UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
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 November 10, 2004 the registrant had 49,855,201 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)
September 30, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 8,868,422 $ 3,869,669
Accounts receivable, net 213,684 13,324
Other current assets 118,886 79,187
------------ ------------
Total current assets 9,200,992 3,962,180
Property, Plant and Equipment, net 6,322,783 6,618,805
Patents, net 996,299 1,060,569
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 16,538,274 $ 11,659,754
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 224,574 $ 85,255
Accrued liabilities 696,073 311,886
------------ ------------
Total current liabilities 920,647 397,141
------------ ------------
Note Payable, Long-Term Portion 2,830,488 2,686,130
------------ ------------
Commitments and Contingencies (Note 4)
Shareholders' Equity
Common stock, no par value, unlimited shares authorized;
49,288,703 and 43,188,362 shares issued and
outstanding at September 30, 2004 and December 31, 2003 64,305,664 54,789,896
Deficit accumulated during the development stage (51,518,525) (46,213,413)
------------ ------------
Total Shareholders' Equity 12,787,139 8,576,483
------------ ------------
Total Liabilities and Shareholders' Equity $ 16,538,274 $ 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 Nine Months Ended inception) to
September 30, September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Sales $ 346,907 $ 17,318 $ 640,889 $ 42,029 $ 1,010,051
Cost of Sales 293,685 16,706 604,517 32,594 778,434
------------ ------------ ------------ ------------ ------------
Gross Margin 53,222 612 36,372 9,435 231,617
------------ ------------ ------------ ------------ ------------
Operating Expenses
Mineral exploration and development 6,250 25,522 88,982 69,403 6,762,333
Research and development 221,054 246,585 815,881 661,766 5,437,434
Professional services 386,331 111,753 1,117,667 453,319 4,970,436
General and administrative expenses 632,819 584,937 2,577,614 1,741,825 20,065,062
Depreciation and amortization 226,823 220,259 668,333 657,243 7,062,212
Asset impairment -- -- -- -- 2,759,956
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,473,277 1,189,056 5,268,477 3,583,556 47,057,433
------------ ------------ ------------ ------------ ------------
Loss from Operations 1,420,055 1,188,444 5,232,105 3,574,121 46,825,816
------------ ------------ ------------ ------------ ------------
Other (Income) Expense:
Interest expense 50,336 141,658 145,732 407,950 5,135,486
Interest income (29,706) (631) (73,080) (1,015) (890,904)
Loss (gain) on foreign exchange (361) -- 356 -- (557,393)
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 20,269 141,027 73,008 406,935 3,999,140
------------ ------------ ------------ ------------ ------------
Net Loss 1,440,324 1,329,471 5,305,113 3,981,056 50,824,956
Preferential Warrant Dividend -- 416,014 -- 592,486 693,569
------------ ------------ ------------ ------------ ------------
Net Loss Applicable to Shareholders $ 1,440,324 $ 1,745,485 $ 5,305,113 $ 4,573,542 $ 51,518,525
============ ============ ============ ============ ============
Loss per Common Share - Basic and Diluted $ 0.03 $ 0.05 $ 0.11 $ 0.13 $ 4.70
============ ============ ============ ============ ============
Weighted Average Shares - Basic and Diluted 49,121,984 38,129,702 48,401,132 34,676,028 10,970,673
============ ============ ============ ============ ============
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
Nine Months Ended (date of
September 30, inception) to
---------------------------- September 30,
2004 2003 2004
------------ ------------ ------------
Cash flows from development activities:
Net loss $ (5,305,113) $ (3,981,056) $(50,824,957)
Adjustments to reconcile net loss to net cash
used in development activities:
Depreciation and amortization 668,333 657,243 7,062,212
Shares issued for services 178,000 89,298 570,723
Shares issued for interest -- 133,315 1,249,752
Issuance of common stock options to non-employees 262,045 30,256 3,357,532
Issuance of common stock options to employees 39,001 33,600 117,221
Variable accounting on stock options (406,848) -- 496,820
Issuance of common stock warrants -- 37,065 1,026,277
Amortization of discount on note payable 144,358 134,626 1,125,137
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 (200,360) 115,803 (213,684)
Other current assets (39,699) (42,757) 1,615,712
Other assets -- -- (170,720)
Trade accounts payable 139,319 (120,242) 232,605
Accrued liabilities 384,187 (24,674) 418,828
------------ ------------ ------------
Net cash used in development activities (4,103,384) (2,937,523) (30,342,808)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (9,625,154)
Purchase of property and equipment (341,433) (68,476) (4,095,258)
