UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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(Amendment No. 4)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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ALTAIR INTERNATIONAL INC.
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(Exact name of registrant as specified in its charter)
Province of
Ontario,
Canada 1-12497 None
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(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
1725 Sheridan Avenue, Suite 140
Cody, Wyoming 82414
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (307) 587-8245
[ ] 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 National 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. [ ]
The aggregate market value of the common shares held by non-affiliates
of the Registrant on March 15, 2001, based upon the closing sale price of the
common shares on the NASDAQ Stock Market of $2.75 per share on March 15, 2001,
was approximately $46,160,000. 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, 2001 the Registrant had 19,510,488 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Altair International Inc. ("Altair") is filing this Amendment No. 4 on
Form 10-K/A (this "Amendment") to its Annual Report on Form 10-K for the year
ended December 31, 2000 (the "Form 10-K") filed with the SEC on April 2, 2001,
as amended by Amendment No. 1 filed on April 17, 2001, Amendment No. 2 filed on
May 2, 2001 and Amendment No. 3 filed on May 9, 2001, for the following
purposes:
o to revise Item 1 (Business) to more accurately and completely
describe Altair's Tennessee mineral property, Altair's titanium
processing technology and Altair centrifugal jig;
o to revise Item 2 (Property), Item 8 (Financial Statements and
Supplementary Data) and Item 7 (Management's Discussion and
Analysis) to conform the descriptions of the Tennessee mineral
property in the notes in the financial statement to the revised
descriptions in Item 1;
o to revise Item 13 (Certain Relationships and Related Transactions)
in order to describe the dollars value of a contract between
Altair and a member of the board of directors of one of Altair's
subsidiaries; and
o to revise Item 14 (Exhibits, Financial Statement Schedules and
Reports on Form 8-K) to update the Exhibit Index and description
of the financial statements.
In order to facilitate understanding of the Form 10-K, in addition to
inserting the information described in the preceding paragraph, this Amendment
restates in its entirety all information contained in prior amendments to the
Form 10-K. Sections of the Form 10-K not identified above as having been revised
are being restated without amendment. All subsequent references to "Form 10-K"
shall refer to the initial Form 10-K, as amended by this Amendment.
INDEX TO FORM 10-K
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Item 1: Business..........................................................................................1
Item 2. Properties.......................................................................................24
Item 3. Legal Proceedings................................................................................24
Item 4. Submission of Matters to a Vote of Security Holders..............................................25
PART II.....................................................................................................25
Item 5. Market for the Common Shares and Related Shareholder Matters.....................................25
Item 6. Selected Financial Data..........................................................................26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............27
Item 8. Financial Statements and Supplementary Data......................................................32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............32
Item 10. Directors and Executive Officers of the Registrant...............................................32
Item 11. Executive Compensation...........................................................................34
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................37
Item 13. Certain Relationships and Related Transactions...................................................38
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................39
PART I
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This Annual Report on Form 10-K for the year ended December 31, 2000 (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 International 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.
Item 1: Business
Certain technical terms used in the following description of our
business are defined in a glossary set forth on page 15. We have identified such
terms by italicizing them the first time they are used in the text. Unless the
context requires otherwise, all references to "Altair," "we," "Altair
International Inc.," or the "Company" in this Form 10-K refer to Altair
International Inc. and all of its subsidiaries.
In relation to the Tennessee mineral property, Altair is an exploration
stage company (as defined in Guide 7 promulgated under the Securities Act of
1933, as amended), and there is no assurance that a commercially viable mineral
deposit exists on the Tennessee mineral property or any other property leased by
Altair. We will cease to be an exploration stage company with respect to the
Tennessee mineral property only when and if we have established the existence of
a commercially minable deposit.
General
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Altair International Inc. was incorporated under the laws of the
Province of Ontario, Canada in April 1973 for the purpose of acquiring and
exploring mineral properties. 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 1994, we
have also devoted substantial resources to the development and testing of
mineral processing equipment for use in the recovery of fine, heavy mineral
particles.
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 ("TiO2") products from titanium bearing ores or concentrates (the
"titanium processing technology"), and all tangible equipment and other assets
used by BHP to develop and implement the titanium processing technology.
Although the titanium processing technology is capable of producing a variety of
titanium products, we plan to initially employ the titanium processing
technology for the production and sale of TiO2 nanoparticles. See "--Titanium
Pigment Processing Technology."
We have also leased, and are exploring, approximately 14,000 acres of
land near Camden, Tennessee (the "Tennessee mineral property") to determine
whether it would be amenable to large-scale mining for titanium and zircon. See
"--Tennessee Mineral Property."
1
During 1996, we acquired the rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig (the "jig"). The jig is a
machine that uses a rotating circular screen and pulsating water to separate
valueless mineral particles from more valuable mineral particles based on the
differences in their specific gravity. In tests, the jig has proven capable of
segregating and recovering extremely fine mineral particles. We are presently
testing and customizing the jig for use in the recovery of heavy minerals such
as titanium and zircon, and we believe that the jig could also be used to
recover other minerals such as gold and for environmental remediation. See
"--Jig Technology and Proprietary Rights."
To date, we have derived no revenues from product sales or otherwise
and have experienced an operating loss in every year of operation. In the fiscal
year ended December 31, 2000, we experienced net losses of $5,914,474.
Altair currently has three wholly-owned subsidiaries, Fine Gold
Recovery Systems, Inc., a Nevada corporation ("Fine Gold"), Mineral Recovery
Systems, Inc., a Nevada corporation ("MRS"), and 660250 Ontario Limited, an
Ontario Corporation, and two indirect wholly-owned subsidiaries, Altair
Technologies, Inc., a Nevada corporation, and Tennessee Valley Titanium, Inc., a
Nevada corporation.
Titanium Pigment Processing Technology
--------------------------------------
Acquisition of the Processing Technology. On November 15, 1999, we
entered into an Asset Purchase and Sale Agreement with BHP pursuant to which we
purchased all patent applications, technology and tangible assets related to a
hydrometallurgical process developed by BHP primarily for the production of
titanium dioxide products from titanium bearing ores or concentrates (i.e., the
titanium processing technology), and all tangible equipment and other assets
used by BHP to develop and implement the titanium processing technology (the
"titanium processing assets").
The purchase price for the titanium processing technology and titanium
processing assets was $9,625,500. In addition, the Asset Purchase and Sale
Agreement also requires us to pay to BHP, until the earlier of November 15, 2014
or the date we have paid an aggregate royalty of AUD$105,000,000, a quarterly
royalty equal to:
o 1.5% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by Altair or a transferee at Altair's mineral properties in
Tennessee;
o 1.5% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by BHP or any affiliate of BHP at a specified heavy mineral
sand operation located near Auckland, New Zealand;
o 3% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by Altair or a transferee of Altair at any location other
than its Tennessee mineral property or BHP's Auckland, New Zealand
heavy mineral sand operation; and
o 3% of the sales proceeds (F.O.B. Altair's facility, reduced by the
amount of product returns) received by Altair or a transferee of Altair
from the sale of any products other than TiO2 pigment produced through
its use of the titanium processing technology.
2
In addition, in connection with the Asset Purchase and Sale Agreement,
Altair and BHP entered into a Lease dated November 15, 1999, pursuant to which
we lease approximately 20,000 square feet of laboratory and testing space at
BHP's testing facility in Reno, Nevada for a monthly rent of $15,000. The Lease
grants us a right of first refusal in the event BHP intends to sell the building
and property subject to the Lease and includes an agreement to negotiate in good
faith with respect to our possible purchase of such building and property.
Description of the Titanium Processing Technology. Our titanium
processing technology is capable of producing conventional TiO2 pigment
products. Conventional TiO2 pigments are finely-sized powders consisting of TiO2
crystals. These crystals may be either anatase or rutile phase (shape) and
approximate 0.18 to 0.22 microns in size. Our titanium processing technology is
also capable of producing TiO2 nanoparticles, a specialty product with a size
range of 10 to 100 nanometers (approximately one tenth the size of conventional
pigments). We plan to initially use the processing plant to produce TiO2
nanoparticles.
The titanium processing technology is based on a proprietary
dense-phase crystal growth technique which controls crystal formation using a
combination of mechanical and fluid dynamics and chemical and thermal control.
Through introduction of very small quantities of selected chemicals ("doping
elements") during crystal growth, the size, phase, catalytic and photocatalytic
activity and size distribution of crystals can be controlled within narrow
limits and to specification.
Titanium Processing Assets. The titanium processing assets consist
principally of a production facility located in the leased premises. During
2000, we installed additional equipment to increase production capacity to a
nominal annual amount of 200 tons of TiO2 nanoparticles. We also added a
separate pilot facility to produce large sample quantities of product for
development, test and evaluation purposes.
Plans for Development of the Titanium Pigment Processing Technology.
The titanium processing technology has potential to produce both titanium
pigments, which are commercially traded in bulk, and TiO2 nanoparticles, which
are sold on specialty product markets. Our plan is to first concentrate on
development of TiO2 nanoparticle products, which may be produced and sold in
commercial volumes utilizing the in-place, 200 ton per year, plant in Reno. In
the future, we will work to commercialize a titanium pigment production
capability - an activity which we hope to do in conjunction with an as yet
unidentified industry partner.
We have transferred our titanium processing assets and titanium
processing technology to Altair Technologies, Inc. ("ATI"), a wholly-owned
subsidiary of Altair, and hired a president of ATI to provide management and
direction for the development of our titanium processing technology. Effective
January 1, 2001, we hired fourteen former BHP employees who were instrumental in
the development of our titanium processing technology. Certain of these
employees will continue research and development work and others will be
involved in operation and maintenance of the production facility. Altair has
commenced marketing TiO2 nonoparticles, has received a single purchase order in
the amount of $60,000 for future delivery of TiO2 nonoparticles and is also
investigating distributor relationships.
Target Market for Products of the Titanium Processing Technology. TiO2
nanoparticles are marketed and sold as specialty chemicals. End users typically
work closely with suppliers to set product specifications, which may or may not
be subsequently certified for individual applications. Very little TiO2
nanoparticle product is sold as a fungible "shelf-item" product.
3
Altair's plan for TiO2 nanoparticle market entry has been to prepare a
suite of products that have a range of physical and chemical properties.
Potential TiO2 nanoparticle end users are invited to test our basic products and
to separately work with us so that we may tailor a nanoparticle product for
their particular use. We have filled 130 requests for samples of nanoparticle
products from the 230 companies that have contacted us. Based on third party
inquiries, testing of and interest in our TiO2 nanoparticles is seemingly most
advanced in applications for batteries (lithium titanate), thermal sprays
(TiO2), and catalysts (both TiO2 and yettrium stabilized zircon). These are
applications from which we hope to make our first volume commercial sales.
Research, Testing and Development of the Titanium Processing
Technology. Our titanium processing technology is the result of several years of
research and development work done by BHP. We are continuing the research and
development work to both improve the process and to develop commercial
applications for it. Such work will be conducted by the former BHP employees who
became employees of the Company on January 1, 2001.
In addition, we are engaged in joint research and development efforts
with potential customers and other interested parties. For example, in August
2000, we entered into an agreement with the Massachusetts Institute of
Technology ("MIT") to carry on joint research to develop a nanostructured fuel
cell system for direct hydrocarbon conversion. The research program uses wafer
thin sheets of TiO2 and yettrium stabilized zircon produced by Altair in
conjunction with novel nanostructured anode and cathode catalysts developed by
MIT.
The Titanium Processing Technology and Proprietary Rights. BHP has
filed numerous patent applications with the United States Patent and Trademark
Office with respect to our titanium processing technology and has transferred
the rights to such applications to us. Such applications are in the review
process, and no patents with respect to the titanium processing technology have
been granted to date.
Competition--the Titanium Processing Technology. Our titanium
processing technology is fundamentally different from current commercial
processing techniques. Other processes are based on either a precipitation of
particles from aqueous solution or 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 that are thermally stable at 800 degrees Centigrade
for 100 hours or more. By remaining stable in high-temperature processing,
nanoparticles produced by our titanium processing technology retain the desired
nanoparticle size and crystalline phase. In addition, our technology is designed
to reduce process effluents needing environmental remediation and to accept a
wide variety of naturally occurring titanium feed stocks.
We have not operated the titanium processing technology at a commercial
scale. Accordingly we cannot describe processing efficiencies and costs
associated with our titanium processing 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 operating history (particularly our lack of existing customer relationships).
There are approximately ten significant producers of TiO2 nanoparticles in the
world, the largest of which supplies approximately 20% of the market. Competing
nanoparticle producers are financially strong corporations who enjoy established
customer relationships and operating histories.
4
Tennessee Mineral Property
--------------------------
Description of the Tennessee Mineral Property. The Tennessee mineral
property consists of approximately 14,000 acres of land containing fine, heavy
minerals that we have leased (or have binding commitments to lease) in or near
Camden, Tennessee.
Prior to our beginning to acquire leases on the Tennessee mineral
property in 1996, sections of the Tennessee mineral property were leased or
owned by each of E.I du Pont de Nemours and Company (from 1950 to 1954),
KerrMcGee Corporation (from 1975 to-1989), and BHP Minerals International Inc.
(from 1991 to 1994). Each of these predecessors engaged in drilling, sampling
and other exploratory activities on the Tennessee mineral property but, based
upon such predecessors particular circumstances and the economics of the period,
elected to stop work and relinquish property rights.
The topography of the Tennessee mineral property consists of
vegetation-covered rolling hills comprised of sands deposited in an ancient
beach environment. Minerals on the Tennessee mineral property occur in the
Cretaceous McNairy formation, and heavy minerals comprising 2% to 8% of the sand
(by weight) are typical. The mineralized sands on the Tennessee mineral property
have not yet been proven to be a reserve (as defined in Regulation S-K, Item
802, Guide 7 promulgated under the Exchange Act), and our limited operations and
proposed plan with respect to it are exploratory in nature.
Research and Exploration on the Tennessee Mineral Property. From 1996,
our exploration activities on the Tennessee mineral property have included
geologic mapping, collection of bulk samples for metallurgical testing, drilling
of 156 auger holes between 30 and 100 feet deep and preparation of geologic
models. Our geologic model also incorporates 40 drill holes completed by an
earlier exploration company.
During 1997, we collected approximately 5,000 pounds of representative
sand for testing from an exposed sand horizon. This sample was processed by an
independent Florida heavy sands producer and Altair to produce representative
samples of market-quality products. The sample results were reviewed by an
independent consulting group hired by us to prepare a pre-feasibility study of
approximately 4,700 acres of the Tennessee mineral property known as the "Camden
Property." The consultants examined heavy mineral suites from the Camden
Property (prepared from sands naturally containing about 4% heavy minerals and
96% quartz) and found that titanium bearing minerals constitute about 65% of the
total heavy mineral portion of the suite, zircon accounted for 15% of the heavy
mineral portion of each suits and the remainder was non-valuable heavy minerals.
The study, completed in July 1998, also indicated that market-quality ilmenite,
rutile and zircon products could be produced from such heavy minerals suites and
that markets currently exist for such products.
In August 1998, based on the consultant's pre-feasibility report, we
commenced additional feasibility testing. To date, we have constructed and
placed into operation a pilot test facility on the Tennessee mineral property.
