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 JUNE 30, 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) 856-2500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
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 August 10, 2004 the registrant had 49,188,703 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)
June 30, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 10,180,470 $ 3,869,669
Accounts receivable, net 58,730 13,324
Other current assets 40,765 79,187
------------ ------------
Total current assets 10,279,965 3,962,180
Property, Plant and Equipment, net 6,365,600 6,618,805
Patents, net 1,017,729 1,060,569
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 17,681,494 $ 11,659,754
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 276,769 $ 85,255
Accrued liabilities 662,816 311,886
------------ ------------
Total current liabilities 939,585 397,141
------------ ------------
Note Payable, Long-Term Portion 2,781,526 2,686,130
------------ ------------
Commitments and Contingencies (Note 4)
Shareholders' Equity
Common stock, no par value, unlimited shares authorized;
48,866,724 and 43,188,362 shares issued and
outstanding at June 30, 2004 and December 31, 2003 64,038,584 54,789,896
Deficit accumulated during the development stage (50,078,201) (46,213,413)
------------ ------------
Total Shareholders' Equity 13,960,383 8,576,483
------------ ------------
Total Liabilities and Shareholders' Equity $ 17,681,494 $ 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 Six Months Ended inception) to
June 30, June 30, June 30,
------------------------------------------------------------
2004 2003 2004 2003 2004
----------------------------------------------------------------------------
Sales $ 154,233 $ 4,434 $ 293,982 $ 24,711 $ 663,144
Cost of Sales 200,440 938 310,832 15,888 484,749
------------ ------------ ------------ ------------ ------------
Gross Margin (46,207) 3,496 (16,850) 8,823 178,395
------------ ------------ ------------ ------------ ------------
Operating Expenses
Mineral exploration and development 55,506 15,167 82,732 43,881 6,756,083
Research and development 339,428 202,388 594,827 415,181 5,216,380
Professional services 478,742 157,208 731,336 341,566 4,584,105
General and administrative expenses 988,839 599,050 1,944,795 1,156,888 19,432,244
Depreciation and amortization 220,314 218,359 441,510 436,984 6,835,389
Asset impairment -- -- -- -- 2,759,956
------------ ------------ ------------ ------------ ------------
Total operating expenses 2,082,829 1,192,172 3,795,200 2,394,500 45,584,157
------------ ------------ ------------ ------------ ------------
Loss from Operations 2,129,036 1,188,676 3,812,050 2,385,677 45,405,762
------------ ------------ ------------ ------------ ------------
Other (Income) Expense:
Interest expense 48,114 146,119 95,396 266,292 5,085,150
Interest income (23,436) (204) (43,374) (384) (861,198)
Loss (gain) on foreign exchange 318 -- 717 -- (557,032)
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 24,996 145,915 52,739 265,908 3,978,871
------------ ------------ ------------ ------------ ------------
Net Loss 2,154,032 1,334,591 3,864,789 2,651,585 49,384,633
Preferential Warrant Dividend -- 176,472 -- 176,472 693,569
------------ ------------ ------------ ------------ ------------
Net Loss Applicable to Shareholders $ 2,154,032 $ 1,511,063 $ 3,864,789 $ 2,828,057 $ 50,078,202
============ ============ ============ ============ ============
Loss per Common Share - Basic and Diluted $ 0.04 $ 0.04 $ 0.08 $ 0.09 $ 4.77
============ ============ ============ ============ ============
Weighted Average Shares - Basic and Diluted 48,740,271 35,287,020 48,036,745 32,920,570 10,501,871
============ ============ ============ ============ ============
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
Six Months Ended (date of
June 30, inception) to
------------ ------------ June 30,
2004 2003 2004
------------ ------------ ------------
Cash flows from development activities:
Net loss $ (3,864,789) $ (2,651,585) $(49,384,633)
Adjustments to reconcile net loss to net cash
used in development activities:
Depreciation and amortization 441,510 436,984 6,835,389
Shares issued for services -- 89,298 392,723
Shares issued for interest -- 97,037 1,249,752
Issuance of common stock options to non-employees 253,700 30,256 3,349,187
Issuance of common stock options to employees 39,001 -- 117,221
Variable accounting on stock options (78,078) -- 825,590
Issuance of common stock warrants -- 37,066 1,026,277
Amortization of discount on note payable 95,396 88,966 1,076,175
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 33,393 -- 60,999
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 (45,406) 132,323 (58,730)
Other current assets 38,422 (4,144) 1,693,833
Other assets -- -- (170,720)
Trade accounts payable 191,514 (6,664) 284,800
Accrued liabilities 350,930 93,109 385,571
------------ ------------ ------------
Net cash used in development activities (2,544,407) (1,657,354) (28,783,831)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (9,625,154)
Purchase of property and equipment (178,857) (17,394) (3,932,682)
Proceeds received from sale of property and equipment -- -- 4,675
