidiaries (the
"Company") which include (1) Altair US Holdings, Inc., (2) Mineral Recovery
Systems, Inc. ("MRS"), (3) Fine Gold Recovery Systems, Inc. ("FGRS"), (4) Altair
Nanomaterials, Inc. ("ANI"), and (5) Tennessee Valley Titanium, Inc. ("TVT"),
(collectively referred to as the "Company"), all of which are 100% owned. All of
the subsidiaries are incorporated in the United States of America. Intercompany
transactions and balances have been eliminated in consolidation.
Basis of Presentation--The accompanying consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As shown in the consolidated financial statements for the years
ended December 31, 2004, 2003, and 2002, we incurred net losses of $7,002,280,
$6,237,939, and $9,921,496, respectively. At December 31, 2004 and 2003, we had
stockholders' equity of $12,289,937 and $8,576,483, respectively.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should we
be unable to continue as a going concern. Our continuation as a going concern is
dependent upon our ability to generate sufficient cash flow to meet our
obligations on a timely basis, to obtain additional financing or refinancing as
may be required, to develop commercially viable products and processes, and
ultimately to establish profitable operations. We have financed operations
through operating revenues and through the issuance of equity securities (common
stock, convertible debentures, stock options and warrants), and debt (term
notes). Until we are able to generate positive operating cash flows, additional
funds will be required to support operations. We believe that current working
capital, cash receipts from anticipated sales, and funding through sales of
common stock will be sufficient to enable us to continue as a going concern
through 2006.
F-8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates--The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents--Cash and cash equivalents are highly liquid
investments with an original maturity of three months or less from the date of
purchase. Cash equivalents are recorded at cost, which approximates fair value.
Accounts Receivable--Accounts receivable consists of amounts due from
customers for services and product sales, net of an allowance for losses of $0
and $466 at December 31, 2004 and 2003, respectively. We determine the allowance
for doubtful accounts by reviewing each customer account and specifically
identifying any potential for loss.
Property, Plant and Equipment--Property, plant and equipment are stated
at cost less accumulated depreciation. Depreciation is recorded using the
straight-line method over the following useful lives:
Furniture and office equipment 3-7 years
Vehicles 5 years
Nanoparticle production equipment 5-10 years
Building and improvements 30 years
Patents--Patents related to the nanoparticle production technology are
carried at cost and amortized on a straight-line basis over their estimated
useful lives, which range from 14 to 20 years.
Research and Development Expenditures-- The costs of materials,
equipment, or facilities that are acquired or constructed for a particular
research and development project and that have no alternative future uses (in
other research and development projects or otherwise) are expensed as research
and development costs at the time the costs are incurred. Research and
development expenditures related to materials and equipment or facilities that
are acquired or constructed for research and development activities and that
have alternative future uses (in research and development projects or otherwise)
are capitalized when acquired or constructed. Research and development
expenditures, which include the cost of materials consumed in research and
development activities, salaries, wages and other costs of personnel engaged in
research and development, costs of services performed by others for research and
development on behalf of the company and indirect costs are expensed as research
and development costs when incurred.
Foreign Currency Translation--Asset and liability accounts, which are
originally recorded in the appropriate local currencies, are translated into
U.S. dollars at year-end exchange rates. Revenue and expense accounts are
translated at the average exchange rates for the period. Transaction gains and
losses are included in the accompanying consolidated statements of operations.
Substantially all of our assets are located in the United States of America.
Stock-Based Compensation--Our stock option plans are subject to the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under the provisions of SFAS 123,
employee and director stock-based compensation expense is measured using either
the intrinsic-value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, or the fair value
method described in SFAS 123. We have elected to follow the accounting
provisions of APB 25 for our employee and director stock-based awards and to
furnish the pro forma disclosures required under SFAS 123.