To the extent initial stages of our feasibility testing yields positive results,
we expect our feasibility testing to involve, among other things, the following:
o operating the pilot mining facility to determine mineral recovery
efficiencies and the quality of end products;
o drilling and sampling in order to more accurately determine the
quantity, quality and continuity of minerals on the Tennessee mineral
property;
5
o examining production costs and the market for products produced at the
pilot facility;
o designing and pricing construction costs associated with any proposed
mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
Subsequent to completion of the 1998 pre-feasibility study, our further
exploration of the Tennessee mineral property has suggested the existence of
additional heavy mineral sands in an area northwest of the Camden Property known
as "Little Benton." Preliminary data indicate that Little Benton contains
mineralization similar to the Camden Property. We have approximately 7,900 acres
under lease in the Little Benton area and intend to conduct further testing in
the future.
During 2000, we incurred $1,217,966 in exploration expenditures on the
Tennessee mineral property, and in 1999, we incurred $689,594 in exploration
expenditures on the Tennessee mineral property. To date, we have incurred
$3,239,018 in total expenses on our exploration of the Tennessee mineral
property. Expenditures have been incurred for pilot plant design, fabrication
and site preparation, leasehold minimum advance royalty payments, and other
related exploration activities. We anticipate spending between $700,000 and
$3,700,000 exploring the Tennessee mineral property during 2001. The amount of
future expenditures will depend upon the availability of financial capital and
the results of our ongoing feasibility testing.
Competition--the Tennessee Mineral Property. Based on the exploratory
work done to date, we anticipate that the saleable products which could be
produced from the Tennessee mineral property are ilmenite, rutile and zircon.
Ilmenite, which may contain 40% to 70% titanium dioxide, is used in the
production of titanium dioxide pigment, a specialty chemical used principally as
a whitener and opacifier for paper, plastics and paint. According to the U.S.
Geological Survey, ilmenite is the most abundant naturally occurring,
commercially produced titanium mineral and supplies approximately 90% of the
world demand for titaniferous material. Such demand is projected to increase at
an annual rate of 2%-3% for the foreseeable future. The value of titanium
mineral concentrates consumed in the United States in 2000 was approximately
$530 million. There are presently two entities in the United States which
produce ilmenite concentrate from heavy mineral sands and virtually all
production is used by four titanium pigment producers whose plants are primarily
located in the southeastern U.S. Pigment producers use various methods to
process ilmenite concentrate into titanium dioxide pigment and require that the
concentrate feedstock meet certain chemical and size criteria applicable to the
process being used.
Rutile, which generally contains greater than 95% titanium dioxide, is
also used in the production of titanium dioxide pigment. In pigment products,
its processing costs are significantly less than ilmenite due to the higher
concentration of titanium dioxide. Although this greatly enhances its market
value, rutile is much less abundant than ilmenite, representing approximately 5%
of the total heavy minerals contained in the Tennessee mineral property.
Zircon, which is used in ceramic, refractory and foundry applications,
represents approximately 15% of the heavy minerals contained in the Tennessee
mineral property. Zircon sand is currently being produced at three mines in the
southeastern U.S. and in several countries around the world. Titanium-bearing
minerals and zircon are commonly found and mined together.
Location and Status of Work on the Tennessee Mineral Property.
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On the following page is a location map for the Camden and Little
Benton properties, which we collectively refer to as the Tennessee mineral
property. Access within blocks is via a network of County and farm roads. Lease
blocks in the Camden and are made up of contiguous rural tracts. Land uses are
dominantly forestry and cattle grazing. Bottom lands are sometimes used for row
crops. There is no history of mining in these areas.
6
Altair has an operating pilot plant on the Camden lease block. Pilot
plant operations are fully permitted with the state of Tennessee and federal
agencies. 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 cyclonrs, and a five stage spiral plant.
7
[OBJECT OMITTED]
[TENNESEE MINERAL PROPERTY]
8
The Jig
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Description of the Jig. The Altair Centrifugal Jig segregates particles
based on differences in their specific gravity. Such technology may be
categorized as a "gravity separation" process. Gravity separators are widely
used in minerals beneficiation because of their relative simplicity, low cost of
operation and ability to continuously treat large tonnage throughput.
Preliminary demonstration tests conducted by Altair and a previous owner of the
jig suggest that the jig may 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.
Several prototype and demonstration jigs have been built and tested by
Altair and previous owners of the jig. Our Series 12 Jig stands about six feet
tall, requires floor space of about 25 square feet and weighs approximately
2,000 pounds. Our Series 30 Jig stands about 10 feet tall, requires floor space
of about 54 square feet and weighs approximately 7,000 pounds. Recently
constructed jigs have been mounted on metal frames along with jig auxiliary
equipment--pulse water pump and tank and control panel--for transport by truck
and rapid on-site installation.
Continued field testing of the jig is being undertaken, as resources
are available, to increase the volume capacity, identify any design problems
that may reside in the jig technology, evaluate the jig's ability to perform
sustained operations, determine the potential for downtime during such
operations, estimate the anticipated maintenance costs associated with continued
operations and identify design improvements for specific applications. There can
be no assurance that the testing program will be successful for all applications
or that testing will demonstrate the jig to be economically attractive to end
users. See "--Factors That May Affect Future Results."
How the Jig Works. 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 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 jig are introduced into the
top of the jig in a slurry mix with water. The slurry is diffused across 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 jig requires no chemical additives.
In operation, the jig utilizes a combination of standard mechanical jig
and centrifugal technologies. The jig is of simple mechanical design with few
wear surfaces. To compete as a viable commercial unit, the 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 jig.
9
Target Markets for the Jig. In the long run, the jig may potentially be
useful for a number of applications. We believe that the most promising market
for the jig in the short run is for use in processing of heavy mineral sands in
order to recover heavy minerals, particularly zircon and titanium.
The primary valuable minerals produced from heavy mineral sands are
titanium and zircon. Titanium is used primarily as a basic component of titanium
dioxide, a pigment used principally as a whitener and opacifier for paper,
plastics, and paint. Zircon is used primarily for foundry molds and in the
manufacture of certain types of glass and ceramics. The domestic and
international markets for both of these products and well established. Both are
commodities traded in bulk, usually under long-term contracts, and are also sold
in 50-100 lbs. bags, usually traded as a spot-priced product. The U.S.
Geological Survey has reported that the value of titanium mineral concentrates
consumed in the United States in 2000 was approximately $530 million. The U.S.
Geological Survey estimates zirconium production for the United States at
approximately 100,000 metric tons in 2000, representing a market value of
approximately $34 million. There can be no assurance that testing will
demonstrate that the jig can economically extract heavy minerals from heavy
minerals sands or that the jig will prove attractive to end users.
Research, Testing and Development of the Jig. Verification testing with
the Series 12 Jig suggests the jig's potential for recovering zircon from heavy
mineral sand dry mill tails in Florida. In Phase 1 and 2 trials conducted by
Altair involving separation of commercial grade zircon products from mineral
sands, the Series 12 Jig withdrew a larger portion of zircon from the feed ore
than other mineral sands processing equipment in use today. In tests on
zircon/alumina silicate feeds conducted by Altair, the Series 12 Jig has yielded
greater than 90% zircon concentrates and recovered up to 75% of the zircon fed
to the unit. We have also conducted tests of the Series 12 jig at our Reno test
facility. Fine titanium-bearing heavy mineral sands were processed through the
jig with resulting titanium recovery rates of 86% and heavy mineral grades of
80%.
We have conducted preliminary testing of our Series 30 Jig at a mineral
recovery plant operated by a large heavy mineral sand producer located in
northern Florida. Results of the testing indicate that the Series 30 Jig is
capable of producing separation results comparable in efficiency to those of the
Series 12 Jig for zircon concentrates. The Series 30 Jig, however, is designed
to be capable of processing 500 tons of solids per day, or more than four times
the throughput capacity of the Series 12 Jig. The volumes of solids per day that
the Series 30 and Series 12 Jigs are actually capable of processing on a
sustained commercial basis have not been established. We have also begun design
work for a larger jig that would have over twice the processing capacity of the
Series 30 Jig. Such increased capacity would enhance the jig's commercial
potential for high volume applications such as coal washing and recovery of iron
ore fines.
The jig has multiple operating parameters, primarily rotational speed,
pulsing pressure, and screen characteristics, which must be adjusted to fit the
processing requirements of the particular feed stream being treated. More
extensive testing is needed to identify the most efficient operating parameters
for specifically identified applications. Furthermore, demonstration of
sustained operation is critical to marketing efforts. We are assessing our
options for furthering development of the jig and may consider selling the jig
technology or licensing it to others. In the meantime, we plan to continue
development work on a limited basis utilizing available resources. We expect
that such development work will focus on equipment design and amenability
testing of mineral ores using Series 12 and Series 30 Jigs located in Northern
Florida and our test facility in Reno, Nevada. We also intend to incorporate the
jig into the pilot plant testing process at our Tennessee mineral property for
use in the recovery of titanium and zircon.
10
Jig Technology and Proprietary Rights. Initial patents related to the
concept of the 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 jig,
a critical component differentiating the 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 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.
Competition for the Jig. Various mineral processing technologies
perform many functions similar or identical to those for which the jig is
designed. Minerals processing technologies are generally predicated on the
physical and chemical characteristics of the materials being processed. A
minerals processor may exploit contrasts in size, specific gravity, hardness,
magnetic susceptibility, electrical conductivity, and similar characteristics to
selectively extract and concentrate mineral constituents. Minerals processors
also exploit variations in chemical reactivity and molecular affinity to
selectively separate minerals.
The jig competes in an arena in which particle specific gravity is the
primary criteria for particle segregation and capture. Competing technologies
and product include the following:
Spirals and Cones. To separate out valuable particles with a spiral or
cone, a mineral processor runs a sand-size feed slurried in water
through a tilted trough (spiral) or over a convex surface (cone). In
this process, fine-sized particles tend to "float" and not settle as
quickly as larger particles. The difference in settling speed permits
the mineral processor to separate out and extract the more valuable
heavy particles. Spirals and cones are most effective in feed sizes
larger than 150 mesh.
Froth Flotation Devices. To separate minerals using a froth floatation
device, a processor introduces chemical agents into a pool of mixed
particles, which agents attach to certain sulfides. Once attached to
the chemical agents, the sulfides float to the surface. The froth
flotation method can be effective on particles 200 mesh or smaller in
size.
Heavy Media Separation. Heavy media separation is a process in which a
feed containing both dense and light particles is fed into a solution
whose specific gravity is midway between the particles to be separated.
The light particles float to the surface of the solution, while the
heavy particles sink. Heavy media separation is effective primarily in
the removal of ash from coal and in small-scale analytic laboratory
applications.
Jig-Like Products. The jig currently faces several forms of competition
in the commercial segregation of dense particles contained in feeds
between 150 and 400 mesh, including the Kelsey jig, Falcon
concentrators and the Knelsen batch concentrator unit, which are
currently being used worldwide.
o The Kelsey jig was developed in Australia and, although more
complicated than the jig, incorporates similar centrifugal and jig
technologies. According to the Kelsey jig's manufacturer, Geo
Logics Pty. Ltd., Kelsey jigs are in service at 25 plants
worldwide.
o The Falcon concentrator was developed in Canada and is used mainly
for pre-concentration and scavenging. A centrifugal device, its
applications to date has been in the gold and tantalum industries.
11
o The Knelsen Bowl was developed in Canada and is a batch
concentrator rather than a jig. (A batch concentrator differs from
the jig in that it process a finite "batch" of material, is
completely emptied, and then processes a completely new finite
batch, while the jig processes a continuous flow of materials).
Our understanding is that the Knelsen Bowl is best suited to small
volumes. Knelsen Bowls have been installed in various mining
applications, primarily gold, throughout the world.
Long term testing needs to be completed to accurately define operating
costs and operating efficiencies associated with the jig as compared to
competing products. Results from further tests or actual operations may reveal
that these alternative technologies and products are better adapted to any or
all of the uses for which the jig is intended. Moreover, regardless of test
results, consumers may view any or all of such alternative technologies as
technically superior to, or more cost effective than, the jig.
Altair is a small player in an industry comprised of major mining
companies possessing tremendous capital resources and we are an insignificant
competitive factor in the industry. There is no assurance that competitors, many
of whom may have significant capital and resources, will not develop or are not
now in the process of developing competitive equipment that may be functionally
or economically superior to our equipment.
Future Development of the Jig. We have concluded that, in the
foreseeable future, our limited human and financial resources can most
effectively be utilized in the development of the titanium processing assets and
titanium processing technology and the Tennessee mineral property. Consequently,
we are assessing our options for furthering the development of the jig and may
consider selling the jig technology or licensing it to others who have adequate
resources to complete development of the jig, establish marketing and
distribution channels and initiate manufacturing. In the meantime, we expect to
continue development work, primarily equipment design, on a limited basis.
Subsidiaries.
-------------
Altair International Inc.1 was incorporated under the laws of the
province of Ontario, Canada in April 1973.
Fine Gold was acquired by Altair in April 1994. Fine Gold has received
no operating revenues earned to date. Fine Gold acquired the intellectual
property associated with the jig in 1996. Another wholly-owned subsidiary,
formerly known as Carlin Gold Company, is now operated under the name Mineral
Recovery Systems, Inc. Altair intends that Fine Gold will hold and maintain jig
technology rights, including patents.
MRS was incorporated by Altair in April, 19872. 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, and Altair intends that MRS will continue to lease or acquire and
explore mineral properties in the future, particularly properties that contain
minerals that may be processed with the jig.
------------------
1 The Company was incorporated 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, to Altair International Gold Inc. in March 1994, and
to Altair International Inc. in November 1996.
2 MRS was formerly known as Carlin Gold Company. The name change was
effective in June 1996.
12
Altair Technologies, Inc. was incorporated in 1998 as a wholly-owned
subsidiary of MRS and holds all of the Company's interest in our titanium
pigment processing technology and related assets. The remaining 100% owned
subsidiaries do not presently have any assets or operations.
Government Regulation and Environmental Concerns.
-------------------------------------------------
Government Regulation. Our exploration of the Tennessee mineral
property, testing of the jig, and operation of the titanium pigment processing
facility are, and any future testing, operation, construction or mining
activities of Altair will be, subject to a number of federal, state, and local
laws and regulations concerning mine and 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; nevertheless, continued compliance may be
extremely costly, especially if we actually commence extraction operations on
the Tennessee mineral property. If we fail to comply with any such laws or
regulations, 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, however, 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 mining or
processing operation on the Tennessee mineral property, at the titanium pigment
processing facility or any other property acquired by us will be 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 substances discovered on the Tennessee mineral
property or any other property used by us, which 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 might use Hazardous Substances and, although we intend
to employ all reasonably practicable safeguards to prevent any liability under
applicable laws relating to Hazardous Substances, companies engaged in mineral
exploration and processing are inherently subject to substantial risk that
environmental remediation will be required.
Employees.
----------
The business of Altair is currently managed by Dr. William P. Long,
President and Chief Executive Officer of the Company and Mr. C. Patrick Costin,
Vice President of the Company and President of MRS and Fine Gold. In addition,
we employ a Chief Financial Officer, a President of Altair Technologies, Inc.
and 21 additional employees. Aside from Dr. Long, Mr. Costin, the Chief
Financial Officer, and the President of Altair Technologies, Inc., we have no
employment agreements with any of our personnel.
13
On January 1, 2001, we hired fourteen former BHP employees who had been
involved in developing the titanium processing technology, and we also hired a
general counsel. During 2001, we expect to hire sales, marketing and production
employees for the titanium pigment processing business. The quantity and timing
of new hires will be dependent on business activity. We do not otherwise
anticipate that the number of Company employees will significantly increase
until we have sufficient sales and business activity to warrant it.
