UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________
ALTAIR INTERNATIONAL INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Province of
Ontario,
Canada 1-12497 None
----------------- -------------------- -------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
1725 Sheridan Avenue, Suite 140
Cody, Wyoming 82414
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (307) 587-8245
[ ] Securities registered pursuant to Section 12(b) of the Act: None
[X] Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value Nasdaq National Market
--------------------------- -------------------------------------------
(Title of Class) (Name of each exchange on which registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common shares held by non-affiliates
of the Registrant on March 19, 2002, based upon the closing sale price of the
common shares on the NASDAQ Stock Market of $.92 per share on March 19, 2002,
was approximately $2,592,740. 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 19, 2002, the Registrant had 22,813,120 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
INDEX TO FORM 10-K
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PART I.......................................................................................................1
Item 1: Business..........................................................................................1
Item 2. Properties.......................................................................................25
Item 3. Legal Proceedings................................................................................26
Item 4. Submission of Matters to a Vote of Security Holders..............................................26
PART II.....................................................................................................26
Item 5. Market for the Common Shares and Related Shareholder Matters.....................................26
Item 6. Selected Financial Data..........................................................................27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............29
Item 8. Financial Statements and Supplementary Data......................................................35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............35
Part III....................................................................................................35
Item 10. Directors and Executive Officers of the Registrant...............................................35
Item 11. Executive Compensation...........................................................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................36
Item 13. Certain Relationships and Related Transactions...................................................36
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................36
2
PART I
This Annual Report on Form 10-K for the year ended December 31, 2001 (this "Form
10-K") contains "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve risks and uncertainties. Purchasers of any of the common shares, no
par value (the "common shares") of Altair International Inc. ("Altair" or the
"Company") are cautioned that the Company's actual results will differ (and may
differ significantly) from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those factors discussed herein under "Factors That May Affect Future Results"
and elsewhere in this Form 10-K generally. The reader is also encouraged to
review other filings made by the Company with the Securities and Exchange
Commission (the "Commission") describing other factors that may affect future
results of the Company.
Item 1: Business
--------
Certain technical terms used in the following description of our
business are defined in a glossary set forth on page 16. We have identified such
terms by italicizing them the first time they are used in the text. Unless the
context requires otherwise, all references to "Altair," "we," "Altair
International Inc.," or the "Company" in this Form 10-K refer to Altair
International Inc. and all of its subsidiaries. Altair is presently doing
business under the name Altair Nanotechnologies Inc.
In relation to the Tennessee mineral property, Altair is an exploration
stage company (as defined in Guide 7 promulgated under the Securities Act of
1933, as amended), and there is no assurance that a commercially viable mineral
deposit exists on the Tennessee mineral property or any other property leased by
Altair. We will cease to be an exploration stage company with respect to the
Tennessee mineral property only when and if we have established the existence of
a commercially minable deposit.
General
- -------
Altair International Inc. was incorporated under the laws of the
Province of Ontario, Canada in April 1973 for the purpose of acquiring and
exploring mineral properties. During the period from inception through 1994, we
acquired and explored multiple mineral properties. In each case, sub-economic
mineralization was encountered and the exploration was abandoned. Since 1994, we
have also devoted substantial resources to the development and testing of
mineral processing equipment for use in the recovery of fine, heavy mineral
particles.
In November 1999, we acquired all patent applications, technology and
tangible assets related to a hydrometallurgical process developed by BHP
Minerals International, Inc. ("BHP") primarily for the production of titanium
dioxide ("TiO2") products from titanium bearing ores or concentrates (the
"titanium processing technology"), and all tangible equipment and other assets
used by BHP to develop and implement the titanium processing technology.
Although the titanium processing technology is capable of producing a variety of
titanium products, we plan to initially employ the titanium processing
technology for the production and sale of TiO2 nanoparticles. See "--Titanium
Pigment Processing Technology."
We have also leased, and are exploring, approximately 9,700 acres of
land near Camden, Tennessee (the "Tennessee mineral property") to determine
whether it would be amenable to large-scale mining for titanium and zircon. See
"--Tennessee Mineral Property."
3
During 1996, we acquired the rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig (the "jig"). The jig is a
machine that uses a rotating circular screen and pulsating water to separate
valueless mineral particles from more valuable mineral particles based on the
differences in their specific gravity. In tests, the jig has proven capable of
segregating and recovering extremely fine mineral particles. Because of
limitations on operating capital, we did only limited jig testing work during
2001. See "--Jig Technology and Proprietary Rights."
We have experienced an operating loss in every year of operation. In
the fiscal year ended December 31, 2001, we experienced a net loss of
$7,754,031.
Altair currently has two wholly-owned subsidiaries, Fine Gold Recovery
Systems, Inc., a Nevada corporation ("Fine Gold"), and Mineral Recovery Systems,
Inc., a Nevada corporation ("MRS"). A third subsidiary, 660250 Ontario Ltd., was
amalgamated with Altair in December 2001. It had been inactive for several years
prior to the amalgamation. Altair also has two indirect wholly-owned
subsidiaries, Altair Nanomaterials, Inc., a Nevada corporation, and Tennessee
Valley Titanium, Inc., a Nevada corporation. Altair Nanomaterials, Inc.,
previously known as Altair Technologies, Inc., changed its name in September
2001 to better reflect the nature of its business.
Titanium Pigment Processing Technology
- --------------------------------------
Description of the Titanium Processing Technology.
--------------------------------------------------
On November 15, 1999, we purchased from BHP all patent applications,
technology and tangible assets related to a hydrometallurgical process developed
by BHP primarily for the production of titanium dioxide products from titanium
bearing ores or concentrates (i.e., the titanium processing technology), and all
tangible equipment and other assets used by BHP to develop and implement the
titanium processing technology (the "titanium processing assets"). The titanium
processing technology is capable of producing conventional TiO2 pigment
products. Conventional TiO2 pigments are finely-sized powders consisting of TiO2
crystals. These powders may be either anatase or rutile phase (shape) and
approximate 0.17 to 0.30 microns in size. Our titanium processing technology is
also capable of producing TiO2 nanoparticles, a specialty product with a size
range of 10 to 100 nanometers (approximately one tenth the size of conventional
pigments). The primary products currently being produced in the processing plant
are TiO2 and lithium titanate nanoparticles.
The titanium processing technology is based on a proprietary
dense-phase crystal growth technique which controls crystal formation using a
combination of mechanical and fluid dynamics and chemical and thermal control.
Through introduction of very small quantities of selected chemicals ("doping
elements") during crystal growth, the size, phase, catalytic and photocatalytic
activity and size distribution of crystals can be controlled within narrow
limits and to specification.
Titanium Processing Assets. The titanium processing assets consist
principally of a production facility located in the leased premises. During
2000, we installed additional equipment to increase production capacity to a
nominal annual amount of 200 tons of TiO2 nanoparticles. We also added a
separate pilot facility to produce large sample quantities of product for
development, test and evaluation purposes. In 2001, we added hydration and
filtering equipment to improve production processing.
Plans for Development of the Titanium Pigment Processing Technology.
The titanium processing technology has potential to produce both titanium
pigments, which are commercially traded in bulk, and TiO2 nanoparticles, which
are sold on specialty product markets. Our plan is to first concentrate on
development of TiO2 nanoparticle products, which may be produced and sold in
commercial volumes utilizing the in-place, 200 ton per year plant in Reno. In
the future, we plan to work to commercialize a titanium pigment production
capability - an activity we hope to do in conjunction with an as yet
unidentified industry partner.
4
We have transferred our titanium processing assets and titanium
processing technology to Altair Nanomaterials, Inc. ("Altair Nanomaterials"), a
wholly-owned subsidiary of Altair, hired a president of Altair Nanomaterials and
hired fourteen former BHP employees who were instrumental in the development of
our titanium processing technology. Certain of these employees are continuing
research and development work while others are involved in marketing, product
development, and operation and maintenance of the production facility. During
2001, we generated $42,816 of revenue through sales of TiO2 and lithium titanate
nanoparticles and other materials. These products were used principally in
thermal spray and catalyst applications and for developmental work on battery
materials.
Products In Development Using the Titanium Processing Technology. To
date, we have developed TiO2 nanoparticles and other products we intend to
initially produce with the titanium processing technology. The designation,
description, potential applications and status of development of our products
that we have publicly announced are as follows:
Product Designation Description Potential Applications Status of Development & Sales
- -------------------- ------------------------------- ----------------------------- -------------------------------
TiNano(TM)40 VHP This is an uncoated, high Environmental purification, During 2001, we sold $29,200
purity titanium dioxide photocells, catalyst and of this product to 11
nanoparticle product with similar ceramic customers for use primarily
good thermal stability. applications, self-cleaning in the testing and
& sanitizing uses and development of thermal spray,
thermal spray coatings. catalyst and chemical
Intermediate for mechanical planarization
manufacture of derivatives applications. We have
such as lithium titanate received follow up orders
and barium titanate. from two customers.
- -------------------- ------------------------------- ----------------------------- -------------------------------
TiNano(TM)40 USP This product meets US Cosmetic and other uses During 2001, we sold $300 of
Pharmacopeia specifications, requiring USP grade this product to two
exhibiting high UV absorption material. USP grade may customers. We are developing
characteristics, and high also be used in many of the coating procedures to make
thermal stability. VHP applications and has TiNanoTM 40 CNPC from this
greater temperature regulated material.
stability.
- -------------------- ------------------------------- ----------------------------- -------------------------------
TiNano(TM)40 HPC This product exhibits high UV Environmental purification, During 2001, we sold $615 of
absorption, high photo photocells, catalysts, and this product to three
catalytic activity and similar ceramic customers. We intend to
excellent thermal stability. applications. Also may be discontinue this product as
used for self-cleaning and there is no substantial
sanitizing applications. market for it.
- -------------------- ------------------------------- ----------------------------- -------------------------------
TiNano(TM)40 RPC This product exhibits high Cosmetics, plastics and During 2001, we sold $50 of
UV absorption. It exhibits coatings applications this product to one customer.
reduced photo catalytic requiring reduced
activity achieved using our photochemical activity. We are developing a
inorganic coating rather than dispersion technology for
the traditional Si-Al application in plastics and
treatment. Also exhibits organic formulations.
excellent thermal stability.
- -------------------- ------------------------------- ----------------------------- -------------------------------
TiNano(TM)40 CNPC This product exhibits very Cosmetic and coating During 2001, we sold $70 of
high UV absorption. The applications. this product to two
product is USP grade TiO2 customers. We are developing
coated with hydrous alumina a coating and dispersion
and silica. The coating technology.
substantially reduces photo
catalytic activity.
- -------------------- ------------------------------- ----------------------------- -------------------------------
Lithium Titanate This product is a robust Lithium ion batteries where During 2001, we sold $2,209
Spinel crystalline structure of high charge and discharge of lithium titanate to three
lithium titanate. It rates are desired. customers for use in testing
withstands high lithium and development of battery
insertion rates with very materials.
little distortion.
- -------------------- ------------------------------- ----------------------------- -------------------------------
5
The products identified above, and other products we are developing with the
titanium processing technology, are generally not commodities and must be
customized for a specific application working in cooperation with the end user.
Accordingly, unless and until we receive an order containing specifications with
respect to commercial quantities of each nanoparticle product, that product is
necessarily in the development phase. To date, we have not received
specifications with respect to commercial quantities of any nanoparticle
product, and no customer has used any our nanoparticle products in a commercial
product held for sale.
Target Market for Products of the Titanium Processing Technology. TiO2
nanoparticles are marketed and sold as specialty chemicals. End users typically
work closely with suppliers to set product specifications, which may or may not
be subsequently certified for individual applications. Very little TiO2
nanoparticle product is sold as a fungible "shelf-item" product.
Altair's plan for TiO2 nanoparticle market entry has been to prepare a
suite of products that have a range of physical and chemical properties.
Potential TiO2 nanoparticle end users are invited to test our basic products and
to separately work with us so that we may tailor a nanoparticle product for
their particular use. We have filled 557 requests for samples of nanoparticle
products from the 174 companies and laboratories that have contacted us. Based
on sales to date and sample requests, applications for and interest in our TiO2
nanoparticles are seemingly most advanced in applications for batteries (lithium
titanate), thermal sprays (TiO2), solid oxide fuel cells (yettrium stabilized
zircon) and catalysts (both TiO2 and yettrium stabilized zircon). These are
applications from which we hope to make our first volume commercial sales.
Research, Testing and Development of the Titanium Processing
Technology. Our titanium processing technology is the result of several years of
research and development work done by BHP. We are continuing the research and
development work to both improve the process and to develop commercial
applications for it. Such work is being conducted by the former BHP employees
who became employees of the Company on January 1, 2001. During fiscal 2001, we
incurred $541,000 in research and development expenses related to the titanium
processing technology. During fiscal 2000, we incurred $1,426,000 in research
and development expenses related to the titanium processing technology.
6
In addition, we are engaged in joint research and development efforts
with potential customers and other interested parties. For example, in August
2000, we entered into an agreement with the Massachusetts Institute of
Technology ("MIT") to carry on joint research to develop a nanostructured fuel
cell system for direct hydrocarbon conversion. The research program uses wafer
thin sheets of yettrium stabilized zirconia and other materials produced by
Altair in conjunction with novel nanostructured anode catalysts developed by
MIT.
The Titanium Processing Technology and Proprietary Rights. BHP filed
numerous patent applications with the United States Patent and Trademark Office
with respect to our titanium processing technology, and the applications have
been transferred to us. We have subsequently filed five additional patent
applications relating to nanoparticle technology. All the applications are in
the review process, and no patents with respect to the titanium processing
technology have been granted to date.
Competition--the Titanium Processing Technology. Our titanium
processing technology is fundamentally different from current commercial
processing techniques. Other processes are based on either a precipitation of
particles from aqueous solution or the formation of crystallites from molten
droplets of titanium oxide generated in high temperature flame reactors. Our
process is a dense-phase crystal growth technique which controls crystal
formation using a combination of mechanical and fluid dynamics and chemical and
thermal control.
