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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] 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) 587B8245
[ ] 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. [X]
The aggregate market value of the Common Shares held by non-affiliates
of the Registrant on March 15, 2000, based upon the closing sale price of the
Common Shares on the NASDAQ Stock Market of $5.813 per share on March 15, 2000,
was approximately $77,185,000. 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, 2000 the Registrant had 15,837,882 Common
Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 1, 2000 are incorporated by reference in Part
III of this Report.
INDEX TO FORM 10-K
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PART I.......................................................................................................4
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Exchange Rate Information.................................................................................4
Item 1: Business.........................................................................................4
General...................................................................................................4
Titanium Pigment Processing Technology....................................................................6
The Jig...................................................................................................9
Tennessee Mineral Property...............................................................................14
Plan of Operation--General...............................................................................16
Subsidiaries.............................................................................................17
Government Regulation and Environmental Concerns.........................................................18
Employees................................................................................................18
Where You Can Find More Information......................................................................19
Glossary of Terms........................................................................................19
Forward-looking Statements...............................................................................21
Factors that May Affect Future Results...................................................................21
We Have Not Generated Any Operating Revenues or Profits...............................................21
We May Continue to Operate at a Net Loss..............................................................21
We May Not be Able to Raise Sufficient Capital to Meet Present and Future Obligations.................22
Our Operations Are And Will Be Subject to Extensive Government Regulation.............................23
Certain of Our Experts and Directors Reside in Canada And May Be Able to Avoid Civil Liability........23
We are Dependent on Key Personnel.....................................................................23
We May Fail to Identify or Be Unable to Consummate Important Strategic Transactions...................24
We May Issue Substantial Amounts of Additional Shares Without Stockholder Approval....................24
The Market Price of Our Common Stock Is Extremely Volatile............................................24
Future Sales of Currently Restricted Securities May Affect the Market Price of Our Common Stock.......25
We Have Never Declared A Dividend And May Not For the Foreseeable Future..............................25
Our Series 12 Jig Is Too Small For Most Commercial Uses...............................................25
Testing Is Incomplete on Our Series 30 Jig............................................................26
Performance Of The Jig In A Commercial Setting May Not Match Test Results.............................26
The Jig Faces Competition From Alternative Technologies...............................................26
The Jig Faces Competition From Other Jig-like Products................................................27
The Market for Commodities Produced Using the Jig May Collapse........................................27
We Are Dependent Upon Others To Manufacture The Jig...................................................27
Certain Key Patents For The Centrifugal Jig Have Expired Or Will Expire In The Near Future............28
We Have Not Completed Testing The Feasibility of Mining The Tennessee Mineral Property................28
We May Be Unable to Obtain Necessary Environmental Permits for the Tennessee Mineral Property.........29
Any Operations On the Tennessee Mineral Property May Lead to Environmental Liability..................29
We Have Not Yet Confirmed the Viability and Effectiveness of the Processing Technology
and Processing Assets...............................................................................30
Nanoparticles Produced Using the Processing Technology May Be, or Be Perceived As, Substandard........30
The Current Market For TiO2 Nanoparticles Is Limited..................................................31
Our Cost of Production May Exceed Estimates...........................................................31
Pending Patent Applications May Be Denied Or Provide Inadequate Protection............................31
Use of the Processing Technology May Lead to Substantial Environmental Liability......................32
2
Item 2. Properties......................................................................................32
Item 3. Legal Proceedings...............................................................................33
Item 4. Submission of Matters to a Vote of Security Holders.............................................33
PART II.....................................................................................................33
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Item 5. Market for the Common Stock and Related Shareholder Matters.....................................33
Market Price.............................................................................................33
Outstanding Shares and Number of Shareholders............................................................34
Dividends................................................................................................34
Transfer Agent and Registrar.............................................................................34
Canadian Taxation Considerations.........................................................................34
Item 6. Selected Financial Data.........................................................................35
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........36
Overview.................................................................................................36
Results of Operations....................................................................................37
Liquidity and Capital Resources..........................................................................38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................38
Item 8. Financial Statements and Supplementary Data.....................................................39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............39
PART III....................................................................................................39
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Item 10. Directors and Executive Officers of the Registrant...........................................39
Item 11. Executive Compensation.......................................................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................39
Item 13. Certain Relationships and Related Transactions...............................................39
PART IV.....................................................................................................39
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................39
3
PART I
This Annual Report on Form 10-K for the year ended December 31, 1999 (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 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 Stock") 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.
Exchange Rate Information
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The following exchange rates represent the noon buying rate in New York
City for cable transfers in Canadian dollars, as certified for customs purposes
by the Federal Reserve Bank of New York. The following table sets forth, for
each of the years indicated, the period end exchange rate, the average exchange
rate (i.e., the average of the exchange rates on the last day of each month
during the period), and the high and low exchange rates of the U.S. dollar in
exchange for the Canadian dollar for the years indicated below, based on the
noon buying rates.
Year Ended December 31,
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1999 1998 1997 1996 1995
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(Canadian dollar per US dollar)
High 1.5302 1.5770 1.4398 1.3822 1.4238
Low 1.4440 1.4075 1.3392 1.3310 1.3285
Average 1.4827 1.4894 1.3849 1.3638 1.3725
Year End 1.4440 1.5375 1.4288 1.3697 1.3655
Item 1: Business.
General
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A glossary of technical terms used in the following description of the
Company's business is set forth at the conclusion of this Item 1. 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 each of its subsidiaries.
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. Since 1994, the Company has also devoted
substantial resources to the development and testing of mineral processing
equipment for use in the recovery of fine, heavy mineral particles.
4
During 1996, Altair acquired the rights to the Campbell Centrifugal
Jig, since modified and renamed the Altair Centrifugal Jig (the "Jig"), through
a merger involving the Company, Fine Gold Recovery Systems, Inc., a wholly owned
subsidiary of the Company ("Fine Gold"), and Trans Mar, Inc., a Washington
corporation ("TMI"). 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 which are not economically recoverable using existing conventional
techniques. Altair is presently testing and customizing the Jig for use in the
recovery of heavy minerals such as titanium and zircon. Management believes that
the Jig could also be used to recover other minerals such as gold and for
environmental remediation. See "--Jig Technology and Proprietary Rights."
Altair has also leased, and is 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 using
the Jig or other equipment. Preliminary reports suggest that the Tennessee
Mineral Property contains significant amounts of valuable heavy minerals,
including titanium and zircon, and is suitable for a large-scale sand mining
operation with a multi-decade life. See "--Tennessee Mineral Property."
In October 1998, Altair acquired an option to enter into a mineral
processing lease on a heavy mineral sand stockpile located near Ione, California
(the "California Mineral Property"). Although the California Mineral Property
was of limited size, existing data suggested that the stockpiled materials
graded between 14% and 31% heavy minerals (compared to 2% heavy minerals content
in some primary mine locations). During 1999, the Company completed sampling and
analysis of the stockpile and determined that, due principally to high
concentrations of contaminants, the property is not economically feasible to
develop. As a result, Altair allowed the option to expire and wrote off
approximately $94,000 of costs associated with the project.
In November 1999, Altair acquired all patents and technology related to
a hydrometallurgical process developed by BHP Minerals International, Inc.
("BHP") primarily for the production of titanium dioxide products from titanium
bearing ores or concentrates (the "Processing Technology"), all tangible
equipment and other assets used by BHP to develop and implement the Processing
Technology and the use for one year (for no fee) of the services of the 18 BHP
personnel presently developing the Processing Technology. See "Titanium Pigment
Processing Technology." Although Altair intends to continue to invest in the
exploration and testing of mineral properties and mineral processing equipment,
it expects that a majority of its resources during calendar year 2000 will be
focused on the development and exploitation of the Processing Technology.
From a financial and accounting standpoint, the Company is a
development stage firm and has been since its inception. To date, the Company
has derived no revenues from product sales or otherwise and has experienced an
operating loss in every year of operation. In the fiscal year ended December 31,
1999, the Company experienced operating losses of $2,291,850.
Throughout this Form 10-K, the Company is sometimes referred to or
defined as a "development stage" company or firm. Such references are for
financial and accounting purposes only and are intended to signify that the
Company is devoting substantially all of its efforts to establishing a new
business, and planned principal operations have commenced, but there has been no
significant revenue therefrom. References to the Company as a development stage
company are not intended to imply that exploration activities with respect to
the Tennessee Mineral Property or any other mineral deposits have disclosed a
commercially viable reserve. For purposes of Regulation S-K, Item 802, Guide 7
promulgated under the Exchange Act of 1934, the Company should be considered an
"exploration stage" company.
5
Titanium Pigment Processing Technology
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Acquisition of the Processing Technology. On November 15, 1999, the
Company entered into an Asset Purchase and Sale Agreement (the "Asset Purchase
Agreement") with BHP pursuant to which the Company purchased all patents and
technology related to a hydrometallurgical process developed by BHP primarily
for the production of titanium dioxide ("TiO2") products from titanium bearing
ores or concentrates (i.e., the "Processing Technology"), all tangible equipment
and other assets used by BHP to develop and implement the Processing Technology
(the "Processing Assets") and the use for one year (for no fee) of the services
of the BHP personnel presently developing the Processing Technology.
The purchase price for the Processing Technology and Processing Assets
is 15,000,000 Australian Dollars (AUD$) and was arrived at after extensive
arms-length negotiation between Altair and BHP. (The noon buying rate in New
York City for an Australian Dollar on March 15, 2000, as reported by the Federal
Reserve Bank of New York for customs purposes, was $.6125 United States
Dollars.) Altair initially agreed to pay the purchase price in four equal
installments of AUD$3,750,000, the first of which was made at closing. The
second payment, which was originally due February 15, 2000, has been
rescheduled, with interest at 15% per annum, until May 15, 2000. The remaining
two payments are due and payable on May 15, 2000 and August 15, 2000. The
Company funded its first installment of the purchase price using existing cash.
It intends to fund future installments primarily through the offer and sale of
Common Stock, warrants to purchase Common Stock, and various other debt or
equity securities. The Company may also use revenues, if any, generated from the
sale of mineral products produced using the Processing Technology to fund part
of the May 15, 2000 and August 15, 2000 installments. If the Company fails to
pay any of the remaining three installments to the purchase price, the Asset
Purchase Agreement provides that it will forfeit to BHP, without a right to
reimbursement of any amount of the purchase price paid to date, all right, title
and interest in the Processing Technology and Processing Assets.
The Asset Purchase Agreement also requires the Company to pay to BHP,
until the earlier of the fifteenth anniversary of November 15, 1999 or the date
it has 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 Processing Technology
by the Company or a transferee at the Company'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 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 Processing Technology
by the Company or a transferee of the Company at any location other
than its Tennessee Mineral Property or the Auckland, New Zealand heavy
mineral sand operation; and
o 3% of the sales proceeds (F.O.B. the Company's facility, reduced by the
amount of product returns) received by the Company or a transferee of
the Company from the sale of any products other than TiO2 pigment
produced through its use of the Processing Technology.
6
In addition, in connection with the Asset Purchase Agreement, the Company and
BHP entered into a Lease dated November 15, 1999, pursuant to which the Company
leases 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 initial term
of the Lease expires on December 31, 2000, subject to automatic renewal for
six-month periods at inflation-adjusted rent until terminated by the Company.
The Lease grants the Company 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 the Company's possible purchase of
such building and property.
Description of the Processing Technology. The Processing Technology is
capable of producing conventional TiO2 pigment products. 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.
The 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). The Company has determined that it
will initially use the demonstration plant to produce TiO2 nanoparticles.
The Processing Technology is fundamentally different from current
processing techniques. The process permits exceptional control over particle
size, shape, and crystalline form. 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. While nanoparticle products made by these methods
exhibit the surface area and reactivity desired for many applications, they are
often amorphous or multiphase materials that grow in particle size and change
crystalline phase when subjected to high-temperature processing. In contrast,
the Processing Technology produces discrete anatase crystals in nanometer sizes
that are thermally stable at 800 degrees Centigrade for 48 hours or more.
The 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 crystal size, phase, catalytic and photocatalytic
activity and size distribution of crystals are controlled within narrow limits
and to specification. Other technologies exclude the introduction of doping
elements during crystal growth.
Processing Assets. The Processing Assets consist principally of a
"semi-works" facility located in the leased premises. The plant was built by BHP
as a research and development facility, but is capable of producing commercial
grade products. The Company intends to commence limited production of TiO2
products using the Processing Technology and Processing Assets during the first
half of 2000. The plant has a nominal annual production capacity of 200 tons of
TiO2 nanoparticles.
Plans for Development of the Titanium Pigment Processing Technology.
The Company intends to initially employ the Processing Technology for the
production and sale of TiO2 nanoparticles. It has hired a production manager to
operate the semi-works plant as a production facility, has commenced product
marketing, and is investigating distributor relationships. The plant has certain
bottlenecks in the process which limit production capacity. The Company intends
to undertake a de-bottlenecking effort during the second half of 2000 which
should significantly increase the production capacity of the plant.
The Company is also analyzing other means of exploiting the Processing
Technology, including licensing arrangements and joint ventures. The Company
believes that, with additional research and development aimed at
7
commercialization, the Processing Technology will be capable of producing
industry standard TiO2 pigments (larger particle size than nanoparticles). The
Company is assessing potential business arrangements which would facilitate the
development of this and other additional applications for the Processing
Technology.
The raw material used as a feedstock in the production of TiO2
nanoparticles, and an intermediate in the production of other TiO2 products, is
titanium tetrachloride, a commodity product manufactured by several suppliers
and readily available on the open market. Although the Company uses purchased
titanium tetrachloride as the feedstock in the production of TiO2 nanoparticles,
the Processing Technology is capable of producing it from an ilmenite raw
material.
Target Market for Products of the Processing Technology. The Company is
initially targeting the markets that utilize the unique optical properties of
TiO2 nanocrystals such as producers of specialty surface coatings and UV
protectant cosmetics. Ultra-fine or nano-sized TiO2 may also be effectively used
in battery components and pollution control and detoxification. Coatings and
cosmetics utilize the ultraviolet shielding capabilities of the material;
pollution control and detoxification processes take advantage of the material's
photocatalytic properties; and battery applications utilize the electrochemical
capabilities of the material. The current global market for TiO2 nanoparticles
is approximately 3,800 metric tons per year, but the Company expects the
nanoparticle market to grow more rapidly than the conventional pigment market as
applications for new technologies generate increased demand.