Proceeds received from sale of property
and equipment -- -- 4,675
Purchase of patents -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities (341,433) (68,476) (15,597,924)
------------ ------------ ------------
(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
(date of
Nine Months Ended inception) to
September 30, September 30,
--------------------------- ------------
2004 2003 2004
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs $ -- $ 4,324,898 $ 26,394,979
Issuance of shares under Employee Stock
Purchase Plan -- 442,230 698,858
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 8,705,861 631,882 17,040,775
Issuance of related party notes -- -- 174,243
Issuance of notes payable -- -- 19,130,540
Payment of notes payable -- (1,120,000) (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 9,443,570 4,377,010 54,809,154
------------ ------------ ------------
Net increase in cash and cash equivalents 4,998,753 1,371,011 8,868,422
Cash and cash equivalents, beginning of period 3,869,669 244,681 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 8,868,422 $ 1,615,692 $ 8,868,422
============ ============ ============
Supplemental disclosures:
Cash paid for interest $ -- $ 84,009
============ ============
(continued)
5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Supplemental schedule of non-cash investing and financing activities:
For the nine months ended September 30, 2004:
- ---------------------------------------------
- None
For the nine months ended September 30, 2003:
- ---------------------------------------------
- We issued 695,052 common shares to Doral 18, LLC in payment of $280,000 of
principal on our note payable. The conversion of the note resulted in additional
interest expense of $133,315.
- On or about June 2, 2003, we repriced warrants, held by a shareholder, for
796,331 common shares. The repriced warrants have an incremental fair value of
$176,472 and have been accounted for as a preferential warrant dividend.
- In September 2003, we entered an agreement with a shareholder wherein the
shareholder agreed to exercise 631,882 warrants that had an exercise price of
$1.00 each. In return, we issued the shareholder 631,882 new warrants having an
exercise price of $1.75 each. The new warrants have a fair value of $416,014 and
have been accounted for as a preferential warrant dividend.
(concluded)
See notes to the consolidated financial statements.
6
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 nine-month periods ended
September 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.
7
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 Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net loss applicable to shareholders:
As reported $1,440,324 $1,745,485 $5,305,113 $4,573,542
Add : stock-based employee compensation
income calculated under APB Opinion No. 25
included in reported net loss 328,770 33,600 367,847 33,600
Add: stock-based employee compensation
expense determined under value based
method for all awards 208,030 184,951 1,172,439 262,948
---------- ---------- ---------- ----------
Pro forma $1,977,124 $1,964,036 $6,845,399 $4,870,090
========== ========== ========== ==========
Loss per common share (both basic and diluted):
As reported $ 0.03 $ 0.05 $ 0.11 $ 0.13
========== ========== ========== ==========
Pro forma $ 0.04 $ 0.05 $ 0.14 $ 0.14
========== ========== ========== ==========
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:
Nine Months Ended
September 30,
------------------------------
2004 2003
------------------------------
Dividend yield None None
Expected volatility 73% 65%
Risk-free interest rate 4.23% 2.92%
Expected life (years) 6.4 5.0
Weighted average fair value of grants $ 1.15 $ 0.48
8
In August 2004, we issued 300,000 stock options to an employee that
vest ratably based on the market value of our common shares. As of September 30,
2004, management did not believe it was probable that the stock price would
reach the stated market price and therefore did not include the fair value of
the stock options in the disclosure above. Management will reevaluate the
probability of this contingency at each reporting period and include the fair
value of these stock options when they believe it is probable they will achieve
the stated market price.
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. Based on the specific terms and conditions of each contract/grant,
revenues may be recognized on a time and materials basis as costs are incurred,
a percentage of completion basis as stipulated milestones are achieved, or after
final project reports are submitted. For the three months ended September 30,
2004, we recognized $4,018 from product sales and $342,889 from contract
services. For the nine months ended September 30, 2004, we recognized $6,861
from product sales and $634,028 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.
