UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO _________________
ALTAIR NANOTECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada 1-12497 None
---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1725 Sheridan Avenue, Suite 140
Cody, Wyoming 82414
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (307) 587-8245
ALTAIR INTERNATIONAL INC.
---------------------------
(Former name of registrant)
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 [ ]
As of November 12, 2002 the registrant had 26,792,106 Common Shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 306,061 $ 599,884
Other current assets 122,283 33,651
------------ ------------
Total current assets 428,344 633,535
Property and Equipment, net 7,439,345 5,987,950
Patents and Related Expenditures, net 1,167,670 3,739,864
Other Assets 238,883 491,894
------------ ------------
Total Assets $ 9,274,242 $ 10,853,243
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 824,897 $ 528,405
Note payable - current portion 1,784,827 --
Loans payable - related parties -- 143,000
Capital lease obligations - current portion -- 2,312
Deferred revenue -- 40,972
------------ ------------
Total current liabilities 2,609,724 714,689
------------ ------------
Note Payable, Long-Term Portion 2,458,023 1,462,060
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock, no par value, unlimited shares
authorized; 26,203,902 and 22,694,142 shares
issued and outstanding at September 30,
2002 and December 31, 2001 41,466,778 38,089,320
Deficit accumulated during the development stage (37,260,283) (29,412,826)
------------ ------------
Total Shareholders' Equity 4,206,495 8,676,494
------------ ------------
Total Liabilities and Shareholders' Equity $ 9,274,242 $ 10,853,243
============ ============
(See Notes to Financial Statements.)
2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
Three Months Ended Nine Months Ended (date of
September 30, September 30, inception) to
------------------------------ ----------------------------- September 30,
2002 2001 2002 2001 2002
-------------- -------------- -------------- ------------- ---------------
Sales $ 45,089 None $ 98,760 None $ 141,576
Cost of sales 16,702 None 48,028 None 66,203
------------ ------------ ------------ ------------ ------------
Gross Margin 28,387 None 50,732 None 75,373
------------ ------------ ------------ ------------ ------------
Operating Expenses
Mineral exploration and development 132,262 $ 154,642 491,039 $ 754,396 6,409,704
Research and development 146,749 138,196 449,398 406,467 3,578,357
Professional services 105,574 139,051 561,014 452,707 3,124,926
General and administrative expenses 648,571 591,676 1,894,785 2,162,481 13,742,267
Depreciation and amortization 209,903 287,240 781,304 851,933 5,298,718
Asset impairment -- -- 2,759,956 -- 2,759,956
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,243,059 1,310,805 6,937,496 4,627,984 34,913,928
------------ ------------ ------------ ------------ ------------
Loss from Operations 1,214,672 1,310,805 6,886,764 4,627,984 34,838,555
------------ ------------ ------------ ------------ ------------
Other (Income) Expense:
Interest expense 316,676 307,035 913,513 1,341,302 4,297,464
Interest income (343) (17,383) (1,877) (129,960) (815,717)
Loss (gain) on foreign exchange -- 99 390 308 (558,387)
------------ ------------ ------------ ------------ ------------
Total other expense, net 316,333 289,751 912,026 1,211,650 2,923,360
------------ ------------ ------------ ------------ ------------
Loss before extraordinary items 1,531,005 1,600,556 7,798,790 5,839,634 37,761,915
------------ ------------ ------------ ------------ ------------
Extraordinary items:
Gain on forgiveness of debt -- -- -- -- (795,972)
Loss on redemption of convertible
debentures -- -- -- -- 193,256
------------ ------------ ------------ ------------ ------------
Total extraordinary items -- -- -- -- (602,716)
------------ ------------ ------------ ------------ ------------
Net loss 1,531,005 1,600,556 7,798,790 5,839,634 37,159,199
Preferential Warrant Dividend 48,666 -- 48,666 -- 101,084
------------ ------------ ------------ ------------ ------------
Net Loss Applicable to Shareholders $ 1,579,671 $ 1,600,556 $ 7,847,456 $ 5,839,634 $ 37,260,283
============ ============ ============ ============ ============
Loss per Common Share:
Loss before extraordinary items:
Basic and diluted $ 0.06 $ 0.08 $ 0.33 $ 0.30 $ 4.78
Effect of extraordinary items on
earnings per share:
Basic and diluted -- -- -- -- (0.08)
------------ ------------ ------------ ------------ ------------
Loss per common share - Basic and diluted $ 0.06 $ 0.08 $ 0.33 $ 0.30 $ 4.70
============ ============ ============ ============ ============
Weighted average shares - Basic and
diluted 24,951,065 20,494,270 23,946,170 19,706,588 7,897,912
============ ============ ============ ============ ============
(See Notes to Financial Statements)
3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
(date of
Nine Months Ended inception) to
September 30, September 30,
-----------------------------
2002 2001 2002
--------------------------------------------
Cash flows from development activities:
Net loss $ (7,798,790) $ (5,839,634) $(37,159,199)
Adjustments to reconcile net loss to net cash
used in development activities:
Depreciation and amortization 781,304 851,933 5,298,718
Shares issued for services 25,000 -- 124,926
Shares issued for interest 234,950 -- 1,058,777
Issuance of stock options to non-employees 167,393 142,082 3,170,933
Issuance of stock options to employees -- -- 78,220
Issuance of stock warrants 108,556 374,181 924,861
Amortization of discount on note payable 347,554 309,330 762,627
Amortization of debt issuance costs 257,453 -- 357,453
Asset impairment 2,759,956 -- 2,759,956
Loss on redemption of convertible debenture -- -- 193,256
Gain on forgiveness of debt -- -- (795,972)
Loss on disposal of fixed assets -- -- 1,945
Gain on foreign currency translation -- -- (559,179)
Deferred financing costs written off -- -- 515,842
Changes in assets and liabilities (net of
effects of acquisition):
Restricted cash -- 1,495,285 --
Other current assets (33,180) 343,660 1,667,767
Other assets 71,558 74,997 (97,162)
Accounts payable and accrued liabilities 298,300 449,912 557,491
Deferred revenue (40,972) (6,008) --
------------ ------------ ------------
Net cash used in development activities (2,820,918) (1,804,262) (21,138,740)
------------ ------------ ------------
Cash flows from investing activities:
Asset acquisition -- -- (2,422,417)
Purchase of property and equipment (2,420,463) (152,367) (3,555,972)
Purchase of patents and related expenditures -- -- (1,882,187)
------------ ------------ ------------
Net cash used in investing activities (2,420,463) (152,367) (7,860,576)
------------ ------------ ------------
(continued)
4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Period
April 9, 1973
(date of
inception) to
September 30, September 30,
----------------------------
2002 2001 2002
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common shares for cash, net of
share issue costs $ 2,285,123 $ 2,024,727 $ 20,458,782
Collection of stock subscription receivable -- 561,300 561,300
Issuance of shares under Employee Stock
Purchase Plan 74,033 -- 74,033
Issuance of convertible debenture -- -- 5,000,000
Proceeds from exercise of stock options -- 65,000 2,708,491
Proceeds from exercise of warrants 300,477 -- 4,917,805
Issuance of related party notes 6,243 -- 174,243
Issuance of notes payable 2,433,237 -- 9,433,237
Payment of notes payable -- (2,012,399) (11,120,816)
Payment of related party notes (149,243) -- (174,243)
Payment on capital lease (2,312) -- (27,075)
Purchase of call options -- -- (449,442)
Redemption of convertible debentures -- -- (2,250,938)
------------ ------------ ------------
Net cash provided by financing activities 4,947,558 638,628 29,305,377
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (293,823) (1,318,001) 306,061
Cash and cash equivalents, beginning of period 599,884 1,335,729 None
------------ ------------ ------------
Cash and cash equivalents, end of period $ 306,061 $ 17,728 $ 306,061
============ ============ ============
Supplemental disclosures:
None $ 324,601
============ ============
Cash paid for income taxes None None
============ ============
(continued)
5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
(Unaudited)
Supplemental schedule of non-cash investing and financing activities:
For the nine months ended September 30, 2002:
- In accordance with the terms of our Doral 18, LLC 2001 Note, we paid
$221,808 of interest (including $55,452 of prepaid interest at
September 30, 2002) through the issuance of 299,394 shares of our
common stock. The conversion of the interest resulted in an
additional interest expense of $70,401.