In addition, the Processing Technology is adaptable to make
nanocrystals of materials suitable for optoelectronics, ceramics and catalysts
as well. Nanomaterials applications being actively pursued by many research
groups include flexible ceramics (cast materials such as automobile engines),
special catalysts (chemical and petroleum processing), health care products
(pharmaceuticals and nano-sized sensors), and optoelectronics. Nano-crystal
optoelectronic components can be used to miniaturize computers, electronic
devices and expand bandwidth in telecommunications.
Research, Testing and Development of the Processing Technology. The
Processing Technology is the result of several years of research and development
work done by BHP. Although the Company believes the technology is presently
commercially viable, it intends to continue the research and development work to
both improve the process and develop additional commercial applications for it.
Such work will be conducted by the BHP employees whose services were acquired in
conjunction with the Processing Technology and Processing Assets. In addition,
the Company may consider joint research and development efforts with customers
and other interested parties.
Processing Technology and Proprietary Rights. The Company believes that
the Processing Technology represents a significant improvement in the recovery
of titanium from titanium-containing ores, and has the potential to materially
reduce processing costs for commodity and specialty products. The two
conventional technologies for processing titanium ores are generally known as
the chloride and sulphate processes. Altair believes that the Processing
Technology is an improvement over these processes in that it offers precise
control of crystal size, structure and chemical composition, it uses a wide
variety of feedstocks, and it recycles wastes.
BHP has filed numerous patent applications with the United States
Patent and Trademark Office ("PTO") with respect to the Processing Technology
and has transferred the rights to such applications to the Company. Such
applications are in the PTO review process, and no patents with respect to the
Processing Technology have been granted to date.
8
Competition--the Titanium Pigment Processing Technology. There are
several producers of TiO2 nanoparticles, the largest of which has approximately
20% of the market. The Company believes that, with a lower cost structure than
its competitors and the ability to produce a more uniform, thermally stable
product in a wide variety of sizes within narrow ranges, it may have a
competitive advantage that will allow its products to quickly gain market
acceptance. However, some producers of TiO2 nanoparticles are major
multinational corporations with far greater financial resources than the
Company. These producers also enjoy other advantages over the Company, including
established customer relationships and operating histories.
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. Management
believes the Jig will prove able to economically recover smaller particles than
can presently be economically recovered by competing gravity technologies. While
not yet confirmed through actual operations, the cost to manufacture and operate
the Jig is expected to be similar to the cost to manufacture and operate
competing gravity separators, which can efficiently process only particles
larger than 150 mesh. In contrast, the Company's tests suggest that the Jig will
be able to maintain relative efficiency when processing feeds as small as 400
mesh. See "-- Competition -- The Jig". In tests conducted to date using the Jig
to process relatively small particles, the Jig has yielded product quality
(grade and contaminates) equivalent to that yielded by alternative technologies
processing larger particles. See "--Target Markets For the Jig" and "--
Competition -- The Jig".
Several prototype and demonstration Jigs have been built and tested by
the Company and TMI. Continued field testing of the Jig is being undertaken 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 and estimate the
anticipated maintenance costs associated with continued operations. In addition,
field testing is being carried out to improve operating design 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."
During 1998, the Company conducted preliminary testing of its 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. (Results of tests using the Series
12 Jig are discussed in "Target Markets for the Jig" below). 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 have not been established through testing; however, the Company
expects that continued testing will confirm that the two models can process the
volumes they have been designed to process. The Company has also begun design
work for a larger Jig that would have over twice the processing capacity of the
Series 30 Jig. See " -- Research, Testing and Development." Such increased
capacity would enhance the Jig's commercial potential for high volume
applications such as coal washing and recovery of iron ore fines. Also, multiple
units might be used in series or parallel configurations to process high volume
operations.
9
Preliminary demonstration tests conducted by the Company and TMI
suggest that the Jig may be commercially viable 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, especially from finely
sized waste piles;
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;
o Remediation of nuclear waste.
Target Markets for the Jig. The Company's present focus is on
developing markets for the Jig that have the greatest near-term profit
potential. Although management of the Company believes that, in the long run,
the Jig may potentially be useful for a number of applications, management
believes that the most promising markets for the Jig in the short run are for
use in processing of heavy mineral sands in order to recover heavy minerals,
particularly zircon and titanium.
The Company is seeking to enter into royalty or limited licensing
agreements under which the Jig can add value to the beneficiation process,
especially the processing of heavy mineral sands. 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 the
Company 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/contaminate feeds conducted by the Company, the Series 12 Jig has yielded
greater than 90% zircon concentrates and recovered up to 75% of the zircon fed
to the unit. Initial testing of the Series 30 Jig on zircon/contaminate feeds
produced results which were generally equivalent to the Series 12 Jig. The
Company plans more extensive testing of the Series 30 Jig during 2000. See
"--Plan of Operation."
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 Company believes the
domestic and international markets for both of these products are significant
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 production of
titanium dioxide in the United States during 1999 was approximately 1,350,000
metric tons, representing a market value of approximately $3 billion. The U.S.
Geological Survey does not report zirconium production for the United States;
however, according to survey data for 1999 prepared by the U.S. Geological
Survey, imports of zirconium for consumption in the United States during 1999
were approximately 43,100 metric tons, representing a market value of
approximately $12.9 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.
Business Development-the Jig. Testing conducted to date by the Company
indicates the Jig may have economic potential in a wide variety of industries,
and management believes the Jig can be used for finely sized heavy minerals
recovery, coal cleaning and environmental remediation. See "--Target Markets".
During 2000, the Company plans to develop the Jig for use in the processing of
heavy mineral sands and other uses that may have near-term profit potential
through implementation of the following critical steps:
(1) Continued field testing and demonstration of the Series 12 Jig
and experimentation with design manipulations to improve
effectiveness for certain specific applications. In addition,
sustained operational testing is critical in determining if
any material design problems reside in the Jig technology, if
the Jig is capable of sustained operation with little
downtime, and if its maintenance costs are satisfactory. See
"--Research, Testing and Development."
10
(2) Continued field testing, including sustained operational
testing, of the larger volume, more marketable Series 30 Jig.
See "--Research, Testing and Development."
(3) Initial engineering and design work for a Jig that will be
larger than the Series 30 Jig. See "--Research, Testing and
Development."
(4) Separation testing on potential new ore applications such as
tin and iron ore fines.
(5) Development of royalty, rental, or limited licensing
agreements with prospective industrial users and introduction
of the Jigs into targeted markets
Research, Testing and Development of the Jig. Field testing to date
suggests that the Jig possesses the ability to process continuous tonnage
throughput in several applications. 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. Management believes that more extensive testing is needed
to identify the most efficient operating parameters for specifically identified
applications. Further, demonstration of sustained operation is critical to
marketing efforts. To this end, the Company has installed or is in the process
of installing the Jig in several test sites. Specifically designed research,
testing and development efforts planned for the upcoming twelve months include
the following:
(1) The Company has installed and commenced testing of a Series 30
Jig at a mineral recovery plant located in Northern Florida.
Tests conducted by the Company indicate that the Jig is
capable of yielding greater than 90% zircon concentrates and
recovering up to 75% of the zircon fed to the unit. The Series
30 Jig is designed to process 500 tons per day and is
considered to be commercial-sized for this application. A
Series 12 Jig unit has also been installed at the sand
processing facility in Northern Florida. During 2000, the
Company intends to test various plant titanium and zircon
feedstreams and to test heavy mineral sand feeds from other
Florida locations. Testing utilizing the Jigs is being
performed by Company personnel.
(2) The Company has established a Jig testing facility near Reno,
Nevada to test samples supplied by mineral companies and other
potential users of the Jig. The facility is used for
demonstrations of the Jig technology, provides amenability
testing for a variety of mineral ores, and serves as a test
site for on-going equipment design. The test facility is
equipped with a Series 12 Jig, placed in a "closed loop"
circuit designed to take an initial charge of solids (0.5 to
2.0 tons) which can be continuously fed in slurry form to the
Jig. Concentrate and tails streams produced by the Jig may be
accessed for sampling prior to recombination and return to the
feed circuit. Testing performed at the test facility during
1999 included amenability testing of ores which may have near
term commercial potential for recovery using the Jig.
Operation of the Jig test facility is performed exclusively by
Company personnel.
(3) Engineering and design work will continue on a Jig having
approximately twice the processing capacity of the Series 30
Jig. The Company anticipates that it will be able to complete
construction of the first unit by the end of 2000.
11
Provided that the planned testing of the Jig over the next twelve
months as described above is successful, the Company believes the Series 30 Jig
would be ready at that time for commercial use in applications involving the
recovery of titanium, zircon and gold. While such capabilities of the Jig could
then be marketed, the Company expects that the Jig's multiple operating
parameters would need to be adjusted to fit the requirements of each particular
customer and application. In the event any of the foregoing tests are not
successful, the Company expects that it would conduct additional testing, the
nature of which would depend upon the results obtained in the above-described
tests. During 1999, the Company expended $113,000 for research, testing and
development of the Jig.
Jig Technology and Proprietary Rights. In operation, the Jig utilizes a
combination of standard mechanical jig and centrifugal technologies. Without
having tested the Jig in sustained, commercial operations, management believes
production models of the Jig, if completed, will be capable of sustaining high
reliability and low maintenance costs in a production environment. Use of the
Jig requires no chemical additives. The Series 12 Jig stands about six feet
tall, requires floor space of about 25 square feet and weighs approximately
2,000 pounds, while the 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.
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.
The Company does not intend to establish its own manufacturing
facility. Management is considering options for manufacture of the Jig,
including manufacturing under contract, exclusive licensing, or a joint venture.
The arrangement could eventually include an exclusive license for manufacture,
warehousing and distribution of spare parts, as well as maintenance and leasing
of the Jig. Currently, the Company has entered into an agreement with a machine
shop located in central Tennessee to manufacture three Series 30 Jigs.
Initial patents related to the concept of the Jig as a whole have been
issued in the United States, South Africa, United Kingdom, Australia and Canada.
These patents expire 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.
12
Competition--the Jig.
--------------------
Alternative Technologies. Various mineral processing technologies
perform many functions similar or identical to those for which the Jig is
designed. See "Factors That May Affect Future Results--Competing Products and
Alternative Technologies." 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 in
this arena 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.
The Company believes that, in certain applications, the Jig may prove
more efficient, cost effective, or adaptable than spirals and cones, froth
flotation devices, or heavy media separation devices. Nevertheless, results from
further tests or actual operations may reveal that these alternative
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 technologies as technically superior to, or more cost effective
than, the Jig.
Competing Jig-Like Products. The Company believes that 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. Another centrifugal jig device, the Kelsey
jig, has been developed in Australia subsequent to the invention of the Jig. The
Kelsey jig is more complicated in design than the Jig, which the Company
believes makes it more expensive to manufacture, operate and maintain in a
production environment. According to the Kelsey jig's manufacturer, Geo Logics
Pty. Ltd., Kelsey jigs are in service at 24 plants worldwide. In addition,
Falcon, a Canadian company, produces a concentrator which is used mainly for
pre-concentration and scavenging. Their principal applications to date have been
in the gold and tantalum industries. There also exists a batch concentrator
known as the Knelsen Bowl, which management believes is best suited to small
volumes. (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). Knelsen
Bowls have been installed in various mining applications, primarily gold,
throughout the world. Both the Falcon and Knelson concentrators utilize
different technologies than the technology employed by the Jig.
13
The Company is a small player in an industry comprised of major mining
companies possessing tremendous capital resources. The Company is 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 the Company's equipment.
Tennessee Mineral Property
- --------------------------
Description of the Tennessee Mineral Property. The Tennessee Mineral
Property consists of approximately 14,000 acres of land that the Company has
leased (or has binding commitments to lease) in or near Camden, Tennessee,
containing fine, heavy minerals.
[MAP GRAPHIC OMITTED]
From 1996, when the Company began acquiring leases, through 1999,
exploration activities on the Tennessee Mineral Property have included geologic
mapping, sample collection, drilling of 156 auger holes and preparation of
geologic and deposit models. The deposit model also incorporates 40 drill holes
completed by an earlier exploration company. Deposit model estimates are
consistent with deposit estimates previously determined by other resource
companies. The mineralized deposit on the Tennessee Mineral Property has not yet
been proven to be a reserve (as defined in Regulation S-K, Item 802, Guide 7
promulgated under the Exchange Act), and the Company's limited operations and
proposed plan with respect to it are exploratory in nature.
The production of saleable heavy minerals from heavy mineral sand ore
is a two-stage process. At the mine site, heavy mineral ore is treated in a "wet
mill" where a 90% total heavy mineral concentrate is prepared typically
utilizing gravity separation equipment. This concentrate is then taken to a "dry
mill" where individual mineral constituents are extracted using magnetic and
high tension electrical separators.
In order to assess the amenability of the Tennessee Mineral Property
ore to processing with the Jig, two bulk samples were collected by the Company
from the Tennessee Mineral Property. Test work completed by the Company on the
first sample during the spring of 1997 suggested the sands can be processed with
the Jig. Tests performed by the Company which emphasized recovery have yielded
up to 94% heavy mineral recovery with a six-to-one concentration ratio. (Stated
differently, after a single pass through the Jig, 94% of the ore's value was
concentrated in about one-sixth of its original volume, and five-sixths of the
sand rendered a non-valuable discard.) As is typical of gravity separation
processing, several passes through the Jig will be necessary to produce a 90%
total heavy mineral concentrate. Further, in the event the Tennessee Mineral
Property is proven to contain significant heavy mineral reserves the Jig would
likely be used in conjunction with traditional gravity separators, primarily
spirals, to most efficiently process the sand ore in the "wet mill".
14
A second bulk sample was collected during late 1997. Approximately
5,000 pounds of representative mineralized material was collected from an
exposed sand horizon. This sample was processed by an independent Florida heavy
sands producer and the Company utilizing both "wet mill" and "dry mill"
processes to produce representative samples of saleable products. The sample
results were reviewed by an independent consulting group hired by the Company to
prepare a pre-feasibility study of the Tennessee Mineral Property. See "--Plan
of Operation." In July 1998, the independent consulting group completed their
technical pre-feasibility study of approximately 4,700 acres of the Tennessee
Mineral Property known as the "Camden Deposit." The study states that the Camden
Deposit contains an indicated resource of 12 million tons of total heavy
minerals consisting of 65% titanium-bearing minerals, 15% zircon and 20%
non-valuable heavy minerals. It indicated that saleable ilmenite, rutile and
zircon products can be produced, and that established markets currently exist
for such products. The study then modeled mining and production costs and
concluded that the Camden Deposit has the potential to be economically mined via
a large-scale sand mining operation with an approximate 20-year life.