The adoption of Issue No. 03-1 did not have a material impact on our financial
statements.
Note 3. Common Stock
Common stock transactions during the nine months ended September 30,
2004 were as follows:
Common Stock
---------------------------
Shares Amount
------------ ------------
Balance, December 31, 2003 43,188,362 $ 54,789,896
Exercise of common stock warrants 5,576,441 8,705,861
Exercise of common stock options 423,900 737,709
Common stock issued for services 100,000 178,000
Variable accounting on common stock options -- (406,848)
Common stock options issued to employees -- 39,001
Common stock options issued to non-employees -- 262,045
------------ ------------
Balance, September 30, 2004 49,288,703 $ 64,305,664
============ ============
9
Note 4. Notes Payable
Notes payable consisted of the following at September 30, 2004 and
December 31, 2003:
September 30, December 31,
2004 2003
---------- ----------
Note payable to BHP Minerals
International, Inc. $2,830,488 $2,686,130
Less current portion -- --
---------- ----------
Long-term portion of notes payable $2,830,488 $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 at the date of issuance, 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 September 30, 2004 was:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
--------------- --------------- --------------
Patents and related
expenditures $ 1,517,736 $ (521,437) $ 996,299
The weighted average amortization period for patents and related
expenditures is approximately 16.5 years. Amortization expense was $64,270 for
the nine months ended September 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.
Note 6. Related Party Transactions
In July 2004, we incurred a liability of $6,000 payable to Advanced
Technology Group LLC ("ATG") in connection with a consulting agreement. David
King, a member of our board of directors, is the managing partner of ATG. Under
the terms of the agreement, ATG provides consulting services in reviewing
federal grant opportunities and provides proposal development assistance on
selected programs. These services are paid at the rate of 6% of the first
$1,000,000 and 3.5% of amounts over $1,000,000 in grant monies secured from
federal grants obtained through assistance by ATG.
10
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 September 30, 2004 and the
material changes in our results of operations and financial condition between
the three-and nine-month periods ended September 30, 2003 and September 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
recently organized into two divisions, Life Sciences and Performance Materials,
in anticipation of generating a substantial amount of business activity and
revenues from life sciences products, specifically pharmaceuticals and drug
delivery products. At present, these revenues are not significant. Our research,
development, production and marketing efforts are currently directed toward six
market applications that utilize our proprietary technologies:
The Performance Materials Division
o Advanced Materials for Paints, Coatings and Sensors;
o The production of titanium dioxide pigments;
o The production of nano-structured powders for thermal spray
applications;
o The production of nano-structured powders for nano-sensor
applications.
o Advanced Materials for Improving Process Technologies
o The development of titanium dioxide electrode structures in
connection with a research program aimed at developing a
lower-cost process for producing titanium metals and
related alloys;
o The development and production of NanoCheck TM phosphate
binding materials for prevention of algae growth.
o Advanced Materials for Alternative Energy
o The development of materials for high performance
batteries, fuel cells and photovoltaics.
The Life Sciences Division
o Pharmaceutical Products
o 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 also provide contract research services on select projects where we
can utilize our resources to develop intellectual property and/or new products
and technology.
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, (3) license and evaluate our pigment production process for the
11
production of TiO2 pigment and pigment-related products from titanium-bearing
oil sands and (4) produce lithium titanate battery materials under a development
program funded by a National Science Foundation Small Business Innovative
Research grant. See Three Months Ended September 30, 2004 Compared to Three
Months Ended September 30, 2003 below for additional information regarding
customer contracts and revenue expectations for the fourth quarter of 2004.
Recent Business Developments
- ----------------------------
On August 16, 2004, we announced the appointment of Alan J. Gotcher,
Ph.D., as Chief Executive Officer and director of the Company. Dr. Gotcher
filled the position created by the May 1, 2004 retirement of Dr. William P.
Long. Dr. Gotcher had been working with Altair as a management consultant since
May 2004. Before joining Altair, Dr. Gotcher was chairman and CEO of
Nevada-based InDelible Technologies, Inc., a development stage company that
provides secure logistics through covert bar code marking systems and invisible
bar code reading technologies. Prior to founding InDelible, Dr. Gotcher spent
fourteen years with Avery Dennison where he served as senior vice president,
Manufacturing & Technology, and chief technology officer. Prior to that, he was
laboratory director, U.S. Corporate Research and Development, Raychem
Corporation.