- We issued 50,000 common shares in payment of financing fees associated
with the Doral 18, LLC 2001 Note. The common shares had a fair value
of $76,000 which was recorded as debt issue cost on the balance
sheet.
- We entered into a note payable with BHP with a face amount of
$3,000,000. There is no interest due on the note for the first 36
months. As a result, we imputed the interest and reduced the face
amount of the note payable by $566,763. The imputed interest expense
for the period was $24,786.
For the nine months ended September 30, 2001:
- 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.
- 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.
- In accordance with the terms of our Doral 18, LLC 2000 Note, we paid
$46,027 of interest through the issuance of 22,900 shares of our
common stock. The conversion of the interest resulted in an
additional interest expense of $13,700.
(concluded)
(See Notes to Financial Statements)
6
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Preparation of Financial Statements
These unaudited interim financial statements of Altair Nanotechnologies
Inc. and its subsidiaries (collectively, "Altair", "We" or the "Company") have
been prepared in accordance with the rules and regulations of the United States
Securities and Exchange Commission (the "Commission"). Such rules and
regulations allow the omission of certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States, so long as the statements
are not misleading. In the opinion of Company management, these financial
statements and accompanying notes contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
and results of operations for the periods shown. These interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2001, as filed on April 1, 2002.
At our annual meeting held on June 12, 2002, the shareholders of the
Company approved an amendment to our articles of incorporation formally changing
our name to "Altair Nanotechnologies Inc."
Prior to fiscal year 1998, we prepared our financial statements in
accordance with accounting principles generally accepted in Canada. Due to
substantially all of our operations being located in the United States, we have
elected to present our financial statements in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP").
Accordingly, the foregoing unaudited interim financial statements are
denominated in U.S. Dollars and presented in accordance with U.S. GAAP.
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
consolidated financial statements, we incurred net losses of $1,531,005 for the
quarter ended September 30, 2002 and $7,798,790 for the nine months ended
September 30, 2002, and since the date of inception have incurred cumulative net
losses of $37,159,199. At September 30, 2002, current liabilities exceeded
current assets by $2,181,380. These factors, among others, may raise substantial
doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include certain
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern. Our continuation as a going
concern is dependent upon our ability to generate sufficient cash flow to meet
our obligations on a timely basis, to obtain additional financing or refinancing
as may be required, to develop commercially viable products and processes, and
ultimately to establish successful operations. We are in the process of
developing the titanium processing technology. The recoverability of amounts
capitalized as property and equipment and patents and related expenditures is
dependent upon our ability to successfully develop and commercialize the
titanium processing technology.
At September 30, 2002, we had cash and cash equivalents of $306,061,
and during the period October 1, 2002 through November 1, 2002 we received net
proceeds of $325,000 from the sales of common shares and warrants in private
placements and the exercise of options to purchase common shares. These amounts
of cash are sufficient to fund our basic operations through November 30, 2002.
In order to conserve cash, we have reduced our cash expenditures to the extent
possible without significantly affecting our development efforts with respect to
the titanium processing technology. We anticipate that we will receive the
remaining $324,877 of the purchase price owed under the amended and restated
stock purchase agreement described below in Note 3 on or before December 31,
2002. If we receive the remainder of the purchase price during November 2002, we
expect that this additional capital will be sufficient to fund our basic
operations through at least December 31, 2002. If we do not receive the
remainder of the purchase price during November 2002, we will require additional
financing during November 2002 in order to provide working capital to fund our
day-to-day operations.
7
In order to reduce the rate at which we are using cash, we have taken
several cost cutting measures, the most significant of which is the reduction of
expenditures on the Tennessee mineral property and the jig to the minimum amount
necessary to maintain these assets with no ongoing development activity.
Nevertheless, even with such cost cutting measures, as stated above, we will
need additional financing to fund our basic, day-to-day operations during
December, 2002. Because our projected near-term sales of nanoparticle products
are minimal, we expect to generate such funds through additional private
placements of our common stock and warrants to purchase our common stock or
other debt or equity securities. As of November 1, 2002, we have no commitments
to provide additional financing or to purchase a significant quantity of
nanoparticle products. If we are unable to obtain financing on a timely basis,
we may be forced to more significantly curtail and, at some point, discontinue
operations.
The results of operations for the three- and nine-month periods ended
September 30, 2002 are not necessarily indicative of the results to be expected
for the full year.
