UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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.
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(Exact name of registrant as specified in its charter)
Canada 1-12497 33-1084375
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(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
204 Edison Way
Reno, Nevada 89502
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (775) 858-3750
[ ] Securities registered pursuant to Section 12(b) of the Act: None
[X] Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value Nasdaq SmallCap Market
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(Title of Class) (Name of each exchange
on which registered)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
The aggregate market value of the common shares held by non-affiliates
of the Registrant on June 30, 2003, based upon the average bid and asked price
of the common shares on the NASDAQ SmallCap Stock Market of $1.07 per share on
June 30, 2003, was approximately $36,850,000. Common Shares held by each officer
and director and by each other person who may be deemed to be an affiliate of
the Registrant have been excluded. As of March 15, 2004, the Registrant had
48,650,140 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement on Schedule 14A for the
Registrant's 2004 Annual Meeting of Shareholders are incorporated by
reference in Part III as specified.
INDEX TO FORM 10-K
PART I..................................................................................3
Item 1: Business.....................................................................3
Item 2. Properties..................................................................28
Item 3. Legal Proceedings...........................................................29
Item 4. Submission of Matters to a Vote of Security Holders.........................29
PART II................................................................................30
Item 5. Market for the Common Shares and Related Shareholder Matters................30
Item 6. Selected Financial Data.....................................................33
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................42
Item 8. Financial Statements and Supplementary Data.................................42
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................43
Item 9A. Controls and Procedures.....................................................43
Part III...............................................................................44
Item 10. Directors and Executive Officers of the Registrant..........................44
Item 11. Executive Compensation......................................................44
Item 12. Security Ownership of Certain Beneficial Owners and Management..............44
Item 13. Certain Relationships and Related Transactions..............................44
Item 14. Principal Accountant Fees and Services.......................................44
Part IV................................................................................45
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............45
2
PART I
This Annual Report on Form 10-K for the year ended December 31, 2003
(this "Form 10-K") contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties. Purchasers of any of the
common shares, no par value (the "common shares") of Altair Nanotechnologies
Inc. ("Altair" or the "Company") are cautioned that the Company's actual results
will differ (and may differ significantly) from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those factors discussed herein under "Factors That May
Affect Future Results" and elsewhere in this Form 10-K generally. The reader is
also encouraged to review other filings made by the Company with the Securities
and Exchange Commission (the "Commission") describing other factors that may
affect future results of the Company.
Unless the context requires otherwise, all references to "Altair,"
"we," "Altair Nanotechnologies Inc.," or the "Company" in this Form 10-K refer
to Altair Nanotechnologies Inc. and all of its subsidiaries. Altair currently
has one wholly-owned subsidiary, Altair US Holdings, Inc., a Nevada corporation.
Altair US Holdings, Inc. directly or indirectly wholly-owns Altair
Nanomaterials, Inc., a Nevada corporation, Mineral Recovery Systems, Inc., a
Nevada corporation ("MRS"), Fine Gold Recovery Systems, Inc., a Nevada
corporation ("Fine Gold") and Tennessee Valley Titanium, Inc., a Nevada
corporation.
Item 1: Business
We are a development-stage Canadian company whose primary business is
developing and commercializing nanomaterial and titanium dioxide pigment
technologies. Our research, development, production and marketing efforts are
currently directed toward four applications of our proprietary technologies:
o the production of titanium dioxide pigments;
o the development of titanium dioxide structures in connection with a
research program aimed at developing a lower-cost process for
producing titanium metals and related alloys;
o a new active pharmaceutical ingredient that we call RenaZorb(TM),
which is designed to be useful in the treatment of elevated serum
phosphate levels in patients undergoing kidney dialysis; and
o the development of nanomaterials for use in various products, such
as thermal spray powders, dental fillings, algae removal materials,
lithium ion batteries and fuel cells.
In December 2003, our board of directors approved a plan to restructure
the Company in order to concentrate resources on the nanomaterials and titanium
dioxide pigment applications identified above, which we believe are the
applications most likely to generate significant revenues in the foreseeable
future. Our future revenues will depend on the success of these projects, the
results of our other research and development work and the success of our
marketing efforts. As a part of the restructuring, we have determined to
consolidate the assets related to the Altair Centrifugal Jig (the "Altair jig")
and our Tennessee mineral property into (or under) a single corporation, cause
such corporation to become an SEC reporting company and distribute substantially
all of the shares of common stock of such corporation to our shareholders. The
completion of this spin-off process is expected to take approximately six months
and is contingent upon receipt of shareholder approval.
3
Our Nanomaterials and Titanium Dioxide Pigment Business
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Background and Description of Process
In November 1999, we acquired all patent applications, technology and
tangible assets 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 and metal oxide
nanoparticles (the "nanomaterials and titanium dioxide pigment technology"), and
all tangible equipment and other assets used by BHP to develop and implement the
nanomaterials and titanium dioxide pigment technologies (the "nanomaterials and
titanium dioxide pigment assets"). These assets were being developed by BHP and
had not yet been commercially operated. We are employing the nanomaterials and
titanium dioxide pigment technology as a platform for the sale of contract
services, intellectual property licenses and for the production and sale of
metal oxide nanoparticles in various applications.
The nanomaterials and titanium dioxide pigment technology is capable of
producing conventional titanium dioxide pigment products that are finely-sized
powders consisting of titanium dioxide crystals. These powders approximate
170-300 nanometers in size. Our nanomaterials and titanium dioxide pigment
technology is also capable of producing titanium dioxide and other metal and
mixed metal oxide nanomaterials. These are specialty products with a size range
of 10 to 100 nanometers (approximately one tenth the size of conventional TiO2
pigment). The primary products currently being produced in the processing plant
are titanium dioxide (TiNano40(TM) series), lithium titanate spinel and
stabilized zirconia nanomaterials. The technology also enables the production of
customized products for catalyst support structures and porous titanium oxide
electrode structures for titanium metal production.
The nanomaterials and titanium dioxide pigment technology is based on a
proprietary dense-phase crystal growth technique that controls crystal formation
using a combination of mechanical and fluid dynamics and chemical and thermal
control. The size, phase, catalytic activity and size distribution of crystals
can be controlled within narrow limits and to specification through introduction
of small quantities of selected chemicals ("doping elements") during crystal
growth.
The technology, which is scaleable, uses standard chemical processing
industry unit operations that we believe make it suitable for large-scale
continuous production of highly uniform products.
Nanomaterials and Titanium Dioxide Pigment Tangible Assets
The nanomaterials and titanium dioxide pigment assets consist
principally of a production facility located in Reno, Nevada in a building that
we purchased from BHP. During 2000, we installed additional equipment to
increase production capacity to a nominal annual amount of 200 tons of
nanomaterials. We also added a separate pilot facility to produce large sample
quantities of product for development, test and evaluation purposes. In 2001, we
added hydration and filtering equipment to improve production processing. In
2002, we purchased advanced milling equipment to improve product quality. In
2003, we purchased pilot plant scale solvent extraction columns to test and
improve the purification unit operation process for the nanomaterials and
titanium dioxide pigment technology.
Overview of the Technology and Process
Our nanomaterials and titanium dioxide pigment technology is
fundamentally different from current commercial processing techniques. Other
processes are based on either a precipitation of materials from a solution or
4
the formation of crystallites from molten droplets of titanium oxide generated
in high temperature flame reactors. Our process is a dense-phase crystal growth
technique which controls crystal formation using a combination of mechanical and
fluid dynamics and chemical and thermal control.
Our process permits exceptional control over particle size, shape, and
crystalline form. Our titanium processing technology produces discrete anatase
crystals in nanometer sizes and may be doped to be thermally stable up to 800
degrees Centigrade. By remaining stable in high-temperature processing,
nanomaterials produced by our titanium dioxide pigment processing technology
retain the desired nanomaterials size and crystalline phase. In addition, our
technology is designed to minimize process effluents needing environmental
remediation and to accept a wide variety of low-cost, naturally occurring
titanium feed stocks.
We have not operated the nanomaterials and titanium dioxide pigment
technology at a commercial scale. Accordingly, we cannot describe processing
efficiencies and costs associated with our nanomaterials and titanium dioxide
pigment technology or compare such efficiencies and costs to those of
competitors.
In addition, our ability to capitalize on and develop our technology
may be limited by the limited amount of capital we have available and our lack
of a substantial operating history. Competing nanomaterials producers generally
are financially strong corporations with established customer relationships and
operating histories. The nanomaterials application business is a young industry
subject to rapid technological changes, and there is wide disparity within the
industry with respect to the composition and attributes of nanomaterials
products. The manufacturing methods and costs to manufacture also vary greatly,
with certain methods lending themselves to specific niche applications. As a
result, competition within the industry is driven by a variety of factors,
principally price and product attributes. Our marketing efforts have focused on
our ability to produce a wide range of products at attractive prices.
Plans for Development
The nanomaterials and titanium dioxide pigment technology has potential
to produce nanomaterials, which are sold on specialty product markets, titanium
dioxide pigments, which are commercially traded in bulk, catalyst structures and
other specialty ceramic products. During 2003, our development efforts were
directed toward new nanomaterials products, pharmaceutical products, titanium
dioxide pigment products, thermal spray powders, electrode grade powders,
catalyst support and electrode structures.
The Altair Hydrochloride TiO2 Pigment Process(TM) (AHPP)
We have named the portion of the nanomaterials and titanium dioxide
pigment technology that was developed to produce high quality titanium dioxide
pigment the Altair Hydrochloride Pigment Process(TM) (AHPP). This package of
technologies includes three US patents and over eight years of trade secrets and
know-how. The technology represents a comprehensive process to extract titanium
from raw materials, produce a high quality titanium dioxide pigment and minimize
environmental impact.
Key Features
------------
The AHPP is the first new, comprehensive technology to produce titanium
dioxide pigment in over fifty years and takes advantage of new technologies to
enable high quality pigment production. The AHPP uses a dense-phase crystal
5
growth technique which controls crystal formation using a combination of
mechanical and fluid dynamics and chemical and thermal control. A third party
engineering study indicates that cost associated with this process will be lower
than costs associated with alternative processes. All hydrochloric acid waste
streams can be recycled to recover acid, and the waste solids generated from the
purification process are easily manageable iron oxides.
Target Markets
-]-------------
We intend to benefit from the titanium dioxide pigment technology
through technology license agreements with large materials companies under which
we would receive royalties and other payments. We do not anticipate being a
manufacturer of pigments or competing directly in the pigment market.
Research, Testing and Development
---------------------------------
We have continued to research, test and develop our AHPP technology
through development contracts. We have demonstrated the flexibility of the
process for use on a wide variety of low-cost ilmenite feed stocks.
In January 2004, we entered into a license agreement with Western Oil
Sands, Inc. with respect to its possible use of the AHPP for the production of
titanium dioxide pigment and pigment-related products at the Athabasca Oil Sands
Project in Alberta, Canada, and elsewhere. Upon execution of the agreement, we
granted Western Oil Sands an exclusive, conditional license to use the AHPP on
heavy minerals derived from oil sands in Alberta, Canada. The agreement also
contemplates a three-phase, five-year program pursuant to which the parties will
work together to further evaluate, develop and commercialize the AHPP. In the
first phase of the program, Western Oil Sands is expected to spend $650,000
($500,000 of which is scheduled to be paid to Altair for work performed) to
evaluate the AHPP and confirm that the AHPP will produce pigment from oil sands.
Assuming phase one is successful, Western Oil Sands may elect to commence phase
two, the construction of a demonstration titanium pigment production facility
using the AHPP. If phase two is successful, Western Oil Sands may elect to
commence phase three, the construction and operation of a full-scale commercial
titanium pigment production facility using the AHPP.
The scope of the license granted to Western Oil Sands under the
agreement will vary with Western Oil Sands' commitment to the project. The
initial license, related to use of the AHPP on heavy minerals derived from oil
sands in Alberta, Canada, will terminate if Western Oil Sands fails to complete
phase one and will convert to a non-exclusive license if Western Oil Sands
commences phase two but fails to complete, or spend at least $25 million in an
effort to complete, phase two.
If Western Oil Sands completes phase one and commences phase two,
Western Oil Sands' license will be expanded to include the right to use the AHPP
for the production of titanium dioxide pigment and pigment-related products from
oil sands resources, primary ore resources and titanium deposits in Canada and
Minnesota and for the production of titanium dioxide pigment and pigment-related
products from oil sands resources world wide. This expanded license will
continue on an exclusive basis if Western Oil Sands completes phase two and
completes, or spends at least $50 million in an effort to complete, phase three.
This expanded license will continue, but on a non-exclusive basis, if Western
Oil Sands completes phase two but, after spending more than $5 million but less
than $50 million on phase three, does not complete phase three. If Western Oil
Sands does not commence, or spends less than $5 million with respect to, phase
three, the expanded license terminates.
6
If commercialization occurs, Western Oil Sands is required to pay
Altair royalties based on a percentage of net sales revenue from any production
facility.
In addition to our work with Western Oil Sands, we have submitted
proposals to five international minerals and energy resources companies to
develop and license our titanium pigment production process. We have completed
initial testing for a company located in the Pacific Rim 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 and 20,000 metric tons of titanium
dioxide pigment per year. We have 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 may generate significant revenues in the long-term, but
significant up-front revenues from such an agreement are unlikely.
We submitted phased development proposals for the testing and economic
evaluation of our titanium pigment production technology to the other four
minerals and energy resources companies during the first three quarters of 2003.
We recently entered into a testing and development license with one of these
companies, called Avireco and located in Vietnam, and anticipate that we may
enter into additional testing agreements during 2004. Although we have been
verbally informed that two hundred and fifty thousand dollars have now been
authorized to begin the first phase of pilot plant testing during 2004, we have
not received a formal work authorization. If the results of testing by one or
more such companies are positive, we hope to enter into a long-term license
agreement for regional exclusive use of the pigment technology. If one or more
of such minerals and energy resources companies obtains such a license and
subsequently constructs a full-scale production plant, we would expect to
receive development fees and royalties over the long-term, but no significant
up-front payments. We can provide no assurance that the results of any testing
will be positive, that we will enter into a long-term license or that the
licensee will construct a full-scale production plant in order to use our
technology.
Proprietary Rights
------------------
We have been awarded three US and international patents protecting this
technology including: 1) Processing titaniferous ore to titanium dioxide
pigment, 2) Processing aqueous titanium chloride solutions to ultrafine titanium
dioxide and 3) Processing aqueous titanium solutions to titanium dioxide
pigment.
Catalyst Support and Electrode Structures for Titanium Metals
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 in connection with the DARPA
program. The DARPA 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.
7
During 2003, we received $9,000 in connection with the MOU agreement.
In January 2004 we became a subcontractor for the DARPA program and were awarded
a $150,000 contract from TIMET to design and develop a titanium oxide electrode
structure and provide TIMET optimized titanium oxide feedstock to produce 50
pounds of titanium metal per day in batch production demonstrations.
Key Features
------------
The DARPA program seeks to lower the cost of titanium metal and
titanium metal alloys through the use of a new process for making titanium metal
(the "FCC Cambridge Process") and thereby enable a broader market use and lower
the cost of military applications. Under the terms of the MOU and subsequent
DARPA subcontract, we will attempt to develop a low-cost manufacturing process
for titanium dioxide pellets, critical to the successful commercialization of
the FCC Cambridge process for production of titanium metal. Our unique process
for making the titanium dioxide pellets may provide a superior feedstock for the
FCC Cambridge process by enabling the process to work more efficiently.
Target Markets
--------------
According to the AMPTIAC Quarterly, a Department of Defense-sponsored
publication, current global production of titanium metal is approximately 50,000
tons per year at a market value of $600 million. AMPTIAC estimates that, due to
the current state of manufacturing, titanium is produced at only about 1/20th of
its current potential world volume. It is widely believed that a reduction of
cost in the manufacturing process will expand the use of titanium metal in a
wider range of applications that include lightweight armored military vehicles,
the manufacture of automotive components and components for utility plants, oil
and gas drilling, and lightweight and durable consumer goods. Our intent is to
develop a suitable process for making the titanium dioxide pellets used by the
FCC Cambridge process but not ultimately to manufacture the pellets. We would
most likely license the technology for manufacture of the titanium dioxide
pellets to producers of metal using the FCC Cambridge Process or their
suppliers.
Research, Testing and Development
---------------------------------
We have an active, funded research program underway with TIMET to
optimize our product for use in their development-stage FCC Cambridge Process
technology to manufacture low-cost titanium metal. Both our technology and the
FCC Cambridge Process are in a development stage and are not expected to
generate significant revenue for several years, if ever.
Proprietary Rights
------------------
We have been awarded one US patent protecting the catalyst and
electrode structure technologies entitled "Method for producing catalyst
structures".
Pharmaceutical Products
RenaZorb(TM)
------------
In the second quarter of 2002, we initiated research and development
efforts directed toward the utilization of nanomaterials in the pharmaceuticals
industry. In July 2002, we announced the development of a new active
pharmaceutical ingredient ("API") for the treatment of hyperphosphatemia
8
(elevated serum phosphate levels) in patients undergoing kidney dialysis, as
well as a new drug delivery system using inorganic ceramic nanomaterials. This
API, given the name RenaZorb(TM), showed excellent capacity for phosphate
removal in laboratory tests using standard in-vitro (laboratory) procedures.
Animal testing of this product was initiated in late 2002 and was completed
during the first quarter of 2003. Results of this pre-clinical animal testing
confirmed the efficacy for phosphate binding. We plan to conduct additional
animal testing of RenaZorb(TM) in animals starting in March, 2004. The testing
program is designed to directly compare RenaZorb(TM) with Renagel(TM) (Genzyme)
and Fosrenol (Shire Pharmaceuticals) with regard to phosphate binding per gram
of active drug. The testing is designed to determine whether, as suggested by
laboratory results and literature data, RenaZorb(TM) could require approximately
30% less drug to bind an equivalent amount of phosphate compared to either
Renagel or Fosrenol. Generally, lower drug dosages often result in smaller
tablet or capsules resulting in better patient compliance and perhaps lower side
effects. The test protocol for the animal testing that has been scheduled was
reviewed by a major pharmaceutical company that has expressed interest in
licensing RenaZorb(TM). We also expect to submit an Investigational New Drug
application to the FDA that provides data showing that it is reasonable to begin
tests of RenaZorb(TM) on humans. We continue to seek business relationships with
pharmaceutical companies that can conduct additional testing and development,
seek necessary FDA approvals and take the necessary steps to bring the new
pharmaceutical ingredient and drug delivery system to market.
Key Features
------------
RenaZorb(TM) is a highly active, lanthanum-based nanomaterial with low
intestinal solubility and excellent in vitro phosphate binding. Animal testing
of RenaZorb(TM) has been conducted in dogs and rats, but no human tests have yet
been conducted. Based upon our initial laboratory and animal testing, we believe
that RenaZorb(TM) may offer the following advantages over competing products:
o Lower dosage requirements because of better phosphate binding per
gram of drug compared with existing or currently proposed drugs;
o Fewer and less severe side effects because of less gassing and
lower dosage;
o Better patient compliance because of fewer and smaller tablets; and
o Lower cost than existing or proposed prescription drugs in this
therapeutic category.
Target Markets
--------------
Our pharmaceutical product RenaZorb(TM) was developed to treat elevated
phosphate levels in kidney dialysis patients. According to information published
by AnorMED, the worldwide market for phosphate binders for chronic renal failure
patients is approximately $400 million to $600 million annually. It is not our
intent to manufacture pharmaceuticals but, rather, to grant licenses to
pharmaceutical companies for the manufacture and sale of products developed
using our technology. We are seeking business relationships with pharmaceutical
companies that can conduct additional testing and development using their
pharmaceutical active ingredients to coat our experimental drug delivery system
and then seek necessary FDA approvals and take the other steps necessary to
bring the combined drug delivery system to market.
Research, Testing and Development
---------------------------------
We have performed laboratory (in vitro) tests using standard techniques
to determine phosphate binding efficiencies and kinetics for a wide range of
lanthanum compounds. We have entered into 12 confidentiality agreements relating
9
to the development/licensing of RenaZorb(TM). Animal testing of RenaZorb(TM)
began in December 2002 and was conducted by two pharmaceutical companies, one of
which tested in dogs and both of which tested in rats. Results of these tests
were made available in March 2003, and the results showed positive indications
of phosphate binding. RenaZorb(TM) must undergo human testing and receive FDA
approval before it could be approved for marketing. Human testing typically
takes 1 to 2 years and, if merited by the results of animal testing, the process
of seeking FDA approval typically takes between 3 and 5 years. We believe,
however, that FDA approval of Fosrenol(TM), a chemically related drug, could
accelerate the approval process for RenaZorb(TM).
Proprietary Rights
------------------
We have applied for patent protection for the manufacture of
RenaZorb(TM) and a wide range of similar compounds for the application as an
orally administered phosphate binder for patients suffering from end stage renal
disease.