F-9
We account for stock options and warrants issued to non-employees in
accordance with SFAS 123. In calculating pro forma compensation, the fair value
of each stock option is estimated on the date of grant using the Black-Scholes
option-pricing model and the following weighted average assumptions:
2004 2003 2002
-------- ------- --------
Dividend yield None None None
Expected volatility 61% 65% 67%
Risk-free interest rate 3.17% 2.33% 2.19%
Expected life (years) 5.4 4.1 5.0
To estimate compensation expense that would be recognized under SFAS
123 for all stock-based awards, we have used the modified Black-Scholes option
pricing model. If we had accounted for our stock options issued to employees and
directors using the accounting method prescribed by SFAS 123, our net loss and
loss per share would be as follows:
2004 2003 2002
----------- ----------- -----------
Net loss applicable to shareholders (basic and
diluted) as reported $ 7,002,280 $ 6,830,425 $ 9,970,162
Deduct: stock-based employee compensation
expense included in reported net loss, net of
$0 related tax effects (445,772) (903,668) --
Add: total stock-based employee compensation
expense determined under fair value based
method for all awards, net of $0 related
tax effects 1,536,945 590,908 235,823
----------- ----------- -----------
Pro forma net loss applicable to shareholders $ 8,093,453 $ 6,517,665 $10,205,985
=========== =========== ===========
Loss per common share (basic and diluted):
As reported $ 0.14 $ 0.19 $ 0.40
=========== =========== ===========
Pro forma $ 0.17 $ 0.18 $ 0.41
=========== =========== ===========
In calculating pro forma compensation related to employee stock option
grants, the fair value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model and the following weighted average
assumptions:
2004 2003 2002
-------- ------- --------
Dividend yield None None None
Expected volatility 61% 65% 67%
Risk-free interest rate 3.55% 3.16% 2.19%
Expected life (years) 5.3 5.0 5.0
F-10
Long-Lived Assets--We evaluate the carrying value of long-term assets,
including intangibles, when events or circumstance indicate the existence of a
possible impairment, based on projected undiscounted cash flows, and recognize
impairment when such cash flows will be less than the carrying values.
Measurement of the amounts of impairments, if any, is based upon the difference
between carrying value and fair value. Events or circumstances that could
indicate the existence of a possible impairment include obsolescence of the
technology, an absence of market demand for the product, and/or continuing
technology rights protection. As discussed in Note 3, during the year ended
December 31, 2002, we recorded an asset impairment charge of $2,759,956 related
to the jig assets.
Revenue Recognition-- We recognize revenue when persuasive evidence of
an arrangement exists, delivery has occurred or service has been performed, the
fee is fixed and determinable, and collectibility is probable. During 2004, our
revenues were derived principally from three sources: commercial collaborations,
contract research and development and product sales. 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 for product sales is recognized at the time the purchaser has
accepted delivery of the product. 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 are recognized in the period in
which they become known.
For the year ended December 31, 2004, we sold titanium dioxide and
lithium titanate nanoparticles, and other materials, to customers totaling
$7,503. Revenue also includes $552,499 earned under commercial collaboration
agreements for the development of new products, processes and/or technologies,
and $591,890 earned for research and development work done under contracts and
grants.
Overhead Allocation-- Facilities overhead, which is comprised primarily
of occupancy and related expenses, is initially recorded in general and
administrative expenses and then allocated to research and development based on
labor costs.
Net Loss per Common Share-- Basic earnings per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
common and potentially dilutive shares outstanding during the period.
Potentially dilutive shares consist of the incremental common shares issuable
upon the exercise of stock options and warrants. Potentially dilutive shares are
excluded from the computation if their effect is antidilutive. We had a net loss
for all periods presented herein; therefore, none of the stock options and
warrants outstanding during each of the periods presented, as discussed in Note
7, were included in the computation of diluted loss per share as they were
antidilutive. Stock options and warrants to purchase a total of 7,865,431,
14,122,431 and 13,231,871 shares of common stock were excluded from the
calculations of diluted loss per share for the years ended December 31, 2004,
2003 and 2002, respectively.
Recent Accounting Pronouncements--As described above in Stock Based
Compensation, we account for stock-based compensation awards issued to employees
using the intrinsic value measurement provisions of APB 25. Accordingly, no
compensation expense has been recorded for stock options granted to employees
F-11
with exercise prices greater than or equal to the fair value of the underlying
common stock at the option grant date. On December 16, 2004, the FASB issued
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment ("SFAS 123R") which eliminates the alternative of applying the intrinsic
value measurement provisions of Opinion 25 to stock compensation awards issued
to employees. The new standard requires enterprises to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost will be recognized over the
period during which an employee is required to provide services in exchange for
the award, known as the requisite service period (usually the vesting period).