Note 2. Summary of Significant Accounting Policies
Net Loss Per Common Share - Basic net loss per common share is
calculated by dividing net loss by the weighted average number of common shares
outstanding during the period. The existence of stock options, warrants, and
convertible securities affects the calculation of loss per share on a fully
diluted basis. When a net loss is reported, the number of shares used for basic
and diluted net loss per share is the same since the effect of including the
additional common stock equivalents would be antidilutive.
Stock -Based Compensation - We have elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and to furnish the pro forma disclosures required
under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation.
Recent Accounting Pronouncements - In June 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires annual impairment testing for
goodwill and intangible assets, and the elimination of periodic amortization of
goodwill and certain intangibles. We adopted SFAS No. 142 on January 1, 2002.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses accounting
and reporting for the impairment or disposal of long-lived assets, including the
disposal of a segment of business. We adopted SFAS No. 144 on January 1, 2002.
As a result of changes in circumstances regarding the development and
use of the jig, during the quarter ended June 30, 2002 we recorded an impairment
adjustment for the jig patents and physical assets in the amount of $2,759,956.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which requires asset retirement obligations to be
recognized when they are incurred and displayed as liabilities. SFAS No. 143 is
effective for the year ending December 31, 2003. We adopted SFAS No. 143 on July
1, 2002 and do not expect this statement to have a material impact on our
consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 rescinds several statements, including SFAS No, 4,
Reporting Gains and Losses from Extinguishment of Debt. The statement also makes
several technical corrections to other existing authoritative pronouncements.
SFAS No. 145 is effective for us July 1, 2002, except for the rescission of SFAS
No. 4, which is effective January 2003. We do not expect this statement to have
a material impact on our consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF 94-3. We adopted SFAS No. 146 effective
July 1, 2002 and do not expect this statement to have a material impact on our
consolidated financial statements.
8
Note 3. Common Stock
Common stock transactions during the nine months ended September 30,
2002 were as follows:
Common Stock
---------------------------------
Stated
Shares Amount
---------------------------------
Balance, December 31, 2001 22,694,142 $38,089,320
Common stock issued through private placements 2,690,593 2,285,123
Shares issued on exercise of warrants 286,169 300,477
Stock options issued to non-employees -- 167,393
Warrants issued for services -- 108,556
Shares issued for services 100,000 101,000
Shares issued under Employee Stock Purchase Plan 133,604 74,033
Shares issued for payment of interest on
Doral 18, LLC note 299,394 292,210
Preferential warrant dividend -- 48,666
---------------------------------
Balance, September 30, 2002 26,203,902 $41,466,778
=================================
During the nine months ended September 30, 2002, we sold, in private
placements, 2,690,593 common shares plus 2,348,390 warrants for cash proceeds of
$2,285,123. Of these amounts, $935,123 was received in payment for 890,593
common shares and 1,335,890 warrants under a stock purchase agreement dated
March 11, 2002 and amended on April 26, 2002. The amended stock purchase
agreement calls for the purchase of 1,200,000 common shares plus 1,800,000
warrants for total consideration of $1,260,000. The remainder of the purchase
price ($324,877) was to be paid by July 31, 2002, but has been informally
extended to December 31, 2002. Of the other private placements made during the
nine months ended September 30, 2002, a total of 250,000 common shares plus
250,000 warrants were issued which included four options, each option granting
the investor the right to purchase the same quantity, and no less, of common
shares and warrants at the same price as the initial placement. As of September
30, 2002, one option was exercised for 200,000 common shares plus 200,000
warrants resulting in proceeds of $100,000. The options expire at staggered
dates, the latest being December 31, 2002, and all of the options terminate if
one of the options is permitted to expire without being exercised in full.
Warrants issued during the nine months ended September 30, 2002 had exercise
prices ranging from $1.00 to $5.00.
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 August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares through payroll deductions.
Through September 30, 2002, a total of 133,604 common shares were issued under
the ESPP at prices ranging from $0.38 to $0.78 per share.
During the first quarter of 2002, we issued 59,689 common shares to
Doral 18, LLC ("Doral") in payment of $69,771 of interest on our $2,000,000 note
payable (the `Note") for the period December 28, 2001 through March 26, 2002. On
April 3, 2002 we issued 143,791 common shares to Doral in payment of $146,667 of
interest on the Note for the period March 27, 2002 through September 27, 2002.
In return, Doral also agreed to reduce the requirement that we maintain cash and
cash equivalents from $250,000 to $125,000 during the period March 27, 2002
through September 27, 2002. On September 24, 2002, we issued 95,914 common
shares to Doral in payment of $75,772 of interest on the Note for the period
September 28, 2002 through December 31, 2002. In return, Doral also agreed to
reduce the requirement that we maintain cash and cash equivalents from $250,000
to $125,000 during the period September 28, 2002 through December 31, 2002.
9
Note 4. Notes Payable
Notes payable consisted of the following at September 30, 2002 and
December 31, 2001:
September 30, 2002 December 31, 2001
------------------ -----------------
Note payable to BHP Minerals
International Inc. $ 2,458,023 $ --
Note payable to Doral 18, LLC 1,947,146 1,867,857
Less discount resulting from allocation
of debt proceeds to warrant (162,319) (405,797)
Less current portion (1,784,827) --
----------- -----------
Long-term portion of notes payable $ 2,458,023 $ 1,462,060
=========== ===========
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. The first payment of
$600,000 of principal plus accrued interest is due February 8, 2006. Additional
payments of $600,000 plus accrued interest are due annually on February 8, 2007
through 2010.
Note 5. Intangible Assets
Our intangible assets consist of patents and related expenditures
associated with the titanium processing technology. In accordance with SFAS No.
142, we are amortizing these assets over their useful lives. The amortized
intangible asset balance as of September 30, 2002 was:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
------------- -------------- ---------------
Patents and related
expenditures $ 4,030,450 $ (2,862,780) $ 1,167,670
The weighted average amortization period for intangible assets is
approximately 16.5 years. Amortization expense was $206,039 for the nine months
ended September 30, 2002, which represented the amortization relating to the
identified intangible assets still required to be amortized under SFAS No. 142.
This amount included $141,779 of amortization expense related to the jig patents
which was recorded prior to an adjustment for asset impairment at June 30, 2002.
For each of the next five years, amortization expense relating to intangibles
will be $85,680 per year.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion summarizes the material changes in our
financial condition between December 31, 2001 and September 30, 2002 and the
material changes in our results of operations and financial condition between
the three- and nine-month periods ended September 30, 2001 and September 30,
2002. This discussion should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
Overview
From inception through the end of 1993, our business consisted
principally of the exploration of mineral properties for acquisition and
exploration. During 1994, our focus changed as we became engaged in the
acquisition, development and testing of mineral processing equipment for use in
the recovery of fine, heavy mineral particles including gold, titanium, zircon
and environmental contaminants. Since that time, we have continued exploring
mineral properties on which we might use our patented mineral processing
equipment.