Purchase of patents -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities (178,857) (17,394) (15,435,348)
------------ ------------ ------------
(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
Six Months Ended (date of
June 30, inception) to
--------------------------- June 30,
2004 2003 2004
--------------------------------------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs $ -- $ 2,367,103 $ 26,394,979
Issuance of shares under Employee Stock
Purchase Plan -- 277,212 698,858
Issuance of convertible debenture -- -- 5,000,000
Proceeds from exercise of common stock options 737,709 98,000 3,935,036
Proceeds from exercise of common stock warrants 8,296,356 -- 16,631,270
Issuance of related party notes -- -- 174,243
Issuance of notes payable -- -- 19,130,540
Payment of notes payable -- (280,000) (14,663,579)
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 9,034,065 2,462,315 54,399,649
------------ ------------ ------------
Net increase in cash and cash equivalents 6,310,801 787,567 10,180,470
Cash and cash equivalents, beginning of period 3,869,669 244,681 None
------------ ------------ ------------
Cash and cash equivalents, end of period $ 10,180,470 $ 1,032,248 $ 10,180,470
============ ============ ============
Supplemental disclosures:
Cash paid for interest $ -- $ 80,289
============ ============
Cash paid for income taxes None None
============ ============
Supplemental schedule of non-cash investing and financing activities:
For the six months ended June 30, 2004:
- None
For the six months ended June 30, 2003:
- We issued 681,994 common shares to Doral 18, LLC in payment of $266,290 of
principal on our note payable.
- We repriced warrants, held by a shareholder, for 796,331 common shares. The
repriced warrants have an incremental fair value of $176,472 and have been
accounted for as a preferential warrant dividend.
(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 2005.
The results of operations for the three- and six-month periods ended
June 30, 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. The
valuation allowance reduces deferred tax assets to an amount that represents
management's best estimate of the amount of such deferred tax assets that more
likely than not will be realized.
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. As allowed by 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 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 Six Months Ended
June 30, June 30,
----------------------- ------------------------
2004 2003 2004 2003
----------------------- ------------------------
Net loss applicable to shareholders:
As reported $2,154,032 $1,511,063 $3,864,789 $2,828,057
Add: stock-based employee compensation
income calculated under APB Opinion
No. 25 included in reported net loss 139,661 -- 39,077 --
Add: stock-based employee compensation
expense determined under value based
method for all awards 649,218 69,362 964,409 77,997
---------- ---------- ---------- ----------
Pro forma $2,942,911 $1,580,425 $4,868,275 $2,906,054
========== ========== ========== ==========
Loss per common share (both basic and diluted):
As reported $ 0.04 $ 0.04 $ 0.08 $ 0.09
========== ========== ========== ==========
Pro forma $ 0.06 $ 0.04 $ 0.10 $ 0.09
========== ========== ========== ==========
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:
Six Months Ended
June 30,
------------------------------
2004 2003
------------------------------
Dividend yield None None
Expected volatility 61% 66%
Risk-free interest rate 3.29% 2.40%
Expected life (years) 4.2 5.0
Weighted average fair value of grants $ .99 $ 0.36
7
Revenue Recognition - Revenue is generated from product sales and
services performed under contract. Revenue is recognized for product sales at
the time the purchaser has accepted delivery of the product and for services
when the service has been performed and is billable in accordance with contract
terms. For the three months ended June 30, 2004, we recognized $1,221 from
product sales and $153,012 from contract services. For the six months ended June
30, 2004, we recognized $2,843 from product sales and $291,139 from contract
services.
Overhead Allocation - Facilities overhead, which is comprised primarily
of occupancy and related expenses, is initially recorded in general and
administrative expenses and then allocated to research and development and cost
of sales based on labor costs.
Recent Accounting Pronouncements - In March 2004, the FASB reached a
consensus on Emerging Issues Task Force (EITF) Issue No.03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments."
This pronouncement provides guidance to determine the meaning of
other-than-temporary impairment and its application to investments classified as
either available-for-sale or held-to-maturity (including individual securities
and investments in mutual funds), and investments accounted for under the cost
method or the equity method. The guidance for evaluating whether an investment
is other-than-temporarily impaired is to be applied in other-than-temporary
impairment evaluations made in reporting periods beginning after June 15, 2004.
Management believes the adoption of Issue No. 03-1 will not have a material
impact on the financial statements.
