UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 No.)
of incorporation) Identification
204 Edison Way, Reno, Nevada 89502
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (775) 858-3750
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
As of May 12, 2003 the registrant had 34,808,236 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)
March 31, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 296,148 $ 244,681
Accounts receivable 995 132,859
Other current assets 24,954 22,598
------------ ------------
Total current assets 322,097 400,138
Property, Plant and Equipment, net 7,159,232 7,349,818
Patents and Related Expenditures, net 1,124,829 1,146,249
Other Assets 18,200 18,200
------------ ------------
Total Assets $ 8,624,358 $ 8,914,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 539,265 $ 455,246
Accrued liabilities 193,487 149,257
Note payable - current portion 1,300,000 --
------------ ------------
Total current liabilities 2,032,752 604,503
------------ ------------
Note Payable, Long-Term Portion 2,549,135 3,905,040
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Common stock, no par value, unlimited shares
authorized; 32,755,941 and 30,244,348 shares
issued and outstanding at March 31, 2003 and
December 31, 2002 44,742,453 43,787,850
Deficit accumulated during the development stage (40,699,982) (39,382,988)
------------ ------------
Total Shareholders' Equity 4,042,471 4,404,862
------------ ------------
Total Liabilities and Shareholders' Equity $ 8,624,358 $ 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 inception) to
March 31, March 31,
----------------------------
2003 2002 2003
------------ ------------ ------------
Sales $ 20,277 $ 48,937 $ 316,588
Cost of sales 14,950 30,175 126,708
------------ ------------ ------------
Gross Margin 5,327 18,762 189,880
------------ ------------ ------------
Operating Expenses
Mineral exploration and development 28,714 152,188 6,546,356
Research and development 212,793 138,609 3,928,889
Professional services 184,358 226,073 3,460,800
General and administrative expenses 557,838 608,128 14,765,635
Depreciation and amortization 218,625 285,699 5,733,747
Asset impairment -- -- 2,759,956
------------ ------------ ------------
Total operating expenses 1,202,328 1,410,697 37,195,383
------------ ------------ ------------
Loss from Operations 1,197,001 1,391,935 37,005,503
------------ ------------ ------------
Other (Income) Expense:
Interest expense 120,173 288,298 4,655,512
Interest income (180) (702) (816,125)
Loss (gain) on foreign exchange -- -- (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 119,993 287,596 3,593,396
------------ ------------ ------------
Net loss 1,316,994 1,679,531 40,598,899
Preferential Warrant Dividend -- -- 101,083
------------ ------------ ------------
Net Loss Applicable to Shareholders $ 1,316,994 $ 1,679,531 $ 40,699,982
============ ============ ============
Loss per common share - Basic and diluted $ 0.04 $ 0.07 $ 4.82
============ ============ ============
Weighted average shares - Basic and diluted 30,527,826 22,842,455 8,451,107
============ ============ ============
(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)
Period
April 9, 1973
(date of
Three Months Ended inception) to
March 31, March 31,
----------------------------
2003 2002 2003
------------ ------------ ------------
Cash flows from exploration activities:
Net loss $ (1,316,994) $ (1,679,531) $(40,598,899)
Adjustments to reconcile net loss to net cash
used in exploration activities:
Depreciation and amortization 218,625 285,699 5,733,747
Shares issued for services 51,150 -- 354,576
Shares issued for interest 38,888 69,770 1,154,923
Issuance of stock options to non-employees 7,192 2,421 3,038,333
Issuance of stock options to employees -- -- 78,220
Issuance of stock warrants 37,368 98,280 962,229
Amortization of discount on note payable 44,095 107,590 843,784
Amortization of debt issuance costs -- 63,426 504,567
Asset impairment -- -- 2,759,956
Loss on extinguishment of debt -- -- 914,667
Loss on redemption of convertible debentures -- -- 193,256
Gain on forgiveness of debt -- -- (795,972)
Loss on disposal of fixed assets -- -- 1,945
Gain on foreign exchange -- -- (559,179)
Deferred financing costs written off -- -- 515,842
Changes in assets and liabilities
(net of effects of acquisition):
Accounts receivable 131,864 (3,412) (995)
Other current assets (2,356) 235 1,709,644
Other assets -- 44,911 (170,720)
Trade accounts payable 84,019 153,155 424,766
Accrued liabilities 44,230 565,398 38,772
Deferred revenue -- (40,972) --
------------ ------------ ------------
Net cash used in exploration activities (661,919) (333,030) (22,896,538)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (2,422,417)