In 1996, we acquired all patent rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig. Since April 1996, we have
acquired mineral leaseholds on approximately 9,700 acres of land in Tennessee. A
prefeasibility study issued in July 1998 confirmed the existence of heavy
minerals and suggests that the property warrants further exploration. Based on
the results of these independent studies, we have initiated additional
feasibility testing.
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP Minerals International,
Inc. ("BHP") primarily for the production of titanium dioxide products from
titanium bearing ores or concentrates (the "titanium processing technology") and
all tangible equipment and other assets (the "titanium processing assets") used
by BHP to develop and implement the titanium processing technology.
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 for the treatment of hyperphosphatemia (elevated serum
phosphate levels) in patients undergoing kidney dialysis, as well as a new drug
delivery system using inorganic ceramic nanoparticles. In August 2002, we filed
a patent application covering these developments. 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 pharmaceutical ingredient and drug delivery system to
market. Although we are presently in discussions with several pharmaceutical
companies regarding such a business relationship, we can provide no assurance
that we will enter into any agreements with any such company or otherwise
exploit the potential value of these new developments.
Critical Accounting Policies and Estimates
Management based the following discussion and analysis of our financial
condition and results of operations on our consolidated financial statements.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our critical accounting policies and estimates,
including those related to long-lived assets and stock-based compensation. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Company's future results of operations and cash flows.
11
o Long-lived assets. Our long-lived assets consist principally of
pigment production equipment, the intellectual property (patents
and patent applications) associated with it, and a building. At
September 30, 2002, the carrying value of these assets was
$8,514,682, or 92% 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 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 APB 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. We calculate the
compensation expense that would be recognized 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
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
--------------------------------------------------------------------------------
For the three months ended September 30, 2002, net losses totaled
$1,531,005 ($.06 per share) compared to $1,600,556 ($.08 per share) for the same
period of 2001. Principal factors contributing to the losses during these
periods were the lack of substantial revenue together with the incurrence of
operating expenses.
For the three months ended September 30, 2002, we generated revenues of
$45,089. Of this amount, $10,739 came from sales of titanium dioxide
nanoparticles and lithium titanate nanoparticles. An additional $18,000 of
revenues were earned from a consulting project involving use of the jig to
recover titanium dioxide from pigment processing waste. The remaining $16,350 of
revenues came from fees earned under a services agreement entered into with a
materials company in September 2002. Under the terms of the services agreement,
we will test the materials company's mineral concentrates in the production of
titanium dioxide pigments using our titanium processing technology. The testing
will be conducted over a five-month period and will generate total revenues of
approximately $100,000.
During the third quarter of 2002, we continued to limit the
expenditures for mineral exploration and development to those necessary to
maintain the Tennessee mineral property without additional development activity.
Accordingly, mineral exploration and development expenses decreased by $22,380
from $154,642 in the quarter ended September 30, 2001 to $132,262 in the quarter
ended September 30, 2002.
Our research and development ("R&D") efforts in the third quarter of
2002 were directed principally to pharmaceuticals, catalysts, batteries and fuel
cells. R&D expenses increased by $8,553 from $138,196 in the third quarter of
2001 to $146,749 in the same period of 2002, principally 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. Although total payroll charged to R&D increased by $32,000 from the
third quarter of 2001 to the third quarter of 2002, this increase was partially
offset by a decrease of $21,000 for costs of an R&D contract with the
Massachusetts Institute of Technology which expired in July 2002.
Professional services, which consist principally of legal, consulting
and audit expenses, decreased from $139,051 during the third quarter 2001 to
$105,574 in the third quarter 2002. The decrease is attributable to a decline in
consulting expenses of $64,000 resulting principally from decreases in stock
options granted to outside service providers and fees paid for financing
transactions. These decreases are offset partially by an increase in legal
expenses of $30,000 resulting from additional securities and general corporate
work.
12
General and administrative expenses increased by $56,895 from $591,676
in third quarter 2001 to $648,571 in the same period of 2002. Expenses
associated with stock options increased by $230,000 from the third quarter of
2001 to the third quarter of 2002. During the third quarter of 2001, we recorded
negative option expense for repriced options in the amount of $82,000, while in
the third quarter of 2002 we recorded positive option expense of $149,000,
thereby causing an increase of $230,000 from 2001 to 2002. In 2002, we entered
into stock purchase agreements with certain investors wherein the investors were
granted four options, each of which gave them the right to purchase the same
number of common shares and warrants at the same price as the initial
transaction. The fair value of these options was $149,000. This increase in
expense was partially offset by decreases in other expenses. Investor relations
expense decreased by $49,000 as we cut back some of our investor relations
programs, payroll costs decreased by $20,000 due to a reduction in employees,
and general corporate expenses were reduced by $37,000. At our Altair
Nanomaterials subsidiary, general operating costs for items such as tools,
operating supplies and laboratory supplies decreased by $34,000 as a result of
our efforts to reduce costs, and payroll charged to administrative and general
was reduced by $32,000 as more time was devoted to R&D.
During the second quarter of 2002, we recorded an asset impairment of
$2,759,956 for the jig assets which reduced their depreciable balance to zero.
As a result, depreciation is no longer recorded for these assets and
depreciation and amortization expense declined by $77,337 from the third quarter
of 2001 to the third quarter of 2002.
During the third quarter of 2001, we had in excess of $2,500,000 of
restricted cash that was received in connection with our issuance of a
$7,000,000 Asset-Backed Exchangeable Term Note (the "Note"). Interest income
earned on this cash was $15,363 during the quarter. On December 28, 2001, the
Note was exchanged for a new note and the restricted cash was paid to the
lender. As a result of this, our cash balance available for investment was
significantly reduced during the third quarter of 2002 and interest income
declined by $17,040.
During third quarter 2002, we recorded a preferential warrant dividend
of $48,666 for 582,500 warrants that were repriced to $1.05 from prices ranging
from $3.50 to $5.00. The preferential warrant dividend represents the increase
in fair value of the warrants as a result of the repricing. A total of 286,169
of the repriced warrants were exercised.
