UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO _________________
ALTAIR NANOTECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada 1-12497 33-1084375
- ---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
204 Edison Way
Reno, Nevada 89502
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (775) 858-3750
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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
As of May 13, 2004 the registrant had 48,757,974 Common Shares outstanding.
================================================================================
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 11,490,218 $ 3,869,669
Accounts receivable, net 91,556 13,324
Other current assets 110,079 79,187
------------ ------------
Total current assets 11,691,853 3,962,180
Property, Plant and Equipment, net 6,454,952 6,618,805
Patents, net 1,039,149 1,060,569
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 19,204,154 $ 11,659,754
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 222,679 $ 85,255
Accrued liabilities 359,343 311,886
------------ ------------
Total current liabilities 582,022 397,141
------------ ------------
Note Payable, Long-Term Portion 2,733,412 2,686,130
------------ ------------
Commitments and Contingencies (Note 4)
Shareholders' Equity
Common stock, no par value, unlimited shares
authorized; 48,672,640 and 43,188,362 shares
issued and outstanding at March 31, 2004
and December 31, 2003 63,812,889 54,789,896
Deficit accumulated during the development stage (47,924,169) (46,213,413)
------------ ------------
Total Shareholders' Equity 15,888,720 8,576,483
------------ ------------
Total Liabilities and Shareholders' Equity $ 19,204,154 $ 11,659,754
============ ============
See notes to the consolidated financial statements.
2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
(date of
Three Months Ended inception) to
March 31, March 31,
----------------------------
2004 2003 2004
------------ ------------ ------------
Sales $ 139,749 $ 20,277 $ 508,911
Cost of Sales 110,392 14,950 284,309
------------ ------------ ------------
Gross Margin 29,357 5,327 224,602
------------ ------------ ------------
Operating Expenses
Mineral exploration and development 27,226 28,714 6,700,577
Research and development 255,399 212,793 4,876,952
Professional services 252,594 184,358 4,105,363
General and administrative expenses 955,956 557,838 18,436,771
Depreciation and amortization 221,196 218,625 6,615,075
Asset impairment -- -- 2,759,956
------------ ------------ ------------
Total operating expenses 1,712,371 1,202,328 43,494,694
------------ ------------ ------------
Loss from Operations 1,683,014 1,197,001 43,270,092
------------ ------------ ------------
Other (Income) Expense:
Interest expense 47,282 120,173 5,037,036
Interest income (19,938) (180) (837,762)
Loss (gain) on foreign exchange 399 -- (557,350)
Loss on extinguishment of debt -- -- 914,667
Gain on forgiveness of debt -- -- (795,972)
Loss on redemption of convertible
debentures -- -- 193,256
------------ ------------ ------------
Total other expense, net 27,743 119,993 3,953,875
------------ ------------ ------------
Net Loss 1,710,757 1,316,994 47,223,967
Preferential Warrant Dividend -- -- 693,569
------------ ------------ ------------
Net Loss Applicable to Shareholders $ 1,710,757 $ 1,316,994 $ 47,917,536
============ ============ ============
Loss per Common Share - Basic and Diluted $ 0.04 $ 0.04 $ 4.78
============ ============ ============
Weighted Average Shares - Basic and Diluted 47,333,219 30,527,826 10,031,387
============ ============ ============
See notes to the consolidated financial statements.
