[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 2005
|
[
]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________
|
ALTAIR
NANOTECHNOLOGIES INC.
|
Canada
|
1-12497
|
33-1084375
|
||
(State
or other jurisdiction of incorporation)
|
(Commission
File No.)
|
(IRS
Employer Identification No.)
|
Common
Shares, no par value
(Title
of Class)
|
Nasdaq
Capital Market
(Name
of each exchange on which
registered)
|
Large
accelerated filer [ ]
|
Accelerated
filer [X ]
|
Non-accelerated
filer [ ]
|
|
1
|
|
1
|
||
23
|
||
28
|
||
29
|
||
29
|
||
30
|
||
31
|
||
31
|
||
33
|
||
34
|
||
43
|
||
43
|
||
43
|
||
44
|
||
45
|
||
45
|
||
45
|
||
45
|
||
45
|
||
45
|
||
45
|
||
|
46
|
|
46
|
·
|
Advanced
Materials
|
o
|
The
marketing and licensing of titanium dioxide pigment production
technology.
|
o
|
The
marketing and production of nano-structured ceramic powders for
thermal
spray applications.
|
o
|
The
development of nano-structured ceramic powders for nano-sensor
applications.
|
o
|
The
development of titanium dioxide electrode structures in connection
with
research programs aimed at developing a lower-cost process for
producing
titanium metals and related alloys. Development of this product
is largely
inactive as we seek a business
partner.
|
·
|
Air
and Water Treatment
|
o
|
The
development, production and sale of photocatalytic materials for
air and
water cleansing.
|
o
|
The
marketing of
Nanocheck products for phosphate binding to prevent or reduce algae
growth
in recreational and industrial
water.
|
·
|
Alternative
Energy
|
o
|
The
development, production and sale of nano-structured lithium titanate
spinel, lithium cobaltate and lithium manganate spinel materials
for high
performance lithium ion batteries.
|
o
|
The
design and development of power lithium ion battery cells, batteries
and
battery packs as well as related design and test services.
|
o
|
The
development of materials for photovoltaics and transparent electrodes
for
hydrogen generation and fuel cells.
|
·
|
Lanthanum
based Pharmaceutical Products
|
o
|
The
co-development of RenaZorb, a test-stage active pharmaceutical
ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney
dialysis.
|
o
|
The
testing of Renalan, a test-stage active pharmaceutical ingredient,
which
is designed to be useful in the treatment of elevated serum phosphate
levels in companion animals suffering from chronic renal
disease.
|
·
|
Chemical
Delivery Products
|
o
|
The
development of TiNano Spheres, which are rigid, hollow, porous,
high
surface area ceramic micro structures that are derived from Altair’s
proprietary process technology for the delivery of chemicals, drugs
and
biocides.
|
·
|
Biocompatible
Materials
|
o
|
The
development of nanomaterials for use in various products for dental
implants, dental fillings and dental products, as well as biocompatible
coatings on implants.
|
·
|
a
contract with Western Oil Sands, Inc. for the production of titanium
dioxide pigment and pigment-related products from oil sands. We
have
constructed a pilot separation plant for Western Oil Sands, Inc.
in our
Reno, Nevada facility that we are using under contract to develop
the
process for recovering titanium dioxide from oil sands. At December
31,
2005 and 2004, we had approximately $642,000 and $200,000, respectively,
of work remaining to be done on existing
contracts;
|
·
|
a
contract with Western Michigan University to develop nanosensors
for the
detection of chemical, biological and radiological agents. At December
31,
2005 and 2004, we had approximately $16,000 and $500,000, respectively,
of
work to be done under existing contracts. We expect to continue
the
project under an announced federal earmark grant that is estimated
to
provide $1,000,000 to us over approximately one
year;
|
·
|
a
grant awarded by the National Science Foundation to fund joint
development
work on next generation lithium ion power sources. At December
31, 2005
and 2004, we had approximately $349,000 and $33,000, respectively,
of work
remaining to be done on existing contracts. The work to be done
under the
contract backlog at December 31, 2005 is expected to run through
June 30,
2007;
and
|
·
|
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
December 31, 2005 and 2004, we had approximately
$623,000 and $400,000, respectively, of work to be done under the
agreement.
|
·
|
Power:
A battery’s power rating is its ability to deliver current while
maintaining its voltage.
|
·
|
Discharge:
Discharge refers to the dissipation of a battery’s stored energy as a
result of intended transfer of that energy (either gradually
or in one or
more large bursts) or as a result of the unintended leakage of
that
energy. This leakage is referred to as “self discharge” and is a natural
tendency of all batteries for which the rate is proportional
to
temperature. A “deep discharge” refers to the discharge of substantially
all of the stored energy in a battery between recharges. In general,
deep
discharges reduce the cycle life of
batteries.
|
·
|
Energy
density: A battery’s energy density relates to the total unit volume of
materials comprising a battery that will deliver a watt hour
of energy. A
battery with high energy density will deliver more energy per
unit volume
than a battery with lower energy density.
|
·
|
Cycle
life: The ability of a rechargeable battery to accept a charge
tends to
diminish as a result of repeat charge/discharge cycles. A battery’s “cycle
life” is the number of times it can be charged and discharged without
a
significant reduction in its ability to accept a charge.
|
·
|
Calendar
life: A battery’s calendar life relates to the period of time that a
battery will preserve its capability to deliver a significant
portion of
its newly-built energy storage
capacity.
|
·
|
Recharge
time: Recharge time is the minimum amount of time it takes to
replenish a
battery’s energy.
|
·
|
purchases
of a specified dollar amount of common stock of the Company at
a premium
above market price upon the reaching of various milestones representing
progress in the testing and obtaining of regulatory approval
for RenaZorb;
|
·
|
milestone
payments upon obtaining approval to market RenaZorb from the
FDA and
similar regulatory agencies in Europe and Japan;
|
·
|
milestone
payments as certain annual net sales targets are reached;
|
·
|
royalty
payments based upon a percentage of net revenue from sales of
RenaZorb in
each country (subject to adjustment for combined products and
in other
circumstances) as long as patents applicable to that country
remain valid;
and
|
·
|
technology
usage payments thereafter until generic competition emerges.