Based on the positive results of the consultant's report, the Company
initiated a final feasibility study in August 1998. The Company has commenced
the design and engineering of the wet concentration process/facilities and has
filed an application for a National Pollution Discharge Elimination System
permit for a pilot plant facility with the Tennessee Department of Environment
and Conservation. Other activities involved in the feasibility study will
include additional drilling to further define resource characteristics, detailed
analysis of mineralogical characteristics and mine processing methods, larger
scale testing of the Series 30 Jig, analysis of product markets, and evaluation
of possible strategic alliances. The Company expects that the final feasibility
study will be completed during the second half of 2000. If the feasibility study
suggests that cost-effective mining of the Tennessee Mineral Property is
feasible, mining could begin within 24-36 months after completion of the study,
subject to, among other things, the price of, and demand for extractable heavy
minerals and the Company's ability to obtain necessary financing, permits, and
government approvals. See "--Plan of Operation" and "--Government Regulation and
Environmental Concerns."
Subsequent to the completion of the pre-feasibility study, further
exploration of the Tennessee Mineral Property by the Company suggested the
existence of an additional heavy mineral sands resource of approximately 10
million tons in an area northwest of the Camden Deposit known as the "Little
Benton Deposit." Preliminary results indicate that the Little Benton Deposit
contains a high-grade titanium mineralization similar to the Camden Deposit. The
Company has approximately 7,900 acres under lease in the Little Benton area and
intends to conduct further testing of the Little Benton Deposit. If such testing
affirms the existence of the indicated resource, and the feasibility study
suggests that cost-effective mining of the Tennessee Mineral Property is
feasible, the production capacity and/or life of the mining operation could be
significantly increased.
Research, Testing and Development of the Tennessee Mineral Property. As
discussed in "--Description of the Tennessee Mineral Property" above, in July
1998, an independent consulting group completed a technical pre-feasibility
study of approximately 4,700 acres of the Tennessee Mineral Property known as
the "Camden Deposit." Based on the positive results of the consultant's report,
the Company initiated a final feasibility study in August 1998 which it
anticipates will involve additional drilling to further define resource
characteristics, detailed analysis of mineralogical characteristics and mine
processing methods, larger scale testing of the Series 30 Jig, analysis of
product markets, and evaluation of possible strategic alliances. The Company
expects that a feasibility study will be completed during the second half of
2000. If the feasibility study suggests that cost-effective mining of the
Tennessee Mineral Property is feasible, mining could begin within 24-36 months
after completion of the study, subject to, among other things, the price of, and
demand for extractable heavy minerals and the Company's ability to obtain
necessary financing, permits, and government approvals.
15
During 1999, the Company incurred $689,594 in deferred exploration
expenditures on the Tennessee Mineral Property. Expenditures were incurred on
leasehold minimum advance royalty payments, auger hole drilling, sampling,
sample analysis and assay, geological and mineralized deposit characterization
studies and other related exploration activities.
Competition--the Tennessee Mineral Property. Based on the exploratory
work done to date, the Company anticipates that the saleable products which may
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 United States imports
approximately 60% of total ilmenite consumed. There are presently three entities
in the United States which produce ilmenite concentrate from heavy mineral sands
and virtually all production is used by five 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. The Company believes that, if it
can economically mine the Tennessee Mineral Property and produce satisfactory
products for sale to pigment producers, it may have a competitive advantage in
being a domestic producer operating in close proximity to its primary markets.
Rutile, which generally contains greater than 95% titanium dioxide, is
also used in the production of titanium dioxide pigment. 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.
Plan of Operation--General.
- ---------------------------
With respect to the Jig, the Company's marketing efforts in the near
future will continue to be directed to opportunities within North America, with
future expansion into foreign markets developing over time. Because the Company
does not intend to engage in the actual manufacture of the Jig, it does not
expect to purchase a manufacturing facility or any significant manufacturing
equipment.
During 2000, the Company expects to hire sales, marketing and
production employees for its titanium pigment processing business. The quantity
and timing of new hires will be dependent on business activity. As part of the
acquisition of the Processing Technology from BHP, the Company received the use,
until December 31, 2000, of the services of the eighteen BHP employees
developing the Processing Technology. The Company expects to hire these
individuals as Altair employees on January 1, 2001.
Management does not otherwise anticipate that the number of Company
employees will significantly increase until the Company has sufficient sales and
business activity to warrant it. Management expects to hire two to four
additional employees during the next 12-month period; however, the actual number
of new employees hired will depend on the Company's operating results. If hired,
such new employees would be primarily engineering and technical staff to support
testing, development and commercialization programs.
16
Subsidiaries.
- -------------
Altair International Inc.1 was incorporated under the laws of the
province of Ontario, Canada in April 1973. 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 three indirect
wholly-owned subsidiaries, California Recovery Systems, Inc., a Nevada
corporation, Altair Technologies, Inc., a Nevada corporation, and Tennessee
Valley Titanium, Inc., a Nevada corporation.
Fine Gold was acquired by the Company in April 1994. Fine Gold is, for
accounting purposes, a development stage company with no operating revenues
earned to date. The Company's acquisition of TMI in February 1996 was effected
by merging TMI with and into Fine Gold (the "TMI Merger"). Fine Gold also now
includes the operations of a wholly-owned subsidiary of the Company formerly
known as Mineral Recovery Systems, Inc., which was merged with and into Fine
Gold in June 1996. As discussed below, another wholly-owned subsidiary of the
Company, formerly known as Carlin Gold Company, is now operated under the name
Mineral Recovery Systems, Inc. The Company intends that Fine Gold will hold and
maintain Jig technology rights, including patents, and will enter into a royalty
arrangements to allow MRS to develop and commercially utilize the Jig.
MRS was incorporated by the Company in April, 19872. MRS previously has
been involved in the exploration for minerals and development of unpatented
mining claims in Nevada, Oregon and California. All mining claims have now been
abandoned. The Company currently intends that MRS will arrange for the
manufacture of the Jig for commercial sales, rental or royalty arrangements with
end users. In addition, MRS currently holds, directly or indirectly, all of the
Company's interest in the Tennessee Mineral Property, and the Company intends
that MRS will continue to lease or acquire and develop mineral properties in the
future, particularly properties that contain mineral resources that may be
processed with the Jig.
Altair Technologies, Inc. holds all of the Company's interest in the
titanium pigment processing technology. California Recovery Systems, Inc. held
the company's exploratory rights with respect to the California Mineral
Property, which were terminated during 1999. The remaining 100% owned
subsidiaries do not presently have any assets or operations.
- ------------------------
(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 Resourcese 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.
17
Government Regulation and Environmental Concerns.
- -------------------------------------------------
Government Regulation. The Company's 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 the Company 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 the Company 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. These laws are continually changing
and, as a general matter, are becoming more restrictive.
Compliance with federal, state, or local laws or regulations represents
a small part of the Company's present budget; nevertheless, continued compliance
may be extremely costly, especially if the Company actually commences extraction
operations on the Tennessee Mineral Property. If the Company fails to comply
with any such laws or regulations, a government entity may levy a fine on the
Company or require the Company to take costly measures to ensure compliance. Any
such fine or expenditure may adversely affect the Company's development.
The Company is committed to complying with and, to its knowledge, is in
compliance with all governmental regulations. The Company cannot, however,
predict the extent to which future legislation and regulation could cause the
Company to incur additional operating expenses, capital expenditures, and/or
restrictions and delays in the development of the Company's products and
properties.
Environmental Regulation and Liability. Any proposed mining or
processing operation on the Tennessee Mineral Property, at the facility at which
the Processing Assets are located or any other property acquired by the Company
will be subject to federal, state, and local environmental laws. Under such
laws, the Company 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 the Company,
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. The Company might use
Hazardous Substances and, although the Company intends 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 the Company 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, the Company employs a Chief Financial Officer, a senior process
engineer, a metallurgist, a geologist, a controller and a part-time employee in
an office management and administrative assistance capacity. There are no other
employees of the Company or its subsidiaries.
Other than the employment agreements of Dr. Long and Mr. Costin
described below, and the employment agreement with the Chief Financial Officer,
there are no written employment agreements between the Company or its
subsidiaries and their respective personnel. The future success of the Company
18
will depend, in part, on its ability to attract and retain highly qualified
technical, marketing and management personnel. There is no assurance the Company
will be successful in retaining or attracting highly qualified individuals in
key positions. See "Factors That May Affect Future Results - We are Dependent on
Key Personnel."
Where You Can Find More Information.
- ------------------------------------
The Company files 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 the Company files 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 the Company, that file electronically with the SEC.
The Common Stock is quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company 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.
Glossary of Terms.
- ------------------
Amenability means responsiveness of an ore deposit to processing.
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.
Assay means to analyze an ore or other substance to determine the
presence, absence, and quantity of one or more components.
Beneficiate means to improve the grade of ore by processing.
Centrifugal force means the component of force on a body in curvilinear
motion that is directed away from the axis of rotation.
Coal fines means finely pulverized coal particles which will pass
through a 28 mesh screen.
Coal washing means processing of pulverized coal to remove ash and
pyrite.
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.
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.
19
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.
Mineralized Deposit or Mineral Deposit means a mineralized body which
has been delineated by appropriately spaced drilling and/or underground sampling
to support a sufficient tonnage and average grade of metals. Such a deposit does
not qualify as a reserve until a comprehensive evaluation based upon unit cost,
grade, recoveries and other material factors conclude legal and economic
feasibility.
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.
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.
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.
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.
Thermal value means a measure of the ability of a fuel (coal) to
produce energy when ignited.
20
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 this section and
other cautionary statements throughout this Form 10-K and the Company's 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, the Company's actual results may vary materially
from those anticipated, estimated, projected, or intended.
Among the key factors that may have a direct bearing on the Company's
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, development risks associated with the Tennessee
Mineral Property, risks related to the Company's purchase and proposed
development and exploitation of the Processing Technology and Processing Assets
and uncertainties regarding the Company's ability to obtain capital sufficient
to continue its operations and pursue its proposed business strategy.
Factors that May Affect Future Results.
- ---------------------------------------
- --------------------------------------------------------------------------------
RISK FACTORS RELATED TO THE COMPANY GENERALLY
- --------------------------------------------------------------------------------
We Have Not Generated Any Operating Revenues or Profits.
- --------------------------------------------------------
Altair is a development stage company. To date, Altair has not
generated revenues from operations or realized a profit. Altair is presently
investing substantial resources in the testing and development of the Jig, the
exploration of the Tennessee Mineral Property, and the acquisition, development
and commercialization of the Processing Technology and Processing Assets. There
can be no assurance that the Jig, the Tennessee Mineral Property, the Processing
Technology and Processing Assets or any other project undertaken by Altair will
ever enable Altair to generate revenues or that Altair will at any time realize
a profit from operations.
21
We May Continue to Operate at a Net Loss.
- -----------------------------------------
Altair has experienced a loss from operations in every fiscal year
since its inception. Altair's losses from operations in 1998 were $1,762,088 and
its losses from operations in 1999 were $2,291,850. Although Altair expects to
begin product sales of TiO2 nanoparticles in 2000, total sales will probably not
be at a level sufficient to produce a positive net income for the year. Altair
will continue to experience a net operating loss until, and if, the Processing
Technology and Processing Assets, the Jig and/or the Tennessee Mineral Property
begin generating revenues for Altair. Even if the Processing Technology and
Processing Assets, the Jig or the Tennessee Mineral Property begin generating
revenues, such revenues may not exceed the costs of production. Accordingly,
Altair may not ever realize a profit from operations.
We May Not be Able to Raise Sufficient Capital to Meet Present and Future
- --------------------------------------------------------------------------------
Obligations.
- ------------
Altair may not be able to obtain the capital necessary to complete the
development work necessary to place the Processing Technology and Processing
Assets into continuous operation in a commercial setting. In addition, we may be
unable to obtain the capital necessary to complete testing and development of
the Jig or exploration of the Tennessee Mineral Property. If Altair determines
to construct and operate a mine on the Tennessee Mineral Property, Altair will
need to obtain a significant amount of additional capital to complete
construction of the mine and commencement of operations.
In addition, Altair may need additional capital for necessary or
discretionary acquisitions of equipment, properties, intellectual property
rights or companies. General and industry market factors or other unforeseen
events may also affect Altair's use of and need for capital.
If Altair needs additional capital, it may not to 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, without limitation, the following:
o market factors affecting the availability and cost of capital generally;
o the performance of Altair;
o the size of Altair's capital needs;
o the market's perception of mining, technology, and or minerals stocks;
o the economics of projects being pursued; and
o industry perception of Altair's ability to recover minerals with the Jig
or Processing Technology.
If Altair is unable to obtain sufficient capital or is forced to pay a high
price for capital, Altair may be unable to place the Processing Technology and
Processing Assets into continuous operation, complete the testing and production
of the Jig, exploration and development of the Tennessee Mineral Property, or
otherwise pursue and fully exploit existing or future development opportunities.
In addition, because of their size, resources, history and other factors,
certain competitors of Altair may have better access to capital than Altair and,
as a result, may be able to exploit opportunities more easily or thoroughly than
Altair.
22
Our Operations Are And Will Be Subject to Extensive Government Regulation.
- --------------------------------------------------------------------------
Altair's 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 Altair 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. These laws are continually
changing and, as a general matter, are becoming more restrictive.
Compliance with federal, state, or local laws or regulations represents
a small part of Altair's present budget; nevertheless, continued compliance may
be extremely costly, especially if Altair actually commences mining operations
on the Tennessee Mineral Property. If Altair fails to comply with any such laws
or regulations, a government entity may levy a fine on Altair or require Altair
to take costly measures to ensure compliance. Any such fine or expenditure may
adversely affect Altair's development.
Certain of Our Experts and Directors Reside in Canada And May Be Able to Avoid
- --------------------------------------------------------------------------------
Civil Liability.
- ----------------
Altair is an Ontario corporation, and a majority of its directors are
residents of Canada. In addition, certain of Altair's experts (including its
principal accountants and 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 Altair 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.
- ----------------------------------
The continued success of Altair will depend to a significant extent on
the services of Dr. William P. Long, President and Chief Executive Officer of
Altair, and Mr. C. Patrick Costin, Vice President of Altair and President of
Fine Gold and MRS. The loss or unavailability of Mr. Long or Mr. Costin could
have a material adverse effect on Altair. Altair does not carry key man
insurance on the lives of such key officers.
In addition to the individuals identified above, Altair employs a Chief
Financial Officer, senior process engineer, metallurgist, geologist, controller,
and administrative assistant. Altair has no other employees. Aside from Dr.