Competition
-----------
Existing phosphate binders include Tums(TM) antacid, which contains
calcium carbonate, and also aluminum hydroxide-based products such as
Gaviscon(TM) manufactured by Glaxo Smith Kline, both of which are available over
the counter, as well as Renagel(TM) (chemical name sevelmer) manufactured by
Genzyme, which is available only by prescription. In addition, Fosrenol(TM),
another lanthanum based active pharmaceutical agent developed by Shire
Pharmaceuticals ("Shire") of the UK, is awaiting United States FDA and foreign
regulatory approvals. Shire announced in March 2003 that it had received an
approvable letter from the FDA for Fosrenol(TM). The approvable letter requested
additional data and analysis from Shire. FDA approval is expected in the second
quarter of 2004.
While over the counter phosphate binders are relatively inexpensive,
they have several disadvantages. Calcium carbonate-containing phosphate binders,
such as Tums(TM), in high doses, may cause increased blood pressure and
increased risk of cardiovascular disease and is generally not recommended for
long-term use by dialysis patients. With prolonged use, aluminum hydroxide-based
phosphate binders, such as Gaviscon(TM), may cause toxic neurological effects
and are generally avoided by physicians. Aluminum dementia has been widely
reported in kidney dialysis patients using these products.
The prescription phosphate binder Renagel(TM) is relatively expensive
(approximately $1,300 per patient per year), has a high dosage requirement (2 x
800 mg or 4 x 400 mg capsules/tablets three times per day) and water intake is
required. The most common side effects related to the use of Renagel(TM) include
nausea (7% of patients), constipation (2% of patients), diarrhea (4% of
patients), gas or bloating (4% of patients) and heartburn or indigestion (5%
patients). Renagel is the only prescription non-calcium phosphate binder
currently approved by the United States FDA.
Fosrenol(TM) (LCTH), for which US FDA approval is pending, is expected
to be marketed as a chewable tablet with a proposed dosage of 1.5 to 3.0 grams
active drug per day. As with all medicines, Fosrenol(TM) will probably display
some side effects but these are expected to be minor. It has been reported that
the use of Fosrenol does increase serum lanthanum levels compared with levels in
patients taking a placebo. RenaZorb(TM), which is nanotechnology based, is
expected to be developed in a tablet or capsule dosage form with a projected
dosage of 0.6 to 2.0 grams per day. Although we have done no human testing on
RenaZorb(TM), we believe RenaZorb(TM) has the potential for fewer side effects,
10
lower cost and better patient compliance. We base these possible advantages upon
in vitro testing conducted by Altair in which RenaZorb was compared to LCTH, the
active chemical in Fosrenol. Our in vitro testing showed that RenaZorb binds at
least 30% more phosphate per gram of drug than LCTH, therefore requiring a lower
dose. Lower dose often correlates well with a reduction of observed side effects
in chemically related homologous compounds. In all animal testing conducted on
RenaZorb(TM), which to date included three separate testing protocols, no
adverse side effects were reported. In all testing, RenaZorb(TM) was
administered to the animals by mixing the drug with the food they eat. In no
case was there any reduction in the amount of food the animals ate when
RenaZorb(TM) was mixed with the food. The drug appears to be tasteless.
Both RenaZorb(TM) and Fosrenol(TM) involve the binding of phosphate by
lanthanum compounds. In fact, the end product of the binding mechanism is
identical; lanthanum orthophosphate is formed. Based on laboratory tests
conducted by Altair comparing RenaZorb(TM) with LCTH, the active ingredient in
Fosrenol(TM), RenaZorb(TM) required 30% less drug to bind the same amount of
phosphate and shows less lanthanum going into solution in simulated stomach
fluid at pH values of 3.0 and 4.5. In addition, in Altair's testing, using
methods published by AnorMED, RenaZorb(TM) reacts with phosphate more rapidly,
possibly because of its high nanomaterials-derived surface area. In 20 minute
simulated stomach acid tests conducted by Altair, RenaZorb(TM) absorbed
approximately 140 mg of phosphate and LCTH absorbed approximately 60 mg of
phosphate.
Drug Delivery - TiNano Sphere(TM)
---------------------------------
Our proposed drug delivery system involves depositing drugs on or
inside hollow "wiffle ball" spheres made of titanium dioxide and other metal
oxide nanomaterials.
Because of the early stage of development of this drug delivery system,
we are unable to state with any certainty how (or if) such drug delivery system
would be used and, if used, what the uses for such system would be and what the
comparative advantages, side effects and other aspects of such drug delivery
system would be. Nevertheless, based upon our early testing, we believe that the
following uses of a nanomaterials-based drug delivery system are feasible:
o New delivery forms for existing drugs;
o Delivery methods for new drugs;
o Delivery of hard to dissolve drugs;
o Delivery of sustained release drugs;
o Delivery of dual action drugs;
o Delivery of narcotics in a system that is non-defeatable and
reduces the chances of abuse; and
o Delivery of other Class 4 (restricted) drugs
Key Features
------------
Altair's hollow sphere "wiffle ball" like structures can deliver active
chemicals or drugs in a sustained release fashion because the active component
can be "mounted" on both the outside surface and inside the hollow ball
structure. The dissolution and availability of the surface-mounted active
component will be different than the active component inside the hollow spheres.
Material inside the hollow structure will be released slowly compared to
surface-mounted material. An additional feature of Altair's nanomaterials based
hollow "wiffle ball" structures is that two different active substances could be
mounted, one inside the hollow spheres and another on the surface. This allows
the possibility for dual action pharmaceuticals to be developed using this
technology.
11
Target Markets
--------------
New Delivery Forms and New Drugs. Our drug delivery system may be
useful in connection with drugs whose patents are expiring. On average, patented
drugs generate $200 to $400 million in sales, with average sales margins of 90%
to 95%. The margin for generic drugs drops, however, to 20% to 30% or less. New
dosage forms are patentable and, if patented, may extend the drug's patent
protection for 20 years. In addition, new dosage forms may reduce the cost of
producing various drugs, increasing margins if exclusive or generic, and may
reduce undesirable side effects.
Hard to Dissolve Drugs. Our drug delivery system may also be used to
deliver drugs that work in the gastrointestinal tract without being absorbed.
These types of drugs remove unwanted materials from the digestive systems.
Possible uses for these types of drugs include lowering cholesterol. Another use
for our drug delivery system would be for highly insoluble drugs that need
greater absorption to enter the blood stream. The significant increase in
surface area of our titanium dioxide micro-spheres may allow greater drug
absorption. This greater absorption may also be used to redevelop previously
failed candidate drug compounds that were unsuccessful because of inadequate
absorption rates or amounts.
Sustained Release Drugs and Dual Action Drugs. We also believe our
system may be useful in connection with the sustained release of fungicides,
including the following applications:
o Anti-fungal drugs;
o Topical anti-fungal drugs with sustained release;
o Tile cleaning products (mold, mildew) with residual action;
o Cosmetics (preservatives);
o Mildew prevention in paints and coatings;
o Fabric mildew protection;
o Exterior cleaning systems for removal and prevention of mold,
mildew and green algae;
o Wood protection and preservation; and
o UV protection of wood.
Research, Testing and Development
---------------------------------
To date, our research on drug delivery systems involving the use of
nanomaterials has been limited to coating known drugs on the surface of titanium
dioxide nanomaterials. We have not done any animal or human testing with our new
drug delivery systems and do not have the expertise, resources or capacity to
complete such testing. We are currently seeking business relationships with
pharmaceutical companies that can conduct additional testing and development
using their pharmaceutical active ingredients to coat our nanomaterials and then
seek necessary FDA approvals and take the other steps necessary to bring the
combined drug delivery system to market.
Proprietary Rights
------------------
We have filed two patent applications regarding this field including:
1) "Pharmaceutical composition and structure containing rare earth porous
particles" and 2) "Pharmaceutical composition with controlled surface area."
12
Altium(TM) (Nanomaterials) Products
General
-------
For the year ended December 31, 2003, we generated $17,602 of revenue
through sales of titanium dioxide, lithium titanate spinel and yttria stabilized
zirconia nanomaterials and other materials. These products were used principally
in thermal spray and catalyst applications and for developmental work on battery
materials. We are also developing nanomaterials products that may be useful in
controlling algae in swimming pools, in cosmetics, in self-cleaning and
sanitizing and in environmental purification.
Altium(TM) Thermal Spray Grade Powders (TSGP)
---------------------------------------------
We have developed thermal spray grade nanomaterial powders that can be
applied on the surface of metals by standard thermal "gunning" techniques. We
have sold approximately one ton of our powders to F.W. Gartner Thermal Spraying
Company for thermal application onto heavy-duty ball valves. Ball valves made of
solid titanium alloys have been introduced to control the flow and containment
of hot acidic slurry solutions in high pressure acid leach technologies applied
to metal extraction of nickel/cobalt ores. To extend the life of these critical
components, a ceramic coating is applied via a thermal spray process. These
coatings must be impervious to the acidic solution and provide protection
against wear from the abrasive solid particles. F.W. Gartner's use of our
nanomaterial powders application was delayed due to technical and political
problems associated with other aspects of the mining prospect. Thermal spray
products have use in a variety of additional harsh environment applications such
as aerospace propulsion systems, blades and vanes, medical applications, textile
and paper machinery, boilers for power plants, waste incinerators, oil and gas
industry, etc.
Key Features
------------
Our nanomaterials coatings possess enhanced toughness and increased
hardness; these features contribute to superior abrasive wear resistance over
the conventional coating of the same material. The nanomaterial coatings also
demonstrate improved porosity over standard thermal spray powders making them
more resistant to acid attack. We believe that improvements will enable longer
periods between maintenance, repairs and examinations of these critical
components therefore improving the economics of the industrial application.
Target Markets
--------------
Altair has executed an agency agreement with Global Strategy, Inc., an
international business development consultant, to seek business collaborations
and identify markets for Altium(TM) Thermal Spray Grade Powders. These markets
include companies that service, supply equipment to, and sell powders to thermal
spray shops.
Research, Testing and Development
---------------------------------
F.W. Gartner Thermal Spraying Company, Mogas Industries, Inc. and
Perpetual Technologies researchers have reported on the use of our nanomaterial
powders in tests to determine the bond strength, corrosion and abrasion
resistance and the porosity after applying ours and competitors' materials on
metal using Vacuum Plasma Spray and Atmosphere Plasma Spray. The results of
13
these researchers' tests indicate that our novel coatings possess enhanced
toughness and increased hardness; these features contribute to its superior
abrasive wear resistance over the conventional coating of the same material.
Ball valves with the new coatings have been introduced into different high
pressure acid leach autoclave installations over the past two years.
In November 2003, we contracted the National Research Council of Canada
to demonstrate and test and evaluate our powders and prepare specification
sheets of standard thermal spray gunning instructions to advise specialty
thermal spray shops how to apply our material. The goal of the project is to
produce titania coatings by thermal spraying using nano-structured titania
powders developed by Altair and compare and contrast to conventional titania
powders. The coatings will be characterized and evaluated to determine various
characteristics, including porosity and abrasion resistance. This report is
expected to be completed in the first quarter of 2004 and will be used to market
our powders.
Proprietary Rights
------------------
Our thermal spray grade powders are protected by U.S. Patent titled,
"Processing aqueous titanium chloride solutions to Ultrafine titanium dioxide".
Altium(TM) Lithium Titanate Spinel
----------------------------------
We have developed technologies to manufacture nano-sized specialty
materials to make electrodes for lithium ion batteries that will allow very
rapid charging and discharging of these types of batteries. We believe that
advancements in materials availability will ultimately be paired with
advancements in the electrolyte's ability to carry high current density and
result in batteries that can yield very high power and recharge in only a few
minutes. Altair has demonstrated nanomaterials that can accept a full charge
within less than one minute. Altair has now prepared special nano-sized samples
of lithium titanate, lithium manganate, and lithium cobaltate. Each of these
materials, in large crystalline sizes, is currently used by the battery
industry.
Key Features
------------
The large specific surface area of Altium(TM) Lithium Titanate Spinel
nanoparticle material enables very rapid charge and discharge rates. The
material is durable and is projected to last for thousands of charging cycles.
Target Markets
--------------
Batteries constitute a $42 billion market worldwide according to
information supplied by Telcordia (Subsidiary of SAI; Science Applications
International). Of that, around $6 billion is rechargeable and $3 billion
includes the market that has, and continues to be taken by, lithium ion
batteries. These lithium ion rechargeable batteries do not develop memory and
fail and are expected to gradually increase their share of the world market. New
developments indicate that high energy batteries of this type will ultimately be
developed for application as replacements for lead acid batteries in
automobiles, electric vehicles, and hybrid automobiles where direct electrical
energy for starting and passing will assist the gasoline engines. Also, the
development of fuel cells and solar generation systems will require enhanced
battery capabilities.
14
Research, Testing and Development
---------------------------------
We have completed a series of tests in collaboration with the EPFL
Switzerland, Heyrovsky Institute in Prague, Czech Republic and the Xoliox
subsidiary of Ntera, a display and battery technology development company. A
joint patent was filed with Ntera related to electrode performance of
nanoparticles made by Altair. We recently extended a marketing agreement with
Nissho Iwai Americas Corporation for product marketing in Japan to leading
lithium ion battery manufacturers. In addition, we have added the capability to
make test electrodes of lithium titanates, manganates, and cobaltates and have
developed a testing program for electrode performance at the University of
Nevada, Reno.
Proprietary Rights
------------------
We have filed three patent applications including 1) "Process for
making lithium titanate", 2) "High Performance Lithium Titanium Spinel for
Electrode Material", and 3) "Process for making nano-sized and sub-micron sized
lithium-transition metal oxides". We have also filed a joint patent on
nano-lithium titanate performance with Ntera.
Nanocheck(TM)
-------------
We have developed a nano-phase compound that has an affinity for many
metal oxy anions including phosphate, arsenate, arsenite, and the like.
Immediate applications for this material include: 1) phosphate removal from
swimming pool and aquariums to arrest the growth of bacteria and 2) arsenic
removal from drinking water.
The correct management of a swimming pool is a difficult and
time-consuming task. The chemical balance of the water must be carefully
monitored to ensure that it does not become fouled with algae, or grow too much
bacteria. Either of these will make the water smell and look unpleasant, and can
be a serious health hazard. Nanocheck(TM) safely deprives algae of the phosphate
nutrients required for them to reproduce and therefore reduces algae formation.
The Safe Drinking Water Act required the EPA to revise the existing 50
parts per billion (ppb) standard for arsenic in drinking water. On January 22,
2001 the EPA adopted a new standard, and public water systems must comply with
the 10 ppb standard beginning January 23, 2006. Significantly high arsenic
levels are found in some rural Western U.S. communities that rely on well water
as a drinking water source. Low-cost, point-of-entry or point-of-use treatments
are required to comply with the new standard. We expect that Nanocheck could be
added to these point-of-entry or point-of-use treatment devices to lower arsenic
levels to compliance levels. Nanocheck is a non-regenerateable material that
would require replacement after a period of time.
Key Feature
-----------
Nanocheck(TM) is a lanthanum based compound that can be used to treat
water for the removal of a wide range of deleterious impurities. It has no
reported human health hazards and works effectively in existing filtration units
without the need of purchasing additional equipment.
15
Target Markets
--------------
We are attempting to license and sell the technology to manufacture
Nanocheck(TM) to companies that already sell products into the water treatment
market including pool and spa chemical companies and drinking water treatment
companies.
Research, Testing and Development
---------------------------------
We have conducted in-house tests for phosphate removal in swimming pool
simulations, and a pool and spa chemical company has performed materials testing
that shows effective phosphate removal and high kinetics. Larger scale swimming
pool tests are expected to be performed in the summer months beginning June
2004. We also expect to perform an arsenic removal study during the second
quarter of 2004.
Proprietary Rights
------------------
We have filed two U.S. patent applications for the application of this
product entitled "Rare Earth Compositions and Structures for Removing Phosphates
from Water" and "Ceramic structure for removing toxic elements from water."
Solid Oxide Fuel Cell ("SOFC") Materials
----------------------------------------
Altair has focused its efforts in the fuel cell area on the development
of materials for the solid oxide fuel cell market. Our materials are novel
precursor ceramic materials used in the construction of a solid oxide fuel cell.
Virtually every ceramic material used as functional components of the fuel
conversion element of this type of cell can be manufactured by Altair's basic
process for making nanomaterials. Raw materials used by the Altair process are
in the category of commodity chemicals available on a worldwide basis. Altair is
engaged in a process of attempting to demonstrate that 1) using its proprietary
nanotechnology, the cost of raw materials for a solid oxide fuel cell can be
reduced to below $20 per kilowatt. 2) using the specially prepared
nanomaterials, all fuel cell elements can be made from tape cast components, and
3) several fuel cells can be stacked in a single fuel conversion unit. Stages 1
and 2 have been demonstrated in concept and are being improved, and stage 3 is
under development now. Altair has recently operated its fuel cell with hydrogen
as a fuel, and the final stages of adding a compatible ceramic catalyst to the
cell are being completed by MIT under contract with Altair. The catalyst
developed by MIT is intended to overcome the high cost of the platinum catalyst
in the solid oxide fuel cell.
Key Feature
-----------
We have developed low-cost solid oxide fuel cell materials using our
proprietary nanomaterials manufacturing technology to produce the appropriate
physical and chemical characteristics required for our low-cost monolithic
fabrication design.
Research, Testing and Development
---------------------------------
We have successfully completed our single cell program, and we do not
have any ongoing research or development activities specifically for this
program other than the work of adding a compatible ceramic catalyst that is
being performed by MIT. The fundamental research is complete and testing
confirmed the feasibility of our concept. The project is on hold while Altair
searches for partners and/or funding to help defer further costs of development.
16
Proprietary Rights
------------------
We have been awarded one US patent for the application of this product
entitled "Method for producing catalyst structures."
Nanosensors Program
-------------------
In September 2003, we entered into an agreement with Western Michigan
University ("WMU") to provide research services and materials to support
research involving a technology used in the detection of chemical, biological
and radiological agents. The teaming/research agreement with WMU, funded by the
Department of Energy, provides for total payments to Altair of $356,500 over a
two-year period. During 2003, we received $36,600 in connection with this
research agreement. In December 2003, WMU was awarded a second, one-year
Department of Energy grant for which Altair will also participate as a
subcontractor. The project is a collaboration involving WMU, Altair and the
University of Nevada, Reno. The $2 million was included in the Omnibus
Appropriations Bill passed by the U.S. House of Representatives December 9,
2003. WMU and Altair have a joint partnership for seeking Federal support for
nanotechnology research and development and will utilize the new grant funding
equally.
Altium(TM) TiNano40(TM)
-----------------------
We have developed a line of titanium dioxide nanomaterial products that
cover a range of chemical and physical characteristics suitable for a variety of
applications that include cosmetics, photocatalysts, thermal spray powders,
self-cleaning, solar cells, chemical mechanical planarization, plastics and
environmental remediation.
Research, Testing and Development
---------------------------------
We have completed developing the TiNano40 series (40 nanometer nominal
particle size) and are now focusing on TiNano20 and TiNano10 products that have
nominal particle size characteristics of 20 nanometers and 10 nanometers,
respectively. The TiNano20 product series is being developed in conjunction with
our research activities with Western Michigan University. It is also being used
in test solar cells. Our TiNano10 product has extremely high specific surface
area and applications may include commercial use as photocatalysts and catalyst
support.
Proprietary Rights
------------------
We have been awarded one US patent protecting this technology titled,
"Processing Aqueous Titanium Chloride Solutions to Ultrafine Titanium Dioxide."
Tennessee Mineral Property
--------------------------
The Tennessee mineral property presently consists of approximately
3,100 acres of land containing fine, heavy minerals that we have leased in or
near Camden, Tennessee since 1996.
17
Between 1996 and 2000, we conducted, and hired consultants to conduct,
various tests and pre-feasibility studies on approximately 14,000 acres of
property in Tennessee on which we held mineral leases. Based on the positive
results of initial testing and reports, we designed and commissioned
construction of a spiral-based pilot plant for testing at the Tennessee mineral
property in 2000. The plant includes dedicated electrical service, a lay-down
area for heavy mineral sand samples, and a combined water storage/sand placement
structure. Plant elements include a feed system, conveyors, trommel, two stages
of cyclones, and a five-stage spiral plant. During 2001, we excavated 970 tons
of material from four sites on the Tennessee mineral property and processed it
through the test facility. Plant operations closely approximated design
expectations; we incurred no significant operating problems, and test results
were generally consistent with expectations. During 2002 and 2003, we
significantly curtailed our testing on the Tennessee mineral property in order
to conserve capital. During that same period, we actively sought to enter into
joint venture or other relationships with larger mining operations that could
provide capital and other resources necessary to complete testing of the
Tennessee mineral property and, if merited, develop a mine on the property. Such
efforts were not successful.