Note 3. Common Stock
Common stock transactions during the six months ended June 30, 2004
were as follows:
Common Stock
---------------------------
Stated
Shares Amount
------------ ------------
Balance, December 31, 2003 43,188,362 $ 54,789,896
Exercise of common stock warrants 5,254,462 8,296,356
Exercise of common stock options 423,900 737,709
Variable accounting on common stock options -- (78,078)
Common stock options issued to employees -- 39,001
Common stock options issued to non-employees -- 253,700
------------ ------------
Balance, June 30, 2004 48,866,724 $ 64,038,584
============ ============
Note 4. Notes Payable
Notes payable consisted of the following at June 30, 2004 and December
31, 2003:
8
June 30, 2004 December 31, 2003
------------- ---------------------
Note payable to BHP Minerals
International, Inc. $2,781,526 $2,686,130
Less current portion -- --
---------- ----------
Long-term portion of notes payable $2,781,526 $2,686,130
========== ==========
The note payable to BHP Minerals International, Inc. is in the face
amount of $3,000,000. Interest on the note does not begin to accrue until August
8, 2005. As a result, we imputed the interest and reduced the face amount of the
note payable by $566,763, an amount that is being amortized to interest expense
over the life of the note. The first payment of $600,000 of principal plus
accrued interest is due February 8, 2006. Additional payments of $600,000 plus
accrued interest are due annually on February 8, 2007 through 2010.
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 June 30, 2004 was:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
---------------- --------------- --------------
Patents and related
expenditures $ 1,517,736 $ (500,007) $ 1,017,729
The weighted average amortization period for intangible assets is
approximately 16.5 years. Amortization expense was $42,840 for the six months
ended June 30, 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.
9
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 June 30, 2004 and the material
changes in our results of operations and financial condition between the
three-and six-month periods ended June 30, 2003 and June 30, 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
We are a development-stage Canadian company, with principal assets and
operations in the United States, whose primary business is developing and
commercializing nanomaterial and titanium dioxide pigment technologies. We have
organized into two divisions: Life Sciences and Performance Materials. Our
research, development, production and marketing efforts are currently directed
toward six market applications that utilize our proprietary technologies:
The Performance Materials Division
o Advanced Materials for Paints and Coatings
o The production of titanium dioxide pigments;
o The production of nano-structured powders for thermal spray
applications.
o Advanced Materials for Improving Process Technologies
o The development of titanium dioxide electrode structures in
connection with a research program aimed at developing a
lower-cost process for producing titanium metals and related
alloys;
o The development and production of NanoCheck TM phosphate
binding materials for prevention of algae growth.
o Advanced Materials for Alternative Energy
o The development of materials for high performance batteries,
fuel cells and photovoltaics.
The Life Sciences Division
o Pharmaceutical Products
o RenaZorb(TM), a new active pharmaceutical ingredient, which
is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney dialysis.
o Drug Delivery Products
o TiNano SpheresTM and No-DefeatTM are rigid, hollow, porous
high surface area ceramic micro structures that are derived
from Altair's proprietary process technology.
o Dental Materials
o The development of nanomaterials for use in various products
for dental fillings.
We acquired the technology that serves as the original source for our
nanomaterial and titanium dioxide pigment technologies from BHP Minerals
International, Inc. in 1999.
We expected to be able to produce titanium dioxide ("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 nanomaterial and titanium dioxide pigment technologies and our 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.
10
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 Centrifugal Jig and finally suspended work on these assets during
2003.
During the remainder of 2004, we expect sales revenues to come from
contracts 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 expect to realize revenues from agreements involving
the development of our drug delivery system and water treatment products. Such
agreements are not currently in place and will likely require additional testing
and development work by Altair before customers will commit funds for joint
development.
Recent Business Developments
Life Science Division
RenaZorb(TM) Products
- ---------------------
In 2005, 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 indicated
in a recent press release that it has received a letter from the FDA indicating
a 90-day extension to the review period to complete evaluation of new data
relating to the formulation and dosage strengths. If this similarly compounded
drug is approved, we hope to be able to quickly negotiate a license agreement
for RenaZorb(TM) with one or more pharmaceutical companies. We do not expect to
be able to negotiate a license agreement for RenaZorb(TM) unless and until the
similar drug is approved by the FDA. 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.
Drug Delivery System
- --------------------
We are continuing the test and development work on our drug delivery
system and have filed additional patent applications related to it. The system
uses rigid, hollow ceramic structures into which drugs can be loaded for release
at therapeutic concentrations. The structures resist crushing, thereby making
them an ideal delivery system for drugs that are subject to abuse such as
amphetamines, narcotics or pain management drugs. We are continuing discussions
with potential market partners interested in this system but have not yet signed
any development contracts.