Long, Mr. Costin and the Chief Financial Officer, Altair has no employment
agreements with any of its personnel. Competition for such personnel is intense,
and Altair can provide no assurance that it will be able to attract and maintain
all personnel necessary for the development and operation of its business.
23
We May Fail to Identify or Be Unable to Consummate Important Strategic
- --------------------------------------------------------------------------------
Transactions.
- -------------
Altair is currently evaluating, and plans to continue to evaluate,
licensing or acquiring additional mining products or properties. Altair also
plans to remain open to acquiring, or developing strategic relations with other
companies that have products, manufacturing capabilities, or other qualities
that are compatible with Altair's business objectives. Altair must compete for
attractive acquisition or strategic alliance candidates with numerous other
companies, many of whom have significantly greater financial and technological
resources than Altair. In addition, to the extent Altair is in a competitive
position, it may fail to identify or consummate acquisition or strategic
alliance opportunities.
Even if Altair identifies and completes such alliances, consummation
thereof may require Altair to incur additional debt, amortize expenses related
to goodwill and intangible assets, or issue dilutive equity securities, all of
which could adversely affect Altair's operating results or financial condition.
In addition, a failure by Altair to integrate its operations with that of an
ally or acquisition target may adversely affect operating results. Disruptions
in operations are likely to be especially severe during the fiscal quarters
immediately following any acquisition or alliance transaction, while the
operations of the acquired or combined business are being integrated into
Altair's operations.
We May Issue Substantial Amounts of Additional Shares Without Stockholder
- --------------------------------------------------------------------------------
Approval.
- ---------
Altair's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Common Stock. All such shares may be issued
without any action or approval by Altair's stockholders. In addition, Altair has
two stock option plans which have potential for diluting of the ownership
interests of Altair's stockholders. The issuance of any additional shares of
Common Stock would further dilute the percentage ownership of Altair held by
existing stockholders.
The Market Price of Our Common Stock Is Extremely Volatile.
- -----------------------------------------------------------
The Common Stock was listed on the Alberta Stock Exchange through April
23, 1998 and has been listed on the Nasdaq National Market since January 26,
1998. Between March 24, 1997 and January 23, 1998, our Common Stock was listed
on the Nasdaq SmallCap Market. Trading in the Common Stock has been
characterized by a high degree of volatility. See "Price Range of Common Stock."
Trading in the Common Stock may continue to be characterized by extreme
volatility for numerous reasons, including the following:
o Uncertainty regarding the viability of the Processing Technology;
o The continued absence of any revenues from the Jig;
o Uncertainty regarding the viability of mining the Tennessee Mineral
Property;
o Continued dominance of trading in the Common Stock by a small number of
firms;
o Positive or negative announcements by Altair or its competitors;
o Industry trends, general economic conditions in the United States or
elsewhere, or the general markets for equity securities, minerals, and
commodities;
24
o The announcement of financial or research and development results that
differ from analyst and investor expectations, regardless of the health
of Altair;
o Significant changes in future prospects of Altair; and
o Speculation by short sellers of Common Stock or other persons who stand
to profit from a rapid increase or decrease in the price of the Common
Stock.
Future Sales of Currently Restricted Securities May Affect the Market Price of
- --------------------------------------------------------------------------------
Our Common Stock.
- -----------------
The resale of "restricted securities" as well as securities held by
"affiliates" of Altair, is generally subject to the provisions of Rule 144
("Rule 144") promulgated under the Securities Act of 1993, as amended (the
"Securities Act"). In general, under Rule 144 as currently in effect, a person
who has beneficially owned restricted securities for at least one year
(including the holding period of any prior owner except an affiliate) would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the number of shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. In addition, a person who is not deemed to have been an affiliate of
Altair at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years (including the
holding period of any prior owners except an affiliate), would be entitled to
sell such shares under Rule 144(k) without regard to the requirements described
above. Altair is unable to predict the effect that future sales under Rule 144
may have on the then prevailing market price of the Common Stock.
In addition, shares issued upon exercise of options granted pursuant to
Altair's 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
shares of Common Stock may have a depressive effect on the market price of our
Common Stock.
We Have Never Declared A Dividend And May Not For the Foreseeable Future.
- ------------------------------------------------------------------------
Altair has never declared or paid dividends on the Common Stock.
Moreover, Altair currently intends to retain any future earnings for use in its
business and, therefore, does not anticipate paying dividends on its Common
Stock in the foreseeable future.
- --------------------------------------------------------------------------------
RISK FACTORS RELATED TO DEVELOPMENT OF THE JIG
- --------------------------------------------------------------------------------
Our Series 12 Jig Is Too Small For Most Commercial Uses.
- --------------------------------------------------------
To date, Altair has developed and tested a lower-capacity Series 12 Jig
and a higher-capacity Series 30 Jig. Test results on the Series 12 Jig, designed
to be capable of processing approximately 120 tons of solids per day, suggest
that commercial use of the Series 12 Jig is technically feasible. Nevertheless,
the designed capacity of the Series 12 Jig is too small for coal washing, heavy
25
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
performs to design specifications in subsequent tests or at a commercial
facility, Altair believes that, because of its small capacity, the potential
market for the Series 12 Jig is limited.
Testing Is Incomplete on Our Series 30 Jig.
- -------------------------------------------
The Series 30 Jig is designed to process approximately 500 tons of
solids per day. Altair believes that this designed capacity is sufficient for
heavy mineral sands processing and many other intended commercial applications.
Having completed an initial set of tests on the Series 30 Jig at a heavy
minerals sand processing facility in Northern Florida, Altair hopes that it can
begin marketing the Series 30 Jig for heavy mineral sands recovery during 2000.
Nevertheless, the Series 30 Jig may not prove attractive to potential end users.
Even if Altair is successful in leasing the Series 30 Jig to end users, the
Series 30 Jig may not prove efficient, durable, or cost-effective enough to
satisfy the expectations of end users once operated in an uncontrolled
environment. In addition, the introduction of new technologies by competitors
could render the Series 30 Jig or larger Jig obsolete or unmarketable or require
costly alterations to make it marketable.
Performance Of The Jig In A Commercial Setting May Not Match Test Results.
- --------------------------------------------------------------------------
Although test results from controlled tests on the Series 30 Jig
suggest that it is capable of separating valuable heavy minerals from mineral
sands, the Series 30 Jig has not been operated as part of an actual commercial
mineral processing facility. When integrated into actual commercial operations,
the Series 30 Jig:
o may not be able to process sand at its design capacity;
o may not recover a commercially valuable end product at a commercial
viable rate when processing mineral sands;
o may break down frequently or otherwise be too costly to operate and
maintain;
o may be displaced or rendered obsolete by the introduction of competing
technologies or jigs and may be incompatible with developing mining or
extraction processes; and
o may be rendered obsolete by the absence of demand for heavy minerals or
other end product of processing.
26
The Jig Faces Competition From Alternative Technologies.
- --------------------------------------------------------
The centrifugal jig process may not prove superior, either technically
or commercially, to alternative technologies. As explained in "Business--the
Jig--Competition--Alternative Technologies," various mineral processing
technologies perform many functions similar or identical to those for which the
Jig is designed. Altair believes that, in certain applications, the Jig may
prove more efficient, cost effective, or adaptable than spirals and cones, froth
flotation devices, or heavy media separation devices. Nevertheless, results from
further tests or actual operations may reveal that these alternative
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 technologies as technically superior to, or more cost effective
than, the Jig.
The Jig Faces Competition From Other Jig-like Products.
- -------------------------------------------------------
Altair believes that 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.
Another centrifugal jig device, the Kelsey jig, has been developed in Australia
subsequent to the invention of the Jig. According to the Kelsey jig's
manufacturer, Geo Logics Pty. Ltd., Kelsey jigs are in service worldwide. In
addition, Falcon, a Canadian company, produces a small batch concentrator as
well as a machine which is used mainly for pre-concentration and scavenging.
Their principal applications to date have been in the gold and tantalum
industries. There also exists a batch concentrator known as the Knelsen Bowl.
Knelsen units have been installed in various mining applications, primarily
gold, throughout the world. Competitors, many of whom may have significant
capital and resources, may develop, or be in the process of developing, superior
or less expensive alternatives to the Jig.
The Market for Commodities Produced Using the Jig May Collapse.
- ---------------------------------------------------------------
If the Jig is successfully developed and manufactured, Altair intends
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 the control of Altair. 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 being produced or 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 either such
property. In addition, because Altair intends to market the Jig primarily to
mining companies, a general economic downturn in the mining or mineral
industries may have a material adverse effect on Altair.
27
We Are Dependent Upon Others To Manufacture The Jig.
- ----------------------------------------------------
Altair currently contracts on a per-unit basis with a machine shop
located in central Tennessee for assembly of the Jig but has no long-term
contract with such entity. If Altair completes testing of the Jig and develops a
final production model, Altair does not currently have the know-how or resources
to establish its own manufacturing facility. Management is considering options
for manufacture of the Jig, including manufacturing under a long-term contract
or through an exclusive licensing arrangement or joint venture. Altair may not
be able to obtain adequate manufacturing capacity. Moreover, even if a
manufacturer is found, it may not be able to cost-effectively produce
affordable, high-quality units capable of sustaining continuous operations with
low maintenance costs in a production environment.
Certain Key Patents For The Centrifugal Jig Have Expired Or Will Expire In The
- --------------------------------------------------------------------------------
Near Future.
- ------------
Initial patents on the Jig have been issued in the United States, South
Africa, United Kingdom, Australia and Canada. These patents expire on various
dates between May 1999 and December 2000. A series of second patents have been
issued with respect to a critical component of the Jig 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.
Persons in countries in which Altair has not patented the Jig or
certain critical components may develop and market an infringing product. The
cost of enforcing patents outside of North America, and similar obstacles, may
limit Altair's ability to enforce its patents and keep infringing products out
of the market for the Jig.
- --------------------------------------------------------------------------------
RISK FACTORS RELATED TO DEVELOPMENT OF THE
TENNESSEE MINERAL PROPERTY
- --------------------------------------------------------------------------------
We Have Not Completed Testing The Feasibility of Mining The Tennessee Mineral
- --------------------------------------------------------------------------------
Property.
- ---------
The Tennessee Mineral Property is currently in the exploratory stage.
An independent consultant hired by Altair has completed a pre-feasibility study
on the Tennessee Mineral Property, which study concludes sands on the Tennessee
Mineral Property contain commercial quantities of heavy minerals. The
preliminary study further concludes that the sands can be economically mined to
produce commercial grade products and that established markets exist for such
products. Based on these results, Altair has determined to commence a final
feasibility study of the Tennessee Mineral Property.
The final feasibility study, commenced during August 1998, will involve
the actual design, pricing, and analysis of equipment and facilities that would
be used to mine the Tennessee Mineral Property. Altair expects that the
feasibility study will be completed in late 2000. If the feasibility study
suggests that cost-effective mining of the Tennessee Mineral Property is
feasible, a mine would not be operational for 24-36 months after completion of
the study. The final feasibility study may indicate that the Tennessee Mineral
28
Property does not contain minable quantities of heavy minerals or that such
deposits are not amenable to large-scale, low-cost mining, as contemplated by
Altair. Even if the studies and future testing suggest that mining is
economically feasible on the Tennessee Mineral Property, Altair may be unable to
obtain the capital, resources, and permits necessary to mine the Tennessee
Mineral Property. Moreover, 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.
We May Be Unable to Obtain Necessary Environmental Permits for the Tennessee
- --------------------------------------------------------------------------------
Mineral Property.
- -----------------
In order to begin construction and commercial mining on the Tennessee
Mineral Property, Altair may have to obtain additional federal, state, and local
permits, none of which Altair has obtained. Because Altair has not yet commenced
design of a commercial mining facility in the Tennessee Mineral Property, Altair
is 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, Altair anticipates that compliance
with the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, and the Comprehensive Environmental Response Compensation
Liability Act would be necessary if Altair determined to commence construction
and operation of a mine on the Tennessee Mineral Property. See "--Government
Regulation."
In addition to these federal laws and regulations, Altair anticipates
that, if the Tennessee Mineral Property is developed, Altair will be required to
obtain a surface mining permit from the State of Tennessee under the Tennessee
Mineral Surface Mining Law of 1972. The application for such a permit must be
preceded by public notice and must include, among other things, a filing fee, a
reclamation and revegetation plan, and a bond to cover the costs of reclamation.
Moreover, in connection with its feasibility study of the Tennessee Mineral
Property, Altair has filed an application for a National Pollution Discharge
Elimination System permit for a pilot plant facility with the Tennessee
Department of Environment and Conservation. The application is currently under
review. Additional state and federal permits may be required for the
construction and operation of the pilot plant Altair can provide no assurance
that it will be able to obtain any such permit.
Altair is not aware of any existing local land use restrictions that
would outright prohibit mining operations on the Tennessee Mineral Property.
Altair has held preliminary discussions with state and federal officials
regarding land use issues and permitting requirements, but no decisions have
been issued by any regulatory agencies.
29
Any Operations On the Tennessee Mineral Property May Lead to Environmental
- --------------------------------------------------------------------------------
Liability.
- ----------
Any proposed mining or processing operation on the Tennessee Mineral
Property, or any other property acquired by Altair, will be subject to federal,
state, and local environmental laws. Under such laws, Altair may be jointly and
severally liable with prior property owners for the treatment, cleanup,
remediation, and/or removal of substances discovered on either of the Tennessee
Mineral Property or any other property used by Altair, 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. Altair might use Hazardous Substances
and, although Altair intends 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.
- --------------------------------------------------------------------------------
RISK FACTORS RELATED TO DEVELOPMENT OF THE
PROCESSING TECHNOLOGY AND PROCESSING
- --------------------------------------------------------------------------------
We Have Not Yet Confirmed the Viability and Effectiveness of the Processing
- --------------------------------------------------------------------------------
Technology and Processing Assets.
- ---------------------------------
The Processing Technology and Processing Assets have not been used by
Altair or anyone else in a commercial setting, and may prove ineffective or
unreliable when subjected to continuous use. Altair has used the Processing
Technology and Processing Assets to effectively produce sample quantities of
TiO2 nanoparticles, but has not completed testing of other product applications.
The Processing Technology and Processing Assets may prove wholly or partially
ineffective when applied by Altair on a continuous basis in a commercial
setting. In addition, the Processing Assets may break down, be costly to
maintain or prove unreliable when operated on a continuous basis in a commercial
setting. If the Processing Technology proves ineffective or the Processing
Assets prove unreliable in a commercial setting, Altair may be unable to recoup
the investment in the Processing Technology and Processing Assets.