We have not yet quantified the effects of the adoption of SFAS 123R,
but it is expected that the new standard will result in significant stock-based
compensation expense. The pro forma effects on net loss and loss per share if we
had applied the fair value recognition provisions of original SFAS 123 on stock
compensation awards (rather than applying the intrinsic value measurement
provisions of Opinion 25) are disclosed above in Stock Based Compensation.
Although such pro forma effects of applying original SFAS 123 may be indicative
of the effects of adopting SFAS 123R, the provisions of these two statements
differ in some important respects. The actual effects of adopting SFAS 123R will
be dependent on numerous factors including, but not limited to, the valuation
model chosen by the Company to value stock-based awards, the assumed award
forfeiture rate, the accounting policies adopted concerning the method of
recognizing the fair value of awards over the requisite service period, and the
transition method (as described below) chosen for adopting SFAS 123R.
SFAS 123R will be effective for our fiscal quarter beginning July 1,
2005, and requires the use of either the Modified Prospective Application Method
or the Modified Retrospective Method. Under the Modified Prospective Method,
SFAS 123R is applied to new awards and to awards modified, repurchased, or
cancelled after the effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not been rendered (such as
unvested options) that are outstanding as of the date of adoption shall be
recognized as the remaining requisite services are rendered. The compensation
cost relating to unvested awards at the date of adoption shall be based on the
grant-date fair value of those awards as calculated for pro forma disclosures
under the original SFAS123. In addition, companies may use the Modified
Retrospective Application Method. This method may be applied to all prior years
for which the original SFAS 123 was effective or only to prior interim periods
in the year of initial adoption. If the Modified Retrospective Application
Method is applied, financial statements for prior periods shall be adjusted to
give effect to the fair-value-based method of accounting for awards on a
consistent basis with the pro forma disclosures required for those periods under
the original SFAS 123.
Comprehensive Loss--The only component of comprehensive loss in 2004,
2003, and 2002 was net loss.
Deferred Income Taxes--We use the asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes are
provided for temporary differences in the bases of assets and liabilities as
reported for financial statement purposes and income tax purposes. We have
recorded a valuation allowance against all net deferred tax assets. The
valuation allowance reduces deferred tax assets to an amount that represents
management's best estimate of the amount of such deferred tax assets that more
likely than not will be realized.
F-12
Fair Value of Financial Instruments--Our financial instruments such as
cash and cash equivalents and long-term debt, when valued using market interest
rates, would not be materially different from the amounts presented in the
consolidated financial statements.
Reclassifications--Certain reclassifications have been made to prior
period amounts to conform to classifications adopted in the current year.
3. ASSET IMPAIRMENT
During the quarter ended June 30, 2002, we made the determination that
certain assets of the Company were impaired. Due to a shortage of cash, we made
the decision to reduce expenditures associated with exploring and developing the
Tennessee mineral property to the minimum amount required to maintain it. As a
result, development activities were delayed, including our intended use of the
jig to enhance the recovery of heavy minerals on the property. We could not
determine when and if the jig would generate substantial revenues and profits.
This, in combination with our lack of funds to further develop the jig for
commercial use, caused us to believe that the jig assets were impaired. Since we
could not determine when adequate funds would be available to further develop
and utilize the jig, we recorded an impairment charge related to the jig assets
in the amount of $2,759,956, which represented the remaining net book value of
the jig patents and related expenditures of $2,366,155 and the jigs included in
property, plant, and equipment of $393,801.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December
31, 2004 and 2003:
2004 2003
------------------ ------------------
Machinery and equipment $ 7,726,679 $ 7,144,365
Building 2,335,979 2,335,979
Vehicles 16,678 129,734
Furniture, office equipment & other 201,314 75,749
------------------ ------------------
Total 10,280,650 9,685,827
Less accumulated depreciation (3,766,742) (3,067,022)
------------------ ------------------
Total property and equipment $ 6,513,907 $ 6,618,805
================== ==================
Depreciation expense for the years ended December 31, 2004, 2003, and
2002 totaled $818,861, $793,077, and $770,250, respectively.
5. PATENTS
Patents consisted of the following at December 31, 2004 and 2003:
2004 2003
------------------ -----------------
Patents and patent applications $ 1,517,736 $ 1,517,736
Less accumulated amortization (542,859) (457,167)
------------------ -----------------
Total patents and patent applications $ 974,877 $ 1,060,569
================== =================
F-13
All patents are being amortized on a straight-line basis over their useful
lives with a weighted average amortization period of approximately 16.5 years.
