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, 2003
[ ] 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 None
---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
204 Edison Way Reno, Nevada 89502
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (775) 858-3750
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
As of November 12, 2003 the registrant had 40,216,839 Common Shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)
September 30, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,615,692 $ 244,681
Accounts receivable 17,056 132,859
Other current assets 65,355 22,598
------------ ------------
Total current assets 1,698,103 400,138
Property, Plant and Equipment, net 6,825,311 7,349,818
Patents and Related Expenditures, net 1,081,989 1,146,249
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 9,623,603 $ 8,914,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 335,004 $ 455,246
Accrued liabilities 124,583 149,257
------------ ------------
Total current liabilities 459,587 604,503
------------ ------------
Note Payable, Long-Term Portion 2,639,666 3,905,040
------------ ------------
Commitments and Contingencies (Notes 1, 3, and 4)
Stockholders' Equity
Common stock, no par value, unlimited shares
authorized; 40,159,921 and 30,244,348 shares
issued and outstanding at September 30, 2003
and December 31, 2002 50,480,880 43,787,850
Deficit accumulated during the development stage (43,956,530) (39,382,988)
------------ ------------
Total Shareholders' Equity 6,524,350 4,404,862
------------ ------------
Total Liabilities and Shareholders' Equity $ 9,623,603 $ 8,914,405
============ ============
(See Notes to Financial Statements)
2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration 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,
----------------------------------------------------------
2003 2002 2003 2002 2003
---------------------------------------------------------------------------
Sales $ 17,318 $ 45,089 $ 42,029 $ 98,760 $ 338,340
Cost of sales 16,706 16,702 32,594 48,028 144,352
------------ ------------ ------------ ------------ -----------
Gross Margin 612 28,387 9,435 50,732 193,988
------------ ------------ ------------ ------------ -----------
Operating Expenses
Mineral exploration and development 25,522 132,262 69,403 491,039 6,587,045
Research and development 246,585 146,749 661,766 449,398 4,377,862
Professional services 111,753 105,574 453,319 561,014 3,729,761
General and administrative expenses 584,937 648,571 1,741,825 1,894,785 15,949,622
Depreciation and amortization 220,259 209,903 657,243 781,304 6,172,365
Asset impairment -- -- -- 2,759,956 2,759,956
------------ ------------ ------------ ------------ -----------
Total operating expenses 1,189,056 1,243,059 3,583,556 6,937,496 39,576,611
------------ ------------ ------------ ------------ -----------
Loss from Operations 1,188,444 1,214,672 3,574,121 6,886,764 39,382,623
------------ ------------ ------------ ------------ -----------
Other (Income) Expense:
Interest expense 141,658 316,676 407,950 913,513 4,943,289
Interest income (631) (343) (1,015) (1,877) (816,960)
Loss (gain) on foreign exchange -- -- -- 390 (557,942)
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 141,027 316,333 406,935 912,026 3,880,338
------------ ------------ ------------ ------------ -----------
Net loss 1,329,471 1,531,005 3,981,056 7,798,790 43,262,961
Preferential Warrant Dividend 416,014 48,666 592,486 48,666 693,569
------------ ------------ ------------ ------------ -----------
Net Loss Applicable to Shareholders $ 1,745,485 $ 1,579,671 $ 4,573,542 $ 7,847,456 $ 43,956,530
============ ============ ============ ============ ============
Loss per common share - Basic and diluted $ 0.05 $ 0.06 $ 0.13 $ 0.33 $ 4.79
============ ============ ============ ============ ============
Weighted average shares - Basic and diluted 38,129,702 24,951,065 34,676,028 23,946,170 9,168,215
============ ============ ============ ============ ============
(See Notes to Financial Statements)
3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
(Split Table) Period
April 9, 1973
Nine Months Ended (date of
September 30, inception) to
---------------------------- September 30,
2003 2002 2003
------------ ------------ ------------
Cash flows from exploration activities:
Net loss $ (3,981,056) $ (7,798,790) $(43,262,961)
Adjustments to reconcile net loss to net cash
used in exploration activities:
Depreciation and amortization 657,243 781,304 6,172,365
Shares issued for services 89,298 25,000 392,724
Shares issued for interest 133,315 234,950 1,249,350
Issuance of stock options to non-employees 30,256 167,393 3,061,397
Issuance of stock options to employees 33,600 -- 111,820
Issuance of stock warrants 37,065 108,556 961,926
Amortization of discount on note payable 134,626 347,554 934,315
Amortization of debt issuance costs -- 257,453 504,567
Asset impairment -- 2,759,956 2,759,956
Loss on extinguishment of debt -- -- 914,667
Loss on redemption of convertible debentures -- -- 193,256
Gain on forgiveness of debt -- -- (795,972)
Loss on disposal of fixed assets -- -- 1,945
Gain on foreign currency translation -- -- (559,179)
Deferred financing costs written off -- -- 515,842
Changes in assets and liabilities (net of effects
of acquisition):
Accounts receivable 115,803 (37,792) (17,056)
Other current assets (42,757) 4,612 1,669,243
Other assets -- 71,558 (170,720)
Trade accounts payable (120,242) 310,036 220,505
Accrued liabilities (24,674) (11,736) (30,132)
Deferred revenue -- (40,972) --
------------ ------------ ------------
Net cash used in exploration activities (2,937,523) (2,820,918) (25,172,142)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (9,625,154)
Purchase of property and equipment (68,476) (2,420,463) (3,729,901)
Purchase of patents and related expenditures -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities (68,476) (2,420,463) (15,237,242)
------------ ------------ ------------
(continued)
4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
(Continued)
Period
April 9, 1973
Nine Months Ended (date of
September 30, inception) to
---------------------------- September 30,
2003 2002 2003
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs $ 4,324,898 $ 2,285,123 $ 25,833,679
Collection of stock subscription receivable -- -- 561,300
Issuance of shares under Employee Stock
Purchase Plan 442,230 74,033 534,413
Issuance of convertible debenture -- -- 5,000,000
Proceeds from exercise of stock options 98,000 -- 2,806,491
Proceeds from exercise of warrants 631,882 300,477 5,549,687
Issuance of related party notes -- 6,243 174,243
Issuance of notes payable -- 2,433,237 19,130,540
Payment of notes payable (1,120,000) -- (14,663,579)
Payment of related party notes -- (149,243) (174,243)
Payment on capital lease -- (2,312) (27,075)
Purchase of call options -- -- (449,442)
Redemption of convertible debentures -- -- (2,250,938)
------------ ------------ ------------
Net cash provided by financing activities 4,377,010 4,947,558 42,025,076
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 1,371,011 (293,823) 1,615,692
Cash and cash equivalents, beginning of period 244,681 599,884 None
------------ ------------ ------------
Cash and cash equivalents, end of period $ 1,615,692 $ 306,061 $ 1,615,692
============ ============ ============
Supplemental disclosures:
Cash paid for interest $ 84,009 None
============ ============
Cash paid for income taxes None None
============ ==============
(continued)
5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration 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, 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.