Performance Materials Division
Nanocheck(TM) Products
- ----------------------
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
11
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
being performed by a pool chemical company began in mid-August 2004. Significant
sales of products incorporating Nanocheck(TM), if any, will not occur until at
least mid-2005.
During the second quarter of 2004, we performed a study using
Nanocheck(TM) to remove arsenic from drinking water. The results of the study
are currently being analyzed.
Battery Applications
- --------------------
In June 2004, we were awarded a National Science Foundation grant of
$100,000 to fund joint development work on next generation lithium ion power
sources with Hosokawa Micron's Nanoparticle Technology Center and Rutgers
University's Energy Storage Research Group. The grant was effective July 1, 2004
with the work to be done over a six-month period. We expect to supply nano-sized
anode and cathode materials for design and development of high capacity lithium
ion battery and super capacitor applications. Nanomaterials are expected to
improve the performance of these systems and enable their use in applications
where immediate high power delivery is necessary.
Other
With respect to TIMET and the Altair Hydrochloride Pigment Process,
there are no significant changes or recent developments to report that would
change the discussion contained in our Form 10-Q for the quarter ended March 31,
2004.
Contract documents between the Vietnam project sponsor, AVIRECO, and
the Company have been updated to reflect a current project start date and
contract milestone dates. Contract finalization is scheduled for September 2004.
Restructuring Plans and Progress
- --------------------------------
In June 2004, we completed a reorganization of the Company in order to
concentrate resources on the nanomaterials and titanium dioxide pigment
business. The reorganization will 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.
Life Sciences Division. As part of the restructuring, we have created 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 drug candidate, RenaZorb(TM).
Performance Materials Division. We also created a performance materials division
that will focus on developing and licensing technologies for the manufacture of
nano- to micron-sized ceramic materials. This includes the Altair Hydrochloride
Pigment Process, production of nano-structured materials and contract research
and development work in the materials sciences.
Disposition of Mineral Business. In March 2004, our Board received and reviewed
various summary presentations about our mineral business and various
alternatives for its disposition. 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
12
excessive costs). However, after further consideration, the Board has abandoned
the proposed spin-off and has concluded that the most cost-effective course of
action with respect to the Tennessee mineral property is to terminate the
mineral leases on the Tennessee mineral property, dispose of the related assets
and remediate the subject property to the extent required by regulatory
authorities. We expect to dispose of our interest in the Tennessee mineral
property by the end of fiscal 2004 and expect that costs associated with the
abandonment of the Tennessee mineral property will equal or exceed any proceeds
from the disposition of related assets. Remediation work, which involves, among
other things, the removal of the pilot plant and related facilities and
restoration of the property, will begin after the remediation plan is approved
by the applicable regulatory authorities. Costs of remediation are uncertain
until such plan approval is obtained and the scope of the work is determined. We
expect that the mineral leases, except those involved in remediation, will be
terminated by the end of 2004. We expect that the remediation work will not be
complete until early 2005.
A major minerals processing firm is currently testing the Centrifugal Jig The
carrying costs associated with it are minimal, and the Board believes that, by
retaining the Centrifugal Jig at least until the minerals processing firm has
completed its testing and development work, we may be able to generate limited
revenue (through licensing fees or in sale transaction) from the Centrifugal Jig
in the foreseeable future. Accordingly, the Board has determined to maintain
ongoing efforts to sell or license the Centrifugal Jig technology without
additional investment.
Liquidity and Capital Resources
- -------------------------------
We generated $293,982 of sales revenues in the first six months of 2004
but incurred a net loss of $3,864,789, resulting in an accumulated deficit of
$50,078,201 at June 30, 2004.
Our cash and short-term investments increased from $3,869,669 at
December 31, 2003 to $10,180,470 at June 30, 2004 due primarily to the receipt
of $737,709 from the exercise of common stock options and receipt of $8,296,356
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 June 30, 2004, we had cash and cash
equivalents of $10,180,470, 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. As described above,
we expect that revenues from our contract work will continue to expand
incrementally in 2004.
We do not, however, expect to receive significant licensing or produce
sales revenue unless, and until, we are able to enter into licensing agreements
related to Renazorb(TM), Nanocheck(TM), or our drug delivery systems. We do not
expect to sign any such licensing agreements before late 2004, if at all, and
expect that, other than a possible up-front licensing fee, a significant revenue
stream would not develop from any such licenses until mid-2005 or later.