Performance Materials Division
Nanosensors Program
- -------------------
In September 2003, we entered into an agreement with Western Michigan
University ("WMU") to provide research services and materials to support
research involving a technology used in the detection of chemical, biological
and radiological agents. The teaming/research agreement with WMU, funded by the
Department of Energy ("DOE"), provided for total payments to Altair of $356,500
over a two-year period. Total revenues generated by Altair under this agreement
through September 30, 2004 were $246,353. On September 30, 2004, we announced
that the DOE awarded a stage 2 contract for the project under which we will
continue joint development work for the design, synthesis and characterization
of nanosensors for chemical, biological and radiological agents. Altair will
receive an additional $672,000 over the two-year term of the stage 2 contract.
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
reported human health hazards and works effectively in existing filtration units
without the need for purchasing additional equipment. Nanocheck(TM) limits algae
growth by removing the phosphate nutrients that algae require in order to
reproduce. 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 and are continuing. These were delayed first
due to internal issues within the pool chemical company and then due to the
effects of hurricanes in the locale where tests were to be conducted. As a
result, tests are now scheduled through the summer of 2005. Negotiations with
major pool chemical companies are underway and if testing is successful and
sales agreements are entered into, significant sales of products incorporating
Nanocheck(TM), if any, may begin in 2006.
During the second quarter of 2004, we performed a study using
Nanocheck(TM) to remove arsenic from drinking water. The results of the study
indicate that Nanocheck's performance is not significantly superior to other
less costly products that are commercially available. As a result, we have
elected not to pursue this application of Nanocheck(TM) at this time.
12
Battery Applications
- --------------------
In August 2004, we began work under a $100,000 Small Business
Innovative Research grant awarded by the National Science Foundation to fund
joint development work on next generation lithium ion power sources with
Hosokawa Micron's Nanoparticle Technology Center and Rutgers University's Energy
Storage Research Group. The 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.
During October, 2004 we were awarded a European patent for our "Process
For Making Lithium Titanate", a product used in the development of lithium ion
batteries and super capacitors.
Other
- -----
Our development agreement with Titanium Metals Corporation provides us
with the opportunity to supply enough titanium dioxide micro porous electrodes
to produce 50 pounds of titanium metal per day. We have met the contract and
project goals and the project continues to move forward successfully.
A contract to supply testing quantities of customized nano-sized
coating materials was awarded, the third such contract we have entered with this
customer.
We have now completed approximately 50% of the Phase 1 workscope for
the Western Oil Sands Project.
Life Science Division
RenaZorb(TM) Products
- ---------------------
In 2005, we plan 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. In September 2004, we announced the results
of a pre-clinical animal study of RenaZorb(TM) which was conducted to determine
its phosphate binding efficiency. The results indicated that RenaZorb(TM) bound
more phosphate than Renagel, a drug currently on the market, and Fosrenol, a
drug of similar compounds produced by Shire Pharmaceuticals Group plc ("Shire").
Fosrenol was approved by the FDA on October 26, 2004. As a result, we hope to be
able to begin negotiating a license agreement for RenaZorb(TM) with one or more
pharmaceutical companies. We have concentrated our efforts on making contacts
with interested pharmaceutical companies, producing an information package for
use in marketing RenaZorb(TM), and continuing with product development and
testing work in our laboratories. We have sent the RenaZorb(TM) information
package to over 40 pharmacuetical and biotechnology companies and preliminary
discussions are underway which may lead to a licensing agreement for
RenaZorb(TM). 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.
Other
- -----
Two patent applications were filed for the TiNano Sphere drug delivery
technology platform.
13
We continue to work with a research consortium sponsored by the
National Institutes of Health to strengthen polymer-based dental fillings
utilizing our nano-zirconia.
With respect to the Tennessee mineral property, we are continuing our
efforts to terminate leases and draft a remediation plan. 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 this process to continue through the first quarter of
2005.