For the nine months ended September 30, 2002:
- We issued 50,000 common shares in payment of financing fees associated with
the Doral 18, LLC 2001 Note. The common shares had a fair value of $76,000 which
was recorded as debt issue cost on the balance sheet.
- We entered into a note payable with BHP with a face amount of $3,000,000.
There is no interest due on the note for the first 36 months. As a result, we
imputed the interest and reduced the face amount of the note payable by
$566,763. The imputed interest expense for the period was $24,786.
(concluded)
(See Notes to Financial Statements)
6
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration 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, 2002, as filed with the Commission on March 17, 2003.
At September 30, 2003, we had cash and cash equivalents of $1,615,692,
which is sufficient to fund our basic operations through February 29, 2004. In
order to conserve cash, we have reduced our cash expenditures to the extent
possible without significantly affecting our development efforts with respect to
the titanium processing technology. We will require additional financing early
in 2004 in order to provide working capital to fund our day-to-day operations.
Our projected near-term sales of nanoparticle products are minimal and
revenues to potentially be derived from licensing of the titanium processing
technology and pharmaceutical and other applications of the technology are
uncertain. As a result, we expect to generate operating funds through additional
private placements of our common stock and warrants to purchase our common stock
or other debt or equity securities. As of November 12, 2003, we have no
commitments to provide additional financing or to purchase a significant
quantity of nanoparticle products. If we are unable to obtain financing on a
timely basis, we may be forced to more significantly curtail and, at some point,
discontinue operations.
The consolidated financial statements do not include certain 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 titanium processing technology for use in
production of nanoparticle and other products, and for licensing to others. The
recoverability of amounts capitalized as property and equipment and patents and
related expenditures is dependent upon our ability to successfully develop and
commercialize this technology.
The results of operations for the three- and nine-month periods ended
September 30, 2003 are not necessarily indicative of the results to be expected
for the full year.
7
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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.
Recent Accounting Pronouncements - In June 2001, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations, which requires asset retirement obligations to be
recognized when they are incurred and displayed as liabilities. SFAS No. 143 is
effective for the year ending December 31, 2003. We adopted SFAS No. 143 on
January 1, 2003. The impact was not significant on our consolidated financial
statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and Accounting Principles Board (APB) Opinion No. 28, Interim
Financial Reporting, to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. We adopted this statement
effective January 1, 2003 but have elected, as permitted under SFAS No. 123, to
continue to follow the accounting provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and to furnish the pro forma disclosures required
under SFAS No. 148.
On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the
Derivatives Implementation Group ("DIG") process that effectively required
8
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
amendments to SFAS No. 133, and decisions made in connection with other FASB
projects dealing with financial instruments and in connection with
implementation issues raised in relation to the application of the definition of
a derivative and characteristics of a derivative that contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. We do not believe
that the adoption of SFAS No. 149 will have an impact on the consolidated
financial statements.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liability and Equity, was issued in May 2003. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity in its
statement of financial position. SFAS No. 150 is effective for the Company for
new or modified financial instruments beginning June 1, 2003, and for existing
instruments beginning August 1, 2003. The adoption of SFAS No. 150 is not
expected to have a material impact on the consolidated financial statements.
Stock-Based Compensation - We have elected to follow the accounting
provisions of APB Opinion No. 25 and to furnish the pro forma disclosures
required under SFAS No. 123. To estimate compensation expense that would be
recognized under SFAS 123, we have used the modified Black-Scholes option
pricing model. If we had accounted for our stock options 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,
----------------------- -----------------------
2003 2002 2003 2002
----------------------- -----------------------
Net loss applicable to shareholders (basic and
diluted) as reported $1,745,485 $1,579,671 $4,573,542 $7,847,456
Deduct: stock-based employee compensation
expense included in reported net loss, net of
related tax effects 33,600 -- 33,600 --
Add: total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects 184,951 33,138 262,948 175,801
---------- ---------- ---------- ----------
Pro forma net loss applicable to shareholders $1,964,036 $1,612,809 $4,870,090 $8,023,257
========== ========== ========== ==========
Loss per common share (basic and diluted):
As reported $ 0.05 $ 0.06 $ 0.13 $ 0.33
========== ========== ========== ==========
Pro forma $ 0.05 $ 0.06 $ 0.14 $ 0.34
========== ========== ========== ==========
9
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Common Stock
Common stock transactions during the nine months ended September 30,
2003 were as follows:
Common Stock
---------------------------------
Stated
Shares Amount
---------------------------------
Balance, December 31, 2002 30,244,348 $43,787,850
Shares issued for cash 7,196,783 4,324,898
Stock options issued to employees - 33,600
Stock options issued to non-employees - 30,256
Shares issued for services 213,102 89,298
Stock warrants issued - 37,065
Shares issued under Employee Stock Purchase Plan 761,585 442,230
Shares issued for settlement of debt 695,052 280,000
Shares issued for interest 277,169 133,315
Exercise of stock options 140,000 98,000
Exercise of warrants 631,882 631,882
Preferential warrant dividend - 592,486
---------------------------------
Balance, September 30, 2003 40,159,921 $50,480,880
=================================
During the nine months ended September 30, 2003, shares issued for cash
consisted of the following transactions:
o On March 31, 2003, we issued 1,750,000 common shares and 1,750,000
warrants in a private placement for cash proceeds of $595,000. The
warrants have an exercise price of $1.00 per share and expire in
March 2008.
o From April 17 to May 14, 2003, we issued 1,396,898 common shares
and 698,450 warrants in a public offering for cash proceeds of
$472,103. The warrants have an exercise price of $1.00 per share
and expire in April and May 2008.
o On May 20 and May 22, 2003, we issued 2,015,504 common shares and
1,007,753 warrants in private placements for cash proceeds of
$1,300,000. The warrants have an exercise price of $1.35 per share
and expire in May 2008.
o On July 31, 2003, we issued 891,524 common shares and 445,762
warrants in private placements for cash proceeds of $757,795. The
warrants have an exercise price of $1.75 per share and expire in
July 2008.
o On September 30, 2003, we issued 1,142,857 common shares and
571,429 warrants in private placements for cash proceeds of
$1,200,000. The warrants have an exercise price of $2.00 per share
and expire in September 2008.