Our process permits exceptional control over particle size, shape, and
crystalline form. Our titanium processing technology produces discrete anatase
crystals in nanometer sizes and may be doped to be thermally stable up to 800
degrees Centigrade. By remaining stable in high-temperature processing,
nanoparticles produced by our titanium processing technology retain the desired
nanoparticle size and crystalline phase. In addition, our technology is designed
to minimize process effluents needing environmental remediation and to accept a
wide variety of naturally occurring titanium feed stocks.
We have not operated the titanium processing technology at a commercial
scale. Accordingly we cannot describe processing efficiencies and costs
associated with our titanium processing technology or compare such efficiencies
and costs to those of competitors.
In addition, our ability to capitalize on and develop our technology
may be limited by the limited amount of capital we have available and our lack
of a substantial operating history. There are approximately ten significant
producers of TiO2 nanoparticles in the world, the largest of which supplies
approximately 20% of the market. Competing nanoparticle producers are
financially strong corporations who enjoy established customer relationships and
operating histories.
Royalty Obligations Related to Our Titanium Processing Technology. We
purchased our tianium processing technology and tianium processing assets from
BHP pursuant to an on Asset Purchase and Sale Agreement dated November 15, 1999.
The purchase price for the titanium processing technology and titanium
processing assets was $9,625,500. In addition, the Asset Purchase and Sale
Agreement also requires us to pay to BHP, until the earlier of November 15, 2014
or the date we have paid an aggregate royalty of AUD$105,000,000, a quarterly
royalty equal to:
o 1.5% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by Altair or a transferee at Altair's mineral properties in
Tennessee;
o 1.5% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by BHP or any affiliate of BHP at a specified heavy mineral
sand operation located near Auckland, New Zealand;
7
o 3% of the international market price of all uncoated TiO2 pigment
produced and sold as a result of the use of the titanium processing
technology by Altair or a transferee of Altair at any location other
than its Tennessee mineral property or BHP's Auckland, New Zealand
heavy mineral sand operation; and
o 3% of the sales proceeds (F.O.B. Altair's facility, reduced by the
amount of product returns) received by Altair or a transferee of Altair
from the sale of any products other than TiO2 pigment produced through
its use of the titanium processing technology.
Tennessee Mineral Property
- --------------------------
Description of the Tennessee Mineral Property. The Tennessee mineral
property consists of approximately 9,700 acres of land containing fine, heavy
minerals that we have leased in or near Camden, Tennessee. We had previously
leased approximately 14,000 acres. However, during 2001, we terminated the
leases on approximately 4,300 acres that were distal to our core leasehold in an
effort to reduce cash expenditures and concentrate our resources on our core
holdings.
Prior to our beginning to acquire leases on the Tennessee mineral
property in 1996, sections of the Tennessee mineral property were leased or
owned by each of E.I du Pont de Nemours and Company (from 1950 to 1954),
KerrMcGee Corporation (from 1975 to 1989), and BHP Minerals International Inc.
(from 1991 to 1994). Each of these predecessors engaged in drilling, sampling
and other exploratory activities on the Tennessee mineral property but, based
upon such predecessors' particular circumstances and the economics of the
period, elected to stop work and relinquish property rights.
The topography of the Tennessee mineral property consists of
vegetation-covered rolling hills comprised of sands deposited in an ancient
beach environment. Minerals on the Tennessee mineral property occur in the
Cretaceous McNairy formation, and heavy minerals comprising 2% to 8% of the sand
(by weight) are typical. The mineralized sands on the Tennessee mineral property
have not yet been proven to be a reserve (as defined in Regulation S-K, Item
802, Guide 7 promulgated under the Exchange Act), and our limited operations and
proposed plan with respect to it are exploratory in nature.
Research and Exploration on the Tennessee Mineral Property. From 1996,
our exploration activities on the Tennessee mineral property have included
geologic mapping, collection of bulk samples for metallurgical testing, drilling
of 156 auger holes between 30 and 100 feet deep and preparation of geologic
models. Our geologic model also incorporates 40 drill holes completed by an
earlier exploration company.
During 1997, we collected approximately 5,000 pounds of representative
sand for testing from an exposed sand horizon. This sample was processed by an
independent Florida heavy sands producer and Altair to produce representative
samples of market-quality products. The sample results were reviewed by an
independent consulting group hired by us to prepare a pre-feasibility study of
approximately 4,700 acres of the Tennessee mineral property known as the "Camden
Property." The consultants examined heavy mineral suites from the Camden
Property (prepared from sands naturally containing about 4% heavy minerals and
96% quartz) and found that titanium bearing minerals constitute about 65% of the
total heavy mineral portion of the suite, zircon accounted for 15% of the heavy
mineral portion of each suits and the remainder was non-valuable heavy minerals.
The study, completed in July 1998, also indicated that market-quality ilmenite,
rutile and zircon products could be produced from such heavy minerals suites and
that markets currently exist for such products.
8
In August 1998, based on the consultant's pre-feasibility report, we
commenced additional feasibility testing. This consisted of testing the use of
fine mineral spiral equipment in Florida on Tennessee mineral property sands
followed by spiral equipment testing of Tennessee mineral property sands at an
equipment contractor's facility. In 2000, based on the contractor's test
results, we designed and commissioned construction of a spiral-based pilot plant
for testing at the Tennessee mineral property. The plant was erected at Camden
and testing operations began in early 2001 (see "Location and Status of Work on
the Tennessee Mineral Property"). Further feasibility testing is expected to
involve, among other things, the following:
o drilling and sampling in order to more accurately determine the
quantity, quality and continuity of minerals on the Tennessee mineral
property;
o examining production costs and the market for products produced at the
pilot facility;
o designing and pricing construction costs associated with any proposed
mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
Subsequent to completion of the 1998 pre-feasibility study, our further
exploration of the Tennessee mineral property has suggested the existence of
additional heavy mineral sands in an area northwest of the Camden Property known
as "Little Benton." Preliminary data indicate that Little Benton contains
mineralization similar to the Camden Property. We have approximately 3,500 acres
under lease in the Little Benton area and intend to conduct further testing in
the future.
Exploration expenditures on the Tennessee mineral property were
$930,777 in 2001, $1,217,966 in 2000 and $4,169,795 to date. Expenditures have
been incurred for pilot plant design, fabrication and site preparation,
leasehold minimum advance royalty payments, and other related exploration
activities. We anticipate spending between $700,000 and $1,200,000 exploring the
Tennessee mineral property during 2002. The amount of future expenditures will
depend upon the availability of financial capital and the results of our ongoing
feasibility testing.
Competition--the Tennessee Mineral Property. Based on the exploratory
work done to date, we anticipate that the saleable products which could be
produced from the Tennessee mineral property are ilmenite, rutile and zircon.
Testing at the Tennessee mineral property indicates that Camden ilmenites
contain from 64% to 72% titanium dioxide. Ilmenites commercially traded today
typically contain 40% to 70% titanium dioxide and are used primarily 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 latest
U.S. Geological Survey report, ilmenite is the most abundant naturally
occurring, commercially produced titanium mineral and supplies approximately 90%
of the world demand for titaniferous material. Such demand is projected to
increase at an annual rate of 2%-3% for the foreseeable future. The value of
titanium mineral concentrates consumed in the United States in 2001 was
approximately $470 million. There are presently two entities in the United
States which produce ilmenite concentrate from heavy mineral sands and virtually
all production is used by four titanium pigment producers whose plants are
primarily located in the southeastern U.S. Pigment producers use various methods
to process ilmenite concentrate into titanium dioxide pigment and require that
the concentrate feedstock meet certain chemical and size criteria applicable to
the process being used.
Rutile, which generally contains greater than 95% titanium dioxide, is
also used in the production of titanium dioxide pigment. In pigment products,
its processing costs are significantly less than ilmenite due to the higher
concentration of titanium dioxide. Although this greatly enhances its market
9
value, rutile is much less abundant than ilmenite, representing approximately 5%
of the total heavy minerals contained in the Tennessee mineral property.
Zircon, which is used in ceramic, refractory and foundry applications,
represents approximately 15% of the heavy minerals contained in the Tennessee
mineral property. Zircon sand is currently being produced at three mines in the
southeastern U.S. and in several countries around the world. Titanium-bearing
minerals and zircon are commonly found and mined together.
Location and Status of Work on the Tennessee Mineral Property.
On the following page is a location map for the Camden and Little
Benton region, within which are the leased parcels we collectively refer to as
the Tennessee mineral property. Access within blocks is via a network of County
and farm roads. Lease blocks in the Camden area are made up of contiguous rural
tracts. Land uses are dominantly forestry and cattle grazing. Bottom lands are
sometimes used for row crops. There is no history of mining in these areas.
Altair has an operating pilot plant on the Camden lease block. Pilot
plant operations are fully permitted with the state of Tennessee and federal
agencies. The plant includes dedicated electrical service, a lay-down area for
heavy mineral sand samples, and a combined water storage/sand placement
structure. Plant elements include a feed system, conveyors, trommel, two stages
of cyclones, and a five-stage spiral plant.
During 2001, we excavated 970 tons of material from four sites in the
Camden leasehold area and processed it through the test facility. Plant
operations closely approximated design expectations and we incurred no
significant operating problems. Processing of the sample material yielded
titanium recoveries exceeding 80% and zirconium recoveries exceeding 90%. These
percentages represent the amounts of titanium and zirconium recovered as a
percentage of the total titanium and zirconium contained in the sample. Heavy
mineral concentrates were subsequently processed through an off-site dry mill to
prepare sample products which are now being analyzed by interested parties.
During 2002, we plan to produce additional bulk concentrates for dry
mill processing and marketing purposes. Further development options for the
Tennessee Mineral Property are being considered which include joining with a
qualified partner to provide additional financial, engineering and corporate
resources.
[OBJECT OMITTED]
10
The Jig
- -------
Description of the Jig. The Altair Centrifugal Jig segregates particles
based on differences in their specific gravity. Such technology may be
categorized as a "gravity separation" process. Gravity separators are widely
used in minerals beneficiation because of their relative simplicity, low cost of
operation and ability to continuously treat large tonnage throughput.
Preliminary demonstration tests conducted by Altair and a previous owner of the
jig suggest that the jig may be commercially useful in a number of applications,
including:
o Recovery of ultra fine gold from waste streams or former tailings;
o Recovery of zircon, rutile, ilmenite, leucoxene, and other valuable
fractions from heavy mineral sand operations;
o Sulfur and ash removal from fine coal;
o Recovery of tin and iron ore fines from fine tailings;
o Concentration of heavy minerals, such as anatase, aparite, barite,
cassiterite, chromite, columbite, industrial diamonds, fluorite,
various garnets, monazite, tantalite and wolframite; and
o Remediation of nuclear waste.
Several prototype and demonstration jigs have been built and tested by
Altair and previous owners of the jig. Our Series 12 Jig stands about six feet
tall, requires floor space of about 25 square feet and weighs approximately
2,000 pounds. Our Series 30 Jig stands about 10 feet tall, requires floor space
of about 54 square feet and weighs approximately 7,000 pounds. Recently
constructed jigs have been mounted on metal frames along with jig auxiliary
equipment--pulse water pump and tank and control panel--for transport by truck
and rapid on-site installation.
How the Jig Works. A conventional jig separates a slurry of mineral
particles as it flows across the top of a screen. Water is periodically pulsed
up through the screen to eliminate interparticle friction and allow differential
settling according to the variations in the net specific gravities of the ore.
Heavier minerals are allowed to pass downward through the screen while lighter
materials flow across the screen to a discharge point. The jig operates
according to conventional jig principles except that the screen surface is
cylindrical and is rotated to subject the particles to centrifugal forces. As
currently designed, materials to be processed by the jig are introduced into the
top of the jig in a slurry mix with water. The slurry is diffused across the top
of the interior of a vertical cylindrical screen which is rotating. Water is
pulsed through the screen allowing differential separation in the slurry
material. Heavy particles pass through the screen, are collected, and exit the
machine in a "concentrate" stream. Lighter particles flow down the screen
interior, are collected and exit out the bottom of the machine in a separate
"tails" stream. Use of the jig requires no chemical additives.
In operation, the jig utilizes a combination of standard mechanical jig
and centrifugal technologies. The jig is of simple mechanical design with few
wear surfaces. To compete as a viable commercial unit, the jig must perform
reliably over long time periods. The 600+ hours that we have tested and operated
the Series 30 Jig is insufficient to give assurance as to the length of the
operating life of the jig.
Target Markets for the Jig. In the long run, the jig may potentially be
useful for a number of applications. We believe that the most promising market
for the jig in the short run is for use in processing of heavy mineral sands in
order to recover heavy minerals, particularly zircon and titanium.
11
The primary valuable minerals produced from heavy mineral sands are
titanium and zircon. Titanium is used primarily as a basic component of titanium
dioxide, a pigment used principally as a whitener and opacifier for paper,
plastics, and paint. Zircon is used primarily for foundry molds and in the
manufacture of certain types of glass and ceramics. The domestic and
international markets for both of these products are well established. Both are
commodities traded in bulk, usually under long-term contracts, and are also sold
in 50-100 lbs. bags, usually traded as a spot-priced product. The U.S.
Geological Survey has reported that the value of titanium mineral concentrates
consumed in the United States in 2001 was approximately $470 million. The U.S.
Geological Survey estimates zirconium production for the United States at
approximately 100,000 metric tons in 2001, representing a market value of
approximately $35 million. There can be no assurance that testing will
demonstrate that the jig can economically extract heavy minerals from heavy
minerals sands or that the jig will prove attractive to end users.
Research, Testing and Development of the Jig. Verification testing with
the Series 12 Jig suggests the jig's potential for recovering zircon from heavy
mineral sand dry mill tails in Florida. In Phase 1 and 2 trials conducted by
Altair involving separation of commercial grade zircon products from mineral
sands, the Series 12 Jig withdrew a larger portion of zircon from the feed ore
than other mineral sands processing equipment in use today. In tests on
zircon/alumina silicate feeds conducted by Altair, the Series 12 Jig has yielded
greater than 90% zircon concentrates and recovered up to 75% of the zircon fed
to the unit. We have also conducted tests of the Series 12 jig at our Reno test
facility. Fine titanium-bearing heavy mineral sands were processed through the
jig with resulting titanium recovery rates of 86% and heavy mineral grades of
80%. These results mean that the concentrate produced by the jig, after
processing, contained 80% heavy minerals and the jig recovered 86% of the
titanium processed.