Where You Can Find More Information
-----------------------------------
We file annual, quarterly, and current reports, proxy statements, and other
information with the SEC. You may read and copy any reports, statements, or
other information that we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the Public Reference Room. The SEC also maintains an
Internet site (http://www.sec.gov) that makes available to the public reports,
proxy statements, and other information regarding issuers, such as Altair, that
file electronically with the SEC.
Our common shares are quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning Altair can be inspected and copied
at the Public Reference Room of the National Association of Securities Dealers,
1735 K Street, N.W., Washington, D.C. 20006.
Enforceability of Civil Liabilities Against Foreign Persons.
------------------------------------------------------------
We are an Ontario corporation, and a majority 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.
14
Glossary of Terms.
------------------
Amenability means responsiveness of an ore deposit to processing.
Anatase means one of three naturally occurring mineral phases of TiO2
(along with rutile and brookite). Anatase particles have a tetragonal crystal
structure.
Anode catalyst means the substance that activates the oxidizing
reaction at the negative electrode (fuel side) of a solid oxide fuel cell.
Ash means inorganic residue remaining after coal combustion. Ash is an
undesirable component of coal because it reduces thermal value and produces a
waste product after combustion.
Beneficiate means to improve the grade of ore by processing.
Cathode catalyst means the substance that activates the reducing
reaction at the positive electrode (air side) of a solid oxide fuel cell.
Centrifugal force means the component of force on a body in curvilinear
motion that is directed away from the axis of rotation.
Coal washing means processing of pulverized coal to remove ash and
pyrite.
Ductility means the property of solid material that undergoes more or
less plastic deformation before it ruptures.
Environmental remediation means removal of harmful mineral particles
from a site previously altered by human activities.
Heavy minerals sands means beach or dune sands which contain a small
fraction of heavy particles. Heavy mineral sands are commercially mined to
produce titanium minerals and zircon.
Ilmenite means a titanium-bearing oxide mineral containing variable
percentages of iron and used as a raw material in the production of titanium
pigments.
Iron ore fines means particles of iron ore, usually less than 1
millimeter in diameter.
Lithium titanate is a compound of lithium, titanium and oxygen.
Mesh means one of the openings or spaces in a screen. The value (size)
of the mesh is given as the number of openings per linear inch.
Micron means one millionth of a meter. One micron equals 1000
nanometers.
Mill means a building with machinery for processing ore. Dry mill
refers to heavy minerals sand processing of dry materials. Wet mill refers to
heavy minerals sand process of material that are mixed with water in slurry.
Placer means deposits of sand, gravel and other detrital or residual
material containing a valuable mineral which has accumulated through weathering
and natural mechanical concentration processes. A placer mine is an operation
that recovers certain valuable minerals based on differences in specific
gravity.
15
Photocatalytic means a process by which light frequencies activate the
catalytic nature of a substrate.
Pyrite means a yellowish-brown mineral sulfide containing iron and
sulphur. Pyrite is an undesirable component of coal because sulphur dioxide gas
is released when it is burned with coal.
Rutile means one of three naturally occurring mineral phases of TiO2
(along with anatase and brookite). Rutile particles have a tetragonal crystal
structure.
Specific gravity means the ratio of the mass of a solid or liquid to
the mass of an equal volume of water at a specified temperature.
Suite means an assemblage of minerals which naturally occur together
(i.e. a mineral suite).
Tails or tailings means those portions of washed ore that are regarded
as too poor to be treated further, as distinguished from material (concentrates)
that is to be smelted or otherwise utilized.
Tantalum is rare metal that is ductile, easily fabricated, highly
resistant to corrosion by acids, and a good conductor of heat and electricity
and has a high melting point. The major use for tantalum, as tantalum metal
powder, is in the production of electronic components, mainly tantalum
capacitors. Major end uses for tantalum capacitors include portable telephones,
pagers, personal computers, and automotive electronics.
Yettrium is an element on the periodic table.
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 operating
revenues or profits, uncertainties regarding the development and
commercialization of the jig, uncertainties regarding the quality, quantity and
grade of minerals on the Tennessee mineral property, risks related to our
proposed development and exploitation of our titanium processing technology and
titanium processing assets and uncertainties regarding our ability to obtain
capital sufficient to continue our operations and pursue our proposed business
strategy.
16
Factors that May Affect Future Results.
---------------------------------------
We have not generated any operating revenues and may not ever generate
significant revenues.
--------------------------------------------------------------------------------
To date, we have not generated revenues from operations. We have not
generated revenues from the jig and are scaling back development efforts in the
near future. We have had only one sale of our TiO2 nanoparticles and have not
completed exploration of the Tennessee mineral property. We can provide no
assurance that we will ever generate revenues from the jig or the Tennessee
mineral property or that we will generate significant revenues from the titanium
processing technology.
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 in 1999 were $3,729,534 and our losses
from operations for in 2000 were $6,647,367. We will continue to experience a
net operating loss until, and if, the titanium processing technology, the jig
and/or the Tennessee mineral property begin generating significant revenues.
Even if any or all such products or projects 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 March 31, 2001, we had $703,796 in unrestricted cash and
$4,056,348 in restricted cash that is securing a letter of credit and is
scheduled to be released as the outstanding principal balance is reduced. We
believe that the unrestricted cash we currently possess is sufficient to fund
our basic operations through June 30, 2001. In the absence of significant
revenue, this amount of capital will likely prove insufficient to complete the
testing and additional development work necessary to place the titanium
processing technology into continuous operation. In addition, we will likely
need additional capital for testing and development of the jig or exploration of
the Tennessee mineral property. If we determine to construct and operate a mine
on the Tennessee mineral property, we will need to obtain a significant amount
of additional capital to complete construction of the mine and commence
operations.
We may not be able 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:
|X| market factors affecting the availability and cost of capital
generally;
|X| our financial results;
|X| the amount of our capital needs;
|X| the market's perception of mining, technology and/or minerals stocks;
|X| the economics of projects being pursued;
|X| industry perception of our ability to recover minerals with the jig or
titanium processing technology or from the Tennessee mineral property;
and
|X| the price, volatility and trading volume of our common shares.
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.
17
Our competitors may be able to raise money and exploit opportunities more
rapidly, easily and thoroughly than we can.
--------------------------------------------------------------------------------
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 have better access to capital and other significant resources
than we do and, as a result, may be able to exploit acquisition and development
opportunities more rapidly, easily or thoroughly than we can.
The common shares issued upon exchange of the Exchangeable Term Note may dilute
existing shareholders.
--------------------------------------------------------------------------------
We do not presently have the capital to redeem the monthly payments
required by the 10% Asset-Backed Exchangeable Term Note dated December 15, 2000
(the "Exchangeable Term Note"). If we do not redeem such monthly payments, the
holder of the Exchangeable Term Note has the right to exchange the monthly
payment amounts into common shares at an exchange price equal to the lesser of
$3.00 (subject to adjustment) and the average of the lowest three daily trading
prices of the common shares during the 15 trading days ending on the day before
an exchange right is exercised. Because the exchange price is tied to the market
price of our common shares, the number of shares issuable upon exercise of
exchange rights increases significantly as the market price of our common shares
falls below $3.00 and would approach infinity if the market price of our common
shares approached zero. For example, if the market price of our common shares
were to drop to $.50 and remain at that level throughout the term of the
Exchangeable Term Note, the holder would receive approximately 15,458,332 common
shares (or approximately 44.5% of the common shares that would be outstanding
after the issuance) upon exercise of all exchange rights accruing under the
Exchangeable Term Note.
The exercise of exchange rights under the Exchangeable Term Note may place
downward pressure on the market price of our common shares and encourage short
selling.
--------------------------------------------------------------------------------
The exchange of the monthly payment amount under the Exchangeable Term
Note and subsequent sale of the common shares issuable upon such exchange may
place downward pressure on the market price of our common shares. Speculative
traders may anticipate the exercise of exchange rights under the Exchangeable
Term Note 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.
We have pledged substantial assets to secure the Exchangeable Term Note.
--------------------------------------------------------------------------------
We have pledged all of the intellectual property and common stock of
Altair Technologies, Inc., our second-tier wholly-owned subsidiary, to secure
repayment of the Exchangeable Term Note. Altair Technologies, Inc. owns and
operates the titanium processing technology we acquired from BHP Minerals in
1999. The Exchangeable Term Note is also secured by a pledge of the common stock
of Mineral Recovery Systems, Inc., which owns and operates our leasehold
interests in the Camden, Tennessee area. If we default on the Exchangeable Term
Note, severe remedies will be available to the holder of the Exchangeable Term
Note, including immediate seizure and disposition of all pledged assets.
18
Operations using the titanium processing technology, the jig or the Tennessee
mineral property may lead to substantial environmental liability.
--------------------------------------------------------------------------------
Virtually any proposed use of the titanium processing technology, the
jig or the Tennessee mineral property would be 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. We might use hazardous substances and,
if we do, we will be subject to substantial risks that environmental remediation
will be required.
Certain of our experts and directors reside in Canada and may be able to avoid
civil liability.
--------------------------------------------------------------------------------
We are an Ontario corporation, and a majority 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 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.
We are dependent on key personnel.
----------------------------------
Our continued success will depend to a significant extent on the
services of Dr. William P. Long, our President and Chief Executive Officer, and
Mr. C. Patrick Costin, our Vice President and President of Fine Gold and MRS.
The loss or unavailability of Dr. Long or Mr. Costin could have a material
adverse effect on us. We do not carry key man insurance on the lives of Dr. Long
or Mr. Costin.
We may issue substantial amounts of additional shares without stockholder
approval.
--------------------------------------------------------------------------------
Our Articles of Incorporation authorize the issuance of an unlimited
number of common shares. All such shares may be issued without any action or
approval by our stockholders. In addition, we have two stock option plans which
have potential for diluting of the ownership interests of our stockholders. The
issuance of any additional common shares would further dilute the percentage
ownership of Altair held by existing stockholders. Additional common shares
could be issued at a lower price per share than the price you are being offered.
The market price of our common shares is extremely volatile.
------------------------------------------------------------
Our common shares have been listed on the Nasdaq National Market since
January 26, 1998. Trading in our common shares has been characterized by a high
degree of volatility. Trading in our common shares may continue to be
characterized by extreme volatility for numerous reasons, including the
following:
|X| Uncertainty regarding the viability of the titanium processing
technology, the jig or the Tennessee mineral property;
|X| Continued dominance of trading in our common shares by a small number
of firms;
19
|X| Positive or negative announcements by us or our competitors;
|X| Industry trends, general economic conditions in the United States or
elsewhere, or the general markets for equity securities, minerals, or
commodities; and
|X| Speculation by short sellers of our common shares or other persons
(such as the holders of the Exchangeable Term Note) who stand to profit
from a rapid increase or decrease in the price of our common shares.
Future sales of currently restricted securities or common shares subject to
outstanding options may affect the market price of our common shares.
--------------------------------------------------------------------------------
In general, Rule 144 of the Securities Act provides that outstanding
restricted common shares of Altair may be sold subject to certain conditions
beginning one year after issuance and, unless held by an affiliate of Altair,
may be sold without limitation beginning two years after issuance. Future sales
of currently restricted securities may have a negative effect on the market
price of our common shares.
In addition, shares issued upon exercise of options granted pursuant to
our employee stock option plans are presently registered under the Securities
Act. Subject to certain restrictions on resale by affiliates, such shares may be
sold without restriction. The sale of any substantial number of common shares
may have a depressive effect on the market price of our common shares.
We have never declared, and are currently prohibited from declaring, a dividend.
--------------------------------------------------------------------------------
We have never declared or paid dividends on our common shares. 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 shares in the
foreseeable future. In addition, under the terms of the Exchangeable Term Note,
we are prohibited from declaring or paying any dividends until the Exchangeable
Term Note is paid in full.
We may not be able to sell nanoparticles produced using the titanium processing
technology.
--------------------------------------------------------------------------------
In the short run, we plan to use the titanium processing technology to
produce titanium dioxide ("TiO2") nanoparticles. TiO2 nanoparticles are TiO2
crystals that are approximately one-tenth the size of conventional pigmentary
TiO2 particles. Because of their small size, photocatalytic and ultraviolet
shielding capabilities and other unique characteristics, TiO2 nanoparticles sell
at a much higher price than conventional TiO2 particles and are used in products
such as specialty surface coatings, UV protectant cosmetics and battery
components.
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 TiO2
nanoparticle products. If we are unable to customize our TiO2 nanoparticle
products to the satisfaction of customers or otherwise unable to obtain any
long-term commitments from end-users of our TiO2 nanoparticle products, we may
be unable to recoup our investment in the titanium processing technology and
titanium processing equipment.
In addition, the uses for such nanoparticles are limited, and the
market for such nanoparticles is small, estimated at 3,800 tons per annum. In
light of the small size of the market, we may not be able to profitably market
any proposed nanoparticle products for any of the following reasons:
20
o there may be insufficient demand for such products;
o despite strong initial demand for any such products, the market for
such products may contract as a result of a decrease in demand for
goods incorporating such products or other event;
o the increased supply of such products as a result of our entrance into
the market may cause the price to drop, reducing or eliminating
profitability; and
o competing entities may begin producing, or increase their production of
nanoparticles, causing the price to drop or displacing potential sales.
Our costs of production may be so high as to prevent us from becoming
profitable.
--------------------------------------------------------------------------------
We have not produced any mineral products using the processing
technology and equipment on a commercial basis. Our actual costs of production
may exceed those of competitors and, even if our costs of production are lower,
competitors may be able to sell TiO2 and other products at a lower price than is
economical for Altair.
In addition, even if our initial costs are as anticipated, the titanium
processing equipment may break down, prove unreliable or prove inefficient in a
commercial setting. If so, related costs, delays and related problems may cause
production of TiO2 nanoparticles and related products to be unprofitable.
Pending patent applications may be denied or may provide inadequate protection.
--------------------------------------------------------------------------------
BHP Minerals has filed patent applications with the United States
Patent and Trademark Office with respect to the titanium processing technology
and has transferred the rights to such applications to Altair. Such applications
are being reviewed by the Patent and Trademark Office, and no patents with
respect to the titanium processing technology have been issued to date. If the
applications for any patents related to the titanium processing technology are
denied, the value of the titanium processing technology, and any competitive
advantage gained from our ownership of the titanium processing technology, will
be substantially diminished. We can provide no assurance that pending patent
applications will be granted. Even if pending patent applications are issued, we
may have insufficient resources to pay legal costs associated with enforcing any
patents.
We have not developed a production model of the jig and are presently focusing
our resources on other projects.
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We have not developed a production model of any series of the jig. We
do not expect to develop a production model of the jig during the coming year
and have determined to focus most of our limited resources on the titanium
processing technology and the Tennessee mineral property. We may never develop a
production model of the jig.
21
Even if we complete development of the jig, the jig may prove unmarketable and
may not perform as anticipated in a commercial operation.
--------------------------------------------------------------------------------
The designed capacity of the Series 12 jig is too small for coal
washing, heavy minerals extraction, and most other intended applications of the
jig, except use in small placer gold mines or similar operations. Even if the
Series 12 jig is completed and performs to design specifications in subsequent
tests or at a commercial facility, we believe that, because of its small
capacity, the potential market for the Series 12 jig is limited.
If we complete development of and begin marketing a production model of
the Series 30 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 the jig initially
proves attractive to potential end users, performance problems and maintenance
issues may limit the market for the jig.
The jig faces competition from other jig-like products and from alternative
technologies.