Amortization expense was $85,692 for the year ended December 31, 2004, which
represented the amortization relating to the identified intangible assets still
required to be amortized under SFAS 142. For each of the next five years,
amortization expense relating to intangibles is expected to be $85,680 per year.
Amortization expense was $85,680 for the year ended December 31, 2003 and
$227,458 for the year ended December 31, 2002, which included $141,779 of
amortization related to jig patents that was recorded prior to an adjustment for
asset impairment at June 30, 2002.
6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 2004 and 2003:
December 31, 2004 December 31, 2003
----------------------- -----------------------
Note payable to BHP Minerals
International, Inc. $ 2,880,311 $ 2,686,130
Less current portion - -
----------------------- -----------------------
Long-term portion of notes payable $ 2,880,311 $ 2,686,130
======================= =======================
On August 8, 2002, we entered into a purchase and sale agreement with
BHP Minerals International, Inc. ("BHP") wherein we purchased the land, building
and fixtures in Reno, Nevada where our titanium processing assets are located.
In connection with this transaction, BHP also agreed to terminate our obligation
to pay royalties associated with the sale or use of the titanium processing
technology. In return, we issued to BHP a note in the amount of $3,000,000, at
an interest rate of 7%, secured by the property we acquired. Interest does not
begin to accrue until August 8, 2005. As a result, we imputed the interest and
reduced the face amount of the note payable by $566,763, an amount that is being
amortized to interest expense over the life of the note. The first payment of
$600,000 of principal plus accrued interest is due February 8, 2006. Additional
payments of $600,000 plus accrued interest are due annually on February 8, 2007
through 2010.
7. STOCK OPTIONS AND WARRANTS
Stock Options--We have stock option plans administered by the Board of
Directors that provide for the granting of options to employees, officers,
directors and other service providers of the Company. Options granted under the
plans generally are granted with an exercise price equal to the market value of
a common share at the date of grant, have five-year terms and typically vest
over periods ranging from immediately to three years from the date of grant.
F-14
Stock option activity for the years ended December 31, 2004, 2003, and
2002 is summarized as follows:
2004 2003 2002
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ------------ ---------- ----------- ----------
Outstanding at beginning of year 3,668,600 $ 3.11 4,061,700 $ 3.83 3,666,700 $ 4.38
Granted during the year 1,055,000 2.03 1,010,000 1.10 975,000 0.94
Cancelled/ Expired (868,000) 5.31 (925,000) 6.20 (580,000) 1.93
Exercised (561,900) 1.61 (478,100) 1.02 - -
------------ ---------- ------------ ---------- ----------- ----------
Outstanding at end of year 3,293,700 $ 2.28 3,668,600 $ 3.11 4,061,700 $ 3.83
============ ========== ============ ========== =========== ==========
Options exercisable at year end 2,708,700 $ 2.41 3,181,100 $ 3.38 3,410,700 $ 4.26
============ ========== ============ ========== =========== ==========
Weighted average fair value of
options granted during the year $ 1.15 $ 0.51 $ 0.64
========== ========== ==========
The following table summarizes information about stock options
outstanding at December 31, 2004:
Stock Options Outstanding Stock Options Exercisable
-------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
---------------- -------------- -------------- -------------- ------------- --------------
$0.47 to $1.06 890,000 5.5 $ 0.98 640,000 $ 0.96
$1.12 to $1.59 751,500 3.0 1.26 684,000 1.25
$2.00 to $2.09 728,500 2.5 2.03 561,000 2.02
$2.25 to $6.85 923,700 3.2 4.56 823,700 4.75
-------------- -------------- -------------- ------------- --------------
3,293,700 3.6 $ 2.28 2,708,700 $ 2.41
============== ============== ============== ============= ==============
F-15
We have elected to follow the measurement provisions of APB 25, under
which no recognition of expense is required in accounting for stock options
granted to employees and directors for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. Generally, stock
options are granted at an option price at or greater than fair market value on
the date of grant. We recorded compensation expense of $136,212 and $903,668 for
stock options that had been previously repriced and are accounted for under
variable accounting in accordance with APB 25 for the year ended December 31,
2004 and 2003, respectively.