We have conducted preliminary testing of our Series 30 Jig at a mineral
recovery plant operated by a large heavy mineral sand producer located in
northern Florida. Results of the testing indicate that the Series 30 Jig is
capable of producing separation results comparable in efficiency to those of the
Series 12 Jig for zircon concentrates. The Series 30 Jig, however, is designed
to be capable of processing 500 tons of solids per day, or more than four times
the throughput capacity of the Series 12 Jig. The volumes of solids per day that
the Series 30 and Series 12 Jigs are actually capable of processing on a
sustained commercial basis have not been established. We have also begun design
work for a larger jig that would have over twice the processing capacity of the
Series 30 Jig. Such increased capacity would enhance the jig's commercial
potential for high volume applications such as coal washing and recovery of iron
ore fines.
The jig has multiple operating parameters, primarily rotational speed,
pulsing pressure, and screen characteristics, which must be adjusted to fit the
processing requirements of the particular feed stream being treated. More
extensive testing is needed to identify the most efficient operating parameters
for specifically identified applications. Furthermore, demonstration of
sustained operation is critical to marketing efforts.
Although we have limited the amount of our jig testing work as a result
of limitations on operating capital, our work during 2001 yielded design changes
that enhance the jig's operating characteristics. We are assessing our options
for furthering development of the jig and may consider selling the jig
technology or licensing it to others. We are currently negotiating an agreement
to perform jig tests for fine particle recovery at a third party's processing
facility. Any such testing work will be funded by the third party.
Jig Technology and Proprietary Rights. Initial patents related to the
concept of the jig as a whole were issued in the United States, South Africa,
United Kingdom, Australia and Canada. These patents expired on various dates
between May 1999 and December 2000. A series of second patents with respect to
the process by which water is pulsed through the cylindrical screen on the jig,
12
a critical component differentiating the jig from competing products, have been
issued in the United States, South Africa, Japan, Europe, Australia, Canada,
United Kingdom, Germany and France. These patents expire on various dates
between January 2010 and January 2011. A third series of patents with respect to
an efficiency enhancing component of the jig have been issued in the United
States, Europe, Australia, Japan, South Africa, Canada and Brazil. These patents
have expiration dates between April and November 2018.
Competition for the Jig. Various mineral processing technologies
perform many functions similar or identical to those for which the jig is
designed. Minerals processing technologies are generally predicated on the
physical and chemical characteristics of the materials being processed. A
minerals processor may exploit contrasts in size, specific gravity, hardness,
magnetic susceptibility, electrical conductivity, and similar characteristics to
selectively extract and concentrate mineral constituents. Minerals processors
also exploit variations in chemical reactivity and molecular affinity to
selectively separate minerals.
The jig competes in an arena in which particle specific gravity is the
primary criteria for particle segregation and capture. Competing technologies
and products include the following:
Spirals and Cones. To separate out valuable particles with a spiral or
cone, a mineral processor runs a sand-size feed slurried in water
through a tilted trough (spiral) or over a convex surface (cone). In
this process, fine-sized particles tend to "float" and not settle as
quickly as larger particles. The difference in settling speed permits
the mineral processor to separate out and extract the more valuable
heavy particles. Spirals and cones are most effective in feed sizes
larger than 150 mesh.
Froth Flotation Devices. To separate minerals using a froth floatation
device, a processor introduces chemical agents into a pool of mixed
particles, which agents attach to certain sulfides. Once attached to
the chemical agents, the sulfides float to the surface. The froth
flotation method can be effective on particles 200 mesh or smaller in
size.
Heavy Media Separation. Heavy media separation is a process in which a
feed containing both dense and light particles is fed into a solution
whose specific gravity is midway between the particles to be separated.
The light particles float to the surface of the solution, while the
heavy particles sink. Heavy media separation is effective primarily in
the removal of ash from coal and in small-scale analytic laboratory
applications.
Jig-Like Products. The jig currently faces several forms of competition
in the commercial segregation of dense particles contained in feeds
between 150 and 400 mesh, including the Kelsey jig, Falcon
concentrators and the Knelsen batch concentrator unit, which are
currently being used worldwide.
o The Kelsey jig was developed in Australia and, although more
complicated than the jig, incorporates similar centrifugal and jig
technologies. According to the Kelsey jig's manufacturer, Geo Logics
Pty. Ltd., Kelsey jigs are in service at 25 plants worldwide.
o The Falcon concentrator was developed in Canada and is used mainly for
pre-concentration and scavenging. A centrifugal device, its
applications to date have been in the gold and tantalum industries.
o The Knelsen Bowl was developed in Canada and is a batch concentrator
rather than a jig. (A batch concentrator differs from the jig in that
it process a finite "batch" of material, is completely emptied, and
13
then processes a completely new finite batch, while the jig processes a
continuous flow of materials). Our understanding is that the Knelsen
Bowl is best suited to small volumes. Knelsen Bowls have been installed
in various mining applications, primarily gold, throughout the world.
Long term testing needs to be completed to accurately define operating
costs and operating efficiencies associated with the jig as compared to
competing products. Results from further tests or actual operations may reveal
that these alternative technologies and products are better adapted to any or
all of the uses for which the jig is intended. Moreover, regardless of test
results, consumers may view any or all of such alternative technologies as
technically superior to, or more cost effective than, the jig.
Altair is a small player in an industry comprised of major mining
companies possessing tremendous capital resources and we are an insignificant
competitive factor in the industry. There is no assurance that competitors, many
of whom may have significant capital and resources, will not develop or are not
now in the process of developing competitive equipment that may be functionally
or economically superior to our equipment.
Future Development of the Jig. We have concluded that, in the
foreseeable future, our limited human and financial resources can most
effectively be utilized in the development of the titanium processing assets and
titanium processing technology and the Tennessee mineral property. Consequently,
we are assessing our options for furthering the development of the jig and may
consider selling the jig technology or licensing it to others who have adequate
resources to complete development of the jig, establish marketing and
distribution channels and initiate manufacturing. In the meantime, we intend to
do only limited test and design work on the jig.
Subsidiaries.
- -------------
Altair International Inc. was incorporated under the laws of the
province of Ontario, Canada in April 1973 under the name Diversified Mines
Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in February
1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold Company
Inc. in July 1988, then to Altair International Gold Inc. in March 1994, and
then to Altair International Inc. in November 1996. Altair is currently doing
business under the name "Altair Nanotechnologies Inc." and is considering
proposing an amendment to its incorporation documents in order to change its
legal name to "Altair Nanotechnologies Inc." during 2002.
Fine Gold was acquired by Altair in April 1994. Fine Gold has earned no
operating revenues to date. Fine Gold acquired the intellectual property
associated with the jig in 1996. Altair intends that Fine Gold will hold and
maintain jig technology rights, including patents.
MRS was incorporated by Altair in April, 1987 and was formerly known as
Carlin Gold Company. MRS previously has been involved in the exploration for
minerals on unpatented mining claims in Nevada, Oregon and California. All
mining claims have now been abandoned. MRS currently holds, directly or
indirectly, all of Altair's interest in the Tennessee mineral property, and
Altair intends that MRS will continue to lease or acquire and explore mineral
properties in the future, particularly properties that contain minerals that may
be processed with the jig.
Altair Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned
subsidiary of MRS and holds all of the Company's interest in our titanium
pigment processing technology and related assets. The remaining 100% owned
subsidiary, Tennessee Valley Titanium, does not presently have any assets or
operations.
14
Government Regulation and Environmental Concerns.
Government Regulation. Our exploration of the Tennessee mineral
property, testing of the jig, and operation of the titanium pigment processing
facility are, and any future testing, operation, construction or mining
activities of Altair will be, subject to a number of federal, state, and local
laws and regulations concerning mine and machine safety and environmental
protection. Such laws include, without limitation, the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, and the Comprehensive
Environmental Response Compensation Liability Act. Such laws require that we
take steps to, among other things, maintain air and water quality standards,
protect threatened, endangered and other species of wildlife and vegetation,
preserve certain cultural resources, and reclaim exploration, mining and
processing sites.
Compliance with federal, state, or local laws or regulations represents
a small part of our present budget; nevertheless, continued compliance may be
extremely costly, especially if we actually commence extraction operations on
the Tennessee mineral property. If we fail to comply with any such laws or
regulations, a government entity may levy a fine on us or require us to take
costly measures to ensure compliance. Any such fine or expenditure may adversely
affect our development.
We are committed to complying with and, to our knowledge, are in
compliance with, all governmental regulations. We cannot, however, predict the
extent to which future legislation and regulation could cause us to incur
additional operating expenses, capital expenditures, and/or restrictions and
delays in the development of our products and properties.
Environmental Regulation and Liability. Any proposed mining or
processing operation on the Tennessee mineral property, at the titanium pigment
processing facility or any other property acquired by us will be subject to
federal, state, and local environmental laws. Under such laws, we may be jointly
and severally liable with prior property owners for the treatment, cleanup,
remediation, and/or removal of substances discovered on the Tennessee mineral
property or any other property used by us, which are deemed by the federal
and/or state government to be toxic or hazardous ("Hazardous Substances").
Courts or government agencies may impose liability for, among other things, the
improper release, discharge, storage, use, disposal, or transportation of
Hazardous Substances. We might use Hazardous Substances and, although we intend
to employ all reasonably practicable safeguards to prevent any liability under
applicable laws relating to Hazardous Substances, companies engaged in mineral
exploration and processing are inherently subject to substantial risk that
environmental remediation will be required.
Employees.
- ----------
The business of Altair is currently managed by Dr. William P. Long,
President and Chief Executive Officer of the Company and Mr. C. Patrick Costin,
Vice President of the Company and President of MRS and Fine Gold. In addition,
we employ a Chief Financial Officer, a Vice President, a President of Altair
Nanomaterials, Inc. and 23 additional employees. Aside from Dr. Long, Mr.
Costin, the Chief Financial Officer, and the President of Altair Nanomaterials,
Inc., we have no employment agreements with any of our personnel.
During 2001, we hired two plant operators and, in January 2002, we
hired a Vice President for marketing. During 2002, we expect to hire sales,
marketing and production employees for the titanium pigment processing business.
The quantity and timing of new hires will be dependent on business activity. We
do not otherwise anticipate that the number of Company employees will
significantly increase until we have sufficient sales and business activity to
warrant it.
15
Where You Can Find More Information
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We file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements,
or other information that we file at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
also maintains an Internet site (http://www.sec.gov) that makes available to the
public reports, proxy statements, and other information regarding issuers, such
as Altair, that file electronically with the SEC.
Our common shares are quoted on the Nasdaq National Market. Reports,
proxy statements and other information concerning Altair can be inspected and
copied at the Public Reference Room of the National Association of Securities
Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
Enforceability of Civil Liabilities Against Foreign Persons.
- ------------------------------------------------------------
We are an Ontario corporation, and a majority of our directors are
residents of Canada. In addition, certain of our experts (including Canadian
legal counsel) are located in Canada. As a result, investors may be unable to
effect service of process upon such persons within the United States and may be
unable to enforce court judgments against such persons predicated upon civil
liability provisions of the United States securities laws. It is uncertain
whether Canadian courts would (i) enforce judgments of United States courts
obtained against us or such directors, officers or experts predicated upon the
civil liability provisions of United States securities laws or (ii) impose
liability in original actions against Altair or its directors, officers or
experts predicated upon United States securities laws.
16
Glossary of Terms.
- ------------------
Amenability means responsiveness of an ore deposit to processing.
Anatase means one of three naturally occurring mineral phases of TiO2
(along with rutile and brookite). Anatase particles have a tetragonal crystal
structure.
Anode catalyst means the substance that activates the oxidizing
reaction at the negative electrode (fuel side) of a solid oxide fuel cell.
Ash means inorganic residue remaining after coal combustion. Ash is an
undesirable component of coal because it reduces thermal value and produces a
waste product after combustion.
Beneficiate means to improve the grade of ore by processing.
Cathode catalyst means the substance that activates the reducing
reaction at the positive electrode (air side) of a solid oxide fuel cell.
Centrifugal force means the component of force on a body in curvilinear
motion that is directed away from the axis of rotation.
Coal washing means processing of pulverized coal to remove ash and
pyrite. Pyrite is 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.
Environmental remediation means removal of harmful mineral particles
from a site previously altered by human activities.
Heavy minerals sands means beach or dune sands which contain a small
fraction of heavy particles. Heavy mineral sands are commercially mined to
produce titanium minerals and zircon.
Ilmenite means a titanium-bearing oxide mineral containing variable
percentages of iron and used as a raw material in the production of titanium
pigments.
Iron ore fines means particles of iron ore, usually less than 1
millimeter in diameter.
Lithium titanate is a compound of lithium, titanium and oxygen.
Mesh means one of the openings or spaces in a screen. The value (size)
of the mesh is given as the number of openings per linear inch.
Micron means one millionth of a meter. One micron equals 1000
nanometers.
Mill means a building with machinery for processing ore. Dry mill
refers to heavy minerals sand processing of dry materials. Wet mill refers to
heavy minerals sand process of material that are mixed with water in slurry.
Placer means deposits of sand, gravel and other detrital or residual
material containing a valuable mineral which has accumulated through weathering
and natural mechanical concentration processes. A placer mine is an operation
that recovers certain valuable minerals based on differences in specific
gravity.
17
Photocatalytic means a process by which light frequencies activate the
catalytic nature of a substrate.
Rutile means one of three naturally occurring mineral phases of TiO2
(along with anatase and brookite). Rutile particles have a tetragonal crystal
structure.
Specific gravity means the ratio of the mass of a solid or liquid to
the mass of an equal volume of water at a specified temperature.
Suite means an assemblage of minerals which naturally occur together
(i.e. a mineral suite).
Tails or tailings means those portions of washed ore that are regarded
as too poor to be treated further, as distinguished from material (concentrates)
that is to be smelted or otherwise utilized.
Tantalum is rare metal that is ductile (i.e. not brittle) easily
fabricated, highly resistant to corrosion by acids, and a good conductor of heat
and electricity and has a high melting point. The major use for tantalum, as
tantalum metal powder, is in the production of electronic components, mainly
tantalum capacitors. Major end uses for tantalum capacitors include portable
telephones, pagers, personal computers, and automotive electronics.
Yettrium is an element on the periodic table.
Forward-looking Statements.