During late 2003, our board of directors determined to more narrowly
focus our limited resources on the development and exploitation of our
nanomaterials and titanium dioxide pigment technology and to limit our
expenditures on our centrifugal jig and our Tennessee mineral property to the
minimum amount necessary to preserve their basic value for the short term.
Consistent with this determination, during 2003, we assessed the properties
under lease to determine whether we could reduce lease costs while maintaining a
viable quantity of leased acreage. As a result of our assessment, we identified
3,100 acres that represent the most important core holdings to support a
potential commercial mining venture. We renegotiated the leases with respect to
such 3,100 acres in order to extend the term of the leases and reduce the lease
payments. The leases with respect to the remaining acres are terminable at any
time by the property owners in light of our decision not to make any further
lease payments with respect to such leases.
For 2004, our board of directors approved a minimum workscope and
budget for maintaining the Tennessee mineral property, making sample products
for consumer testing and continuing baseline samples for permitting purposes. In
the meantime, we are consolidating the assets related to the Tennessee mineral
property, together with those related to the Altair jig, into (or under) a
single corporation with the intent of causing such corporation to become an SEC
reporting company and, subject to shareholder approval, distributing
substantially all of the shares of common stock of such corporation to our
shareholders.
The Altair Jig
--------------
Description of the Altair jig
-----------------------------
The Altair Jig segregates particles based on differences in their
specific gravity. A conventional jig separates a slurry of mineral particles as
it flows across the top of a screen. Water is periodically pulsed up through the
screen to eliminate interparticle friction and allow differential settling
according to the variations in the net specific gravities of the ore. Heavier
minerals are allowed to pass downward through the screen while lighter materials
flow across the screen to a discharge point. The Altair jig operates according
to conventional jig principles except that the screen surface is cylindrical and
is rotated to subject the particles to centrifugal forces. As currently
designed, materials to be processed by the Altair jig are introduced into the
top of the Altair jig in a slurry mix with water. The slurry is diffused across
18
the top of the interior of a vertical cylindrical screen which is rotating.
Water is pulsed through the screen allowing differential separation in the
slurry material. Heavy particles pass through the screen, are collected, and
exit the machine in a "concentrate" stream. Lighter particles flow down the
screen interior, are collected and exit out the bottom of the machine in a
separate "tails" stream. Use of the Altair jig requires no chemical additives.
In operation, the Altair jig utilizes a combination of standard mechanical jig
and centrifugal technologies. The Altair jig is of simple mechanical design with
few wear surfaces. To compete as a viable commercial unit, the Altair jig must
perform reliably over long time periods. The 600+ hours that we have tested and
operated the Series 30 Jig is insufficient to give assurance as to the length of
the operating life of the Altair jig.
Preliminary demonstration tests conducted by Altair and a previous
owner of the Altair jig suggest that the Altair jig could be commercially useful
in a number of applications, including:
o Recovery of ultra fine gold from waste streams or former tailings;
o Recovery of zircon, rutile, ilmenite, leucoxene, and other valuable
fractions from heavy mineral sand operations;
o Sulfur and ash removal from fine coal;
o Recovery of tin and iron ore fines from fine tailings;
o Concentration of heavy minerals, such as anatase, aparite, barite,
cassiterite, chromite, columbite, industrial diamonds, fluorite,
various garnets, monazite, tantalite and wolframite; and
o Remediation of nuclear waste.
Initial patents related to the concept of the Altair jig as a whole
were issued in the United States, South Africa, United Kingdom, Australia and
Canada. These patents expired on various dates between May 1999 and December
2000. A series of second patents with respect to the process by which water is
pulsed through the cylindrical screen on the Altair jig, a critical component
differentiating the Altair jig from competing products, have been issued in the
United States, South Africa, Japan, Europe, Australia, Canada, United Kingdom,
Germany and France. These patents expire on various dates between January 2010
and January 2011. A third series of patents with respect to an efficiency
enhancing component of the Altair jig have been issued in the United States,
Europe, Australia, Japan, South Africa, Canada and Brazil. These patents have
expiration dates between April and November 2018.
Technology License Agreement
In September 2003, we entered into a technology license agreement with
Bateman Luxembourg SA ("Bateman") for the manufacture, installation and
operation of the Altair jig. After an initial six-month evaluation period that
will conclude in August 2004, Bateman is expected to have exclusive use of the
Altair jig for specifically identified applications in selected territories
throughout the world. If and when Bateman utilizes the Altair jig in commercial
applications, it is required to compensate Altair through a licensing fee for
each project managed by Bateman that utilizes the Altair jig. The compensation,
if any, is based on Bateman's profits generated through utilization of the
Altair jig and will vary based on the size and scope of the individual projects.
Disposition of the Altair jig
Notwithstanding the execution of the Bateman agreement, during late
2003, our board of directors determined to more narrowly focus our limited
resources on the development and exploitation of our nanomaterials and titanium
dioxide pigment technology and to limit our expenditures on the Altair jig and
our Tennessee mineral property to the minimum amount necessary to preserve their
basic value for the short term. Consistent with this determination, we are
19
consolidating the assets related to the Altair jig, together with the assets
related to the Tennessee mineral property, into (or under) a single corporation
with the intent of causing such corporation to become an SEC reporting company
and, subject to shareholder approval, distributing substantially all of the
shares of common stock of such corporation to our shareholders.
Government Regulation and Environmental Concerns
------------------------------------------------
Government Regulation
Most of our current and proposed activities are subject to a number of
federal, state, and local laws and regulations concerning machine safety and
environmental protection. Such laws include, without limitation, the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response Compensation Liability Act. Such laws
require that we take steps to, among other things, maintain air and water
quality standards, protect threatened, endangered and other species of wildlife
and vegetation, preserve certain cultural resources, and reclaim exploration,
mining and processing sites.
Compliance with federal, state, or local laws or regulations represents
a small part of our present budget. If we fail to comply with any such laws or
regulations, however, a government entity may levy a fine on us or require us to
take costly measures to ensure compliance. Any such fine or expenditure may
adversely affect our development.
We are committed to complying with and, to our knowledge, are in
compliance with, all governmental regulations. We cannot predict the extent to
which future legislation and regulation could cause us to incur additional
operating expenses, capital expenditures, and/or restrictions and delays in the
development of our products and properties.
Environmental Regulation and Liability
Any proposed processing operation at our main operating facility in
Reno, Nevada or any other property we use will be subject to federal, state, and
local environmental laws. In addition, our operations on the Tennessee mineral
property have been, and will continue to be, subject to such environmental laws.
Under such laws, we may be jointly and severally liable with prior property
owners for the treatment, cleanup, remediation, and/or removal of substances
discovered at any other property used by us, to the extent the substances are
deemed by the federal and/or state government to be toxic or hazardous
("Hazardous Substances"). Courts or government agencies may impose liability
for, among other things, the improper release, discharge, storage, use,
disposal, or transportation of Hazardous Substances. We use Hazardous Substances
in our testing and operations and, although we employ all reasonably practicable
safeguards to prevent any liability under applicable laws relating to Hazardous
Substances, companies engaged in materials production are inherently subject to
substantial risk that environmental remediation will be required.
Subsidiaries
------------
Altair Nanotechnologies Inc. was incorporated under the laws of the
province of Ontario, Canada in April 1973 under the name Diversified Mines
Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in February
1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold Company
Inc. in July 1988, then to Altair International Gold Inc. in March 1994, then to
Altair International Inc. in November 1996 and then to Altair Nanotechnologies
20
Inc. in July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated
from the Ontario Business Corporations Act to Canada's federal corporate
statutes, the Canada Business Corporations Act.
Altair US Holdings, Inc. was incorporated by Altair in December 2003
for the purpose of facilitating a corporate restructuring and consolidation of
all U.S. subsidiaries under a U.S. holding company. At the completion of the
corporate restructuring, Fine Gold, MRS and Altair Nanomaterials, Inc. were
direct wholly-owned subsidiaries of Altair US Holdings, Inc., while Tennessee
Valley Titanium, Inc. remained a wholly-owned subsidiary of MRS.
Fine Gold was acquired by Altair in April 1994. Fine Gold has earned no
operating revenues to date. Fine Gold acquired the intellectual property
associated with the Altair jig in 1996. Altair intends that Fine Gold will hold
and maintain jig technology rights, including patents.
MRS was incorporated by Altair in April, 1987 and was formerly known as
Carlin Gold Company. MRS previously has been involved in the exploration for
minerals on unpatented mining claims in Nevada, Oregon and California. All
mining claims have now been abandoned. MRS currently holds, directly or
indirectly, all of Altair's interest in the Tennessee mineral property. Its
wholly-owned subsidiary, Tennessee Valley Titanium, does not presently have any
assets or operations.
Altair Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned
subsidiary of MRS and holds all of the Company's interest in our nanomaterials
and titanium dioxide pigment technology and related assets.
Corporate History
-----------------
Altair Nanotechnologies Inc. was incorporated under the laws of the
Province of Ontario, Canada in April 1973 for the purpose of acquiring and
exploring mineral properties. It was redomesticated in July 2002 from the
Business Corporations Act (Ontario) to the Canada Business Corporations Act, a
change which causes Altair to be governed by Canada's federal corporate statute.
The change reduced the requirement for resident Canadian directors from 50% to
25% of the board of directors, which gives us greater flexibility in selecting
qualified nominees to our board.
During the period from inception through 1994, we acquired and explored
multiple mineral properties. In each case, sub-economic mineralization was
encountered and the exploration was abandoned.
Since 1996, we have leased mineral property near Camden, Tennessee and
owned the rights to the Altair jig. However, as discussed above, our board of
directors has determined to more narrowly focus our limited resources on the
development and exploitation of our nanomaterials and titanium dioxide pigment
technology and to limit our expenditures on our centrifugal jig and our
Tennessee mineral property to the minimum amount necessary to preserve their
basic value for the short term as we assess viability and desirability of
various strategic alternatives for disposing of the Tennessee mineral property
and the Altair jig.
In November 1999, we acquired all the rights of BHP in the
nanomaterials and titanium dioxide pigment technologies and the nanomaterials
and titanium dioxide pigment assets from BHP. We are employing the nanomaterials
and titanium dioxide pigment technology as a platform for the sale of contract
services, intellectual property licenses and for the production and sale of
metal oxide nanoparticles in various applications.
21
We have experienced an operating loss in every year of operation. In
the fiscal year ended December 31, 2003, we experienced a net loss of
$6,237,939.
Employees
---------
The business of Altair is currently managed by Dr. William P. Long,
Chief Executive Officer of the Company, Dr. Rudi E. Moerck, President of the
Company and Mr. Douglas Ellsworth, Senior Vice President of the Company and
President of Altair Nanomaterials, Inc. In addition, we employ a Chief Financial
Officer, twelve employees devoted principally to research and development, four
operating employees and four clerical employees. Aside from Dr. Long and the
Chief Financial Officer, we have no employment agreements with any of our
personnel.
During 2004, we expect to hire 5-7 additional employees, principally
scientific and technical staff, to assist with research, development and
production work.
Enforceability of Civil Liabilities Against Foreign Persons
-----------------------------------------------------------
We are a Canadian corporation, and two of our directors are residents
of Canada. In addition, certain of our experts (including Canadian legal
counsel) are located in Canada. As a result, investors may be unable to effect
service of process upon such persons within the United States and may be unable
to enforce court judgments against such persons predicated upon civil liability
provisions of the United States securities laws. It is uncertain whether
Canadian courts would (i) enforce judgments of United States courts obtained
against us or such directors, officers or experts predicated upon the civil
liability provisions of United States securities laws or (ii) impose liability
in original actions against Altair or its directors, officers or experts
predicated upon United States securities laws.
Forward-looking Statements
--------------------------
This Form 10-K contains various forward-looking statements. 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. When considering such forward-looking
statements, you should keep in mind the risk factors noted in the following
section and other cautionary statements throughout this Form 10-K and our other
filings with the Commission. You should also 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. If one or more risks identified in this Form
10-K or any other applicable filings materializes, or any other underlying
assumptions prove incorrect, our actual results may vary materially from those
anticipated, estimated, projected, or intended.
Among the key factors that may have a direct bearing on our operating
results are risks and uncertainties described under "Factors That May Affect
Future Results," including those attributable to the absence of significant
operating revenues, the absence of profits, risks related to our proposed
development and exploitation of our nanomaterials and titanium dioxide pigment
technology and nanomaterials and titanium dioxide pigment assets and
uncertainties regarding our ability to obtain capital sufficient to continue our
operations and pursue our proposed business strategy.
22
Factors that May Affect Future Results
--------------------------------------
We have not generated any substantial operating revenues and may not ever
generate substantial revenues.
--------------------------------------------------------------------------------
To date, we have not generated substantial revenues from operations. As
of December 31, 2003, we have generated $340,892 of revenues from our
nanomaterials and titanium dioxide pigment technology and $28,270 from the use
of our centrifugal jig in consulting contracts. We have not generated any
revenue from our Tennessee mineral property. We believe that our nanomaterials
and titanium dioxide pigment technology is the only one of our three lines of
business that may generate significant revenues in the foreseeable future.
Although we currently have approximately $1.1 million in unfulfilled contractual
commitments, such commitments primarily relate to our provision of research and
development services or to sales of products for experimental purposes. We have
no sales or other commitments with respect to on-going revenues from our
nanomaterials and titanium dioxide pigment technology and can provide no
assurance that we will generate additional revenues.
We may continue to experience significant losses from operations.
--------------------------------------------------------------------------------
We have experienced a loss from operations in every fiscal year since
our inception. Our losses from operations were $5,785,210 in 2003 and $7,856,711
in 2002. We will continue to experience a net operating loss until, and if, one
of the applications of our nanomaterials and titanium dioxide pigment technology
begins generating significant revenues. Even if any or all applications of the
nanomaterials and titanium dioxide pigment technology begin generating
significant revenues, the revenues may not exceed our costs of production and
operating expenses. We may not ever realize a profit from operations.
We may not be able to raise sufficient capital to meet future obligations.
--------------------------------------------------------------------------------
As of February 25, 2004, we had $11.9 million in cash, an amount
sufficient to fund our ongoing operations until December 31, 2006 at current
working capital expenditure levels. However, we may use our existing capital
sooner than projected in connection with an unanticipated transaction,
litigation or another unplanned event. We may also use more capital than
projected as we expand our research, development and marketing efforts. Unless
we experience a significant increase in revenue, we will need to raise
significant amounts of additional capital in the future in order to sustain our
ongoing operations, continue unfinished testing and additional development work
and, if certain of our products have been commercialized, produce and market
such products.
We may not be able to obtain the amount of additional capital needed or
may be forced to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include the following:
o market factors affecting the availability and cost of capital
generally;
o the price, volatility and trading volume of our shares of common
stock;
o our financial results, particularly the amount of revenue we are
generating from operations;
o the amount of our capital needs;
o the market's perception of nanotechnology and/or chemical stocks;
o the economics of projects being pursued;
23
o the market's perception of our ability to generate revenue through
the licensing or use of our nanoparticle technology for
pharmaceutical, pigment production, nanoparticle production and
other uses; and
o the market's perception of the value of our centrifugal jig and our
Tennessee mineral property as we attempt to dispose of or
distribute such assets.
If we are unable to obtain sufficient capital or are forced to pay a high price
for capital, we may be unable to meet future obligations or adequately exploit
existing or future opportunities, and may be forced to discontinue operations.
Our patents and other protective measures may not adequately protect our
proprietary intellectual property, and we may be infringing on the rights of
others.
--------------------------------------------------------------------------------
We regard our intellectual property, particularly our proprietary
rights in our nanomaterials and titanium dioxide pigment technology, as critical
to our success. We have received various patents, and filed other patent
applications, for various applications and aspects of our nanomaterials and
titanium dioxide pigment technology and other intellectual property. In
addition, we generally enter into confidentiality and invention agreements with
our employees and consultants. Such patents and agreements and various other
measures we take to protect our intellectual property from use by others may not
be effective for various reasons, including the following:
o Our pending patent applications may not be granted for various
reasons, including the existence of similar patents or defects in
the applications;
o The patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other reasons;
o Parties to the confidentiality and invention agreements may have
such agreements declared unenforceable or, even if the agreements
are enforceable, may breach such agreements;
o The costs associated with enforcing patents, confidentiality and
invention agreements or other intellectual property rights may make
aggressive enforcement cost prohibitive;
o Even if we enforce our rights aggressively, injunctions, fines and
other penalties may be insufficient to deter violations of our
intellectual property rights; and
o Other persons may independently develop proprietary information and
techniques that, although functionally equivalent or superior to
our intellectual proprietary information and techniques, do not
breach our patented or unpatented proprietary rights.
Because the value of our company and common stock is rooted primarily in our
proprietary intellectual property rights, our inability to protect our
proprietary intellectual property rights or gain a competitive advantage from
such rights could have a material adverse effect on our business.
In addition, we may inadvertently be infringing on the proprietary
rights of other persons and may be required to obtain licenses to certain
intellectual property or other proprietary rights from third parties. Such
licenses or proprietary rights may not be made available under acceptable terms,
if at all. If we do not obtain required licenses or proprietary rights, we could
encounter delays in product development or find that the development or sale of
products requiring such licenses is foreclosed.
24
We have a substantial number of warrants and options outstanding and may issue a
significant number of additional shares upon exercise thereof.
--------------------------------------------------------------------------------
As of March 15, 2004, there were outstanding warrants to purchase up to
5,416,455 shares of common stock and options to purchase up to 3,446,200 shares
of common stock. The existence of such warrants and options, and any additional
warrants and options we issue in the future, may hinder future equity offerings,
and the exercise of such warrants and options may further dilute the interests
of all shareholders. The shares of common stock issuable upon the exercise of
many of our outstanding warrants are subject to resale registration statements,
and all of our options are subject to a registration statement on Form S-8.
Accordingly, future resale of the shares of common stock issuable on the
exercise of such warrants and options may generally occur immediately after
exercise and may have an adverse effect on the prevailing market price of the
shares of common stock.
Our competitors have more resources than we do, which may give them a
competitive advantage.
--------------------------------------------------------------------------------
We have limited financial and other resources and, because of our early
stage of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. Because of
their size, resources, reputation, history and other factors, certain of our
competitors may be able to exploit acquisition, development and joint venture
opportunities more rapidly, easily or thoroughly than we can. In addition,
potential customers may choose to do business with our more established
competitors, without regard to the comparative quality of our products, because
of their perception that our competitors are more stable, are more likely to
complete various projects, are more likely to continue as a going concern and
lend greater credibility to any joint venture.
We may be unable to exploit any potential pharmaceutical application of our
nanomaterials and titanium dioxide pigment technology.
--------------------------------------------------------------------------------
We do not presently have the technical or financial resources to
conduct clinical tests on, and take to market, any pharmaceutical application of
our nanomaterials and titanium dioxide pigment technology. In order for us to
get any significant, long-term benefit from any potential pharmaceutical
application of our technology, the following must occur:
o we must enter into an evaluation license or similar agreement with
a pharmaceutical company under which such company would pay a fixed
or contingent fee for the right to evaluate a pharmaceutical use of
our technology for a specific period of time and for an option to
purchase or receive a license for such use of our technology;
o clinical tests conducted by such pharmaceutical company or a third
party would have to indicate that the pharmaceutical use of our
technology is safe, technically viable and financially viable;
o such pharmaceutical company would have to apply for and obtain FDA
approval of the pharmaceutical use of our technology, or any
related products, which would involve extensive additional testing;
and
o such pharmaceutical company would have to successfully market the
product incorporating our technology.
As of the date of this report, we have not entered into an evaluation license or
similar agreement with a pharmaceutical company. We may never enter into any
such license or agreement. If we do enter into such a license or similar
agreement, we may receive some payments in various stages of the testing and
evaluation of the pharmaceutical application of our technology. We do not,
however, expect to receive significant ongoing revenue unless and until an end
product incorporating the technology goes to market.
25
We may not benefit from licenses to use our technology for titanium dioxide
pigment production.
--------------------------------------------------------------------------------
Because of our relatively small size and limited resources, we do not
plan to use our titanium processing technology for large-scale production of
titanium dioxide pigments. We have entered into discussions with various
minerals and materials companies about licensing our technology to such entities
for large-scale production of titanium dioxide pigments. To date, we have
entered into a license agreement with only one such entity, Western Oil Sands,
Inc. Under our license agreement with Western Oil Sands, we expect to receive a
limited amount of revenue during the early testing and development phase of the
agreement but will receive significant royalties only if Western Oil Sands and
licensees of Western Oil Sands determine in their discretion, after testing at a
demonstration plant, to construct or license the construction of a full-scale
titanium pigment production facility. If we enter into other license agreements,
we expect that, as with the Western Oil Sands agreement, we would not receive
significant revenues from such licenses unless and until feasibility testing
yielded positive results and the licensee determined, in its discretion, to
construct and operate a titanium pigment production facility.
We may not be able to sell nanoparticles produced using the nanomaterials and
titanium dioxide pigment technology.