Nanoparticles Produced Using the Processing Technology May Be, or Be Perceived
- --------------------------------------------------------------------------------
As, Substandard.
- ----------------
In the short run, Altair plans to use the Processing Technology and
Processing Assets to produce TiO2 nanoparticles. Altair has not previously
produced or marketed TiO2 nanoparticles and, to date, has not obtained any
orders for TiO2 nanoparticles. The TiO2 nanoparticles and other products
produced using the Processing Technology and Processing Assets may be of
inferior quality to alternative products or, regardless of actual quality, may
be perceived as lacking adequate quality or reliability. Even if Altair is able
to efficiently produce TiO2 nanoparticles and other products using the
Processing Technology and Processing Assets, it may not be able to sell such
products in the marketplace.
30
The Current Market For TiO2 Nanoparticles Is Limited.
- -----------------------------------------------------
In the short run, Altair plans to use the Processing Technology and
Processing Assets to produce TiO2 nanoparticles. The uses for such nanoparticles
are limited--primarily cosmetics and surface coatings--and the market for such
nanoparticles is small, estimated at 3,800 tons per annum. Even if Altair is
able to effectively produce TiO2 nanoparticles and other products using the
Processing Technology and Processing Assets, it may not be able to profitably
market such products for any of the following reasons:
o there may be insufficient demand for such products;
o despite strong initial demand for such products, the market for such
products may contract or collapse as a result of a decrease in demand
for goods incorporating such mineral products, a worldwide or regional
financial crisis, or other unforeseen event;
o the increased supply of such products as a result of the entrance of
Altair or other suppliers into the market may cause the price to drop,
reducing or eliminating profitability;
o such products may be of inferior quality to alternative products or,
regardless of actual quality, may be perceived as lacking adequate
quality or reliability.
Our Cost of Production May Exceed Estimates.
- -------------------------------------------
Altair purchased the Processing Technology and Processing Assets based
on the belief that it will be able to produce titanium dioxide and other
products more cheaply than many competitors. Altair has not, however, produced
any mineral products using the Processing Technology and Processing Assets on a
commercial basis. Altair's actual costs of production may exceed those of
competitors and, even if its costs of production are lower, competitors may be
able to sell titanium dioxide and other products at a lower price than is
economical for Altair.
Pending Patent Applications May Be Denied Or Provide Inadequate Protection.
- ---------------------------------------------------------------------------
BHP has filed numerous patent applications with the PTO with respect to
the Processing Technology and has transferred the rights to such applications to
Altair. Such applications are being reviewed by the PTO, and no patents with
respect to the Processing Technology have been granted to date. If the
applications for any patents related to the Processing Technology are denied,
the value of the Processing Technology, and any competitive advantage gained
from Altair's ownership of the Processing Technology, will be substantially
diminished. Altair can provide no assurance that pending patent applications
will be granted.
In addition, persons in jurisdictions outside of the United States in
which no application has been filed, or which do not honor United States
patents, may develop and market infringing technologies. Also, the cost of
enforcing patents outside of North America, as well as other obstacles, may
limit the Altair's ability to enforce any patents related to the Processing
Technology outside of the United States.
31
Use of the Processing Technology May Lead to Substantial Environmental
- --------------------------------------------------------------------------------
Liability.
- ----------
Any proposed use of the Processing Technology and Processing Assets
will be subject to federal, state, and local environmental laws. Under such
laws, Altair may be jointly and severally liable with prior property owners for
the treatment, cleanup, remediation, and/or removal of substances discovered at
the leased Reno, Nevada facility or any other property used by Altair that are
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. Altair might use Hazardous Substances
and, although it intends 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.
Item 2. Properties
Altair maintains a registered office at 56 Temperance Street, Toronto,
Ontario M5H 3V5. Altair does not lease any space for, or conduct any operations
out of, the Toronto, Ontario registered office. In addition, Altair leases 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. Altair's lease for the Cody, Wyoming office space may be
terminated by either party on 30 days' prior written notice.
In addition, in connection with the Asset Purchase Agreement, Altair
and BHP entered into a lease dated November 15, 1999, pursuant to which Altair
is leasing approximately 20,000 square feet of laboratory and testing space at
BHP's testing facility located at 204 Edison Way, Reno, Nevada, 89502. The
initial term of the lease expires on December 31, 2000, subject to automatic
renewal for six-month periods at inflation-adjusted rent until terminated by
Altair. The lease grants Altair 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 Altair's 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. Management believes that the existing
offices and test facilities of Altair and its subsidiaries are adequate for
their current needs. In the event that alternative or additional office space is
required, Altair believes it 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 Note 6 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
32
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
mineralized deposit on the Tennessee Mineral Property has not yet proven to be a
reserve, and Altair's 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 Altair's
knowledge, has not been used in prior mining operations.
During 1998 and 1999, Altair incurred $793,253 and $689,594,
respectively, in deferred exploration expenditures on the Tennessee Mineral
Property. Expenditures were incurred on leasehold minimum advance royalty
payments, auger hole drilling, sampling, sample analysis and assay, geological
and mineralized deposit characterization studies, and other related exploration
activities.
Item 3. Legal Proceedings
Altair is from time to time involved in routine litigation incidental
to the conduct of its business. Altair is currently not involved in any suit,
action or other legal proceedings, nor is it aware of any threatened suit,
action or other legal proceedings which management believes will materially and
adversely affect the business or operations of Altair or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
Altair did not submit any matters to a vote of security holders during
the fourth quarter of the 1999 fiscal year.
PART II
Item 5. Market for the Common Stock and Related Shareholder Matters
Market Price
- ------------
In the United States, prior to March 23, 1997, the Common Stock was
listed under the symbol "AIGDF" on the over-the-counter bulletin board maintain
by the National Association of Securities Dealers. From March 24, 1997 until
January 23, 1998, the Common Stock was quoted on the Nasdaq SmallCap Market
under the symbol "ALTIF."
Beginning on January 26, 1998, the Common Stock began trading on the
Nasdaq National Market under the symbol "ALTIF." The following table sets forth,
for the periods indicated, the high and low sales prices for the Common Stock,
as reported on the Nasdaq National Market.
Fiscal Year Ended December 31, 1998 Low High
---------------- ----------------
1st Quarter (beginning January 26, $8.125 $15.625
1998)
2nd Quarter 7.000 9.625
3rd Quarter 3.000 10.250
4th Quarter 5.875 8.625
33
Fiscal Year Ended December 31, 1999 Low High
---------------- ----------------
1st Quarter $6.063 $9.875
2nd Quarter 4.125 6.875
3rd Quarter 3.875 5.000
4th Quarter 3.453 5.063
The last sale price of the Common Stock, as reported on the Nasdaq National
Market, on March 15, 2000 was $5.813 per share.
Outstanding Shares and Number of Shareholders.
- ----------------------------------------------
As of March 15, 2000, the number of shares of Common Stock outstanding
was 15,837,882 held by 467 holders of record. In addition, as of the same date,
the Company has reserved 3,346,700 shares of Common Stock for issuance upon
exercise of options that have been, or may be, granted under its employee stock
option plans.
Dividends
- ---------
The Company has never declared or paid dividends on its Common Stock.
Moreover, the Company currently intends to retain any future earnings for use in
its business and, therefore, does not anticipate paying any dividends on its
Common Stock in the foreseeable future.
Transfer Agent and Registrar
- ----------------------------
The Transfer Agent and Registrar for the Common Stock is Equity
Transfer Services, Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario,
M5H 4C3.
Canadian Taxation Considerations
- --------------------------------
Dividends paid on Common Stock 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.
34
A capital gain realized on the disposition of Common Stock 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 Stock 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 shares of Common
Stock constitute taxable Canadian property, relief nevertheless may be available
under the Treaty. Under the Treaty, gains from the alienation of Common Stock
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 Canada ("Canadian GAAP"), which
differ in certain respects from those in the United States. See Note 15 of Notes
to Consolidated Financial Statements included herein for certain reconciliations
to accounting principles generally accepted in the United States ("U.S. GAAP").
The selected financial data should be read in conjunction with the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and
accompanying notes included herein. All amounts are stated in U.S. dollars.
For the Year Ended December 31, 1999 1998 1997 1996 1995
----------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Revenues from operations $ - $ - $ - $ - $ -
Operating expenses 2,424,695 2,064,958 1,858,033 1,335,725 438,103
Interest expense 1,966 32,165 43,497 19,373 -
Interest income (134,811) (335,037) (70,059) (27,872) (1,000)
----------------------------------------------------------------------
Loss from operations $ 2,291,850 $ 1,762,086 $ 1,831,471 $ 1,327,226 $ 437,103
======================================================================
Basic loss per common share
from operations $ (0.15)$ (0.13)$ (0.13)$ (0.12) $ (0.07)
======================================================================
Cash dividends declared per
common share $ - $ - $ - $ - $ -
======================================================================
Deficit, beginning of year $ 8,645,021 $ 6,303,879 $ 3,956,564 $ 3,332,064 $2,894,961
Net loss 2,224,408 1,929,539 1,831,471 624,500 437,103
Other items - 411,603 515,844 - -
----------------------------------------------------------------------
Deficit, end of year $ 10,869,429 $ 8,645,021 $ 6,303,879 $ 3,956,564 $3,332,064
======================================================================
35
BALANCE SHEET DATA
Working capital $ (6,429,243)$ 2,991,707 $ 7,480,153 $ 2,974,955 $ 313,502
Total assets 15,673,908 8,712,052 13,125,804 8,042,888 975,259
Long-term obligations - - 602,451 269,685 -
Current liabilities 7,563,276 239,512 712,810 308,762 90,910
Net shareholders' equity 8,110,632 8,472,540 11,810,543 7,464,441 884,349
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, the Company's business
consisted principally of the exploration of mineral properties for acquisition
and development. During 1994, the Company's focus changed as it 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, the Company has
continued exploring mineral properties suitable for development using the
Company's patented mineral processing equipment. In November 1999, the Company
acquired the Processing Technology and Processing Assets from BHP which it
intends to initially use for commercial production of TiO2 nanoparticles.
On November 15, 1994, the Company executed an option agreement to
acquire TMI, a development stage enterprise which owned all patent rights to the
Campbell Centrifugal Jig, since modified and renamed the Altair Centrifugal Jig.
Since April 1996, the Company has acquired mineral leaseholds on approximately
14,000 acres of land in Tennessee which contain heavy mineral sand deposits. A
prefeasibility study issued in July 1998 confirmed the existence of a viable
heavy mineral resource, and a subsequent technoeconomic assessment concluded
that the property warrants further development. Based on the results of these
independent studies, the Company has initiated a final feasibility study and is
assessing its options for developing the property.
In November 1999, the Company acquired all patents 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 "Processing Technology") all tangible equipment and
other assets (i.e., the "Processing Assets") used by BHP to develop and
implement the Processing Technology, and the use for one year (for no fee) of
the services of the BHP personnel presently developing the Processing
Technology.
The purchase price for the Processing Technology and Processing Assets
was 15,000,000 Australian Dollars (AUD$) and is payable in four equal
installments. The first installment was paid at closing, two payments are due
and payable on May 15, 2000, and the last is due on August 15, 2000. The Company
is also required to pay to BHP, until the earlier of the fifteenth anniversary
of November 15, 1999 or the date the Company has paid an aggregate royalty of
AUD$105,000,000, a quarterly royalty of from 1.5% to 3% of certain titanium
dioxide products produced and 3% of other products sold.
Prior to 1994, the Company operated its minerals business with the
intent of receiving income from property sales, joint ventures, or other
business arrangements with larger companies, rather than developing and placing
36
its properties into production on its own. The Company has received no royalty
income in the past, and at present, there are no business arrangements or joint
venture prospects involving the Company's properties or potential property sales
from which the Company expects to receive income. However, during the first half
of 2000 the Company intends to initiate limited commercial production of
titanium dioxide nanoparticles using the Processing Technology and Processing
Assets acquired from BHP.
Results of Operations.
- ----------------------
Fiscal Years 1999, 1998 and 1997
The Company has earned no revenues to date. Operating losses before
extraordinary items totaled $2,291,850 ($0.15 per share) for the 1999 fiscal
year, $1,762,088 ($0.13 per share) for the 1998 fiscal year, and $1,831,471
($0.13 per share) for the 1997 fiscal year. Principal factors contributing to
the losses during these periods were the absence of revenues coupled with the
incurrence of operating expenses.
Operating expenses increased from $1,858,033 during 1997 to $2,064,960
during 1998 and to $2,424,695 during 1999. Of these amounts, amortization of the
Company's assets (including patents) represented $590,831, $555,626 and $494,104
during 1997, 1998 and 1999, respectively. During 1998, the Company increased the
amount of test 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 its exploration efforts in Tennessee. This
higher level of activity caused a direct increase in testing, research, and
development costs from $78,034 in 1997 to $259,630 and $290,420 in 1998 and
1999, respectively. In addition, in order to support this higher level of
activity, the Company increased the number of employees in its Reno, Nevada
office from four to eight personnel and expanded into new leased office space.
The costs associated with this additional staffing and office space are
reflected in increased wages and administration expenses, testing, research and
development expenses, general and office expenses, travel, and occupancy costs
in 1998 and 1999 over 1997.
In January 1998, the Common Stock began trading on the Nasdaq National
Market System. As a result of the expanded market for the Common Stock, the
expenses associated with stock exchange fees, shareholders' meetings and
reports, and shareholder relations combined increased to $319,928 in 1999 and
$345,880 in 1998, compared to $209,739 in 1997.
In 1999, the Company completed its testing and assessment of the
California Mineral Property and determined that it was not economically feasible
to develop. As a result, it wrote off $93,643 of costs associated with the
property.
Interest income increased in 1998 over 1997 principally due to interest
earned on temporary cash investments following the issuance of $5,000,000 of 5%
convertible subordinated debentures (the "Convertible Debentures") in December
1997. Interest income declined in 1999 from 1998 as a result of the redemption
of the Convertible Debentures in August 1998.
As a result of the TMI Merger, Fine Gold assumed all of TMI's
liabilities. During 1999 and 1998, Fine Gold extinguished certain of the TMI
accounts payable and notes payable at less than the book amounts of such debt.
The net of such forgiveness of debt was $67,442 and $25,805 in 1999 and 1998,
respectively, with neither amount having a material effect on earnings per
share. During 1998, the Company redeemed $2,250,000 of the Convertible
Debentures, incurring a redemption premium of $193,256. See "--Liquidity and
Capital Resources." This represented a net loss per share of $.01. There were no
extraordinary items during 1997.