We follow the measurement provisions of SFAS 123 for stock options
issued to non-employees. We recorded compensation expense of $270,560, $64,346,
and $27,601 for stock options granted to non-employees for the years ended
December 31, 2004, 2003, and 2002, respectively.
Warrants--Warrant activity for the years ended December 31, 2004, 2003,
and 2002 is summarized as follows:
2004 2003 2002
------------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
------------- ----------- ------------ ------------ ------------ -----------
Outstanding at beginning of year 10,453,831 $ 1.71 9,170,171 $ 1.92 4,612,007 $ 2.92
Issued 60,000 2.50 5,331,827 1.31 5,069,333 1.41
Expired (116,668) 3.14 (837,839) 2.72 (225,000) 9.00
Exercised (5,825,432) 1.54 (3,210,328) 1.38 (286,169) 1.05
------------- ----------- ------------ ------------ ------------ -----------
Outstanding at end of year 4,571,731 $ 1.90 10,453,831 $ 1.71 9,170,171 $ 1.92
============= =========== ============ ============ ============ ===========
Currently exercisable 4,571,731 $ 1.90 10,453,831 $ 1.71 9,170,171 $ 1.92
============= =========== ============ ============ ============ ===========
The following table summarizes information about warrants outstanding
at December 31, 2004:
Warrants Outstanding Warrants Exercisable
-------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Warrants Life (Years) Price Warrants Price
--------------- ------------- --------------- -------------- -------------- --------------
$1.00 1,756,627 3.3 $ 1.00 1,756,627 $ 1.00
$1.20 to $2.00 1,576,475 2.9 $ 1.88 1,576,475 $ 1.88
$2.50 to $5.00 1,238,629 2.0 $ 3.20 1,128,629 $ 3.20
------------- -------------- --------------- -------------- --------------
4,571,731 2.8 $ 1.90 4,461,731 $ 1.87
============= ============== =============== ============== ==============
F-16
The warrants were issued in conjunction with debt offerings, issuance
of common stock, and payment for outside services. To estimate expense related
to the issuance of warrants, we have used the modified Black-Scholes option
pricing model using a life equal to the maximum contractual life. The warrants
expire on various dates ranging from February 2005 to December 2008.
8. OTHER TRANSACTIONS
On April 16, 2002, we reduced the exercise price of 582,500 outstanding
warrants to $1.05 per share for the period April 26, 2002 through June 30, 2002.
The warrants had been previously issued with exercise prices ranging from $3.50
to $5.00. As a result of these repricings, we recorded a preferential warrant
dividend of $48,666 as of the repricing date. A total of 286,169 warrants were
exercised prior to the expiration date.
On or about June 2, 2003, we reduced the exercise price of 796,331
warrants to $1.00 per share. As a result of these repricings, we recorded a
preferential warrant dividend of $176,472 as of the repricing date. The warrants
had been previously issued with exercise prices ranging from $2.50 to $4.50.
In September 2003, we entered into an agreement with a shareholder
wherein the shareholder agreed to exercise 631,882 warrants that had an exercise
price of $1.00 each. In return, we issued to the shareholder 631,882 new
warrants having an exercise price of $1.75 each. The new warrants have a fair
value of $416,014 and were recorded as a preferential warrant dividend.
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares at the fair market value
through payroll deductions. Through December 31, 2003, a total of 864,584 common
shares were issued under the ESPP at prices ranging from $0.33 to $2.10 per
share.
9. LEASES
Operating Leases--We lease certain premises and equipment under
operating leases, all of which are on a month-to-month basis.
Lease expense for the years ended December 31, 2004, 2003, and 2002
totaled $28,207, $33,239, and $207,265, respectively.
Mineral Leases--During 2004, the Company decided to terminate the
mineral leases on the Tennessee mineral property, dispose of the related assets
and remediate the subject property to the extent required by regulatory
authorities. During the quarter ended December 31, 2004, leases representing a
total of 4,750 acres were terminated. At that time, we reversed $162,025 of
accrued advance royalty payments that were no longer owed. We expect to
terminate the leases on the remaining 3,950 acres during the first quarter of
2005. The minimum annual advance royalty payments on these 3,950 acres at
December 31, 2004 are as follows:
Year ending December 31:
2005 $ 47,815
2006 53,139
2007 43,042
2008 39,197
2009 29,900
Thereafter 71,482
F-17
The Company has incurred royalties of $14,675, $147,467, and $129,691
for the years ended December 31, 2004, 2003, and 2002, respectively.