--------------------------------------------------------------------------------
We plan to use the nanomaterials and titanium dioxide pigment
technology to produce titanium dioxide nanoparticles. Titanium dioxide
nanoparticles and other products we intend to initially produce with the
nanomaterials and titanium dioxide pigment technology generally must be
customized for a specific application working in cooperation with the end user.
We are still testing and customizing our titanium dioxide nanoparticle products
for various applications and have no long-term agreements with end users to
purchase any of our titanium dioxide nanoparticle products. We may be unable to
recoup our investment in the nanomaterials and titanium dioxide pigment
technology and nanomaterials and titanium dioxide pigment equipment for various
reasons, including the following:
o products utilizing our titanium dioxide nanoparticle products, most
of which are in the research or development stage, may not be
completed or, if completed, may not be readily accepted by expected
end users;
o we may be unable to customize our titanium dioxide nanoparticle
products to meet the distinct needs of potential customers;
o potential customers may purchase from competitors because of
perceived or actual quality or compatibility differences;
o our marketing and branding efforts may be insufficient to attract a
sufficient number of customers; and
o because of our limited funding, we may be unable to continue our
development efforts until a strong market for nanoparticles
develops.
Our costs of production may be too high to permit profitability.
--------------------------------------------------------------------------------
We have not produced any pigments, nanoparticles or other products
using our nanomaterials and titanium dioxide pigment technology and equipment on
a commercial basis. Our actual costs of production, or those of our licensees,
may exceed those of competitors and, even if our costs of production are lower,
competitors may be able to sell titanium dioxide and other products at a lower
price than is economical for us or our licensees.
We have not created a production model of our centrifugal jig and are presently
focusing our resources on other projects.
--------------------------------------------------------------------------------
We have not developed a production model of any series of our
centrifugal jig and have determined to discontinue investing significant assets
on its development. In October 2003, we entered into a technology license
26
agreement with Bateman Luxembourg S.A. for the manufacture, installation and
operation of our centrifugal jig. Such agreement permits Bateman to opt out
after a six-month testing period. In addition, the agreement does not require
Bateman to manufacture or utilize our centrifugal jig. There is no assurance
that Bateman will ever utilize our centrifugal jig in its projects or pay fees
to us. We do not otherwise expect to complete our own testing and development of
our centrifugal jig and have determined to focus most of our limited resources
on the nanomaterials and titanium dioxide pigment technology.
Even if we or Bateman were to complete development of and begin
marketing a production model of our centrifugal jig, it may not prove attractive
to potential end users, may be rendered obsolete by competing technologies or
may not recover end product at a commercially viable rate. Even if technology
included in our centrifugal jig initially proves attractive to potential end
users, performance problems and maintenance issues may limit the market for our
centrifugal jig.
In addition, all of the initial patents issued on our centrifugal jig
have expired, and we are unable to prevent competitors from copying the
technology once protected by such patents. Additional patents related to the
process through which water is pulsed through the cylindrical screen on our
centrifugal jig expire beginning in 2010, and patents for an
efficiency-enhancing aspect of the cylindrical screen expire during 2018. The
cost of enforcing patents is often significant. We may be unable to enforce even
our patents that have not yet expired.
We have suspended exploration of our Tennessee mineral property and do not
expect to restart testing efforts.
--------------------------------------------------------------------------------
We have suspended feasibility testing of our Tennessee mineral property
and do not expect to start feasibility testing of our Tennessee mineral property
in the future. If a mine is developed on the Tennessee mineral property in the
future, which may or may not occur, the development will likely occur under the
control of another party, and our financial interest in the development will
likely be limited, and may be nonexistent.
Our disposition of centrifugal jig and our Tennessee mineral property may not
enhance the value of our common stock.
--------------------------------------------------------------------------------
We have determined to consolidate the assets related to the Tennessee
mineral property and the Altair jig into (or under) a single corporation with
the intent of causing such corporation to become an SEC reporting company and,
subject to shareholder approval, distributing substantially all of the shares of
common stock of such corporation to our shareholders. We may not receive
shareholder approval for such spin-off. If shareholder approval is not received,
our alternatives will be limited, and we may be compelled to abandon any
interest in the Tennessee mineral property and the Altair jig. Such abandonment
would likely involve out of pocket costs for remediation of the Tennessee
mineral property and would eliminate any possibility of Altair shareholders
receiving any benefit from Altair's investment in the Altair jig and Tennessee
mineral property. Even if the proposed spin-off is approved and effected, we
expect that the shares of the spin-off corporation will have a very low market
value in the short-term and can provide no assurance that such shares will
increase in value over time.
We have issued a $3,000,000 note to secure the purchase of the land and the
building where our nanomaterials and titanium dioxide pigment assets are
located.
--------------------------------------------------------------------------------
In August 2002, we entered into a purchase and sale agreement with BHP
Minerals International Inc. to purchase the land, building and fixtures in Reno,
Nevada where our nanomaterials and titanium dioxide pigment assets are located.
In connection with this transaction, we issued to BHP a note in the amount of
27
$3,000,000, at an interest rate of 7%, secured by the property we acquired. The
first payment of $600,000 of principal plus accrued interest is due February 8,
2006. Additional payments of $600,000 plus accrued interest are due annually on
February 8, 2007 through 2010. If we fail to make the required payments on the
note, BHP has the right to foreclose and take the property. If this should
occur, we would be required to relocate our primary operating assets and
offices, causing a significant disruption in our business.
Operations using the nanomaterials and titanium dioxide pigment technology, our
centrifugal jig or our Tennessee mineral property may lead to substantial
environmental liability.
--------------------------------------------------------------------------------
Virtually any prior or future use of the nanomaterials and titanium
dioxide pigment technology, our centrifugal jig or our Tennessee mineral
property is subject to federal, state and local environmental laws. Under such
laws, we may be jointly and severally liable with prior property owners for the
treatment, cleanup, remediation and/or removal of any hazardous substances
discovered at any property we use. In addition, courts or government agencies
may impose liability for, among other things, the improper release, discharge,
storage, use, disposal or transportation of hazardous substances.
Certain of our experts and directors reside in Canada and may be able to avoid
civil liability.
--------------------------------------------------------------------------------
We are a Canadian corporation, and two of our directors and our
Canadian legal counsel are residents of Canada. As a result, investors may be
unable to effect service of process upon such persons within the United States
and may be unable to enforce court judgments against such persons predicated
upon civil liability provisions of the U.S. securities laws. It is uncertain
whether Canadian courts would (i) enforce judgments of U.S. courts obtained
against us or such directors, officers or experts predicated upon the civil
liability provisions of U.S. securities laws or (ii) impose liability in
original actions against us or our directors, officers or experts predicated
upon U.S. securities laws.
We are dependent on key personnel.
--------------------------------------------------------------------------------
Our continued success will depend to a significant extent on the
services of Dr. Rudi Moerck, our President, Doug Ellsworth, our Senior Vice
President and the senior vice president of our new life sciences division that
we intend to recruit. Our failure to recruit a competent life sciences Vice
President, or the loss or unavailability of Dr. Moerck or Mr. Ellsworth could
have a material adverse effect on our business and the market price of our
shares of common stock. We do not carry key man insurance on the lives of any of
our personnel and do not have agreements requiring any of them to remain with
our company.
In addition, we have recently announced the pending resignation of our
Chief Executive Officer and as a director, Dr. William P. Long. Although we
intend to recruit a new Chairman of Board of Directors, we do not presently
intend to hire a replacement Chief Executive Officer. Dr. Long's efforts have
been instrumental in the strategic decision making, capital raising, shareholder
relations and other aspects of our business. The resignation of Dr. Long may
have a material adverse effect on these or other aspects of our operations.
We may issue substantial amounts of additional shares without stockholder
approval.
--------------------------------------------------------------------------------
Our articles of incorporation authorize the issuance of an unlimited
number of shares of common stock that may be issued without any action or
approval by our stockholders. In addition, we have two stock option plans and a
stock purchase plan that have potential for diluting the ownership interests of
our stockholders. The issuance of any additional shares of common stock would
further dilute the percentage ownership of Altair held by existing stockholders.
28
The market price of our common stock may increase or decrease dramatically at
any time for any or no apparent reason.
--------------------------------------------------------------------------------
The market price of our common stock, like that of the securities of
other early stage companies, may be highly volatile. Our stock price may change
dramatically as the result of announcements of our quarterly results, new
products or innovations by us or our competitors, uncertainty regarding the
viability of the nanomaterials and titanium dioxide pigment technology,
significant customer contracts, significant litigation or other factors or
events that would be expected to affect our business, financial condition,
results of operations and future prospects. In addition, the market price for
our common stock may be affected by various factors not directly related to our
business or future prospects, including the following:
o Intentional manipulation of our stock price by existing or future
shareholders;
o A single acquisition or disposition, or several related
acquisitions or dispositions, of a large number of our shares;
o The interest of the market in our business sector, without regard
to our financial condition, results of operations or business
prospects;
o Positive or negative statements or projections about our company,
or our industry, by analysts, stock gurus and other persons;
o The adoption of governmental regulations or government grant
programs and similar developments in the United States or abroad
that may enhance or detract from our ability to offer our products
and services or affect our cost structure;
o Economic and other external market factors, such as a general
decline in market prices due to poor economic indicators or
investor distrust; and
o Speculation by short sellers of our common stock or other persons
who stand to profit from a rapid increase or decrease in the price
of our common stock.
We have never declared a cash dividend and do not intend to declare a cash
dividend in the foreseeable future.
--------------------------------------------------------------------------------
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings, if any, for use in our business
and, therefore, do not anticipate paying dividends on our common stock in the
foreseeable future.
Item 2. Properties
Our corporate headquarters is located at 204 Edison Way, Reno, Nevada
89502 in a building we purchased in August 2002. Our nanomaterials and titanium
dioxide pigment assets are located in this building which contains approximately
80,000 square feet of production, laboratory, testing and office space.
We also maintain a registered office at 56 Temperance Street, Toronto,
Ontario M5H 3V5. We do not lease any space for, or conduct any operations out
of, the Toronto, Ontario registered office. In addition, we lease 900 square
feet of office space at 1725 Sheridan Avenue, Suite 140, Cody, Wyoming 82414,
which serves as an administrative office for Altair and its subsidiaries. Our
lease for the Cody, Wyoming office space may be terminated by either party on 30
days' prior written notice.
We believe that the existing offices and test facilities of Altair and
its subsidiaries are adequate for our current needs. In the event that
alternative or additional office space is required, we believe we could obtain
additional space on commercially acceptable terms.
29
We no longer view the Tennessee mineral property as being materially
important to our business. We have determined to limit our expenditures on our
Tennessee mineral property to the minimum necessary to preserve its core value
for the short term and are in the process of consolidating the assets related to
the Tennessee mineral property and the Altair jig into (or under) a single
corporation with the intent of causing such corporation to become an SEC
reporting company and, subject to shareholder approval, distributing
substantially all of the shares of common stock of such corporation to our
shareholders.
Consistent with the determination to minimize expenses with respect to
the Tennessee mineral property, during 2003, we assessed the properties under
lease to determine whether we could reduce lease costs while maintaining a
viable quantity of leased acreage. As a result of our assessment, we identified
3,100 acres then subject to mineral leases that represent the most important
core holdings to support a potential commercial mining venture. We renegotiated
the leases with respect to such 3,100 acres in order to extend the term of the
leases and reduce the lease payments. The leases with respect to the remaining
acres once included in the Tennessee mineral property are terminable at any time
by the property owners in light of our decision not to make any further lease
payments with respect to such leases.
The renegotiated leases on the Tennessee mineral property grant MRS
certain exclusive rights, including the right to explore, test, mine, extract,
process, and sell any minerals or other materials found on the land, in exchange
for the payment of minimum annual advance royalty payments prior to commencement
of production on the properties (or after commencement of production, to the
extent production royalty payments do not equal nominal royalty payments) and,
thereafter, production royalty payments in an amount equal to a percentage of
the value of minerals mined and sold from the property. See the Notes to the
Consolidated Financial Statements for information regarding present and future
minimum advance royalty payments. The leases typically are for a minimum term of
ten years, and may be extended indefinitely at MRS' option, provided MRS is
actively conducting exploration, development, or mining operations. The leases
are cancelable by MRS at any time, and are cancelable by the lessor in the event
MRS breaches the terms of the lease. The minerals on the Tennessee mineral
property have not proven to be a reserve, our historic operations plan with
respect to it is exploratory in nature, and we presently are conducting only
minimal maintenance operations with respect to such property. The Tennessee
mineral property is accessed by public roads and, to our knowledge, has not been
used in prior mining operations.
Item 3. Legal Proceedings
We are from time to time involved in routine litigation incidental to
the conduct of our business. We are currently not involved in any suit, action
or other legal proceedings, nor are we aware of any threatened suit, action or
other legal proceedings which management believes will materially and adversely
affect the business or operations of Altair or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of security holders during the
fourth quarter of the 2003 fiscal year.
30
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters
Market Price
------------
Our common shares are traded on the Nasdaq SmallCap Market under the
symbol "ALTI." The following table sets forth, for the periods indicated, the
high and low sales prices for our common shares, as reported on our principal
trading market at the time.
Fiscal Year Ended December 31, 2002 Low High
--------- ---------
1st Quarter....... $0.750 $1.560
2nd Quarter....... $0.370 $1.140
3rd Quarter....... $0.300 $0.930
4th Quarter....... $0.450 $0.800
Fiscal Year Ended December 31, 2003 Low High
--------- ---------
1st Quarter....... $0.310 $0.560
2nd Quarter....... $0.300 $1.480
3rd Quarter....... $0.730 $1.650
4th Quarter....... $1.120 $2.900
The last sale price of our common shares, as reported on the Nasdaq
SmallCap Market, on March 14, 2004 was $2.62 per share.
Outstanding Shares and Number of Shareholders
---------------------------------------------
As of March 15, 2004, the number of common shares outstanding was
48,650,140 held by approximately 500 holders of record. In addition, as of the
same date, we have reserved 4,514,200 common shares for issuance upon exercise
of options that have been, or may be, granted under our employee stock option
plans and 5,416,455 common shares for issuance upon exercise of outstanding
warrants.
Dividends
---------
We have never declared or paid cash dividends on our common shares.
Moreover, we currently intend to retain any future earnings for use in our
business and, therefore, do not anticipate paying any dividends on our common
shares in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
------------------------------------------------------------------
We have stock option plans administered by the Board of Directors that
provide for the granting of options to employees, officers, directors and other
service providers of the Company. All option plans have been approved by
security holders. We also have an Employee Stock Purchase Plan ("ESPP") which
allows employees to purchase common shares through payroll deductions when, as
and if determined by our board of directors. The ESPP, which is a broadly-based
plan open to all employees, other than executive officers, has not been approved
by shareholders. The following table sets forth certain information with respect
to compensation plans under which equity securities are authorized for issuance
at December 31, 2003:
31
-----------------------------------------------------------------------------------------------------
Number of Number of securities
securities to be remaining available for
issued upon future issuance under
exercise of Weighted-average equity compensation
outstanding exercise price of plans (excluding
options, warrants outstanding options, securities reflected in
and rights warrants and rights column (a))
Plan Category (a) (b) (c)
-----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 3,663,600 $3.11 1,235,000
-----------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders None N/A 348,552
-----------------------------------------------------------------------------------------------------
Total 3,663,600 $3.11 1,583,552
-----------------------------------------------------------------------------------------------------
Recent Sales of Unregistered Securities
---------------------------------------
Except as previously reported, we did not sell any securities in
transactions that were not registered under the Securities Act in the quarter
ended December 31, 2003.
Transfer Agent and Registrar
----------------------------
The Transfer Agent and Registrar for our common shares is Equity
Transfer Services, Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario,
M5H 4C3.
Canadian Taxation Considerations
--------------------------------
Dividends paid on common shares owned by non-residents of Canada are
subject to Canadian withholding tax. The rate of withholding tax on dividends
under the Income Tax Act (Canada) (the "Act") is 25%. However, Article X of the
reciprocal tax treaty between Canada and the United States of America (the
"Treaty") generally limits the rate of withholding tax on dividends paid to
United States residents to 15%. The Treaty further generally limits the rate of
withholding tax to 5% if the beneficial owner of the dividends is a U.S.
corporation which owns at least 10% of the voting shares of the Company.
If the beneficial owner of the dividend carries on business in Canada
through a permanent establishment in Canada, or performs in Canada independent
personal services from a fixed base in Canada, and the shares of stock with
respect to which the dividends are paid is effectively connected with such
permanent establishment or fixed base, the dividends are taxable in Canada as
business profits at rates which may exceed the 5% or 15% rates applicable to
dividends that are not so connected with a Canadian permanent establishment or
fixed base. Under the provisions of the Treaty, Canada is permitted to apply its
domestic law rules for differentiating dividends from interest and other
disbursements.
32
A capital gain realized on the disposition of common shares by a person
resident in the United States ("a non-resident") will be subject to tax under
the Act if the shares held by the non-resident are "taxable Canadian property."
In general, common shares will be taxable Canadian property if the particular
non-resident used (or in the case of a non-resident insurer, used or held) the
Common Stock in carrying on business in Canada or where at any time during the
five-year period immediately preceding the realization of the gain, not less
than 25% of the issued and outstanding shares of any class or series of shares
of the Company, which were listed on a prescribed stock exchange, were owned by
the particular non-resident, by persons with whom the particular non-resident
did not deal at arms' length, or by any combination thereof. If common shares
constitute taxable Canadian property, relief nevertheless may be available under
the Treaty. Under the Treaty, gains from the alienation of common shares owned
by a non-resident who has never been resident in Canada generally will be exempt
from Canadian capital gains tax if the shares do not relate to a permanent
establishment or fixed base which the non-resident has or had in Canada, and if
not more than 50% of the value of the shares was derived from real property
(which includes rights to explore for or to exploit mineral deposits) situated
in Canada.
33
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial
information with respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP"). The selected financial data should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
accompanying notes included herein. All amounts are stated in U.S. dollars.
For the Year Ended December 31, 2003 2002 2001 2000 1999
------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Sales $ 72,851 $ 253,495 $ 42,816 $ -- $ --
Cost of sales $ 62,159 $ 93,583 $ 18,175 $ -- $ --
Operating expenses $ 5,795,902 $ 8,016,623 $ 6,046,173 $ 6,647,367 $ 3,729,534
Interest expense $ 454,415 $ 1,151,388 $ 1,881,077 $ 215,216 $ 1,966
Interest income $ (1,879) $ (2,105) $ (148,980) $ (83,440) $ (134,811)
(Gain) loss on foreign exchange $ 193 $ 835 $ 402 $ (864,669) $ 160,619
Loss on extinguishment of debt $ -- $ 914,667 $ -- $ -- $ --
Gain on forgiveness of debt $ -- $ -- $ -- $ -- $ (67,442)
Net Loss $ 6,237,939 $ 9,921,496 $ 7,754,031 $ 5,914,474 $ 3,689,866
Basic and diluted net loss per
common share $ 0.19 $ 0.40 $ 0.39 $ 0.34 $ 0.24
Cash dividends declared per
common share $ -- $ -- $ -- $ -- $ --
==============================================================================
BALANCE SHEET DATA
Working capital $ 3,565,039 $ (204,365) $ (81,154) $ 234,714 $ (5,931,717)
Total assets $ 11,659,754 $ 8,914,405 $ 10,853,243 $ 16,651,770 $ 13,365,848
Long-term obligations $ 2,686,130 $ 3,905,040 $ 1,462,060 $ 2,689,493 $ --
Current liabilities $ 397,141 $ 604,503 $ 714,689 $ 3,741,366 $ 7,578,083
Net shareholders' equity $ 8,576,483 $ 4,404,862 $ 8,676,494 $ 10,220,911 $ 5,787,765
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Overview
--------
From inception through the end of 1999, our business consisted
principally of the exploration of mineral properties and the development of the
Altair Centrifugal Jig. In November 1999, we acquired all patent applications
and technology related to a hydrometallurgical process developed by BHP Minerals
International, Inc. ("BHP") primarily for the production of (1) titanium dioxide
("TiO2") products from titanium bearing ores or concentrates and (2) metal oxide
nanoparticles (the "nanomaterials and titanium dioxide pigment technology") and
all tangible equipment and other assets (the "nanomaterials and titanium dioxide
pigment assets") used by BHP to develop and implement the nanomaterials and
34
titanium dioxide pigment technology. The nanomaterials and titanium dioxide
pigment technology has potential to produce both titanium pigments, which are
commercially traded in bulk, and nanoparticles, which are sold on specialty
product markets. At the time, the nanomaterials and titanium dioxide pigment
technology was in development stage and not in commercial operation.
When we acquired the nanomaterials and titanium dioxide pigment
technology and related assets, we expected to be able to produce TiO2
nanoparticles for sale in established markets within a short period of time. Our
expectation was that revenues from these sales, combined with external
financing, would provide adequate cash flow to fund our development activities
for the nanomaterials and titanium dioxide pigment technology, the Tennessee
mineral property and the Altair jig. We underestimated the difficulty of
entering the markets for TiO2 nanoparticles with the result that sales revenues
have been below expectations and our external financing needs have been greater
than anticipated.