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
have hired, and expect to continue to hire, additional personnel to satisfy our
contractual obligations under existing and anticipated services agreements, and
to provide administrative support. In addition, our management is focused on
13
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 June 30, 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** 1,018,652 371,958 326,974 239,691 80,029
Contractual Service Agreements 574,339 486,839 87,500 -- --
---------- ---------- ---------- ---------- ----------
$4,592,991 $ 858,797 $1,614,474 $1,439,691 $ 680,029
========== ========== ========== ========== ==========
* Before discount of $218,474.
* Although we expect to terminate substantially all mineral leases by the end of
2004, the obligations are included here because they are not yet terminated.
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.
14
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 June 30, 2004, the carrying value of
these assets was $7,359,729, or 42% of total assets. We evaluate
the carrying value of long-lived assets when events or
circumstances indicate that an impairment may exist. In our
evaluation, we estimate the net undiscounted cash flows expected
to be generated by the assets, and recognize impairment when such
cash flows will be less than the carrying values. Events or
circumstances that could indicate the existence of a possible
impairment include obsolescence of the technology, an absence of
market demand for the product, and/or the partial or complete
lapse of technology rights protection.
o Stock-Based Compensation. We have two stock option plans which
provide for the issuance of common stock options to employees and
service providers. Although 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.
o Revenue Recognition. Revenue is generated from product sales and
services performed under contract. Revenue is recognized for
product sales at the time the purchaser has accepted delivery of
the product and for services when the service has been performed
and is billable in accordance with contract terms.
o Overhead Allocation. Facilities overhead, which is comprised
primarily of occupancy and related expenses, is initially recorded
in general and administrative expenses and then allocated to
research and development and cost of sales based on labor costs.
15
Results of Operations
- ---------------------
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
- -----------------------------------------------------------------------------
The net loss applicable to shareholders for the quarter ended June 30,
2004, which was the second quarter of our 2004 fiscal year, totaled $2,154,032
($.04 per share) compared to a net loss of $1,511,063 ($.04 per share) in the
second 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.
Sales revenues in the second quarter of 2004 were as follows:
Sales Revenues
Three Months Ended
June 30, 2004
------------------------
Contract research:
------------------
Western Oil Sands $ 71,534
Western Michigan University 35,768
Other 45,710
--------
Subtotal 153,012
Nanoparticle products 1,221
--------
Total $154,233
========
The revenues from contract research work include $35,768 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. Contracted services revenues also
includes $71,534 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. During the quarter ended June 30, 2004, we also generated $45,710
of revenues from two other development contracts. We expect to supply additional
materials and services through follow-on contracts with these customers in 2004
with a contract value of $45,000. In the second quarter of 2003, we generated
sales revenues of $4,434, all of which, was from sales of titanium dioxide
nanoparticles.
Gross margin in the second quarter of 2004 was a negative $46,207,
primarily due to a change in the method of recording facilities overhead costs.
In prior years, overheads were recorded as general and administrative ("G&A")
expenses and remained in G&A. In 2004, these overheads, which totaled $82,000
for the second quarter of 2004, are allocated between G&A, research and
development ("R&D") and cost of sales. This allocation methodology was adopted
16
in response to a material increase in contract services revenues in 2004 and the
need to obtain cost reimbursement for these overheads in future contracts. Our
existing customer contracts, which are principally contract R&D work, were
negotiated with the goal of providing cost reimbursement and little or no
margin, but significant potential for the development of valuable intellectual
property. As a result of this and the change in accounting for overhead costs,
we expect that margins will be slightly positive or negative until we enter into
substantial product sales and/or agreements to license our technologies and/or
additional contract R&D work which provides better margins.
Our R&D efforts in the second quarter of 2004 were directed principally
to contract research, pharmaceuticals and titanium pigment process development.
R&D expenses increased by $137,040 from $202,388 in the second quarter of 2003
to $339,428 in the same period of 2004, principally as a result of increased
labor hours, overheads and animal testing costs for RenaZorb(TM). 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 $321,534, from $157,208 during the second
quarter of 2003, to $478,742 in the second quarter of 2004. Accounting fees
increased by $19,000 as a result of compliance costs associated with the
Sarbanes-Oxley Act. Legal expenses increased by $48,000 due primarily to legal
costs associated with a shareholder proposal and other issues involving a
shareholder. Legal expenses also increased as a result of patent costs
associated with performance materials. Consulting fees increased by $254,000,
from $27,000 in the second quarter of 2003 to $281,000 in the second quarter of
2004, as a result of consultants hired to assist with marketing and product
development in both the performance materials and life sciences divisions. Of
this amount, $135,000 represents non-cash expense associated with stock options
granted to service providers.