3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
Three Months Ended (date of
March 31, inception) to
---------------------------- March 31,
2004 2003 2004
------------ ------------ ------------
Cash flows from development activities:
Net loss $ (1,710,757) $ (1,316,994) $(40,986,028)
Adjustments to reconcile net loss to net cash
used in development activities:
Depreciation and amortization 221,196 218,625 5,736,318
Shares issued for services -- 51,150 303,426
Shares issued for interest -- 38,888 1,116,437
Issuance of common stock options
to non-employees 118,274 7,192 3,149,415
Issuance of common stock options to employees -- -- 78,220
Variable accounting on stock options 100,584 -- 93,950
Issuance of common stock warrants -- 37,368 924,861
Amortization of discount on note payable 47,282 44,095 846,971
Amortization of debt issuance costs -- -- 504,567
Asset impairment -- -- 2,759,956
Loss on extinguishment of debt -- -- 914,667
Loss on redemption of convertible debentures -- -- 193,256
Gain on forgiveness of debt -- -- (795,972)
Loss on disposal of fixed assets -- -- 1,945
Gain on foreign currency translation -- -- (559,581)
Deferred financing costs written off -- -- 515,842
Changes in assets and liabilities
(net of effects of acquisition):
Accounts receivable (78,232) 131,864 (211,091)
Other current assets (30,892) (2,356) 1,681,108
Other assets -- -- (170,720)
Trade accounts payable 137,424 84,019 478,171
Accrued liabilities 47,457 44,230 41,999
------------ ------------ ------------
Net cash used in development activities (1,147,664) (661,919) (23,382,283)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (9,625,154)
Purchase of property and equipment (35,922) (6,619) (3,697,347)
Purchase of patents -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities
(35,922) (6,619) (15,204,688)
------------ ------------ ------------
(continued)
4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
Three Months Ended (date of
March 31, inception) to
--------------------------- March 31,
2004 2003 2004
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs $ -- $ 595,000 $ 22,070,081
Issuance of shares under Employee Stock
Purchase Plan -- 125,005 92,183
Issuance of convertible debenture -- -- 5,000,000
Proceeds from exercise of common stock options 705,114 -- 3,413,605
Proceeds from exercise of warrants 8,099,021 -- 13,016,826
Issuance of related party notes -- -- 174,243
Issuance of notes payable -- -- 19,130,540
Payment of notes payable -- -- (13,543,579)
Payment of related party notes -- -- (174,243)
Payment on capital lease -- -- (27,075)
Purchase of call options -- -- (449,442)
Redemption of convertible debentures -- -- (2,250,938)
------------ ------------ ------------
Net cash provided by financing activities 8,804,135 720,005 46,452,201
------------ ------------ ------------
Net increase in cash and equivalents 7,620,549 51,467 7,865,230
Cash and cash equivalents, beginning of period 3,869,669 244,681 None
------------ ------------ ------------
Cash and cash equivalents, end of period $ 11,490,218 $ 296,148 $ 7,865,230
============ ============ ============
Supplemental disclosures:
Cash paid for interest $ -- $ 37,189
============ ============
Cash paid for income taxes None None
============ ============
Supplemental schedule of non-cash investing and financing activities:
For the three months ended March 31, 2004:
- None
For the three months ended March 31, 2003:
- We issued 250,001 common shares to Doral 18, LLC in payment of $100,000 of
principal on our note payable. The conversion of the note resulted in additional
interest expense of $38,889.
(concluded)
See notes to the consolidated financial statements.
5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Preparation of Financial Statements
These unaudited interim financial statements of Altair Nanotechnologies
Inc. and its subsidiaries (collectively, "Altair", "we" or the "Company") have
been prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission (the "Commission"). Such rules and
regulations allow the omission of certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States, so long as the statements
are not misleading. In the opinion of Company management, these financial
statements and accompanying notes contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
and results of operations for the periods shown. These interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the Commission on March 26, 2004.
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 successful operations. We are in the process of
developing and commercializing our nanomaterials and titanium dioxide pigment
technology. We have financed operations primarily through the issuance of equity
securities (common stock, convertible debentures, stock options and warrants),
and by the issuance of debt (term notes). Additional funds will be required to
complete development activities. 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.
The results of operations for the three-month period ended March 31,
2004 are not necessarily indicative of the results to be expected for the full
year.
Note 2. Summary of Significant Accounting Policies
Net Loss Per Common Share - Basic net loss per common share is
calculated by dividing net loss by the weighted average number of common shares
outstanding during the period. The existence of stock options, warrants, and
convertible securities affects the calculation of loss per share on a fully
diluted basis. When a net loss is reported, the number of shares used for basic
and diluted net loss per share is the same since the effect of including the
additional common stock equivalents would be antidilutive.
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. Management believes the net carrying amount of
long-lived assets will be recovered by future cash flows generated by
commercialization of the titanium processing technology.
6
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.
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 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.
We are required to implement the provision of SFAS 123 for stock-based
awards to other than employees and directors. We account for stock options and
warrants issued to non-employees in accordance with SFAS 123.