During much of the period from 2001 through 2003, we suffered cash
shortages as our share price declined and financing became more difficult. In
response to this, we reduced cash expenditures to the extent possible while
still continuing to develop the nanomaterials and titanium dioxide pigment
technology. At the same time, we reduced expenditures for the Tennessee mineral
property and jig and finally suspended work on these assets during 2003.
We currently have agreements in place to (1) provide research involving
a technology used in the detection of chemical, biological and radiological
agents, (2) provide custom oxide feedstocks for a titanium metal research
program funded by the Department of Defense and (3) license and evaluate our
pigment production process for the production of TiO2 pigment and
pigment-related products from titanium-bearing oil sands. In addition, we have a
pharmaceutical product in development. Future revenues will depend on the
success of these projects, the results of our other research and development
work and the success of our marketing efforts.
Restructuring Plans and Progress
--------------------------------
In December 2003, the board of directors of Altair approved a plan to
restructure the Company in order to concentrate resources on the nanomaterials
and titanium dioxide pigment business. The reorganization is intended to
maximize management focus on nanomaterials, nanotechnology and material science
in targeted markets for TiO2 pigment, TiO2 electrodes for titanium metal,
pharmaceutical delivery structures, pharmaceuticals, dental materials and
nanostructured materials for lithium ion batteries and fuel cells. As a part of
the restructuring, we have taken, or are in the process of taking, the following
steps:
o We are creating a new life sciences division that will focus on the
continued development of pharmaceutical delivery structures (TiNano
Spheres(TM)), dental materials and new nano-based pharmaceuticals
including Altair's lead drug candidate, RenaZorb(TM). We are
presently implementing a search for a senior vice president of the
new life sciences division.
o We are consolidating the assets related to the Altair Jig and our
Tennessee mineral property into (or under) a single corporation
with the intent to cause such corporation to become an SEC
reporting company and distribute substantially all of the shares of
common stock of such corporation to our shareholders (with any
non-distributed shares being retained by Altair). This spin-off
will, we believe, give shareholders of Altair the opportunity to
35
participate in any success management of the spin-off entity has in
generating revenue from the Altair jig or the Tennessee mineral
property but will permit Altair and its management to focus their
efforts on the development of the nanomaterials and tiatnium
dioxide pigment technology. The completion is this spin-off process
is expected to take approximately six months and is contingent upon
receipt of shareholder approval. Accumulated losses at our
subsidiary companies which conducted the exploration work at the
Tennessee mineral property and development work on the Altair jig
assets total $17.6 million as of December 31, 2003.
o We have announced the resignation, effective May 1, 2004, of Dr.
William P. Long as our Chief Executive Officer and as a director.
Following the resignation. Dr. Long is expected to be involved in
the proposed consolidation and spin-off of our mineral assets and
to serve as President and a director of the spin-off entity. Dr.
Rudi E Moerck, our President, will become our senior executive
officer and will be responsible for our day-to-day operations
implementing our strategic plan. We also intend to commence a
search for a new non-executive Chairman of its Board of Directors
to work with Dr. Moerck and the remainder of the board of directors
in their efforts to focus the resources on Altair on generating
revenue and increasing value for shareholders.
We expect to continue our restructuring efforts during the coming year.
We expect that future changes will not be structural, but will relate primarily
to decisions regarding allocation of resources among existing or proposed
projects as we attempt to evaluate the various projects we are working on or
considering, determine which have the best potential for short- and long- term
revenue generation and focus most of our resources on such projects.
Liquidity and Capital Resources
-------------------------------
In late 2003, our share price rose significantly with the result that a
large number of warrants and options were exercised, thus providing a large
(relative to our working capital needs) inflow of cash to the Company. This
continued through January 2004 such that we now have funds available to meet our
needs for approximately three years at current working capital expenditure
levels. In January 2004, a shelf registration statement went effective for the
sale of 5,000,000 common shares. We believe this will significantly increase our
financing flexibility and our ability to raise funds for continued development
of the nanomaterials and titanium dioxide pigment business.
During 2003, we concentrated our resources on research, development and
marketing associated with the nanomaterials and titanium dioxide pigment
technology. We generated sales revenues of $72,851 in 2003 but incurred an
operating loss of $5,785,210. Historically, we have financed operations
primarily through the issuance of equity securities (common shares, convertible
debentures, stock options and warrants) and by the issuance of debt. We expect
to continue this method of financing until sales revenues are sufficient to fund
our operating requirements.
Our cash and short-term investments increased from $244,681 at December
31, 2002 to $3,869,669 at December 31, 2003 due principally to the issuance of
common shares and the exercise of options and warrants to purchase common
shares.
Security Issuances. During 2003, we sold 7,196,783 common shares
together with 5,105,277 warrants in private placements for gross proceeds of
$4,324,898. The warrants are exercisable at prices ranging from $1.00 to $2.00
and expire on the earlier of five years from the date of issue or on specified
dates after the closing price equals or exceeds prices ranging from $3.50 to
$4.00.
36
From September through December 2003, the trading price of our shares
increased significantly. As a result of this, 3,210,328 warrants and 478,100
options were exercised, resulting in net proceeds to us of $3,417,109 and
$488,836, respectively.
We established an Employee Stock Purchase Plan ("ESPP") in August 2002.
During the year ended December 31, 2003, we issued 873,480 shares under the ESPP
with net proceeds to us of $606,675.
Also during 2003, we issued 972,221 common shares in payment of
principal and interest on the Doral 18, LLC note, and we issued 213,102 common
shares to vendors for services provided to the Company.
Notes Payable. In addition to the common shares issued to Doral 18, LLC
in payment of principal and interest on the note,, we made cash principal
payments of $1,120,000 against the note payable in 2003. The note was paid in
full in September 2003.
In August 2002, we issued a note payable in the amount of $3,000,000 to
BHP Minerals International, Inc. for purchase of the land, building and fixtures
in Reno, Nevada where our nanomaterials and titanium dioxide pigment assets are
located. Interest, at the rate of 7%, begins to accrue in August 2005 and the
first principal payment of $600,000 is due in February 2006. Additional payments
of $600,000 plus accrued interest are due annually in February 2007 through
2010.
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 December 31, 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 940,367 160,605 339,510 303,918 136,334
Contractual Service Agreements 798,683 686,183 112,500 -- --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $4,739,050 $ 846,788 $1,052,010 $1,503,918 $1,336,334
========== ========== ========== ========== ==========
* Before discount of $313,870.
At December 31, 2003, we had no significant commitments for capital
asset expenditures.
Current and Expected Liquidity. At December 31, 2003, we had cash and
cash equivalents of $3,869,669, an amount sufficient to fund our basic
operations through December 31, 2004. From December 31, 2003 through the date of
this report, we received cash from the exercise of warrants and stock options in
an amount sufficient to fund our operations for approximately two additional
years.
In 2004, we expect to generate limited revenues from contract services
utilizing our nanomaterials and titanium dioxide pigment technology. In
addition, we hope to generate revenues through the licensing of RenaZorb(TM), a
potential drug we developed that may be useful in phosphate control in kidney
dialysis patients. A drug of similar compounds has been submitted for FDA
approval with a decision expected during the second quarter of 2004. If this
similarly compounded drug is approved, we expect to be able to negotiate a
license agreement for RenaZorb(TM) with one or more pharmaceutical companies
37
during 2004. We are uncertain what 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. 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.
Although we have entered an agreement to license and evaluate our
pigment production process for the production of TiO2 pigment and
pigment-related products from titanium-bearing oil sands, and we have submitted
proposals to five international minerals and energy resources companies to
develop and license our titanium pigment production process, we cannot be
certain that such evaluations will be successful or that we will eventually
license the technology to additional parties. If we were able to obtain
additional licenses for the technology, we would expect to receive development
fees and royalties over the long-term, but no significant up-front payments. In
the near term, in the absence of a significant up-front payment in connection
with the licensing of RenaZorb(TM), we expect to continue to finance our
operations principally through the issuance of equity securities.
Although we currently have capital sufficient to fund our operations at
current levels, we expect our capital needs to increase during 2004 and 2005. We
expect to hire additional personnel in order to satisfy our contractual
obligations under existing and anticipated services agreements. In addition, our
management is focused on facilitating the commercialization of one or more of
its products in the foreseeable future. Substantially all of our products are at
a conceptual or development stage and, if we are to commercialize one or more
products ourselves (as opposed to licensing it for commercialization by the
licensee), we will likely be required to hire additional employees, purchase
additional equipment, and engage the research, marketing and other services of
third parties. This may require significant additional capital. We also believe
that our efforts to find strategic partners would be enhanced if we had a
stronger balance sheet.
Accordingly, we may raise additional capital during 2004 or 2005. We
would most likely generate such financing through the issuance of equity
securities in one or more private placements of common shares (probably with
accompanying re-sale registration rights and warrants to purchase common shares)
or public offerings of our common shares. We do not expect to, but may also
issue debt securities or enter into loan or capital leasing arrangements, with
one or more financial institutional investors. Any financing, especially an
issuance of equity securities in a public offering or large private placement,
may dilute existing shareholders and have an adverse effect on the market price
of our common shares. We can provide no assurance that, if we determine to seek
additional financing, we will be able to obtain additional financing at a
reasonable cost, or at all.
Critical Accounting Policies and Estimates
------------------------------------------
Management based the following discussion and analysis of our financial
condition and results of operations on our consolidated financial statements.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our critical accounting policies and estimates,
including those related to long-lived assets and stock-based compensation. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
38
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Company's future results of operations and cash flows.
o Long-lived assets. Our long-lived assets consist principally of the
nanomaterials and titanium dioxide pigment assets, the intellectual
property (patents and patent applications) associated with them,
and a building. At December 31, 2003, the carrying value of these
assets was $7,616,746, or 65% 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
---------------------
Operating losses totaled $6,237,939 ($.19 per share) for the 2003
fiscal year, $9,921,496 ($0.40 per share) for the 2002 fiscal year, $7,754,031
($0.39 per share) for the 2001 fiscal year and $45,519,844 ($4.83 per share)
from April 9, 1973 (date of inception) to December 31, 2003. Principal factors
contributing to the losses during these periods were the lack of substantial
revenues coupled with the incurrence of operating expenses.
Fiscal Year 2003 vs. 2002
During 2003, we generated $55,249 of revenues from contract research
work and other contracted services and $17,602 of revenues from the sale of
nanoparticle products. The revenues from contract research work includes $36,553
earned under an agreement with Western Michigan University for research services
involving a technology used in the detection of chemical, biological and
radiological agents. This work is being billed at cost with no contribution to
margin. As a result, gross margin as a percentage of sales was 15% in 2003
versus 63% in 2002. During 2004, we expect our sales to increase but we do not
expect to realize an operating profit.
39
We have significantly reduced our expenditures for mineral exploration
and development in order to conserve cash for operating requirements and
development of the nanomaterials and titanium dioxide pigment 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 $443,268 from $598,977 in 2002 to $155,709 in
2003. In December 2003, our board of directors directed management to review the
viability and desirability of various strategic alternatives for the Altair Jig
and our Tennessee mineral property, including their possible sale, use in a
joint venture, spin-off to shareholders or abandonment.
During 2003, we concentrated our research and development efforts on
nanotechnology and materials science, specifically TiO2 pigment, TiO2 electrodes
for titanium metal, pharmaceutical delivery structures, pharmaceuticals, dental
materials and nanostructured materials for lithium ion batteries and fuel cells.
The suspension of development work on the Tennessee mineral properties and jig
allowed us to reassign certain employees from those efforts to other research
and development work, primarily titanium pigment process development. As a
result of this, research and development expenses increased by $318,320 from
$587,137 in 2002 to $905,457 in 2003.
Professional fees decreased by $136,203 from $712,530 in 2002 to
$576,327 in 2003 primarily due to a decrease in consulting fees. We issued stock
options and warrants in 2002 and 2003 in payment for a portion of our consulting
fees, primarily for assistance with financing. The options and warrants issued
in 2002 had a fair value of $218,925 whereas the options and warrants issued in
2003 had a fair value of $91,998. In addition to this, cash payments for
consulting decreased by $48,848 due to a decrease in services purchased.
Accounting fees decreased by $18,452, from $126,929 in 2002 to $107,688 in 2003
due to a decrease in audit fees. These decreases in consulting and accounting
fees were partially offset by an increase in legal fees of $58,024, from
$234,838 in 2002 to $292,862 in 2003, the increase being attributable to patent
work, financing transactions and general corporate matters.
Our general and administrative expenses increased by $919,337 from
$2,360,315 in 2002 to $3,279,652 in 2003 primarily due to an increase in the
fair value of certain repriced stock options. The trading price of our common
shares increased significantly in December 2003, thus resulting in an increase
in the fair value of stock options repriced in prior periods of $870,068. The
fair value of stock options and warrants granted also increased by $46,080 in
2003. Investor relations expenses increased by $235,925 from $53,277 in 2002 to
$289,202 in 2003 as a result of increased investor relations programs aimed at
increasing investor awareness of Altair. Insurance expense increased by $11,123
from $143,297 in 2002 to $154,420 in 2003 as a result of increased premiums for
liability insurance. Partially offsetting these increases was a decrease in
general office expenses of $146,629 (from $710,791 in 2002 to $564,161 in 2003)
and a decrease in technical operating costs of $103,909 (from $356,918 in 2002
to $253,009 in 2003), both of which occurred as a result of our efforts to
reduce operating costs.
During the year ended December 31, 2002, we recorded $1,080,000 of
interest expense for interest accruals, amortization of debt issuance costs and
amortization of debt discount on the Doral 18, LLC ("Doral") note. In November
2002, we entered into a new note with Doral (see Note 6 to the consolidated
financial statements), the balance of unamortized debt issuance costs was
written off as a component of loss on extinguishment of debt and no further
amortization of debt discount costs was incurred. In September 2003, we paid the
remaining balance due on the Doral note. As a result of all this, interest
expense decreased by $696,973 from $1,151,388 in 2002 to $454,415 in 2003.
40
Preferential warrant dividend increased by $543,820 from $48,666 in
2002 to $592,486 in 2003. 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. In addition, 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.
Fiscal Year 2002 vs. 2001
During 2002, we generated $134,925 of revenues through sales of
titanium dioxide nanoparticles, lithium titanate nanoparticles and other
materials. Titanium dioxide nanoparticle sales included $62,073 sold to a
customer for use in commercial thermal spray applications. Revenues also
included $90,300 earned under a services agreement entered into with a materials
company in September 2002. Under the terms of the agreement, we tested the
materials company's mineral concentrates in the production of titanium dioxide
pigments using our titanium processing technology. The testing was conducted
over a five-month period and generated total revenues of $109,000 at its
completion in early 2003. Also included in revenues in 2002 was $28,270 earned
from a consulting project involving use of the Altair jig to recover titanium
dioxide from pigment processing waste.
During 2002, we suffered from a shortage of working capital which
forced us to reassess planned expenditures for our development projects. We
elected to concentrate our resources on the development of the nanomaterials and
titanium dioxide pigment technology and suspend development work on the
Tennessee mineral property and jig. As a result of this, expenditures for
mineral exploration and development decreased from $930,777 in 2001 to $598,977
in 2002.
During 2002, our research and development ("R&D") efforts were directed
toward pharmaceuticals, the titanium pigment process, batteries, catalysts,
thermal spray coatings and fuel cells. R&D expense increased from $559,454 in
2001 to $587,137 in 2002, primarily as a result of increased staff time being
devoted to these R&D projects with a resulting decrease in time spent on
construction projects and administrative and general activities.
Professional services, which consist principally of legal, consulting
and audit expenses, increased from $593,088 in 2001 to $712,530 in 2002.
Consulting expenses increased from $238,000 in 2001 to $347,000 in 2002,
primarily as a result of our efforts to locate and secure additional financing.
Legal fees increased from $197,000 in 2001 to $235,000 in 2002, primarily as a
result of the preparation of regulatory filings and other documents associated
with financing activities and costs associated with patent applications. These
increases were partially offset by a decrease in audit expenses of $27,000.
During 2002, we reduced our general and administrative expenses as much
as possible in order to conserve cash. As a result, these expenses decreased by
$464,331 to $2,360,315 in 2002, compared to $2,824,646 in 2001. The major
components of general and administrative expenses that decreased in 2002 were:
o Investor relations - these expenses decreased by $283,000 (from
$336,000 to $53,000) due to a significant reduction in investor
relations programs.
o Rents - Our purchase of the building that we previously rented at
204 Edison Way in Reno, Nevada, and the relocation of staff from
rented office space to the purchased building resulted in a
reduction of rents expense by $67,000 (from $274,000 to $207,000).
o Sample costs - these decreased by $64,000 (from $173,000 to
$109,000) due to the purchase of raw materials in bulk quantities
as opposed to smaller lots, and less labor being required in sample
production.
41
o Bank charges - these decreased by $28,000 (from $34,000 to $6,000)
due to a decrease in fees for a letter of credit associated with a
term note. The letter of credit was terminated in 2001.
o Stock options expense - this decreased by $105,000 (from $105,000
to zero) due to a reduction in options granted.
o Other - expenses for such items as tools, operating supplies,
laboratory supplies and temporary labor decreased by $138,000 (from
$459,000 to $321,000) as a result of our efforts to reduce costs.
These decreases were partially offset by an increase in property taxes
of $87,000 (from $1,000 to $88,000), and an increase in property and liability
insurance expenses of $47,000 (from $96,000 to $143,000). In addition, salary
expense increased by $84,000 (from $1,143,000 to $1,227,000) due to a payment in
connection with an employment agreement.
In November 2002, we entered into a note amendment agreement with an
investor who held a $2,000,000 term note issued by us in December 2001. In
accordance with the terms of the note amendment agreement, we issued to the
investor 1,500,000 common shares and a warrant for 750,000 common shares in
return for a reduction in the principal balance of the note by $600,000 and
changes to certain terms contained in the prior note. We then issued to the
investor an amended term note in the amount of $1,400,000. Under generally
accepted accounting principles, the transaction is recorded as an extinguishment
of debt and the issuance of a new note. Accordingly, costs associated with the
issuance of the 1,500,000 common shares and warrant for 750,000 common shares,
together with the write off of costs incurred in the issuance of the prior note,
were recorded as a loss on extinguishment of debt in the amount of $914,667.
During the second quarter of 2002, due to a shortage of cash, we
elected to reduce expenditures on the Tennessee mineral property to a minimal
amount. As a result of this, development activities were delayed, including our
intended use of the Altair jig to enhance the recovery of heavy minerals on the
property. Since we could not determine when adequate funds would be available to
further develop and utilize the Altair jig, we recorded an impairment of jig
assets in the amount of $2,759,956. This impairment charge had the effect of
reducing the Altair jig assets' depreciable balance to zero, thereby terminating
further depreciation charges. As a result, depreciation and amortization expense
decreased by $140,500 to $997,708 in 2002 compared to $1,138,208 for 2001.
Interest expense decreased from $1,881,077 in 2001 to $1,151,388 in
2002 due principally to a reduction in the balance of our term note for much of
the year 2002.
During most of 2001, we had a restricted cash balance associated with
the term note of between $2,500,000 and $4,000,000 that was earning interest
income. In December 2001, we terminated the term note, transferred the
restricted cash to the holder of the note and issued a new term note in a lesser
amount. As a result of this, cash balances available for investment were
significantly reduced during 2002 and interest income declined from $148,980 in
2001 to $2,105 in 2002.
Carrying Value of Assets
------------------------
We have recorded our investments in the nanomaterials and titanium
dioxide pigment technology and the nanomaterials and titanium dioxide pigment
assets at actual cost. We depreciate such assets using the straight-line method
42
over their estimated useful life. The asset carrying value is the actual cost
less accumulated depreciation. We assess the carrying values of these assets on
a quarterly basis by comparing the projected undiscounted cash flows to be
generated by the assets to the carrying costs of the assets. In order to
determine the projected cash flows related to these assets, we use the
information and feedback obtained from prospective customers together with
general information as to product markets, competitive forces and our production
capability to arrive at assumptions with respect to sales volumes and pricing.
We next estimate costs of sales based on engineering analysis and actual
experience. Operating margins are then calculated based on these assumptions and
compared to the carrying cost of the assets. Delays in revenue generation may
make the recoverability of our assets less likely.