- ---------------------------
This Form 10-K contains various forward-looking statements. Such
statements can be identified by the use of the forward-looking words
"anticipate," "estimate," "project," "likely," "believe," "intend," "expect," or
similar words. These statements discuss future expectations, contain projections
regarding future developments, operations, or financial conditions, or state
other forward-looking information. When considering such forward-looking
statements, you should keep in mind the risk factors noted in the following
section and other cautionary statements throughout this Form 10-K and our other
filings with the Commission. You should also keep in mind that all
forward-looking statements are based on management's existing beliefs about
present and future events outside of management's control and on assumptions
that may prove to be incorrect. If one or more risks identified in this Form
10-K or any other applicable filings materializes, or any other underlying
assumptions prove incorrect, our actual results may vary materially from those
anticipated, estimated, projected, or intended.
Among the key factors that may have a direct bearing on our operating
results are risks and uncertainties described under "Factors That May Affect
Future Results," including those attributable to the absence of significant
operating revenues, the absence of profits, uncertainties regarding the
development and commercialization of the jig, uncertainties regarding the
quality, quantity and grade of minerals on the Tennessee mineral property, risks
related to our proposed development and exploitation of our titanium processing
technology and titanium processing assets and uncertainties regarding our
ability to obtain capital sufficient to continue our operations and pursue our
proposed business strategy.
18
Factors that May Affect Future Results.
We have not generated any substantial operating revenues and may not ever
generate substantial revenues.
- --------------------------------------------------------------------------------
To date, we have not generated substantial revenues from operations. We
have not generated revenues from the jig and are scaling back development
efforts in the near future. We have generated only $42,816 of sales revenues in
our nanoparticle business and have not completed exploration of the Tennessee
mineral property. We can provide no assurance that we will ever generate
revenues from the jig or the Tennessee mineral property or that we will generate
substantial revenues from the titanium processing technology.
We may continue to experience significant losses from operations.
- -----------------------------------------------------------------
We have experienced a loss from operations in every fiscal year since
our inception. Our losses from operations in 2000 were $6,647,367 and our losses
from operations in 2001 were $6,021,532. We will continue to experience a net
operating loss until, and if, the titanium processing technology, the jig and/or
the Tennessee mineral property begin generating significant revenues. Even if
any or all such products or projects begin generating significant revenues, the
revenues may not exceed our costs of production and operating expenses. We may
not ever realize a profit from operations.
We may not be able to raise sufficient capital to meet future obligations.
- --------------------------------------------------------------------------
As of December 31, 2001, we had $599,884 in cash, and a working capital
deficit of $81,154. Although we have raised additional capital since December
31, 2001, we do not expect that this capital, when combined with projected
revenues from nanoparticle sales, will be sufficient to fund our ongoing
operations. Accordingly, we will need to raise significant amounts of additional
capital in the future in order to sustain our ongoing operations and continue
the testing and additional development work necessary to place the titanium
processing technology into continuous operation. In addition, we will need
additional capital for testing and development of the jig or exploration of the
Tennessee mineral property. If we determine to construct and operate a mine on
the Tennessee mineral property, we will need to obtain a significant amount of
additional capital to complete construction of the mine and commence operations.
We may not be able obtain the amount of additional capital needed or
may be forced to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include the following:
|X| market factors affecting the availability and cost of capital
generally;
|X| our financial results;
|X| the amount of our capital needs;
|X| the market's perception of mining, technology and/or minerals stocks;
|X| the economics of projects being pursued;
|X| industry perception of our ability to recover minerals with the jig or
titanium processing technology or from the Tennessee mineral property;
and
|X| the price, volatility and trading volume of our common shares.
If we are unable to obtain sufficient capital or are forced to pay a
high price for capital, we may be unable to meet future obligations or
adequately exploit existing or future opportunities, and may be forced to
discontinue operations.
19
Our competitors may be able to raise money and exploit opportunities more
rapidly, easily and thoroughly than we can.
- --------------------------------------------------------------------------------
We have limited financial and other resources and, because of our early
stage of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. Because of
their size, resources, reputation, history and other factors, certain of our
competitors may have better access to capital and other significant resources
than we do and, as a result, may be able to exploit acquisition and development
opportunities more rapidly, easily or thoroughly than we can.
The sale of common shares issued upon the exercise of exchange rights or
warrants may place downward pressure on the market price of our common shares
and encourage short selling.
- --------------------------------------------------------------------------------
The sale in the open market of common shares issuable upon the exercise
of exchange rights under existing and recently terminated notes and warrants may
place downward pressure on the market price of our common shares. Speculative
traders may anticipate the exercise of exchange rights or warrants and, in
anticipation of a decline in the market price of our common shares, engage in
short sales of our common shares. Such short sales could further negatively
affect the market price of our common shares.
We have pledged substantial assets to secure the Secured Term Note.
- --------------------------------------------------------------------------------
We have pledged all of the intellectual property, fixed assets and
common stock of Altair Nanomaterials, Inc., our second-tier wholly-owned
subsidiary, to secure repayment of a Secured Term Note with a face value of
$2,000,000 issued on December 28, 2001. Altair Nanomaterials, Inc. owns and
operates the titanium processing technology we acquired from BHP in 1999. The
Secured Term Note is also secured by a pledge of the common stock and leasehold
assets of Mineral Recovery Systems, Inc., which owns and operates our leasehold
interests in the Camden, Tennessee area. If we default on the Secured Term Note,
severe remedies will be available to the holder of the Secured Term Note,
including immediate seizure and disposition of all pledged assets.
Operations using the titanium processing technology, the jig or the Tennessee
mineral property may lead to substantial environmental liability.
- --------------------------------------------------------------------------------
Virtually any proposed use of the titanium processing technology, the
jig or the Tennessee mineral property would be subject to federal, state and
local environmental laws. Under such laws, we may be jointly and severally
liable with prior property owners for the treatment, cleanup, remediation and/or
removal of any hazardous substances discovered at any property we use. In
addition, courts or government agencies may impose liability for, among other
things, the improper release, discharge, storage, use, disposal or
transportation of hazardous substances. We might use hazardous substances and,
if we do, we will be subject to substantial risks that environmental remediation
will be required.
Certain of our experts and directors reside in Canada and may be able to avoid
civil liability.
- --------------------------------------------------------------------------------
We are an Ontario corporation, and a majority of our directors and our
Canadian legal counsel are residents of Canada. As a result, investors may be
unable to effect service of process upon such persons within the United States
and may be unable to enforce court judgments against such persons predicated
upon civil liability provisions of the United States securities laws. It is
20
uncertain whether Canadian courts would (i) enforce judgments of United States
courts obtained against us or such directors, officers or experts predicated
upon the civil liability provisions of United States securities laws or (ii)
impose liability in original actions against Altair or its directors, officers
or experts predicated upon United States securities laws.
We are dependent on key personnel.
- ----------------------------------
Our continued success will depend to a significant extent on the
services of Dr. William P. Long, our President and Chief Executive Officer, and
Mr. C. Patrick Costin, our Vice President and President of Fine Gold and MRS.
The loss or unavailability of Dr. Long or Mr. Costin could have a material
adverse effect on us. We do not carry key man insurance on the lives of Dr. Long
or Mr. Costin.
We may issue substantial amounts of additional shares without stockholder
approval.
- -------------------------------------------------------------------------------
Our Articles of Incorporation authorize the issuance of an unlimited
number of common shares. All such shares may be issued without any action or
approval by our stockholders. In addition, we have two stock option plans which
have potential for diluting the ownership interests of our stockholders. The
issuance of any additional common shares would further dilute the percentage
ownership of Altair held by existing stockholders.
The market price of our common shares is extremely volatile.
- ------------------------------------------------------------
Our common shares have been listed on the Nasdaq National Market since
January 26, 1998. Trading in our common shares has been characterized by a high
degree of volatility. Trading in our common shares may continue to be
characterized by extreme volatility for numerous reasons, including the
following:
|X| Uncertainty regarding the viability of the titanium processing
technology, the jig or the Tennessee mineral property;
|X| Continued dominance of trading in our common shares by a small number
of firms;
|X| Positive or negative announcements by us or our competitors;
|X| Industry trends, general economic conditions in the United States or
elsewhere, or the general markets for equity securities, minerals, or
commodities; and
|X| Speculation by short sellers of our common shares or other persons
(such as the holders of the Exchangeable Term Note) who stand to profit
from a rapid increase or decrease in the price of our common shares.
We may be delisted from the Nasdaq National Market if the price of our common
shares does not remain above $1.00 per share or if our shareholders' equity does
not exceed $10,000,000 after November 1, 2002.
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21
Effective February 12, 1998, Nasdaq adopted a rule requiring that the
minimum bid price for shares of common stock listed on the Nasdaq National
Market equal or exceed $1.00 per share. During the month prior to the date this
Form 10-K was filed with the SEC, the price of our common shares fell below
$1.00 on several occasions. As a matter of practice, Nasdaq generally gives a
company a notice of delisting if its common stock trades below $1.00 for 30
consecutive trading days. After receiving the notice, the company will generally
be delisted if the trading price for its common stock has not exceed $1.00 for
10 consecutive days within 90 days of the date of the notice. (Nasdaq is not,
however, required to give a company any grace period and may delist a company's
stock immediately after violation of an applicable rule.) Accordingly, if the
price of our common shares trades below $1.00 for a sustained period of time, or
if Nasdaq decides to delist our common shares based upon a one-time violation of
the bid-price rule, we may be delisted from the Nasdaq National Market.
In addition, on November 1, 2002, we will become subject to new
continued listing requirements. Under these new continued listing requirements,
we must have at least $10 million in stockholders' equity, or alternatively, a
market capitalization, total assets or total revenue of $50 million combined
with, among other things, a minimum bid price of $3.00 per share. As of December
31, 2001, our stockholders' equity was $8,676,494 and our market capitalization,
total assets and total revenue are substantially less than $50 million. If our
stockholders' equity does not increase to $10,000,000 or more by November 1,
2002 (or if we don't comply with the $50 million market
capitalization/asset/revenue and $3.00 bid price continued listing requirements
at that time), we may be delisted from the Nasdaq National Market.
Following such delisting, our common shares would likely be eligible
for quotation on the Nasdaq Small Cap, Nasdaq OTC Bulletin Board or other
quotation service. Nonetheless, even if our common shares are quoted on an
alternative quotation service, the fact of being delisted from the Nasdaq
National Market will likely have a negative affect on the price and trading
volume for our common shares. Once delisted, our common shares would not be
eligible for relisting until, among other things, our common stock traded at or
above $5.00 per share for a sustained period of time.
Future sales of currently restricted securities or common shares subject to
outstanding options may affect the market price of our common shares.
- --------------------------------------------------------------------------------
In general, Rule 144 of the Securities Act provides that outstanding
restricted common shares of Altair may be sold subject to certain conditions
beginning one year after issuance and, unless held by an affiliate of Altair,
may be sold without limitation beginning two years after issuance. Future sales
of currently restricted securities may have a negative effect on the market
price of our common shares.
In addition, shares issued upon exercise of options granted pursuant to
our employee stock option plans are presently registered under the Securities
Act. Subject to certain restrictions on resale by affiliates, such shares may be
sold without restriction. The sale of any substantial number of common shares
may have a depressive effect on the market price of our common shares.
We have never declared a cash dividend and do not intend to declare a cash
dividend in the foreseeable future.
- --------------------------------------------------------------------------------
We have never declared or paid cash dividends on our common shares. We
currently intend to retain any future earnings, if any, for use in our business
and, therefore, do not anticipate paying dividends on our common shares in the
foreseeable future.
22
We may not be able to sell nanoparticles produced using the titanium processing
technology.
- --------------------------------------------------------------------------------
In the short run, we plan to use the titanium processing technology to
produce TiO2 nanoparticles. TiO2 nanoparticles are TiO2 crystals that are
approximately one-tenth the size of conventional pigmentary TiO2 particles.
Because of their small size, photocatalytic and ultraviolet shielding
capabilities and other unique characteristics, TiO2 nanoparticles sell at a much
higher price than conventional TiO2 particles and are used in products such as
specialty surface coatings, UV protectant cosmetics and battery components.
TiO2 nanoparticles and other products we intend to initially produce
with the titanium processing technology generally must be customized for a
specific application working in cooperation with the end user. We are still
testing and customizing our TiO2 nanoparticle products for various applications
and have no long-term agreements with end users to purchase any of our TiO2
nanoparticle products. If we are unable to customize our TiO2 nanoparticle
products to the satisfaction of customers or are otherwise unable to obtain any
long-term commitments from end-users of our TiO2 nanoparticle products, we may
be unable to recoup our investment in the titanium processing technology and
titanium processing equipment.
In addition, the uses for such nanoparticles are limited, and the
market for such nanoparticles is small, estimated at 3,800 tons per annum. In
light of the small size of the market, we may not be able to profitably market
any proposed nanoparticle products for any of the following reasons:
o there may be insufficient demand for such products;
o despite strong initial demand for any such products, the market for
such products may contract as a result of a decrease in demand for
goods incorporating such products or other events;
o the increased supply of such products as a result of our entrance into
the market may cause the price to drop, reducing or eliminating
profitability; and
o competing entities may begin producing, or increase their production of
nanoparticles, causing the price to drop or displacing potential sales.
Our costs of production may be too high to permit profitability.
- ----------------------------------------------------------------
We have not produced any mineral products using our titanium processing
technology and equipment on a commercial basis. Our actual costs of production
may exceed those of competitors and, even if our costs of production are lower,
competitors may be able to sell TiO2 and other products at a lower price than is
economical for Altair.
In addition, even if our initial costs are as anticipated, the titanium
processing equipment may break down, prove unreliable or prove inefficient in a
commercial setting. If so, related costs, delays and related problems may cause
production of TiO2 nanoparticles and related products to be unprofitable.
We have not completed testing and development of the jig and are presently
focusing our resources on other projects.
- --------------------------------------------------------------------------------
We have not completed testing of, or developed a production model of,
any series of the jig. We do not expect to complete testing and development of
23
the jig during the coming year and have determined to focus most of our limited
resources on the titanium processing technology and the Tennessee mineral
property. We may never develop a production model of the jig.
Even if we complete development of the jig, the jig may prove unmarketable and
may not perform as anticipated in a commercial operation.