|
·
|
Lower
dosage requirements because of better phosphate binding per gram
of drug
compared with existing or currently proposed
drugs;
|
·
|
Fewer
and less severe side effects because of less gassing and lower
dosage;
and
|
·
|
Better
patient compliance because of fewer and smaller
tablets
|
·
|
Specifically
targeted to address hyperphosphatemia in companion
animals
|
·
|
Palatable
with manageable regime
|
·
|
Can
be administered in powder form which can be mixed with the pet’s
food
|
·
|
New
delivery forms for existing drugs;
|
·
|
Delivery
methods for new drugs;
|
·
|
Enhanced
delivery of hard to dissolve drugs;
|
·
|
Delivery
of sustained release drugs; and
|
·
|
Delivery
of dual action drugs
|
·
|
Our
pending patent applications may not be granted for various reasons,
including the existence of similar patents or defects in the
applications;
|
·
|
The
patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other
reasons;
|
·
|
Parties
to the confidentiality and invention agreements may have such agreements
declared unenforceable or, even if the agreements are enforceable,
may
breach such agreements;
|
·
|
The
costs associated with enforcing patents, confidentiality and invention
agreements or other intellectual property rights may make aggressive
enforcement cost prohibitive;
|
·
|
Even
if we enforce our rights aggressively, injunctions, fines and other
penalties may be insufficient to deter violations of our intellectual
property rights; and
|
·
|
Other
persons may independently develop proprietary information and techniques
that, although functionally equivalent or superior to our intellectual
proprietary information and techniques, do not breach our patented
or
unpatented proprietary rights.
|
·
|
further
testing conducted by Spectrum may indicate that RenaZorb is less
effective
than existing products, is unsafe, has significant side effects
or is
otherwise not viable;
|
·
|
Spectrum
may be unable to obtain FDA or other regulatory approval of RenaZorb
for
technical, political or other reasons or, even if it obtains such
approval, may not obtain such approval on a timely
basis;
|
·
|
products
containing RenaZorb 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;
|
·
|
Spectrum
may terminate the license agreement, experience financial or other
problems or otherwise fail to effectively test, seek approval for
and
market RenaZorb;
|
·
|
the
arbitration currently ongoing (see Item 3, Legal Proceedings) could
seriously delay commercialization of RenaZorb:
and
|
·
|
prior
to or following regulatory approval, superior products may be developed
and introduced into the market.
|
·
|
batteries
utilizing the technology may not exhibit expected charge rates,
discharge
rates or durability run time or other features when used in real
world
applications;
|
·
|
batteries
incorporating the technology may not meet the distinct needs of
potential
customers, applications or industries or otherwise prove competitive
with
existing technologies or technologies under development on account
of
technical limitations, such as a short run time between charges;
|
·
|
marketing
and branding efforts by us, a potential strategic partner or others
may be
insufficient to attract a sufficient number of customers;
and
|
·
|
competitors
may have developed, or be in the process of developing, batteries
or
materials that are better suited to our target markets than batteries
using our materials.
|
·
|
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;
|
·
|
we
may be unable to customize our titanium dioxide nanoparticle products
to
meet the distinct needs of potential customers;
|
·
|
potential
customers may purchase from competitors because of perceived or
actual
quality or compatibility
differences;
|
·
|
our
marketing and branding efforts may be insufficient to attract a
sufficient
number of customers; and
|
·
|
because
of our limited funding, we may be unable to continue our development
efforts until a strong market for nanoparticles develops.
|
·
|
market
factors affecting the availability and cost of capital
generally;
|
·
|
the
price, volatility and trading volume of our shares of common stock;
|
·
|
our
financial results, particularly the amount of revenue we are generating
from operations;
|
·
|
the
amount of our capital needs;
|
·
|
the
market’s perception of nanotechnology and/or chemical
stocks;
|
·
|
the
economics of projects being pursued;
and
|
·
|
the
market’s perception of our ability to generate revenue through the
licensing or use of our nanoparticle technology for pharmaceutical,
pigment production, nanoparticle production and other
uses.
|
·
|
Intentional
manipulation of our stock price by existing or future shareholders
or a
reaction by investors to trends in our stock rather than the fundamentals
of our business;
|
·
|
A
single acquisition or disposition, or several related acquisitions
or
dispositions, of a large number of our shares, including by short
sellers
covering their position;
|
·
|
The
interest of the market in our business sector, without regard to
our
financial condition, results of operations or business prospects;
|
·
|
Positive
or negative statements or projections about our company or our
industry,
by analysts, stock gurus and other
persons;
|
·
|
The
adoption of governmental regulations or government grant programs
and
similar developments in the United States or abroad that may enhance
or
detract from our ability to offer our products and services or
affect our
cost structure; and
|
·
|
Economic
and other external market factors, such as a general decline in
market
prices due to poor economic indicators or investor
distrust.
|
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
|
||
|
|
|||
Fiscal
Year Ended December 31, 2005
|
Low
|
High
|
||
1st
Quarter
|
$1.93
|
$6.52
|
||
2nd
Quarter
|
$2.53
|
$4.38
|
||
3rd
Quarter
|
$2.40
|
$3.40
|
||
4th
Quarter
|
$1.93
|
$2.82
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
Plan
Category
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
2,533,200
|
$2.69
|
3,568,000
|
Equity
compensation plans not approved by security
holders
|
None
|
N/A
|
None
|
Total
|
2,533,200
|
$2.69
|
3,568,000
|
For
the Year Ended December 31,
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
STATEMENTS
OF OPERATIONS
|
||||||||||||||||
Revenues
|
$
|
2,806,535
|
$
|
1,151,892
|
$
|
72,851
|
$
|
253,495
|
$
|
42,816
|
||||||
Operating
expenses
|
$
|
(13,288,388
|
)
|
$
|
(8,056,847
|
)
|
$
|
(5,858,061
|
)
|
$
|
(8,110,206
|
)
|
$
|
(6,064,348
|
)
|
|
Interest
expense
|
$
|
(207,189
|
)
|
$
|
(194,180
|
)
|
$
|
(454,415
|
)
|
$
|
(1,151,388
|
)
|
$
|
(1,881,077
|
)
|
|
Interest
income
|
$
|
750,306
|
$
|
96,229
|
$
|
1,879
|
$
|
2,105
|
$
|
148,980
|
||||||
Gain
(Loss) on foreign exchange
|
$
|
1,524
|
$
|
626
|
$
|
(193
|
)
|
$
|
(835
|
)
|
$
|
(402
|
)
|
|||
Loss
on extinguishment of debt
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(914,667
|
)
|
$
|
-
|
|||||
Net
Loss
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
$
|
(9,921,496
|
)
|
$
|
(7,754,031
|
)
|
|
Basic
and diluted net loss per common share
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
$
|
(0.40
|
)
|
$
|
(0.39
|
)
|
|
Cash
dividends declared per common share
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
BALANCE
SHEET DATA
|
||||||||||||||||
Working
capital
|
$
|
21,482,766
|
$
|
7,663,264
|
$
|
3,565,039
|
$
|
(204,365
|
)
|
$
|
(81,154
|
)
|
||||
Total
assets
|
$
|
33,464,016
|
$
|
15,547,021
|
$
|
11,659,754
|
$
|
8,914,405
|
$
|
10,853,243
|
||||||
Current
liabilities
|
$
|
(2,427,543
|
)
|
$
|
(376,773
|
)
|
$
|
(397,141
|
)
|
$
|
(604,503
|
)
|
$
|
(714,689
|
)
|
|
Long-term
obligations
|
$
|
(2,400,000
|
)
|
$
|
(2,880,311
|
)
|
$
|
(2,686,130
|
)
|
$
|
(3,905,040
|
)
|
$
|
(1,462,060
|
)
|
|
Net
shareholders' equity
|
$
|
(28,636,473
|
)
|
$
|
(12,289,937
|
)
|
$
|
(8,576,483
|
)
|
$
|
(4,404,862
|
)
|
$
|
(8,676,494
|
)
|
·
|
Advanced
Materials
|
o
|
The
marketing and licensing of titanium dioxide pigment production
technology.