10
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the nine months ended September 30, 2003, we issued 213,102
common shares and 51,551 warrants with a value of $89,298 in return for
consulting and investor relations services. The warrants have an exercise price
of $1.00 per share and expire in May 2008.
Altair has adopted an Employee Stock Purchase Plan ("ESPP") which allows
employees to purchase common shares through payroll deductions. During the nine
months ended September 30, 2003, a total of 761,585 common shares were issued
under the ESPP at prices ranging from $0.33 to $1.39 per share.
In accordance with the terms of our note payable to Doral 18, LLC
("Doral"), a conversion right with respect to $280,000 of principal accrued on
March 1, 2003. Effective that date, Doral had the right to convert all or some
of the accrued principal into the Company's common shares using a conversion
price equal to 70% of the average closing price of our common shares for the
five trading days prior to March 1, 2003. Between March 5, 2003 and July 1,
2003, Doral elected to exercise their conversion right with respect to $280,000
of principal and, as a result, we issued to them 972,221 common shares. Of this
amount, 695,052 common shares with a fair value of $280,000 relate to the
payment of principal against the note. The remaining 277,169 common shares with
a fair value of $133,315 represent additional shares issued in accordance with
the beneficial conversion feature of the note, and were recorded as additional
interest expense.
During the nine months ended September 30, 2003, a total of 140,000
stock options were exercised at $.70 each for net proceeds of $98,000.
On June 2, 2003, we reduced the exercise price of 796,331 outstanding
warrants held by a shareholder to $1.00 per share. As a result, we recorded a
preferential warrant dividend of $176,472 as of the repricing date. The warrants
had been previously issued with exercise prices ranging from $2.50 to $3.50.
On September 12, 2003, a total of 631,882 warrants were exercised at
their stated exercise price of $1.00 each, resulting in net proceeds of
$631,882. On that same date, a total of 631,882 additional warrants were issued
with an exercise price of $1.75. The warrants had a fair value of $416,014 on
the date of issue. This amount was recorded as a preferential warrant dividend.
Note 4. Notes Payable
Notes payable consisted of the following at September 30, 2003 and
December 31, 2002:
September 30, 2003 December 31, 2002
------------------ -----------------
Note payable to BHP Minerals
International, Inc. $2,639,666 $2,505,040
Note payable to Doral 18, LLC -- 1,400,000
Less current portion -- --
---------- ----------
Long-term portion of notes payable $2,639,666 $3,905,040
========== ==========
11
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Intangible Assets
Our intangible assets consist of patents and related expenditures
associated with the titanium processing 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, 2003 was:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
--------------- ---------------- -------------
Patents and related
expenditures $ 1,517,736 $ (435,747) $ 1,081,989
The weighted average amortization period for intangible assets is
approximately 16.5 years. Amortization expense was $64,260 for the nine months
ended September 30, 2003, 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.
12
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, 2002 and September 30, 2003 and the
material changes in our results of operations and financial condition between
the three- and nine-month periods ended September 30, 2002 and September 30,
2003. 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, 2002.
Overview
From inception through the end of 1993, our business consisted
principally of the exploration of mineral properties for acquisition and
exploration. During 1994, our focus changed as we became engaged in the
acquisition, development and testing of mineral processing equipment for use in
the recovery of fine, heavy mineral particles including gold, titanium, zircon
and environmental contaminants.
In 1996, we acquired all patent rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig. Since April 1996, we have
acquired mineral leaseholds on approximately 8,700 acres of land in Tennessee. A
prefeasibility study issued in July 1998 confirmed the existence of heavy
minerals and suggests that the property warrants further exploration. Based on
the results of these independent studies, we initiated additional feasibility
testing, but have since suspended such testing due to a shortage of working
capital.
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP Minerals International,
Inc. ("BHP") primarily for the production of titanium dioxide products from
titanium bearing ores or concentrates (the "titanium processing technology") and
all tangible equipment and other assets (the "titanium processing assets") used
by BHP to develop and implement the titanium processing technology.
The titanium processing technology has potential to produce both
titanium pigments, which are commercially traded in bulk, and nanoparticles,
which are sold on specialty product markets. The titanium processing technology
is also being tested, as part of a research program funded by the Department of
Defense, in the production of feedstocks for the manufacture of titanium metal.
In addition, we have developed a technology that has a potential pharmaceutical
application, the production of a new active pharmaceutical ingredient that we
call RenaZorb(TM), for the treatment of hyperphosphatemia (elevated serum
phosphate levels) in patients undergoing kidney dialysis. Our research,
development and marketing efforts are currently directed toward these four
applications of our proprietary technology.
Liquidity and Capital Resources
We generated $42,029 of sales revenues in the first nine months of 2003
but incurred a net loss of $3,981,056. At September 30, 2003, our accumulated
deficit was $43,956,530, or an increase of $4,573,542 over the accumulated
deficit at December 31, 2002. This increase was due to the net loss for the
period plus a preferential warrant dividend of $592,486.
13
Our cash and short-term investments increased from $244,681 at December
31, 2002 to $1,615,692 at September 30, 2003 due to the receipt of $4,324,898
from the sale of common shares and warrants, receipt of $98,000 from the
exercise of stock options, receipt of $631,882 from the exercise of warrants,
and the collection of $130,000 of accounts receivable that were outstanding at
December 31, 2002. These increases in cash were partially offset by normal cash
operating expenditures and the payment of $1,120,000 of principal against the
Doral 18, LLC note, which paid the note in full and released the assets pledged
as security.