General and administrative expenses increased by $389,789 from $599,050
in second quarter of 2003 to $988,839 in the second quarter of 2004. Salaries
and related overheads increased by $110,000, from $325,000 in the second quarter
of 2003 to $435,000 in the second quarter of 2004, due to salary increases,
bonuses and the addition of three new employees. Investor relations expenses
increased by $69,000 from $54,000 in the second quarter of 2003 to $123,000 in
the second quarter of 2004 as a result of programs designed to increase
institutional investor ownership of Altair shares. Shareholder information
expenses increased by $47,000, from $41,000 in the second quarter of 2003 to
$88,000 in the second quarter of 2004, due to annual report printing and mailing
costs; the number of shareholders owning our stock increased substantially in
2004. General office expenses increased by $75,000 from $96,000 in the second
quarter of 2003 to $171,000 in the second quarter of 2004 primarily as a result
of additional purchases of office supplies, increased travel and increased
directors' fees. Technical operating expenses increased by $45,000 from $47,000
in 2003 to $92,000 in 2004 due primarily to increased product sample costs,
laboratory costs and small equipment purchases. We also recorded an expense of
$235,000 representing the value of common shares to be issued to a shareholder
in connection with a settlement agreement involving certain issues raised by the
shareholder. In addition, insurance expense increased by $17,000 as a result of
higher premiums for liability and property coverages and we incurred a loss of
$33,000 on disposal of property. These increases were partially offset by
$82,000 of facilities overheads allocated to cost of sales and R&D as explained
in the gross margin discussion above. In addition, stock option compensation
expense decreased by $163,000 from the second quarter of 2003 to second quarter
of 2004 as a result of a reduction in value of repriced stock options.
Interest expense decreased by $98,005, from $146,119 in the second
quarter of 2003 to $48,114 in the second quarter of 2004. The decrease is due to
the payoff of our note payable to Doral 18, LLC in September 2003.
17
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
- -------------------------------------------------------------------------
For the six months ended June 30, 2004, the net loss applicable to
shareholders was $3,864,789 ($.08 per share) compared to $2,828,057 ($.09 per
share) for the same period of 2003.
During the six months ended June 30, 2004, we generated $291,139 of
revenues from contract research work and $2,843 from sales of nanoparticle
products as follows:
Sales Revenues
Six Months Ended
June 30, 2004
---------------------
Contract research:
------------------
Western Oil Sands $114,205
Western Michigan University 56,224
TIMET 75,000
Other 45,710
--------
Subtotal 291,139
Nanoparticle products 2,843
--------
Total $293,982
========
The contract research revenues received from Titanium Metals Corporation
("TIMET") were generated 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. The other listed contracts are described above in "Three Months
Ended June 30, 2004 Compared to Three Months Ended June 30, 2003".
Gross margin for the six months ended June 30, 2004 was a negative
$16,850, compared to positive $8,823 for the six months ended June 30, 2003. The
decline in margin is attributable to the factors described above in "Three
Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003".
R&D expenses increased by $179,646 from $415,181 in the six months ended
June 30, 2003 to $594,827 in the same period of 2004, principally as a result of
increased labor hours, overheads, temporary employees working on R&D projects
and animal testing costs for RenaZorb(TM). This increase was partially offset by
an increase in contract research R&D expense transferred to cost of sales.
Professional services increased by $389,770 from $341,566 during the six
months ended June 30, 2003 to $731,336 in the same period of 2004. Accounting
fees increased by $35,000 as a result of compliance costs associated with the
Sarbanes-Oxley Act. Legal expenses increased by $115,000 due primarily to legal
expenses for work associated with contract research agreements, preparation of a
shelf registration statement for our common shares, legal costs associated with
a shareholder proposal and other issues involving a shareholder. Legal expenses
also increased as a result of patent costs associated with performance
materials. Consulting fees increased by $240,000 as a result of consultants
hired to assist with marketing and product development in both the performance
materials and life sciences divisions. Included in this amount is $160,000 of
non-cash expense representing the value of options granted to the service
providers.
18
General and administrative expenses increased by $787,907 from
$1,156,888 in the six months ended June 30, 2003 to $1,944,795 in the same
period of 2004. Salaries and related overheads increased by $306,000 from
$607,000 in 2003 to $913,000 in 2004 due to salary increases, bonuses and the
addition of three new employees. Investor relations expenses increased by
$181,000 from $124,000 in the six months ended June 30, 2003 to $305,000 in the
six months ended June 30, 2004 as a result of programs designed to increase
institutional investor ownership of Altair shares. Shareholder information
expenses increased by $47,000 from $41,000 in the six months ended June 30, 2003
to $88,000 in the six months ended June 30, 2004 due to annual report printing
and mailing costs; the number of shareholders owning our stock increased
substantially in 2004. General office expenses increased by $99,000 from
$209,000 in the six months ended June 30, 2003 to $308,000 in the six months
ended June 30, 2004 primarily as a result of additional purchases of office
supplies and equipment, increased travel and increased directors' fees. We also
recorded an expense of $235,000 representing the value of common shares to be
issued to a shareholder in connection with a settlement agreement involving
certain issues raised by the shareholder. In addition, insurance expense,
corporate services and other operating expenses increased by $139,000,
principally as a result of increased activity levels and rising insurance rates.