|
o
|
The
marketing and production of nano-structured ceramic powders for
thermal
spray applications.
|
o
|
The
development of nano-structured ceramic powders for nano-sensor
applications.
|
o
|
The
development of titanium dioxide electrode structures in connection
with
research programs aimed at developing a lower-cost process for
producing
titanium metals and related alloys. Development of this product
is largely
inactive as we seek a business
partner.
|
·
|
Air
and Water Treatment
|
o
|
The
development, production and sale of photocatalytic materials for
air and
water cleansing.
|
o
|
The
marketing of
Nanocheck products for phosphate binding to prevent or reduce algae
growth
in recreational and industrial
water.
|
·
|
Alternative
Energy
|
o
|
The
development, production and sale of nano-structured lithium titanate
spinel, lithium cobaltate and lithium manganate spinel materials
for high
performance lithium ion batteries.
|
o
|
The
design and development of power lithium ion battery cells, batteries
and
battery packs as well as related design and test services.
|
o
|
The
development of materials for photovoltaics and transparent electrodes
for
hydrogen generation and fuel cells.
|
·
|
Lanthanum
based Pharmaceutical Products
|
o
|
The
co-development of RenaZorb, a test-stage active pharmaceutical
ingredient,
which is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney
dialysis.
|
o
|
The
testing of Renalan, a test-stage active pharmaceutical ingredient,
which
is designed to be useful in the treatment of elevated serum phosphate
levels in companion animals suffering from chronic renal
disease.
|
·
|
Chemical
Delivery Products
|
o
|
The
development of TiNano Spheres, which are rigid, hollow, porous,
high
surface area ceramic micro structures that are derived from Altair’s
proprietary process technology for the delivery of chemicals, drugs
and
biocides.
|
·
|
Biocompatible
Materials
|
o
|
The
development of nanomaterials for use in various products for dental
implants, dental fillings and dental products, as well as biocompatible
coatings on implants.
|
·
|
We
must continue the development work on our advanced battery materials,
produce sufficient quantities of batteries and battery cells for
test
purposes, obtain satisfactory test results and successfully market
the
materials. Toward that end, we have hired additional employees,
are
constructing test and production facilities and are purchasing
equipment.
Our intent is to initially market our battery materials to the
automotive
industry where we must be able to demonstrate to prospective customers
that our lithium battery materials offer significant advantages
over
existing technologies.
|
·
|
Spectrum
must begin the testing and application processes necessary to receive
FDA
approval of our RenaZorb product. Animal testing of RenaZorb was
completed
in September 2005 and, although we have been informed that the
results
were positive and we have received a copy of the test results,
Altair has
not received the milestone payment of 100,000 shares of Spectrum
Pharmaceuticals, Inc. stock called for in the agreement. Altair
and
Spectrum entered the early stages of a dispute resolution process
as
required by our license agreement. This process will likely delay
the
product development process and our receipt of our next milestone
payment.
|
·
|
Licensing
and product purchase commitments for our Nanocheck 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 product, which could bring
manufacturing and licensing revenue in 2006.
|
·
|
The
initial phase of work for the Western Oil Sands license agreement
has been
expanded and will run through December 31, 2006. We must successfully
complete the initial phase, and Western Oil Sands must decide to
proceed
with phase 2 work for this project to continue to move toward
commercialization.
|
·
|
In
April 2005, we entered into a joint venture with Bateman Engineering
NV
(“Bateman”) to combine our hydrochloride pigment process technology with
Bateman’s engineering, design and construction expertise. The joint
venture, Altair-Bateman Titania, Inc., will offer customers an
integrated
resource for technology development, engineering, design and construction
of pigment processing projects. We anticipate that the joint venture
will
be funded entirely by Altair and Bateman, with each having equal
shareholding and Altair having voting control. We expect to make
a
significant capital investment in the venture and, in order to
recover our
investment, we must be successful in licensing the pigment process
technology.
|
Less
Than
|
After
|
|||||||||||||||
Contractual
Obligations
|
Total
|
1
Year
|
1-3
Years
|
4-5
Years
|
5
Years
|
|||||||||||
Notes
Payable
|
$
|
3,000,000
|
$
|
600,000
|
$
|
1,200,000
|
$
|
1,200,000
|
$
|
-
|
||||||
Interest
on notes payable
|
525,000
|
105,000
|
294,000
|
126,000
|
-
|
|||||||||||
Mineral
Leases*
|
86,386
|
81,586
|
4,800
|
-
|
-
|
|||||||||||
Contractual
Service Agreements
|
789,631
|
777,131
|
12,500
|
-
|
-
|
|||||||||||
Facilities
Leases
|
206,872
|
31,626
|
175,246
|
-
|
-
|
|||||||||||
Unfulfilled
Purchase Orders
|
1,208,662
|
1,208,662
|
-
|
-
|
-
|
|||||||||||
Total
Contractual Obligations
|
$
|
5,816,551
|
$
|
2,804,005
|
$
|
1,686,546
|
$
|
1,326,000
|
$
|
-
|
||||||
*
Although we expect to terminate all mineral leases as soon as is
practicable, the obligations are included here because they are
not yet
terminated.
|
·
|
Long-Lived
assets. Our long-lived assets consist principally of the nanomaterials
and
titanium dioxide pigment assets, the intellectual property (patents
and
patent applications) associated with them, and a building. Included
in these long-lived assets are those that relate to our research
and
development process. These assets are initially evaluated for
capitalization based on Statement of Financial Accounting Standards
("SFAS") No. 2, Accounting
for Research and Development Costs.
If the assets have alternative future uses (in research and development
projects or otherwise), they are capitalized when acquired or constructed;
if they do not have alternative future uses, they are expensed
as
incurred. At
December 31, 2005, the carrying value of these assets was $8,746,543,
or
26% 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.
|
·
|
Stock-Based
Compensation. We have three 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 (“SFAS 123R”) that
eliminates the alternative of applying the intrinsic value measurement
provisions of APB 25. We are required to adopt SFAS 123R no later
than
January 1, 2006. 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.
|
·
|
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 2005, our
revenues were derived from four sources: license fees, commercial
collaborations, contract research and development and product sales.
License fees are recognized when the agreement is signed, we have
performed all material obligations related to the particular milestone
payment or other revenue component and the earnings process is
complete.