Purchase of property and equipment (6,619) (11,094) (3,668,044)
Purchase of patents and related expenditures -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities (6,619) (11,094) (7,972,648)
------------ ------------ ------------
(continued)
4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
(date of
Three Months Ended inception) to
March 31, March 31,
---------------------------
2003 2002 2003
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
issuance costs $ 595,000 $ 125,000 $ 22,103,781
Collection of stock subscription receivable -- -- 561,300
Issuance of shares under Employee Stock
Purchase Plan 125,005 -- 217,188
Issuance of convertible debenture -- -- 5,000,000
Proceeds from exercise of stock options -- -- 2,708,491
Proceeds from exercise of warrants -- -- 4,917,805
Issuance of related party notes -- -- 174,243
Issuance of notes payable -- -- 9,505,040
Payment of notes payable -- -- (11,120,816)
Payment of related party notes -- (18,757) (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 720,005 103,931 31,165,334
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 51,467 (240,193) 296,148
Cash and cash equivalents, beginning of period 244,681 599,884 None
------------ ------------ ------------
Cash and cash equivalents, end of period $ 296,148 $ 359,691 $ 296,148
============ ============ ============
Supplemental disclosures:
Cash paid for interest $ 37,189 None
============ ============
Cash paid for income taxes None None
============ ============
Supplemental schedule of non-cash investing and financing activities:
For the three months ended March 31, 2003:
- We issued 250,001 common shares to Doral 18, LLC in payment of $100,000 of
principal on our note payable.
For the three months ended March 31, 2002:
- None
(concluded)
(See Notes to Financial Statements)
5
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.
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
consolidated financial statements, we incurred net losses of $1,316,994 for the
quarter ended March 31, 2003, and since the date of inception have incurred
cumulative net losses of $40,598,899. At March 31, 2003, current liabilities
exceeded current assets by $1,710,655. These factors, among others, may raise
substantial doubt about the Company's ability to continue as a going concern.
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 ceramic oxide nanoparticle products that are made
with our titanium processing technology. The recoverability of amounts
capitalized as property and equipment and patents and related expenditures is
dependent upon our ability to successfully develop and commercialize these
products.
At March 31, 2003, we had cash and cash equivalents of $296,148, and
during the period April 1, 2003 through May 13, 2003 we received net proceeds of
$472,103 from sales of common shares and warrants. These amounts of cash are
sufficient to fund our basic operations through June 30, 2003. 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 during June
2003 in order to provide working capital to fund our day-to-day operations.
Because our projected near-term sales of nanoparticle products are
minimal, we expect to generate such funds through additional private placements
of our common stock and warrants to purchase our common stock or other debt or
equity securities. As of May 13, 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 results of operations for the three-month period ended March 31,
2003 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
6
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.
Stock-Based Compensation - We have elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and to furnish the pro forma disclosures required
under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. 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
March 31,
--------------------------
2003 2002
------------ -----------
Net loss (basic and diluted) as reported $ 1,316,994 $ 1,679,531
Deduct: Stock-based employee compensation expense
included in reported net loss, net of related tax effects -- --
Add: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects -- 38,647
------------ -----------
Pro forma net loss $ 1,316,994 $ 1,718,178
============ ===========
Loss per common share (basic and diluted):
As reported $ 0.04 $ 0.07
============ ===========
Pro forma
$ 0.04 $ 0.08
============ ===========
Recent Accounting Pronouncements - In June 2001, the FASB issued 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 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 Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and to furnish the pro forma disclosures required
under SFAS No. 148.