Nine months ended September 30, 2002 Compared to Nine months ended September 30,
2001
--------------------------------------------------------------------------------
For the nine months ended September 30, 2002, net losses totaled
$7,798,790 ($.33 per share) compared to $5,839,634 ($.30 per share) for the same
period of 2001.
In the nine months ended September 30, 2002, we generated revenues of
$98,760. Of this amount, $64,410 came from sales of titanium dioxide
nanoparticles, lithium titanate nanoparticles and related products. An
additional $18,000 of revenues were earned from a consulting project involving
use of the jig to recover titanium dioxide from pigment processing waste. The
remaining $16,350 of revenues came from fees earned under a services agreement
entered into with a materials company in September 2002. Sales of nanoparticles
included $40,972 of previously deferred revenues for which product shipments
were made during the first quarter of 2002. These products were used primarily
in thermal spray coatings.
Mineral exploration and development expenses decreased by $263,357 from
$754,396 for the nine months ended September 30, 2001 to $491,039 for the nine
months ended September 30, 2002. During the nine months ended September 30,
2001, we completed the installation and began testing of the pilot plant
facility at our Tennessee mineral property. In connection with this, we incurred
and expensed costs of $135,000 for completion of fabrication and installation of
the pilot plant and $69,000 for internal labor, overheads, supplies and
materials for construction and subsequent operation of the facility. We incurred
no comparable mineral exploration and development expenses during the nine
months ended September 30, 2002. Other exploration and development expenses
associated with the Tennessee mineral property decreased by $98,000 in the nine
months ended September 30, 2002 when compared to the comparable quarter of 2001,
principally as a result of our efforts to reduce expenditures, but this was
offset by increased advance royalty payments of $35,000 for the mineral
leaseholds.
Our R&D efforts in the nine months ended September 30, 2002 were
directed principally to pharmaceuticals, batteries, catalysts, thermal spray
coatings and fuel cells. R&D expenses increased by $42,931 from $406,467 in the
nine months ended September 30, 2001 to $449,398 in the same period of 2002 as a
result of increased staff time being devoted to these R&D projects with a
13
resulting decrease in time spent on construction projects and administrative and
general activities. During the nine months ended September 30, 2002, total
payroll charged to R&D increased by $66,000 over the comparable period of 2001.
In addition, materials, supplies and other vendor expenses increased by $10,000.
These increases were partially offset by a decrease of $31,000 for costs of an
R&D contract with the Massachusetts Institute of Technology which expired in
July 2002.
Professional services increased by $108,307 from $452,707 during the
nine months ended September 30, 2001 to $561,014 in the same period of 2002. The
increase is attributable to an increase in consulting expenses of $111,000 for
assistance with financing activities, and an increase of $43,000 for legal
charges associated with nanotechnology patent applications and financing work.
These increases are offset partially by a decrease in audit expenses of $43,000.
General and administrative expenses decreased by $267,696 from
$2,162,481 in the nine months ended September 30, 2001 to $1,894,785 in the same
period of 2002. Investor relations expense decreased by $210,000 as we cut back
some of our investor relations programs. Payroll charged to general and
administrative was reduced by $20,000, primarily as a result of more time being
devoted to R&D. At our Altair Nanomaterials subsidiary, general operating costs
for items such as tools, operating supplies, laboratory supplies and sample
costs decreased by $71,000 as a result of our efforts to reduce costs. We also
reduced our general corporate expenses by $11,000. These decreases were slightly
offset by expenses associated with stock options issued to employees and service
providers, which increased by $44,000, principally as a result of options issued
to investors.
During the nine months ended September 30, 2002, we recorded an asset
impairment charge of $2,759,956 for our jig assets.
Interest expense decreased by $427,789 from $1,341,302 in the nine
months ended September 30, 2001 to $913,513 for the comparable period of 2002.
During the nine months ended September 30, 2001, we incurred certain charges
associated with the Note and a related registration statement which were not
incurred during the nine months ended September 30, 2002. Among these were
redemption premiums associated with principal payments of $160,000 and fees in
connection with extending the deadline for the effectiveness of the registration
statement of $100,000. In addition to this, interest expense of $212,000 was
incurred related to the estimated fair value of the warrants issued to the
investor in exchange for the waiver of penalties that would have accrued due to
late effectiveness of the registration statement and modification to the Note
terms involving the redemption of exchange amounts. These decreases were
slightly offset by $25,000 of imputed interest expense related to the note
payable to BHP Minerals International, Inc. For accounting purposes, interest is
imputed and recorded as interest expense for the period August 8, 2002 through
August 8, 2005, the period during which interest is not accrued and payable on
the note balance.
Interest income decreased by $128,083 from $129,960 in the nine months
ended September 30, 2001 to $1,877 in the same period of 2002. This decrease is
the result of a decrease in restricted cash in the bank as described above in
the section titled "Three Months Ended September 30, 2002 Compared to Three
Months Ended September 30, 2001."
Liquidity and Capital Resources
We generated $98,760 of sales revenues in the first nine months of 2002
but incurred a net loss of $7,798,790. At September 30, 2002, our accumulated
deficit was $37,260,283, or an increase of $7,847,456 over the accumulated
deficit at December 31, 2001. This increase was due to the net loss for the
period plus a preferential warrant dividend of $48,666.
Our cash and short-term investments decreased from $599,884 at December
31, 2001 to $306,061 at September 30, 2002 due to the incurrence of operating
costs and the effect of financing transactions which occurred during the period.
On April 26, 2002, we entered into an amended and restated stock
purchase agreement with an accredited investor pursuant to which the investor
agreed to purchase 1,200,000 common shares and 1,800,000 warrants to purchase
common shares for an aggregate purchase price of $1,260,000 payable in full by
July 31, 2002. This date was subsequently informally extended to December 31,
2002. At September 30, 2002, we had received $935,123 of advances toward the
purchase price of the shares and warrants and, as of the date of this report, we
have issued 890,593 of the shares and 1,335,890 of the warrants. One-third of
14
the warrants are exercisable at $1.50 per share and expire on the earlier of
five years from the date of issue or the date 30 days following the fifth day
(whether or not consecutive) the closing price of our common shares equals or
exceeds $4.50. A further one-third of the warrants are exercisable at $2.00 per
share and expire on the earlier of five years from the date of issue or the date
30 days following the fifth day (whether or not consecutive) the closing price
of our common shares equals or exceeds $5.00. The final one-third of the
warrants are exercisable at $2.50 per share and expire on the earlier of five
years from the date of issue or the date 30 days following the fifth day
(whether or not consecutive) the closing price of our common shares equals or
exceeds $5.50.