--------------------------------------------------------------------------------
Various jig-like products and alternative mineral processing
technologies perform many functions similar or identical to those for which the
jig is designed. Results from further tests or actual operations may reveal that
these alternative products and technologies are better adapted to any or all of
the uses for which the jig is intended. Moreover, regardless of test results,
consumers may view any or all of such alternative products and technologies as
technically superior to, or more cost effective than, the jig.
Certain patents for the jig have expired, and those that have not expired may be
difficult to enforce.
--------------------------------------------------------------------------------
All of the initial patents issued on the 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 the 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, especially outside of North
America. Accordingly, we may be unable to enforce even our patents that have not
yet expired.
We have not completed examining the feasibility of mining the Tennessee mineral
property.
--------------------------------------------------------------------------------
We are currently in 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 or to identify all processes that we would need to complete
before we could commence a mining operation on the Tennessee mineral property.
To the extent early feasibility testing yields positive results, we expect
feasibility testing to involve, among other things, the following:
o operating a pilot mining facility to determine mineral recovery
efficiencies and the quality of end products;
o additional drilling and sampling in order to more accurately determine
the quantity; quality and continuity of minerals on the Tennessee
mineral property;
o examining production costs and the market for products produced at the
pilot facility,
o designing any proposed mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
22
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.
Even if we conclude that mining is economically and technically feasible on the
Tennessee mineral property, we may be unable to obtain the capital, resources
and permits necessary to mine the Tennessee mineral property. Market factors,
such as a decline in the price of, or demand for, minerals recoverable at the
Tennessee mineral property, may adversely affect the development of mining
operations on such property. In addition, as we move through the testing
process, we may identify additional items that need to be researched and
resolved before any proposed mining operation could commence.
We cannot forecast the life of any potential mining operation located on the
Tennessee mineral property.
--------------------------------------------------------------------------------
We have not explored and tested the Tennessee mineral property enough
to establish the existence of a commercially minable deposit (i.e. a reserve) on
such property. Until such time as a reserve is established (of which there can
be no assurance), we cannot provide an estimate as to how long the Tennessee
mineral property could sustain any proposed mining operation.
We may be unable to obtain necessary environmental permits and may expend
significant resources in order to comply with environmental laws.
--------------------------------------------------------------------------------
In order to begin construction and commercial mining on the Tennessee
mineral property, we must obtain additional federal, state and local permits. We
will also be required to conform our operations to the requirements of numerous
federal, state and local environmental laws. Because we have not yet commenced
design of a commercial mining facility on the Tennessee mineral property, we are
not in a position to definitively ascertain which federal, state and local
mining and environmental laws or regulations would apply to a mine on the
Tennessee mineral property. Nevertheless, we anticipate having to comply with
and/or obtain permits under the Clean Air Act, Clean Water Act and Resource
Conservation and Recovery Act, in addition to numerous state laws and
regulations before commencing construction or operation of a mine on the
Tennessee mineral property. We can provide no assurance that we will be able to
comply with such laws and regulations or obtain any such permits. In addition,
obtaining such permits and complying with such environmental laws and
regulations may be cost prohibitive.
The market for commodities produced using the jig or at the Tennessee mineral
property may significantly decline.
--------------------------------------------------------------------------------
If the jig is successfully developed and manufactured on a commercial
basis, we intend to use the jig, or lease the jig for use, to separate and
recover valuable, heavy mineral particles. Active international markets exist
for gold, titanium, zircon and many other minerals potentially recoverable with
the jig. Prices of such minerals fluctuate widely and are beyond our control. A
significant decline in the price of minerals capable of being extracted by the
jig could have significant negative effect on the value of the jig. Similarly, a
significant decline in the price of minerals expected to be produced on the
Tennessee mineral property could have a significant negative effect on the
viability of a mine or processing facility on such property.
23
Item 2. Properties
We 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 the corporate headquarters 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.
Altair Technologies Inc. leases 15,000 square feet of production,
laboratory, testing and office space at 204 Edison Way, Reno, Nevada, 89502. The
initial term of the lease expired on December 31, 2000, but is subject to
automatic renewal for six-month periods at inflation-adjusted rent until
terminated by Altair. The lease grants us a right of first refusal in the event
BHP proposes to sell the building and property subject to the lease and includes
an agreement to negotiate in good faith with respect to our possible purchase of
such building and property.
Fine Gold and MRS lease 5,700 square feet of office space at 230 South
Rock Boulevard, Suite 21, Reno, Nevada 89502. The lease for the Reno, Nevada
offices expires on January 31, 2002. MRS leases approximately 1,550 square feet
of laboratory space at 7950 Security Circle, Reno, Nevada 89506, for its jig
testing operations. The test facility lease may be terminated by either party
upon eight weeks 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.
The Tennessee mineral property consists of approximately 14,000 acres
of real property located near Camden, Tennessee, which MRS leases (or has
binding commitments to lease) from multiple owners of the real property. Such
leases 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 advanced 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 advanced royalty payments. The leases typically are
for a minimum term of ten years, and may be extended indefinitely at MRS'
option, provided Altair 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 has not yet proven to be a reserve,
and our operations and proposed plan with respect to it are exploratory in
nature. See "Item 1. Business--Tennessee Mineral 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.
24
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 2000 fiscal year.
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters
Market Price
Our common shares are traded on the Nasdaq National Market under the
symbol "ALTI." The following table sets forth, for the periods indicated, the
high and low bid quotations for our common shares, as reported on the Nasdaq
National Market.
Fiscal Year Ended December 31, 1999 Low High
---------------- ----------------
1st Quarter $6.063 $10.188
2nd Quarter 4.000 6.875
3rd Quarter 3.531 5.094
4th Quarter 3.375 5.188
Fiscal Year Ended December 31, 2000 Low High
---------------- ----------------
1st Quarter $3.563 $9.250
2nd Quarter 2.000 5.375
3rd Quarter 1.000 4.469
4th Quarter 0.688 3.375
The quotations set forth above reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions. The
last sale price of our common shares, as reported on the Nasdaq National Market,
on March 15, 2001 was $2.75 per share.
Outstanding Shares and Number of Shareholders.
----------------------------------------------
As of March 15, 2001, the number of common shares outstanding was
19,510,488 held by 456 holders of record. In addition, as of the same date, we
have reserved 5,411,700 common shares for issuance upon exercise of options that
have been, or may be, granted under our employee stock option plans.
Dividends
---------
We have never declared or paid 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.
25
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.
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, pursuant to proposed
amendments to the Act, 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 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.
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.
26
For the Year Ended December 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Revenues from operations $ -- $ -- $ -- $ -- $ --
Operating expenses 6,647,367 3,729,534 3,842,441 2,885,043 1,752,016
Interest expense 215,216 1,966 959,612 43,497 19,373
Interest income (83,440) (134,811) (335,037) (70,059) (27,872)
(Gain) loss on foreign exchange (864,669) 160,619 17,109 123,612 (7,888)
Gain on forgiveness of debt -- (67,442) (25,805) -- (702,726)
Loss on redemption of convertible
debentures -- -- 193,256 -- --
--------------------------------------------------------------------
Net Loss $ 5,914,474 $ 3,689,866 $ 4,651,576 $ 2,982,093 $ 1,032,903
====================================================================
Basic and diluted net loss per
common share from operations$ 0.34 $ 0.24 $ 0.31 $ 0.21 $ 0.09
====================================================================
Cash dividends declared per
common share $ -- $ -- $ -- $ -- $ --
====================================================================
Deficit, beginning of year $ 15,691,904 $ 12,002,038 $ 7,350,462 $ 4,368,369 $ 3,335,466
Net loss 5,914,474 3,689,866 4,651,576 2,982,093 1,032,903
--------------------------------------------------------------------
Deficit, end of year $ 21,606,378 $ 15,691,904 $ 12,002,038 $ 7,350,462 $ 4,368,369
====================================================================
BALANCE SHEET DATA
Working capital $ 234,714 $ (5,931,717) $ 3,008,789 $ 7,480,153 $ 2,974,955
Total assets 16,651,770 13,365,848 7,103,267 12,956,079 7,868,840
Long-term obligations 2,689,493 -- 31,091 4,774,420 269,685
Current liabilities 3,741,366 7,578,083 222,431 712,810 308,762
Net shareholders' equity 10,220,911 5,787,765 6,849,745 7,468,849 7,290,393
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 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 14,000 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.
27
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP primarily for the
production of titanium dioxide products from titanium bearing ores or
concentrates (i.e., the "titanium processing technology") and all tangible
equipment and other assets (i.e., the "titanium processing assets") used by BHP
to develop and implement the titanium processing technology.
Results of Operations.
----------------------
We have earned no revenues to date. Operating losses before
extraordinary items totaled $5,914,474 ($0.34 per share) for the 2000 fiscal
year, $3,757,308 ($0.24 per share) for the 1999 fiscal year, and $4,484,125
($0.30 per share) for the 1998 fiscal year. Principal factors contributing to
the losses during these periods were the absence of revenues coupled with the
incurrence of operating expenses.
Fiscal Year 2000 vs. 1999
During 2000, we began construction of a mineral processing pilot plant
at the Tennessee mineral property. In connection with such construction, we
incurred $413,000 of costs for permitting, design and construction of the plant
site and ancillary facilities, and $388,000 for design and fabrication of the
processing equipment. The equipment was installed and testing at the facility
began during the first quarter of 2001. During 2000, we also incurred $417,000
of ongoing costs for exploration work and maintenance of our mineral leaseholds.
The costs associated with the Tennessee mineral property are recorded as mineral
exploration expenses.
Since acquiring the titanium processing technology and titanium
processing assets from BHP in November 1999, we have directed our efforts toward
the production and marketing of TiO2 nanoparticles. Our acquisition of the
titanium processing technology and titanium processing assets in late 1999, and
our subsequent production and marketing efforts during 2000, have caused a
significant increase in our operating expenses for the year ended December 31,
2000 when compared to the year ended December 31, 1999.
In connection with the acquisition, we entered into a services
agreement with BHP wherein BHP agreed to provide, through December 31, 2000,
certain services necessary to continue development and testing of the titanium
processing technology and operation of the titanium processing assets. The costs
associated with this service agreement were approximately $1,368,000 for the
year ended December 31, 2000 and were recorded as testing, research and
development expense. Our comparable expense during the year ended December 31,
1999 was $171,000.
We also entered into a lease agreement with BHP to lease the space
occupied by the titanium processing assets at a BHP facility in Reno, Nevada.
The lease cost was $180,000 for the year ended December 31, 2000 and is included
in general and administrative expenses in the Consolidated Statements of
Operations. We incurred $22,500 of comparable lease costs for the year ended
December 31, 1999. General and administrative expenses also increased by $80,000
due to the recognition of expense associated with options and warrants, by
$75,000 due to the addition of one new employee, by $20,000 due to insurance
costs for coverages on the titanium processing assets and by $34,000 due to
additional Nasdaq listing fees in connection with the issuance of common shares.
Professional services for the year ended December 31, 2000 increased
over the comparable period of 1999 due to legal costs associated with patent
reviews and trademark filings related to the titanium processing technology and
consulting costs for marketing and production management related to TiO2
nanoparticle products.
28
We are depreciating the costs of the titanium processing technology and
titanium processing assets acquired from BHP at approximately $61,000 per month.
This amount (approximately $732,000 for the year ended December 31, 2000)
represents the increase in depreciation expense for the year ended December 31,
2000 over the same period in 1999.
The purchase price for the titanium processing technology and titanium
processing assets was 15,000,000 Australian dollars ("AUD$") (U.S.$9,625,500)
and was payable in four equal installments. The first installment was paid at
closing in November 1999, the second and third installments were paid on May 12,
2000 and the remaining payment was paid on August 1, 2000. Since the purchase
price was payable in Australian dollars, the liability to BHP was subject to
exchange rate fluctuations. From December 31, 1999 to March 31, 2000, the
American dollar strengthened significantly against the Australian dollar,
resulting in a gain on foreign exchange of approximately $559,000. From April 1,
2000 through June 30, 2000, the American dollar strengthened further, resulting
in a gain on foreign exchange of approximately $237,000. When the final payment
was paid on August 1, 2000, an additional foreign exchange gain of approximately
$69,000 was realized, resulting in a total foreign exchange gain on the purchase
of the titanium processing technology and titanium processing assets of
approximately $865,000 for the year ended December 31, 2000.
Interest on long-term debt increased by $79,000 in the year ended
December 31, 2000 over the comparable period of 1999 due to interest paid in
connection with the rescheduling of the second installment due BHP from February
15, 2000 to May 15, 2000. It further increased by $129,000 due to interest
charges associated with a $7,000,000 Asset-Backed Exchangeable Term Note which
we issued in December 2000 (see "Liquidity and Capital Resources" for discussion
of this note).
Interest income in 2000 decreased from 1999 as we had lower cash
balances available for investment during most of the year.
Fiscal Year 1999 vs. 1998
Prior to the acquisition of the titanium processing technology and
titanium processing assets, our principal business activities centered around
the exploration of the Tennessee mineral property and development of the jig.
During 1998, we increased the amount of testing and development work on the
Series 30/16 Jig, began testing of potential new applications for it, initiated
the preliminary design work for a larger capacity jig, and increased our
exploration efforts in Tennessee. In order to support this higher level of
activity, we increased the number of employees in our Reno, Nevada office from
four to eight personnel and expanded into new leased office space. The full-year
effect of the costs associated with this additional staffing and office space
are reflected in increased research and development expenses and general and
administrative expenses in 1999.
Mineral exploration costs decreased by approximately $80,000 in 1999
due to a reduction in the exploration expenditures in the Little Benton area of
the Tennessee mineral property. We explored the Little Benton area in 1998,
incurring costs for sampling and other test work, and discovered additional
heavy mineral sands.
In 1998, we completely amortized the balance of costs associated with
certain jig license agreements. As a result, depreciation and amortization
expense declined in 1999 from 1998.
In August 1998, we redeemed $2,250,000 of convertible debentures,
incurring a redemption premium of $193,256. Interest expense in 1998 includes
approximately $927,000 related to the convertible debentures. Of this amount,
$390,000 represents premium and accretion on conversions of convertible
debentures and $537,000 represents issuance costs written off as a result of the
redemption of the debentures.
29
Interest income declined in 1999 from 1998 as a result of the
redemption of the convertible debentures which decreased cash balances available
for investment.
We incurred a $161,000 loss on foreign exchange in 1999 in connection
with the purchase of the titanium processing technology and titanium processing
assets. The purchase price was stated in Australian dollars, which strengthened
in relation to U.S. dollars from the date of the purchase through December 31,
1999.
In connection with our acquisition of the rights to the Altair
Centrifugal Jig, we assumed certain liabilities associated with the jig. During
1999 and 1998, we extinguished certain of such accounts payable and notes
payable at less than the book amounts of such debt. The net of such forgiveness
of debt was $67,442 in 1999, and $25,805 in 1998, with neither amount having a
material effect on earnings per share.
Carrying Value of Assets
We have recorded our investments in the titanium processing technology
and titanium processing assets and the centrifugal jig at actual cost. We
depreciate such assets using the straight-line method over their estimated
useful life. The asset carrying value is the actual costs less accumulated
depreciation. We assess the carrying values of these assets on a quarterly basis
by comparing the undiscounted cash flows expected to be generated by the assets
to the carrying costs of the assets. In order to determine the 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 likley.
When we acquired the titanium processing technology and titanium
processing 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 during 2000, and, to date, we have filled 130 requests for samples of
nanoparticle products from the 230 companies that have contacted us. However, we
underestimated the length of time required for sample analysis and product
acceptance by these prospective customers and by their customers and, as a
result, we were able to make only a single, small sale of nanoparticles in 2000.