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:
Three Months Ended
March 31,
----------------------------
2004 2003
----------- -------------
Net loss applicable to shareholders:
As reported $ 1,710,757 $ 1,316,994
Deduct: stock-based employee compensation
expense included in reported net loss (100,584) --
Add: stock-based employee compensation
expense determined under value based
method for all awards 321,627 --
----------- -------------
Pro forma $ 1,931,800 $ 1,316,994
=========== =============
Loss per common share (both basic and diluted):
As reported $ 0.04 $ 0.04
=========== =============
Pro forma $ 0.04 $ 0.04
=========== =============
We estimated the fair value of options and rights granted under our
employee stock-based compensation arrangements at the date of grant using the
Black-Scholes model with the following weighted-average assumptions:
Three Months Ended
March 31,
-------------------
2004 2003
-------------------
Dividend yield None None
Expected volatility 62% 64%
Risk-free interest rate 3.03% 2.77%
Expected life (years) 5.0 5.0
Weighted average fair value of grants $ 1.81 $ 0.17
7
Note 3. Common Stock
Common stock transactions during the three months ended March 31, 2004
were as follows:
Commmon Stock
-------------------------
Stated
Shares Amount
----------- -----------
Balance, December 31, 2003 43,188,362 $54,789,896
Exercise of warrants 5,082,378 8,099,021
Exercise of common stock options 401,900 705,114
Variable accounting on stock options -- 100,584
Common stock options issued to non-employees -- 118,274
----------- -----------
Balance, March 31, 2004 48,672,640 $63,812,889
=========== ===========
7
Note 4. Notes Payable
Notes payable consisted of the following at March 31, 2004 and December
31, 2003:
March 31, December 31,
2004 2003
---------- ----------
Note payable to BHP Minerals
International, Inc. $2,733,412 $2,686,130
Less current portion -- --
---------- ----------
Long-term portion of notes payable $2,733,412 $2,686,130
========== ==========
Note 5. Intangible Assets
Our intangible assets consist of patents and related expenditures
associated with the nanomaterials and titanium dioxide pigment technology. In
accordance with SFAS No. 142, we are amortizing these assets over their useful
lives. The amortized intangible asset balance as of March 31, 2004 was:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
------------- ------------- ------------
Patents and related
expenditures $ 1,517,736 $ (478,587) $ 1,039,149
The weighted average amortization period for intangible assets is
approximately 16.5 years. Amortization expense was $21,421 for the three months
ended March 31, 2004, which represented the amortization relating to the
identified intangible assets still required to be amortized under SFAS No. 142.
For each of the next five years, amortization expense relating to intangibles
will be $85,680 per year. Management believes the net carrying amount of
intangible assets will be recovered by future cash flows generated by
commercialization of the titanium processing technology.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion summarizes the material changes in our
financial condition between December 31, 2003 and March 31, 2004 and the
material changes in our results of operations and financial condition between
the three-month periods ended March 31, 2003 and March 31, 2004. This discussion
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.
Overview
- --------
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP Minerals International,
Inc. ("BHP") primarily for the production of (1) titanium dioxide ("TiO2")
products from titanium bearing ores or concentrates and (2) metal oxide
nanoparticles (the "nanomaterials and titanium dioxide pigment technology") and
all tangible equipment and other assets (the "nanomaterials and titanium dioxide
pigment assets") used by BHP to develop and implement the nanomaterials and
titanium dioxide pigment technology. The nanomaterials and titanium dioxide
pigment technology has potential to produce both titanium pigments, which are
commercially traded in bulk, and nanoparticles, which are sold on specialty
product markets. At the time, the nanomaterials and titanium dioxide pigment
technology was in development stage and not in commercial operation.
When we acquired the nanomaterials and titanium dioxide pigment
technology and related assets, we expected to be able to produce TiO2
nanoparticles for sale in established markets within a short period of time. Our
expectation was that revenues from these sales, combined with external
financing, would provide adequate cash flow to fund our development activities
for the nanomaterials and titanium dioxide pigment technology, the Tennessee
mineral property and the Altair Centrifugal Jig (the "Centrifugal Jig"). We
underestimated the difficulty of entering the markets for TiO2 nanoparticles
with the result that sales revenues have been below expectations and our
external financing needs have been greater than anticipated.
During much of the period from 2001 through 2003, we suffered cash
shortages as our share price declined and financing became more difficult. In
response to this, we reduced cash expenditures to the extent possible while
still continuing to develop the nanomaterials and titanium dioxide pigment
technology. At the same time, we reduced expenditures for the Tennessee mineral
property and Altair jig and finally suspended work on these assets during 2003.
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 and (3) license and evaluate our
pigment production process for the production of TiO2 pigment and
pigment-related products from titanium-bearing oil sands. In addition, we have a
pharmaceutical product in the early stages of development. Future revenues will
depend on the success of these projects, the results of our other research and
development work and the success of our marketing efforts.
Restructuring Plans and Progress
- --------------------------------
In December 2003, the Board of Directors of Altair (the "Board")
approved a plan to restructure the Company in order to concentrate resources on
the nanomaterials and titanium dioxide pigment business. The reorganization is
intended to maximize management focus on nanomaterials, nanotechnology and
material science in targeted markets for TiO2 pigment, TiO2 electrodes for
titanium metal, pharmaceutical delivery structures, pharmaceuticals, dental
materials and nanostructured materials for lithium ion batteries and fuel cells.