Revenue for product sales is recognized at the time the purchaser
has
accepted delivery of the product. Based on the specific terms and
conditions of each contract/grant, revenues are recognized on a
time and
materials basis, a percentage of completion basis and/or a completed
contract basis. Revenue under contracts based on time and materials
is
recognized at contractually billable rates as labor hours and expenses
are
incurred. Revenue under contracts based on a fixed fee arrangement
is
recognized based on various performance measures, such as stipulated
milestones. As these milestones are achieved, revenue is
recognized. From time to time, facts develop that may require us to
revise our estimated total costs or revenues expected. The
cumulative effect of revised estimates is recorded in the period
in which
the facts requiring revisions become known. The full amount of
anticipated losses on any type of contract is recognized in the
period in
which it becomes known.
|
·
|
Overhead
Allocation. Facilities overhead, which is comprised primarily of
occupancy
and related expenses, is initially recorded in general and administrative
expenses and then allocated monthly to research and development
expense
based on labor costs. Facilities overheads allocated to research
and
development projects may be chargeable when invoicing customers
under
certain research and development
contracts.
|
·
|
Allowance
for Doubtful Accounts. The allowance for doubtful accounts is based
on our
assessment of the collectibility of specific customer accounts
and the
aging of accounts receivable. We analyze historical bad debts, the
aging of customer accounts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer
payment patterns when evaluating the adequacy of the allowance
for
doubtful accounts. From period to period, differences in judgments
or estimates utilized may result in material differences in the
amount and
timing of our bad debt expenses.
|
·
|
Deferred
Income Tax. Income taxes are accounted for using the asset and
liability
method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in
the years in which those temporary differences are expected to
be
recovered or settled. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in
the period
that includes the enactment date. Future tax benefits are subject to
a valuation allowance when management is unable to conclude that
its
deferred income tax assets will more likely than not be realized
from the
results of operations. The Company has recorded a valuation
allowance to reflect the estimated amount of deferred income tax
assets
that may not be realized. The ultimate realization of deferred
income tax
assets is dependent upon generation of future taxable income during
the
periods in which those temporary differences become deductible.
Management
considers projected future taxable income and tax planning strategies
in
making this assessment. Based on the historical taxable income
and
projections for future taxable income over the periods in which
the
deferred income tax assets become deductible, management believes
it more
likely than not that the Company will not realize benefits of these
deductible differences as of December 31, 2005. Management has,
therefore, established a full valuation allowance against its net
deferred
income tax assets as of December 31,
2005.
|
Supplementary
Financial Information by Quarter, 2005 and 2004
|
|||||||||||||
(Unaudited)
|
|||||||||||||
Quarter
Ended
|
Quarter
Ended
|
Quarter
Ended
|
Quarter
Ended
|
||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||
Year
Ended December 31, 2005:
|
|||||||||||||
Revenues
|
$
|
1,027,580
|
$
|
502,881
|
$
|
585,405
|
$
|
690,669
|
|||||
Operating
Expenses
|
$
|
3,325,584
|
$
|
2,554,426
|
$
|
2,939,565
|
$
|
4,468,813
|
|||||
Net
Loss
|
$
|
(2,245,959
|
)
|
$
|
(1,919,078
|
)
|
$
|
(2,176,826
|
)
|
$
|
(3,595,349
|
)
|
|
Loss
per Common Share: (1)
|
|||||||||||||
Basic
and Diluted
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
|
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
|
)
|
|
(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.
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of
America;
|
·
|
provide
reasonable assurance that our receipts and expenditures are being
made
only in accordance with authorization of our management;
and
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could
have a
material effect on our consolidated financial
statements.
|
·
|
Report
of Independent Registered Public Accounting
Firm
|
·
|
Report
of Independent Registered Public Accounting Firm on Internal Control
over
Financial Reporting
|
·
|
Report
of Former Independent Registered Public Accounting
Firm
|
·
|
Consolidated
Balance Sheets, December 31, 2005 and
2004
|
·
|
Consolidated
Statements of Operations for Each of the Three Years in the Period
Ended
December 31, 2005
|
·
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Loss for Each of the
Three Years in the Period Ended December 31,
2005
|
·
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the Period
Ended
December 31, 2005
|
·
|
Notes
to Consolidated Financial
Statements
|
Exhibit
No.
|
Description
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
||
3.1
|
Articles
of Continuance
|
Incorporated
by reference to the Current Report on Form 8-K filed with the
SEC on July
18, 2002.**
|
||
3.2
|
Bylaws
|
Incorporated
by reference to the Amendment No. 1 to Annual Report on Form
10-K/A filed
with the SEC on March 10, 2005. **
|
||
4.1
|
Form
of Common Stock Certificate
|
Incorporated
by reference to Registration Statement on Form 10-SB filed with
the SEC on
November 25, 1996. **
|
Exhibit
No.
|
Description
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
||
4.2
|
Amended
and Restated Shareholder Rights Plan dated October 15, 1999,
between the
Company and Equity Transfer Services, Inc.
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on November 19, 1999. **
|
||
10.1
|
Altair
International Inc. Stock Option Plan adopted by shareholders
on May 10,
1996
|
Incorporated
by reference to the Company's Registration Statement on Form
S-8, File No.
333-33481filed with the SEC on July 11, 1997.
|
||
10.2
|
1998
Altair International Inc. Stock Option Plan adopted by Shareholders
on
June 11, 1998
|
Incorporated
by reference to the Company’s Definitive Proxy Statement on Form 14A filed
with the SEC on May 12, 1998. **
|
||
10.3
|
Altair
Nanotechnologies Inc. 2005 Stock Incentive Plan
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8, File No.
333-125863, filed with the SEC on June 16, 2005.
|
||
10.4
|
Installment
Note dated August 8, 2002 (re Edison Way property)
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February
7, 2003.
|
||
10.5
|
Trust
Deed dated August 8, 2002 (re Edison Way property)
|
Incorporated
by reference to the Company’s Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the SEC on February
7, 2003.
|
||
10.6
|
Technology
License Agreement dated September 29, 2003, with Bateman Luxembourg
SA
*
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC on November 14, 2003.
|
||
10.7
|
License
Agreement for Altair TiO2 Pigment Technology between Altair
Nanotechnologies, Inc. and Western Oil Sands, Inc. *
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 3, 2004. **
|
||
10.8
|
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.
|
||
10.9
|
Employment
Agreement of Douglas Ellsworth
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC November 15, 2004.**
|
||
10.10
|
Employment
Agreement of Edward Dickinson
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006. **
|
Exhibit
No.
|
Description
|
Incorporated
by Reference/Filed Herewith (and Sequential Page
#)
|
||
10.11
|
Employment
Agreement of Alan J. Gotcher, Ph.D.