37
Liquidity and Capital Resources.
- --------------------------------
The Company has financed its operations since inception primarily by
the issuance of equity securities (Common Stock, Convertible Debentures, and
options and warrants to purchase Common Stock) with cumulative aggregate net
proceeds of $18,980,061 as of December 31, 1999. The Company received cash
proceeds from the sale of Common Stock of $1,862,500 in 1999 and received cash
proceeds from the exercise of options and warrants to acquire Common Stock of
$113,664 and $2,521,448 in 1998 and 1997, respectively. In addition, during
1997, the Company received net proceeds of $4,484,156 ($5,000,000 less $515,844
costs of issuance) from the issuance of the Convertible Debentures and related
warrants.
The Company has earned no revenues from operations and has incurred
recurring losses. At December 31, 1999, the Company's accumulated deficit was
$10,869,429, or an increase of $2,224,408 over the accumulated deficit at
December 31, 1998. This increase was due to the net loss for the year.
The Company's cash and short-term investments decreased from $3,100,577
as of December 31, 1998 to $153,580 as of December 31, 1999. The decrease is
primarily attributable to a cash payment of $2,422,763 made to BHP for the
acquisition of the Processing Technology and Processing Assets, $1,396,805
expended for operating activities and $714,893 for the exploration of the
Tennessee Mineral Property. During 1998, the Company's cash and short-term
investments decreased from $8,161,770 as of December 31, 1997 to $3,100,577 as
of December 31, 1998. The decrease was primarily attributable to operating
activities ($1,546,590), exploration of the Tennessee Mineral Property
($793,251) and the redemption of the Convertible Debentures ($2,337,892).
On March 31, 2000 the Company entered into a stock purchase and equity
line of credit agreement with an investor. Under the terms of the stock purchase
portion of the agreement, the Company issued to the Investor 1,251,303 shares of
Common Stock in exchange for $6 million. After the initial issuance, additional
shares may be issued through a reset provision that compares market price in the
reset period to an adjusted original issue price. The investor also received
warrants for 250,261 shares of Common Stock exercisable at $6.76 per share
through April 7, 2003.
Under the terms of the equity line of credit, the Company has the
option to cause the investor to purchase up to $10 million of the Company's
Common Stock during an 18-month period. The stock is to be issued at a discount
to market price with the timing and amounts of purchases at the discretion of
the Company (subject to the price of the Company's Common Stock remaining in
excess of $2 per share and the average daily weighted dollar trading volume of
the Common Stock being at least 150% of the amount of the additional financing).
The Company intends to use these proceeds to pay the remaining
AUD$11,250,000 due to BHP, fund the estimated $5.5 million needed for the
completion of the feasibility study on the Tennessee Mineral Property, and
provide working capital.
38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Although the Company is an Ontario corporation, it conducts
substantially all of its operations in the United States and holds substantially
all of its cash in United States Dollar denominated bank accounts. The Company's
liability to BHP in connection with the purchase of the Processing Technology
and Processing Assets is stated in Australian dollars and is, therefore, subject
to exchange rate risk. As a result, the Company's obligation to pay BHP
AUD$7,500,000 0n May 15, 2000 and AUD$3,750,000 on August 15, 2000 will increase
as the Australian Dollar becomes stronger against the United States Dollar and
will decrease as the Australian Dollar weakens against the United States Dollar.
Exchange rates tend to fluctuate widely, and there is a real risk that cost in
United States Dollars of repaying the Company's AUD$11,250,000 obligation may
increase significantly during the period between the date of this Form 10-K and
the date the Company pays, or is required to pay, such obligation.
By way of illustration, on November 15, 2000, when the Company
consummated its purchase of the Processing Technology and Processing Assets, the
cost of an Australian dollar in United States Dollars (or the U.S.$ to AUD$
exchange rate) was $.6403. As a result, the Company's AUD$11,250,000 liability
to BHP was equal to U.S.$7,202,738 on November 15, 1999. Between November 15,
1999 and December 31, 1999, the United States Dollar weakened in relation to the
Australian Dollar such that the Company's liability to BHP increased by $160,862
to $7,363.600. (An unrealized loss in that amount appears on the Company's
Consolidated Statements of Operations and Deficit for the year ended December
31, 1999). However, during the period between January 1, 2000 and March 15,
2000, the United States Dollar strengthened in relation to the Australian
Dollar, with the result that the liability to BHP on March 30, 2000 has
decreased by $488,287 from the amount at December 31, 1999 and $327,425 from the
amount at November 15, 1999 to $6,875,313, Because of the exchange rate exposure
on its liability to BHP, the amount in United States Dollars of the Company's
liability to BHP will continue to fluctuate until such liability is paid in
full.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Item appear on pages F-1
through F-17 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement to be filed with the
Commission.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement to be filed with the Commission.
39
PART IV
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 Report are filed as part of
this Annual Report on Form 10-K:
o Report of McGovern, Hurley, Cunningham LLP,
for the years ended December 31, 1999, 1998,
and 1997
o Consolidated Balance Sheets at December 31,
1999 and 1998
o Consolidated Statements of Operations and
Deficit for the years ended December 31,
1999, 1998 and 1997
o Consolidated Statements of Cash Flows for
the years ended December 31, 1999, 1998 and
1997
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 filed
the Registrant dated November 6, with the Commission on December 23, 1996.
1996
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.
Incorporated by reference to the Company's
Current Report on Form 8-K filed with the
4.2 Form of Warrant (related to Convertible Commission on January 13, 1998, as amended by
Debentures) Amendment No. 1 to Current Report on Form
8-K/A, filed on January 21, 1998.
Incorporated by reference to the Company's
4.3 Form of Series J Warrant Quarterly Report on Form 10-Q filed on May 15,
1999.
40
3. Exhibit List (continued)
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
----------- ------- -----------------------------------------
4.4 Form of Series K Warrant Filed herewith.
4.5 Form of Series L Warrant Filed herewith.
Shareholders Rights Plan Agreement dated
November 27, 1998, between Altair Incorporated by reference to the Company's
4.6 International Inc. and Equity Transfer Current Report on Form 8-K filed with the
Services Inc. Commission on December 29, 1998.
Performance Escrow Agreement dated February Incorporated by reference to Registration
10.1 27, 1996; Performance Escrow Release Statement on Form 10-SB filed with the
Schedule Commission on November 25, 1996.
Incorporated by reference to the Company's
Employment Agreement between Altair Annual Report on Form 10-K filed with the
10.2 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
10.3 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
Employment Agreement between Altair Quarterly Report on Form 10-Q for the quarter
10.4 International Inc. and John W. Parsons ended September 30, 1998, filed with the
dated July 6, 1998 Commission on November 13, 1998.
Incorporated by reference to the Company's
10.5 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
10.6 Plan adopted by Shareholders on June 11, Definitive Proxy Statement on Form 14A filed
1998 with the Commission on May 12, 1998.
Escrow Agreement among Altair International
Inc., Equity Transfer Services Inc., Thomas Incorporated by reference to Registration
10.7 P. Campbell and C. Patrick Costin dated Statement on Form 10-SB filed with the
June 1, 1994 Commission on November 25, 1996.
Incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
10.8 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
10.9 Exploration License with Option dated Annual Report on Form 10-K filed with the
October 1, 1998 Commission on March 18, 1999.
41
3. Exhibit List (continued)
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
----------- ------- -----------------------------------------
Amended and Restated Shareholder Rights Incorporated by reference to the Company's
10.10 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
10.11 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.
Services Agreement dated November 15, 1999, Incorporated by reference to the Company's
10.12 between the Company and BHP Minerals Current Report on Form 8-K filed with the
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
10.13 and BHP Minerals International Current Report on Form 8-K filed with the
Inc Commission on November 19, 1999.
23.1 Consent of McGovern, Hurley, Cunningham Filed herewith.
27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on November 19,
1999, in which (i) it reported the acquisition of all patents,
technology 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 and filed all
material transaction documents, and (ii) it filed and reported its
Amended and Restated Shareholders Rights Plan dated October 15, 1999,
between the Company and Equity Transfer Services, Inc.
(c) Exhibits
--------
Exhibits to this Report are attached following page F-17
hereof.
(d) Financial Statement Schedule
----------------------------
Not applicable.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2000.
ALTAIR INTERNATIONAL INC.
By:/s/ William P. Long
----------------------
William P. Long,
President, Chief Executive Officer
POWER OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed by the following persons in the capacities and on
the dates indicated. Each person whose signature to this Form 10-K appears below
hereby constitutes and appoints William P. Long and Edward Dickinson, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form 10-K
or the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Signature Title Date
/s/ William P. Long President and Chief Executive March 29, 2000
- -------------------
William P. Long Officer and Director (Principal
Executive Officer)
/s/ Edward Dickinson Chief Financial Officer
- --------------------
Edward Dickinson (Principal Financial and March 29, 2000
Accounting Officer)
/s/ James I. Golla Secretary and Director March 29, 2000
- ------------------
James I. Golla
/s/ George Hartman Director March 29, 2000
- ------------------
George Hartman
43
ALTAIR INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Expressed in United States Dollars)
INDEX PAGE
Auditors' F-2
Report
Consolidated Balance F-3
Sheets
Consolidated Statements of Operations and F-4
Deficit
Consolidated Statements of Cash F-5
Flows
Notes to the Consolidated Financial F-6 - F-16
Statements
F-1
McGovern, Hurley, Cunningham, LLP Chartered Accountants
2005 Sheppard Avenue East, Suite 503 Telephone: (416) 496-1234
Toronto, Ontario, Canada M2J 5B4 Fax: (416) 496-0125
Gen.E-mail: info@mh-ca.com
Website: www.mhc-ca.com
AUDITORS' REPORT
To the Shareholders of ALTAIR INTERNATIONAL INC.
We have audited the consolidated balance sheets of Altair International Inc. as
at December 31, 1999 and 1998 and the consolidated statements of operations and
deficit and cash flows for the years ended December 31, 1999, 1998 and 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999, 1998 and 1997 in accordance with generally accepted
accounting principles in Canada.
Generally accepted accounting principles in Canada differ in general respects
from those applicable in the United States (see Note 15).
By:/s/McGOVERN, HURLEY,CUNNINGHAM, LLP
--------------------------------------
McGovern, Hurley, Cunningham, LLP
Chartered Accountants
TORONTO, Canada
February 17, 2000,
except as to Note 17 which
is as of April 7, 2000
F-2
ALTAIR INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
December 31,
------------
1999 1998
---- ----
ASSETS
Current
Cash and short-term investments $ 153,580 $3,100,577
Other current assets 980,453 130,642
----------- ----------
1,134,033 3,231,219
Capital
Property and equipment (Cost, net of amortization)
(Note 4) 2,507,878 462,417
Patents and related expenditures
(Cost, net of amortization) (Note 5) 10,001,967 3,609,024
Mineral properties and related deferred exploration
expenditures (Note 6) 2,021,052 1,399,802
Goodwill, net 8,978 9,590
----------- ----------
Total Assets $15,673,908 $8,712,052
=========== ==========
LIABILITIES
Current
Accounts payable and accrued liabilities $ 199,676 $ 165,979
Current portion of notes payable (Note 7) 7,363,600 73,533
----------- ----------
Total Liabilities 7,563,276 239,512
----------- ----------
SHAREHOLDERS' EQUITY
Capital stock issued (Note 8)
15,474,915 and 15,174,915 common shares at
December 31, 1999 and 1998, respectively 18,324,963 16,462,463
Contributed surplus 655,098 655,098
Deficit (10,869,429) (8,645,021)
----------- ----------
Total Shareholders' Equity 8,110,632 8,472,540
----------- ----------
Total Liabilities and Shareholders' Equity $15,673,908 $8,712,052
=========== ==========
See accompanying Notes to the Consolidated Financial Statements.
F-3
ALTAIR INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in United States Dollars)
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Operating Expenses
Wages and administration $ 373,269 $ 251,798 $ 256,033
Testing, research and development 290,420 259,630 78,034
Professional fees 252,337 236,549 293,883
Shareholder relations 209,009 165,063 105,993
General and office 134,949 108,785 74,266
Travel 97,663 106,661 87,777
Occupancy costs 92,581 69,286 43,146
Shareholders' meetings and reports 92,414 119,497 96,308
Insurance 57,580 58,951 48,120
Government fees and taxes 39,236 23,123 25,447
Stock exchange fees 18,505 61,320 7,438
Corporate services 12,170 10,625 8,166
Transfer agent's fees 4,616 14,247 17,390
Bank charges 1,580 2,272 1,589
Loss on foreign exchange 160,619 17,109 123,612
Loss on disposal of fixed assets -- 4,418 --
Write off of mineral properties 93,643 -- --
Amortization 494,104 555,626 590,831
------------ ------------ ------------
2,424,695 2,064,960 1,858,033
Interest on long-term debt 1,966 32,165 43,497
Interest income (134,811) (335,037) (70,059)
------------ ------------ ------------
Loss from operations 2,291,850 1,762,088 1,831,471
Premium on redemption of convertible debentures -- 193,256 --
(Gain) on forgiveness of debt (67,442) (25,805) --
------------ ------------ ------------
Net loss for the year 2,224,408 1,929,539 1,831,471
Deficit, beginning of the year 8,645,021 6,303,879 3,956,564
Premium on conversion of convertible debentures -- 244,915 --
Accretion of equity element of convertible debentures -- 144,801 --
Convertible debenture issuance costs -- 21,887 515,844
------------ ------------ ------------
Deficit, end of the year $ 10,869,429 $ 8,645,021 $ 6,303,879
============ ============ ============
Basic net loss per share from operations (Note 12) $ (0.15) $ (0.13) $ (0.13)
============ ============ ============
Net loss per share from premium on redemption of
convertible debentures $ -- $ (0.01) $ --
============ ============ ============
Net income per share from gain on forgiveness of debt $ -- $ -- $ --
============ ============ ============
See accompanying Notes to the Consolidated Financial Statements.