10. INCOME TAXES
Because of the net operating losses and a valuation allowance on
deferred tax assets, there was no provision for income taxes recorded in the
accompanying consolidated financial statements for the three years in the period
ended December 31, 2004.
A reconciliation of the federal statutory income tax rate and our
effective income tax rates is as follows:
Year Ended December 31,
----------------------------------------
2004 2003 2002
----------- ----------- -----------
Federal statutory income taxes (benefit) $(2,450,798) $(2,390,649) $(3,489,557)
Meals and entertainment 3,875 3,821 3,470
Valuation allowance 2,446,923 2,386,828 3,486,087
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
The components of the deferred tax assets consisted of the following as
of December 31, 2004 and 2003:
2004 2003
------------ ------------
Deferred tax assets:
Net operating loss carryforward $ 10,570,378 $ 8,174,014
Basis difference in assets 175,722 493,242
Allowance for bad debts -- 163
------------ ------------
Total deferred tax assets 10,746,100 8,667,419
Deferred tax liabilities:
Accrued vacation (35,839) (27,012)
Valuation allowance (10,710,262) (8,640,407)
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
The net operating loss carryforwards total $30,201,080 as of December
31, 2004 and will expire at various dates as follows:
2005-2009 $ 1,385,536
2010-2014 $ 2,267,080
2015-2019 $ 2,045,989
2020-2024 $ 24,502,475
F-18
11. COMMITMENTS AND CONTINGENCIES
Litigation--We are currently not aware of any investigations, claims,
or lawsuits which we believe could have a material adverse effect on our
consolidated financial position or on our consolidated results of operations.
Significant Contracts--In July 2003 we entered into a memorandum of
understanding (the "MOU") with Titanium Metals Corporation ("TIMET") to provide
custom oxide feedstocks for a four-year, titanium metal research program funded
by the Department of Defense, Defense Advanced Research Projects Agency
("DARPA"). The MOU sets up a relationship under which TIMET and Altair will
explore opportunities for collaboration and funding of development work in
connection with the DARPA program. The DARPA program's goal is to lower the cost
of titanium metal and titanium metal alloys to enable a broader market use.
DARPA is specifically interested in lowering the cost to provide for a broader
use in military applications such as aerospace and weapons systems. During 2003,
we received $9,000 in connection with the MOU agreement. In January 2004 we
became a subcontractor for the DARPA program and were awarded a $150,000
contract from TIMET to design and develop a titanium oxide electrode structure
and provide TIMET optimized titanium oxide feedstock to produce 50 pounds of
titanium metal per day in batch production demonstrations. During 2004, we met
the contract and project goals and were awarded an additional $80,000 contract
to supply testing quantities of customized nano-sized coating materials.
In September 2003, we entered into an agreement with Western Michigan
University ("WMU") to provide research services and materials to support
research involving a technology used in the detection of chemical, biological
and radiological agents. The teaming/research agreement with WMU, funded by the
Department of Energy, provides for total payments to Altair of $356,500 over a
two-year period. During 2003, we received $36,600 in connection with this
research agreement. Total revenues generated by Altair under this agreement in
2004 were $287,580. In September 2004, the DOE awarded a stage 2 contract for
the project under which we will continue joint development work for the design,
synthesis and characterization of nanosensors for chemical, biological and
radiological agents. Altair will receive an additional $672,000 over the
two-year term of the stage 2 contract. Revenues of $203,740 were recorded in
2004 under this contract.
In January 2004, we entered into a license agreement with Western Oil
Sands, Inc. with respect to its possible use of the Altair Hydrochloride Pigment
Process ("AHPP") for the production of titanium dioxide pigment and
pigment-related products at the Athabasca Oil Sands Project in Alberta, Canada,
and elsewhere. Upon execution of the agreement, we granted Western Oil Sands an
exclusive, conditional license to use the AHPP on heavy minerals derived from
oil sands in Alberta, Canada. The agreement also contemplates a three-phase,
five-year program pursuant to which the parties will work together to further
evaluate, develop and commercialize the AHPP. In the first phase of the program,
Western Oil Sands is expected to spend $650,000 ($500,000 of which is scheduled
to be paid to Altair for work performed) to evaluate the AHPP and confirm that
the AHPP will produce pigment from oil sands. Assuming phase one is successful,
Western Oil Sands may elect to commence phase two, the construction of a
demonstration titanium pigment production facility using the AHPP. If phase two
is successful, Western Oil Sands may elect to commence phase three, the
construction and operation of a full-scale commercial titanium pigment
production facility using the AHPP. Revenues of $314,359 were recorded in 2004
under this contract.