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the
SEC on February 21, 2006.**
|
||
10.12
|
License
Agreement dated January 28, 2005 with Spectrum Pharmaceuticals,
Inc.*
|
Incorporated
by reference from the Company’s Current Report on Form 8-K filed with the
SEC on February 4, 2005.**
|
||
10.13
|
Letter
Agreement dated February 11, 2005 between the Company and Maxim
Group LLC
|
Incorporated
by reference from the Current Report on Form 8-K filed by the
Company on
February 15, 2005. **
|
||
10.14
|
Subcontract
between the UNLV Research Foundation and Altair Nanomaterials,
Inc.
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC August 15, 2005. **
|
||
10.15
|
Lease
(Indiana Office) with Flagship Enterprise Center
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the
SEC November 14, 2005. **
|
||
21
|
List
of Subsidiaries
|
Incorporated
by reference from Item 1 of this report.
|
||
23.1
|
Consent
of Perry-Smith LLP
|
Filed
herewith.
|
||
23.2
|
Consent
of Deloitte & Touche LLP
|
Filed
herewith.
|
||
24
|
Powers
of Attorney
|
Included
in the Signature Page hereof.
|
||
31.1
|
Rule
13-14(a)/15d-14a Certification of Chief Executive Officer
|
Filed
herewith
|
||
31.2
|
Rule
13-14(a)/15d-154a Certification of Chief Financial Officer
|
Filed
herewith
|
||
32.1
|
Section
1350 Certification of Chief Executive Officer
|
Filed
herewith
|
||
32.2
|
Section
1350 Certification of Chief Financial Officer
|
Filed
herewith
|
ALTAIR NANOTECHNOLOGIES, INC. | ||
|
|
|
By: | /s/ Alan J. Gotcher | |
|
||
Alan
J.
Gotcher,
President and Chief Executive
Officer
|
Signature
|
Title
|
Date
|
||
/s/
Alan J. Gotcher
Alan
J. Gotcher
|
President,
Chief Executive Officer and Director (Principal Executive
Officer)
|
March
15, 2006
|
||
/s/
Edward Dickinson
Edward
Dickinson
|
Chief
Financial Officer and Secretary (Principal Financial and Accounting
Officer)
|
March
15, 2006
|
||
/s/
Michel Bazinet
Michel
Bazinet
|
Director
|
March
15, 2006
|
||
/s/
Jon N. Bengtson
Jon
N. Bengtson
|
Director
|
March
15, 2006
|
||
/s/
James I. Golla
James
I. Golla
|
Director
|
March
15, 2006
|
||
/s/
George Hartman
George
Hartman
|
Director
|
March
15, 2006
|
||
/s/
Christopher E. Jones
Christopher
E. Jones
|
Director
|
March
15, 2006
|
||
/s/
David King
David
King
|
Director
|
March
15, 2006
|
Altair
Nanotechnologies Inc.
and
Subsidiaries
Consolidated
Financial Statements as of December 31, 2005 and 2004 and for Each of
the Three Years in the Period Ended December 31, 2005 and Report
of
Independent Registered Public Accounting Firm
|
Page | |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER
FINANCIAL REPORTING
|
F-2-F-3 |
REPORT
OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-4 |
FINANCIAL
STATEMENTS:
|
|
Consolidated
Balance Sheets, December 31, 2005 and 2004
|
F-5
|
Consolidated
Statements of Operations for Each of the Three Years in
the Period Ended December 31, 2005
|
F-6 |
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for
Each of the Three Years in the Period Ended December 31,
2005
|
F-7-F-8
|
|
|
Consolidated
Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2005
|
F-9-F-10 |
|
|
Notes
to Consolidated Financial Statements
|
F-11-F-27
|
December
31,
|
December
31,
|
||||||
2005
|
2004
|
||||||
ASSETS
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents
|
$
|
2,264,418
|
$
|
7,357,843
|
|||
Investment
in available for sale securities
|
20,789,656
|
-
|
|||||
Accounts
receivable
|
602,168
|
499,599
|
|||||
Prepaid
expenses and other current assets
|
254,067
|
182,595
|
|||||
Total
current assets
|
23,910,309
|
8,040,037
|
|||||
Investment
in Available for Sale Securities
|
423,000
|
-
|
|||||
Property,
Plant and Equipment, net
|
8,169,445
|
6,513,907
|
|||||
Patents,
net
|
890,062
|
974,877
|
|||||
Other
Assets
|
71,200
|
18,200
|
|||||
Total
Assets
|
$
|
33,464,016
|
$
|
15,547,021
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities
|
|||||||
Trade
accounts payable
|
$
|
808,905
|
$
|
81,030
|
|||
Accrued
salaries and benefits
|
709,349
|
154,558
|
|||||
Accrued
liabilities
|
309,289
|
141,185
|
|||||
Note
payable, current portion
|
600,000
|
-
|
|||||
Total
current liabilities
|
2,427,543
|
376,773
|
|||||
Note
Payable, Long-Term Portion
|
2,400,000
|
2,880,311
|
|||||
Total
Liabilities
|
4,827,543
|
3,257,084
|
|||||
Commitments
and Contingencies (Notes 7, 10 and 12)
|
|||||||
Stockholders'
Equity
|
|||||||
Common
stock, no par value, unlimited shares authorized;
|
|||||||
59,316,519
and 49,775,694 shares issued and
|
|||||||
outstanding
at December 31, 2005 and December 31, 2004
|
92,126,714
|
65,505,630
|
|||||
Accumulated
deficit
|
(63,152,905
|
)
|
(53,215,693
|
)
|
|||
Deferred
compensation expense
|
(165,336
|
)
|
-
|
||||
Accumulated
other comprehensive loss
|
(172,000
|
)
|
-
|
||||
Total
Stockholders' Equity
|
28,636,473
|
12,289,937
|
|||||
Total
Liabilities and Stockholders' Equity
|
$
|
33,464,016
|
$
|
15,547,021
|
|||
See
notes to the consolidated financial
statements.