A major minerals processing firm is currently testing the Centrifugal
Jig. The carrying costs associated with it are minimal, and we plan to retain
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.
Liquidity and Capital Resources
- -------------------------------
We generated $640,889 of sales revenues in the first nine months of
2004 but incurred a net loss of $5,305,113, resulting in an accumulated deficit
of $51,518,525 at September 30, 2004.
Our cash and short-term investments increased from $3,869,669 at
December 31, 2003 to $8,868,422 at September 30, 2004 due primarily to the
receipt of $737,709 from the exercise of common stock options and receipt of
$8,705,861 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 September 30, 2004, we had cash and
cash equivalents of $8,868,422, 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 during the
remainder of 2004 and in 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 product
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 until early 2005, if at all, and
expect that, when such licensing agreements are in place, we will generate a
revenue stream consisting of an up-front licensing fee, milestone payments as
development progresses and royalties when the products are brought to market.
Although we currently have capital sufficient to fund our operations at
current levels, we expect our capital needs to increase during the remainder of
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 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.
14
Accordingly, we may raise additional capital during the remainder of
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.
At November 10, 2004, we had 49,455,894 common shares issued and
outstanding. As of that same date, there were outstanding warrants to purchase
up to 4,855,201 shares of common stock and options to purchase up to 3,556,700
shares of common stock.
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 September 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 427,648 352,648 75,000 -- --
----------- ---------- ----------- ----------- ------------
Total Contractual Obligations $ 4,446,300 $ 724,606 $ 1,601,974 $ 1,439,691 $ 680,029
=========== ========== =========== =========== ===========
* Before discount of $169,512
** Although we expect to terminate substantially all mineral leases by mid-2005,
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.
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.
15
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 September 30, 2004, the carrying
value of these assets was $7,296,659, or 44% 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 123 for employees and
directors, but we also issue warrants and options to non-employees
that are recognized as expense when issued in accordance with the
provisions of SFAS 123. We calculate compensation expense under
SFAS 123 using a modified Black-Scholes option pricing model. In
so doing, we estimate certain key 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. Based on the
specific terms and conditions of each contract/grant, revenues may
be recognized on a time and materials basis as costs are incurred,
a percentage of completion basis, as stipulated milestones are
achieved, or after final project reports are submitted.
o Overhead Allocation. Facilities overhead, which is comprised
primarily of occupancy and related expenses, is initially recorded
in general and administrative expenses and then allocated monthly
to research and development and cost of sales based on labor
costs.
Results of Operations
- ---------------------
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003
- --------------------------------------------------------------------------------
The net loss applicable to shareholders for the quarter ended September
30, 2004, which was the third quarter of our 2004 fiscal year, totaled
$1,440,324 ($.03 per share) compared to a net loss of $1,745,485 ($.05 per
share) in the third 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.
16
Sales revenues in the third quarter of 2004 were as follows:
Sales Revenues
Three Months Ended
September 30,2004
------------------------
Contract research:
------------------
Western Oil Sands $ 101,003
Western Michigan University 153,576
TIMET 39,310
National Science Foundation 49,000
------------------------
Subtotal 342,889
Nanoparticle products 4,018
------------------------
Total $ 346,907
========================
The revenues from contract research work include $153,576 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. The agreement provides for total payments to Altair of
$356,500 over a two-year period through August 2005. In September 2004, we were
awarded a stage 2 contract for the project under which we will receive $672,000
over a two-year period. We expect to generate approximately $198,000 of revenues
in connection with this contract during the fourth quarter of 2004.
Contracted services revenues also includes $101,003 received from
Western Oil Sands, Inc. in connection with an agreement to license our Altair
Hydrochloride Pigment Process (the "AHPP") for its possible use 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 $90,000 of revenues in the fourth
quarter of 2004 in connection with this contract.
During the quarter ended September 30, 2004, we also generated $39,310
of revenues from TIMET in connection with an agreement 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. We expect to generate approximately $116,000 of revenues in the
fourth quarter of 2004 in connection with this contract.
We also generated $49,000 of revenues under a grant awarded by the
National Science Foundation to fund joint development work on next generation
lithium ion power sources. We expect to generate approximately $51,000 of
revenues in the fourth quarter of 2004 in connection with this contract.