- --------------------------------------------------------------------------------
The designed capacity of the Series 12 jig is too small for coal
washing, heavy minerals extraction, and most other intended applications of the
jig, except use in small placer gold mines or similar operations. Even if the
Series 12 jig is completed and performs to design specifications in subsequent
tests or at a commercial facility, we believe that, because of its small
capacity, the potential market for the Series 12 jig is limited.
If we complete development of and begin marketing a production model of
the Series 30 jig, it may not prove attractive to potential end users, may be
rendered obsolete by competing technologies or may not recover end product at a
commercially viable rate. Even if technology included in the jig initially
proves attractive to potential end users, performance problems and maintenance
issues may limit the market for the jig.
The jig faces competition from other jig-like products and from alternative
technologies.
- --------------------------------------------------------------------------------
Various jig-like products and alternative mineral processing
technologies perform many functions similar or identical to those for which the
jig is designed. Results from further tests or actual operations may reveal that
these alternative products and technologies are better adapted to any or all of
the uses for which the jig is intended. Moreover, regardless of test results,
consumers may view any or all of such alternative products and technologies as
technically superior to, or more cost effective than, the jig.
Certain patents for the jig have expired, and those that have not expired may be
difficult to enforce.
- --------------------------------------------------------------------------------
All of the initial patents issued on the jig have expired, and we are
unable to prevent competitors from copying the technology once protected by such
patents. Additional patents related to the process through which water is pulsed
through the cylindrical screen on the jig expire beginning in 2010, and patents
for an efficiency-enhancing aspect of the cylindrical screen expire during 2018.
The cost of enforcing patents is often significant, especially outside of North
America. Accordingly, we may be unable to enforce even our patents that have not
yet expired.
We have not completed examining the feasibility of mining the Tennessee mineral
property.
- --------------------------------------------------------------------------------
We are currently in the process of conducting feasibility testing of
the Tennessee mineral property. Because we are at an early stage of testing, we
are unable to provide any assurance that mining of the Tennessee mineral
property is feasible or to identify all processes that we would need to complete
before we could commence a mining operation on the Tennessee mineral property.
To the extent early feasibility testing yields positive results, we expect
feasibility testing to involve, among other things, the following:
o operating a pilot mining facility to determine mineral recovery
efficiencies and the quality of end products;
o additional drilling and sampling in order to more accurately determine
the quantity, quality and continuity of minerals on the Tennessee
mineral property;
o examining production costs and the market for products produced at the
pilot facility;
o designing any proposed mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
Our test production at the pilot plant, economic analysis and
additional exploration activities may indicate any of the following:
o that the Tennessee mineral property does not contain heavy minerals of
a sufficient quantity, quality or continuity to permit any mining;
o that production costs exceed anticipated revenues;
o that end products do not meet market requirements or customer
expectations;
o that there is an insufficient market for products minable from the
Tennessee mineral property; or
o that mining the Tennessee mineral property is otherwise not
economically or technically feasible.
Even if we conclude that mining is economically and technically
feasible on the Tennessee mineral property, we may be unable to obtain the
capital, resources and permits necessary to mine the Tennessee mineral property.
Market factors, such as a decline in the price of, or demand for, minerals
recoverable at the Tennessee mineral property, may adversely affect the
development of mining operations on such property. In addition, as we move
through the testing process, we may identify additional items that need to be
researched and resolved before any proposed mining operation could commence.
We cannot forecast the life of any potential mining operation located on the
Tennessee mineral property.
- --------------------------------------------------------------------------------
We have not explored and tested the Tennessee mineral property enough
to establish the existence of a commercially minable deposit (i.e. a reserve) on
such property. Until such time as a reserve is established (of which there can
be no assurance), we cannot provide an estimate as to how long the Tennessee
mineral property could sustain any proposed mining operation.
We may be unable to obtain necessary environmental permits and may expend
significant resources in order to comply with environmental laws.
- --------------------------------------------------------------------------------
In order to begin construction and commercial mining on the Tennessee
mineral property, we must obtain additional federal, state and local permits. We
will also be required to conform our operations to the requirements of numerous
federal, state and local environmental laws. Because we have not yet commenced
design of a commercial mining facility on the Tennessee mineral property, we are
not in a position to definitively ascertain which federal, state and local
mining and environmental laws or regulations would apply to a mine on the
Tennessee mineral property. Nevertheless, we anticipate having to comply with
and/or obtain permits under the Clean Air Act, Clean Water Act and Resource
Conservation and Recovery Act, in addition to numerous state laws and
regulations before commencing construction or operation of a mine on the
Tennessee mineral property. We can provide no assurance that we will be able to
comply with such laws and regulations or obtain any such permits. In addition,
obtaining such permits and complying with such environmental laws and
regulations may be cost prohibitive.
24
The market for commodities produced using the jig or at the Tennessee mineral
property may significantly decline.
- --------------------------------------------------------------------------------
If the jig is successfully developed and manufactured on a commercial
basis, we intend to use the jig, or lease the jig for use, to separate and
recover valuable, heavy mineral particles. Active international markets exist
for gold, titanium, zircon and many other minerals potentially recoverable with
the jig. Prices of such minerals fluctuate widely and are beyond our control. A
significant decline in the price of minerals capable of being extracted by the
jig could have significant negative effect on the value of the jig. Similarly, a
significant decline in the price of minerals expected to be produced on the
Tennessee mineral property could have a significant negative effect on the
viability of a mine or processing facility on such property.
Item 2. Properties
We maintain a registered office at 56 Temperance Street, Toronto,
Ontario M5H 3V5. We do not lease any space for, or conduct any operations out
of, the Toronto, Ontario registered office. In addition, we lease 900 square
feet of office space at 1725 Sheridan Avenue, Suite 140, Cody, Wyoming 82414,
which serves as the corporate headquarters for Altair and its subsidiaries. Our
lease for the Cody, Wyoming office space may be terminated by either party on 30
days' prior written notice.
Altair Nanomaterials Inc. leases 20,000 square feet of production,
laboratory, testing and office space at 204 Edison Way, Reno, Nevada, 89502. The
monthly rent for the space is $16,153, and although the initial term of the
lease expired on December 31, 2000, it is subject to automatic renewal for
six-month periods at inflation-adjusted rent until terminated by Altair. The
lease grants us a right of first refusal in the event BHP proposes to sell the
building and property subject to the lease and includes an agreement to
negotiate in good faith with respect to our possible purchase of such building
and property.
Fine Gold and MRS lease 5,700 square feet of office space at 230 South
Rock Boulevard, Suite 21, Reno, Nevada 89502. The lease for the Reno, Nevada
offices expired on January 31, 2002 but has been continued on a month-to-month
basis with the provision that either party may terminate the lease on 30 days'
prior written notice. MRS leases approximately 1,550 square feet of laboratory
space at 7950 Security Circle, Reno, Nevada 89506, for its jig testing
operations. The test facility lease may be terminated by either party upon eight
weeks prior written notice. We believe that the existing offices and test
facilities of Altair and its subsidiaries are adequate for our current needs. In
the event that alternative or additional office space is required, we believe we
could obtain additional space on commercially acceptable terms.
The Tennessee mineral property consists of approximately 9,700 acres of
real property located near Camden, Tennessee, which MRS leases from multiple
owners of the real property. Such leases grant MRS certain exclusive rights,
including the right to explore, test, mine, extract, process, and sell any
minerals or other materials found on the land, in exchange for the payment of
minimum annual advanced royalty payments prior to commencement of production on
the properties (or after commencement of production, to the extent production
royalty payments do not equal nominal royalty payments) and, thereafter,
production royalty payments in an amount equal to a percentage of the value of
minerals mined and sold from the property. See the Notes to the Consolidated
Financial Statements for information regarding present and future minimum
advance royalty payments. The leases typically are for a minimum term of ten
years, and may be extended indefinitely at MRS' option, provided Altair is
actively conducting exploration, development, or mining operations. The leases
are cancelable by MRS at any time, and are cancelable by the lessor in the event
MRS breaches the terms of the lease. The minerals on the Tennessee mineral
property have not yet proven to be a reserve, and our operations and proposed
plan with respect to it are exploratory in nature. See "Item 1.
Business--Tennessee Mineral Property." The Tennessee mineral property is
accessed by public roads and, to our knowledge, has not been used in prior
mining operations.
25
Item 3. Legal Proceedings
We are from time to time involved in routine litigation incidental to
the conduct of our business. We are currently not involved in any suit, action
or other legal proceedings, nor are we aware of any threatened suit, action or
other legal proceedings which management believes will materially and adversely
affect the business or operations of Altair or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of security holders during the
fourth quarter of the 2001 fiscal year.
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters
Market Price
- ------------
Our common shares are traded on the Nasdaq National Market under the
symbol "ALTI." The following table sets forth, for the periods indicated, the
high and low bid quotations for our common shares, as reported on the Nasdaq
National Market.
Fiscal Year Ended December 31, 2000 Low High
---------------- ----------------
1st Quarter $3.563 $9.250
2nd Quarter 2.000 5.375
3rd Quarter 1.000 4.469
4th Quarter 0.688 3.375
Fiscal Year Ended December 31, 2001 Low High
---------------- ----------------
1st Quarter $1.000 $3.406
2nd Quarter $1.969 $2.890
3rd Quarter $1.230 $2.710
4th Quarter $1.010 $1.790
The quotations set forth above reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions. The
last sale price of our common shares, as reported on the Nasdaq National Market,
on March 26, 2002 was $1.21 per share.
Outstanding Shares and Number of Shareholders.
- ----------------------------------------------
As of March 22, 2002, the number of common shares outstanding was
22,813,120 held by 467 holders of record. In addition, as of the same date, we
have reserved 5,241,700 common shares for issuance upon exercise of options that
have been, or may be, granted under our employee stock option plans and
4,837,007 common shares for issuance upon exercise of outstanding warrants.
26
Dividends
- ---------
We have never declared or paid cash dividends on our common shares.
Moreover, we currently intend to retain any future earnings for use in our
business and, therefore, do not anticipate paying any dividends on our common
shares in the foreseeable future.
Transfer Agent and Registrar
- ----------------------------
The Transfer Agent and Registrar for our common shares is Equity
Transfer Services, Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario,
M5H 4C3.
Canadian Taxation Considerations
- --------------------------------
Dividends paid on common shares owned by non-residents of Canada are
subject to Canadian withholding tax. The rate of withholding tax on dividends
under the Income Tax Act (Canada) (the "Act") is 25%. However, Article X of the
reciprocal tax treaty between Canada and the United States of America (the
"Treaty") generally limits the rate of withholding tax on dividends paid to
United States residents to 15%. The Treaty further generally limits the rate of
withholding tax to 5% if the beneficial owner of the dividends is a U.S.
corporation which owns at least 10% of the voting shares of the Company.
If the beneficial owner of the dividend carries on business in Canada
through a permanent establishment in Canada, or performs in Canada independent
personal services from a fixed base in Canada, and the shares of stock with
respect to which the dividends are paid is effectively connected with such
permanent establishment or fixed base, the dividends are taxable in Canada as
business profits at rates which may exceed the 5% or 15% rates applicable to
dividends that are not so connected with a Canadian permanent establishment or
fixed base. Under the provisions of the Treaty, Canada is permitted to apply its
domestic law rules for differentiating dividends from interest and other
disbursements.
A capital gain realized on the disposition of common shares by a person
resident in the United States ("a non-resident") will be subject to tax under
the Act if the shares held by the non-resident are "taxable Canadian property."
In general, common shares will be taxable Canadian property if the particular
non-resident used (or in the case of a non-resident insurer, used or held) the
Common Stock in carrying on business in Canada or, pursuant to proposed
amendments to the Act, where at any time during the five-year period immediately
preceding the realization of the gain, not less than 25% of the issued and
outstanding shares of any class or series of shares of the Company were owned by
the particular non-resident, by persons with whom the particular non-resident
did not deal at arms' length, or by any combination thereof. If common shares
constitute taxable Canadian property, relief nevertheless may be available under
the Treaty. Under the Treaty, gains from the alienation of common shares owned
by a non-resident who has never been resident in Canada generally will be exempt
from Canadian capital gains tax if the shares do not relate to a permanent
establishment or fixed base which the non-resident has or had in Canada, and if
not more than 50% of the value of the shares was derived from real property
(which includes rights to explore for or to exploit mineral deposits) situated
in Canada.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial
information with respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP"). The selected financial data should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
accompanying notes included herein. All amounts are stated in U.S. dollars.
27
For the Year Ended December 31, 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Revenues $ 42,816 $ None $ None $ None $ None
Operating expenses $ 6,046,173 $ 6,647,367 $ 3,729,534 $ 3,842,441 $ 2,885,043
Interest expense $ 1,881,077 $ 215,216 $ 1,966 $ 959,612 $ 43,497
Interest income $ (148,980) $ (83,440) $ (134,811) $ (335,037) $ (70,059)
(Gain) loss on foreign exchange $ 402 $ (864,669) $ 160,619 $ 17,109 $ $ 123,612
(Gain) on forgiveness of debt - - (67,442) (25,805) -
Loss on redemption of convertible
debentures $ - $ - $ - $ 193,256 $ -
Net Loss $ 7,754,031 $ 5,914,474 $ 3,689,866 $ 4,651,576 $ 2,982,093
Basic and diluted net loss per
common share from operations $ .39 $ $ 0.34 $ 0.24 $ 0.31 $ 0.21
Cash dividends declared per
common share - - - - -
Deficit, beginning of year $21,606,378 $ 15,691,904 $ 12,002,038 $ 7,350,462 $ 4,368,369
Net loss 7,754,031 5,914,474 3,689,866 4,651,576 2,982,093
Preferential warrant dividend 52,417 - - - -
-----------------------------------------------------------------------------------
Deficit end of year $29,412,826 $ 21,606,378 $ 15,691,904 $ 12,002,038 $ 7,350,462
===================================================================================
BALANCE SHEET DATA
Working capital $ (81,154) $ 234,714 $ (5,931,717) $ 3,008,789 $ 7,480,153
Total assets $10,853,243 $ 16,651,770 $ 13,365,848 $ 7,103,267 $ 12,956,079
Long-term obligations $ 1,462,060 $ 2,689,493 $ - $ 31,091 $ 4,774,420
Current liabilities $ 714,689 $ 3,741,366 $ 7,578,083 $ 222,431 $ 712,810
Net shareholders' equity $ 8,676,494 $ 10,220,911 $ 5,787,765 $ 6,849,745 $ 7,468,849
The following Supplementary Financial Information for the fiscal
quarters ended March 31, June 30, September 30 and December 31 in each of the
years 2000 and 2001 were derived from our unaudited quarterly consolidated
financial statements filed by us with the SEC in our Quarterly Reports on Form
10-Q with respect to such periods (except for 4th quarter data which was
determined by comparing annual financial data with 3rd quarter financial data).