When we acquired the nanomaterials and titanium dioxide pigment
technology and related assets from BHP, the core technology for producing
titanium dioxide nanoparticles was completely developed, a pilot plant was under
construction, and we believed the titanium processing technology and titanium
processing assets had near-term commercial value. We expected to complete the
pilot plant as a processing facility and begin generating sales revenues through
nanoparticle product sales in 2000. We completed construction of the processing
facility, and since that time we have generated $195,342 from sales of
nanoparticles, $36,553 from contract research work and $108,996 from service
revenues associated with the technology. In 2003, we entered into an agreement
to license and evaluate our pigment production process for the production of
TiO2 pigment and pigment-related products from titanium-bearing oil sands, and
we submitted proposals to five international minerals and energy resources
companies to develop and license our titanium pigment production process. We
have also developed RenaZorb(TM) for the treatment of hyperphosphatemia in
kidney dialysis patients and we are currently seeking business relationships
with pharmaceutical companies that can conduct additional testing and
development, seek necessary FDA approvals and take the other steps necessary to
bring the new product to market. If testing is successful, we expect to license
RenaZorb(TM) to a pharmaceutical manufacturer. We presently estimate that cash
flows from future nanoparticle sales and fees from licensing the titanium
pigment production process and RenaZorb(TM) will be in excess of the carrying
value of the assets.
As discussed above in "Results of Operations - Fiscal Year 2002 vs.
2001", a cash shortage during 2002 required that we delay development of the
Tennessee mineral property and jig. Since we could not determine when adequate
funds would be available to further develop and utilize the Altair jig, we
recorded an impairment of jig assets in the amount of $2,759,956 in 2002. This
impairment charge had the effect of reducing the Altair jig assets' carrying
cost to zero.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Supplementary Data. The following Supplementary Financial Information
for the fiscal quarters ended March 31, June 30, September 30 and December 31 in
each of the years 2002 and 2003 were derived from our unaudited quarterly
consolidated financial statements filed by us with the SEC in our Quarterly
Reports on Form 10-Q with respect to such periods (except for 4th quarter data).
43
Supplementary Financial Information by Quarter, 2003 and 2002
(Unaudited)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
Year Ended December 31, 2003:
Sales $ 20,277 $ 4,434 $ 17,318 $ 30,822
Gross Margin $ 5,327 $ 3,496 $ 612 $ 1,257
Net Loss (1) $1,316,994 $1,334,591 $1,329,471 $2,256,883
Loss per Common Share: (1)
Basic and Diluted $ 0.04 $ 0.04 $ 0.05 $ 0.06
Year Ended December 31, 2002:
Sales $ 48,937 $ 4,734 $ 45,089 $ 154,735
Gross Margin $ 18,762 $ 3,583 $ 28,387 $ 109,180
Net Loss $1,679,531 $4,588,254 $1,531,005 $2,122,706
Loss per Common Share: (2)
Basic and Diluted $ 0.07 $ 0.19 $ 0.06 $ 0.08
(1) The increase in net loss from the quarter ended September 30, 2003 to the
quarter ended December 31, 2003 is primarily the result of $870,000 of
expense associated with stock options that were repriced in prior periods.
The Company uses the variable accounting method to account for repricing of
stock options and the market price of the Company's stock increased
substantially in the quarter ended December 31, 2003.
(2) Loss per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly loss per common share
amounts does not necessarily equal the total for the year.
Financial Statements. The financial statements required by this Item
appear on pages F-1 through F-26 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures
The information required by this Item is incorporated by reference to the
Section entitled "Principal Accountant Fees and Services" in the Company's
definitive proxy statement to be filed with the Commission.
a) Under the supervision and with the participation of our
management, including our principal executive officer, president
and principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under
Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as of December 31, 2003.
Based on this evaluation, our principal executive officer,
president 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.
44
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement to be filed with the
Commission.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement to be filed with the Commission.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to
the section entitled "Auditor Fees and Services" in the Company's definitive
proxy statement to be filed with the Commission.
45
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed
1. Financial Statements. The following Consolidated Financial
Statements of the Company and Auditors' Report are filed as part of this Annual
Report on Form 10-K:
o Independent Auditors' Report of Deloitte & Touche LLP
o Consolidated Balance Sheets, December 31, 2003 and 2002
o Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 2003 and for
the Period from April 9, 1973 (Date of Inception) to
December 31, 2003
o Consolidated Statements of Shareholders' Equity from
April 9, 1973 (Date of Inception) to December 31, 2003
o Consolidated Statements of Cash Flows for
Each of the Three Years in the Period Ended
December 31, 2003 and for the Period from
April 9, 1973 (Date of Inception) to
December 31, 2003
o Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Not applicable.
3. Exhibit List
Incorporated by Reference/
Exhibit No. Description Filed Herewith (and Sequential Page #)
----------- ----------- --------------------------------------
Incorporated by reference to the Current
3.1 Articles of Continuance Report on Form 8-K filed with the SEC on July
18, 2002.
3.2 Bylaw No. 1 Incorporated by reference to the Current Report on
Form 8-K filed with the SEC on July 18, 2002.
Incorporated by reference to Registration
4.1 Form of Common Stock Certificate Statement on Form 10-SB filed with the
Commission on November 25, 1996, File No.
1-12497.
Incorporated by reference to the Company's
Amended and Restated Shareholder Rights Current Report on Form 8-K filed with the
4.2 Plan dated October 15, 1999, between the Commission on November 19, 1999, File No.
Company and Equity Transfer Services, Inc. 1-12497.
46
Employment Agreement between Altair Annual Report on Form 10-K filed with the
10.1 International Inc. and William P. Long Commission on March 31, 1998, as amended by
dated January 1, 1998 Amendment No. 1 to Annual Report on Form
10-K/A filed on May 15, 1998.
Employment Agreement between Fine Gold Incorporated by reference to Registration
10.2 Recovery Systems Inc. and C. Patrick Costin Statement on Form 10-SB filed with the
dated August 15, 1994 Commission on November 25, 1996.
10.3 Altair International Inc. Stock Option Plan Incorporated by reference to the Company's
adopted by shareholders on May 10, 1996 Registration Statement on Form S-8 filed with
the Commission on July 11, 1997.
1998 Altair International Inc. Stock Option
10.4 Plan adopted by Shareholders on June 11, Incorporated by reference to the Company's
1998 Definitive Proxy Statement on Form 14A filed
with the Commission on May 12, 1998.
Incorporated by reference to the Company's
10.5 2003 Employee Wage Stock Purchase Plan Registration Statement on Form S-8, File No.
333-108419, filed with the Commission on
September 2, 2003.
10.6 Form of Renegotiated Mineral Lease Filed herewith.
Incorporated by reference to the Company's
10.7 Purchase and Sale Agreement dated August 8, Amendment No. 1 to Registration Statement on
2002 between the Company and BHP Minerals Form S-2, File No. 333-102592, filed with the
International Inc. (re Edison Way property) Commission on February 7, 2003.
Incorporated by reference to the Company's
Amendment No. 1 to Registration Statement on
10.8 Installment Note dated August 8, 2002 (re Form S-2, File No. 333-102592, filed with the
Edison Way property) Commission on February 7, 2003.
Incorporated by reference to the Company's
10.9 Trust Deed dated August 8, 2002 (re Edison Amendment No. 1 to Registration Statement on
Way property) Form S-2, File No. 333-102592, filed with the
Commission on February 7, 2003.
Technology License Agreement dated Incorporated by reference to the Company's
10.10 September 29, 2003, with Bateman Luxembourg Quarterly Report on Form 10-Q filed with the
SA * Commission November 14, 2003.
Memorandum of Understanding dated as of Incorporated by reference to the Company's
10.11 April 21, 2003, with Titanium Metals Quarterly Report on Form 10-Q filed with the
Corporation * Commission November 14, 2003.
Western Michigan University Project Incorporated by reference to the Company's
10.12 Agreement dated August 15, 2003 Quarterly Report on Form 10-Q filed with the
Commission November 14, 2003.
47
Technology Investment Agreement dated Incorporated by reference to the Company's
10.13 January 8, 2004 between Titanium Metals Current Report on Form 8-K filed with the
Corporation and Altair Nanomaterials, Inc. * Commission on February 3, 2004.
License Agreement for Altair TiO2 Pigment Incorporated by reference to the Company's
10.14 Technology between Altair Nanotechnologies, Current Report on Form 8-K filed with the
Inc. and Western Oil Sands, Inc. * Commission on February 3, 2004.
Memorandum of Understanding with
10.15 Hosokawa Nano Particle Technology Center Filed herewith.
(USA)
Incorporated by reference from Item 1 of this
21 List of Subsidiaries report.
23.1 Consent of Deloitte & Touche LLP Filed herewith.
24 Powers of Attorney Included in the Signature Page hereof.
Rule 13-14(a)/15d-14a Certification of
31.1 Chief Executive Officer Filed herewith
Rule 13-14(a)/15d-154a Certification of
31.2 President Filed herewith
Rule 13-14(a)/15d-154a Certification of
31.3 Chief Financial Officer Filed herewith
Section 1350 Certification of Chief
32.1 Executive Officer Filed herewith
32.2 Section 1350 Certification of President Filed herewith
Section 1350 Certification of Chief
32.3 Financial Officer Filed herewith
*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.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the quarter ended
December 31, 2003.
(c) Exhibits
Exhibits to this Report are attached following page F-26
hereof.
(d) Financial Statement Schedule. Not applicable.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 25, 2004.
ALTAIR NANOTECHNOLOGIES INC.
By: /s/ William P. Long
--------------------------------
William P. Long,
Chief Executive Officer
Date: March 25, 2004
POWER OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature to this Form 10-K appears below
hereby constitutes and appoints Rudi E. Moerck and Edward Dickinson, and each of
them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form 10-K
or the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William P. Long Chief Executive Officer and March 25, 2004
--------------------------- Director (Principal Executive
William P. Long Officer)
/s/ Rudi E. Moerck President and Director March 25, 2004
---------------------------
Rudi E. Moerck
/s/ Edward Dickinson Chief Financial Officer and March 25, 2004
--------------------------- Secretary (Principal Financial
Edward Dickinson and Accounting Officer)
/s/ Jon N. Bengtson Director March 25, 2004
---------------------------
Jon N. Bengtson
/s/ James I. Golla Director March 25, 2004
---------------------------
James I. Golla
49
/s/ George Hartman Director March 25, 2004
---------------------------
George Hartman
/s/ David King Director March 25, 2004
---------------------------
David King
50
Altair Nanotechnologies Inc.
and Subsidiaries
(A Development Stage Company)
Consolidated Financial Statements as of December 31, 2003 and 2002 and for
Each of the Three Years in the Period Ended December 31, 2003 and for the
Period from April 9, 1973 (Date of Inception) to December 31, 2003 and
Independent Auditors' Report
51
Altair nanotechnologies inc. and subsidiaries
(A Development Stage Company)
TABLE OF CONTENTS
----------------------------------------------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2003 and 2002 F-2
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 2003 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2003 F-3
Consolidated Statements of Shareholders' Equity for the Period from April 9, 1973
(Date of Inception) to December 31, 2003 F-4 - F-8
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2003 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2003 F-9 - F-12
Notes to Consolidated Financial Statements F-13 - F-25
52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Altair Nanotechnologies Inc.
Reno, Nevada
We have audited the accompanying consolidated balance sheets of Altair
Nanotechnologies Inc. (a development stage company) and subsidiaries
(collectively referred to as the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2003,
and for the period from April 9, 1973 (date of inception) to December 31, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The Company's consolidated financial
statements for the period from April 9, 1973 (date of inception) to December 31,
1997 were audited by other auditors whose report, dated February 17, 2000,
expressed an unqualified opinion on those statements. The financial statements
for the period from April 9, 1973 (date of inception) through December 31, 1997
reflect a net loss of $7,350,462 of the related totals. The other auditors'
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for such prior periods, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2003 and 2002, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, and for the period from April 9, 1973 (date of
inception) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
-----------------------------
Salt Lake City, Utah
March 10, 2004
F-1
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
(Expressed in United States Dollars)
---------------------------------------------------------------------------------------------
ASSETS 2003 2002
CURRENT ASSETS:
Cash and cash equivalents $ 3,869,669 $ 244,681
Accounts receivable, net 13,324 132,859
Other current assets 79,187 22,598
------------ ------------
Total current assets 3,962,180 400,138
PROPERTY, PLANT AND EQUIPMENT, Net 6,618,805 7,349,818
PATENTS, Net 1,060,569 1,146,249
OTHER ASSETS 18,200 18,200
------------ ------------
TOTAL ASSETS $ 11,659,754 $ 8,914,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 85,255 $ 332,716
Accrued liabilities 311,886 271,787
------------ ------------
Total current liabilities 397,141 604,503
------------ ------------
NOTES PAYABLE, Long-term portion 2,686,130 3,905,040
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 8, 9, and 11)
SHAREHOLDERS' EQUITY:
Common stock, no par value, unlimited shares authorized;
43,188,362 and 30,244,348 shares issued and outstanding
at December 31, 2003 and 2002 54,789,896 43,787,850
Deficit accumulated during the development stage (46,213,413) (39,382,988)
------------ ------------
Total shareholders' equity 8,576,483 4,404,862
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,659,754 $ 8,914,405
============ ============
See notes to the consolidated financial statements.
F-2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
----------------------------------------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
------------------------------------------- December 31,
2003 2002 2001 2003
SALES $ 72,851 $ 253,495 $ 42,816 $ 369,162
COST OF SALES 62,159 93,583 18,175 173,917
------------ ------------ ------------ ------------
GROSS MARGIN 10,692 159,912 24,641 195,245
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Mineral exploration and development 155,709 598,977 930,777 6,673,351
Research and development 905,457 587,137 559,454 4,621,553
Professional services 576,327 712,530 593,088 3,852,769
General and administrative expenses 3,279,652 2,360,315 2,824,646 17,487,449
Depreciation and amortization 878,757 997,708 1,138,208 6,393,879
Asset impairment -- 2,759,956 -- 2,759,956
------------ ------------ ------------ ------------
Total operating expenses 5,795,902 8,016,623 6,046,173 41,788,957
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS 5,785,210 7,856,711 6,021,532 41,593,712
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 454,415 1,151,388 1,881,077 4,989,754
Interest income (1,879) (2,105) (148,980) (817,824)
Gain on foreign exchange 193 835 402 (557,749)
Loss on extinguishment of debt -- 914,667 -- 914,667
Gain on forgiveness of debt -- -- -- (795,972)
Loss on redemption of convertible debentures -- -- -- 193,256
------------ ------------ ------------ ------------
Total other expense, net 452,729 2,064,785 1,732,499 3,926,132
------------ ------------ ------------ ------------
NET LOSS 6,237,939 9,921,496 7,754,031 45,519,844
PREFERENTIAL WARRANT DIVIDEND 592,486 48,666 52,417 693,569
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO SHAREHOLDERS $ 6,830,425 $ 9,970,162 $ 7,806,448 $ 46,213,413
============ ============ ============ ============
LOSS PER COMMON SHARE--Basic and diluted $ 0.19 $ 0.40 $ 0.39 $ 4.83
============ ============ ============ ============
WEIGHTED AVERAGE SHARES--Basic and diluted 36,222,026 24,975,837 20,063,473 9,566,710
============ ============ ============ ============
See notes to the consolidated financial statements.
F-3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
-----------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
--------------------- Subscription Development
Shares Amount Receivable Stage Total
---------- --------- --------- ----------- --------
APRIL 9, 1973 (DATE OF INCEPTION) -- -- $ -- $ -- --
Common stock issued 101,668 387,073 -- -- 387,073
Net loss -- -- -- (361,572) (361,572)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1984 101,668 387,073 -- (361,572) 25,501
Common stock issued 40,000 240,770 -- -- 240,770
Common stock issued for management fees 1,280 7,004 -- -- 7,004
Net loss -- -- -- (78,606) (78,606)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1985 142,948 634,847 -- (440,178) 194,669
Common stock issued for property 3,333 18,058 -- -- 18,058
Acquisition of subsidiary 780,000 44,551 -- -- 44,551
Common stock issued for underwriter bonus 4,000 1 -- -- 1
Net loss -- -- -- (210,667) (210,667)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1986 930,281 697,457 -- (650,845) 46,612
Common stock issued for property 6,667 8,027 -- -- 8,027
Flow through shares 298,650 463,301 -- -- 463,301
Common stock issued for rights offering 257,822 253,947 -- -- 253,947
Net loss -- -- -- (696,642) (696,642)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1987 1,493,420 1,422,732 -- (1,347,487) 75,245
Common stock issued for services 16,667 14,592 -- -- 14,592
Common stock issued 16,667 14,592 -- -- 14,592
Common stock issued in settlement of debt 233,333 51,073 -- -- 51,073
Net loss -- -- -- (149,316) (149,316)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1988 1,760,087 1,502,989 -- (1,496,803) 6,186
Common stock issued 127,500 75,058 -- -- 75,058
Common stock issued in settlement of lawsuit 41,667 22,800 -- -- 22,800
Net loss -- -- -- (151,372) (151,372)
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1989 1,929,254 1,600,847 -- (1,648,175) (47,328)
---------- --------- --------- ----------- --------
(Continued)
F-4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
-----------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
--------------------- Subscription Development
Shares Amount Receivable Stage Total
---------- --------- --------- ----------- --------
BALANCE, DECEMBER 31, 1989 1,929,254 $1,600,847 $ -- $(1,648,175) $ (47,328)
Common stock issued 133,333 218,882 -- -- 218,882
Exercise of stock options 33,333 18,240 -- -- 18,240
Common stock issued for property 11,666 11,674 -- -- 11,674
Common stock issued for services 13,333 21,888 -- -- 21,888
Net loss -- -- -- (230,125) (230,125)
--------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1990 2,120,919 1,871,531 -- (1,878,300) (6,769)
Common stock issued 266,667 196,994 -- -- 196,994
Common stock issued for property 28,333 17,146 -- -- 17,146
Net loss -- -- -- (258,209) (258,209)
--------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1991 2,415,919 2,085,671 -- (2,136,509) (50,838)
Common stock issued 1,086,753 443,237 -- -- 443,237
Common stock issued for property 115,000 49,249 -- -- 49,249
Common stock issued for settlement of debt 55,177 24,155 -- -- 24,155
Net loss -- -- -- (353,665) (353,665)
--------- ---------- ------- -- ----------- ---------
BALANCE, DECEMBER 31, 1992 3,672,849 2,602,312 -- (2,490,174) 112,138
Common stock issued 48,000 36,393 -- -- 36,393
Common stock issued for property 46,667 55,012 -- -- 55,012
Net loss -- -- -- (193,323) (193,323)
--------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1993 3,767,516 2,693,717 -- (2,683,497) 10,220
Common stock issued 600,000 131,329 -- -- 131,329
Common stock issued for shares of subsidiary 750,000 257,187 -- -- 257,187
Common stock issued for royalties 83,333 33,641 -- -- 33,641
Net loss -- -- -- (227,860) (227,860)
--------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1994 5,200,849 3,115,874 -- (2,911,357) 204,517
Common stock issued 2,700,000 875,529 -- -- 875,529
Exercise of stock options 247,000 53,553 -- -- 53,553
Exercise of stock warrants 350,000 171,458 -- -- 171,458
Net loss -- -- -- (424,109) (424,109)
--------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1995 8,497,849 4,216,414 -- (3,335,466) 880,948
--------- ---------- ---------- ----------- ---------
(Continued)
F-5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
-----------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
--------------------- Subscription Development
Shares Amount Receivable Stage Total
----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 8,497,849 $ 4,216,414 $ -- $ (3,335,466) $ 880,948
Common stock issued 554,027 1,637,307 -- -- 1,637,307
Exercise of stock options 702,000 526,850 -- -- 526,850
Exercise of stock warrants 3,012,463 2,471,219 -- -- 2,471,219
Stock options issued to non-employees -- 285,503 -- -- 285,503
Common stock issued for acquisition of TMI 1,919,957 2,521,469 -- -- 2,521,469
Net loss -- -- -- (1,032,903) (1,032,903)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1996 14,686,296 11,658,762 -- (4,368,369) 7,290,393
Exercise of stock options 362,500 1,530,406 -- -- 1,530,406
Stock options issued to non-employees -- 528,555 -- -- 528,555
Stock options issued to employees -- 62,800 -- -- 62,800
Exercise of stock warrants 443,949 1,038,788 -- -- 1,038,788
Net loss -- -- -- (2,982,093) (2,982,093)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1997 15,492,745 14,819,311 -- (7,350,462) 7,468,849
Stock options issued to non-employees -- 841,944 -- -- 841,944
Stock options issued to employees -- 15,420 -- -- 15,420
Common stock cancelled (723,065) -- -- -- --
Common stock issued for convertible debenture 387,735 3,061,444 -- -- 3,061,444
Exercise of stock options 17,500 113,664 -- -- 113,664
Net loss -- -- -- (4,651,576) (4,651,576)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1998 15,174,915 18,851,783 -- (12,002,038) 6,849,745
Stock options issued to non-employees -- 765,386 -- -- 765,386
Common stock issued 300,000 1,862,500 -- -- 1,862,500
Net loss -- -- -- (3,689,866) (3,689,866)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1999 15,474,915 21,479,669 -- (15,691,904) 5,787,765
Stock options issued to non-employees -- 424,063 -- -- 424,063
Stock subscription receivable -- -- (561,300) -- (561,300)
Stock warrants issued -- 1,245,050 -- -- 1,245,050
Exercise of stock options 71,300 335,778 -- -- 335,778
Common stock issued 3,779,273 8,904,029 -- -- 8,904,029
Net loss -- -- -- (5,914,474) (5,914,474)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 2000 19,325,488 32,388,589 (561,300) (21,606,378) 10,220,911
----------- ----------- --------- ------------ ------------
(Continued)
F-6
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
---------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
------------------------- Subscription Development
Shares Amount Receivable Stage Total
----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 19,325,488 $32,388,589 $(561,300) $(21,606,378) $ 10,220,911
Stock options issued to non-employees -- 158,089 -- -- 158,089
Stock subscription receivable -- -- 561,300 -- 561,300
Stock warrants issued -- 776,469 -- -- 776,469
Preferential warrant dividend -- 52,417 -- (52,417) --
Shares issued for settlement of debt 824,800 1,220,423 -- -- 1,220,423
Exercise of stock options 65,000 130,000 -- -- 130,000
Common stock expired (266,170) -- -- -- --
Exercise of warrants 713,333 713,333 -- -- 713,333
Common stock issued 2,031,691 2,650,000 -- -- 2,650,000
Net loss -- -- -- (7,754,031) (7,754,031)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 2001 22,694,142 38,089,320 -- (29,412,826) 8,676,494
Stock options issued to non-employees -- 27,601 -- -- 27,601
Shares issued under Employee Stock
Purchase Plan 161,550 92,183 -- -- 92,183
Stock warrants issued -- 347,773 -- -- 347,773
Preferential warrant dividend -- 48,666 -- (48,666) --
Shares issued for settlement of debt 1,500,090 975,000 -- -- 975,000
Shares issued for interest 299,304 292,208 -- -- 292,208
Shares issued for services 400,000 279,500 -- -- 279,500
Exercise of warrants 286,169 300,477 -- -- 300,477
Common stock issued 4,903,093 3,335,122 -- -- 3,335,122
Net loss -- -- -- (9,921,496) (9,921,496)
----------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31, 2002 30,244,348 43,787,850 -- (39,382,988) 4,404,862
----------- ----------- --------- ------------ ------------
(Continued)
F-7
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
--------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
------------------------- Subscription Development
Shares Amount Receivable Stage Total
----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2002 30,244,348 $43,787,850 $ -- $(39,382,988) $ 4,404,862
Stock options issued to non-employees -- 64,346 -- -- 64,346
Variable accounting on stock options -- 903,668 -- -- 903,668
Shares issued under Employee Stock
Purchase Plan 873,480 606,675 -- -- 606,675
Stock warrants issued -- 101,416 -- -- 101,416
Preferential warrant dividend -- 592,486 (592,486) --
Shares issued for settlement of debt 695,052 280,000 -- -- 280,000
Shares issued for interest 277,169 133,315 -- -- 133,315
Shares issued for services 213,102 89,297 -- -- 89,297
Exercise of stock options 478,100 488,836 -- -- 488,836
Exercise of warrants 3,210,328 3,417,109 -- -- 3,417,109
Common stock issued 7,196,783 4,324,898 -- -- 4,324,898
Net loss -- -- -- (6,237,939) (6,237,939)
---------- ----------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 2003 43,188,362 $54,789,896 $ -- $(46,213,413) $ 8,576,483
========== =========== =========== ============ ===========
(Concluded)
See notes to consolidated financial statements.