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares through payroll deductions.
Through October 24, 2002, a total of 133,604 common shares were issued under the
ESPP, resulting in proceeds of $74,034.
Between August 23, 2002 and September 5, 2002, we entered into two
stock purchase, option and subscription agreements with two private investors
which provided for the purchase and sale of an aggregate of 250,000 common
shares and 250,000 warrants for $125,000. Each investor also received four
options, each option granting the investor the right to purchase the same
quantity, and no less, of common shares and warrants at the same price as the
initial placement. The options expire at staggered dates, the latest being
December 31, 2002, and all of the options terminate if one of the options is
permitted to expire without being exercised in full. The warrants expire five
years from the date of issuance and are exercisable at prices ranging from $1.00
to $1.50 per share. On September 27, 2002, an investor exercised the first
option and purchased an additional 200,000 shares and 200,000 warrants for
$100,000. On November 5, 2002, the other investor exercised the first option and
purchased an additional 50,000 shares and 50,000 warrants for $25,000.
From October 4, 2002 through November 1, 2002, we entered into stock
purchase, option and subscription agreements with private investors which
provided for the purchase and sale of an aggregate of 266,667 common shares and
266,670 warrants for $200,000. The investors also received four options, each
option granting the investor the right to purchase the same quantity, and no
less, of common shares and warrants at the same price as the initial placement.
The options expire at staggered dates, with the earliest being November 15, 2002
and the latest being February 15, 2003, and all of the options terminate if one
of the options is permitted to expire without being exercised in full. The
warrants expire five years from the date of issuance and are exercisable at
prices ranging from $1.25 to $1.75 per share.
At September 30, 2002, we had cash and cash equivalents of $306,061, an
amount that would be sufficient to fund our basic operations through October 31,
2002. Between October 1, 2002 and November 1, 2002, we sold 516,667 common
shares and 516,670 warrants to purchase common shares for proceeds of $325,000
in private placements. This additional cash will allow us to continue our
operations through November 30, 2002. In order to extend operations past that
date, we have reduced our cash expenditures to the extent possible without
significantly affecting our development efforts with respect to the titanium
processing technology. We anticipate that we will receive the remaining $324,877
of the purchase price owed under the amended and restated stock purchase
agreement described above on or before December 31, 2002. If we receive the
remainder of the purchase price during November 2002, we expect that this
additional capital will be sufficient to fund our basic operations through at
least December 31, 2002. If we do not receive the remainder of the purchase
price during November 2002, we will require additional financing during November
2002 in order to provide working capital to fund our day-to-day operations.
In order to reduce the rate at which we are using cash, we have taken
several cost cutting measures, the most significant of which is the reduction of
expenditures on the Tennessee mineral property and the jig to the minimum amount
necessary to maintain these assets with no ongoing development activity.
Nevertheless, even with such cost cutting measures, as stated above, we will
need additional financing to fund our basic, day-to-day operations sometime
between November 30, 2002 and December 31, 2002. Because our projected near-term
sales of nanoparticle products are minimal, we expect to generate such funds
through additional private placements of our common stock and warrants to
purchase our common stock or other debt or equity securities. As of November 1,
2002, we have no commitments to provide additional financing or to purchase a
significant quantity of nanoparticle products. If we are unable to obtain
financing on a timely basis, we may be forced to more significantly curtail and,
at some point, discontinue operations.
15
We expect that our long-term capital requirements will be met through
sales of nanoparticle products, licensing of the titanium processing technology
and development of the Tennessee mineral property. To the extent that additional
capital is required, we expect to generate it through additional private
placements of our common stock and warrants and other equity or debt securities.
On January 22, 2002, the Securities and Exchange Commission issued
FR-61, Commission Statement about Management's Discussion and Analysis of
Financial Condition and Results of Operations. The release sets forth certain
views of the Commission regarding disclosure that should be considered by
registrants. Disclosure matters addressed by the release are liquidity and
capital resources including off-balance sheet arrangements, certain trading
activities that include non-exchange traded contracts accounted for at fair
value, and effects of transactions with related and certain other parties. The
following table sets forth the information in a format described in the release
with regard to disclosures about contractual obligations and commercial
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 September 30, 2002:
Less Than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
------------------------------ ---------- ---------- ---------- ---------- ----------
Notes Payable $5,000,000* $2,000,000 $ -- $1,200,000 $1,800,000
Mineral Leases 1,135,021 147,467 452,868 392,055 142,631
Contractual Service Agreements 535,592 360,592 100,000 75,000 --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $6,670,613 $2,508,059 $ 552,868 $1,667,055 $1,942,631
========== ========== ========== ========== ==========
------------
*Before discount of $757,150.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
can be identified by the use of the forward-looking words "anticipate,"
"estimate," "project," "likely," "believe," "intend," "expect," or similar
words. These statements discuss future expectations, contain projections
regarding future developments, operations, or financial conditions, or state
other forward-looking information. Statements in this report regarding the
ability of the Company to raise working capital necessary to fund our
operations, development of the titanium processing technology and assets
(including for pharmaceutical use), development of the centrifugal jig and the
Tennessee mineral property, and any future acquisition activities are
forward-looking statements. You should keep in mind that all forward-looking
statements are based on management's existing beliefs about present and future
events outside of management's control and on assumptions that may prove to be
incorrect.
Among the key factors that may have a direct bearing on the Company's
operating results are various risks and uncertainties including, but not limited
to, the following:
o We have not generated any substantial operating revenues and may
not ever generate substantial revenues.
o As shown in the consolidated financial statements for the quarter
ended September 30, 2002, we incurred a net loss of $1,531,005,
and since the date of inception have incurred cumulative net
losses of $37,159,199. At September 30, 2002, current liabilities
exceeded current assets by $2,181,380. These factors, among
others, may raise substantial doubt about the Company's ability to
continue as a going concern.
o We may not be able to raise sufficient capital to meet future
obligations. As described in this Report, we need to raise
additional capital in the short-term and in the long-term in order
to continue our basic, day-to-day operations and continue
development of the titanium processing technology. If we are
unable to obtain sufficient capital, we may be unable to meet
future obligations or adequately exploit existing or future
opportunities, and may be forced to discontinue operations.
o The sale in the open market of common shares issuable upon the
exercise of exchange rights under existing and recently terminated
notes, options and warrants may place downward pressure on the
market price of our common shares. Speculative traders may
16
anticipate the exercise of exchange rights or warrants and, in
anticipation of a decline in the market price of our common
shares, engage in short sales of our common shares. Such short
sales could further negatively affect the market price of our
common shares.
o We have pledged all of the intellectual property, fixed assets and
common stock of Altair Nanomaterials, Inc., our second-tier
wholly-owned subsidiary, to secure repayment of a Secured Term
Note with a face value of $2,000,000 issued on December 28, 2001.