7
Note 3. Common Stock
Common Stock
-------------------------
Stated
Shares Amount
----------- -----------
Balance, December 31, 2002 30,244,348 $43,787,850
Shares issued for cash 1,750,000 595,000
Stock options issued to non-employees -- 7,192
Shares issued for services 110,000 51,150
Stock warrants issued -- 37,368
Shares issued under Employee Stock Purchase Plan 304,371 125,005
Shares issued for settlement of debt 250,001 100,000
Shares issued for interest 97,221 38,888
----------- -----------
Balance, March 31, 2003 32,755,941 $44,742,453
=========== ===========
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares through payroll deductions.
During the quarter ended March 31, 2003, a total of 304,371 common shares were
issued under the ESPP at prices ranging from $0.37 to $0.50 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. On March 5, 2003, Doral elected to
exercise their conversion right with respect to $100,000 of principal and, as a
result, we issued to them 347,222 common shares. Of this amount, 250,001 common
shares with a fair value of $100,000 relate to the payment of principal against
the note. The remaining 97,221 common shares with a fair value of $38,888
represent additional shares issued as a result of the beneficial conversion
feature and were recorded as additional interest expense.
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.
Note 4. Notes Payable
Notes payable consisted of the following at March 31, 2003 and December
31, 2002:
March 31, December 31,
2003 2002
----------- -----------
Note payable to BHP Minerals
International, Inc. $ 2,549,135 $ 2,505,040
Note payable to Doral 18, LLC 1,300,000 1,400,000
Less current portion (1,300,000) --
----------- -----------
Long-term portion of notes payable $ 2,549,135 $ 3,905,040
=========== ===========
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 March 31, 2003 was:
8
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
------------ ------------ -----------
Patents and related
expenditures $ 1,517,736 $ (392,907) $ 1,124,829
The weighted average amortization period for intangible assets is
approximately 16.5 years. Amortization expense was $21,421 for the three months
ended March 31, 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.
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 March 31, 2003 and the
material changes in our results of operations and financial condition between
the three-month periods ended March 31, 2002 and March 31, 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
also has a potential pharmaceutical application, a new active pharmaceutical
ingredient that we call RenaZorb(TM) for the treatment of hyperphosphatemia
(elevated serum phosphate levels) in patients undergoing kidney dialysis. During
2002, and through the first quarter of 2003, our efforts were directed toward
these three applications of the titanium processing technology.
9
Liquidity and Capital Resources
We generated $20,277 of sales revenues in the first three months of
2003 but incurred a net loss of $1,316,994. At March 31, 2003, our accumulated
deficit was $40,699,982, or an increase of $1,316,994 over the accumulated
deficit at December 31, 2002. This increase was due to the net loss for the
period.
Our cash and short-term investments increased from $244,681 at December
31, 2002 to $296,148 at March 31, 2003 due principally to the receipt of
$595,000 from the sale of common shares and warrants as well as the collection
of accounts receivable that were outstanding at December 31, 2002. These
increases in cash were partially offset by normal cash operating expenditures.
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares through payroll deductions.
During the three months ended March 31, 2003, a total of 304,371 common shares
were issued under the ESPP, resulting in proceeds of $125,005.
Current and Expected Liquidity.
--------------------------------
At March 31, 2003, we had cash and cash equivalents of $296,148, an
amount that would be sufficient to fund our basic operations through April 30,
2003. Between April 1, 2003 and the filing date of this report, we sold
1,396,898 common shares and 698,449 warrants to purchase common shares for
proceeds of $472,103. This additional cash will allow us to continue our
operations through June 30, 2003. 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.