9
Life Sciences Division. As part of the restructuring, we are creating a new life
sciences division that will focus on the continued development of pharmaceutical
delivery structures (TiNano Spheres(TM)), dental materials and new nano-based
pharmaceuticals including Altair's lead drug candidate, RenaZorb(TM). We have
hired a consultant to assist in establishing the new life sciences division and
we expect that he will become the senior vice president of the division if, over
the next few months, his performance meets the Board's expectations.
Management Changes. Our former Chief Executive Officer, Dr. William P. Long,
resigned as an officer and director of Altair on May 1, 2004. We are presently
negotiating an agreement with Dr. Long under which we anticipate that he will
oversee the disposition of our Centrifugal Jig, Tennessee Mineral Property and
related assets, as further discussed below. Dr. Rudi E. Moerck, our President,
is now our senior executive officer and is responsible for our day-to-day
operations implementing our strategic plan. Dr. Moerck's education and work
experience is in the life sciences area, and his skills align well with our
short-term business goals.
We have commenced a search for a new non-executive Chairman of the
Board to work with Dr. Moerck and the remainder of the Board in their efforts to
focus the resources of Altair on generating revenue and increasing value for
shareholders. In the meantime, Jon Bengtson, who has extensive experience as a
director of larger corporations and particular expertise in the finance and
accounting areas, has assumed the position of Chairman of the Board. Under his
leadership, we have formed an executive committee of the Board, including
Messrs. Bengtson, Moerck, King and Hartman, which has met on an approximately
bi-weekly basis and is actively involved in steering the emerging business plan
of the Company.
Resource Allocation. We expect to continue our restructuring efforts during the
remainder of fiscal year 2004. We expect that future changes will not be
structural, but will relate primarily to decisions regarding allocation of
resources among existing or proposed projects as we attempt to evaluate the
various projects we are working on or considering, determine which have the best
potential for short- and long- term revenue generation and focus most of our
resources on such projects.
Disposition of Mineral Business. In March 2004, after our Board received and
reviewed various summary presentations about our mineral business and various
alternatives for its disposition, we announced our intent to consolidate the
assets related to the Centrifugal Jig and our Tennessee mineral property into
(or under) a single corporation, cause such corporation to become an SEC
reporting company and distribute substantially all of the shares of common stock
of such corporation to our shareholders (with any non-distributed shares being
retained by Altair). At that time, the Board anticipated receipt in early May
2004 of a comprehensive business plan for the spin-off entity that could serve
as a basis for the Board's final approval of the spin-off and recommendation of
the spin-off to shareholders and a starting point for any registration
statement, business plan, sales document, proxy statement or other document
deemed necessary and appropriate in connection with the proposed spin-off. The
Board did not receive the anticipated business plan in early May 2004, and all
personnel responsible for the mineral assets, other than a single engineer
performing our contractual obligations with respect to the Centrifugal Jig, have
resigned or been terminated. In order to conserve capital, the Board has
determined not to hire additional personnel at this time in order to complete
the mineral assets business plan and related analysis; however, as part of the
agreement we are negotiating with our former Chief Executive Officer, Dr.
William P. Long, we anticipate that Dr. Long will undertake to develop a
business plan for the mineral assets and that final internal approval, and
public presentation, of any plan of disposition with respect to the mineral
assets will occur after completion of such business plan. We do not expect the
internal version of such business plan to be finalized until mid- to late-
summer, if at all.
10
Although the Board's initial review of disposition alternatives
(including spin-off, sale, abandonment and joint venture) indicated that a
spin-off would best effect the Board's desires to dispose of the mineral assets
quickly and in a manner that enhances shareholder value (without excessive
costs), the Board and those responsible for developing the business plan
continue to evaluate the desirability and viability of several alternatives. In
the meantime, we have reduced expenditures (net of contract revenues from the
Centrifugal Jig) on the mineral assets to approximately $9,000 per month. We
expect to maintain or slightly reduce that cost level during 2004 unless and
until we begin incurring expenses related to a disposition transaction, which
expenses have not exceeded $10,000 to date. Although we are committed to
disposing of the mineral assets as soon as possible, our management resources
are limited. We are in the midst of numerous initiatives essential to the
development of our nanomaterials and titanium dioxide business and, to the
extent that our human resources are insufficient to address issues related to
both our core business and plans to dispose of our mineral assets, we expect to
continue to give those business initiatives priority.
Liquidity and Capital Resources
- -------------------------------
We generated $139,749 of sales revenues in the first three months of
2004 but incurred a net loss of $1,710,757, resulting in an accumulated deficit
of $47,924,169 at March 31, 2004.