F-4
ALTAIR INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Net loss for the year $(2,224,408) $(1,929,539) $(1,831,471)
Items not involving cash:
Amortization 494,104 555,626 590,831
Gain on forgiveness of debt (67,442) (25,805) --
Write off of mineral properties 93,643 -- --
Unrealized loss on foreign exchange 160,862 -- --
Loss on disposal of fixed assets -- 4,418 --
Interest on long-term debt -- 9,619 --
----------- ----------- -----------
(1,543,241) (1,385,681) (1,240,640)
Changes in non-cash working capital balances:
Other current assets 112,739 (99,450) (17,637)
Accounts payable and accrued liabilities 33,697 (61,459) 71,444
----------- ----------- -----------
Net cash used in operating activities (1,396,805) (1,546,590) (1,186,833)
----------- ----------- -----------
Cash flows from investing activities
Acquisition of pigment processing technology (2,422,763) -- --
Purchase of mineral properties and related
deferred exploration expenditures (714,893) (793,251) (480,248)
Purchase of capital assets (231,550) (146,211) (237,283)
Purchase of centrifugal jig patents and related
expenditures (37,398) (168,572) (46,701)
----------- ----------- -----------
Net cash used in investing activities (3,406,604) (1,108,034) (764,232)
----------- ----------- -----------
Cash flows from financing activities
Issuance of common shares for cash, net of share
issue costs 1,862,500 -- --
Proceeds from exercise of stock options -- 113,664 1,530,406
Proceeds from exercise of warrants -- -- 991,042
Payment of notes payable (6,088) (160,454) (162,930)
Issuance of convertible debentures -- -- 5,000,000
Convertible debenture issuance costs -- (21,887) (515,844)
Redemption of convertible debentures -- (2,337,892) --
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,856,412 (2,406,569) 6,842,674
----------- ----------- -----------
Net increase (decrease) in cash and short-term
investments (2,946,997) (5,061,193) 4,891,609
Cash and short-term investments, beginning of year 3,100,577 8,161,770 3,270,161
----------- ----------- -----------
Cash and short-term investments, end of year $ 153,580 $ 3,100,577 $ 8,161,770
=========== =========== ===========
F-5
See accompanying Notes to the Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
Note 1. Basis of Presentation
- ------------------------------
The United States dollar is the principal currency in which the Company conducts
business; accordingly, these consolidated financial statements are expressed in
United States dollars.
Note 2. Summary of Significant Accounting Policies
- ---------------------------------------------------
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada. As described in Note 15,
these principles differ in certain respects from principles and practices
generally accepted in the United States. Summarized below are those policies
considered particularly significant for the Company.
Consolidation
The financial statements include the accounts of the Company and its
subsidiaries, Mineral Recovery Systems, Inc., Fine Gold Recovery Systems, Inc.,
Altair Technologies, Inc, California Recovery Systems, Inc., Tennessee Valley
Titanium, Inc. and 660250 Ontario Limited, all of which are 100% owned.
Nature of Operations
The Company and its subsidiaries are engaged in the business of (1) producing
titanium dioxide products, (2) developing mineral processing equipment for use
in the recovery of fine and heavy mineral particles, including titanium, zircon,
gold and environmental contaminants, and (3) exploring and developing mineral
properties in the United States.
Mineral Properties and Related Deferred Exploration Expenditures
Mineral properties are carried at cost until they are brought into production,
at which time they are depleted on a unit-of-production method based on proven
and probable reserves. If a property is subsequently determined not to be
economic, the property and related deferred costs are written down to net
realizable value.
Exploration expenses, as well as advance royalty payments relating to mineral
properties in which the Company has an interest, are deferred until the
properties are brought into production, at which time they are amortized on a
unit-of-production basis. Other general exploration expenses are charged to
operations as incurred. The cost of mineral properties abandoned or sold and
their related deferred exploration costs are charged to operations in the
current year.
The Company reviews its mineral properties on an annual basis to determine if
events or changes in circumstances have transpired which indicate that the
carrying value of its assets may not be recoverable. The recoverability of costs
incurred on the mineral properties is dependent upon numerous factors including
exploration results, environmental risks, commodity risks, political risks, and
the Company's ability to attain profitable production. In reviewing its mineral
properties, the Company estimates the future cash flows expected to result from
each asset and its eventual disposition. If the sum of the undiscounted,
expected future cash flow is less than the carrying value of the asset, an
impairment loss is recognized. It is reasonably possible, based on existing
knowledge, that changes in future conditions in the near-term could require a
change in the determination of the need for and amount of any writedown.
Administrative Expenditures
Administrative expenditures are charged to operations as incurred.
Short-term Investments
Surplus cash of the Company is invested in a diversified portfolio of United
States dollar-denominated money market instruments. These investments are liquid
and can be converted to cash at any time through the public money market. The
carrying amount of the short-term investments approximates their market value.
F-6
Capital Assets and Amortization
Capital assets are stated at acquisition cost. Amortization is provided based on
the estimated useful life of the assets as follows:
o Furniture and office equipment - 3, 5 and 7 year straight-line
o Vehicles - 5 year straight-line
o Centrifugal jig equipment - 7 year straight-line
o Jig test facility - 7 year straight-line
o Pigment production facility - 10 year straight-line
Effective January 1, 1998, the Company changed certain methods of amortization
from the declining balance method to the straight-line method. This change has
been applied prospectively. The effect of the change on the reported net loss
for the year ended December 31, 1998 is not significant.
Patents and Related Expenditures
The Company owns patents with respect to pigment production technology and
centrifugal jig technology. Patents are carried at acquisition cost and are
being amortized on a straight-line basis over their remaining lives.
The related expenditures are also being carried at acquisition cost and the
amortization policies are as follows:
Royalty agreement (Note 3(a)) - 15 year straight-line
License agreement - Straight-line over the remaining life
of the related patent
Mineral recovery technology rights - Straight-line over the remaining life
of the related patent
The Company reviews its patents and related expenditures on an annual basis to
determine if events or changes in circumstances have transpired which indicate
that the carrying value of its assets may not be recoverable. In performing its
review, the Company estimates the future cash flows expected to result from each
asset and its eventual disposition. If the sum of the undiscounted expected
future cash flow is less than the carrying value of the asset, an impairment
loss is recognized. It is reasonably possible, based on existing knowledge, that
changes in future conditions in the near-term affecting the operating capability
and/or marketability of the pigment processing facility and centrifugal jig
could require a change in the determination of the need for and amount of any
writedown.
Research and Development Expenditures
Research and development expenditures are charged to operations as incurred.
Goodwill
Goodwill is the excess of the cost of the investment in subsidiaries over the
estimated fair value of the net assets acquired and is amortized on a
straight-line basis over 20 years. Goodwill is written down (to fair value) when
declines in value are considered other than temporary based on expected future
cash flows of the respective subsidiary.
Foreign Currency Translation
The Company's consolidated operations are integrated and amounts denominated in
currencies other than U.S. dollars are translated into U.S. dollars using the
temporal method. This method translates monetary balances at the rate of
exchange at the balance sheet date, non-monetary balances at historical exchange
rates and revenue and expense items at average exchange rates. The resulting
gains and losses are included in income (loss) in the reporting period.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to 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 related reported amounts of revenue and expense
during the report period. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
F-7
Financial Instruments
The carrying amounts for other current assets, accounts payable and accrued
liabilities, and notes payable on the balance sheets approximate fair value
because of the limited term of these instruments. Fair value estimates are made
at the balance sheet date based on relevant market information and information
about the financial instrument. These estimates are subjective in nature and
involve uncertainties in significant matters of judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates.
Income Taxes
In fiscal 1999, the Company adopted the Canadian Institute of Chartered
Accountants' recommendations for the accounting of income taxes. The new
standard requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, future income taxes are
recognized for the future income tax consequences attributable to differences
between the financial statement carrying values and their respective income tax
basis (temporary differences). Future income tax assets and liabilities are
measured using enacted income tax rates expected to apply to taxable income in
the years in which temporary differences are expected to be recovered or
settled. The effect on future income tax assets and liabilities of a change in
tax rates is included in income in the period that includes the enactment date.
Future income tax assets are evaluated and if realization is not considered more
likely than not, a valuation allowance is provided. Previously, the Company
followed the deferral method of accounting for income taxes that related the
provision for income taxes to the accounting income for the period.
As at December 31, 1999, the valuation allowance is equal to 100% of the future
income tax asset. There is no effect on prior years' figures as a result of this
change in accounting policy.
Note 3. Acquisitions
- ---------------------
(a) Intercontinental Development Corporation
In 1996, the Company purchased 66% of the issued and outstanding shares of
Intercontinental Development Corporation ("INDECO") for total consideration of
$319,298. The acquisition was accounted for using the purchase method. From 1997
through 1999, the Company acquired the remaining 34% of INDECO shares for total
consideration of $105,584. The entire amount of the purchase price has been
allocated to the Centrifugal Jig Royalty Agreement. INDECO, which was dissolved
in 1999, had as its sole asset a royalty agreement entitling the corporation to
10% of the cost of manufacturing any Centrifugal Jigs which were placed in
production, sold or exploited for profit worldwide.
(b) Pigment Production Technology and Assets
As of November 15, 1999, the Company entered into an Asset Purchase and Sale
Agreement (the "Asset Purchase Agreement") with BHP Minerals International Inc.
("BHP") pursuant to which it purchased all patents and technology related to a
hydrometallurgical process developed by BHP primarily for the production of
titanium dioxide products from titanium bearing ores or concentrates (the
"Technology"), all tangible equipment and other assets used by BHP to develop
and implement the Technology (the "Assets") and the use for one year of the
services of the BHP personnel presently developing the Technology.
The purchase price for the Technology and Assets was 15,000,000 Australian
Dollars (AUD$) and is payable in four equal installments. The first installment
was paid at closing and the second payment, which was originally due February
15, 2000, has been rescheduled by Letter of Amendment, with interest at 15% per
annum, until May 15, 2000. The remaining two payments are due and payable on May
15, 2000 and August 15, 2000. If the Company fails to pay any of the remaining
three installments, it will forfeit to BHP, without a right to reimbursement of
any amount of the purchase price paid to date, all right, title and interest in
the Technology and Assets.
The Asset Purchase Agreement also requires the Company to pay to BHP, until the
earlier of the fifteenth anniversary of November 15, 1999 or the date the
Company has paid an aggregate royalty of AUD$105,000,000, a quarterly royalty
equal to:
F-8
o 1.5% of the international market price of all uncoated titanium dioxide
pigment produced and sold as a result of the use of the Technology by
the Company or a transferee at the Company's mineral properties in
Tennessee;
o 1.5% of the international market price of all uncoated titanium dioxide
pigment produced and sold as a result of the use of the 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 titanium dioxide
pigment produced and sold as a result of the use of the Technology by
the Company or a transferee of the Company at any location other than
the Tennessee mineral property or the Auckland, New Zealand heavy
mineral sand operation; and
o 3% of the sales proceeds received by the Company or a transferee of the
Company from the sale of any products other than titanium dioxide
pigment produced through the Company's use of the Technology.
In addition, in connection with the Asset Purchase Agreement, the Company and
BHP entered into a lease dated November 15, 1999, pursuant to which the Company
will 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
initial term of the lease expires on December 31, 2000, subject to automatic
renewals for six-month periods at inflation-adjusted rent until terminated by
the Company. The lease grants the Company a right of first refusal in the event
BHP intends to sell the building and property subject to the lease.
The Assets have been recorded in the capital asset accounts as pigment
production facility (see Note 4), and the Technology has been recorded in the
patents accounts as pigment production patents (see Note 5).
Note 4. Capital Assets
- -----------------------
December 31, 1999 December 31, 1998
----------------- -----------------
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
------------------------------------ --------------------------------
Furniture and office
equipment $ 76,228 $ 42,952 $ 33,276 $ 65,538 $ 28,325 $ 37,213
Vehicles 125,031 68,119 56,912 92,629 44,499 48,130
Centrifugal jig
equipment 333,028 154,523 178,505 333,028 111,674 221,354
Jig testing facility 45,128 18,583 26,545 45,128 12,555 32,573
Pigment production
facility 1,925,100 24,064 1,901,036 -- -- --
Centrifugal jigs
under
construction 311,604 -- 311,604 123,147 -- 123,147
------------------------------------ -------------------------------------
$2,816,119 $ 308,241 $2,507,878 $ 659,470 $ 197,053 $ 462,417
==================================== =====================================
F-9
Note 5. Patents and Related Expenditures
- -----------------------------------------
December 31, 1999 December 31, 1998
------------------------------------------- -------------------------------------
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
--------------------------------------- -------------------------------------
Pigment production
patents $ 6,773,400 $ 55,228 $6 ,718,172 $ -- $ -- $ --
Centrifugal jig
patents 4,223,800 1,601,052 2,622,748 4,182,262 1,332,821 2,849,441
Royalty agreement 424,881 88,588 336,293 424,604 59,265 365,339
Mineral recovery
technology rights 243,000 37,385 205,615 243,000 18,692 224,308
License agreement 136,004 16,865 119,139 136,004 6,036 129,968
Patent application -- -- -- 39,968 -- 39,968
--------------------------------------- -------------------------------------
$11,801,085 $ 1,799,118 $10,001,967 $ 5,025,838 $ 1,416,814 $ 3,609,024
======================================= ========================================
Note 6. Mineral Properties and Related Deferred Exploration Expenditures
- -------------------------------------------------------------------------
The Company's subsidiary, Mineral Recovery Systems, Inc. ("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 Amount
---- ------
2000 $ 90,992
2001 152,116
2002 194,513
2003 212,289
2004 423,736
2005 and every year thereafter 430,132
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. During the years ended December 31,
1999 and 1998, approximately $715,000 and $793,000, respectively, was incurred
on exploration.
Note 7. Notes Payable
- ----------------------
1999 1998
------------ ------------
Note payable to BHP Minerals International, Inc.,
$4,903,600 due May 15, 2000, $2,460,000 due
August 15, 2000 (Note (a)) $ 7 ,363,600 $ -
Notes payable assumed from Trans Mar, Inc.,
interest payable at various rates,
unsecured, principal and interest due
December 31, 1999 -- 67,442
Note payable, interest payable at 10% per
annum, unsecured, blended payments of
$2,000 per month, due April 1, 1999 -- 6,091
------------ ------------
$ 7,363,600 $ 73,533
============ ============
F-10
(a)Interest is due on $2,443,600 at 15% per annum from February 16, 2000 to May
15, 2000. The remainder of payments are interest free and secured by pigment
production equipment and patents having a net book value of $8,619,208.