Altair has adopted an Employee Stock Purchase Plan ("ESPP") that allows
employees to purchase common shares through payroll deductions. During the nine
months ended September 30, 2003, a total of 761,585 common shares were issued
under the ESPP, resulting in proceeds of $442,230.
Current and Expected Liquidity. At September 30, 2003, we had cash and
cash equivalents of $1,615,692, an amount that would be sufficient to fund our
basic operations through February 29, 2004. After that date, we will require
additional financing to provide working capital to fund our day-to-day
operations. We will also require additional financing to continue our
development work on the titanium processing technology and the Tennessee mineral
property.
Through the end of fiscal 2004, we expect to generate funds from
offerings of our common stock and warrants to purchase our common stock, and
additional exercises of outstanding warrants. We also expect to generate
revenues from sales of nanoparticle products, fees generated from development
and testing services provided to potential licensors of our titanium processing
technology and government grant programs for development of nanotechnology
applications. As of November 12, 2003, we have no commitments from investors or
customers to provide additional financing for periods after November 2003, to
purchase titanium dioxide nanoparticles or to license our titanium processing
technology.
We also expect to generate revenues by licensing our titanium
processing technology, the Altair Hydrochloride Pigment Process (the "AHPP"),
specifically the application of our technology for large-scale titanium pigment
production. This process may also be licensed to produce customized
nanomaterials or to produce feedstock oxides for titanium metal production.
We have submitted proposals to five international minerals and energy
resources companies to develop and license the AHPP technology. We have
completed initial testing for the first company and submitted a phase-two
proposal for the economic evaluation of a demonstration titanium dioxide pigment
plant that could be expanded to a full-scale plant with production capabilities
of between 10,000-20,000 metric tons of titanium dioxide pigment per year.
Altair has been informed that this proposal is under consideration and subject
to due diligence evaluation. If the phase-two proposal is accepted in some form,
we would expect to generate limited revenues in exchange for the testing and
development work associated with the evaluation of a demonstration titanium
dioxide plant. A licensing agreement associated with a full-scale plant would be
expected to generate significant revenues in the long-term, but significant
up-front revenues from such an agreement are unlikely.
We have submitted phased development proposals for the economic
evaluation and demonstration of the AHPP technology to the other four minerals
and energy resources companies during the first three quarters of 2003. It is
anticipated that a license from one or more of these proposals will be awarded
in the fourth quarter 2003. A license agreement for regional exclusive use of
the pigment technology would include development fees and royalties, but no
significant up-front payments. Significant revenues from royalties could result
from the development of a full-scale production plant.
14
With respect to RenaZorb(TM), testing of this product using animals was
initiated in late 2002 and completed in April 2003, with test results indicating
that RenaZorb(TM) has therapeutic potential in animal testing. In April 2003, we
hired a consultant to contact pharmaceutical companies that may be interested in
doing further testing and negotiating a license agreement. To date, several such
companies have expressed an interest in RenaZorb(TM). We do not expect to be
able to enter into a license agreement for RenaZorb(TM) unless and until our
competitor, Shire Pharmaceuticals Group plc, obtains FDA approval for its
proposed drug Fosrenol(TM), which is chemically similar to RenaZorb(TM).
Although we are hopeful that the FDA will approve Fosrenol(TM) in the near
future, we cannot predict when, or if, the FDA will approve Fosrenol(TM). If
Altair is able to enter into a license agreement for RenaZorb(TM), we are
uncertain what the terms of a RenaZorb(TM) license agreement would be, but
pharmaceutical license agreements often involve up front or staged payments, in
addition to royalties once the drug is approved by the FDA and marketed. We can
provide no assurance that we will enter into such a license agreement or that
such license agreement would involve any significant up-front payments.
We also expect to generate revenues through participation in research
projects funded by United States government grants. In September 2003, we
entered into an agreement with Western Michigan University ("WMU") to provide
research services involving a technology used in the detection of chemical,
biological and radiological agents. The teaming/research agreement with WMU,
funded by the Department of Energy, provides for total payments to Altair of
$356,500 over a two-year period. We are also actively pursuing other government
grants through joint teaming agreements and government Small Business Innovative
Research proposals.
In July 2003 we entered into a memorandum of understanding (the"MOU")
with Titanium Metals Corporation ("TIMET") to provide custom oxide feedstocks
for a novel, four-year, titanium metal research program funded by the Department
of Defense, Defense Advanced Research Projects Agency ("DARPA"). The MOU sets up
a relationship under which TIMET and Altair will explore opportunities for
collaboration and funding of development work. Although this effort may result
in Altair gaining a sub-contract to DARPA and full-member participation in this
project, the work done under the MOU itself is not expected to generate
significant revenues. The program's goal is to lower the cost of titanium metal
and titanium metal alloys to enable a broader market use. DARPA is specifically
interested in lowering the cost to provide for a broader use in military
applications such as aerospace and weapons systems.
Capital Commitments. On September 15, 2003, we repaid the outstanding
balance of our note payable to Doral of $560,000, thereby releasing all of the
intellectual property, fixed assets and common stock of Altair Nanomaterials,
Inc. that were pledged as security for the note. 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, 2003:
Less Than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
------------------------------ ---------- ---------- ---------- ---------- ----------
Notes Payable $3,000,000* $ -- $ 600,000 $1,200,000 $1,200,000
Mineral Leases 1,011,409 165,237 339,510 308,682 197,980
Contractual Service Agreements 542,658 413,491 100,000 29,167 --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $4,554,067 $ 578,728 $1,039,510 $1,537,849 $1,397,980
========== ========== ========== ========== ==========
* Before discount of $360,334.
15
Critical Accounting Policies and Estimates
Management based this 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.
o Long-lived assets. Our long-lived assets consist principally of
titanium processing assets, the intellectual property (patents and
patent applications) associated with it, and a building. At
September 30, 2003, the carrying value of these assets was
$7,859,585, or 82% 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 absence of continuing technology rights protection.
o Stock-Based Compensation. We have two stock option plans which
provide for the issuance of stock options to employees and service
providers. Although Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock Based Compensation,
encourages entities to adopt a fair-value-based method of
accounting for stock options and similar equity instruments, it
also allows an entity to continue measuring compensation cost for
stock-based compensation 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 Opinion No. 25
and to furnish the pro forma disclosures required under SFAS No.