In the third quarter of 2003, we generated sales revenues of $17,318,
which consisted of $16,507 billed under the WMU contract and $811 from sales of
nanoparticle products.
Gross margin in the third quarter of 2004 was $53,222 on sales of
$346,907, an improvement over the second quarter 2004 gross margin of negative
$46,207 on sales of $154,233. This change in margin is the result of 1) the
addition of new contracts, 2) changes in the mix of billable contracts and 3)
17
redefining billable work under the WMU contract to increase the hourly billable
rates and purchase capital assets necessary to complete the work. Our margins
are generally adversely affected during 2004 as compared to earlier years by a
change in the method of recording facilities overhead costs. In prior years,
overhead costs were recorded as general and administrative ("G&A") expenses and
remained in G&A. In 2004, these overhead costs, which totaled $127,000 for the
third quarter of 2004, are allocated between G&A, research and development
("R&D") and cost of sales. This allocation methodology was adopted in response
to a material increase in contract services revenues in 2004 and the need to
obtain cost reimbursement for these overhead costs 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.
We incur R&D expenses for development of new products and intellectual
property and for contract research work that is billable to customers. Contract
research expenses are recorded as costs of sale when the customer is billed for
the work and revenue is recorded. Consequently, R&D expenses are reflected in
both the "Research and development" and "Cost of sales" lines in our income
statements. In the third quarter of 2004, total R&D expenditures were $514,126,
with $221,054 being recorded in R&D and $293,072 being recorded in cost of
sales. In the third quarter of 2003, total R&D expenditures were $263,092, with
$246,585 being recorded in R&D and $16,507 being recorded in cost of sales. The
increase in total R&D expenditures of $251,034 from the third quarter of 2003 to
the third quarter of 2004 is due to an increase in staffing and the allocation
of facilities overhead costs to R&D. The increase in R&D charged to cost of
sales of $276,565 from the third quarter of 2003 to the third quarter of 2004 is
the result of our entering into several new contract research agreements with
customers. We expect our total R&D expenditures 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 $274,578, from $111,753 during the third
quarter of 2003, to $386,331 in the third quarter of 2004. Consulting fees
increased by $134,000, from $13,000 in the third quarter of 2003 to $147,000 in
the third quarter of 2004, primarily as a result of consultants hired to assist
with marketing and product development in both the performance materials and
life sciences divisions. Legal expenses increased by $58,000, from $79,000 in
the third quarter of 2003 to $137,000 in the same quarter of 2004 due to patent
costs associated with performance materials and life sciences products, and a
settlement agreement involving a shareholder. Audit expenses increased by
$82,000, from $18,000 during the third quarter of 2003, to $100,000 in the third
quarter of 2004, primarily as a result of compliance costs associated with the
Sarbanes-Oxley Act.
General and administrative expenses increased by $47,882 from $584,937
in third quarter of 2003 to $632,819 in the third quarter of 2004. Salaries and
related overhead costs increased by $109,000, from $314,000 in the third quarter
of 2003 to $423,000 in the third quarter of 2004, due to salary increases and
the addition of five new employees. Investor relations expenses increased by
$227,000 from $20,000 in the third quarter of 2003 to $247,000 in the third
quarter of 2004 as a result of programs designed to increase institutional
investor ownership of Altair shares. This amount includes $178,000 which
represents the value of Altair common shares issued to a financial advisor in
connection with these programs. Technical operating expenses increased by
$66,000 from $62,000 in 2003 to $128,000 in 2004 due primarily to increased
product sample costs. General insurance expense increased by $47,000 from
18
$51,000 in 2003 to $98,000 in 2004 due to increases in rates and coverages.
General office expenses increased by $94,000 from $151,000 in the third quarter
of 2003 to $245,000 in the third quarter of 2004 primarily as a result of
additional purchases of office supplies, increased directors' fees and higher
occupancy costs for utilities and facilities maintenance. These increases were
partially offset by $127,000 of facilities overhead costs allocated to cost of
sales and R&D as explained in the gross margin discussion above. In addition,
stock option compensation expense decreased by $362,000 from the third quarter
of 2003 to third quarter of 2004 as a result of a reduction in value of repriced
stock options.