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Revenues
|
||||||||||
License
fees
|
$
|
695,000
|
$
|
-
|
$
|
-
|
||||
Product
sales
|
149,373
|
7,503
|
8,602
|
|||||||
Commercial
collaborations
|
825,723
|
552,499
|
27,696
|
|||||||
Contracts
and grants
|
1,136,439
|
591,890
|
36,553
|
|||||||
Total
revenues
|
2,806,535
|
1,151,892
|
72,851
|
|||||||
Operating
Expenses
|
||||||||||
Cost
of product sales
|
69,489
|
1,361
|
1,731
|
|||||||
Research
and development
|
5,073,478
|
2,189,150
|
1,961,744
|
|||||||
Sales
and marketing
|
1,539,765
|
335,221
|
214,378
|
|||||||
General
and administrative
|
5,571,454
|
4,626,562
|
2,801,451
|
|||||||
Depreciation
and amortization
|
1,034,202
|
904,553
|
878,757
|
|||||||
Total
operating expenses
|
13,288,388
|
8,056,847
|
5,858,061
|
|||||||
Loss
from Operations
|
(10,481,853
|
)
|
(6,904,955
|
)
|
(5,785,210
|
)
|
||||
Other
Income (Expense)
|
||||||||||
Interest
expense
|
(207,189
|
)
|
(194,180
|
)
|
(454,415
|
)
|
||||
Interest
income
|
750,306
|
96,229
|
1,879
|
|||||||
Gain
(loss) on foreign exchange
|
1,524
|
626
|
(193
|
)
|
||||||
Total
other income (expense), net
|
544,641
|
(97,325
|
)
|
(452,729
|
)
|
|||||
Net
Loss
|
(9,937,212
|
)
|
(7,002,280
|
)
|
(6,237,939
|
)
|
||||
Preferential
Warrant Dividend
|
-
|
-
|
(592,486
|
)
|
||||||
Net
Loss Applicable to Shareholders
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,830,425
|
)
|
|
Loss
per common share - Basic and diluted
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
|
Weighted
average shares - Basic and diluted
|
57,766,557
|
48,677,283
|
36,222,026
|
|||||||
See
notes to the consolidated financial statements.
|
Accumulated
|
|||||||||||||||||||
Deferred
|
Other
|
||||||||||||||||||
Compen-
|
Compre-
|
||||||||||||||||||
Common
Stock
|
Accumulated
|
sation
|
hensive
|
||||||||||||||||
Shares
|
Amount
|
Deficit
|
Expense
|
Loss
|
Total
|
||||||||||||||
BALANCE,
JANUARY 1, 2003
|
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
|
||||||||||||
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
|
||||||||||||
(continued) |
Accumulated
|
|||||||||||||||||||
Deferred
|
Other
|
||||||||||||||||||
Compen-
|
Compre-
|
||||||||||||||||||
Common
Stock
|
Accumulated
|
sation
|
hensive
|
||||||||||||||||
Shares
|
Amount
|
Deficit
|
Expense
|
Loss
|
Total
|
||||||||||||||
BALANCE,
DECEMBER 31, 2004
|
49,775,694
|
$
|
65,505,630
|
$
|
(53,215,693
|
)
|
$
|
-
|
$
|
-
|
$
|
12,289,937
|
|||||||
Comprehensive
loss:
|
|||||||||||||||||||
Net
loss
|
-
|
-
|
(9,937,212
|
)
|
-
|
-
|
(9,937,212
|
)
|
|||||||||||
Other
comprehensive loss, net of taxes of $0
|
-
|
-
|
-
|
-
|
(172,000
|
)
|
(172,000
|
)
|
|||||||||||
Comprehensive
loss:
|
-
|
-
|
-
|
-
|
-
|
(10,109,212
|
)
|
||||||||||||
Modification
of stock options issued to employees
|
-
|
56,060
|
-
|
-
|
-
|
56,060
|
|||||||||||||
Variable
accounting on stock options
|
-
|
297,138
|
-
|
-
|
-
|
297,138
|
|||||||||||||
Exercise
of stock options
|
1,204,500
|
1,828,900
|
-
|
-
|
-
|
1,828,900
|
|||||||||||||
Exercise
of warrants
|
3,201,511
|
4,828,567
|
-
|
-
|
-
|
4,828,567
|
|||||||||||||
Issuance
of restricted stock
|
96,500
|
272,155
|
-
|
(272,155
|
)
|
-
|
-
|
||||||||||||
Amortization
of deferred compensation expense
|
-
|
-
|
-
|
106,819
|
-
|
106,819
|
|||||||||||||
Common
stock issued, net of issuance
costs
of $2,081,989
|
5,038,314
|
19,338,264
|
-
|
-
|
-
|
19,338,264
|
|||||||||||||
BALANCE,
DECEMBER 31, 2005
|
59,316,519
|
$
|
92,126,714
|
$
|
(63,152,905
|
)
|
$
|
(165,336
|
)
|
$
|
(172,000
|
)
|
$
|
28,636,473
|
|||||
(concluded)
|
|||||||||||||||||||
See
notes to the consolidated financial statements.
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
loss
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
||||||||||
Depreciation
and amortization
|
1,034,202
|
904,553
|
878,757
|
|||||||
Stock
options issued to non-employees
|
-
|
270,560
|
64,346
|
|||||||
Modification
of stock options issued to employees
|
56,060
|
39,000
|
-
|
|||||||
Shares
issued for interest
|
-
|
-
|
133,315
|
|||||||
Shares
issued for services
|
-
|
413,000
|
89,297
|
|||||||
Issuance
of stock warrants
|
-
|
-
|
101,416
|
|||||||
Variable
accounting on stock options
|
297,138
|
136,212
|
903,668
|
|||||||
Securities
received in payment of license fees
|
(595,000
|
)
|
-
|
-
|
||||||
Amortization
of discount on note payable
|
119,689
|
194,182
|
181,090
|
|||||||
Amortization
of deferred compensation expense
|
106,819
|
-
|
-
|
|||||||
Loss
on disposal of fixed assets
|
81,203
|
34,716
|
25,661
|
|||||||
Changes
in assets and liabilities:
|
||||||||||
Accounts
receivable, net
|
(102,569
|
)
|
(486,275
|
)
|
119,535
|
|||||
Prepaid
expenses and other current assets
|
(71,472
|
)
|
(103,408
|
)
|
(56,589
|
)
|
||||
Other
assets
|
(53,000
|
)
|
-
|
-
|
||||||
Trade
accounts payable
|
507,978
|
(4,225
|
)
|
(247,461
|
)
|
|||||
Accrued
salaries and benefits
|
554,791
|
56,371
|
(60,203
|
)
|
||||||
Accrued
liabilities
|
168,104
|
(72,514
|
)
|
100,302
|
||||||
Net
cash used in operating activities
|
(7,833,268
|
)
|
(5,620,108
|
)
|
(4,004,805
|
)
|
||||
Cash
flows from investing activities:
|
||||||||||
Purchase
of available for sale securities
|
(27,089,656
|
)
|
-
|
-
|
||||||
Sale
of available for sale securities
|
6,300,000
|
-
|
-
|
|||||||
Purchase
of property and equipment
|
(2,466,230
|
)
|
(748,680
|
)
|
(92,400
|
)
|
||||
Proceeds
received from sale of property and equipment
|
-
|
-
|
4,675
|
|||||||
Net
cash used in investing activities
|
(23,255,886
|
)
|
(748,680
|
)
|
(87,725
|
)
|
||||
|
(continued)
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Cash
flows from financing activities:
|
||||||||||
Issuance
of common shares for cash, net of issuance costs
|
$
|
19,338,262
|
$
|
-
|
$
|
4,324,898
|
||||
Issuance
of shares under Employee Stock Purchase Plan
|
-
|
-
|
606,675
|
|||||||
Proceeds
from exercise of stock options
|
1,828,900
|
902,109
|
488,836
|
|||||||
Proceeds
from exercise of warrants
|
4,828,567
|
8,954,853
|
3,417,109
|
|||||||
Payment
of notes payable
|
-
|
-
|
(1,120,000
|
)
|
||||||
Net
cash provided by financing activities
|
25,995,729
|
9,856,962
|
7,717,518
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
(5,093,425
|
)
|
3,488,174
|
3,624,988
|
||||||
Cash
and cash equivalents, beginning of period
|
7,357,843
|
3,869,669
|
244,681
|
|||||||
Cash
and cash equivalents, end of period
|
$
|
2,264,418
|
$
|
7,357,843
|
$
|
3,869,669
|
||||
Supplemental
disclosures:
|
||||||||||
Cash
paid for interest
|
None
|
None
|
$
|
140,009
|
||||||
Cash
paid for income taxes
|
None
|
None
|
None
|
|||||||
1.