123, 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.
16
Results of Operations
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
The net loss applicable to shareholders for the quarter ended September
30, 2003, which was the third quarter of our 2003 fiscal year, totaled
$1,745,485 ($.05 per share) compared to $1,579,671 ($.06 per share) in the third
quarter of 2002. The principal factors contributing to the losses during these
periods were the lack of substantial revenue combined with the incurrence of
operating expenses.
In the third quarter of 2003, we generated sales revenues of $17,318,
of which $811 came from sales of titanium dioxide nanoparticles and $16,507 came
from contract research work done under the WMU agreement. In the third quarter
of 2002, we generated sales revenues of $45,089, which consisted of $10,739 from
sales of titanium dioxide nanoparticles and lithium titanate nanoparticles,
$18,000 from a consulting project involving use of the jig to recover titanium
dioxide from pigment processing waste and $16,350 from fees earned under a
services agreement entered into with a materials company in September 2002.
Gross margin as a percentage of sales was 4% in the third quarter of
2003 versus 63% in the comparable period of 2002. As mentioned in the preceding
paragraph, revenues in the third quarter of 2003 included $16,507 (95% of total
revenues) earned for research work done under the WMU agreement. This work is
being billed at cost with no contribution to margin. However, under the terms of
the WMU agreement, we will participate in the ownership of intellectual property
rights resulting from the research.
We have significantly reduced our expenditures for mineral exploration
and development in order to conserve cash for operating requirements and
development of the titanium processing technology. In addition, certain
employees who were previously involved in mineral exploration and development
have been reassigned to research and development work, primarily titanium
pigment process development. Accordingly, mineral exploration and development
expenses decreased by $106,740 from $132,262 in the third quarter of 2002 to
$25,522 in the third quarter of 2003.
Our research and development ("R&D") efforts in the third quarter of
2003 were directed principally to pharmaceuticals, titanium pigment process
development and nanoparticle products. R&D expenses increased by $99,836 from
$146,749 in the third quarter of 2002 to $246,585 in the same period of 2003,
principally as a result of increased staff time being devoted to these R&D
projects with a resulting decrease in time spent on mineral exploration and
development activities. We expect our R&D expenses for the remainder of fiscal
2003 to remain at levels higher than those of fiscal 2002.
Professional services, which consist principally of legal, consulting
and audit expenses, increased by $6,179 from $105,574 during the third quarter
of 2002 to $111,753 in the third quarter of 2003. The increase is attributable
to legal expenses for patent work associated with the titanium processing
technology.
General and administrative expenses decreased by $63,634 from $648,571
in third quarter of 2002 to $584,937 in the same period of 2003. Stock options
and warrants expense decreased by $116,000, from $149,000 in the third quarter
of 2002 to $33,000 in the third quarter of 2003, as a result of a decrease in
the number of stock options granted. Sample costs decreased by $38,000 as more
effort was placed into development projects and less into sample preparation.
Technical operating costs such as laboratory supplies and small tools decreased
by $8,000 as a result of our efforts to reduce expenditures. Rents decreased by
$34,000, from $35,000 in the third quarter of 2002 to $1,000 in the third
17
quarter of 2003, due to our purchase, in August 2002, of the 204 Edison Way
building that was previously leased. However, this decrease was offset by an
increase in property taxes, utilities and maintenance for the Edison Way
building of $40,000, from $3,000 in the third quarter of 2002 to $43,000 in the
third quarter of 2003. Salaries and payroll overheads increased by $63,000, from
$207,000 in the third quarter of 2002 to $270,000 in the third quarter of 2003,
as a result of increased employee insurance costs, expenses associated with the
employee stock purchase plan and a shift in executive time from mineral
exploration and development to general and administrative. In addition, general
insurance expense increased by $9,000 and equipment maintenance expense
increased by $11,000.
Depreciation and amortization expense increased by $10,356, from
$209,903 in the third quarter of 2002 to $220,259 in the third quarter of 2003.
The increase is attributable to depreciation on the Edison Way building acquired
in August 2002 and equipment additions.
Interest expense decreased by $175,018, from $316,676 in the third
quarter of 2002 to $141,658 in the third quarter of 2003. The decrease is due to
the payoff of our note payable to Doral 18, LLC (the "Doral Note") in September
2003, and the effect of an amendment of the Doral Note in November 2002 which,
among other things, reduced the balance from $2,000,000 to $1,400,000. The
accounting guidance provided by EITF 96-19, Debtor's Accounting for a
Modification or Exchange of Debt Instruments, required that the amended note be
recorded at its face amount with no discount, whereas the prior note had been
recorded at a discount with subsequent amortization of the discount to interest
expense. This elimination of the debt discount expense contributed to the
decrease in interest expense from third quarter 2002 to third quarter 2003.
In September 2003, we entered into an agreement with a shareholder
wherein the shareholder agreed to exercise 631,882 warrants that had an exercise
price of $1.00 each. In return, we issued to the shareholder 631,882 new
warrants having an exercise price of $1.75 each. The new warrants have a fair
value of $416,014 and were recorded as a preferential warrant dividend.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
--------------------------------------------------------------------------------
For the nine months ended September 30, 2003, the net loss applicable to
shareholders was $4,573,542 ($.13 per share) compared to $7,847,456 ($.33 per
share) for the same period of 2002. Results for the nine months ended September
30, 2002 were significantly affected by an asset impairment of $2,759,956
recorded in June 2002.
During the nine months ended September 30, 2003, sales revenues totaled
$42,029. Of this amount, $6,826 came from sales of titanium dioxide
nanoparticles, $18,696 came from fees earned under a services agreement entered
into with a materials company in September 2002 and $16,507 came from contract
research work done under the WMU agreement. In the nine months ended September
30, 2002, we generated revenues of $98,760. Of that amount, $64,410 came from
sales of titanium dioxide nanoparticles, lithium titanate nanoparticles and
related products. An additional $18,000 of revenues were earned from a
consulting project involving use of the jig to recover titanium dioxide from
pigment processing waste. The remaining $16,350 of revenues came from fees
earned under the services agreement with the materials company.