Interest expense decreased by $91,322, from $141,658 in the third
quarter of 2003 to $50,336 in the third quarter of 2004. The decrease is due to
the payoff of our note payable to Doral 18, LLC in September 2003.
Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003
- --------------------------------------------------------------------------------
For the nine months ended September 30, 2004, the net loss applicable to
shareholders was $5,305,113 ($0.11 per share) compared to $4,573,542 ($0.13 per
share) for the same period of 2003.
During the nine months ended September 30, 2004, we generated $634,028
of revenues from contract research work and $6,861 from sales of nanoparticle
products as follows:
Sales Revenues
Nine Months Ended
September 30,2004
----------------------
Contract research:
------------------
Western Oil Sands $ 215,208
Western Michigan University 209,280
TIMET 114,310
National Science Foundation 49,000
Other 45,710
------------------------
Subtotal 634,028
Nanoparticle products 6,861
------------------------
Total $ 640,889
========================
See "Three Months Ended September 30, 2004 Compared to Three Months
Ended September 30, 2003" above for a discussion of contract research
agreements, our revenue expectations for the fourth quarter of 2004 and factors
affecting gross margins.
For the nine months ended September 30, 2004, total R&D expenditures
were $1,419,248, with $815,881 being recorded in R&D and $603,367 being recorded
in cost of sales. For the nine months ended September 30, 2003, total R&D
expenditures were $679,749, with $661,766 being recorded in R&D and $17,983
being recorded in cost of sales. The increase in total R&D expenditures of
$739,499 from the nine months ended September 30, 2003 to the nine months ended
September 30, 2004 is due to an increase in staffing, the allocation of
facilities overhead costs to R&D and animal testing costs for RenaZorb(TM). The
increase in R&D charged to cost of sales of $585,384 from the nine months ended
September 30, 2003 to the nine months ended September 30, 2004 is the result of
our entering into several new contract research agreements with customers.
19
Professional services increased by $664,348, from $453,319 during the
nine months ended September 30, 2003 to $1,117,667 in the same period of 2004.
Accounting fees increased by $116,000, from $96,000 in the nine months ended
September 30, 2003 to $212,000 in the comparable period of 2004, as a result of
compliance costs associated with the Sarbanes-Oxley Act. Legal expenses
increased by $174,000, from $238,000 in the nine months ended September 30, 2003
to $412,000 in the comparable period of 2004, 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
and life sciences products. Consulting fees increased by $374,000 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
$168,000 of non-cash expense representing the value of options granted to the
service providers.
General and administrative expenses increased by $835,789 from
$1,741,825 in the nine months ended September 30, 2003 to $2,577,614 in the same
period of 2004. Salaries and related overhead costs increased by $426,000 from
$937,000 in the nine months ended September 30, 2003 to $1,363,000 in the nine
months ended September 30, 2004 due to salary increases, bonuses and the
addition of five new employees. Investor relations expenses increased by
$643,000 from $144,000 in the nine months ended September 30, 2003 to $787,000
in the nine months ended September 30, 2004, primarily as a result of programs
designed to increase institutional investor ownership of Altair shares. This
amount includes a non-cash charge of $78,000 for the value of options granted to
service providers and $178,000 for the value of common shares issued to a
service provider. Investor relations expenses for the nine months ended
September 30, 2004 also includes a non-cash charge of $235,000 for the value of
common shares issued to a shareholder in connection with a settlement agreement
involving certain issues raised by the shareholder. Shareholder information
expenses increased by $45,000 from $65,000 in the nine months ended September
30, 2003 to $110,000 in the nine months ended September 30, 2004 due to annual
report printing and mailing costs; the number of shareholders owning our stock
increased substantially in 2004. General insurance expense increased by $68,000
from $112,000 in 2003 to $180,000 in 2004 due to increases in rates and
coverages. General office expenses increased by $239,000 from $382,000 in the
nine months ended September 30, 2003 to $621,000 in the nine months ended
September 30, 2004 primarily as a result of additional purchases of office
supplies and equipment, increased travel and increased directors' fees.