We presently estimate that significant nanoparticle sales will begin during the
second half of 2001 and that cash flows from future nanoparticle sales will be
in excess of the carrying value of the assets. The delay in sales, combined with
cash outlays for construction and operation, has affected our cash position and
financing plans as more fully described in "Liquidity and Capital Resources"
below.
We intend to use our centrifugal jig to enhance recovery of heavy
minerals at our Tennessee mineral property, and it also has the potential to be
sold or licensed to others on a commercial basis. Marketing efforts for the jig
have focused on large volume applications such as coal cleaning, heavy mineral
sand separations and iron ore processing. Such applications require potential
jig purchasers to make significant capital investments and reengineering of
plant processes. As a result, potential purchasers in this arena require lengthy
equipment evaluations and long testing periods. During 2000, we redirected
company resources, staff and liquid assets, to support the titanium processing
technology and Camden exploration efforts and away from marketing the jig to
others. We continue to discuss some of the iron ore and heavy mineral sand
applications with potential jig purchasers but most recently have entered into
discussions with potential jig manufacturers and distributors for marketing the
jig to a wider array of market applications under licensing and/or
distributorship agreements. We retain ownership of the fundamental technical
characteristics of the jig through patent protections.
30
Liquidity and Capital Resources.
--------------------------------
We have earned no revenues from operations and have incurred recurring
losses. At December 31, 2000, our accumulated deficit was $21,606,378, or an
increase of $5,914,474 over the accumulated deficit at December 31, 1999. This
increase was due to the net loss for the year.
Our cash and short-term investments increased from $153,580 at December
31, 1999 to $3,585,729 at December 31, 2000, principally as a result of two
financing transactions which are described below.
On December 15, 2000, we and an investor entered into a Securities
Purchase Agreement pursuant to which we issued to the investor a $7,000,000
Asset-Backed Exchangeable Term Note (the "Note") and a Warrant to purchase
350,000 common shares at an initial exercise price of $3.00, at any time on or
before December 15, 2005 (the "Warrant"). The Note, Warrant and related rights
were sold to the investor in exchange for $7,000,000 (less financing fees).
Among certain other covenants, we have agreed to maintain a letter of credit in
favor of the investor in an amount equal to 57.15% of the principal balance of
the Note until certain conditions are met, after which the required amount will
be reduced to 50% of the principal balance of the Note. The letter of credit is
currently secured by cash proceeds from issuance of the Note equal to the face
amount of the letter of credit. Such cash proceeds are reflected as restricted
cash in the Consolidated Balance Sheets.
The Note is in the principal amount of $7,000,000 and bears interest at
a rate of 10% per annum. Under the Note, we are required to make monthly
payments on or before the 15th day of each calendar month in the principal
amount of $291,667 plus accrued interest (the "Monthly Payment Amount"). The
Note is due and payable in full on December 15, 2003.
We may redeem the Monthly Payment Amount in cash. In addition, we may
pay accrued interest in cash at any time throughout the term and may prepay the
Note in $250,000 increments at any time throughout the term at a price equal to
115% of the sum of outstanding principal and accrued interest.
If we elect not to redeem the Monthly Payment Amount, on each due date,
the holder of the Note automatically will receive the right to exchange
(immediately or at any later date during the term) the Monthly Payment Amount
into common shares at the applicable "Exchange Price." The Exchange Price for
any date is the lesser of (a) a fixed exchange price of $3.00 as adjusted, or
(b) the average of the lowest three daily trading prices of the common shares
during the 15 trading days ending on the day before an exchange right is
exercised. The Note is secured by a pledge of the intellectual property and
common stock of Altair Technologies, Inc., and by a pledge of the common stock
of Mineral Recovery Systems, Inc.
On March 31, 2000, we and a private equity fund entered into a Common
Stock Purchase Agreement and related agreements, pursuant to which the equity
fund purchased 1,251,303 common shares of the Company for an aggregate purchase
price of $6,000,000; however, the number of shares received by the equity fund
in exchange for $6,000,000 was subject to "repricing" adjustments if the lowest
average closing price for any ten days during each of four 30-day "repricing"
periods did not meet a certain threshold. Prior to December 15, 2000, the equity
fund repriced 750,782 of the initial shares it purchased under the Common Stock
Purchase Agreement and received an additional 1,003,626 common shares.
Pursuant to an Assignment and Agreement dated December 15, 2000, in
exchange for $1,650,000, the equity fund transferred all of its remaining rights
under the Common Stock Purchase Agreement, including its right to reprice the
remaining 500,521 of the initial 1,251,303 shares, to the investor that
31
purchased the Note. On December 15, 2000, pursuant to the Securities Purchase
Agreement, the investor that purchased the Note exercised its right to reprice
approximately 70,928 of the initial shares and received 247,678 common shares.
Simultaneously with such exercise, in exchange for approximately $1,650,000, the
investor terminated all remaining rights under the Common Stock Purchase
Agreement, including all remaining repricing rights.
During 2000, we paid the remaining $7,363,600 due BHP in connection
with the purchase of the titanium processing technology and titanium processing
assets.
At December 31, 2000, we had unrestricted cash and cash equivalents of
$1,335,729, an amount which, together with $561,300 of stock subscriptions
receivable at December 31, 2000 that were collected during the first quarter of
2001, is sufficient to fund the Company's basic operations through June 30,
2001. In connection with the issuance of the Note, we are required to file a
registration statement registering the common shares which may be exchanged
under the Note. We are also required to maintain a letter of credit in favor of
the lender in an amount equal to 57% of the Note balance, reducing to 50% when
the registration statement is effective and the market price of our common
shares closes at or above $2.25 for five consecutive days. After the
registration statement is effective, and as payments are made on the Note, we
have the right to draw against the restricted cash securing the letter of credit
as long as the letter of credit amount meets the specified percentage of the
Note balance. We presently anticipate that the Monthly Payment Amount will be
satisfied through the exchange of common shares during the year 2001 and that
draws against the restricted cash, together with cash from anticipated revenues
and potential sales of common stock, will be sufficient to fund operations
during the remainder of the year.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Item appear on pages F-1
through F-18 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Previously reported on Amendment No. 1 to Current Report on Form 8-K
filed with the SEC on March 28, 2001.
Part III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is certain information regarding each of the directors
of the Company:
William P. Long, 54, has been the President and a director of the
Company since 1988, and an officer and director of Fine Gold Recovery Systems,
Inc. ("Fine Gold"), a wholly-owned subsidiary of the Company, since February
1996. Dr. Long has been an executive officer of Mineral Recovery Systems, Inc.
("MRS"), since its formation in April 1987 and is also a director. In addition,
he is a director of Altair Technologies, Inc., a wholly-owned subsidiary of MRS.
From 1987 to 1988, Dr. Long was a mineral and energy consultant, providing
32
various services to clients in the mining and energy industries, including
arranging precious metal property acquisitions, supervising mineral evaluations,
and providing market analyses. From 1980 to 1986, Dr. Long served as the
Executive Vice President and Chief Financial Officer of Thermal Exploration
Corporation. From 1974 to 1980, Dr. Long was employed by Amax Exploration, Inc.
in various capacities, including Systems Engineer, Business Analyst and Business
Manager. Dr. Long is affiliated with the American Institute of Chemical
Engineers and the American Institute of Mining Engineers. He obtained a
bachelors degree in Chemical and Petroleum Refining Engineering and a Ph.D. in
Mineral Economics from the Colorado School of Mines in 1969 and 1974,
respectively.
James I. Golla, 68, has been a director of the Company since February,
1994. He also currently serves as a director of Apogee Minerals Ltd, Rally
Energy Corp. and Barton Bay Resources Inc. Mr. Golla was a journalist with the
Globe and Mail, Canada's national newspaper, from 1954 until his retirement
early in 1997.
George E. Hartman, 52, was elected a director of the Company in March
1997. From 1995 until 1998, Mr. Hartman served as President of Planvest Pacific
Financial Corp. ("Planvest Pacific"), a Vancouver-based financial planning firm
with U.S. $1 billion of assets under management. Mr. Hartman also served on the
board of directors of Planvest Capital Corp., the parent of Planvest Pacific.
From 1998 until 2000, Mr. Hartman was Senior Vice President of Financial Concept
Group until the firm's sale to Assante Corporation, a North American financial
services industry consolidator. Mr. Hartman continues as President of Hartman &
Company, Inc., a firm he founded in 1991 which provides consulting services to
the financial services industry. Mr. Hartman is the author of Risk is a
Four-Letter Word--The Asset Allocation Approach to Investing, a Canadian
best-seller published in 1992, and is the author of its sequel, Risk is STILL a
Four Letter Word, released in 2000.
Robert Sheldon, 78, has been a director of the Company since June 1997.
He also currently serves as a director of Aspen Exploration Corporation. Since
his retirement in 1988, Mr. Sheldon has performed consulting work for several
clients, including Newmont Exploration of Canada Limited. Mr. Sheldon served as
President of Newmont Exploration of Canada Limited and Vice President of Newmont
Mines Limited from 1975 until 1988 when he retired. Mr. Sheldon was responsible
for mineral exploration, appraisals and development of mining properties
throughout Canada for Newmont Mining Corporation, a natural resource company
with worldwide operations. Mr. Sheldon obtained a bachelors degree in Geological
Engineering from the University of British Columbia in 1948. He is a member of
the Association of Professional Engineers of British Columbia, the American
Institute of Mining and Metallurgy, the Canadian Institute of Mining and
Metallurgy, the Society of Mining Engineers, the British Columbia and Yukon
Chamber of Mines (past president) and the Engineers Club, Vancouver, British
Columbia (past president).
The executive officers of the Company are William Long, C. Patrick
Costin, and Edward H. Dickinson. Certain information regarding Mr. Long is set
forth above. Certain information regarding Messrs. Costin and Dickinson follows.
C. Patrick Costin, 58, was appointed a Vice President of the Company in
June 1996 and currently serves as the President and a director of Fine Gold and
MRS and Vice President of Altair Technologies, Inc. Mr. Costin also served as
the President of the wholly-owned subsidiary of the Company formerly known as
Mineral Recovery Systems, Inc. from March 1995 until its merger with and into
Fine Gold in June 1996. Mr. Costin is the chief executive officer of Costin and
Associates, a minerals consulting organization founded by Mr. Costin in 1992
which specializes in identification and evaluation of North American mine and
mineral deposit acquisition opportunities. From 1982 to 1992, Mr. Costin served
as the manager of U.S. exploration for Rio Algom Ltd. Mr. Costin's additional
experience in the mining and minerals industry includes Senior Mineral Economist
33
for the Stanford Research Institute from 1977 to 1982, Senior Geologist for
Chevron Resources from 1975 to 1976, Senior Geologist for Newmont Mining
Corporation of Canada from 1967 to 1975, and Geologist for United Keno Hill
Mines Ltd. from 1965 to 1967. Mr. Costin obtained a bachelors degree in
Geological Engineering and a masters degree in Minerals Economics from the
Colorado School of Mines in 1965 and 1975, respectively.
Edward H. Dickinson, 54, was appointed Chief Financial Officer of the
Company in March 2000 and Secretary of the Company in April 2001 and also
currently serves as Secretary, Treasurer and a director of MRS and Secretary and
Treasurer of Altair Technologies, Inc. Mr. Dickinson had previously served as
Director of Finance of the Company since August 1996. From 1994 to 1996, Mr.
Dickinson was employed by the Southern California Edison Company as a negotiator
of non-utility power generation contracts. Mr. Dickinson was Vice President and
Director of Geolectric Power Company during 1993 and 1994; and from 1987 through
1992 was the Director of Finance and Administration for OESI Power Corporation.
Prior to 1987, Mr. Dickinson held various accounting and program management
positions in the United States Department of Energy. Mr. Dickinson, who is a
Certified Public Accountant, obtained a Masters degree in Accounting from
California State University, Northridge in 1978.
Compliance with Section 16(a) of the United States Exchange Act
---------------------------------------------------------------
Section 16(a) of the Exchange Act requires the Company's officers and
directors to file reports concerning their ownership of Common Shares with the
SEC and to furnish the Company with copies of such reports. Based solely upon
the Company's review of the reports required by Section 16 and amendments
thereto furnished to the Company, the Company believes that all reports required
to be filed pursuant to Section 16(a) of the Exchange Act with respect to its
2000 fiscal year were filed with the SEC on a timely basis, except for the
following: A Form 4 with respect to 125,000 common shares and 125,000 warrants
to purchase common shares purchased by the MBRT Trust on August 4, 2000 was due
on September 10, 2000 but was not filed until April 30, 2001. The MBRT Trust is
an irrevocable trust established by William P. Long, President of the Company,
and is administered by an independent trustee for the benefit of the children of
Mr. Long. Mr. Long disclaims any beneficial interest in the common shares owned
by the MBRT Trust.
34
Item 11. Executive Compensation
Compensation of Officers
The following table sets forth all annual and long-term compensation
for services rendered in all capacities to the Company for the fiscal years
ended December 31, 2000, December 31, 1999 and December 31, 1998 in respect of
William P. Long who was, at December 31, 2000, the President of the Company and
C. Patrick Costin who was, at December 31, 2000, the Vice President of the
Company. The Company had no other executive officer whose total salary and
bonuses during the fiscal year ended December 31, 2000 exceeded U.S. $100,000.
Summary Compensation Table
-----------------------------------------------------------------------------------------------------------------------------
Annual Compensation (1) Long Term Compensation
------------------------------------------------------------
Restricted Securities
Fiscal Other Shares or Under
Year Annual Restricted Options LTIP All Other
Ended Salary (2) Bonus(2) Compensation Share Units Granted (3) Payouts Compensation
Name and Title Dec. 31, (U.S.$) (U.S. $) (U.S.$) (#) (#) (U.S.$) (U.S.$)
------------------------- ----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
William P. Long, 2000 91,200 9,120 Nil Nil Nil Nil Nil
President ----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
and Director 1999 91,200 9,120 Nil Nil Nil Nil Nil
----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
1998 91,200 Nil Nil Nil 50,000(3) Nil Nil
------------------------- ----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
C. Patrick Costin, Vice 2000 100,320 Nil Nil Nil Nil Nil Nil
President ----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
1999 95,160 Nil Nil Nil Nil Nil Nil
----------- ----------- ----------- ------------ ------------ ------------- ---------- -------------
1998 90,000 Nil Nil Nil 50,000(3) Nil Nil
------------------------------------------------------------------------------------------------------------------------------
(1) All compensation paid is stated in United States dollars.
(2) Bonus and salary amounts reflect amounts accrued and payable to Dr. Long and Mr. Costin for each
fiscal year in accordance with the terms of their employment agreements with the Company. See
"Executive Compensation - Employment Contracts". Amounts actually paid to Dr. Long in fiscal years
2000, 1999 and 1998 were U.S. $100,320, U.S. $100,320, and U.S. $235,232, respectively. During
1998, the Company paid Dr. Long U.S. $144,032 in addition to his salary of U.S. $91,200. This
amount represents salary, bonus and interest on such amounts (calculated at 10% per annum) which
were accrued and unpaid in previous years.
(3) Options to purchase Common Shares granted pursuant to the 1998 Plan.
Option Grants in 2000
---------------------
There were no stock options or stock appreciation rights granted to Dr.
Long or Mr. Costin during the year ended December 31, 2000.
Aggregated Option Exercises and Year-end Option Values
------------------------------------------------------
The following table provides information regarding options held by Dr.