|
DESCRIPTION
OF BUSINESS AND BASIS OF
PRESENTATION
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Furniture
and office equipment
|
3-7
years
|
|
Vehicles
|
5
years
|
|
Nanoparticle
production equipment
|
5-10
years
|
|
Building
and improvements
|
30
years
|
2005
|
2004
|
2003
|
|||
Dividend
yield
|
None
|
None
|
None
|
||
Expected
volatility
|
107%
|
61%
|
65%
|
||
Risk-free
interest rate
|
3.70%
|
3.17%
|
2.33%
|
||
Expected
life (years)
|
1.72
|
5.40
|
4.10
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
loss applicable to shareholders, as reported
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,830,425
|
)
|
|
Deduct:
stock-based employee compensation
|
||||||||||
expense
included in reported net loss applicable
|
||||||||||
to
shareholders, net of $0 related tax effects
|
353,198
|
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
|
(1,502,731
|
)
|
(1,536,945
|
)
|
(590,908
|
)
|
||||
Pro
forma net loss applicable to shareholders
|
$
|
(11,086,745
|
)
|
$
|
(8,093,453
|
)
|
$
|
(6,517,665
|
)
|
|
Loss
per common share (basic and diluted):
|
||||||||||
As
reported
|
$
|
(0.17
|
)
|
$
|
(0.14
|
)
|
$
|
(0.19
|
)
|
|
Pro
forma
|
$
|
(0.19
|
)
|
$
|
(0.17
|
)
|
$
|
(0.18
|
)
|
2005
|
2004
|
2003
|
|||
Dividend
yield
|
None
|
None
|
None
|
||
Expected
volatility
|
103%
|
61%
|
65%
|
||
Risk-free
interest rate
|
3.99%
|
3.55%
|
3.16%
|
||
Expected
life (years)
|
2.83
|
5.30
|
5.00
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
loss
|
$
|
(9,937,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
|
Unrealized
gain (loss) on investment in available
|
||||||||||
for
sale securities, net of taxes of $0
|
(172,000
|
)
|
-
|
-
|
||||||
Comprehensive
loss
|
$
|
(10,109,212
|
)
|
$
|
(7,002,280
|
)
|
$
|
(6,237,939
|
)
|
2005
|
2004
|
||||||
Machinery
and equipment
|
$
|
9,977,474
|
$
|
7,743,357
|
|||
Building
|
2,430,952
|
2,335,979
|
|||||
Furniture,
office equipment & other
|
377,716
|
201,314
|
|||||
Total
|
12,786,142
|
10,280,650
|
|||||
Less
accumulated depreciation
|
(4,616,697
|
)
|
(3,766,742
|
)
|
|||
Total
property and equipment
|
$
|
8,169,445
|
$
|
6,513,907
|
2005
|
2004
|
||||||
Patents
and patent applications
|
$
|
1,517,736
|
$
|
1,517,736
|
|||
Less
accumulated depreciation
|
(627,674
|
)
|
(542,859
|
)
|
|||
Total
patents and patent applications
|
$
|
890,062
|
$
|
974,877
|
2005
|
2004
|
||||||
Accrued
interest
|
$
|
87,500
|
$
|
-
|
|||
Accrued
use tax
|
50,866
|
2,689
|
|||||
Accrued
property tax
|
27,600
|
23,046
|
|||||
Accrued
mineral lease payments
|
77,936
|
62,153
|
|||||
Accrued
reclamation costs
|
20,500
|
21,607
|
|||||
Other
|
44,887
|
31,690
|
|||||
$
|
309,289
|
$
|
141,185
|
2005
|
2004
|
||||||
Note
payable to BHP Minerals International, Inc.
|
$
|
3,000,000
|
$
|
2,880,311
|
|||
Less
current portion
|
(600,000
|
)
|
-
|
||||
Long-term
portion of notes payable
|
$
|
2,400,000
|
$
|
2,880,311
|
2005
|
2004
|
2003
|
|||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||
Average
|
Average
|
Average
|
|||||||||||||||||
Exercise
|
Exercise
|
Exercise
|
|||||||||||||||||
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||||||
Outstanding
at beginning of year
|
3,293,700
|
$
|
2.28
|
3,668,600
|
$
|
3.11
|
4,061,700
|
$
|
3.83
|
||||||||||
Granted
during the year
|
687,000
|
3.30
|
1,055,000
|
2.03
|
1,010,000
|
1.10
|
|||||||||||||
Cancelled/
Expired
|
(243,000
|
)
|
3.06
|
(868,000
|
)
|
5.31
|
(925,000
|
)
|
6.20
|
||||||||||
Exercised
|
(1,204,500
|
)
|
1.53
|
(561,900
|
)
|
1.61
|
(478,100
|
)
|
1.02
|
||||||||||
Outstanding
at end of year
|
2,533,200
|
$
|
2.69
|
3,293,700
|
$
|
2.28
|
3,668,600
|
$
|
3.11
|
||||||||||
Options
exercisable at year end
|
1,739,325
|
$
|
2.59
|
2,708,700
|
$
|
2.41
|
3,181,100
|
$
|
3.38
|
||||||||||
Weighted
average fair value of
|
|||||||||||||||||||
options
granted during the year
|
$
|
2.11
|
$
|
1.15
|
$
|
0.51
|
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
|
|||||||||||
$.80
to $1.53
|
874,000
|
4.8
|
$
|
1.10
|
774,000
|
$
|
1.11
|
|||||||||
$2.00
to $2.25
|
538,000
|
4.3
|
2.18
|
309,125
|
2.17
|
|||||||||||
$2.56
to $3.62
|
369,000
|
6.9
|
3.13
|
116,500
|
2.96
|
|||||||||||
$4.07
to $6.125
|
752,200
|
4.1
|
4.71
|
539,700
|
4.92
|
|||||||||||
2,533,200
|
4.8
|
$
|
2.69
|
1,739,325
|
$
|
2.59
|
2005
|
2004
|
2003
|
|||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||
Average
|
Average
|
Average
|
|||||||||||||||||
Exercise
|
Exercise
|
Exercise
|
|||||||||||||||||