Note 8. Capital Stock
- ----------------------
Authorized capital stock of the Company is comprised of an unlimited number of
Common Shares. Details of issued and outstanding shares are as follows:
Shares Amount
----------- -----------
Balance, December 31, 1996 14,686,296 $11,373,259
Exercise of stock options 362,500 1,530,406
Exercise of warrants 411,229 991,042
Common shares issued on warrants exercised in December 1996 32,720 47,746
----------- -----------
Balance, December 31, 1997 15,492,745 13,942,453
Exercise of stock options 17,500 113,664
Common shares issued on conversion of convertible debentures 387,735 3,061,443
Common shares canceled pursuant to settlement agreement
with former TMI shareholders (723,065) (655,097)
----------- -----------
Balance, December 31, 1998 15,174,915 16,462,463
Common shares issued for cash 300,000 1,862,500
----------- -----------
Balance, December 31, 1999 15,474,915 $18,324,963
=========== ===========
Prospectus
Pursuant to a prospectus dated March 17, 1999, the Company issued 300,000 common
shares and 150,000 warrants for net proceeds of $1,862,500.
Stock Options
As of December 31, 1999, 3,060,000 Common Shares are reserved for issuance to
directors, officers and employees under the Company's stock option plans. The
following table summarizes the status of stock options outstanding and
exercisable as of December 31, 1999:
Stock Options Outstanding Stock Options Exercisable
---------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
--------------- ------ ------------ ----- ------ -----
$2.56 to $4.13 550,000 2.0 2.98 500,000 2.87
$4.38 to $4.94 860,000 4.8 4.46 202,500 4.55
$5.82 to $7.50 945,000 3.5 7.07 765,000 7.01
$8.00 to $10.00 705,000 3.7 8.83 367,500 8.36
The number of Common Shares available for the granting of options at December
31, 1999 and 1998 was 358,000 and 1,453,000, respectively. The following table
summarizes stock option activity for the years ended December 31, 1999 and 1998:
F-11
1999 1998
---------- ----------
Outstanding at beginning of year 1,965,000 962,500
Granted during the year 1,550,000 1,020,000
Cancelled (455,000) --
Exercised at an average price of
$9.26 (1998) -- (17,500)
---------- ----------
Outstanding at end of year 3,060,000 1,965,000
========== ==========
Currently exercisable 1,835,000 1,540,000
========== ==========
Warrants
As of December 31, 1999, there were 150,000 warrants issued and outstanding, of
which 125,000 warrants entitle the holder to purchase one Common Share at $9.00
per share on or before the earlier of March 19, 2002 and the date that is 30
days following the fifth day the closing price equals or exceeds $14.00 per
share and 25,000 warrants entitle the holder to purchase one Common Share at
$6.00 per share on or before the earlier of November 30, 2002 and the date that
is 30 days following the fifth day the closing price equals or exceeds $8.00 per
share.
Note 9. Convertible Debentures
- --------------------------------
On December 29, 1997, the Company 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 of the Company annually or upon
conversion or maturity, at the discretion of the Company. 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 (i) 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 (ii)
$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.
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. The conversions were made at a
conversion price rate equal to 92% of the average price of the Common Shares for
the five trading days prior to submission of the notice of conversion by the
holders. These conversions resulted in the issuance of 387,735 Common Shares.
On August 28, 1998, the Company elected to redeem the remaining $2,250,000 of
Debentures using cash previously invested in short-term instruments. The total
cash required to redeem the Debentures, including the 10% redemption premium and
accrued interest, was $2,550,938. As of December 31, 1999, all of the warrants
had expired unexercised.
Note 10. Commitments
- ---------------------
Under the current employment agreement between the Company and its president,
Dr. William P. Long, Dr. Long is entitled to receive payment of 200,000 Common
Shares in the event (i) voting control of over 35% of the issued stock is
acquired by a person or group of persons 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 the Company
for cause, or at the end of the term.
Note 11. Net Loss per Share
- ----------------------------
The calculation of basic net loss per share from operations is based on the
weighted average number of Common Shares outstanding for the year. Net loss used
in the calculation is loss from operations increased by the accretion of the
equity element of convertible subordinated debentures.
F-12
1999 1998 1997
---------- ---------- ----------
Loss from operations $ 2,291,850 $ 1,762,088 $1,831,471
Accretion of equity element of
convertible debentures -- 144,801 --
---------- ---------- ----------
$ 2,291,850 $ 1,906,889 $1,831,471
========== ========== ==========
Weighted average number of
common shares 15,374,093 15,143,020 14,366,457
========== ========== ==========
Basic net loss per share
from operations $ 0.15 $ 0.13 $ 0.13
========== ========== ==========
The existence of stock options, warrants and convertible debentures affects the
calculation of loss per share on a fully diluted basis. As the effect of this
dilution is to reduce the reported loss per share, the fully diluted loss per
share has not been presented.
Note 12. Income Taxes
- ----------------------
As of December 31, 1999, the Company has approximately $ 7,500,000 of
non-capital losses carried forward for income tax purposes which, under certain
circumstances, are available to reduce future years' income for tax purposes.
Approximately $ 7,300,000 of these losses are subject to expiration beginning in
2003.
Note 13. Concentration of Credit Risk
- --------------------------------------
As of December 31, 1999, the Company had $115,044 invested in a diversified
portfolio of United States dollar-denominated money market instruments in the
United States. This portfolio is neither insured nor guaranteed by the United
States Government.
Note 14. Statements of Cash Flows
- ----------------------------------
Non-Cash Investing and Financing Activities
Year ended December 31, 1999: There were no non-cash investing or financing
activities.
Year ended December 31, 1998: Convertible debentures having a principal amount
of $2,750,000 and accrued interest of $66,528 were converted into 387,735 Common
Shares with a fair market value of $3,061,444.
Year ended December 31, 1997: There were no non-cash investing or financing
activities.
Cash and Cash Equivalents
The cash and short-term investments on hand as of December 31, 1999 represent
cash and a diversified portfolio of United States dollar-denominated money
market instruments which is considered cash equivalent.
Supplemental Information
1999 1998 1997
---- ---- ----
Interest paid $ 1,966 $ 32,165 $ 43,497
Interest received 134,811 335,037 70,057
Note 15. Differences Between Canadian and United States Generally Accepted
Accounting Principles
- ----------------------
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP") which conform, in all material
respects, with accounting principles generally accepted in the United States
("U.S. GAAP"), except as described below.
Development Stage Company
As of December 31, 1999 the Company would be characterized as a "development
stage enterprise" under U.S. GAAP in accordance with Statement of Financial
Accounting Standards No. 7 ("SFAS 7"). Under Canadian GAAP, there are no
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requirements for the indication or reporting of development stage entities. The
following is a summary of the deficit accumulated during the development stage
prepared in accordance with SFAS 7:
Accumulated deficit
during the
development stage
-----------------
Professional fees $ 1,604,549
Salaries and wages 2,245,499
Shareholders' expenses 1,291,838
Office and general 2,549,845
Loss on sale of mining claims 101,047
Amortization 2,031,656
Interest on long-term debt 97,001
Write off of mineral properties and related
deferred exploration expenditures 1,385,997
Write off of organization costs 8,563
------------
11,315,995
Less:
Interest income (581,420)
Gain on sale of marketable securities (35,773)
Lease payments (143,754)
Gain on forgiveness of debt (795,973)
Option payments (70,906)
------------
Total accumulated loss 9,688,169
Convertible debenture costs 537,731
Share issue costs 60,557
Accretion of equity element of convertible debentures 144,801
Premium on conversion of convertible debentures 244,915
Premium on redemption of convertible debentures 193,256
------------
Accumulated deficit, December 31, 1999 $ 10,869,429
============
Foreign Currency Translation
In Canada and the United States, a distinction is made between the measurement
and accounting for an enterprise's own transactions in a foreign currency. The
Company remeasures its books and records into the functional currency prior to
translation into the reporting currency. The Company maintains its books and
records in Canadian dollars and the U.S. subsidiaries maintain their books and
records in United States dollars. The remeasurement of the Company's financial
statements according to U.S. GAAP would not change the results of the
consolidated financial statements prepared in accordance with Canadian GAAP.
Stock Options
Under Canadian GAAP, there is no requirement to record compensation on the
issuance of stock options to employees or directors. Under U.S. GAAP,
compensation would be accrued on the date of granting of the options, calculated
as the difference between the market price and exercise price on the date of the
grant. For the fiscal years ended December 31, 1999 and 1998, the exercise price
of all stock options granted has been equal to or greater than the market price
on the date of the grant and therefore the compensation cost under U.S. GAAP
would be nil.
Reconciliation to Accounting Principles Generally Accepted in the United States
Convertible debenture issuance costs are added to the deficit under Canadian
GAAP, but would be recorded as deferred financing costs (an asset), and
amortized to expense, under U.S. GAAP. The Company incurred issuance costs of
$21,887 in 1998 and $515,844 in 1997 that have been charged to deficit under
Canadian GAAP. Under U.S. GAAP, the balance sheet at December 31, 1997 would
include a deferred financing cost asset of $515,844 but this amount and the 1998
charges of $21,887 would be charged to expense in 1998 due to the redemption and
conversion of the Debentures during the year (see Note 9). Also, under U.S.
GAAP, the premium on conversion of convertible debentures ($144,801) and the
accretion of equity element of convertible debentures ($244,915) would be
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expensed in the Statements of Operations. The following reflects amounts that
would have been reported had the Company's consolidated financial statements
been prepared on the basis of U.S. GAAP:
1999 1998 1997
----------------- ----------------- -----------------
Convertible debenture issuance costs $ -- $ 537,731 $ --
Premium on conversion of convertible
debentures -- 244,915 --
Accretion of equity element of
convertible debentures -- 144,801 --
Net loss for the year 2,224,408 2,856,986 1,831,471
Deficit, beginning of year 8,645,021 5,788,035 3,956,564
Deficit, end of year 10,869,429 8,645,021 5,788,035
Basic net loss per share from operations $ (0.15) $ (0.19) $ (0.13)
There are no other material differences between Canadian GAAP and U.S. GAAP.
Note 16. Uncertainty Due to the Year 2000 Issue
- ------------------------------------------------
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
Note 17. Subsequent Events
- ---------------------------
(a) Pursuant to three stock purchase agreements dated subsequent
to the year end, the Company issued 125,000 Common Shares and
62,500 warrants for gross proceeds of $500,000. Each warrant
entitles the holder to purchase one Common Share at a price of
$6.00 per share on or before the earlier of the third
anniversary and the date that is 30 days following the fifth
day the closing price equals or exceeds $8.00 per share.
(b) Pursuant to a stock purchase agreement dated March 3, 2000,
the Company issued 166,667 Common Shares and 83,333 warrants
for gross proceeds of $1 million. Each warrant entitles the
holder to purchase one Common Share at a price of $8.00 per
share on or before the earlier of March 3, 2004 and the date
that is 30 days following the fifth day the closing price
equals or exceeds $10.00 per share.
(c) Subsequent to the year end, 71,300 stock options were
exercised for total proceeds of $335,778.
(d) On March 31, 2000, the Company entered into a stock purchase
and equity line of credit agreement with an investor. Pursuant
to the common stock purchase agreement, the Company has issued
1,251,303 Common Shares and 250,261 warrants for gross
proceeds of $ 6 million before deducting estimated costs of
the issue of $455,000 and 75,085 warrants.
Each warrant entitles the holder to purchase one Common Share
at a price of $6.76 on or before April 7, 2003.
The 1,251,303 Common Shares are subject to a "repricing
period" of 120 days. During the repricing period, additional
shares may be issued through a reset provision that compares
market price in the repricing period to an adjusted original
issue price.
Pursuant to the equity line of credit agreement, the investor
will purchase up to $10 million of the Company's Common Shares
over an 18-month period at a discounted market price based on
the five lowest closing bid prices of the Common Shares for
the ten trading days following the Company's notice. The
timing and amounts of the purchases are at the discretion of
the Company. Each additional purchase may be no greater than
66.7% of the average daily weighted dollar trading volume of
the Common Shares for the twenty days preceding both the
notice and closing of the purchase. In addition, the average
market value during the same twenty day period must be greater
than $2.00 per share.
Common Stock
- ------------
United States
The Company's Common Shares began trading through the Nasdaq National Market on
January 23, 1998 under the symbol "ALTIF". From March 24, 1997 until January 23,
1998, the Common Shares traded under the same symbol on the Nasdaq SmallCap
Market. Prior to March 24, 1997, the Common Shares traded on the OTC Bulletin
Board under the symbol "AIDGF". On December 31, 1999, the number of record
holders was 471 and the Company estimates that on that date there were 9,600
beneficial owners.
The Company has never declared or paid dividends on its Common Shares. Moreover,
the Company currently intends to retain any future earnings for use in the
business and, therefore, does not anticipate paying dividends on its Common
Shares in the foreseeable future.
The following table sets forth, on a quarterly basis, the high and low sales
prices during the last two fiscal years for the Common Shares as reported. The
prices reported do not include retail mark-up, mark-down or commissions and may
not reflect actual transactions.
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For the Fiscal Year Ended: December 31, 1999 December 31, 1998
(In U.S. Dollars) ----------------- -----------------
High Low High Low
First Quarter $ 9.88 $ 6.06 $15.63 $ 8.13
Second Quarter $ 6.88 $ 4.13 $ 9.63 $ 7.00
Third Quarter $ 5.00 $ 3.88 $10.25 $ 3.00
Fourth Quarter $ 5.06 $ 3.45 $ 8.63 $ 5.88
Canada
In Canada, the Common Shares were traded under the symbol "AIL" on the Alberta
Stock Exchange (the "ASE") through April 23, 1998. The Company voluntarily
removed the Common Shares from the ASE on that date due to increased focus on
operations in the United States and diminishing trading volume on the ASE.
Exchange Rate Information
The following exchange rates represent the noon buying rate in New York City for
cable transfers in Canadian dollars, as certified for Customs purposes, by the
Federal Reserve Bank of New York. The table sets forth, for each of the years
indicated, the period-end exchange rate, the average exchange rate (i.e., the
average of the exchange rates on the last day of each month during the period),
and the high and low exchange rates of the U.S. dollar in exchange for the
Canadian dollar for the years indicated, based on the noon buying rates:
For the Year Ended December 31, 1999 1998 1997 1996 1995
(Canadian Dollar per U.S. Dollar) ---- ---- ---- ---- ----
High 1.5302 1.5770 1.4398 1.3822 1.4238
Low 1.4440 1.4075 1.3392 1.3310 1.3285
Average 1.4827 1.4894 1.3849 1.3638 1.3725
Year-End 1.4440 1.5375 1.4288 1.3697 1.3655
Canadian Taxation Considerations
Dividends paid on Common Shares of the Company 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 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 that owns at least 10% of the voting shares of the subject 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 are 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% rate 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 of the Company 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 Shares 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 arm's length, or by any combination thereof. If the
Company's 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.
F-16