As explained above, we have significantly reduced our expenditures for
mineral exploration and development and have reassigned certain employees to
research and development work. As a result of this, mineral exploration and
development expenses for the nine months ended September 30, 2003 decreased by
$421,636 to $69,403 from $491,039 for the same period in 2002. In turn, research
and development expenses increased by $212,368 from $449,398 in the nine months
ended September 30, 2002 to $661,766 in the same period of 2003.
18
Professional services decreased by $107,695 from $561,014 in the nine
months ended September 30, 2002 to $453,319 in the same period of 2003.
Consulting expenses, which were incurred primarily for assistance with new
financing, decreased from $269,408 in the nine months ended September 30, 2002
to $118,934 during the same period in 2003. This decrease was partially offset
by an increase in legal expenses for preparation of financing documents and
regulatory filings, and additional patent work.
General and administrative expenses decreased by $152,960 from
$1,894,785 during the nine months ended September 30, 2002 to $1,741,825 in the
same period of 2003. Stock options and warrants expense decreased by $92,000,
from $149,000 in the nine months ended September 30, 2002 to $57,000 in the same
period for 2003, as a result of a decrease in the number of stock options
granted. Sample costs decreased by $71,000, from $96,000 in the nine months
ended September 30, 2002 to $25,000 in the same period for 2003, as more effort
was placed into development projects and less into sample preparation. Technical
operating costs such as laboratory supplies and small tools decreased by
$104,000, from $219,000 in the nine months ended September 30, 2002 to $115,000
in the same period for 2003, as a result of our efforts to reduce expenditures.
General office expenses decreased by $28,000, from $194,000 in the nine months
ended September 30, 2002 to $166,000 in the same period for 2003, also as a
result of our efforts to reduce expenditures. Shareholder information expenses
decreased by $30,000, from $95,000 in the nine months ended September 30, 2002
to $65,000 in the same period for 2003, as the result of efforts to reduce the
costs of annual report preparation and the dissemination of news releases. Stock
exchange fees decreased by $35,000, from $51,000 in the nine months ended
September 30, 2002 to $16,000 in the same period for 2003, principally due to a
billing error by Nasdaq that resulted in an over-billing in the second quarter
of 2002. This error was corrected in the fourth quarter of 2002. Rents decreased
by $165,000, from $172,000 in the nine months ended September 30, 2002 to $7,000
in the same period for 2003, due to our purchase, in August 2002, of the 204
Edison Way building that was previously leased. However, this decrease was
partially offset by an increase in property taxes, utilities and maintenance for
the Edison Way building of $139,000, from $9,000 in the nine months ended
September 30, 2002 to $148,000 in the same period for 2003. Salaries and payroll
overheads increased by $136,000, from $678,000 in the nine months ended
September 30, 2002 to $814,000 in the same period for 2003, as a result of
increased employee insurance costs, expenses associated with the employee stock
purchase plan and a shift in executive time from mineral exploration and
development to general and administrative. Investor relations expense increased
by $74,000, from $70,000 in the nine months ended September 30, 2002 to $144,000
in the same period for 2003, as a result of new investor relations programs
initiated during the first nine months of 2003. In addition, general insurance
expense increased by $14,000 and equipment maintenance expense increased by
$10,000.
Depreciation and amortization expense decreased by $124,061, from
$781,304 in the nine months ended September 30, 2002 to $657,243 in the same
period of 2003. During the second quarter of 2002, we recorded an asset
impairment for the jig assets which reduced their depreciable balance to zero.
As a result, depreciation is no longer recorded for these assets and
depreciation and amortization expense related to them decreased by $174,000.
This decrease was partially offset by an increase in depreciation of $50,000
related to the Edison Way building and equipment additions.
Interest expense decreased by $505,563, from $913,513 in the nine months
ended September 30, 2002 to $407,950 in the same period in 2003. The decrease is
due to reductions in the principal balance during 2003, with the subsequent
payoff of the Doral Note in September 2003, and the effect of an amendment of
the Doral Note in November 2002 which, among other things, reduced the balance
from $2,000,000 to $1,400,000. The accounting guidance provided by EITF 96-19,
Debtor's Accounting for a Modification or Exchange of Debt Instruments, required
19
that the amended note be recorded at its face amount with no discount, whereas
the prior note had been recorded at a discount with subsequent amortization of
the discount to interest expense. This elimination of the debt discount expense
contributed to the decrease in interest expense from the nine months ended
September 30, 2002 to the nine months ended September 30, 2003.
Preferential warrant dividend increased by $543,820 from $48,666 in the
nine months ended September 30, 2002 to $592,486 in the comparable period of
2003. As mentioned above, in September 2003, we issued 631,882 warrants to a
shareholder which had a fair value of $416,014 and was recorded as a
preferential warrant dividend. This, combined with a repricing of warrants in
June 2003 that had a fair value of $176,472, resulted in the increase in
preferential warrant dividend.
Recent Business Developments
TIMET
In July 2003 we entered into the MOU with TIMET to provide custom oxide
feedstocks for a novel, four-year, titanium metal research program funded by
DARPA. The program's goal is to lower the cost of titanium metal and titanium
metal alloys to enable a broader market use. DARPA is specifically interested in
lowering the cost to provide for a broader use in military applications such as
aerospace and weapons systems. Although the MOU does not provide for immediate
revenues, we are in discussions with TIMET and DARPA concerning development
contracts to provide revenue and offset costs. Our participation in this project
is a natural extension of our titanium dioxide processing technology. Key
intermediates in the AHPP for making pigment and nano-sized TiO2 allow the
manufacture of porous electrodes that may be highly suitable for use in the
titanium metal research program funded by DARPA.