Long and Mr. Costin as at December 31, 2000 and options exercised by them during
the year ended December 31, 2000:
-------------------------------------------------------------------------------------------------------------------------
Unexercised Options at Value of Unexercised
December 31, 2000 In-the-money Options at
Securities December 31, 2000
Acquired on Aggregate -------------------------------- -------------------------------------
Exercise Value Exercisable Unexercisable
Name (#) Realized (#) (#) Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------------
William P. Long, Nil Nil 250,000 Nil Nil N/A
President and 100,000 Nil Nil N/A
Director 50,000 Nil Nil N/A
-------------------------------------------------------------------------------------------------------------------------
C. Patrick Costin, Nil Nil 125,000 Nil Nil N/A
Vice President 100,000 Nil Nil N/A
50,000 Nil Nil N/A
-------------------------------------------------------------------------------------------------------------------------
35
Compensation of Directors
-------------------------
Directors who are not officers of the Company are paid U.S. $1,000 per
meeting for their services as directors. During the year ended December 31,
2000, U.S. $5,000 was paid to directors of the Company for attending meetings.
Directors who are not officers are entitled to receive compensation to the
extent that they provide services to the Company at rates that would be charged
by such directors for such services to arm's length parties. No such amounts
were paid to directors during the year ended December 31, 2000 other than
amounts paid to Dr. Long set forth herein.
Directors of the Company and its subsidiaries are also entitled to
participate in the 1996 Plan and the 1998 Plan. As at April 15, 2001, the
Company had outstanding options to purchase 1,175,000 Common Shares under the
1996 Plan, 435,000 of which have been granted to directors, and options to
purchase 2,431,700 Common Shares under the 1998 Plan, 210,000 of which have been
granted to directors.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements.
--------------------------------------------------------------------------------
William P. Long, President of the Company, has entered into an
employment agreement with the Company dated January 1, 1998. The term of the
agreement commenced on January 1, 1998 and, unless earlier terminated, expires
on December 31, 2007. Pursuant to the agreement, Dr. Long is paid a salary of
U.S. $7,600 per month and an annual bonus, determined by the board of directors
of the Company, of not less than 10% of Dr. Long's annual compensation. In the
event the voting control of over 35% of the issued and outstanding Common Shares
is acquired by an individual or group (a "Change of Control") and Dr. Long's
employment agreement is terminated by the Company or Dr. Long within 180 days
before the Change of Control or at any time thereafter, Dr. Long is entitled to
be issued 200,000 Common Shares. Absent a Change of Control, if Dr. Long's
employment agreement is terminated for any reason except by Dr. Long, by mutual
consent, by the Company for cause, or at the end of the term, Dr. Long is
entitled to be issued 200,000 Common Shares.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
The Company's executive compensation program is administered by the
board of directors of the Company as the Company does not have an independent
compensation committee. The board of directors of the Company currently consists
of William Long, Robert Sheldon, James Golla and George Hartman. In addition to
evaluating and approving employment contracts for key employees throughout the
year, the board of directors formally considered compensation issues five times
during the 2000 fiscal year in connection with the authorization of grants of
options to purchase Common Shares. Dr. Long is the President of the Company.
None of the other directors is an officer or employee of the Company. Although
certain members of the board are executive officers, none participates in the
determination of his own salary or bonus.
36
Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information with respect to beneficial ownership of
Common Shares as of April 15, 2001 by persons known to the Company to own more
than 5% of the outstanding Common Shares, each of the Company's current
executive officers and directors, and by all current officers and directors of
the Company as a group. Unless otherwise indicated, each of the shareholders
named in the table has sole voting and investment power with respect to the
Common Shares identified as beneficially owned. The Company is not aware of any
arrangements, the operation of which may at a subsequent date result in a change
in control of the Company.
------------------------- -------------------------------------- ------------------------------ --------------------
Title of Class Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class(2)
------------------------- -------------------------------------- ------------------------------ --------------------
Common William P. Long (President, Chief 2,659,029(3) 13.5%
Executive Officer & Director)
57 Sunset Rim
Cody, Wyoming 82414
------------------------- -------------------------------------- ------------------------------ --------------------
Common C. Patrick Costin (Vice president) 1,083,333(4) 5.6%
1850 Aquila Avenue
Reno, Nevada 89509
------------------------- -------------------------------------- ------------------------------ --------------------
Common Edward H. Dickinson (Chief Financial 379,700(5) 1.9%
Officer)
2595 Sagittarius Drive
Reno, Nevada 89509
------------------------- -------------------------------------- ------------------------------ --------------------
Common James L. Golla (Director) 55,000(6) *
829 Terlin Boulevard
Mississauga, Ontario L5H 1T1
------------------------- -------------------------------------- ------------------------------ --------------------
Common George Hartman (Director) 50,000(7) *
404-168 Chadwick Court
North Vancouver, B.C. V7M 3L4
------------------------- -------------------------------------- ------------------------------ --------------------
Common Robert Sheldon (Director) 45,000(8) *
3720 Creery Avenue
West Vancouver, British Columbia
V7V 2M1
------------------------- -------------------------------------- ------------------------------ --------------------
Common Louis Schnur (Significant 1,246,070(9) 6.3%
Shareholder)
6941 South Western Ave.
Chicago, IL 60613
------------------------- -------------------------------------- ------------------------------ --------------------
Common All Directors and Officers as a 3,989,562(10) 19.4%
Group
(6 persons)
------------------------- -------------------------------------- ------------------------------ --------------------
* Represents less than 1% of the outstanding Common Shares.
(1) Includes all Common Shares issuable pursuant to the exercise or
conversion of options and warrants that are exercisable within 60 days.
(2) Based on 19,244,318 Common Shares outstanding as of April 15, 2001.
Common Shares underlying options or other convertible securities are
deemed to be outstanding for purposes of calculating the percentage
ownership of the owner of such securities, but not for purposes of
calculating any other person's percentage ownership.
37
(3) Includes 46,000 Common Shares held by Dr. Long's daughter, 47,500
Common Shares held by Dr. Long's minor son, 287,500 Common Shares held
by the MBRT Trust, an irrevocable trust for the benefit of the minor
children of Dr. Long, and 125,000 Common Shares subject to warrants
held by the MBRT Trust. Dr. Long disclaims any beneficial interest in
such 506,000 Common Shares. Also includes 350,000 Common Shares subject
to presently exercisable options granted to Dr. Long pursuant to the
1996 Altair International Inc. Stock Option Plan (the "1996 Plan") and
150,000 Common Shares subject to presently exercisable options granted
to Dr. Long pursuant to the 1998 Altair International Inc. Stock Option
Plan (the "1998 Plan").
(4) Includes 225,000 Common Shares subject to presently exercisable options
granted to Mr. Costin pursuant to the 1996 Plan and 50,000 Common
Shares subject to presently exercisable options granted to Mr. Costin
pursuant to the 1998 Plan.
(5) Includes 250,000 Common Shares subject to presently exercisable options
granted to Mr. Dickinson pursuant to the 1996 Plan and 129,700 Common
Shares subject to presently exercisable options granted to Mr.
Dickinson pursuant to the 1998 Plan.
(6) Includes 35,000 Common Shares subject to presently exercisable options
granted to Mr. Golla pursuant to the 1996 Plan and 20,000 Common Shares
subject to presently exercisable options granted to Mr. Golla pursuant
to the 1998 Plan.
(7) Includes 25,000 Common Shares subject to presently exercisable options
granted to Mr. Hartman pursuant to the 1996 Plan and 20,000 Common
Shares subject to presently exercisable options granted to Mr. Hartman
pursuant to the 1998 Plan.
(8) Includes 25,000 Common Shares subject to presently exercisable options
granted to Mr. Sheldon pursuant to the 1996 Plan and 20,000 Common
Shares subject to presently exercisable options granted to Mr. Sheldon
pursuant to the 1998 Plan.
(9) Includes 420,833 presently exercisable warrants to purchase Common
Shares.
(10) Includes 910,000 Common Shares subject to presently exercisable options
granted to officers and directors pursuant to the 1996 Plan, 389,700
Common Shares subject to presently exercisable options granted to
officers and directors pursuant to the 1998 Plan, and 125,000 Common
Shares subject to warrants held by the MBRT Trust.
Item 13. Certain Relationships and Related Transactions
Certain Relationships and Related Transactions
----------------------------------------------
The Corporation has entered into a consulting agreement with SRI
Consulting ("SRI") under which SRI has agreed to make available to the
Corporation the services of Dr. Eugene Thiers, a specialist on titanium and
titanium dioxide, to provide advice on global tehnoeconomic and market issues.
The aggregate amount paid by the Corporation to SRI under the consulting
agreement during the year ended December 31, 2000 was $40,000. Dr. Thiers serves
as a member of the board of directors of Altair Technologies, Inc., a
wholly-owned subsidiary of the Corporation, for which he has received options to
purchase 250,000 Common Shares.
William P. Long, President of the Company, has entered into an
employment agreement with the Company dated January 1, 1998. The term of the
agreement commenced on January 1, 1998 and, unless earlier terminated, expires
on December 31, 2007. Pursuant to the agreement, Dr. Long is paid a salary of
U.S. $7,600 per month and an annual bonus, determined by the board of directors
of the Company, of not less than 10% of Dr. Long's annual compensation. In the
event the voting control of over 35% of the issued and outstanding Common Shares
is acquired by an individual or group (a "Change of Control") and Dr. Long's
employment agreement is terminated by the Company or Dr. Long within 180 days
before the Change of Control or at any time thereafter, Dr. Long is entitled to
be issued 200,000 Common Shares. Absent a Change of Control, if Dr. Long's
employment agreement is terminated for any reason except by Dr. Long, by mutual
consent, by the Company for cause, or at the end of the term, Dr. Long is
entitled to be issued 200,000 Common Shares.
38
Indebtedness of Officers and Directors to the Company
-----------------------------------------------------
No officer or director of the Company was indebted to the Company, as
at December 31, 2000 or as at the date of this Amendment.
Interest of Insiders in Material Transactions
Except as otherwise disclosed in this Amendment, no insider of the
Company has any interest in material transactions involving the Company.
Item 14. 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 Auditor's Reports are filed as part of this Annual
Report on Form 10-K:
o Independent Auditors' Report of McGovern Hurley, Hurley,
Cunningham, LLP
o Independent Auditors' Report of Deloitte & Touche LLP
o Consolidated Balance Sheets, December 31, 2000 and 1999
o Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 2000 and for the Period from April
9, 1973 (Date of Inception) to December 31, 2000
o Consolidated Statements of Shareholders' Equity from April 9, 1973
(Date of Inception) to December 31, 2000
o Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 2000 and for the Period from April
9, 1973 (Date of Inception) to December 31, 2000
o Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Not applicable.
3. Exhibit List
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
---------------- --------------------------------------------- ------------------------------------------------
Incorporated by reference to Registration
3.1.1 Articles of Incorporation of the Registrant Statement on Form 10-SB filed with the
Commission on November 25, 1996.
Incorporated by reference to Amendment No. 1
3.1.2 Amendment to Articles of Incorporation of To Registration Statement on Form 10-SB filed
the Registration dated November 6, 1996 With the Commission on December 23, 1996.
39
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
---------------- --------------------------------------------- ------------------------------------------------
Incorporated by reference to Registration
3.2 Bylaws of the Registrant Statement on Form 10-SB filed with the
Commission on November 25, 1996.
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.
Amended and Restated Shareholder Rights Incorporated by reference to the Company's
4.2 Plan dated October 15, 1999, between the Current Report on Form 8-K filed with the
Company and Equity Transfer Services, Inc. Commission on November 19, 1999.
Incorporated by reference to the Company's
4.3 Form of Doral Warrant Current Report on Form 8-K filed with the
Commission on December 26, 2000.
Incorporated by reference to the Company's
4.4 Asset-backed Exchangeable Term Note Current Report on Form 8-K filed with the
dated December 15, 2000 Commission on December 26, 2000.
Incorporated by reference to the Company's
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.
Incorporated by reference to the Company's
10.3 Altair International Inc. Stock Option Plan Registration Statement on Form S-8 filed with
adopted by shareholders on May 10, 1996 the Commission on July 11, 1997.
1998 Altair International Inc. Stock Option Incorporated by reference to the Company's
10.4 Plan adopted by Shareholders on June 11, Definitive Proxy Statement on Form 14A filed
1998 with the Commission on May 12, 1998.
Incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
10.5 Form of Mineral Lease Commission on March 31, 1998, as amended by
Amendment No. 1 to Annual Report on Form
10-K/A filed on May 15, 1998.
Incorporated by reference to the Company's
10.6 Lease dated November 15, 1999, between the Current Report on Form 8-K filed with the
Company and BHP Minerals International Inc. Commission on November 19, 1999.
Asset Purchase and Sale Agreement dated
November 15, 1999, between the Company Incorporated by reference to the Company's
10.7 and BHP Minerals International Inc Current Report on Form 8-K filed with the
Commission on November 19, 1999.
Incorporated by reference to the Company's
10.8 Securities Purchase Agreement dated Current Report on Form 8-K filed with the
December 15, 2000. Commission on December 26, 2000.
Incorporated by reference to the Company's
10.9 Registration Rights Agreement dated Current Report on Form 8-K filed with the
December 15, 2000. Commission on December 26, 2000.
Stock Pledge Agreement dated December 15, Incorporated by reference to the Company's
10.10 2000 (Mineral Recovery Systems common Current Report on Form 8-K filed with the
stock). Commission on December 26, 2000.
40
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
---------------- --------------------------------------------- ------------------------------------------------
Incorporated by reference to the Company's
10.11 Stock Pledge Agreement dated December 15, Current Report on Form 8-K filed with the
2000 (Altair Technologies common stock). Commission on December 26, 2000.
Incorporated by reference to the Company's
10.12 Assignment and Agreement dated December 15, Current Report on Form 8-K filed with the
2000. Commission on December 26, 2000.
10.13 Research Agreement dated August 1, 2000 Incorporated by reference to the Company's
Amendment No. 1 on Form 10-K/A filed with
the Commission on April 17, 2001.
23 Auditor's Consent Filed herewith.
24 Power of Attorney Included on the Signature Page hereof.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on December 26, 2000, in
which it reported (i) the issuance of a $7 million Asset-Backed Exchangeable
Term Note together with a Warrant to purchase 350,000 common shares at an
initial exercise price of $3.00, and (ii) the assignment and termination of
repricing rights under a March 31, 2000 Common Stock Purchase Agreement.
(c) Exhibits
--------
Exhibits to this Report are attached following page F-19
hereof.
(d) Financial Statement Schedule
----------------------------
Not applicable.
41
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 4 to
Annual Report on Form 10-K/A to be signed on its behalf by the undersigned,
thereunto duly authorized, on June 7, 2001.
ALTAIR INTERNATIONAL INC.
By: /s/ William P. Long
-----------------------
William P. Long,
President, Chief Executive Officer
ADDITIONAL SIGNATURES
Signature Title Date
--------- ----- ----
/s/ William P. Long President and Chief Executive June 7, 2001
----------------------- Officer and Director (Principal
William P. Long Executive Officer)
/s/ Edward Dickinson Chief Financial Officer June 7, 2001
----------------------- (Principal Financial and
Edward Dickinson Accounting Officer)
/s/ James I. Golla* Secretary and Director June 7, 2001
-----------------------
James I. Golla
/s/ George Hartman* Director June 7, 2001
-----------------------
George Hartman
/s/ Robert Sheldon* Director June 7, 2001
-----------------------
Robert Sheldon
* By: /s/ William P. Long
--------------------------------------
William P. Long, Attorney-in-Fact
42
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
Consolidated Financial Statements as of December 31, 2000 and 1999 and for
Each of the Three Years in the Period Ended December 31, 2000 and for the
Period from April 9, 1973 (Date of Inception) to December 31, 2000 and
Independent Auditors' Report
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORTS F-1-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 2000 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2000 F-4
Consolidated Statements of Shareholders' Equity for the Period from April 9, 1973
(Date of Inception) to December 31, 2000 F-5-6-7
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2000 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2000 F-8
Consolidated Statements of Cash Flows for Each of the Three Years in the Period
Ended December 31, 2000 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2000 F-9
Notes to Consolidated Financial Statements F-10-19
Letterhead of McGovern, Hurley, Cunningham, LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Altair International Inc.