These increases were partially offset by $170,000 of general and administrative
overheads allocated to R&D as explained in the gross margin discussion above and
a decrease in stock option compensation expense of $46,000 as a result of a
reduction in value of repriced stock options.
Interest expense decreased by $170,896, from $266,292 in the six months
ended June 30, 2003 to $95,396 in the six months ended June 30, 2004. The
decrease is due to the payoff of our note payable to Doral 18, LLC in September
2003.
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.
19
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 June 30, 2004, we have generated $265,712 of
revenues from our nanomaterials and titanium dioxide pigment
technology and $28,270 from the use of our Centrifugal Jig in
consulting contracts. Although we currently have approximately
$903,000 in unfulfilled contractual commitments, such commitments
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 August 6, 2004, we had $9.7 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;
20
(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.
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. 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 We do not presently have the technical or financial resources to
conduct clinical tests on, and take to market, any pharmaceutical
application of our titanium and nanoparticle processing
technology. In order for us to get any significant, long-term
benefit from any potential pharmaceutical application of our
technology, the following must occur:
(1) we must enter into an evaluation license or similar agreement
with a pharmaceutical company under which such company would
pay a fixed or contingent fee for the right to evaluate a
pharmaceutical use of our technology for a specific period of
time and for an option to purchase or receive a license for
such use of our technology;
(2) clinical tests conducted by such pharmaceutical company would
have to indicate that the pharmaceutical use of our
technology is safe, technically viable and financially
viable;
21
(3) such pharmaceutical company would have to apply for and
obtain FDA approval of the pharmaceutical use of our
technology, or any related products, which would involve
extensive additional testing; and
(4) such pharmaceutical company would have to successfully market
the product incorporating our technology.
o The products we intend to initially produce or license with the
titanium and nanoparticle processing technology generally must be
customized for a specific application working in cooperation with
the end user. We are still testing and customizing our prospective
products, including Nanocheck(TM) and our drug delivery systems,
for various applications and have no long-term agreements with end
users to purchase any of our nanoparticle products. We may be
unable to recoup our investment in the titanium and nanoparticle
processing technology and titanium and nanoparticle processing
equipment for various reasons, including the following:
(1) products being developed by our potential customers that
could use our 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;
(2) even if our potential customers complete development of and
find a market for their products, such potential customers
may determine to use nanoparticle products of our competitors
for various reasons, including:
(3) we may be unable to customize our nanoparticle products to
meet the distinct needs of potential customers;
(4) potential customers may purchase from competitors because of
perceived or actual quality or compatibility differences; and
(5) our marketing and branding efforts may be insufficient to
attract a sufficient number of customers; and
(6) because of our limited funding, we may be unable to continue
our development efforts until a strong market for
nanoparticles develops
o We regard our intellectual property, particularly our proprietary
rights in our titanium and nanoparticle processing technology, as
critical to our success. We have received various patents, and
filed other patent applications, for various applications and
aspects of our titanium and nanoparticle processing technology and
other intellectual property. In addition, we generally enter into
confidentiality and invention agreements with our employees and
consultants. Such patents and agreements and various other
measures we take to protect our intellectual property from use by
others may not be effective for various reasons, including the
following:
(1) Our pending patent applications may not be granted for
various reasons, including the existence of similar patents
or defects in the applications;
(2) 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;
22
(3) Parties to the confidentiality and invention agreements may
have such agreements declared unenforceable or, even if the
agreements are enforceable, may breach such agreements;
(4) The costs associated with enforcing patents, confidentiality
and invention agreements or other intellectual property
rights may make aggressive enforcement cost prohibitive;
(5) Even if we enforce our rights aggressively, injunctions,
fines and other penalties may be insufficient to deter
violations of our intellectual property rights; and
(6) Other persons may independently develop proprietary
information and techniques that, although functionally
equivalent or superior to our intellectual proprietary
information and techniques, do not breach our patented or
unpatented proprietary rights.
Because the value of our company and common shares is rooted
primarily in our proprietary intellectual property rights, our
inability to protect our proprietary intellectual property rights
or gain a competitive advantage from such rights could have a
material adverse effect on our business.