In light of the decreasing price of, and limited market for, our common
shares, our ability to continue to fund our operations primarily through sales
of securities is limited, although we expect to generate some funds through
offerings of our common stock and warrants to purchase our common stock, and
additional exercises of outstanding warrants, during the remainder of 2003. We
also expect to generate limited revenues from the sales of nanoparticle products
and fees generated from development and testing services provided to potential
licensors of our titanium processing technology. As of May 13, 2003, we have no
commitments to provide additional financing for periods after May 2003, to
purchase titanium dioxide nanoparticles or to license our titanium processing
technology.
We also expect to generate revenues through the licensing of our
titanium processing technology, specifically the pharmaceutical application of
the technology (i.e. RenaZorb(TM)) and the application of our technology for
large-scale titanium pigment production. With respect to large-scale titanium
pigment production, Altair has completed initial testing for a materials company
and has 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 10-20 metric tons of
titanium dioxide pigment per year. If the phase-two proposal is accepted in some
form, Altair would expect to generate limited revenues in 2003 (but not
sufficient to cover monthly operating expenses) 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.
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. We are in
discussions with four pharmaceutical companies who may be interested in doing
further testing and negotiating a license agreement. Altair is uncertain what
10
the terms of such 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. Based on our understanding of
terms of license agreements under similar circumstances, we believe that
up-front or early stage payments associated with such a license agreement may be
large enough to provide liquidity for Altair throughout 2003, and even permit
Altair to report one-time profitability during 2003. We can, however, provide no
assurance that we will enter into such a license agreement or that such license
agreement would involve any significant up-front payments. If we are unable to
enter into a license agreement with respect to RenaZorb(TM) or another product
during the first six months of 2003 (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.
Capital Commitments
--------------------
The following table discloses aggregate information about our
contractual obligations including notes payable, mineral lease payments,
facilities lease payments and contractual service agreements, and the periods in
which payments are due as of March 31, 2003:
Less Than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
-------------------------------- ---------- ---------- ---------- ---------- ----------
Notes Payable $4,300,000* $1,300,000 $ 600,000 $1,200,000 $1,200,000
Mineral Leases 1,135,021 181,410 452,868 392,055 108,688
Contractual Service Agreements 494,122 344,122 100,000 50,000 --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $5,929,143 $1,825,532 $1,152,868 $1,642,055 $1,308,688
========== ========== ========== ========== ==========
* Before discount of $450,865.
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
11
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 March
31, 2003, the carrying value of these assets was $8,267,239, or
96% of total assets. We evaluate the carrying value of long-lived
assets when events or circumstances indicate that an impairment
may exist. In our evaluation, we estimate the net undiscounted
cash flows expected to be generated by the assets, and recognize
impairment when such cash flows will be less than the carrying
values. Events or circumstances that could indicate the existence
of a possible impairment include obsolescence of the technology,
an absence of market demand for the product, and/or continuing
technology rights protection.
o Stock-Based Compensation. We have two stock option plans which
provide for the issuance of stock options to employees and service
providers. Although Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock Based Compensation,
encourages entities to adopt a fair-value-based method of
accounting for stock options and similar equity instruments, it
also allows an entity to continue measuring compensation cost for
stock-based compensation using the intrinsic-value method of
accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees. We have
elected to follow the accounting provisions of APB 25 and to
furnish the pro forma disclosures required under SFAS No. 123, but
we also issue warrants and options to non-employees that are
recognized as expense when issued in accordance with the
provisions of SFAS No. 123. We calculate compensation expense
under SFAS No. 123 using a modified Black-Scholes option pricing
model. In so doing, we estimate certain key variables used in the
model. We believe the estimates we use are appropriate and
reasonable.
Results of Operations
Our first quarter of 2003 ended March 31, 2003. For the first quarter
of 2003, net losses totaled $1,316,994 ($.04 per share) compared to $1,679,531
($.07 per share) for the same period of 2002. Principal factors contributing to
the losses during these periods were the lack of substantial revenue together
with the incurrence of operating expenses.