Our cash and short-term investments increased from $3,869,669 at
December 31, 2003 to $11,490,218 at March 31, 2004 due primarily to the receipt
of $705,114 from the exercise of stock options and receipt of $8,099,021 from
the exercise of warrants. These increases in cash and short-term investments
were partially offset by normal cash operating expenditures.
Current and Expected Liquidity. At March 31, 2004, we had cash and cash
equivalents of $11,490,218, an amount that would be sufficient to fund our basic
operations through December 31, 2005 at current working capital expenditure
levels. We will, however, increase expenditure levels in 2004 and 2005 as we
execute on existing and expected contracts. Accordingly, if we are unable to
increase our revenues proportionately, we will require additional financing to
provide working capital to fund our day-to-day operations.
In 2004, we expect to generate limited revenues from contract services
utilizing our nanomaterials and titanium dioxide pigment technology. In
addition, we hope to generate revenues through the licensing of RenaZorb(TM), a
potential drug we developed that may be useful in phosphate control in kidney
dialysis patients. A drug of similar compounds has been submitted for FDA
approval by Shire Pharmaceuticals Group plc which has indicated that it expects
the drug to receive FDA approval and be launched in 2004. If this similarly
compounded drug is approved, we hope to be able to negotiate a license agreement
for RenaZorb(TM) with one or more pharmaceutical companies during 2004. We can
provide no assurance that we will enter into such a license agreement or that
such license agreement would generate significant revenue in the short term.
We have entered an agreement to license and evaluate our pigment
production process for the production of TiO2 pigment and pigment-related
products from titanium-bearing oil sands, and have submitted proposals to five
international minerals and energy resources companies to develop and license our
titanium pigment production process. We do not know whether such evaluations
will be successful or that we will eventually license the technology to
additional parties. Should we be successful in obtaining additional licenses for
the technology, we would expect to receive development fees and royalties over
the long-term, but no significant up-front payments. In the near term, unless we
are able to enter into a RenaZorb(TM) license involving significant near term
revenue, we expect to continue to finance our operations principally with
existing cash and through the issuance of equity securities.
11
Although we currently have capital sufficient to fund our operations at
current levels, we expect our capital needs to increase during 2004 and 2005. We
expect to hire additional personnel in order to satisfy our contractual
obligations under existing and anticipated services agreements. In addition, our
management is focused on facilitating the commercialization of one or more of
its products in the foreseeable future. Substantially all of our products are at
a conceptual or development stage and, if we are to commercialize one or more
products ourselves (as opposed to licensing it for commercialization by the
licensee), we will likely be required to hire additional employees, purchase
additional equipment, and engage the research, marketing and other services of
third parties. This may require significant additional capital. We believe our
ability to find strategic partners would be enhanced if we had a stronger
balance sheet.
Accordingly, we may raise additional capital during 2004 or 2005. We
would most likely generate such financing through the issuance of equity
securities in one or more private placements of common shares (probably with
accompanying re-sale registration rights and warrants to purchase common shares)
or public offerings of our common shares. We do not expect to, but may also
issue debt securities or enter into loan or capital leasing arrangements, with
one or more financial institutional investors. Any financing, especially an
issuance of equity securities in a public offering or large private placement,
may dilute existing shareholders and have an adverse effect on the market price
of our common shares. We can provide no assurance that, if we determine to seek
additional financing, we will be able to obtain additional financing at a
reasonable cost, or at all.
Capital Commitments. The following table discloses aggregate
information about our contractual obligations including notes payable, mineral
lease payments and contractual service agreements, and the periods in which
payments are due as of March 31, 2004:
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
Mineral Leases 1,074,349 314,445 339,510 292,657 127,737
Contractual Service Agreements 847,639 747,639 100,000 -- --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $4,921,988 $1,062,084 $1,639,510 $1,492,657 $ 727,737
========== ========== ========== ========== ==========
* Before discount of $266,588.
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 and stock-based compensation. 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.
12
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. At March 31, 2004, the carrying value
of these assets was $7,435,892, or 39% 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 continuing technology rights
protection.
o Stock-Based Compensation. We have two stock option plans which
provide for the issuance of stock options to employees and service
providers. Although Statement of Financial Accounting Standards
("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 No. 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 No. 123. We calculate compensation expense
under SFAS No. 123 using a modified Black-Scholes option pricing
model. In so doing, we estimate certain key variables used in the
model. We believe the estimates we use are appropriate and
reasonable.
Results of Operations
- ---------------------
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
The net loss applicable to shareholders for the quarter ended March 31,
2004, which was the first quarter of our 2004 fiscal year, totaled $1,710,757
($.04 per share) compared to a net loss of $1,316,994 ($.04 per share) in the
first quarter of 2003. The principal factors contributing to the losses during
these periods were the lack of substantial revenue combined with the incurrence
of operating expenses.