RenaZorb(TM)
RenaZorb(TM) is our drug candidate for use in phosphate control in
kidney dialysis patients. Pre-clinical trials in-vitro testing and animal
testing done to date that indicate RenaZorb(TM) may be effective for use with
kidney dialysis patients with end-stage renal disease. We have not, however,
conducted human trials using RenaZorb(TM) or submitted an application to the FDA
U.S. Food and Drug Administration ("FDA") seeking approval to market
RenaZorb(TM). During April 2003, we hired a consultant to contact pharmaceutical
companies that may be interested in doing further tests and negotiating a
license agreement. To date, several such companies have expressed an interest in
RenaZorb(TM), which is a lanthanum-based compound. An alternative
lanthanum-based drug candidate, Fosrenol(TM), produced by Shire Pharmaceuticals
Group plc, is currently under review for approval by the FDA. We do not expect
to be able to enter into a license agreement unless and until Fosrenol(TM)
obtains FDA approval. Although we are hopeful that the FDA will approve
Fosrenol(TM), we cannot predict when or if the FDA approval will be granted. If
we are able to enter into a license agreement, we are uncertain what the terms
of the license would be, but pharmaceutical license agreements often involve
up-front or staged payments in addition to royalties if FDA approval is obtained
and the drug is marketed.
AHPP Technology
We have submitted proposals to five international minerals and energy
resources companies to develop and license the AHPP technology. We have
completed initial testing for the first company and submitted a phase-two
proposal for the economic evaluation of a demonstration titanium dioxide pigment
plant that could be expanded to a full-scale plant with production capabilities
20
of between 10,000-20,000 metric tons of titanium dioxide pigment per year.
Altair has been informed that this proposal is under consideration and subject
to due diligence evaluation. If the phase-two proposal is accepted in some form,
we would expect to generate limited revenues in exchange for the testing and
development work associated with the evaluation of a demonstration titanium
dioxide plant. A licensing agreement associated with a full-scale plant would be
expected to generate significant revenues in the long-term, but significant
up-front revenues from such an agreement are unlikely.
We have submitted phased development proposals for the economic
evaluation and demonstration of the AHPP technology to the other four minerals
and energy resources companies during the first three quarters of 2003. It is
anticipated that a license from one or more of these proposals will be awarded
in the fourth quarter of 2003. A license agreement for regional exclusive use of
the pigment technology would include development fees and royalties, but no
significant up-front payments. Significant revenues from royalties could result
from the development of a full-scale production plant.
Battery Technology
We have developed a proprietary process to manufacture nano-sized
lithium titanate spinel for use in lithium ion batteries requiring fast charge
and discharge rates and high energy, such as car batteries. Battery prototypes
utilizing our nano-sized lithium titanate spinel have been developed by
Telcordia Technologies ("Telcordia") and, according to Telcordia, exhibit
battery characteristics which significantly exceed Department of Energy ("DOE")
standards. The DOE standards, as reported by Telcordia, were established through
a cooperative research and development program between the federal government
and the United States Council for Automotive Research. To date, we have supplied
only sample quantities of lithium titanate spinel to Telcordia and other battery
research groups, and we have no contracts for delivery of additional materials.
New battery technology and the incorporation of new materials such as lithium
titanate spinel may require significantly long lead times for development prior
to commercial production. There is no certainty as to when sales of our lithium
titanate spinel will reach commercial levels, if ever.
Dental Applications
We have developed a nano-sized zirconium oxide material which may have
applications in dental products such as fillings and prosthetic devices. We have
recently placed our first samples of this material with developers of non-toxic
UV-cured dental materials. Zirconium oxide is not currently used in dental
devices, and there is no assurance that future dental applications will prove
feasible or economic.
Altair Centrifugal Jig ("ACJ")
In October 2003, we entered into a technology license agreement with
Bateman Luxembourg S.A. ("Bateman") for the manufacture, installation and
operation of the ACJ. Under the terms of the agreement, Bateman will have
exclusive use of the ACJ for specifically identified applications in selected
territories throughout the world. Following a six-month trial testing period,
Bateman may opt out of the agreement. We will be compensated by Bateman through
a licensing fee for each project managed by Bateman that utilizes the ACJ.
Compensation is determined by an agreed upon formula and will vary based on the
size and scope of the individual projects. We retain the right to use the ACJ
for our own projects. The agreement contains certain thresholds which, if not
achieved by Bateman, could result in the termination of the agreement at our
option. There is no assurance that Bateman will meet these minimum fee
requirements or that they will ever utilize the ACJ in their projects or pay
fees to Altair. Bateman is not required to pay any fees under the agreement
unless and until Bateman begins generating revenue using the ACJ.
21
Government Sponsored Research
In September 2003, we entered into an agreement with WMU to provide
research services involving a technology used in the detection of chemical,
biological and radiological agents. The teaming/research agreement with WMU,
funded by the DOE, provides for total payments to Altair of $356,500 over a
two-year period. We are also actively pursuing other government grants through
joint teaming agreements and government Small Business Innovative Research
proposals.
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 titanium processing technology and
assets (including for pharmaceutical use), licensing of the titanium processing
technology for pharmaceutical or other uses, development of the centrifugal jig
and the Tennessee mineral property, and any future acquisition 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 We have not generated any substantial operating revenues and may
not ever generate substantial revenues. As shown in the
consolidated financial statements for the nine months ended
September 30, 2003, we incurred a net loss of $3,981,056 for the
nine months ended September 30, 2003, and since the date of
inception have incurred cumulative net losses of $43,262,961.
These factors, among others, may raise substantial doubt about the
Company's ability to continue as a going concern.
o We may not be able to raise sufficient capital to meet future
obligations. As described in this Report, we need to raise
additional capital in the short-term and in the long-term in order
to continue our basic, day-to-day operations and continue
development of the titanium processing technology. If we are
unable to obtain sufficient capital, we may be unable to meet
future obligations or adequately exploit existing or future
opportunities, and may be forced to discontinue operations.
o The sale in the open market of recently sold common shares and
common shares issuable upon the exercise of options and warrants
may place downward pressure on the market price of our common
shares. Speculative traders may anticipate the exercise of
purchase rights and, in anticipation of a decline in the market
price of our common shares, engage in short sales of our common
shares. Such short sales could further negatively affect the
market price of our common shares.