F-8
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
-------------------------------------------------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Inception) to
Year Ended December 31, December 31,
----------------------------------------------
2003 2002 2001 2003
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $(6,237,939) $(9,921,496) $(7,754,031) $(45,519,844)
Adjustments to reconcile net loss to net cash used
in development activities:
Depreciation and amortization 878,757 997,708 1,138,208 6,393,879
Shares issued for services 89,297 203,500 -- 392,723
Shares issued for interest 133,315 292,208 820,157 1,249,752
Issuance of stock options to non-employees 64,346 27,601 158,089 3,095,487
Issuance of stock options to employees -- -- -- 78,220
Variable accounting on stock options 903,668 -- -- 903,668
Issuance of stock warrants 101,416 108,556 396,123 1,026,277
Amortization of discount on note payable 181,090 384,616 403,021 980,779
Amortization of debt issuance costs -- 404,567 100,000 504,567
Asset impairment -- 2,759,956 -- 2,759,956
Loss on extinguishment of debt -- 914,667 -- 914,667
Loss on redemption of convertible debenture -- -- -- 193,256
Gain on forgiveness of debt -- -- -- (795,972)
Loss on disposal of fixed assets 25,661 -- -- 27,606
Gain on foreign currency translation -- -- -- (559,581)
Deferred financing costs written off -- -- -- 515,842
Changes in assets and liabilities (net of effects
of acquisition):
Restricted cash -- -- 4,000,000 --
Accounts receivable 119,535 (128,705) (4,154) (13,324)
Other current assets (56,589) 6,899 18,170 1,655,411
Other assets -- (2,000) 886 (170,720)
Accounts payable (247,461) (30,974) 369,763 93,286
Accrued liabilities 40,099 107,072 -- 34,641
Deferred revenue -- (40,972) (16,985) --
----------- ----------- ----------- ------------
Net cash used in development activities (4,004,805) (3,916,797) (370,753) (26,239,424)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Asset acquisition -- -- -- (9,625,154)
Purchase of property and equipment (92,400) (2,525,916) (158,296) (3,753,825)
Proceeds received from sale of property and equipment 4,675 -- -- 4,675
Disposal (purchase) of patents and related expenditures -- -- 5,933 (1,882,187)
----------- ----------- ----------- ------------
Net cash used in investing activities (87,725) (2,525,916) (152,363) (15,256,491)
----------- ----------- ----------- ------------
(Continued)
F-9
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
------------------------------------------------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Inception) to
Year Ended December 31, December 31,
-----------------------------------------
2003 2002 2001 2003
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares for cash, net of issuance costs $ 4,324,898 $ 3,335,122 $ 2,650,000 $ 25,833,679
Collection of stock subscription receivable -- -- 561,300 561,300
Issuance of shares under Employee Stock Purchase Plan 606,675 92,183 -- 698,858
Issuance of convertible debenture -- -- -- 5,000,000
Proceeds from exercise of stock options 488,836 -- 130,000 3,197,327
Proceeds from exercise of warrants 3,417,109 300,477 713,333 8,334,914
Issuance of related party notes -- 6,243 168,000 174,243
Issuance of notes payable -- 2,505,040 -- 19,130,540
Payment of notes payable (1,120,000) -- (4,385,599) (14,663,579)
Payment of related party notes -- (149,243) (25,000) (174,243)
Payment on capital lease -- (2,312) (24,763) (27,075)
Purchase of call options -- -- -- (449,442)
Redemption of convertible debentures -- -- -- (2,250,938)
----------- ----------- ----------- ------------
Net cash provided by (used in) financing activities 7,717,518 6,087,510 (212,729) 45,365,584
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,624,988 (355,203) (735,845) 3,869,669
CASH AND CASH EQUIVALENTS
Beginning of period 244,681 599,884 1,335,729 --
----------- ----------- ----------- ------------
End of period $ 3,869,669 $ 244,681 $ 599,884 $ 3,869,669
=========== =========== =========== ============
Year Ended December 31,
-----------------------
2003 2002 2001
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 140,000 $ -- $ 386,557
========= ========= =========
Cash paid for income taxes $ -- $ -- $ --
========= ========= =========
(Continued)
F-10
ALTAIR NANOTECHNOLOGIES INC. and subsidiaries
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended December 31, 2003:
o 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 (see Note 6).
o On or about June 2, 2003, we repriced warrants, held by a shareholder, for
796,331 common shares. The repriced warrants had an incremental fair value
of $176,472 and have been accounted for as a preferential warrant dividend.
o 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 the shareholder 631,882 new
warrants having an exercise price of $1.75 each. The new warrants had a
fair value of $416,014 and have been accounted for as a preferential
warrant dividend.
For the year ended December 31, 2002:
o 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 issuance cost on the balance sheet.
o In connection with the extinguishment of the Doral 18, LLC 2001 Note, we
issued 1,500,000 shares of our common stock to reduce our note payable
balance by $600,000. We also issued to Doral 18, LLC a warrant for 750,000
common shares that had a fair value of $239,217, as determined by the
Black-Scholes pricing model. As a result of this transaction, we recorded a
loss on extinguishment of debt of $914,667.
o 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 $71,803.
o We repriced warrants, held by a shareholder, for 582,500 common shares. The
repriced warrants had an incremental fair value of $48,666 and have been
accounted for as a preferential warrant dividend.
(Continued)
F-11
ALTAIR NANOTECHNOLOGIES INC. and subsidiaries
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
For the year ended December 31, 2001:
o In connection with amendments to the Doral 18, LLC 2000 Note, we issued
warrants for 300,000 shares of common stock. The warrants had an estimated
fair value of $346,354 of which $239,562 has been amortized into interest
expense during the year ended December 31, 2003. The remaining amount will
be recognized over the life of the note.
o We cancelled call options on 228,456 shares of our common stock to pay
$97,743 of principal and $244,941 of interest on the Doral 18, LLC 2000
Note. In addition, the cancellation of the call options resulted in an
additional interest expense of $210,568.
o In accordance with the terms of our Doral 18, LLC 2000 Note, we paid
$644,804 of principal and $273,731 of interest through the issuance of
824,800 shares of our common stock. In addition, the conversion of the note
resulted in an additional interest expense of $301,888.
o We repriced warrants, held by a shareholder, for 713,333 common shares. The
repriced warrants had an incremental fair value of $52,417 and have been
accounted for as a preferential warrant dividend.
o In connection with the 2001 Note issued to Doral 18, LLC, we issued
warrants for 200,000 common shares. The warrants had an estimated fair
value of $74,733. We also repriced existing warrants for 650,000 common
shares from $3.00 per share to $1.50 per share. The repriced warrants had
an incremental fair value of $199,222.
See notes to consolidated financial statements. (Concluded)
F-12
ALTAIR NANOTECHNOLOGIES INC. and subsidiaries
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2003
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business--Altair Nanotechnologies Inc., a development stage
company, is incorporated in Canada and has been engaged in the business of (1)
development, production, and sale of metal oxide nanoparticles, sale of contract
services, and sale of intellectual property licenses, all related to our
nanomaterials and titanium dioxide pigment technology, (2) exploring and
developing mineral properties in the United States, and (3) developing mineral
processing equipment (a centrifugal jig) for use in the recovery of fine and
heavy mineral particles. In December 2003, the board of directors of Altair
approved a plan to restructure the Company in order to concentrate resources on
the nanomaterials and titanium dioxide pigment business. As a part of the
restructuring, on March 9, 2004, we determined to consolidate the assets related
to the centrifugal jig and our Tennessee mineral property into (or under) a
single corporation, cause such corporation to become an SEC reporting company,
and distribute substantially all of the shares of common stock of such
corporation to our shareholders. The completion of this spin-off process is
contingent upon receipt of shareholder approval and is anticipated to occur in
2004.
Principles of Consolidation--The consolidated financial statements include the
accounts of Altair Nanotechnologies Inc. and its subsidiaries which include (1)
Altair US Holdings, Inc., (2) Mineral Recovery Systems, Inc. ("MRS"), (3) Fine
Gold Recovery Systems, Inc. ("FGRS"), (4) Altair Nanomaterials, Inc. ("ANI"),
and (5) Tennessee Valley Titanium, Inc. ("TVT"), (collectively referred to as
the "Company"), all of which are 100% owned. All of the subsidiaries are
incorporated in the United States of America. Intercompany transactions and
balances have been eliminated in consolidation.
Basis of Presentation--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 for the years ended December 31,
2003, 2002, and 2001, we incurred net losses of $6,237,939, $9,921,496, and
$7,754,031, respectively, and since the date of inception have incurred
cumulative losses of $45,519,844. At December 31, 2003 and 2002, we had
stockholder's equity of $8,576,483 and $4,404,862, respectively.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should we be unable to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on a
timely basis, to obtain additional financing or refinancing as may be required,
to develop commercially viable products and processes, and ultimately to
establish successful operations. We are in the process of developing and
commercializing our nanomaterials and titanium dioxide pigment technology. We
have financed operations primarily through the issuance of equity securities
(common stock, convertible debentures, stock options and warrants), and by the
issuance of debt (term notes). Additional funds will be required to complete
development activities. We believe that current working capital, cash receipts
from anticipated sales, and funding through sales of common stock will be
sufficient to enable us to continue as a going concern through 2006. Subsequent
to December 31, 2003, we have received cash proceeds of approximately $8 million
from the exercise of stock options and warrants.
F-13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates--The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires that we make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents--Cash and cash equivalents are highly liquid
investments with an original maturity of three months or less. Cash equivalents
are recorded at cost, which approximates fair value.
Accounts Receivable--Accounts receivable consists of amounts due from customers
for sales of products and services, net of an allowance for losses of $466 and
$3,203 at December 31, 2003 and 2002, respectively.
Property, Plant and Equipment--Property, plant and equipment are stated at cost
less accumulated depreciation. Depreciation is recorded using the straight-line
method over the following useful lives:
Furniture and office equipment 3-7 years
Vehicles 5 years
Pigment production equipment 5-10 years
Building 30 years
Patents--Patents related to the pigment production technology are carried at
cost and amortized on a straight-line basis over their estimated useful lives,
which range from 14 to 20 years.
Exploration--Expenditures incurred in the search for mineral deposits and the
determination of the commercial viability of such deposits are charged to
expense as incurred.
Research and Development Expenditures--Research and development expenditures are
charged to expense as incurred.
Foreign Currency Translation--Asset and liability accounts, which are originally
recorded in the appropriate local currencies, are translated into U.S. dollars
at year-end exchange rates. Revenue and expense accounts are translated at the
average exchange rates for the period. Transaction gains and losses are included
in the accompanying consolidated statements of operations. Substantially all of
our assets are located in the United States of America.
Stock-Based Compensation--Our stock option plans are subject to the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation. Under the provisions of SFAS 123, employee and
director stock-based compensation expense is measured using the intrinsic-value
method as prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, or the fair value method described in
SFAS 123. We have elected to follow the accounting provisions of APB 25 for our
employee and director stock-based awards and to furnish the pro forma
disclosures required under SFAS 123.
We are required to implement the provision of SFAS 123 for stock-based awards to
other than employees and directors. We account for stock options and warrants
issued to non-employees in accordance with SFAS 123.
To estimate compensation expense that would be recognized under SFAS 123 for all
stock-based awards, we have used the modified Black-Scholes option pricing
model. If we had accounted for our stock options issued to employees and
directors using the accounting method prescribed by SFAS 123, our net loss and
loss per share would be as follows:
F-14
2003 2002 2001
Net loss applicable to shareholders:
As reported $ 6,830,425 $ 9,970,162 $7,806,448
Deduct stock-based employee compensation
expense included in reported net loss (903,668) -- --
Add stock-based employee compensation
expense determined under value based
method for all awards 590,908 235,823 1,474,690
----------- ----------- ----------
Pro forma $ 6,517,665 $10,205,985 $9,281,138
=========== =========== ==========
Loss per common share (both basic and diluted):
As reported $ 0.19 $ 0.40 $ 0.39
=========== =========== ==========
Pro forma $ 0.18 $ 0.41 $ 0.46
=========== =========== ==========
In calculating pro forma compensation, the fair value of each stock option is
estimated on the date of grant using the Black-Scholes option-pricing model and
the following weighted average assumptions:
2003 2002 2001
Dividend yield None None None
Expected volatility 65 % 67 % 81 %
Risk-free interest rate 3.02 % 2.19 % 4.76 %
Expected life (years) 4.8 5.0 5.0
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.
Revenue Recognition--Revenue is recognized at the time the purchaser has
accepted delivery of the product or after the service has been performed. For
the year ended December 31, 2003, we sold titanium dioxide and lithium titanate
nanoparticles, and other materials, to customers totaling $17,602. Revenue also
includes $18,696 earned under a services agreement with a materials company
where we tested the company's mineral concentrates in the production of titanium
dioxide pigments using our titanium processing technology. In addition, revenue
includes $36,553 earned from contract research work done under an agreement with
Western Michigan University.
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
debentures does not affect the calculation of net loss per share on a fully
diluted basis because the effect of including the additional common stock
equivalents would be antidilutive.
F-15
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 143 was effective for the year ended December 31, 2003. Upon
adoption of SFAS 143, we recorded an accrual for asset retirement obligations of
$19,754.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition to
SFAS 123's fair value method of accounting for stock-based employee
compensation. SFAS 148 also amends the disclosure provisions of SFAS 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 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 148.
In November 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. ("FIN") 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which requires the guarantor to recognize as a liability the fair value
of the obligation at the inception of the guarantee. The disclosure requirements
in FIN 45 are effective for financial statements of interim or annual periods
ending after December 15, 2002. Management believes we have no guarantees that
are required to be disclosed in the financial statements. The recognition
provisions are to be applied on a prospective basis to guarantees issued after
December 31, 2002. The adoption of the recognition provisions of FIN 45 did not
have a material impact on our consolidated financial statements.
On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133. The new
guidance amends SFAS 133 for decisions made as part of the Derivatives
Implementation Group ("DIG") process that effectively required amendments to
SFAS 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 149 is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on our consolidated financial statements.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liability and Equity, was issued in May 2003. SFAS 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 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 150 did not have a material
impact on our consolidated financial statements.
In December 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. ("FIN") 46 (revised), Consolidation of Variable Interest
Entities, which is an interpretation of ARB 51 and addresses consolidation by
business enterprises of variable interest entities. FIN 46 is effective
F-16
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We adopted this statement on
July 1, 2003. We do not have any variable interest entities as of December 31,
2003.
Comprehensive Income--The only component of comprehensive income in 2003, 2002,
and 2001 was net loss.
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.
Deferred Revenue--We entered into a sales contract on October 6, 2000 with a
customer for titanium dioxide nanoparticles under which the total contract
amount was prepaid. During 2002, $40,972 of products was delivered under the
contract and recognized as sales revenues.
Fair Value of Financial Instruments--Our financial instruments such as cash and
cash equivalents and long-term debt, when valued using market interest rates,
would not be materially different from the amounts presented in the consolidated
financial statements.
Reclassifications--Certain reclassifications have been made to the prior period
amounts to conform to classifications adopted in the current year.
3. ASSET IMPAIRMENT
During the quarter ended June 30, 2002, we made the determination that certain
assets of the Company were impaired. Due to a shortage of cash, we made the
decision to reduce expenditures associated with exploring and developing the
Tennessee mineral property to the minimum amount required to maintain it. As a
result, development activities have been delayed, including our intended use of
the jig to enhance the recovery of heavy minerals on this property. We have
utilized the jig to perform tests for fine particle recovery at a third party's
facility, entered into a license agreement with respect to the Altair jig, and
continue to seek manufacturers and distributors for marketing the jig under
licensing and/or distributorship agreements. We could not determine when and if
the jig will generate substantial revenues and profits. This, in combination
with our lack of funds to further develop the jig for commercial use, caused us
to believe that the jig assets were impaired. Since we could not determine when
adequate funds would be available to further develop and utilize the jig, we
have recorded an impairment charge related to the jig assets in the amount of
$2,759,956, which represents the remaining net book value of the jig patents and
related expenditures of $2,366,155 and the jigs included in property, plant, and
equipment of $393,801.
During 2003, we assessed the carrying value of our long-lived assets at each
reporting state as we have continued to experience net losses. We assessed the
carrying value of the titanium processing technology and titanium and
nanoparticle processing assets by analyzing future estimated cash flows
associated with these assets over the succeeding ten-year period. These assets
have begun generating sales revenues, we have entered into development contracts
and non-disclosure agreements with companies interested in joint development
and/or testing of certain nanomaterials products, and we are in discussions
regarding licensing of our technology to others. In our future estimated cash
flow analysis, we examined product markets, assessed our opportunities for
F-17
market entry and sales based on current sales and/or customer interest,
including samples supplied and development agreements signed, and estimated the
costs, including capital costs, associated with the generation of revenues. At
the same time, we took into consideration recent developments with respect to
licensing our technology to others and pharmaceutical applications that have
significant revenue potential, and estimated future cash flows associated with
these activities. Based on our future estimated cash flow analysis, we believe
that the titanium nanoparticle processing technology and titanium and
nanoparticle processing assets are not impaired as of December 31, 2003.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December 31, 2003
and 2002:
2003 2002
Furniture and office equipment $ 75,749 $ 82,113
Vehicles 129,734 125,031
Pigment production equipment 7,144,365 7,162,641
Building 2,335,979 2,335,978
----------- -----------
Total 9,685,827 9,705,763
Less accumulated depreciation (3,067,022) (2,355,945)
----------- -----------
Total property, plant and equipment $ 6,618,805 $ 7,349,818
=========== ===========
Depreciation expense for the years ended December 31, 2003, 2002, and 2001
totaled $793,077, $770,250, and $772,268, respectively.