Altair Nanomaterials, Inc. owns and operates the titanium
processing technology we acquired from BHP in 1999. The Secured
Term Note is also secured by a pledge of the common stock and
leasehold assets of Mineral Recovery Systems, Inc., which owns and
operates our leasehold interests in the Camden, Tennessee area.
The Note is due and payable on March 31, 2003. If we default on
the Secured Term Note, severe remedies will likely be available to
the holder of the Secured Term Note, including immediate seizure
and disposition of all pledged assets.
o Our ability to remain listed on the Nasdaq SmallCap Market will
depend upon our ability to increase the market price of our common
stock to $1.00 per share and to satisfy other listing criteria by
the end of a probationary period (which expires in December 2002
but may be extended an additional 180 days). Delisting from the
Nasdaq SmallCap Market may have a significant negative impact on
the trading price, volume and marketability of our common shares.
o In the short run, we plan to use the titanium processing
technology to produce TiO2 nanoparticles, and we also intend to
license the technology to others. TiO2 nanoparticles and other
products we intend to initially produce with the titanium
processing technology generally must be customized for a specific
application working in cooperation with the end user. We are still
testing and customizing our TiO2 nanoparticle products for various
applications and have no long-term agreements with end users to
purchase any of our TiO2 nanoparticle products. In addition, we
have not yet entered into any agreements to license the
technology. We may be unable to recoup our investment in the
titanium processing technology and titanium processing equipment.
o We have not completed testing of, or developed a production model
of, any series of the jig. In part because of our liquidity
shortage, we do not expect to complete testing and development of
the jig during the coming year and have determined to focus most
of our limited resources on the titanium processing technology. We
may never develop a production model of the jig.
o Our capital shortage has also forced us to discontinue development
work on the Tennessee mineral property and make only those
expenditures that are necessary to maintain the property. If
additional capital becomes available, we intend to resume the
process of conducting feasibility testing of the Tennessee mineral
property. Because we are at an early stage of testing, we are
unable to provide any assurance that mining of the Tennessee
mineral property is feasible. Our test production at the pilot
plant, economic analysis and additional exploration activities may
indicate any of the following:
o that the Tennessee mineral property does not contain
heavy minerals of a sufficient quantity, quality or
continuity to permit any mining;
o that production costs exceed anticipated revenues;
o that end products do not meet market requirements or
customer expectations;
o that there is an insufficient market for products
minable from the Tennessee mineral property; or
o that mining the Tennessee mineral property is otherwise
not economically or technically feasible.
In addition to the foregoing, we recommend that you review the risk
factors and other cautionary statements contained in the Company's other filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, as filed on April 1,
2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not have any derivative instruments, commodity instruments, or
other financial instruments for trading or speculative purposes, nor are we
presently at risk for changes in foreign currency exchange rates.
17
Item 4. Controls and Procedures
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the filing date of this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective in alerting them on a timely basis to material information relating to
our Company (including its consolidated subsidiaries) required to be included in
our reports filed or submitted under the Exchange Act
(b) There have been no significant changes (including corrective
actions with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph (a)
above.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 26, 2002, we entered into an amended and restated stock
purchase agreement with an accredited investor pursuant to which the investor
agreed to purchase 1,200,000 common shares and 1,800,000 warrants to purchase
common shares for an aggregate purchase price of $1,260,000 payable in full by
July 31, 2002. This date was subsequently informally extended to December 31,
2002. At September 30, 2002, we had received $935,123 of advances toward the
purchase price of the shares and warrants and, as of the date of this report, we
have issued 890,593 of the shares and 1,335,890 of the warrants. One-third of
the warrants are Series 2002 D Warrants, which are exercisable at $1.50 per
share and expire on the earlier of five years from the date of issue or the date
30 days following the fifth day (whether or not consecutive) the closing price
of our common shares equals or exceeds $4.50. A further one-third of the
warrants are Series 2002E Warrants, which are exercisable at $2.00 per share and
expire on the earlier of five years from the date of issue or the date 30 days
following the fifth day (whether or not consecutive) the closing price of our
common shares equals or exceeds $5.00. The final one-third of the warrants are
Series 2002F Warrants, which are exercisable at $2.50 per share and expire on
the earlier of five years from the date of issue or the date 30 days following
the fifth day (whether or not consecutive) the closing price of our common
shares equals or exceeds $5.50.
On August 23, 2002, we entered into a stock purchase, option and
subscription agreement with a private investor which provided for the purchase
and sale of 50,000 common shares and 50,000 warrants for $25,000. The investor
also received four options, each option granting the investor the right to
purchase the same quantity, and no less, of common shares and warrants at the
same price as the initial placement. The options expire at staggered dates, the
latest being December 31, 2002, and all of the options terminate if one of the
options is permitted to expire without being exercised in full. A total of
25,000 warrants are Series 2002I Warrants, which are exercisable at $1.00 per
share and expire on the earlier of five years from the date of issue or, after
one year from date of issue or anytime after the shares are registered, the
180th day following the date the closing price of our common shares equals or
exceeds $3.00 for 10 days, whether or not consecutive. The remaining 25,000
warrants are Series 2002J Warrants, which are exercisable at $1.25 per share and
expire on the earlier of five years from the date of issue or, after one year
from date of issue or anytime after the shares are registered, the 180th day
following the date the closing price of our common shares equals or exceeds
$3.25 for 10 days, whether or not consecutive. On November 1, 2002, the investor
exercised the first option and purchased an additional 50,000 shares and 50,000
warrants for $25,000.