22
o In the short run, to the extent we generate any significant
revenue, we expect such revenue to come through the licensing of
our titanium processing technology, our pharmaceutical technology
(i.e. RenaZorb(TM)) and the application of our technology for
large-scale titanium pigment production. With respect to both
possible applications, we have conducted, and/or interested
parties have conducted, initial testing, and we are in discussions
regarding follow up testing that could reasonably lead to a
significant license agreement. However, with respect to both
possible applications, we have no formal or informal commitments
to license our technology and cannot predict when, or if, any
significant licensing agreement will be signed. If we are unable
to enter into such a license agreement (or otherwise consummate
one or more significant licensing, sale or equity transactions),
we will be forced to significantly curtail our operations and
expenses, and our ability to continue as a going concern will be
uncertain.
o Because of our relatively small size and limited resources, we do
not plan to use our titanium processing technology for large-scale
production of titanium dioxide pigments. As discussed in "Recent
Business Developments--AHPP Technology", we have, however, entered
into discussions with various minerals and materials companies
about licensing our technology to such entities for large-scale
production of titanium dioxide pigments. We have not entered into
any long-term licensing agreements with respect to the use of our
titanium processing technology for large-scale production of
titanium dioxide pigments and can provide no assurance that we
will be able to enter into any such agreement. Even if we enter
into such 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 or 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 have not developed a production model of any series of the ACJ.
As described in "Recent Business Developments--Altair Centrifugal
Jig" above, in October 2003, we entered into a technology license
agreement with Bateman for the manufacture, installation and
operation of the ACJ. Such agreement permits Bateman to opt out
after a six-month testing period. In addition, although the
agreement permits Altair to cancel the agreement if certain
production and use thresholds are not met, it does not require
Bateman to produce or utilize the ACJ. There is no assurance that
Bateman will ever utilize the ACJ in their projects or pay fees to
23
Altair. We do not otherwise expect to complete our own testing and
development of the ACJ in the near future and have determined to
focus most of our limited resources on the titanium processing
technology. We may never develop a production model of the ACJ.
o Our capital shortage has also forced us to discontinue development
work on the Tennessee mineral property and make only those
expenditures that are necessary to maintain the property. If
additional capital becomes available, we intend to resume the
process of conducting feasibility testing of the Tennessee mineral
property. Because we are at an early stage of testing, we are
unable to provide any assurance that mining of the Tennessee
mineral property is feasible. Our test production at the pilot
plant, economic analysis and additional exploration activities may
indicate any of the following:
o that the Tennessee mineral property does not contain heavy
minerals of a sufficient quantity, quality or continuity to
permit any mining;
o that production costs exceed anticipated revenues;
o that end products do not meet market requirements or customer
expectations;
o that there is an insufficient market for products minable
from the Tennessee mineral property; or
o that mining the Tennessee mineral property is otherwise not
economically or technically feasible.
In addition to the foregoing, we recommend that you review the risk
factors and other cautionary statements contained in the Company's other filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not have any derivative instruments, commodity instruments, or
other financial instruments for trading or speculative purposes, nor are we
presently at risk for changes in foreign currency exchange rates.
Item 4. Controls and Procedures
(a) Based on the evaluation of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e))
required by paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer
and our chief financial officer, have concluded that, as of September 30, 2003,
our disclosure controls and procedures were effective.
(b) There have been no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On July 31, 2003, we sold 891,524 common shares and 445,762 Series
2003E warrants in exchange for aggregate consideration of $757,795 in a private
placement to two institutional accredited investors. The warrants have an
exercise price of $1.75 per share and expire in July 2008.
24
On September 12, 2003, we agreed to issue to an existing securityholder
an aggregate of 631,882 Series 2003E warrants, with an exercise price of $1.75
per share and an expiration date of September 12, 2008, in exchange for such
securityholder's willingness to exercise 631,882 warrants, with an exercise
price of $1.00 each, held by such securityholder.
On September 30, 2003, we sold 1,142,857 common shares and 571,429
Series 2003F warrants in exchange for aggregate consideration of $1,200,000 in a
private placement to three institutional accredited investors. The warrants have
an exercise price of $2.00 per share and expire in September 2008.
Such common shares and warrants were 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) each investor represented and
warranted to the Company that it was an institutional "accredited investor," as
defined in Rule 501 of Regulation D promulgated under the Securities Act and had
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 was no public offering or general solicitation with respect to the
offering, and each investor represented and warranted that it was acquiring the
securities for its own account and not with an intent to distribute such
securities; (c) each investor was 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) each investor acknowledged that
all securities being purchased were "restricted securities" for purposes of the
Securities Act, and agreed 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 was placed on the certificates and
other documents representing each such security stating that it was 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 6. Exhibits and Reports on Form 8-K
a) See Exhibit Index attached hereto.
b) No current reports on Form 8-K were filed during the quarter ended
September 30, 2003.
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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 14, 2003 By: /s/ William P. Long
-------------------------- ------------------------------
Date William P. Long,
Chief Executive Officer
November 14, 2003 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
4.1 Bylaws Incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed with
the SEC on August 13, 2003.
4.3 Form of Series 2003E Warrant Incorporated by reference to the Company's
Registration Statement on Form S-3, File
No. 333-110115, filed with the SEC on
October 31, 2003.
4.4 Form of Series 2003F Warrant Incorporated by reference to the Company's
Iegistration Statement on Form S-3, File
No. 333-110115, filed with the SEC on
October 31, 2003.
10.1 Form of Registration Rights Agreement (July 31, Incorporated by reference to the Company's
2003 and September 30, 2003 offerings) Registration Statement on Form S-3, File
No.333-110115, filed with the SEC on
October 31, 2003.
10.2 Technology License Agreement dated September 29, Filed herewith
2003, with Bateman Luxembourg SA
[Portions of this Exhibit have been omitted
pursuant to Rule 24b-2, are filed separately with
the SEC and are subject to a confidential
treatment request.]
10.3 Memorandum of Understanding dated as of April 21, Filed herewith
2003, with Titanium Metals Corporation
[Portions of this Exhibit have been omitted
pursuant to Rule 24b-2, are filed separately with
the SEC and are subject to a confidential
treatment request.]
10.4 Western Michigan University Project Agreement Filed herewith
dated August 15, 2003
31.1 Section 302 Certification of Chief Executive Filed herewith
Officer
31.2 Section 302 Certification of Chief Financial Filed herewith
Officer
32.1 Section 906 Certification of Chief Executive Filed herewith
Sfficer
32.2 Section 906 Certification of Chief Financial Filed herewith
Officer
27