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Altair International Inc. and subsidiaries (a development
stage company) for the period from April 9, 1973 (date of inception) to December
31, 1997 (these financial statements are not presented separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 audit 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 provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Altair International Inc. and subsidiaries (a development stage company) for the
period from April 9, 1973 (date of inception) to December 31, 1997 in conformity
with accounting principles generally accepted in the United States of America.
The consolidated financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. The Company is a
development stage enterprise engaged in developing mineral processing equipment,
producing titanium dioxide products, and exploring and developing mineral
properties. As discussed in Note 1 to the consolidated financial statements, the
Company's operating losses raise substantial doubt about its ability to continue
as a gong concern. Management's plans concerning these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
We consent to the incorporation by reference of this report in the Registration
Statements on Form S-3, file Nos. 333-54092, 333-36462 and 333-45511 and the
Registration Statements on Form S-8, file Nos. 333-64495 and 333-33481 filed by
Altair International Inc.
McGOVERN, HURLEY CUNNINGHAM, LLP
By: /s/ McGovern, Hurley Cunningham, LLP
------------------------------------
McGovern, Hurley Cunningham, LLP
Chartered Accounts
TORONTO, Canada
February 17, 2000
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Altair International, Inc.
Reno, Nevada
We have audited the accompanying consolidated balance sheets of Altair
International, Inc. (an exploration stage company) and subsidiaries
(collectively referred to as the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000,
and for the period from April 9, 1973 (date of inception) to December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 other auditors' report has been furnished to us
and our opinion, insofar as it related 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 audits 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, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, and for the period from April 9, 1973 (date of
incorporation) to December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is a development
stage enterprise engaged in developing mineral processing equipment, producing
titanium dioxide products, and exploring and developing mineral properties. As
discussed in Note 1 to the consolidated financial statements, the Company's
operating losses raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
By: /s/ DELOITTE & TOUCHE LLP
-----------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 30, 2001
F-2
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,335,729 $ 153,580
Restricted cash 2,250,000 --
Other current assets 390,351 1,492,786
------------ ------------
Total current assets 3,976,080 1,646,366
RESTRICTED CASH 1,750,000 --
PROPERTY AND EQUIPMENT, Net 6,601,917 7,093,569
PATENTS AND RELATED EXPENDITURES, Net 4,111,740 4,625,913
OTHER ASSETS 212,033 --
------------ ------------
TOTAL ASSETS $ 16,651,770 $ 13,365,848
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 158,642 $ 214,483
Notes payable - current portion 3,500,004 7,363,600
Capital lease obligations - current portion 24,763 --
Deferred revenue 57,957 --
------------ ------------
Total current liabilities 3,741,366 7,578,083
------------ ------------
NOTES PAYABLE, Long-term portion 2,687,181 --
------------ ------------
CAPITAL LEASE OBLIGATIONS, Long-term portion 2,312 --
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 3, 6, 7, 8, 9, 10, and 12)
SHAREHOLDERS' EQUITY:
Common stock, no par value, unlimited shares authorized;
19,325,488 and 15,474,915 shares issued and outstanding
at December 31, 2000 and 1999 32,388,589 21,479,669
Stock subscription receivable (561,300) --
Deficit accumulated during the development stage (21,606,378) (15,691,904)
------------ ------------
See notes to the consolidated financial statements.
F-3
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Period
April 9, 1973
(Date of
Inception) to
Year Ended December 31, December 31,
2000 1999 1998 2000
REVENUES None None None None
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Mineral exploration and development $ 1,217,966 $ 714,893 $ 793,249 $ 4,987,888
Research and development 1,555,472 354,462 259,630 2,569,505
Professional services 366,275 252,337 236,549 1,970,824
General and administrative expenses 2,271,250 1,899,759 1,867,420 9,022,836
Depreciation and amortization 1,236,404 508,083 685,593 3,379,206
------------ ------------ ------------ ------------
Total operating expenses 6,647,367 3,729,534 3,842,441 21,930,259
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS 6,647,367 3,729,534 3,842,441 21,930,259
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Interest expense 215,216 1,966 959,612 1,502,874
Interest income (83,440) (134,811) (335,037) (664,860)
(Gain) loss on foreign exchange (864,669) 160,619 17,109 (559,179)
------------ ------------ ------------ ------------
Total other (income) expense, net (732,893) 27,774 641,684 278,835
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS 5,914,474 3,757,308 4,484,125 22,209,094
------------ ------------ ------------ ------------
EXTRAORDINARY ITEMS:
(Gain) on forgiveness of debt -- (67,442) (25,805) (795,972)
Loss on redemption of convertible debentures -- 193,256 193,256
------------ ------------ ------------ ------------
Total extraordinary items -- (67,442) 167,451 (602,716)
------------ ------------ ------------ ------------
NET LOSS $ 5,914,474 $ 3,689,866 $ 4,651,576 $ 21,606,378
============ ============ ============ ============
LOSS BEFORE EXTRAORDINARY ITEMS
PER COMMON SHARE:
Basic and diluted $ 0.34 $ 0.24 $ 0.30 $ 3.43
EFFECT OF EXTRAORDINARY ITEMS ON
EARNINGS PER SHARE:
Basic and diluted 0.00 (0.01) 0.01 (0.09)
------------ ------------ ------------ ------------
LOSS PER COMMON SHARE -
Basic and diluted $ 0.34 $ 0.23 $ 0.31 $ 3.43
============ ============ ============ ============
WEIGHTED AVERAGE SHARES -
Basic and diluted 17,371,214 15,472,075 15,175,743 6,477,364
============ ============ ============ ============
See notes to the consolidated financial statements.
F-4
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
Stated Subscription Development
Shares Amount Receivable Stage Total
---------- ---------- ---------- ---------- ----------
APRIL 9, 1973 (DATE OF INCEPTION) None None None None None
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-5
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
Stated 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-6
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
Stated 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
------------ ------------ ------------ ------------ ------------
(Concluded)
See notes to consolidated financial statements.
F-7
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Period
April 9, 1973
(Date of
Inception) to
Year Ended December 31, December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (5,914,474) $ (3,689,866) $ (4,651,576) $(21,606,378)
Adjustments to reconcile net loss to net cash used
in development activities:
Depreciation and amortization 1,236,404 508,083 685,593 3,379,206
Shares issued for services -- -- -- 99,926
Shares issued for settlement of debt -- -- -- 75,228
Shares issued for property -- -- -- 159,166
Issuance of stock options to non-employees 424,063 765,386 841,944 2,845,451
Issuance of stock options to employees -- -- 15,420 78,220
Issuance of stock warrants 420,182 -- -- 420,182
Amortization of discount on note payable 12,052 -- -- 12,052
Loss on redemption of convertible debenture -- -- 193,256 193,256
Gain on forgiveness of debt -- (67,442) (25,805) (795,972)
Loss on disposal of fixed assets -- -- 1,945 1,945
Loss (gain) on foreign currency translation (864,669) 160,619 17,109 (559,179)
Deferred financing costs written off -- -- 515,842 515,842
Changes in assets and liabilities
(net of effects of acquisition):
Restricted cash (4,000,000) -- -- (4,000,000)
Other current assets 990,579 172,512 (95,182) 1,690,601
Other assets (169,606) -- 10,189 (169,606)
Accounts payable and accrued liabilities (75,161) 48,734 65,194 (110,572)
Deferred revenue 57,957 -- -- 57,957
------------ ------------ ------------ ------------
Net cash used in development activities (7,882,673) (2,101,974) (2,426,071) (17,712,675)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Asset acquisition (see Note 3) -- (2,422,417) -- (2,422,417)
Purchase of property and equipment (226,612) (207,048) (146,213) (1,136,379)
Purchase of patents and related expenditures -- (76,135) (169,804) (1,888,120)
------------ ------------ ------------ ------------
Net cash used in investing activities (226,612) (2,705,600) (316,017) (5,446,916)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares for cash, net of share
issue costs 8,904,029 1,862,500 -- 15,523,659
Issuance of convertible debenture -- -- -- 5,000,000
Proceeds from exercise of stock options 335,778 -- 113,664 2,578,491
Proceeds from exercise of warrants -- -- -- 3,903,995
Issuance of notes payable 7,000,000 -- -- 7,000,000
Payment of notes payable (6,498,931) (6,191) (177,563) (6,810,445)
Purchase of call options (449,442) -- -- (449,442)
Redemption of convertible debentures -- -- (2,250,938) (2,250,938)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 9,291,434 1,856,309 (2,314,837) 24,495,320
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,182,149 (2,951,265) (5,056,925) 1,335,729
CASH AND CASH EQUIVALENTS, Beginning of period 153,580 3,104,845 8,161,770 None
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 1,335,729 $ 153,580 $ 3,104,845 $ 1,335,729
============ ============ ============ ============
(Continued)
F-8
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998,
AND THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------
2000 1999 1998
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $85,929 $1,966 $32,165
======= ====== =======
Cash paid for income taxes None None None
======= ====== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended December 31, 2000:
o We entered into a capital lease obligation of $46,395 for laboratory
equipment.
o We issued 1,003,626 shares of common stock as part of a repricing
agreement (see Note 9).
o We recorded a stock subscription receivable for 165,000 shares of common
stock with an investor.
o In conjunction with the Doral 18, LLC note (see Note 6), we issued
warrants to purchase 350,000 common shares at $3.00 per share. The
warrants had an estimated fair value of $824,900.
For the year ended December 31, 1999:
o On November 16, 1999, we acquired certain assets from BHP Minerals
International, Inc. Liabilities assumed in the acquisition are as
follows:
Fair value of assets purchase $9,625,500
Cash paid None
----------
Note payable denominated in U.S.
dollars (15,000,000 Austrailian dollars) $9,625,500
For the year ended December 31, 1998:
o Convertible debentures having a principal amount of $2,750,000 and
accrued interest of $66,528 were converted into 387,735 shares of common
stock with a fair market value of $3,061,444.
See notes to consolidated financial statements. (Concluded)
F-9
ALTAIR INTERNATIONAL INC. and subsidiaries
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business - Altair International Inc. is incorporated in the
province of Ontario, Canada and is engaged in the business of (1) producing
titanium dioxide products, (2) exploring mineral properties in the United
States, and (3) developing mineral processing equipment for use in the recovery
of fine and heavy mineral particles, including titanium, zircon, gold and
environmental contaminants. Our authorized capital stock is comprised of an
unlimited number of common shares with no par value.
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.
Principles of Consolidation - The consolidated financial statements include
the accounts of Altair International Inc. and its subsidiaries which include (1)
Mineral Recovery Systems, Inc. (MRS), (2) Fine Gold Recovery Systems, Inc.
(FGRS), (3) Altair Technologies, Inc. (ATI), (4) California Recovery Systems,
Inc. (CRS), (5) Tennessee Valley Titanium, Inc. (TVT), and (6) 660250 Ontario
Limited (OL) (collectively referred to as the "Company"), all of which are 100%
owned. Intercompany transactions and balances have been eliminated in
consolidation.
Basis of Presentation - Our 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 statements of operations, we have not yet achieved
profitable operations. We incurred a net loss of $5,914,474, $3,689,866, and
$4,651,576 for the years ended December 31, 2000, 1999, and 1998, respectively,
and a cumulative loss of $21,606,378 for the period April 9, 1973 (date of
inception) to December 31, 2000. In addition, development of the titanium
processing technology, further exploration of the Tennessee mineral property,
and development the centrifugal jig will require additional financing or
capital. 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 and
ultimately to develop commercially viable products and processes and then attain
successful operations. We are in the process of developing the titanium
processing technology, exploring the Tennessee mineral property, and developing
the centrifugal jig. We have financed operations primarily through the issuance
of equity securities (common stock, convertible debentures, stock options and
warrants), and by the issuance of a $7 million term note as discussed in Note 6.
Additional funds will be required to complete exploration activities on the
Tennessee mineral property and development of the Titanium processing technology
and the jig. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of 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.
F-10
Cash and Cash Equivalents - We consider all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value.
Property and Equipment - Property 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
Centrifugal jig equipment 7 years
Jig testing equipment 7 years
Pigment production equipment 5 - 10 years
Patents and Related Expenditures - Patents related to the pigment
production technology and centrifugal jig technology are carried at cost and
amortized on a straight-line basis over their estimated useful lives, which
range from 3 to 17 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 - We have elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees for Stock-Based Compensation, and to furnish the pro
forma disclosures required under Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation.
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 current and anticipated 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.
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 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. During the three years in the period
ended December 31, 2000, because the exercise price of the options and warrants
(see Note 7) was equal to or greater than the fair market value of the stock,
the warrants and options would be antidilutive and excluded from fully diluted
loss per share. See Notes 8 and 9 for a summary of convertible securities that
potentially could effect the fully diluted loss per share.
F-11
Recent Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, as amended, Accounting for
Derivative Instruments and Hedging Activities, and established standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. We adopted the standard on January 1,
2001. The adoption of SFAS No. 133 did not have any effect on us.
On September 29, 2000, the Financial Accounting Standards Board issued SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - A Replacement of FASB Statement No. 125. SFAS
140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. We do not expect that the adoption of this
statement will have a material impact on our financial statements.
Effective the fourth quarter of fiscal year 2000, we adopted Staff
Accounting Bulletin (SAB) 101. The adoption of this standard had no effect on
our consolidated financial statements.
Comprehensive Income - We classify components of other comprehensive income
by their nature in the consolidated financial statements and display the
accumulated balance of other comprehensive income as a separate component of
shareholders' equity in the consolidated balance sheets. There were no other
components of comprehensive income other than the net loss.
Deferred Income Taxes - We use an 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 deferred tax assets.
Extraordinary Items - As a result of a 1994 merger with TransMar, Inc.
(TMI), FGRS assumed all of TMI's liabilities. During 1999, 1998, and 1996, FGRS
extinguished certain of TMI's liabilities at less than the recorded amounts of
such debt. The forgiveness of debt totaled $67,442, $25,805, and $702,725 in
1999, 1998, and 1996, respectively.
During 1998, we redeemed $2,250,000 of the convertible debentures,
incurring a redemption premium of $193,256.
Deferred Revenue - We entered into a sales contract on October 5, 2000 with
a customer for titanium dioxide nanoparticles under which the total contract
amount was prepaid. Product delivery dates are not fixed but are anticipated to
be during 2001. We will recognize revenue as the product is shipped.
Financial Instruments - Our financial instruments, when valued using market
interest rates, would not be materially different from the amounts presented in
the consolidated financial statements.
3. ACQUISITION OF CERTAIN ASSETS
On November 16, 1999, we entered into an Asset Purchase and Sale Agreement
with BHP Minerals International Inc. (BHP), an Australian company, pursuant to
which we purchased all tangible equipment and other assets related to a
hydrometallurgical process developed by BHP primarily for the production of
titanium dioxide products from titanium bearing ores or concentrates (the
"Technology"), in process patent applications and the use of the services of
certain BHP personnel involved in the development of the Technology for a period
of one year.