5. PATENTS
Patents consisted of the following at December 31, 2003 and 2002:
2003 2002
Pigment production patents $ 1,517,736 $ 1,517,736
Less accumulated amortization (457,167) (371,487)
----------- -----------
Total patents $ 1,060,569 $ 1,146,249
=========== ===========
Patents are being amortized over their useful lives with a weighted
average amortization period of approximately 16.5 years. Amortization
expense was $85,680 for the year ended December 31, 2003, which
represented the amortization relating to the identified intangible assets
still required to be amortized under SFAS 142. For each of the next five
years, amortization expense relating to intangibles will be $85,680 per
year. Amortization expense was $365,940 and $484,558 for the years ended
December 31, 2001 and 2000, respectively.
F-18
6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 2003 and 2002:
2003 2002
Note payable to BHP Minerals International, Inc. $2,686,130 $2,505,040
Note payable to Doral 18, LLC -- 1,400,000
Less current portion -- --
---------- ----------
Long-term portion of notes payable $2,686,130 $3,905,040
========== ==========
On December 15, 2000, pursuant to a securities purchase agreement, we sold to
Doral 18, LLC ("Doral") a $7 million 10% Asset-Backed Exchangeable Term Note
(the "2000 Note") and detachable warrants to purchase 350,000 common shares at
$3.00 per share. Net proceeds of $4 million from the 2000 Note were placed in a
restricted bank account to secure a letter of credit and were scheduled to be
released as principal payments were made. Under the 2000 Note, we were required
to make monthly payments in the principal amount of $291,667 plus accrued
interest and we had the right to redeem the monthly payment amounts in cash at
any time. If we elected not to redeem the monthly payment amount in cash, on
each due date, the holder of the 2000 Note automatically received the right to
exchange (immediately or at any later date during the term) the monthly payment
amount into common shares at a specified exchange price. The 2000 Note was due
and payable in full on December 15, 2003.
During 2001, we made cash principal payments of $1,894,394, interest payments of
$286,557, and incurred additional interest expense of $100,000 related to fees
to extend the registration statement associated with the 2000 Note. Doral also
converted $644,804 of principal and $273,731 of interest payable on the 2000
Note into 824,800 shares of common stock.
On December 28, 2001, a Termination and Issuance Agreement was signed with
Doral. The 2000 Note was exchanged for a new note ("2001 Note") having a face
amount of $2,000,000. In addition, the letter of credit discussed above was
terminated and $2,500,733 of restricted cash securing the letter of credit was
paid to Doral. The 2001 Note had an interest rate of 11% per annum with interest
payments due monthly. If interest was not paid, Doral automatically received the
right to exchange (immediately or at any later date during the term) the monthly
interest payment amount into common stock at a specified exchange price. The
principal amount of the 2001 Note was due and payable on March 31, 2003 but was
amended during 2002 prior to being paid.
During the first quarter of 2002, a total of $53,644 of monthly interest payment
amounts were exchanged by Doral for 59,599 common shares. The conversion of
these shares resulted in additional interest expense of $16,095. On April 2,
2002, we entered an agreement with Doral whereby Doral agreed to waive, for the
period March 27, 2002 through September 27, 2002, a provision of the 2001 Note
that required us to maintain a cash and cash equivalents balance of $250,000 any
time our common shares closed at less than $1.00 per share for three consecutive
trading days. In addition, Doral agreed to amend, for the period March 27, 2002
through September 27, 2002, a provision of the 2001 Note which required us to
have a cash and cash equivalents balance of at least $250,000 at the end of
every quarter. Such amount was reduced to $125,000. In return, we prepaid a
total of $110,904 of interest on the 2001 Note for the period March 27, 2002
through September 27, 2002 by issuing Doral 143,791 common shares. The
conversion of these shares resulted in additional interest expense of $35,762.
F-19
On September 23, 2002, we entered an agreement with Doral whereby Doral agreed
to waive, for the period September 28, 2002 through January 1, 2003, a provision
of the 2001 Note that required us to maintain a cash and cash equivalents
balance of $250,000 any time our common shares closed at less than $1.00 per
share for three consecutive trading days. In addition, Doral agreed to amend,
for the period September 28, 2002 through January 1, 2003, a provision of the
2001 Note which required us to have a cash and cash equivalents balance of at
least $250,000 at the end of every quarter. Such amount was reduced to $125,000.
In return, we prepaid a total of $57,260 of interest on the 2001 Note for the
period September 28, 2002 through January 1, 2003 by issuing Doral 95,914 common
shares. The conversion of these shares resulted in additional interest expense
of $18,543.
On November 21, 2002, a Second Amended and Restated Secured Term Note ("2002
Note") was signed with Doral. At closing, we issued to Doral 1,500,000 common
shares in exchange for a reduction of the principal amount outstanding from
$2,000,000 to $1,400,000. We also issued to Doral a warrant for 750,000 common
shares in exchange for Doral's agreement to (i) extend the due date of the 2002
Note to March 31, 2004, (ii) eliminate the requirement that we maintain a cash
and cash equivalents balance of $250,000 any time our common shares close at
less than $1.00 per share for three consecutive trading days, and (iii)
eliminate the requirement that we have a cash and cash equivalents balance of at
least $250,000 at the end of every quarter. The fair value of the warrant was
$239,217 and was calculated by using the modified Black-Scholes pricing model
with the following assumptions: risk-free rate of 3.2%, expected yield of 0%,
volatility of 68%, and expected life of 5 years. The warrant was exercisable at
$1.00 per share and was exercised by Doral on December 2, 2003. The 2002 Note
had an interest rate of 11% with the interest payable monthly in cash. The
principal amount may be prepaid at any time with a 5% prepayment penalty. Under
the terms of the 2002 Note, a conversion right with respect to $280,000 of
principal accrues on each of March 1, 2003, June 1, 2003, September 1, 2003,
December 1, 2003 and March 1, 2004. If the amount that would be subject to a
conversion right was prepaid prior to the date of accrual, such conversion right
did not accrue. Once a conversion right accrued, the principal amount subject to
that conversion right could not be prepaid unless all principal amounts not
subject to a conversion right had been prepaid in full. Each conversion right
gave Doral the right to convert the subject principal amount into common shares
at a conversion price equal to the lesser of (a) $1.00 per share and (b) 70% of
the average of the closing price of our common shares for the five trading days
ending on the trading day immediately preceding the date on which that
conversion right accrued. Because this was a contingent embedded beneficial
conversion feature, no amounts were allocated to the beneficial conversion
feature pending resolution of the contingency.
In accordance with EITF 96-19, Debtor's Accounting for a Modification or
Exchange of Debt Instruments, the exchange of the notes discussed above was
considered to result in a substantially different debt instrument. Accordingly,
the fair value of the warrants issued, the unamortized debt discount and debt
issuance costs associated with the original note and the debt issuance costs
associated with the new note were recorded as a loss on extinguishment of debt
in the amount of $914,667.
Doral elected to convert the $250,000 of principal under their conversion right
which accrued on March 1, 2003, and, as a result, we issued 695,052 common
shares to Doral. The conversion of these shares resulted in additional interest
expense of $133,315 for which we issued an additional 277,169 common shares. We
subsequently made cash principal payments of $280,000 each on May 29, 2003 and
August 28, 2003, and we paid the remaining principal amount of $560,000 on
September 15, 2003. We recorded additional interest expense of $56,000 related
to prepayment penalties.
The 2002 Note was secured by a pledge of the equipment, intellectual property
and common stock of ANI, and by a pledge of the leasehold interest in mineral
deposits and common stock of MRS.
F-20
On August 8, 2002, we entered into a purchase and sale agreement with BHP
Minerals International, Inc. ("BHP") wherein we purchased the land, building and
fixtures in Reno, Nevada where our titanium processing assets are located. In
connection with this transaction, BHP also agreed to terminate our obligation to
pay royalties associated with the sale or use of the titanium processing
technology. In return, we issued to BHP a note in the amount of $3,000,000, at
an interest rate of 7%, secured by the property we acquired. Interest does not
begin to accrue until August 8, 2005. As a result, we imputed the interest and
reduced the face amount of the note payable by $566,763, an amount that is being
amortized to interest expense over the life of the note. The first payment of
$600,000 of principal plus accrued interest is due February 8, 2006. Additional
payments of $600,000 plus accrued interest are due annually on February 8, 2007
through 2010.
7. STOCK OPTIONS AND WARRANTS
Stock Options--We have stock option plans administered by the Board of Directors
that provide for the granting of options to employees, officers, directors and
other service providers of the Company. Options granted under the plans
generally are granted with an exercise price equal to the market value of a
common share at the date of grant, have five-year terms and typically vest over
periods ranging from immediately to three years from the date of grant.
Stock option activity for the years ended December 31, 2003, 2002, and 2001 is
summarized as follows:
2003 2002 2001
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning of year 4,061,700 $ 3.83 3,666,700 $ 4.38 2,958,700 $ 5.37
Granted during the year 1,010,000 1.10 975,000 0.94 1,368,000 2.12
Cancelled/Expired (925,000) 6.20 (580,000) 1.93 (595,000) 4.14
Exercised (483,100) 1.02 -- -- (65,000) 2.00
---------- -------- ---------- -------- ---------- --------
Outstanding at end of year 3,663,600 $ 3.11 4,061,700 $ 3.83 3,666,700 $ 4.38
========== ======== ========== ======== ========== ========
Options exercisable at year end 3,181,100 $ 3.38 3,410,700 $ 4.26 2,999,700 $ 4.84
========== ======== ========== ======== ========== ========
Weighted average fair value of
options granted during year $ 0.51 $ 0.64 $ 1.70
======== ======== ========
F-21
The following table summarizes information about stock options outstanding at
December 31, 2003:
Stock Options
Stock Options Outstanding Exercisable
-------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
$0.47 to $1.20 1,196,900 3.9 $ 1.04 951,900 $ 1.04
$1.22 to $2.05 1,028,000 2.8 1.77 790,500 1.81
$2.25 to $4.94 779,000 1.4 3.93 779,000 3.93
$6.125 to $10.00 659,700 0.05 7.98 659,700 7.98
--------- -------- -------- ----------- --------
3,663,600 2.4 $ 3.11 3,181,100 $ 3.38
========= ======== ======== =========== =======
We have elected to follow the measurement provisions of APB 25, under which no
recognition of expense is required in accounting for stock options granted to
employees and directors for which the exercise price equals or exceeds the fair
market value of the stock at the grant date. Generally, stock options are
granted at an option price at or greater than fair market value on the date of
grant. We recorded compensation expense of $903,668 for stock options that had
been previously repriced and are accounted for under variable accounting in
accordance with APB 25 for the year ended December 31, 2003.
We follow the measurement provisions of SFAS 123 for stock options issued to
non-employees. We recorded compensation expense of $64,346, $27,601, and
$158,089 for stock options granted to non-employees for the years ended December
31, 2003, 2002, and 2001, respectively.
Warrants--Warrant activity for the years ended December 31, 2003, 2002, and 2001
is summarized as follows:
2003 2002 2001
------------------------ ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
Outstanding at beginning
of year 9,170,171 $ 1.92 4,612,007 $ 2.92 1,883,672 $ 5.18
Granted during the year 5,331,827 1.31 5,069,333 1.41 3,441,668 1.24
Expired (837,839) 2.72 (225,000) 9.00 -- --
Exercised (3,210,328) 1.38 (286,169) 1.05 (713,333) 1.00
----------- --------- --------- --------- --------- ---------
Outstanding at end of year 10,453,831 $ 1.71 9,170,171 $ 1.92 4,612,007 $ 2.92
=========== ========= ========= ========= ========= =========
F-22
The following table summarizes information about warrants outstanding at
December 31, 2003:
Warrants Outstanding Warrants Exercisable
------------------------------------------------ --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
$0.45 to $1.00 2,697,386 4.1 $ 0.98 2,697,386 $ 0.98
$1.20 to $1.50 3,150,107 3.3 1.45 3,150,107 1.45
$1.75 to $2.00 3,069,374 4.0 1.90 3,069,374 1.90
$2.50 to $6.00 1,536,965 2.8 3.12 1,536,965 3.12
---------- ------- ------- ---------- -------
10,453,832 3.6 $ 1.71 10,453,832 $ 1.71
========== ======= ======= ========== =======
The warrants were issued in conjunction with debt offerings, issuance of common
stock, and payment for outside services. To estimate expense related to the
issuance of warrants, we have used the modified Black-Scholes option pricing
model using a life equal to the maximum contractual life. The warrants expire on
various dates ranging from March 2004 to September 2008. Most warrants contain
provisions whereby the expiration date is accelerated if our common shares close
at or above specified prices for specified periods of time, the prices ranging
from $2.50 to $8.00 per share.
8. OTHER TRANSACTIONS
On October 18, 2001, we reduced the exercise price of 255,000 outstanding
warrants to $1.00 per share for a period of 45 days and we reduced the exercise
price of 458,333 outstanding warrants to $1.00 per share through December 14,
2001. As a result of these repricings, we recorded a preferential warrant
dividend of $52,417 as of the repricing date. The warrants had been previously
issued with exercise prices ranging from $4.00 to $8.00.
On April 16, 2002, we reduced the exercise price of 582,500 outstanding warrants
to $1.05 per share for the period April 26, 2002 through June 30, 2002. The
warrants had been previously issued with exercise prices ranging from $3.50 to
$5.00. As a result of these repricings, we recorded a preferential warrant
dividend of $48,666 as of the repricing date. A total of 286,169 warrants were
exercised prior to the expiration date.
On or about June 2, 2003, we reduced the exercise price of 796,331 warrants to
$1.00 per share. As a result of these repricings, 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 $4.50.
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.
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP") which
allows employees to purchase common shares at the fair market value through
payroll deductions. Through December 31, 2003, a total of 864,584 common shares
were issued under the ESPP at prices ranging from $0.33 to $2.10 per share.
F-23
9. LEASES
Operating Leases--We lease certain premises and equipment under operating
leases, all of which are on a month-to-month basis.
Lease expense for the years ended December 31, 2003, 2002, and 2001 totaled
$33,239, $207,265, and $304,330, respectively.
Mineral Leases--Our subsidiary, MRS, has entered into various mineral leases for
a 100% interest in approximately 8,700 acres of land in the state of Tennessee,
United States. During 2003, MRS renegotiated the leases on 3,100 acres,
representing the most important core holdings, in order to extend the term of
the leases and reduce the advance royalty payments. It has effectively abandoned
the mineral leases on the remaining 5,600 acres, but the leases remain in effect
until terminated by the lessor for nonpayment. The minimum annual advance
royalty payments for the 8,700 acres under lease are as follows:
Year ending December 31:
2004 $ 160,605
2005 165,763
2006 173,747
2007 159,385
2008 144,533
Thereafter 136,334
The mineral leases are subject to a production royalty; however, MRS will
receive a credit against production royalties for all advance royalties paid.
Upon failure of MRS to make the minimum payments as required by the leases, the
remedies of the lessors are limited to termination of the leases. The Company
has incurred royalties of $147,467, $129,691, and $87,593 for the years ended
December 31, 2003, 2002, and 2001, respectively. As of December 31, 2003, we
owed $193,571 of royalty payments to lessors.
10. INCOME TAXES
Because of the net operating losses and a valuation allowance on deferred tax
assets, there was no provision for income taxes recorded in the accompanying
consolidated financial statements for the three years in the period ended
December 31, 2003.
A reconciliation of the federal statutory income tax rate and our effective
income tax rates is as follows:
Year Ended December 31,
-----------------------------------------
2003 2002 2001
Federal statutory income tax (benefit) $(2,390,649) $(3,489,557) $(2,713,911)
Meals and entertainment 3,821 3,470 601
Valuation allowance 2,386,828 3,486,087 2,713,310
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
F-24
The components of the deferred tax assets consisted of the following as of
December 31, 2003 and 2002:
2003 2002
Deferred tax assets:
Net operating loss carryforward $ 8,174,014 $ 10,502,652
Basis difference in assets 493,242 --
Allowance for bad debts 163 --
Unrealized loss -- 172,557
----------- ------------
Total deferred tax assets 8,667,419 10,675,209
Deferred tax liabilities:
Basis difference in assets -- (1,748,777)
Allowance for bad debts -- (1,121)
Accrued vacation (27,012) --
Valuation allowance (8,640,407) (8,925,311)
----------- ------------
Total deferred tax assets $ -- $ --
=========== ============
The net operating loss carryforwards total approximately $23,000,000 as of
December 31, 2003 and will expire at various dates beginning in 2004 through
2023.
11. COMMITMENTS AND CONTINGENCIES
Litigation--We are currently not aware of any investigations, claims, or
lawsuits which we believe could have a material adverse effect on our
consolidated financial position or on our consolidated results of operations.
Significant Contracts--In July 2003 we entered into a memorandum of
understanding (the "MOU") with Titanium Metals Corporation ("TIMET") to provide
custom oxide feedstocks for a 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 in
connection with the DARPA program. The DARPA 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. During 2003,
we received $9,000 in connection with the MOU agreement. In January 2004 we
became a subcontractor for the DARPA program and were awarded a $150,000
contract from TIMET to design and develop a titanium oxide electrode structure
and provide TIMET optimized titanium oxide feedstock to produce 50 pounds of
titanium metal per day in batch production demonstrations.
In September 2003, we entered into an agreement with Western Michigan University
("WMU") to provide research services and materials to support research involving
a technology used in the detection of chemical, biological and radiological
agents. The teaming/research agreement with WMU, funded by the Department of
Energy, provides for total payments to Altair of $356,500 over a two-year
period. During 2003, we received $36,600 in connection with this research
agreement. In December 2003, WMU was awarded a second, one-year Department of
Energy grant for which Altair will also participate as a subcontractor. The
project is a collaboration involving WMU, Altair and the University of Nevada,
Reno. The $2 million was included in the Omnibus Appropriations Bill passed by
the U.S. House of Representatives December 9, 2003. WMU and Altair have a joint
partnership for seeking Federal support for nanotechnology research and
development and will utilize the new grant funding equally.
F-25
In January 2004, we entered into a license agreement with Western Oil Sands,
Inc. with respect to its possible use of the Altair Hydrochloride Pigment
Process ("AHPP") for the production of titanium dioxide pigment and
pigment-related products at the Athabasca Oil Sands Project in Alberta, Canada,
and elsewhere. Upon execution of the agreement, we granted Western Oil Sands an
exclusive, conditional license to use the AHPP on heavy minerals derived from
oil sands in Alberta, Canada. The agreement also contemplates a three-phase,
five-year program pursuant to which the parties will work together to further
evaluate, develop and commercialize the AHPP. In the first phase of the program,
Western Oil Sands is expected to spend $650,000 ($500,000 of which is scheduled
to be paid to Altair for work performed) to evaluate the AHPP and confirm that
the AHPP will produce pigment from oil sands. Assuming phase one is successful,
Western Oil Sands may elect to commence phase two, the construction of a
demonstration titanium pigment production facility using the AHPP. If phase two
is successful, Western Oil Sands may elect to commence phase three, the
construction and operation of a full-scale commercial titanium pigment
production facility using the AHPP.
12. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2002, officers made loans to us of $6,243 and
we repaid loans from officers of $149,243. These were short-term, unsecured,
non-interest bearing loans payable on demand, the proceeds of which were used to
meet working capital needs. There were no related party loans outstanding at
December 31, 2003 and 2002.
13. BUSINESS SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information, management views the Company as being three business
segments: Nanomaterials and Titanium Dioxide Pigment Technology, Tennessee
Mineral Property, and the jig.
Reportable segment data reconciled to the consolidated financial statements as
of and for the fiscal years ended December 31, 2003, 2002, and 2001 is as
follows:
F-26
Loss from
Net Sales Operations Assets
2003:
Nanomaterials and Titanium Dioxide
Pigment Technology $ 72,851 $2,822,884 $ 5,362,003
Tennessee Mineral Property -- 155,709 40,418
The Jig -- 27,729 --
Unallocated -- 2,778,888 6,257,333
-------- ---------- -----------
Consolidated total $ 72,851 $5,785,210 $11,659,754
======== ========== ===========
2002:
Nanomaterials and Titanium Dioxide
Pigment Technology $225,225 $2,456,771 $ 6,274,732
Tennessee Mineral Property -- 598,977 18,200
The Jig 28,270 2,929,010 10,270
Unallocated -- 1,871,953 2,611,203
-------- ---------- -----------
Consolidated total $253,495 $7,856,711 $ 8,914,405
======== ========== ===========
2001:
Nanomaterials and Titanium Dioxide
Pigment Technology $ 45,816 $2,783,647 $ 6,752,399
Tennessee Mineral Property -- 930,777 16,200
The Jig -- 300,913 2,929,930
Unallocated -- 2,006,195 1,154,714
-------- ---------- -----------
Consolidated total $ 45,816 $6,021,532 $10,853,243
======== ========== ===========
* * * * *
F-27