For the first quarter of 2003, we generated revenues of $20,277. Of
this amount, $1,581 came from sales of titanium dioxide nanoparticles. The
remaining $18,696 of revenues came from fees earned under a services agreement
entered into with a materials company in September 2002. Under the terms of the
services agreement, we tested the materials company's mineral concentrates in
the production of titanium dioxide pigments using our titanium processing
technology. The testing is complete and a proposal for further development work
has been given to the materials company for evaluation.
We significantly reduced our expenditures for mineral exploration and
development in order to conserve cash for operating requirements and development
of the titanium processing technology. Accordingly, mineral exploration and
12
development expenses decreased by $123,474 from $152,188 in the first quarter of
2002 to $28,714 in the first quarter of 2003. We expect our expenditures on
mineral exploration and development to remain low throughout 2003.
Our research and development ("R&D") efforts in the first quarter of
2003 were directed principally to pharmaceuticals and titanium pigment process
development. R&D expenses increased by $74,184 from $138,609 in the first
quarter of 2002 to $212,793 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, decreased by $41,715 from $226,073 during the first quarter
of 2002 to $184,358 in the first quarter of 2003. The decrease is attributable
to a decline in consulting expenses of $46,000 resulting principally from
decreases in warrants granted to outside service providers.
General and administrative expenses decreased by $50,290 from $608,128
in first quarter of 2002 to $557,838 in the same period of 2003. Sample costs
decreased by $22,000 as more effort was placed into development projects and
less into sample preparation. In addition, rents decreased by $67,000 due to our
purchase, in August 2002, of the 204 Edison Way building that was previously
leased. Other general corporate expenses were reduced by a net amount of $5,000.
Offsetting these reductions was an increase in investor relations expense of
$44,000. In the first quarter of 2003, we paid an investor relations firm 75,000
common shares with a value of $37,500 for assistance with a new investor
relations program.
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 decreased by $67,074 from $285,699 in the first quarter of
2002 to $218,625 in the first quarter of 2003.
Interest expense decreased by $168,125 from $288,298 in the first
quarter of 2002 to $120,173 in the first quarter of 2003. The decrease is due to
an amendment of our note payable to Doral 18, LLC 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, together with the decrease in note
balance, is responsible for the decrease in interest expense from the first
quarter of 2002 to the first quarter of 2003.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Report") contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements can be identified by the use of the forward-looking
words "anticipate," "estimate," "project," "likely," "believe," "intend,"
"expect," or similar words. These statements discuss future expectations,
contain projections regarding future developments, operations, or financial
conditions, or state other forward-looking information. Statements in this
report regarding the ability of the Company to raise working capital necessary
to fund our operations, development of the titanium processing technology and
assets (including for pharmaceutical use), development of the centrifugal jig
and the Tennessee mineral property, and any future acquisition activities are
13
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.
o As shown in the consolidated financial statements for the quarter
ended March 31, 2003, we incurred a net loss of $1,316,994 for the
quarter ended March 31, 2003, and since the date of inception have
incurred cumulative net losses of $40,598,899. At March 31, 2003,
current liabilities exceeded current assets by $1,710,655. 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 common shares issuable upon the
exercise of exchange rights under existing and recently terminated
notes, options and warrants may place downward pressure on the
market price of our common shares. Speculative traders may
anticipate the exercise of exchange rights or warrants 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.
o We have pledged all of the intellectual property, fixed assets and
common stock of Altair Nanomaterials, Inc., our second-tier
wholly-owned subsidiary, to secure repayment of a Secured Term
Note with a face value of $1,400,000 issued on November 21, 2002.
Altair Nanomaterials, Inc. owns and operates the titanium
processing technology we acquired from BHP in 1999. The Secured
Term Note is also secured by a pledge of the common stock and
leasehold assets of Mineral Recovery Systems, Inc., which owns and
operates our leasehold interests in the Camden, Tennessee area.