Supplementary Financial Information by Quarter, 2001 and 2000
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Year Ended December 31, 2001:
Sales None None None $42,816
Gross Margin None None None 18,175
Net loss $1,903,774 $2,335,304 $1,600,556 $1,914,397
Loss per common share: (1)
Basic and Diluted $0.10 $0.12 $0.08 $0.09
Year Ended December 31, 2000:
Sales None None None None
Gross Margin None None None None
Net loss $904,997 $1,335,728 $1,881,245 $1,792,504
Loss per common share: (1)
Basic and Diluted $0.06 $0.08 $0.10 $0.09
28
(1) Loss per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly loss per common share amounts
does not necessarily equal the total for the year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Overview
- --------
From inception through the end of 1993, our business consisted
principally of the exploration of mineral properties for acquisition and
exploration. During 1994, our focus changed as we became engaged in the
acquisition, development and testing of mineral processing equipment for use in
the recovery of fine, heavy mineral particles including gold, titanium, zircon
and environmental contaminants. Since that time, we have continued exploring
mineral properties on which we might use our patented mineral processing
equipment.
In 1996, we acquired all patent rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig. Since April 1996, we have
acquired mineral leaseholds on approximately 9,700 acres of land in Tennessee. A
prefeasibility study issued in July 1998 confirmed the existence of heavy
minerals and suggests that the property warrants further exploration. Based on
the results of these independent studies, we have initiated additional
feasibility testing.
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP primarily for the
production of titanium dioxide products from titanium bearing ores or
concentrates (i.e., the "titanium processing technology") and all tangible
equipment and other assets (i.e., the "titanium processing assets") used by BHP
to develop and implement the titanium processing technology.
Results of Operations.
- ----------------------
Operating losses before extraordinary items totaled $7,754,031 ($0.39
per share) for the 2001 fiscal year, $5,914,474 ($0.34 per share) for the 2000
fiscal year, and $3,757,308 ($0.24 per share) for the 1999 fiscal year.
Principal factors contributing to the losses during these periods were the lack
of substantial revenues coupled with the incurrence of operating expenses.
Fiscal Year 2001 vs. 2000
29
During 2001, Altair Nanomaterials generated $42,816 of revenues through
sales of TiO2 nanoparticles, lithium titanate nanoparticles and other materials.
TiO2 nanoparticle sales represented 70% of revenues during 2001 with the primary
application for this product being thermal spray coatings. Sales revenues in
2001 included $16,985 of previously deferred revenues for which product
shipments were made in 2001.
Mineral exploration and development expenses decreased from $1,217,966
in 2000 to $930,777 in 2001. During 2000, we began construction of a mineral
processing pilot plant at the Tennessee mineral property. In connection with
such construction, we incurred $413,000 of costs for permitting, design and
construction of the plant site and ancillary facilities, and $388,000 for design
and fabrication of the processing equipment. During 2001, we incurred $188,000
of costs to complete construction of the pilot plant. This decline in
construction costs from 2000 to 2001 was partially offset by the incurrence of
operating costs at the plant.
Research and development expense decreased from $1,555,472 in 2000 to
$559,454 in 2001. On January 1, 2001, we hired fourteen former BHP employees who
had been involved in the development of the titanium processing technology that
we acquired from BHP in November 1999. When we acquired the titanium processing
technology, we entered into a services agreement with BHP under which we
obtained the services of these fourteen individuals, and certain other BHP
employees, for the period November 15, 1999 through December 31, 2000. In 2000,
the cost associated with this services agreement was $1,368,000 and was charged
to research and development expense. During 2001, of the $1,190,000 in total
salaries and overheads, $354,000 was allocated to research and development
expense, resulting in a decrease of $996,000 in research and development expense
in 2001 from 2000.
Professional services, which consist principally of legal, consulting
and audit expenses, increased from $366,275 in 2000 to $593,088 in 2001. In the
first quarter of 2001, we hired new auditors to audit our financial statements.
As a result of this, our audit fees increased from $26,000 in 2000 to $157,000
in 2001. We also experienced an increase in legal fees from $176,000 in 2000 to
$198,000 in 2001, primarily as a result of preparation of regulatory filings and
other documents associated with recent financing activities. Consulting expenses
increased from $164,000 in 2000 to $238,000 in 2001, also as a result of recent
financing activities.
General and administrative expenses increased by $553,396 to $2,824,646
in 2001, compared to $2,271,250 in 2000. Salaries and overheads increased by
$820,000 to $1,268,000 in 2001, compared to $448,000 in 2000, as a result of
hiring the fourteen former BHP employees, the president of Altair Nanomaterials,
a marketing manager and a general counsel. With respect to the titanium
processing technology, we experienced an increase in expenses of $245,000 to
$610,000 in 2001, compared to $365,000 for 2000, for operating supplies, small
tools, maintenance, office supplies and production of product samples. Our
general corporate expenses decreased by $508,000 to $738,000 in 2001, compared
to $1,246,000 for 2000, principally due to a decrease in expense recognized for
options granted to employees and service providers.
Depreciation and amortization expense decreased by $98,196 to
$1,138,208 in 2001, compared to $1,236,404 for 2000, principally as a result of
lengthening the amortization periods of certain patents. The amortization
periods were extended to equal the patent lives.
30
On December 15, 2000, we and an investor entered into a Securities
Purchase Agreement pursuant to which we issued to the investor a $7,000,000
Asset-Backed Exchangeable Term Note (the "2000 Note") and a Warrant to purchase
350,000 common shares at an initial exercise price of $3.00 at any time on or
before December 15, 2005 (the "Warrant"). The 2000 Note, Warrant and related
rights were sold to the investor in exchange for $7,000,000 (less financing
fees). Proceeds from the 2000 Note were allocated between the 2000 Note and the
Warrant; the portion allocated to the Warrant resulted in a discount on the 2000
Note which was being accreted to interest expense over the term of the 2000
Note. Interest expense for 2001 was $1,881,077, compared to interest expense of
$215,216 in 2000. The increase results from interest expense of $805,000 on the
2000 Note, amortization of the Warrant discount of $403,000, amortization of
debt issue costs of $100,000 and interest related to the issuance of common
shares as payment of principal and interest on the 2000 Note of $301,000. In
addition to this, interest expense of $240,000 was incurred related to the
estimated fair value of warrants issued to the investor in exchange for the
waiver of penalties that would have accrued due to late effectiveness of the
registration statement associated with the 2000 Note and modification to the
2000 Note terms involving the redemption of exchange amounts. At the same time,
interest income increased in 2001 over 2000 due to interest earned on the
proceeds received from the 2000 Note.
The purchase price for the titanium processing technology that we
acquired from BHP was stated in Australian dollars and was payable in
installments through August 2000. During 2000, the United States dollar
strengthened against the Australian dollar resulting in a gain on foreign
exchange of $864,000.
Fiscal Year 2000 vs. 1999
Mineral exploration and development expenses increased from $714,893 in
1999 to $1,217,966 in 2000, principally due to costs incurred in the
construction of the mineral processing pilot plant at the Tennessee mineral
property. Construction began in 2000 and total construction costs of $801,000
were incurred during that year. This increase was partially offset by decreases
in other mineral exploration expenses at the Tennessee mineral property.
Since acquiring the titanium processing technology and titanium
processing assets from BHP in November 1999, we have directed our efforts toward
the production and marketing of TiO2 nanoparticles. Our acquisition of the
titanium processing technology and titanium processing assets in late 1999, and
our subsequent production and marketing efforts during 2000, caused a
significant increase in our operating expenses for the year ended December 31,
2000 when compared to the year ended December 31, 1999.
In connection with the acquisition, we entered into a services
agreement with BHP wherein BHP agreed to provide, through December 31, 2000,
certain services necessary to continue development and testing of the titanium
processing technology and operation of the titanium processing assets. The costs
associated with this service agreement were approximately $1,368,000 for the
year ended December 31, 2000 and were recorded as testing, research and
development expense. Our comparable expense during the year ended December 31,
1999 was $171,000.
We also entered into a lease agreement with BHP to lease the space
occupied by the titanium processing assets at a BHP facility in Reno, Nevada.
The lease cost was $180,000 for the year ended December 31, 2000 and is included
in general and administrative expenses in the Consolidated Statements of
Operations. We incurred $22,500 of comparable lease costs for the year ended
December 31, 1999. General and administrative expenses also increased by $80,000
due to the recognition of expense associated with options and warrants, by
$75,000 due to the addition of one new employee, by $20,000 due to insurance
costs for coverages on the titanium processing assets and by $34,000 due to
additional Nasdaq listing fees in connection with the issuance of common shares.
31
Professional services for the year ended December 31, 2000 increased
over the comparable period of 1999 due to legal costs associated with patent
reviews and trademark filings related to the titanium processing technology and
consulting costs for marketing and production management related to TiO2
nanoparticle products.
Depreciation expense in 2000 increased over 1999 as a result of
depreciation on the titanium processing technology and titanium processing
assets acquired from BHP.
The purchase price for the titanium processing technology and titanium
processing assets was 15,000,000 Australian dollars ("AUD$") (U.S.$9,625,500)
and was payable in four equal installments. The first installment was paid at
closing in November 1999, the second and third installments were paid on May 12,
2000 and the remaining payment was paid on August 1, 2000. Since the purchase
price was payable in Australian dollars, the liability to BHP was subject to
exchange rate fluctuations. From December 31, 1999 to March 31, 2000, the
American dollar strengthened significantly against the Australian dollar,
resulting in a gain on foreign exchange of approximately $559,000. From April 1,
2000 through June 30, 2000, the American dollar strengthened further, resulting
in a gain on foreign exchange of approximately $237,000. When the final payment
was paid on August 1, 2000, an additional foreign exchange gain of approximately
$69,000 was realized, resulting in a total foreign exchange gain on the purchase
of the titanium processing technology and titanium processing assets of
approximately $865,000 for the year ended December 31, 2000.
Interest on long-term debt increased by $79,000 in the year ended
December 31, 2000 over the comparable period of 1999 due to interest paid in
connection with the rescheduling of the second installment due BHP from February
15, 2000 to May 15, 2000. It further increased by $129,000 due to interest
charges associated with the 2000 Note, which we issued in December 2000.
Interest income in 2000 decreased from 1999 as we had lower cash
balances available for investment during most of the year.
Carrying Value of Assets
We have recorded our investments in the titanium processing technology
and titanium processing assets and the centrifugal jig at actual cost. We
depreciate such assets using the straight-line method over their estimated
useful life. The asset carrying value is the actual cost less accumulated
depreciation. We assess the carrying values of these assets on a quarterly basis
by comparing the projected undiscounted cash flows to be generated by the assets
to the carrying costs of the assets. In order to determine the projected cash
flows related to these assets, we use the information and feedback obtained from
prospective customers together with general information as to product markets,
competitive forces and our production capability to arrive at assumptions with
respect to sales volumes and pricing. We next estimate costs of sales based on
engineering analysis and actual experience. Operating margins are then
calculated based on these assumptions and compared to the carrying cost of the
assets. Delays in revenue generation may make the recoverability of our assets
less likely.
When we acquired the titanium processing technology and titanium
processing assets from BHP, the core technology for producing titanium dioxide
nanoparticles was completely developed, a pilot plant was under construction,
and we believed the titanium processing technology and titanium processing
assets had near-term commercial value. We expected to complete the pilot plant
as a processing facility and begin generating sales revenues through
32
nanoparticle product sales in 2000. We completed construction of the processing
facility and made a single small sale of nanoparticles in 2000, and then
generated $42,816 of sales revenues in 2001. We underestimated the length of
time required for sample analysis and product acceptance by prospective
customers and by their customers and, as a result, we have not yet made a
substantial amount of nanoparticle sales. We presently estimate that significant
nanoparticle sales will begin during the second half of 2002 and that cash flows
from future nanoparticle sales will be in excess of the carrying value of the
assets. The delay in sales, combined with cash outlays for construction and
operation, has affected our cash position and financing plans as more fully
described in "Liquidity and Capital Resources" below.
We intend to use our centrifugal jig to enhance the recovery of heavy
minerals at our Tennessee mineral property, and it also has the potential to be
sold or licensed to others on a commercial basis. Marketing efforts for the jig
have focused on large volume applications such as coal cleaning, heavy mineral
sand separations and iron ore processing. Such applications require potential
jig purchasers to make significant capital investments and reengineering of
plant processes. As a result, potential purchasers in this arena require lengthy
equipment evaluations and long testing periods. Since 2000, we have redirected
company resources, staff and liquid assets to support the titanium processing
technology and Camden exploration effort and away from marketing the jig to
others. We are currently negotiating an agreement to perform jig tests for fine
particle recovery at a third party's processing facility, and we have entered
into discussions with potential jig manufacturers and distributors for marketing
the jig to a wider array of market applications under licensing and/or
distributorship agreements. We retain ownership of the fundamental technical
characteristics of the jig through patent protections. We estimate that future
revenues to be derived from jigs placed into commercial operation will be in
excess of the carrying value of the assets.
Liquidity and Capital Resources.
- --------------------------------
We generated $42,816 of sales revenues in 2001 but incurred a net loss
of $7,754,031. At December 31, 2001, our accumulated deficit was $29,412,826, or
an increase of $7,806,448 over the accumulated deficit at December 31, 2000.
This increase was due to the net loss for the year and a preferential warrant
dividend of $52,417 recorded in connection with the repricing of certain
warrants during 2001.
Our cash and short-term investments decreased from $3,585,729 at
December 31, 2000 to $599,884 at December 31, 2001, due to the incurrence of
operating costs and the effect of financing transactions which are described
below.