In the first quarter of 2004, we generated $138,127 of revenues from
contract research work and other contracted services and $1,622 of revenues from
the sale of nanoparticle products. The revenues from contract research work
include $20,456 earned under an agreement with Western Michigan University
("WMU") for research services involving a technology used in the detection of
chemical, biological and radiological agents. We expect to generate
approximately $120,000 of revenues in connection with this contract during 2004.
Other contracted services revenues includes $75,000 received from Titanium
13
Metals Corporation ("TIMET") under a contract to provide them with custom oxide
feedstocks for a four-year, titanium metal research program funded by the
Department of Defense, Defense Advanced Research Projects Agency. We expect to
generate approximately $150,000 of revenues in connection with this contract
during 2004. Contracted services revenues also includes $42,671 received from
Western Oil Sands, Inc. in connection with an agreement to license our Altair
Hydrochloride Pigment Process (the "AHPP") for 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 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. We expect to generate approximately $490,000 of revenues in 2004 in
connection with the first phase of this contract. In the first quarter of 2003,
we generated sales revenues of $20,277, which consisted of $1,581 from sales of
titanium dioxide nanoparticles, and $18,696 from fees earned under a services
agreement entered into with a materials company in September 2002.
Our research and development ("R&D") efforts in the first quarter of
2004 were directed principally to contract research, pharmaceuticals and
titanium pigment process development. R&D expenses increased by $42,606 from
$212,793 in the first quarter of 2003 to $255,399 in the same period of 2004,
principally as a result of increased labor hours, overheads and temporary
employees charged to R&D projects. This increase was partially offset by an
increase in contract research R&D expense transferred to cost of sales. Costs
for contract research are accumulated in R&D accounts and transferred to cost of
sales when the customer is billed for the work and revenue is recorded. We
expect our R&D expenses for the remainder of fiscal 2004 to remain at levels
higher than those of fiscal 2003.
Professional services, which consist principally of legal, consulting
and audit expenses, increased by $68,236 from $184,358 during the first quarter
of 2003 to $252,594 in the first quarter of 2004. The increase is attributable
to legal expenses for work associated with contract research agreements and the
preparation of a shelf registration statement for our common shares.
General and administrative expenses increased by $398,118 from $557,838
in first quarter of 2003 to $955,956 in the same period of 2004. Stock options
and warrants expense increased by $116,349, from $0 in the first quarter of 2003
to $116,349 in the first quarter of 2004, as a result of stock options granted
to non-employees and a charge of $100,584 for an increase in the fair value of
stock options repriced in prior periods. Salaries and related overheads
increased by $193,899 from $253,600 in the first quarter of 2003 to $447,499 in
the first quarter of 2004 due to the addition of two new employees, salary
increases and bonuses paid in the first quarter of 2004. Investor relations
expenses increased by $112,305 from $69,947 in the first quarter of 2003 to
$182,252 in 2004 as a result of $118,273 of non-cash charges for the fair value
of stock options granted to service providers. These increases were partially
offset by general and administrative overheads allocated to R&D.
Interest expense decreased by $72,891, from $120,173 in the first
quarter of 2003 to $47,282 in the first quarter of 2004. The decrease is due to
the payoff of our note payable to Doral 18, LLC in September 2003.
Recent Business Developments
- ----------------------------
TIMET
In January 2004 we became a subcontractor to TIMET for a titanium metal
research program funded by the Defense Advanced Research Projects Agency
14
("DARPA"). In connection therewith, we 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. The 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. Our
participation in this project is a natural extension of our titanium dioxide
processing technology. Key intermediates in the AHPP for making pigment and
nano-sized TiO2 allow the manufacture of porous electrodes that may be highly
suitable for use in the titanium metal research program funded by DARPA.
RenaZorb(TM)
RenaZorb(TM) is our drug candidate for use in phosphate control in
kidney dialysis patients. In vitro testing and animal testing done to date
indicate RenaZorb(TM) may be effective for use with kidney dialysis patients
with end-stage renal disease. We have not, however, conducted human trials using
RenaZorb(TM) or submitted an application to the U.S. Food and Drug
Administration ("FDA") seeking approval to market RenaZorb(TM). An alternative
lanthanum-based drug candidate, Fosrenol(TM), produced by Shire Pharmaceuticals
Group plc, is currently under review for approval by the FDA. We do not expect
to be able to enter into a license agreement unless and until Fosrenol(TM)
obtains FDA approval. Although we expect the FDA to reach a decision regarding
Fosrenol(TM) during 2004, we cannot be certain that approval will be granted. If
we are able to enter into a license agreement, we are uncertain what the terms
of the license would be, but pharmaceutical license agreements often involve
up-front or staged payments in addition to royalties if FDA approval is obtained
and the drug is marketed.