The Secured Term Note is due and payable on March 31, 2004
(subject to immediate call if the transaction in which the Secured
Term Note was issued is not approved at our June 2003 annual
meeting). If we default on the Secured Term Note, severe remedies
will likely be available to the holder of the Secured Term Note,
including immediate seizure and disposition of all pledged assets.
o Our ability to remain listed on the Nasdaq SmallCap Market will
depend upon our ability to increase the market price of our common
stock to $1.00 per share and to satisfy other listing criteria by
the end of a probationary period which expires in June 2003.
Delisting from the Nasdaq SmallCap Market may have a significant
negative impact on the trading price, volume and marketability of
our common shares.
14
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, specifically the
pharmaceutical application of the 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 during the first six months of 2003 (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 In the short run, we also plan to use the titanium processing
technology to produce TiO2 nanoparticles, and we also intend to
license the technology to others. TiO2 nanoparticles and other
products we intend to initially produce with the titanium
processing technology generally must be customized for a specific
application working in cooperation with the end user. We are still
testing and customizing our TiO2 nanoparticle products for various
applications and have no long-term agreements with end users to
purchase any of our TiO2 nanoparticle products. In addition, we
have not yet entered into any agreements to license the
technology. We may be unable to recoup our investment in the
titanium processing technology and titanium processing equipment.
o We have not completed testing of, or developed a production model
of, any series of the jig. In part because of our liquidity
shortage, we do not expect to complete testing and development of
the jig during the coming year and have determined to focus most
of our limited resources on the titanium processing technology. We
may never develop a production model of the jig.
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.
15
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) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the filing date of this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective in alerting them on a timely basis to material information relating to
our Company (including its consolidated subsidiaries) required to be included in
our reports filed or submitted under the Exchange Act
(b) There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph (a) above.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 2003, we issued 75,000 common shares
to a consultant in a private placement pursuant to the terms of a contract under
which the consultant will provide consultant services to the Company and. 35,000
common shares to a second consultant in a private placement pursuant to the
terms of a contract under which the consultant will provide advisory services to
the Company. Both such transactions were effected 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 based upon the following: (a) each consultant 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 consultant confirmed that it was acquiring the securities for
its own account and not with an intent to distribute such securities; (c) each
consultant was provided with 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 consultant with respect to
the Company; (d) each consultant 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.
In addition, during the quarter ended March 31, 2003, we sold 1,750,000
common shares and 1,750,000 Series 2003B warrants in exchange for aggregate
consideration of $595,000 in a private placement to a single institutional
accredited investor. The warrants have an exercise price of $1.00 per share and
expire in March 2008. Such common shares and warrants were offered and sold in
16
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
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; the investor was any existing
shareholder of the Company and the investor represented and warranted that it
was acquiring the securities for its own account and not with an intent to
distribute such securities; (c) the 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) the
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 reports on Form 8-K have been filed during the first quarter of 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Altair Nanotechnologies Inc.
May 14, 2003 By: /s/ William P. Long
--------------------- --------------------------------------------
Date William P. Long, Chief Executive Officer
May 14, 2003 By: /s/ Edward H. Dickinson
--------------------- --------------------------------------------
Date Edward H. Dickinson, Chief Financial Officer
17
CERTIFICATIONS
I, William P. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ William P. Long
-----------------------------------------------
William P. Long
Chief Executive Officer
18
I, Edward Dickinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Edward H. Dickinson
----------------------------------------------
Edward H. Dickinson
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Exhibit Incorporated by Reference/Filed Herewith
---------------- --------------------------------------------------- ---------------------------------------------
3.1 Articles of Continuance Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on
July 18, 2002
4.1 Bylaw No. 1 Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on
July 18, 2002
4.2 Form of 2003B Warrant Filed herewith
10.1 Amendment No. 1 to the Registrant 2002 Wage Incorporated by reference to the
Stock Purchase Plan Registration Statement on Form S-8, file
no. 333-104435, filed with the SEC on April 10,
2003
99.1 Certification of Chief Executive Officer Filed herewith
99.2 Certification of Chief Financial Officer Filed herewith
19