In addition, we may inadvertently be infringing on the proprietary
rights of other persons and may be required to obtain licenses to
certain intellectual property or other proprietary rights from
third parties. Such licenses or proprietary rights may not be made
available under acceptable terms, if at all. If we do not obtain
required licenses or proprietary rights, we could encounter delays
in product development or find that the development or sale of
products requiring such licenses is foreclosed.
o As described in "Restructuring plans and Progress" above, we have
determined to dispose of the Tennessee mineral property and expect
such disposition to take place by the end of fiscal 2004. We do
not expect to receive significant value for the project's assets,
even if they are sold, and believe that costs to Altair associated
with the disposition transaction will equal or exceed proceeds to
Altair from the disposition transaction.
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 material risk for changes in interest rates on foreign currency
exchange rates.
23
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 June 30, 2004, our disclosure
controls and procedures were effective.
(b) We are not presently required to conduct quarterly evaluations of
our internal control over financial reporting pursuant to paragraph (d) of Rules
13a-15 or 15d-15 promulgated under the Exchange Act. We are, however, in the
process of designing, evaluating and implementing internal controls in
anticipation of the date when we will become subject to such evaluation
requirements.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended June 30, 2004, we made a commitment to issue 100,000
common shares to a shareholder in a private placement as part of a settlement of
various issues and claims made on Altair by Toyota on Western and Louis Schnur,
the sole owner of Toyota on Western. Such common shares will be offered and sold
in reliance upon the exemption for sales of securities not involving a public
offering, as set forth in Section 4(2) of the Securities Act and Rule 506
promulgated under the Securities Act based upon the following: (a) the investor
represents and warrants to the Company that it is an "accredited investor," as
defined in Rule 501 of Regulation D promulgated under the Securities Act and has
such background, education, and experience in financial and business matters as
to be able to evaluate the merits and risks of an investment in the securities;
(b) there is no public offering or general solicitation with respect to the
offering; the investor is any existing shareholder of the Company and the
investor represents and warrants that it is acquiring the securities for its own
account and not with an intent to distribute such securities; (c) the investor
is provided with an offering summary, a copy of the most recent Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K of
the Company and all other information requested by the investor with respect to
the Company, (d) the investor acknowledges that all securities being purchased
are "restricted securities" for purposes of the Securities Act, and agrees to
transfer such securities only in a transaction registered with the SEC under the
Securities Act or exempt from registration under the Securities Act; and (e) a
legend is placed on the certificates and other documents representing each such
security stating that it is restricted and could only be transferred if
subsequently registered under the Securities Act or transferred in a transaction
exempt from registration under the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
We held an Annual Meeting of Shareholders on June 24, 2004 at which the
shareholders considered and voted as follows on the items described below:
1. The shareholders considered whether to elect the following persons as
directors, each to serve until the next annual meeting of shareholders and until
his respective successor shall have been duly elected and shall qualify:
24
Name of Nominee Votes For Votes Withheld/Abstentions Broker Non-Votes
--------------- --------- -------------------------- ----------------
Jon Bengtson 39,844,606 150,618 -0-
James Golla 39,801,901 193,323 -0-
George Hartman 39,829,856 165,368 -0-
David King 39,875,286 119,938 -0-
Christopher Jones 39,869,356 125,868 -0-
Rudi Moerck 39,798,416 196,808 -0-
2. The shareholders considered whether to appoint Deloitte & Touche, LLP
as auditors and authorize the Board of Directors to fix their remuneration.
There were 39,849,250 votes cast in favor, no votes cast against, 36,042 votes
withheld, and no broker non-votes, which vote was sufficient for approval.
The proxy statement with respect to the Annual Meeting described a
shareholder proposal regarding the director nomination process submitted by
Louis Schnur and indicated that, if neither Mr. Schnur nor his authorized
representative attended the Annual Meeting in order to present his shareholder
proposal, the Company reserved the right to withdraw it. Because neither Mr.
Schnur nor his authorized representative attended the Annual Meeting, the
shareholder proposal was not formally presented or considered at the Annual
Meeting.
Item 6. Exhibits and Reports on Form 8-K
a) See Exhibit Index attached hereto.
b) On May 18, 2004, we filed a Form 8-K to clarify development progress with
respect to the Avireco project.
25
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.
August 13, 2004 By: /s/ Rudi E. Moerck
--------------- ----------------------------------------------
Date Rudi E. Moerck, President
August 13, 2004 By: /s/ Edward H. Dickinson
--------------- -----------------------
Date Edward H. Dickinson, Chief Financial Officer
26
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, File No. 001-12497.
4.1 Bylaws Incorporated by reference to the Company's
Quarterly Reporton Form 10-Q filed with
the SEC on August 13, 2003, File No.001-12497.
10.1 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.
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
27