AHPP Technology
In January 2004, we entered into a license agreement with Western Oil
Sands, Inc. 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 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.
We submitted phased development proposals for the testing and economic
evaluation of our titanium pigment production technology to four minerals and
energy resources companies during the first three quarters of 2003. We recently
entered into a testing and development license with one of these companies,
called Avireco, located in Vietnam, and anticipate that we may enter into
additional testing agreements during 2004. We were recently informed that
$250,000 in funds have now been authorized by the government of Vietnam to begin
the first phase of pilot plant testing in the first quarter of 2004; however, we
have not yet been authorized to proceed with the work. If the results of testing
by one or more such companies are positive, we hope to enter into a long-term
license agreement for regional exclusive use of the pigment technology. If one
or more of such minerals and energy resources companies obtains such a license
and subsequently constructs a full-scale production plant, we would expect to
15
receive development fees and royalties over the long-term, but no significant
up-front payments. We can provide no assurance that the results of any testing
will be positive, that we will enter into a long-term license or that the
licensee will construct a full-scale production plant in order to use our
technology.
Nanocheck(TM)
Nanocheck(TM) is a lanthanum-based compound that can be used to treat
water for the removal of a wide range of deleterious impurities. It has no
reported human health hazards and works effectively in existing filtration units
without the need for purchasing additional equipment. We have conducted in-house
tests of Nanocheck(TM) for phosphate removal in swimming pool simulations, and a
pool and spa chemical company has performed materials testing that shows
effective phosphate removal and high kinetics. Larger scale swimming pool tests
are expected to be performed in the summer months beginning June 2004. We also
expect to perform an arsenic removal study during the second quarter of 2004.
Battery Applications
In March 2004, we signed a memorandum of joint development work with
Hosokawa Micron International to establish a development program using both
companies' combined technologies to develop advanced electrode materials for
electrochemical devices, which include batteries, capacitors and
supercapacitors, from a variety of nanomaterials. We expect to apply for U.S.
government grants for the development and testing of the electrodes.
Forward-Looking Statements
- --------------------------
This Quarterly Report on Form 10-Q (this "Report") contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. 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. Statements in this
report regarding the ability of the Company to raise working capital necessary
to fund our operations, development of the nanomaterials and titanium dioxide
pigment processing technology and assets (including for pharmaceutical use),
licensing of that technology for pharmaceutical or other uses, and other future
activities are forward-looking statements. You should 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.
Among the key factors that may have a direct bearing on the Company's
operating results are various risks and uncertainties including, but not limited
to, the following:
o To date, we have not generated substantial revenues from
operations. As of March 31, 2004, we have generated $480,641 of
revenues from our nanomaterials and titanium dioxide pigment
technology and $28,270 from the use of our centrifugal jig in
consulting contracts. We believe that our nanomaterials and
titanium dioxide pigment technology is the only one of our three
lines of business that may generate significant revenues in the
foreseeable future. Although we currently have approximately
$985,000 in unfulfilled contractual commitments, such commitments
16
primarily relate to our provision of research and development
services or to sales of products for experimental purposes. We
have no sales or other commitments with respect to on-going
revenues from our nanomaterials and titanium dioxide pigment
technology and can provide no assurance that we will ever generate
significant revenues.
o As of May 3, 2004, we had $10.9 million in cash, an amount
sufficient to fund our ongoing operations until December 31, 2005
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
significant amounts of 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.
o 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 could 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:
(1) Intentional manipulation of our stock price by existing or
future shareholders;
(2) A single acquisition or disposition, or several related
acquisitions or dispositions, of a large number of our
shares;
(3) The interest of the market in our business sector, without
regard to our financial condition, results of operations or
business prospects;
(4) Positive or negative statements or projections about our
company, or our industry, by analysts, stock gurus and other
persons;
(5) 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;
(6) Economic and other external market factors, such as a general
decline in market prices due to poor economic indicators or
investor distrust; and
(7) 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.