In June 2004, we were awarded a National Science Foundation grant of
$100,000 to fund joint development work on next generation lithium ion power
sources with Hosokawa Micron's Nanoparticle Technology Center and Rutgers
University's Energy Storage Research Group. The grant was effective July 1, 2004
F-19
and the project was substantially complete at December 31, 2004. We expect to
supply nano-sized anode and cathode materials for design and development of high
capacity lithium ion battery and super capacitor applications. Nanomaterials are
expected to improve the performance of these systems and enable their use in
applications where immediate high power delivery is necessary.
In November 2004, we entered into an agreement with the University of
Nevada, Las Vegas Research Foundation to act as a subcontractor under a
$3,000,000 grant awarded to them by the U.S. Department of Energy for joint
research activities related to solar hydrogen production at a refilling station
that is under development in Las Vegas. The agreement, which is effective
through December 31, 2005, provides for payments to Altair of $400,000 for
research and development work utilizing nanotechnology processes for the
production and commercialization of solar-based hydrogen technologies. The
agreement, which has a work scope totaling $500,000, contains a cost-sharing
provision that requires Altair to share project costs in the amount of $100,000.
12. RELATED PARTY TRANSACTIONS
On December 31, 2003, we entered into a consulting agreement with
Advanced Technology Group LLC ("ATG"), whose managing partner is David King, a
Director of the Company. The agreement stipulates that ATG will furnish
consulting services in reviewing potential federal grant opportunities and
providing proposal development assistance on selected programs for a period of
one year. Under the terms of the agreement, ATG is paid on a contingency basis
at a rate of 6% of the first $1,000,000 in grant monies secured from
applications prepared in any calendar year plus 3.5% of any cumulative amounts
over $1,000,000. ATG also agreed to provide consulting services at a rate of
$200 per hour upon request of the Corporation. In October 2004, we paid ATG
$6,000 in fees in connection with securing a $100,000 grant from the National
Science Foundation for development of nano-structured electrodes for use in
lithium ion ultra-capacitors. Also in October 2004, we paid ATG $4,500 in fees
for consulting work in connection with product marketing.
13. BUSINESS SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, management views the Company as operating in
four business segments: Performance Materials, Life Sciences, Tennessee Mineral
Property, and the Altair Jig.
The Performance Materials segment produces advanced materials for
paints, coatings, sensors, alternative energy devices and materials for
improving process technologies. The Life Sciences segment produces
pharmaceutical products, drug delivery products and dental materials. The
Tennessee Mineral Property segment, which was involved in the exploration of
mineral properties, is being disposed of and the Altair Jig segment is inactive
with a zero net book value for its assets and minimal operating costs.
The accounting policies of these business segments are the same as
described in Note 1 to the consolidated financial statements. During 2004, we
reorganized our nanomaterials and titanium dioxide pigment technology business
segment into two distinct segments: Performance Materials and Life Sciences and,
as such, the information presented below for 2003 and 2002 has been revised to
reflect this change.