On September 5, 2002, we entered into a stock purchase, option and
subscription agreement with a private investor which provided for the purchase
and sale of 200,000 common shares and 200,000 warrants for $100,000. The
investor also received four options, each option granting the investor the right
to purchase the same quantity, and no less, of common shares and warrants at the
same price as the initial placement. The options expire at staggered dates, the
latest being December 30, 2002, and all of the options terminate if one of the
options is permitted to expire without being exercised in full. A total of
100,000 warrants are Series 2002J Warrants, which are exercisable at $1.25 per
share and expire on the earlier of five years from the date of issue or, after
one year from date of issue or anytime after the shares are registered, the
18
180th day following the date the closing price of our common shares equals or
exceeds $3.25 for 10 days, whether or not consecutive. The remaining 100,000
warrants are Series 2002K Warrants, which are exercisable at $1.50 per share and
expire on the earlier of five years from the date of issue or, after one year
from date of issue or anytime after the shares are registered, the 180th day
following the date the closing price of our common shares equals or exceeds
$3.50 for 10 days, whether or not consecutive. On September 27, 2002, the
investor exercised the first option and purchased an additional 200,000 shares
and 200,000 warrants for $100,000.
From October 4, 2002 through November 1, 2002, we entered into stock
purchase, option and subscription agreements with private investors which
provided for the purchase and sale of 266,667 common shares and 266,670 warrants
for $200,000. The investors also received four options, each option granting the
investor the right to purchase the same quantity, and no less, of common shares
and warrants at the same price as the initial placement. The options expire at
staggered dates, the latest being February 15, 2003, and all of the options
terminate if one of the options is permitted to expire without being exercised
in full. One-half of the warrants are Series 2002J Warrants, which are
exercisable at $1.25 per share and expire on the earlier of five years from the
date of issue or, after one year from date of issue or anytime after the shares
are registered, the 180th day following the date the closing price of our common
shares equals or exceeds $3.25 for 10 days, whether or not consecutive. The
remaining one-half of the warrants are Series 2002L Warrants, which are
exercisable at $1.75 per share and expire on the earlier of five years from the
date of issue or, after one year from date of issue or anytime after the shares
are registered, the 180th day following the date the closing price of our common
shares equals or exceeds $3.75 for 10 days, whether or not consecutive.
On July 1, 2002, we issued 50,000 common shares in a private placement
pursuant to the terms of a consulting agreement dated April 19, 2002 in
consideration for consulting services to be provided to the Company.
The above-described common shares, options and warrants were offered
and sold in reliance upon the exemption for sales of securities not involving a
public offering, as set forth in Section 4(2) of the Securities Act and Rule 506
promulgated under the Securities Act based upon the following: (a) each investor
represented and warranted to the Company that it was an "accredited investor,"
as defined in Rule 501 of Regulation D promulgated under the Securities Act and
had such background, education, and experience in financial and business matters
as to be able to evaluate the merits and risks of an investment in the
securities; (b) there was no public offering or general solicitation with
respect to the offering, and each investor represented and warranted that it was
acquiring the securities for its own account and not with an intent to
distribute such securities; (c) each investor was provided with an offering
summary, a copy of the most recent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K of the Company and all
other information requested by the investor with respect to the Company, (d)
each investor acknowledged that all securities being purchased were "restricted
securities" for purposes of the Securities Act, and agreed to transfer such
securities only in a transaction registered with the SEC under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates and other documents representing each such security
stating that it was restricted and could only be transferred if subsequently
registered under the Securities Act or transferred in a transaction exempt from
registration under the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
a) See Exhibit Index attached hereto.
b) On July 18, 2002, we filed a Current Report on Form 8-K reporting
that (a) the name of our company had changed from "Altair
International Inc." to "Altair Nanotechnologies Inc.," (b) the
Company was continued (i.e. redomesticated) from the Business
Corporation Act (Ontario) to Canada's federal corporate statute,
called the Canada Business Corporations Act, (c) the directors were
authorized to appoint one or more additional directors between
meetings of shareholders to hold office for a term expiring not
later than the next annual meeting of shareholders, provided that
the total number of directors so appointed may not exceed one third
of the number of directors elected at the previous annual meeting of
shareholders, (d) the Company was authorized to have meetings of
shareholders outside of Canada in the State of Nevada, and (e) the
board of directors was authorized from time to time and in such
amounts and on such terms as it deems expedient, to: (i) borrow
money on the credit of the Company; (ii) issue, sell or pledge debt
obligations (including bonds, debentures, notes or other similar
obligations, secured or unsecured) of the Company; and (iii) charge,
19
mortgage, hypothecate or pledge all of any of the currently owned or
subsequently acquired real or personal, movable or immovable,
property of the Company, including book debts, rights, powers,
franchises and undertaking, to secure any debt obligations or any
money borrowed, or other debt or liability of the Company.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Altair Nanotechnologies Inc.
November 12, 2002 By: /s/ William P. Long
----------------- ---------------------------
Date William P. Long
Chief Executive Officer
November 12, 2002 By: /s/ Edward H. Dickinson
----------------- ----------------------------
Date Edward H. Dickinson
Chief Financial Officer
21
CERTIFICATIONS
I, William P. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ William P. Long
---------------------------
William P. Long
Chief Executive Officer
22
I, Edward Dickinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Edward Dickinson
---------------------------
Edward Dickinson
Chief Financial Officer
23
EXHIBIT INDEX
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
--------------- --------------------------------------------------- --------------------------------------------
3.1 Articles of Continuance Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on
July 18, 2002
4.1 Bylaw No. 1 Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on
July 18, 2002
4.2 Form of 2002D Warrant Incorporated by reference to Amendment No.
1 to Registration Statement on Form S-3
filed with the Commission on November 4,
2002, File No. 333-100637.
4.3 Form of 2002E Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637.
4.4 Form of 2002F Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637.
4.5 Form of Series 2002I Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637.
4.6 Form of Series 2002J Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637. .
4.7 Form of Series 2002K Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637
4.8 Form of Series 2002L Warrant Incorporated by reference to Registration
Statement on Form S-3 filed with the
Commission on October 18, 2002, File No.
333-100637
10.1 Amended and Restated Stock Purchase and Incorporated by reference to the Company's
Subscription Agreement dated April 2002 Quarterly Report on Form 10-Q for the
period ended June 30, 2002 filed with the
SEC on May 15, 2002
10.2 Stock Purchase, Option and Subscription Agreement Incorporated by reference to Registration
dated September 5, 2002, between the Company and Statement on Form S-3 filed with the
Cranshire Capital, L.P. Commission on October 18, 2002, File No.
333-100637
24
10.3 Form of Stock Purchase, Option and Subscription Incorporated by reference to Registration
Agreement dated October __, 2002, between the Statement on Form S-3 filed with the
Company and the selling shareholders purchasing Commission on October 18, 2002, File No.
on that date 333-100637
99.1 Certification of Chief Executive Officer Filed herewith
99.2 Certification of Chief Financial Officer Filed herewith
25