17
o 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. As
discussed in "Recent Business Developments--AHPP Technology",
we have, however, entered into discussions with various
minerals and materials companies about licensing our
technology to such entities for large-scale production of
titanium dioxide pigments. We have not entered into any
long-term licensing agreements with respect to the use of our
titanium processing technology for large-scale production of
titanium dioxide pigments and can provide no assurance that
we will be able to enter into any such agreement. Even if we
enter into such an agreement, we would not receive
significant revenues from such license until feasibility
testing is complete and, if the results of feasibility
testing were negative, would not receive significant revenues
at any time.
o In the short run, we also plan to use the titanium processing
technology to produce TiO2 nanoparticles and/or to license
the technology to others. TiO2 nanoparticles and other
products we intend to initially produce with the titanium
processing technology, such as nano-sized lithium titanate
for use in batteries or other nanoparticles for use in
titanium metals, dental applications or detection of
radiological agents, generally must be customized for a
specific application working in cooperation with
manufacturers of products utilizing the nanoparticles and end
users. We are still testing and customizing our TiO2
nanoparticle products for various applications and have no
agreements with research partners, manufacturers, customers
or others under which any such person has agreed to purchase,
license or otherwise pay significant fees to Altair with
respect to a nanoparticle application of our technology. We
may never generate significant revenues producing, or
licensing our technology for the production of, TiO2 or other
nanoparticles.
o As described in "Restructuring plans and Progress" above, we
have announced, but have made little progress on, a plan to
distribute to shareholders the capital stock of our
subsidiary, Mineral Recovery Systems, which will hold the
rights to the exploration-stage mineral deposit in Camden,
Tennessee, the ownership of the Altair centrifugal jig and
related intellectual property for agglomeration of titanium
dioxide. Because of the recent resignation or termination of
all but one of our employees responsible for working on our
mineral assets, the scarcity of management resources and our
decision to focus our efforts on various initiatives that are
essential to the development of our nanomaterials and
titanium dioxide processing technology, we may not complete
the spin-off in the near future or at all. As part of
finalizing our business plan for the spin-off, questions as
to its viability may arise, or we may determine that other
alternatives for the disposition of the mineral assets are
more appropriate. We are uncertain when we will dispose of
our mineral assets and what the form of such disposition
transaction will be. In any case, we do not expect to receive
significant value for such assets, even if they are sold, and
believe that costs to Altair associated with the disposition
transaction will equal or exceed short-term proceeds to
Altair.
18
o We have received a proposal from one of our shareholders,
which is included in our proxy statement for our upcoming
annual meeting. This same shareholder has taken the unusual
step of issuing a press release and has sent numerous
facsimiles to management making myriad demands (both personal
to the shareholder and relating to the Company in general)
and referencing the possibility of a proxy contest,
litigation or other action. To the extent actions by this
shareholder, or other shareholders, merit a response, we may
be required to use scarce human and capital resources
responding to shareholder actions rather than pursuing our
business goals. The diversion of resources would likely be
substantial in the case of litigation or a proxy contest. In
addition, the market price for our common shares and our
ability to enter into significant business transactions may
be adversely affected by the existence and content of
shareholder action. We can provide no assurance that our
shareholders will not take actions and make claims or
representations, whether or not true, that will adversely
affect our ability to conduct our business and the market
price of our common stock.
The foregoing factors represent only a sampling of the most significant
of the risks associated with an investment in the Company.
In addition to the foregoing, we have included additional risk factors
and other cautionary statements contained in our other filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 2003. We recommend that you review such documents
prior to investing in our common shares.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not have any derivative instruments, commodity instruments, or
other financial instruments for trading or speculative purposes, nor are we
presently at risk for changes in foreign currency exchange rates.
Item 4. Controls and Procedures
(a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our president and our chief
financial officer have concluded that, as of March 31, 2004, our disclosure
controls and procedures were effective.
(b) There have been no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) See Exhibit Index attached hereto.
b) On February 3, 2004, we filed a Form 8-K to report certain current
business developments in order to ensure that the information is
incorporated by reference into the Company's various registration
statements that incorporate subsequent annual, quarterly and
current reports by reference.
c) On March 25, 2004, we filed a Form 8-K to report a news release
announcing financial results for 2003 and also announcing the date
for a quarterly conference call regarding the financial results.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Altair Nanotechnologies Inc.
May 14, 2004 By: /s/ Rudi E. Moerck
- ------------------------ ---------------------------------
Date Rudi E. Moerck, President
May 14, 2004 By: /s/ Edward H. Dickinson
- ------------------------ ---------------------------------
Date Edward H. Dickinson,
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
- ---------------- --------------------------------------------------- ---------------------------------------------
3.1 Articles of Continuance Incorporated by reference to the Company's
Current Report on Form 8-K filed with the
SEC on July 18, 2002
4.1 Bylaws Incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed with
the SEC on August 13, 2003.
31.1 Section 302 Certification of Chief Executive Filed herewith
Officer
31.2 Section 302 Certification of Chief Financial Filed herewith
Officer
32.1 Section 906 Certification of Chief Executive Filed herewith
Officer
32.2 Section 906 Certification of Chief Financial Filed herewith
Officer
21