On December 15, 2000, we and an investor entered into a Securities
Purchase Agreement pursuant to which we issued the 2000 Note and the Warrants.
The 2000 Note, Warrant and related rights were sold to the investor in exchange
for $7,000,000 (less financing fees). Among certain other covenants, we agreed
to maintain a letter of credit in favor of the investor in an amount equal to
57.15% of the principal balance of the 2000 Note until certain conditions were
met, after which the required amount would be reduced to 50% of the principal
balance of the 2000 Note. The letter of credit was secured by cash proceeds from
issuance of the 2000 Note equal to the face amount of the letter of credit. Such
cash proceeds are reflected as restricted cash in the Consolidated Balance
Sheets.
The 2000 Note was in the principal amount of $7,000,000 with interest
at a rate of 10% per annum. Under the 2000 Note, we were required to make
monthly payments on or before the 15th day of each calendar month in the
principal amount of $291,667 plus accrued interest (the "Monthly Payment
Amount"). The 2000 Note was due and payable in full on December 15, 2003.
33
We had the option to redeem the Monthly Payment Amount in cash. If we
elected not to redeem the Monthly Payment Amount, on each due date, the holder
of the 2000 Note automatically received the right to exchange (immediately or at
any later date during the term) the Monthly Payment Amount into common shares at
the applicable "Exchange Price." The Exchange Price for any date was the lesser
of (a) a fixed exchange price of $3.00 as adjusted, or (b) the average of the
lowest three daily trading prices of the common shares during the 15 trading
days ending on the day before an exchange right was exercised. The 2000 Note was
secured by a pledge of the intellectual property and common stock of Altair
Nanomaterials, Inc. and the common stock of Mineral Recovery Systems, Inc.
During 2001, we made cash payments of principal and interest against
the 2000 Note of $1,894,000 and $387,000, respectively, and paid $1,220,000 of
principal and interest through the exchange of 824,800 shares of our common
stock in accordance with the terms of the 2000 Note. In addition, we made
payments of principal and interest against the 2000 Note of $97,743 and
$244,941, respectively, through cancellation of call options on 228,456 shares
of our common stock.
On December 28, 2001, we entered into a Termination and Issuance
Agreement with the holder of the 2000 Note under which the letter of credit was
terminated, $2,500,733 of cash securing the letter of credit was transferred to
the investor, and the 2000 Note was exchanged for a new Secured Term Note ("2001
Note") having a face amount of $2,000,000. The interest rate on the 2001 Note is
11% per annum payable monthly. Under the 2001 Note, we are not required to make
monthly payments of principal but are required to pay accrued interest at the
end of every month. We have the right to redeem the monthly interest payment in
cash. If we elect not to redeem the monthly interest payment amount in cash, on
each due date, the investor automatically receives the right to exchange
(immediately or at any later date during the term) the monthly interest payment
amount into common shares at the applicable exchange price. The exchange price
for any date is equal to 75% of the average of the closing price of our common
stock for the five trading days ending on the trading day immediately preceding
the respective due date for payment of interest. The principal amount of the
2001 Note is not convertible into or exchangeable for common shares and is due
and payable in cash on March 31, 2003.
In connection with the 2001 Note, we issued to the investor 200,000
warrants to purchase common shares at an exercise price of $1.50. The warrants
are exercisable at any time on or before the earlier of (a) December 15, 2006,
and (b) the date 60 days after the market price of the common shares has been
equal to or greater than $12.00 for five consecutive days. In addition, we
agreed to revise the exercise price of the 350,000 warrants issued with the 2000
Note to $1.50. We also issued to the investor a conditional warrant to purchase
up to 500,000 common shares. The conditional warrant expires on the later of
March 31, 2003 or the date the 2001 Note has been paid in full. The warrant is
subject to a vesting schedule under which 25,000 common shares vest when the
closing price of our common stock exceeds $2.00 per share for a period of ten
consecutive trading days. Thereafter, additional common shares vest in
increments of 25,000 on the day following the first time the closing price
exceeds a number greater than $2.00 that is evenly divisible by .5 (e.g. $2.50,
$3.00, $3.50) for ten consecutive trading days. To date, no shares have vested
under the conditional warrant. The warrant exercise price is $.01 per common
share.
Under the terms of the 2001 Note, we are required to have a minimum
cash and cash equivalents balance of $250,000 at the end of each calendar
quarter and at any time the closing price of our common shares has been below
$1.00 per share for three consecutive trading days.
The 2001 Note is secured by a pledge of the equipment, intellectual
property and common stock of Altair Nanomaterials, and by a pledge of the
leaseholds and common stock of MRS.
34
During 2001, we sold 2,031,691 common shares together with 2,766,668
warrants in private placements for gross proceeds of $2,650,000. The warrants
are exercisable at prices ranging from $1.50 to $5.00 and expire on the earlier
of five years from the date of issue or on specified dates after the closing
price equals or exceeds prices ranging from $2.50 to $8.00. Also during 2001,
65,000 options were exercised providing us with gross proceeds of $130,000.
On October 18, 2001, we reduced the exercise price of 255,000
outstanding warrants to $1.00 per share for a period of 45 days and we reduced
the exercise price of 458,333 outstanding warrants to $1.00 per share through
December 14, 2001. The warrants had been previously issued with exercise prices
ranging from $4.00 to $8.00. All 713,333 warrants were exercised resulting in
proceeds to us of $713,333.
At December 31, 2001, we had cash and cash equivalents of $599,884, an
amount which, together with proceeds received from a private placement in early
2002 (as discussed below), is sufficient to fund our basic operations through
April 30, 2002. After April 30, 2002, we will require additional financing to
provide working capital to fund our day-to-day operations. We will also require
additional financing to continue our development work on the titanium processing
technology and the Tennessee mineral property, and to expand our nanoparticle
production facility when, and if, current capacity cannot keep pace with product
sales. We expect to generate funds through additional private placements of our
common stock and warrants to purchase our common stock, additional exercises of
warrants and sales of titanium dioxide nanoparticles. On March 11, 2002, we
entered into a stock subscription agreement with a private investor which
provides for the sale, for $1,000,000 on or before May 31, 2002, of 666,667
common shares and 1,000,002 warrants to purchase common shares at exercise
prices between $2.00 and $3.00 per share. As of March 20, 2002, we have no
commitments to provide additional financing or to purchase titanium dioxide
nanoparticles.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Item appear on pages F-1 through F-22
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.
35
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement to be filed with the
Commission.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement to be filed with the Commission.
Item 14. 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 Independent Auditors' Report of Deloitte & Touche LLP
o Consolidated Balance Sheets, December 31, 2001 and 2000
o Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 2001 and for the
Period from April 9, 1973 (Date of Inception) to December
31, 2001
o Consolidated Statements of Shareholders' Equity from April
9, 1973 (Date of Inception) to December 31, 2001
o Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 2001 and for the
Period from April 9, 1973 (Date of Inception) to December
31, 2001
o Notes to Consolidated Financial Statements
36
2. Financial Statement Schedule. Not applicable.
3. Exhibit List
37
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, 1996 with the Commission on December 23, 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.
Amended and Restated Shareholder Rights Incorporated by reference to the Company's
4.2 Plan dated October 15, 1999, between the Current Report on Form 8-K filed with the
Company and Equity Transfer Services, Inc. Commission on November 19, 1999.
Form of Doral Warrant (Issued December 15, Incorporated by reference to the Company's
4.3 2000) Current Report on Form 8-K filed with the SEC
on December 26, 2000.
Incorporated by reference to the Company's
4.5 $2,000,000 Secured Term Note Current Report on Form 8-K filed with the SEC
on January 4, 2002.
Warrant to Purchase Common Stock (Issued Incorporated by reference to the Company's
4.6 December 28, 2001) Current Report on Form 8-K filed with the SEC
on January 4, 2002.
Warrant to Purchase Common Stock Incorporated by reference to the Company's
4.7 (Conditional) (Issued December 28, 2001) Current Report on Form 8-K filed with the SEC
on January 4, 2002.
Incorporated by reference to Amendment No. 2
4.8 Amendment No. 1 to Stock Purchase Warrants to Current Report on Form 8-K/A filed with the
SEC on January 2, 2002.
Incorporated by reference to Registration
Statement on Form S-3, File No. 333-76820,
4.9 Form of Series 2001C Warrant filed with the Commission on January 16, 2002.
Incorporated by reference to Registration
Statement on Form S-3, File No. 333-76820,
4.10 Form of Series 2001D Warrant filed with the Commission on January 16, 2002.
Incorporated by reference to Registration
Statement on Form S-3, File No. 333-76820,
4.11 Form of Series 2001E Warrant filed with the Commission on January 16, 2002.
Incorporated by reference to Registration
Statement on Form S-3, File No. 333-76820,
4.12 Form of Series 2001F Warrant filed with the Commission on January 16, 2002.
Incorporated by reference to Registration
Statement on Form S-3, File No. 333-76820,
38
Exhibit No. Exhibit Incorporated by Reference/ Filed Herewith
- ------------ --------------------------------------------- ------------------------------------------------
4.13 Form of Series 2001G Warrant filed with the Commission on January 16, 2002.
Incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
Employment Agreement between Altair Commission on March 31, 1998, as amended by
10.1 International Inc. and William P. Long Amendment No. 1 to Annual Report on Form
dated January 1, 1998 10-K/A filed on May 15, 1998.
Employment Agreement between Fine Gold Incorporated by reference to Registration
10.2 Recovery Systems Inc. and C. Patrick Costin Statement on Form 10-SB filed with the
dated August 15, 1994 Commission on November 25, 1996.
Incorporated by reference to the Company's
10.3 Altair International Inc. Stock Option Plan Registration Statement on Form S-8 filed with
adopted by shareholders on May 10, 1996 the Commission on July 11, 1997.
1998 Altair International Inc. Stock Option Incorporated by reference to the Company's
10.4 Plan adopted by Shareholders on June 11, Definitive Proxy Statement on Form 14A filed
1998 with the Commission on May 12, 1998.
Incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
10.5 Form of Mineral Lease Commission on March 31, 1998, as amended by
Amendment No. 1 to Annual Report on Form
10-K/A filed on May 15, 1998.
Incorporated by reference to the Company's
10.6 Lease dated November 15, 1999, between the Current Report on Form 8-K filed with the
Company and BHP Minerals International Inc. Commission on November 19, 1999.
Asset Purchase and Sale Agreement dated
November 15, 1999, between the Company Incorporated by reference to the Company's
10.7 and BHP Minerals International Current Report on Form 8-K filed with the
Inc Commission on November 19, 1999.
Stock Pledge Agreement dated December 15, Incorporated by reference to the Company's
10.8 2000 (Mineral Recovery Systems common Current Report on Form 8-K filed with the
stock). Commission on December 26, 2000.
Incorporated by reference to the Company's
10.9 Stock Pledge Agreement dated December 15, Current Report on Form 8-K filed with the
2000 (Altair Technologies common stock). Commission on December 26, 2000.
Incorporated by reference to the Company's
10.10 Research Agreement dated August 1, 2000 Amendment No. 1 on Form 10-K/A filed with the
Commission on April 17, 2001
Incorporated by reference to the Company's
10.11 Note Termination and Issuance Agreement Current Report on Form 8-K filed with the SEC
on January 4, 2002.
Incorporated by reference to the Company's
10.12 Registration Rights Agreement Current Report on Form 8-K filed with the SEC
on January 4, 2002.
Incorporated by reference to the Company's
10.13 First Amendment to Stock Pledge Agreement Current Report on Form 8-K filed with the SEC
on January 4, 2002.
23 Auditor's Consent Filed herewith.
24 Power of Attorney Included on the Signature Page hereof.
39
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on January 4, 2002 in
which it reported the termination of the 2000 Note, the issuance of the 2001
Note and related transactions.
The Company filed an Amendment No. 2 to Current Report on Form 8-K/A on
January 4, 2002 (amending the Current Report on Form 8-K filed on December 26,
2000) in which it reported the termination of the 2000 Note, the amendment of
certain warrants issued in connection with the 2000 Note and related
transactions.
(c) Exhibits
Exhibits to this Report are attached following page F-22
hereof.
(d) Financial Statement Schedule
Not applicable.
40
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 28, 2002.
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 28, 2002
- ------------------- Officer and Director (Principal
William P. Long Executive Officer)
/s/ Edward Dickinson Chief Financial Officer and March 28, 2002
- -------------------- Secretary (Principal Financial
Edward Dickinson and Accounting Officer)
/s/ James I. Golla Director March 28, 2002
- ------------------
James I. Golla
/s/ George Hartman Director March 28, 2002
- ------------------
George Hartman
/s/ Robert Sheldon Director March 28, 2002
- ------------------
Robert Sheldon
41
Altair International Inc.
and Subsidiaries
(An Exploration Stage Company)
Consolidated Financial Statements as of December 31, 2001 and 2000 and for Each
of the Three Years in the Period Ended December 31, 2001 and for the Period from
April 9, 1973 (Date of Inception) to December 31, 2001 and Independent Auditors'
Report
42
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2001 and 2000 F-2
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 2001 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2001 F-3
Consolidated Statements of Shareholders' Equity for the Period from April 9, 1973
(Date of Inception) to December 31, 2001 F-4 - F-7
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended December 31, 2001 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2001 F-8 - F-10
Notes to Consolidated Financial Statements F-11 - F-22
43
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders of
Altair International, Inc.