Technical operating expenses increased by $82,000 from $103,000 in 2003 to
$185,000 in 2004 due primarily to increased product sample costs. These
increases were partially offset by $297,000 of general and administrative
overhead costs allocated to R&D as explained in the gross margin discussion
above and a decrease in stock option compensation expense of $409,000 as a
result of a reduction in value of repriced stock options.
Interest expense decreased by $262,218, from $407,950 in the nine months
ended September 30, 2003 to $145,732 in the nine months ended September 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
20
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 September 30, 2004, we have generated $981,781
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
$1,332,000 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 November 10, 2004, we had $8.3 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;
21
(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.
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;
22
(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;
(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:
o We may be unable to customize our nanoparticle products to
meet the distinct needs of potential customers;
o Potential customers may purchase from competitors because
of perceived or actual quality or compatibility
differences; and
o Our marketing and branding efforts may be insufficient to
attract a sufficient number of customers; and
(3) 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;
23
(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;
(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 We have determined to dispose of the Tennessee mineral property
and expect such disposition to take place during 2005. We do not
expect to receive significant value for the project's assets, even
if they are sold, and believe that costs associated with the
disposition transaction will equal or exceed proceeds to Altair
from the disposition transaction. We will not be able to begin
remediation work of the Tennessee mineral property until after the
remediation plan is approved by the applicable regulatory
authorities, and costs of remediation are uncertain until such
plan approval is obtained and the scope of the work is determined.
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.
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Item 4. Controls and Procedures
(a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our president and our chief
financial officer have concluded that, as of September 30, 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 September 30, 2004, we issued 100,000 common shares to
a service provider in return for investor relations services. 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 5. Other Information
On November 10, 2004 we entered into employment agreements with certain of our
executive officers and other employees, including Mr. Douglas Ellsworth, Senior
Vice President, and Mr. Edward Dickinson, Chief Financial Officer. Each of the
agreements are 18 months in duration and provide for base salaries, bonuses at
the discretion of the board of directors, standard company benefits available to
all employees and severance payments equal to base salary plus COBRA health
insurance premiums for a nine-month period in the event of early termination by
the Company without cause. The base salary for Mr. Ellsworth is $125,000, and
the base salary for Mr. Dickinson is $115,000. The agreements also contain
non-compete and non-solicitation covenants on the part of the executives while
they are employed by the Company and during a period of 12-24 months following
the termination of employment.
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On August 16, 2004, we entered into an employment agreement with Dr. Alan
Gotcher, our new Chief Executive Officer. The agreement is 24 months in duration
(subject to an option on the part of the Company to extend for an additional
year) and provides for base salaries, bonuses at the discretion of the board of
directors, standard company benefits available to all employees and severance
payments equal to base salary plus COBRA health insurance premiums for a
nine-month period in the event of early termination by the Company without
cause. The base salary for Dr. Gotcher is $275,000. In addition, the Company
granted Dr. Gotcher an option to purchase, during a ten-year term, up to 300,000
shares of common stock of the Company at an exercise price equal to the closing
price of such shares on August 16, 2004. Such option is subject to vesting based
upon the market price of the Company's common stock. The agreement also contains
non-compete and non-solicitation covenants on the part of Dr. Gotcher while he
is employed by the Company and during a period of 12 months following the
termination of his employment.
Item 6. Exhibits
See Exhibit Index attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Altair Nanotechnologies Inc.
November 15, 2004 By: /s/ Alan J. Gotcher
- ----------------- -----------------------------------------------
Date Alan J. Gotcher, Chief Executive Officer
November 15, 2004 By: /s/ Edward H. Dickinson
- ----------------- -----------------------------------------------
Date Edward H. Dickinson, Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Exhibit Incorporated by Reference/Filed Herewith
- ---------------- --------------------------------------------------- ---------------------------------------------
10.1 Employment Agreement of Douglas Ellsworth Filed herewith
10.2 Employment Agreement of Edward Dickinson Filed herewith
10.3 Employment Agreement of Alan J. Gotcher, Ph.D. Filed herewith
31.1 Section 302 Certification of Chief Executive
Officer Filed herewith
31.2 Section 302 Certification of Chief Financial
Officer Filed herewith
32.1 Section 906 Certification of Chief Executive
Officer Filed herewith
32.2 Section 906 Certification of Chief Financial
Officer Filed herewith
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