The purchase price for the assets and technology was 15,000,000 Australian
dollars (AUD$), or $9,625,500 U.S. dollars (US$), and was payable in four equal
installments. The first installment was paid at closing on November 16, 1999,
the second and third installments were paid on May 12, 2000 and the remaining
installment was paid on August 1, 2000. The installments due in AUD$ were
translated into US$ at the date of payment and the related foreign currency gain
(loss) was recorded as other income or expense. We are also required to pay to
BHP, until the earlier of (1) November 15, 2014 or (2) the date we have paid an
aggregate royalty of 105,000,000 AUD$, a quarterly royalty of from 1.5% to 3% of
certain titanium dioxide products produced and 3% of other products sold. As we
have not yet entered commercial production with this technology, no royalties
are due under this agreement.
F-12
In connection with the Asset Purchase Agreement, we entered into a lease
with BHP pursuant to which we lease approximately 20,000 square feet of
laboratory and testing space at BHP's testing facility in Reno, Nevada for a
monthly rent of $15,000. The lease is subject to automatic renewal for six-month
periods at inflation-adjusted rent until terminated by us. The lease grants us a
right of first refusal in the event BHP intends to sell the building and
property subject to the lease.
The acquisition was accounted for as a purchase. The assets (consisting of
property and equipment, service agreement, and technology) have been recorded at
their estimated fair values at the date of acquisition. The amount of the
purchase price allocated to property and equipment was $6,568,839, service
agreement was $1,538,985, and technology was $1,517,736. The technology is being
amortized using the straight-line method over seventeen years, which
approximates the remaining life of the patents pending. Subsequent to the
acquisition, we applied for four United States patents related to the technology
acquired from BHP.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2000
and December 31, 1999:
2000 1999
Furniture and office equipment $ 82,582 $ 76,228
Vehicles 125,031 125,031
Centrifugal jig equipment 644,632 644,632
Jig testing equipment 91,521 45,128
Pigment production equipment 6,776,286 6,568,839
----------- -----------
Total 7,720,052 7,459,858
) Less accumulated depreciation (1,118,135) (366,289)
----------- -----------
Total property and equipment $ 6,601,917 $ 7,093,569
=========== ===========
Depreciation expense for the years ended December 31, 2000, 1999, and 1998
totaled $751,846, $169,234, and $76,934, respectively.
F-13
5. PATENTS AND RELATED EXPENDITURES
Patents and related expenditures consisted of the following at December 31,
2000 and December 31, 1999:
2000 1999
----------- -----------
Pigment production patent applications $ 1,523,670 $ 1,553,286
Centrifugal jig patents 4,210,987 4,223,800
Royalty agreement 424,881 424,881
Mineral recovery technology rights 243,000 243,000
----------- -----------
6,402,538 6,444,967
Less accumulated amortization (2,290,798) (1,819,054)
----------- -----------
Total patents and related expenditures $ 4,111,740 $ 4,625,913
=========== ===========
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable consisted of the following at December 31, 2000 and 1999:
2000 1999
----------- -----------
Note payable to Doral 18, LLC $ 7,000,000 --
Note payable to BHP Minerals International, Inc.
(amount reported herein is reflected in U.S. dollars;
however, actual payments were made in Australian
dollars) -- $ 7,363,600
----------- -----------
Total 7,000,000 7,363,600
Less current portion (3,500,004) (7,363,600)
Less discount resulting from allocation
of debt proceeds to warrant (812,815) --
----------- -----------
Long-term portion of notes payable $ 2,687,181 None
=========== ===========
On December 15, 2000, pursuant to a securities purchase agreement, we sold
to Doral 18, LLC a $7 million 10% Asset-Backed Exchangeable Term Note (the Note)
and detachable warrants to purchase 350,000 common shares (the "Common Shares")
at $3.00 per share. At the same time, we acquired call options on 247,678 shares
of our common stock held by Doral 18, LLC (see Note 9).
Net proceeds of $4 million from the Note were placed in a restricted bank
account to secure a letter of credit and are scheduled to be released as
principal payments are made. Under the Note, we are required to make monthly
payments on or before the 15th day of each calendar month in the principal
amount of $291,667 plus accrued interest. The Note is due and payable in full on
December 15, 2003.
We may redeem the monthly payment amounts in cash at any time throughout
the term of the Note and may prepay the Note in $250,000 increments at any time
at a price equal to 115% of the sum of outstanding principal and accrued
interest. If we elect not to redeem the monthly payment amount in cash, on each
due date, the holder of the Note automatically will receive the right to
exchange (immediately or at any later date during the term) the monthly payment
amount into common shares at the applicable exchange price. The exchange price
F-14
for any date is the lesser of (a) a fixed exchange price of $3.00, subject to
adjustment, and (b) the average of the lowest three daily trading prices of the
common shares during the 15 trading days ending on the day before an exchange
right is exercised. Because this is a contingent embedded beneficial conversion
feature, no amounts have been allocated to the beneficial conversion feature
until the contingency is resolved.
The Note is secured by a pledge of the equipment, intellectual property and
common stock of ATI, and by a pledge of the common stock of MRS.
The warrants have an exercise price of $3.00, and are exercisable at any
time on or before the earlier of (a) December 15, 2005, and (b) the date 60 days
after we provide notice to the holder that the market price of the Common Shares
has been equal to or greater than $12.00 for five consecutive days. The exercise
price is subject to reduction pursuant to a formula set forth in the warrant.
The warrants have an estimated fair value of $824,900, as determined using the
Black-Scholes pricing model. The proceeds of the debt were allocated between the
debt and the warrants based on relative fair values on the date of issuance. The
portion allocated to the warrants resulted in a discount on the note payable
which is being accreted to interest expense over the term of the debt agreement.
Upon the occurrence of a default or specified major corporate event, the
holder of the Note has the right to exchange the entire principal balance of the
Note for common shares. Upon the occurrence of other specified events, we may be
required to redeem the monthly payment amount in cash at 120% of face value. As
of December 31, 2000, we had no occurrences of default or corporate events.
We have long-term capital leases related to the acquisition of equipment.
Long-term capital lease obligations as of December 31, 2000 are as follows:
Year ending December 31:
2001 $ 28,235
2002 2,352
--------
Subtotal 30,587
Less amounts representing interest (3,512)
Less current portion (24,763)
--------
Total $ 2,312
========
At December 31, 2000, the gross book value of equipment under capital
leases was $46,395. There were no capital leases at December 31, 1999. The
amortization expense associated with these capital leases is included in
depreciation expense.
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 two- to five-year terms and typically
vest over periods ranging from immediately to three years from the date of
grant.
F-15
Stock option activity for the years ended December 31, 2000, 1999 and 1998
is summarized as follows:
2000 1999 1998
-------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning
of year 3,060,000 $ 5.92 1,965,000 $ 6.61 962,500 $ 4.93
Granted during the year 420,000 3.86 1,550,000 5.74 1,020,000 8.18
Cancelled (450,000) 7.80 (455,000) 8.30 -- --
Exercised (71,300) 4.71 -- -- (17,500) 5.46
--------- ------ --------- ------ --------- ------
Outstanding at end of year 2,958,700 $ 5.37 3,060,000 $ 5.92 1,965,000 $ 6.61
========= ====== ========= ====== ========= ======
Options exercisable at year end 2,153,700 $ 5.45 1,835,000 $ 5.64 1,540,000 $ 6.18
========= ====== ========= ====== ========= ======
Weighted average fair value of
options granted during year $ 3.24 $ 2.83 $ 5.33
====== ====== ======
The following table summarizes information about stock options outstanding
at December 31, 2000:
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
$2.00 to $4.00 670,000 1.5 $ 2.83 610,000 $ 2.92
$4.38 to $4.75 915,000 4.0 4.39 370,000 4.41
$4.94 to $7.50 908,700 2.5 6.64 853,700 6.75
$8.00 to $10.00 465,000 2.6 8.69 320,000 8.33
------- --- ---- ------- ----
2,958,700 4.6 $ 5.37 2,153,700 $ 5.45
========= === ====== ========= ======
We have elected to follow the measurement provisions of APB Opinion No. 25,
under which no recognition of expense is required in accounting for stock
options granted to employees 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 $15,420 for stock options granted to
employees for which the fair market value exceeded the exercise price of the
stock at the grant date for the year ended December 31, 1998. We recorded
compensation expense of $424,063, $765,386, and $841,944 for stock options
granted to non-employees for the years ended December 31, 2000, 1999, and 1998,
respectively.
We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). To estimate compensation expense that would be recognized under SFAS 123,
we have used the modified Black-Scholes option pricing model. If we had
accounted for our stock options using the accounting method prescribed by SFAS
123, our net loss and loss per share would be as follows:
F-16
2000 1999 1998
Net loss (both basic and diluted):
As reported $ 5,914,474 $3,689,866 $ 4,651,576
Pro forma 9,637,609 4,628,960 5,445,728
Loss per common share (both basic and diluted):
As reported 0.34 0.23 0.31
Pro forma 0.56 0.30 0.36
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:
2000 1999 1998
Dividend yield None None None
Expected volatility 93 % 75 % 77 %
Risk-free interest rate 6.40 % 5.80 % 5.43 %
Expected life (years) 4.6 5.0 4.9
Warrants - As of December 31, 2000, there were 1,883,672 warrants issued
and outstanding for the purchase of our common shares. The warrants were issued
in conjunction with debt offerings, issuance of common stock, and payment for
outside services. The warrants have a weighted average exercise price of $5.175
per share and expire on various dates ranging from March 2002 to January 2006.
Most warrants contain provisions whereby the expiration date is accelerated if
our common shares close at or above specified prices ranging from $6.00 to
$14.00 per share.
8. CONVERTIBLE DEBENTURES
On December 29, 1997, we issued $5,000,000 in convertible subordinated
debentures due December 29, 2001 (the "Debentures") bearing interest at 5% per
annum payable in cash or common shares either annually or upon conversion or
maturity, at our discretion. Subject to certain restrictions during the first
180 days after closing, the Debentures were convertible by holders into common
shares at a conversion rate equal to the lesser of (a) 92% of the average price
of the common shares for the five trading days prior to submission of a notice
of conversion by the holder, or (b) $14.36875 per share. The purchasers of the
Debentures also received transaction warrants entitling the holders to purchase
75,000 common shares on or before December 29, 1999 at a price of $16.7188 per
share. In addition, the placement agent received 105,000 placement warrants
entitling the agent to purchase 105,000 common shares at $16.7188 per share on
or before December 29, 1999. The proceeds of the debt were allocated between the
debt, the warrants and the beneficial conversion feature based upon fair values.
The amount allocated to the beneficial conversion feature and warrants was
accreted to interest expense in 1998 when the debentures were converted and/or
retired.
During the period May 20, 1998 through July 31, 1998, the holders of the
Debentures elected to convert $2,750,000 of the principal amount of the
Debentures and $66,528 of accrued interest. These conversions resulted in the
issuance of 387,735 common shares. On August 28, 1998, we elected to redeem the
remaining $2,250,000 of Debentures using cash previously invested in short-term
instruments. The total cash of $2,550,938, required to redeem the Debentures,
included a redemption premium of $193,256 and accrued interest of $107,682. In
conjunction with this redemption, we wrote off deferred financing costs totaling
$515,842.
F-17
9. OTHER TRANSACTIONS
On March 31, 2000, we entered into a common stock purchase agreement with a
private equity fund pursuant to which the equity fund purchased 1,251,303 common
shares of Altair for an aggregate purchase price of $6,000,000; however, the
number of shares received by the equity fund in exchange for $6,000,000 was
subject to repricing adjustments if the lowest average closing price for any ten
days during each of four 30-day repricing periods did not meet a certain
threshold. Prior to December 15, 2000, the equity fund repriced 750,782 of the
initial shares it purchased under the common stock purchase agreement and
received an additional 1,003,626 common shares.
Pursuant to an assignment and agreement dated December 15, 2000, the equity
fund referred to in the preceding paragraph transferred all of its remaining
rights under the common stock purchase agreement, including its right to reprice
the remaining 500,521 of the initial 1,251,303 shares, to Doral 18, LLC (Doral)
(see Note 6). Pursuant to this purchase agreement, Doral exercised its right to
reprice approximately 70,928 of the initial shares and received 247,678 common
shares. In exchange for approximately $1,650,000, we bought from Doral and
terminated all remaining rights under the common stock purchase agreement,
including all remaining repricing rights. In conjunction with this buyout, Doral
granted us a call option to purchase 247,678 common shares for a nominal
exercise price. At the option of Doral, the number of shares subject to such
option may be reduced at fair market value in lieu of our making payments of
interest and principal. From December 15, 2000 through December 31, 2000, 19,222
of such common shares were used to satisfy accrued interest on the $7 million
10% Asset-Backed Exchangeable Term Note. Accordingly, the call option is valued
at the fair value of the underlying stock (228,456 shares) subject to call, and
totaled $342,684 and is included in other current assets as of December 31,
2000.
10. LEASES
Operating Leases - We lease certain premises and equipment under operating
leases. Future minimum lease payments under non-cancelable operating leases as
of December 31, 2000 are as follows:
Year ending December 31:
2001 $ 154,980
2002 5,415
---------
Total $ 160,395
---------
Lease expense for the years ended December 31, 2000, 1999, and 1998 totaled
$283,964, $104,622, and $79,471, respectively.
Mineral Leases - Our subsidiary, MRS, has entered into various mineral
leases for a 100% interest in approximately 14,000 acres of land in the state of
Tennessee, United States with minimum annual advance royalty payments as
follows:
Year ending December 31:
2001 $ 152,306
2002 194,704
2003 212,479
2004 424,227
2005 430,623
Thereafter 1,137,661
The mineral leases are subject to a production royalty; however, MRS will
receive a credit against production royalties for all advance royalties paid.
The lessors can only terminate the leases upon failure of MRS to make the
minimum payments as required by the leases. As of December 31, 2000, we are
current on revenue payments to lessors.
F-18
11. 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, 2000.
A reconciliation of the federal statutory income tax rate and our effective
income tax rates is as follows:
Year Ended December
2000 1999 1998
----------- ----------- -----------
Federal statutory income taxes $(2,010,921) $(1,254,554) $(1,581,536)
Meals and entertainment 1,824 2,349 3,013
Valuation allowance 2,009,097 1,252,205 1,578,523
----------- ----------- -----------
Total None None None
=========== =========== ===========
The components of the deferred tax assets consisted of the following as of
December 31, 2000 and 1999:
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 3,349,475 $ 1,412,607
Unrealized loss 24,312 --
----------- -----------
Total deferred tax assets 3,373,787 1,412,607
Deferred tax liabilities -
basis difference in assets (725,740) (773,597)
Valuation allowance (2,648,047) (639,010)
----------- -----------
Total deferred tax assets None None
=========== ===========
The net operating loss carryforwards expire at various dates beginning in
2001 through 2020.
12. COMMITMENTS AND CONTINGENCIES
Employment Agreement - Under the current employment agreement between
Altair and our president, Dr. William P. Long, Dr. Long is entitled to receive
200,000 common shares in the event (i) voting control of over 35% of the issued
stock is acquired in a merger, takeover or similar transaction (a "change of
control") and Dr. Long's employment agreement is terminated within 180 days
before or at any time after such change of control, or (ii) absent a change of
control, if Dr. Long's employment agreement is terminated for any reason except
by Dr. Long, by mutual consent, by Altair for cause, or at the end of the term.
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.
F-19