Reportable segment data reconciled to the consolidated financial
statements as of and for the fiscal years ended December 31, 2004, 2003, and
2002 is as follows:
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Depreciation
Loss From and
Net Sales Operations Amortization Assets
----------- ----------- ----------- -----------
2004:
-----
Performance Materials $ 1,151,892 $ 4,475,013 $ 839,974 $ 5,567,685
Life Sciences -- 250,855 1,307 104,534
Tennessee Mineral Property -- 12,142 -- --
Altair Jig -- 9,264 -- --
Corporate and other -- 2,157,680 63,272 9,874,802
----------- ----------- ----------- -----------
Consolidated Total $ 1,151,892 $ 6,904,955 $ 904,553 $15,547,021
=========== =========== =========== ===========
2003:
-----
Performance Materials $ 72,851 $ 2,771,433 $ 809,344 $ 5,362,003
Life Sciences -- 51,451 -- --
Tennessee Mineral Property -- 155,709 -- 40,418
Altair Jig -- 27,729 -- --
Corporate and other -- 2,778,888 69,413 6,257,333
----------- ----------- ----------- -----------
Consolidated Total $ 72,851 $ 5,785,210 $ 878,757 $11,659,754
=========== =========== =========== ===========
2002:
-----
Performance Materials $ 225,225 $ 2,456,771 $ 792,399 $ 6,274,732
Life Sciences -- -- -- --
Tennessee Mineral Property -- 598,977 -- 18,200
Altair Jig 28,270 2,929,010 163,343 10,270
Corporate and other -- 1,871,953 41,966 2,611,203
----------- ----------- ----------- -----------
Consolidated Total $ 253,495 $ 7,856,711 $ 997,708 $ 8,914,405
=========== =========== =========== ===========
For the year ended December 31, 2004, we had sales to three major
customers, each of which accounted for 10% or more of revenues and all of which
were made in the performance materials business segment. Total sales to these
customers for the year ended December 31, 2004 and the balance of their accounts
receivable at December 31, 2004 were as follows:
Sales - Year Ended Accounts Receivable at
Customer December 31, 2004 December 31, 2004
------------------------------- --------------------- -------------------------
Western Michigan University $491,320 $319,739
Titanium Metals Corp. 152,550 39,382
Western Oil Sands 314,359 67,191
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For the year ended December 31, 2003, we had sales to three major
customers, each of which accounted for 10% or more of revenues and all of which
were made in the performance materials business segment. Total sales to these
customers for the year ended December 31, 2003 and the balance of their accounts
receivable at December 31, 2003 were as follows:
Sales - Year Ended Accounts Receivable at
Customer December 31, 2003 December 31, 2003
------------------------------- --------------------- -------------------------
Western Michigan University $ 36,553 $ 12,620
New Zealand Steel 18,696 --
Titanium Metals Corp. 9,000 --
For the year ended December 31, 2002, we had sales to four major
customers, each of which accounted for 10% or more of revenues. Total sales to
these customers for the year ended December 31, 2002 and the balance of their
accounts receivable at December 31, 2002 were as follows:
Sales - Year Ended Accounts Receivable at
Customer December 31, 2002 December 31, 2002
------------------------------- --------------------- -------------------------
New Zealand Steel $ 90,300 $ 55,500
FW Gartner 62,073 62,073
Inframat Corp. 42,403 --
Kerr-McGee Corp. 28,270 10,270
Of these sales, $28,270 relates to the Altair Jig segment and the
remainder relates to the performance materials business segment.
14. SUBSEQUENT EVENTS
On January 28, 2005, we signed a RenaZorb(TM) licensing agreement with
Spectrum Pharmaceuticals, Inc. ("Spectrum") which grants Spectrum exclusive
worldwide rights to develop, market and sell RenaZorb(TM), a potential drug
candidate for patients with kidney disease, for human therapeutic and diagnostic
applications. Upon signing the agreement, Spectrum issued to us 100,000
restricted shares of their common stock, purchased 38,314 restricted shares of
our common stock at the then current market value of $2.61 per share, and also
paid us $100,000 in connection with the licensing agreement. Additional payments
by Spectrum are contingent upon the achievement of various milestones in the
testing, regulatory approval and sale of RenaZorb(TM). Under the terms of a
contract with RBC Capital Markets Corporation ("RBC"), we are required to pay a
transaction fee of $750,000 to RBC for their assistance in arranging the
transaction.
On February 14, 2005, we sold 5,000,000 common shares that had been
registered previously in a shelf registration. The sales were made at $4.05 per
share with net proceeds to the Company, after expenses, of approximately $19.2
million. The placement agent also received a warrant to purchase 250,000 shares
of our common stock at $5.27 per share. The warrant has a four-year term. Using
a Black-Scholes pricing model, we estimate these warrants have a value of
approximately $581,000 at their date of issuance.
On March 4, 2004, the closing market price of our common stock was
$4.07 per share and, as of that date, the value of the Company's repriced common
stock options had increased by $762,000 over their value at December 31, 2004
when the closing market price was $2.71 per share. The value of repriced common
stock options increases or decreases with changes in the market price of our
common stock.
F-22