Warrants
|
Price
|
Warrants
|
Price
|
Warrants
|
Price
|
||||||||||||||
Outstanding
at beginning of year
|
4,571,731
|
$
|
1.90
|
10,453,831
|
$
|
1.71
|
9,170,171
|
$
|
1.92
|
||||||||||
Issued
|
250,000
|
5.27
|
60,000
|
2.50
|
5,331,827
|
1.31
|
|||||||||||||
Expired
|
(101,667
|
)
|
3.41
|
(116,668
|
)
|
3.14
|
(837,839
|
)
|
2.72
|
||||||||||
Exercised
|
(3,201,508
|
)
|
1.51
|
(5,825,432
|
)
|
1.54
|
(3,210,328
|
)
|
1.38
|
||||||||||
Outstanding
at end of year
|
1,518,556
|
$
|
3.17
|
4,571,731
|
$
|
1.90
|
10,453,831
|
$
|
1.71
|
||||||||||
Currently
exercisable
|
1,518,556
|
$
|
3.17
|
4,571,731
|
$
|
1.90
|
10,453,831
|
$
|
1.71
|
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
to $2.00
|
650,224
|
2.0
|
$
|
1.85
|
650,224
|
$
|
1.85
|
|||||||||
$2.50
to $3.50
|
343,332
|
0.9
|
|
3.09
|
343,332
|
|
3.09
|
|||||||||
$4.00
to $5.265
|
525,000
|
1.7
|
|
4.86
|
525,000
|
|
4.86
|
|||||||||
1,518,556
|
1.6
|
$
|
3.17
|
1,518,556
|
$
|
3.17
|
2006
|
$
31,626
|
2007
|
$
96,970
|
2008
|
$
78,276
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Federal
statutory income taxes (benefit)
|
$
|
(3,478,025
|
)
|
$
|
(2,450,798
|
)
|
$
|
(2,390,649
|
)
|
|
Expiration
of net operating loss carryforwards
|
(61,123
|
)
|
-
|
-
|
||||||
Other,
net
|
91,109
|
|
3,875
|
3,821
|
||||||
Valuation
allowance
|
3,448,039
|
2,446,923
|
2,386,828
|
|||||||
Total
|
$
|
-
|
$
|
-
|
$
|
-
|
2005
|
2004
|
||||||
Deferred
tax assets:
|
|||||||
Net
operating loss carryforwards
|
$
|
13,645,639
|
$
|
10,570,378
|
|||
Basis
difference in long-lived assets
|
414,591
|
175,722
|
|||||
Other
|
158,271 | - | |||||
Total
deferred tax assets
|
14,218,501
|
10,746,100
|
|||||
Deferred
tax liabilities:
|
|||||||
Accrued
vacation
|
-
|
|
(35,838
|
)
|
|||
Total
deferred tax liabilities
|
-
|
|
(35,838
|
)
|
|||
Valuation
allowance
|
(14,218,501
|
)
|
(10,710,262
|
)
|
|||
Net
deferred tax assets
|
$
|
-
|
$
|
-
|
2006-2010
|
$
2,101,479
|
2011-2015
|
$
1,376,501
|
2016-2020
|
$
4,776,779
|
2021-2025
|
$30,687,431
|
Depreciation
|
|||||||||||||
Loss
From
|
and
|
||||||||||||
Net
Sales
|
Operations
|
Amortization
|
Assets
|
||||||||||
2005:
|
|||||||||||||
Performance
Materials
|
$
|
2,081,764
|
$
|
4,418,912
|
$
|
933,273
|
$
|
7,173,902
|
|||||
Life
Sciences
|
724,771
|
191,149
|
5,506
|
500,914
|
|||||||||
Corporate
and other
|
-
|
5,871,793
|
95,423
|
25,789,200
|
|||||||||
Consolidated
Total
|
$
|
2,806,535
|
$
|
10,481,853
|
$
|
1,034,202
|
$
|
33,464,016
|
|||||
2004:
|
|||||||||||||
Performance
Materials
|
$
|
1,151,892
|
$
|
4,475,013
|
$
|
839,974
|
$
|
5,567,685
|
|||||
Life
Sciences
|
-
|
250,855
|
1,307
|
104,534
|
|||||||||
Corporate
and other
|
-
|
2,179,087
|
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
|
-
|
-
|
|||||||||
Corporate
and other
|
-
|
2,962,326
|
69,413
|
6,297,751
|
|||||||||
Consolidated
Total
|
$
|
72,851
|
$
|
5,785,210
|
$
|
878,757
|
$
|
11,659,754
|
Sales
- Year Ended
|
Accounts
Receivable
at
|
||||||
Customer
|
December
31, 2005
|
December
31, 2005
|
|||||
Performance
Materials Division:
|
|||||||
Western
Michigan University
|
$
|
481,519
|
$
|
118,478
|
|||
Western
Oil Sands
|
$
|
616,515
|
$
|
166,031
|
|||
UNLV
Research Foundation
|
$
|
492,818
|
$
|
160,053
|
|||
Life
Sciences Division:
|
|||||||
Spectrum
Pharmaceuticals, Inc.
|
$
|
729,271
|
$
|
30,881
|
Sales
- Year Ended
|
Accounts
Receivable
at
|
||||||
Customer
|
December
31, 2004
|
December
31, 2004
|
|||||
Performance
Materials Division:
|
|||||||
Titanium
Metals Corp.
|
$
|
152,550
|
$
|
39,382
|
|||
Western
Michigan University
|
$
|
491,320
|
$
|
319,739
|
|||
Western
Oil Sands
|
$
|
314,359
|
$
|
67,191
|
Sales
- Year Ended
|
Accounts
Receivable
at
|
||||||
Customer
|
December
31, 2003
|
December
31, 2003
|
|||||
Performance
Materials Division:
|
|||||||
Titanium
Metals Corp.
|
$
|
9,000
|
$
|
-
|
|||
Western
Michigan University
|
$
|
36,553
|
$
|
12,620
|
|||
New
Zealand Steel
|
$
|
18,696
|
$
|
-
|
Revenues
-
|
Revenues
-
|
Revenues
-
|
||||||||
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||
Geographic
information (a):
|
December
31, 2005
|
December
31, 2004
|
December
31, 2003
|
|||||||
United
States
|
$
|
2,101,551
|
$
|
817,052
|
$
|
52,442
|
||||
Canada
|
641,515
|
314,540
|
174
|
|||||||
Other
foreign countries
|
63,468
|
20,300
|
20,236
|
|||||||
Total
|
$
|
2,806,534
|
$
|
1,151,892
|
$
|
72,851
|
||||
(a) Revenues
are attributed to countries based on location of customer.
|