Reno, Nevada
We have audited the accompanying consolidated balance sheets of Altair
International, Inc. (an exploration stage company) and subsidiaries
(collectively referred to as the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001,
and for the period from April 9, 1973 (date of inception) to December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The Company's consolidated financial statements for the period
from April 9, 1973 (date of inception) to December 31, 1997 were audited by
other auditors whose report, dated February 17, 2000, expressed an unqualified
opinion on those statements. The financial statements for the period from April
9, 1973 (date of inception) through December 31, 1997 reflect a net loss of
$7,350,462 of the related totals. The other auditors' report has been furnished
to us and our opinion, insofar as it related to the amounts included for such
prior periods, is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, and for the period from April 9, 1973 (date of
inception) to December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is an exploration
stage enterprise engaged in developing mineral processing equipment, producing
titanium dioxide products, and exploring and developing mineral properties. As
discussed in Note 1 to the consolidated financial statements, the Company's
operating losses raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties. In addition, because
the Company is still in the exploration stage, there have been no adjustments to
record potential impairments on long-term assets.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 15, 2002
F-1
ALTAIR INTERNATIONAL INC. and subsidiaries
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
ASSETS
------
2001 2000
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 599,884 $ 1,335,729
Restricted cash -- 2,250,000
Other current assets 33,651 390,351
------------ ------------
Total current assets 633,535 3,976,080
RESTRICTED CASH -- 1,750,000
PROPERTY AND EQUIPMENT, Net 5,987,950 6,601,917
PATENTS AND RELATED EXPENDITURES, Net 3,739,864 4,111,740
OTHER ASSETS 491,894 212,033
------------ ------------
TOTAL ASSETS $ 10,853,243 $ 16,651,770
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 528,405 $ 158,642
Notes payable - current portion -- 3,500,004
Loans payable - related parties 143,000
Capital lease obligations - current portion 2,312 24,763
Deferred revenue 40,972 57,957
------------ ------------
Total current liabilities 714,689 3,741,366
------------ ------------
NOTES PAYABLE, Long-term portion 1,462,060 2,687,181
------------ ------------
CAPITAL LEASE OBLIGATIONS, Long-term portion -- 2,312
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 3, 6, 7, 8, 9, 10, 11, and 12)
SHAREHOLDERS' EQUITY:
Common stock, no par value, unlimited shares authorized;
22,694,142 and 19,325,488 shares issued and outstanding
at December 31, 2001 and 2000 38,089,320 32,388,589
Stock subscription receivable -- (561,300)
Deficit accumulated during the development stage (29,412,826) (21,606,378)
------------ ------------
Total shareholders' equity 8,676,494 10,220,911
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,853,243 $ 16,651,770
============ ============
See notes to the consolidated financial statements.
F-2
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
------------------------------------------ December 31,
2001 2000 1999 2001
---------- ---------- ---------- ---------
SALES $ 42,816 None None $ 42,816
COST OF SALES 18,175 None None 18,175
---------- ---------- ---------- ---------
GROSS MARGIN 24,641 None None 24,641
---------- ---------- ---------- ---------
OPERATING EXPENSES:
Mineral exploration and development 930,777 $ 1,217,966 $ 714,893 5,918,665
Research and development 559,454 1,555,472 354,462 3,128,959
Professional services 593,088 366,275 252,337 2,563,912
General and administrative expenses 2,824,646 2,271,250 1,899,759 11,847,482
Depreciation and amortization 1,138,208 1,236,404 508,083 4,517,414
---------- ---------- ---------- ---------
Total operating expenses 6,046,173 6,647,367 3,729,534 27,976,432
---------- ---------- ---------- ---------
LOSS FROM OPERATIONS 6,021,532 6,647,367 3,729,534 27,951,791
---------- ---------- ---------- ---------
OTHER EXPENSE (INCOME):
Interest expense 1,881,077 215,216 1,966 3,383,951
Interest income (148,980) (83,440) (134,811) (813,840)
Loss (gain) on foreign exchange 402 (864,669) 160,619 (558,777)
---------- ---------- ---------- ---------
Total other expense (income), net 1,732,499 (732,893) 27,774 2,011,334
---------- ---------- ---------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS 7,754,031 5,914,474 3,757,308 29,963,125
---------- ---------- ---------- ---------
EXTRAORDINARY ITEMS:
Gain on forgiveness of debt -- -- (67,442) (795,972)
Loss on redemption of convertible debentures
193,256
---------- ---------- ---------- ---------
Total extraordinary items -- -- (67,442) (602,716)
---------- ---------- ---------- ---------
NET LOSS 7,754,031 5,914,474 3,689,866 29,360,409
PREFERENTIAL WARRANT DIVIDEND 52,417 -- -- 52,417
---------- ---------- ---------- ---------
NET LOSS APPLICABLE TO SHAREHOLDERS $ 7,806,448 $ 5,914,474 $ 3,689,866 $ 29,412,826
========== ========== ========== =========
LOSS BEFORE EXTRAORDINARY ITEMS AND
PREFERENTIAL WARRANT DIVIDEND PER COMMON
SHARE - Basic and diluted $ 0.39 $ 0.34 $ 0.24 $ 4.14
EFFECT OF EXTRAORDINARY ITEMS ON
EARNINGS PER SHARE - Basic and diluted 0.00 0.00 (0.01) (0.08)
---------- ---------- ---------- ---------
LOSS PER COMMON SHARE - Basic and diluted $ 0.39 $ 0.34 $ 0.23 $ 4.06
---------- ---------- ---------- ---------
WEIGHTED AVERAGE SHARES - Basic and diluted 20,063,473 17,371,214 15,472,075 7,231,574
========== ========== ========== =========
See notes to the consolidated financial statements.
F-3
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
---------------------- Stock During the
Stated Subscription Development
Shares Amount Receivable Stage Total
--------- --------- --------- ---------- ----------
APRIL 9, 1973 (DATE OF INCEPTION) None None None None None
Common stock issued 101,668 $ 387,073 $- -- $ 387,073
Net loss -- -- -- $ (361,572) (361,572)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1984 101,668 387,073 -- (361,572) 25,501
Common stock issued 40,000 240,770 -- -- 240,770
Common stock issued for management fees 1,280 7,004 -- -- 7,004
Net loss -- -- -- (78,606) (78,606)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1985 142,948 634,847 -- (440,178) 194,669
Common stock issued for property 3,333 18,058 -- -- 18,058
Acquisition of subsidiary 780,000 44,551 -- -- 44,551
Common stock issued for underwriter bonus 4,000 1 -- -- 1
Net loss -- -- -- (210,667) (210,667)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1986 930,281 697,457 -- (650,845) 46,612
Common stock issued for property 6,667 8,027 -- -- 8,027
Flow through shares 298,650 463,301 -- -- 463,301
Common stock issued for rights offering 257,822 253,947 -- -- 253,947
Net loss -- -- -- (696,642) (696,642)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1987 1,493,420 1,422,732 -- (1,347,487) 75,245
Common stock issued for services 16,667 14,592 -- -- 14,592
Common stock issued 16,667 14,592 -- -- 14,592
Common stock issued in settlement of debt 233,333 51,073 -- -- 51,073
Net loss -- -- -- (149,316) (149,316)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1988 1,760,087 1,502,989 -- (1,496,803) 6,186
Common stock issued 127,500 75,058 -- -- 75,058
Common stock issued in settlement of lawsuit 41,667 22,800 -- -- 22,800
Net loss -- -- -- (151,372) (151,372)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1989 1,929,254 1,600,847 -- (1,648,175) (47,328)
--------- --------- --------- ---------- ----------
(Continued)
See notes to the consolidated financial statements.
F-4
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
---------------------- Stock During the
Stated Subscription Development
Shares Amount Receivable Stage Total
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1989 1,929,254 $ 1,600,847 $ -- $(1,648,175) $ (47,328)
Common stock issued 133,333 218,882 -- -- 218,882
Exercise of stock options 33,333 18,240 -- -- 18,240
Common stock issued for property 11,666 11,674 -- -- 11,674
Common stock issued for services 13,333 21,888 -- -- 21,888
Net loss -- -- -- (230,125) (230,125)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1990 2,120,919 1,871,531 -- (1,878,300) (6,769)
Common stock issued 266,667 196,994 -- -- 196,994
Common stock issued for property 28,333 17,146 -- -- 17,146
Net loss -- -- -- (258,209) (258,209)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1991 2,415,919 2,085,671 -- (2,136,509) (50,838)
Common stock issued 1,086,753 443,237 -- -- 443,237
Common stock issued for property 115,000 49,249 -- -- 49,249
Common stock issued for settlement of debt 55,177 24,155 -- -- 24,155
Net loss -- -- -- (353,665) (353,665)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1992 3,672,849 2,602,312 -- (2,490,174) 112,138
Common stock issued 48,000 36,393 -- -- 36,393
Common stock issued for property 46,667 55,012 -- -- 55,012
Net loss -- -- -- (193,323) (193,323)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1993 3,767,516 2,693,717 -- (2,683,497) 10,220
Common stock issued 600,000 131,329 -- -- 131,329
Common stock issued for shares of subsidiary 750,000 257,187 -- -- 257,187
Common stock issued for royalties 83,333 33,641 -- -- 33,641
Net loss -- -- -- (227,860) (227,860)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1994 5,200,849 3,115,874 -- (2,911,357) 204,517
Common stock issued 2,700,000 875,529 -- -- 875,529
Exercise of stock options 247,000 53,553 -- -- 53,553
Exercise of stock warrants 350,000 171,458 -- -- 171,458
Net loss -- -- -- (424,109) (424,109)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1995 8,497,849 4,216,414 -- (3,335,466) 880,948
--------- --------- --------- ---------- ----------
(Continued)
See notes to the consolidated financial statements.
F-5
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
------------------------- Stock During the
Stated Subscription Development
Shares Amount Receivable Stage Total
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1995 8,497,849 $ 4,216,414 $ -- $ (3,335,466) $ 880,948
Common stock issued 554,027 1,637,307 -- -- 1,637,307
Exercise of stock options 702,000 526,850 -- -- 526,850
Exercise of stock warrants 3,012,463 2,471,219 -- -- 2,471,219
Stock options issued to non-employees -- 285,503 -- -- 285,503
Common stock issued for acquisition of TMI 1,919,957 2,521,469 -- -- 2,521,469
Net loss -- -- -- (1,032,903) (1,032,903)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1996 14,686,296 11,658,762 -- (4,368,369) 7,290,393
Exercise of stock options 362,500 1,530,406 -- -- 1,530,406
Stock options issued to non-employees -- 528,555 -- -- 528,555
Stock options issued to employees -- 62,800 -- -- 62,800
Exercise of stock warrants 443,949 1,038,788 -- -- 1,038,788
Net loss -- -- -- (2,982,093) (2,982,093)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1997 15,492,745 14,819,311 -- (7,350,462) 7,468,849
Stock options issued to non-employees -- 841,944 -- -- 841,944
Stock options issued to employees -- 15,420 -- -- 15,420
Common stock cancelled (723,065) -- -- -- --
Common stock issued for convertible debenture 387,735 3,061,444 -- -- 3,061,444
Exercise of stock options 17,500 113,664 -- -- 113,664
Net loss -- -- -- (4,651,576) (4,651,576)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1998 15,174,915 18,851,783 -- (12,002,038) 6,849,745
Stock options issued to non-employees -- 765,386 -- -- 765,386
Common stock issued 300,000 1,862,500 -- -- 1,862,500
Net loss -- -- -- (3,689,866) (3,689,866)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 1999 15,474,915 21,479,669 -- (15,691,904) 5,787,765
Stock options issued to non-employees -- 424,063 -- -- 424,063
Stock subscription receivable -- -- (561,300) -- (561,300)
Stock warrants issued -- 1,245,050 -- -- 1,245,050
Exercise of stock options 71,300 335,778 -- -- 335,778
Common stock issued 3,779,273 8,904,029 -- -- 8,904,029
Net loss -- -- -- (5,914,474) (5,914,474)
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 2000 19,325,488 32,388,589 (561,300) (21,606,378) 10,220,911
--------- --------- --------- ---------- ----------
See notes to consolidated financial statements. (Continued)
F-6
ALTAIR INTERNATIONAL, INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
------------------------- Stock During the
Stated Subscription Development
Shares Amount Receivable Stage Total
--------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 2000 19,325,488 $ 32,388,589 $ (561,300) $(21,606,378) $ 10,220,911
Stock options issued to non-employees -- 158,089 -- -- 158,089
Stock subscription receivable -- -- 561,300 -- 561,300
Stock warrants issued -- 776,469 -- -- 776,469
Preferential warrant dividend -- 52,417 -- (52,417) --
Shares issued for settlement of debt 824,800 1,220,423 -- -- 1,220,423
Exercise of stock options 65,000 130,000 -- -- 130,000
Common stock expired (266,170) -- -- -- --
Exercise of warrants 713,333 713,333 -- -- 713,333
Common stock issued 2,031,691 2,650,000 -- -- 2,650,000
Net loss -- -- -- (7,754,031) (7,754,031)
BALANCE, DECEMBER 31, 2001 22,694,142 $ 38,089,320 None $(29,412,826) $ 8,676,494
(Concluded)
See notes to consolidated financial statements.
F-7
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
------------------------------------------ December 31,
2001 2000 1999 2001
----------- ----------- ----------- -----------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (7,754,031) $ (5,914,474) $ (3,689,866) $(29,360,409)
Adjustments to reconcile net loss to net cash used
in development activities:
Depreciation and amortization 1,138,208 1,236,404 508,083 4,517,414
Shares issued for services -- -- -- 99,926
Shares issued for settlement of debt -- -- -- 75,228
Shares issued for interest 819,755 -- -- 823,827
Shares issued for property -- -- -- 159,166
Issuance of stock options to non-employees 158,089 424,063 765,386 3,003,540
Issuance of stock options to employees -- -- -- 78,220
Issuance of stock warrants 396,123 420,182 -- 816,305
Amortization of discount on note payable 403,021 12,052 -- 415,073
Amortization of debt issuance costs 100,000 -- -- 100,000
Loss on redemption of convertible debenture -- -- -- 193,256
Gain on forgiveness of debt -- -- (67,442) (795,972)
Loss on disposal of fixed assets -- -- -- 1,945
Loss (gain) on foreign currency translation 402 (864,669) 160,619 (559,179)
Deferred financing costs written off -- -- -- 515,842
Changes in assets and liabilities (net of effects
of acquisition):
Restricted cash 4,000,000 (4,000,000) -- --
Other current assets 14,016 990,579 172,512 1,700,947
Other assets 886 (169,606) -- (168,720)
Accounts payable and accrued liabilities 369,763 (75,161) 48,734 259,191
Deferred revenue (16,985) 57,957 -- 40,972
----------- ----------- ----------- -----------
Net cash used in development activities (370,753) (7,882,673) (2,101,974) (18,083,428)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Asset acquisition (see Note 3) -- -- (2,422,417) (2,422,417)
Purchase of property and equipment (158,296) (226,612) (207,048) (1,294,675)
Disposal (purchase) of patents and related expenditures 5,933 -- (76,135) (1,882,187)
----------- ----------- ----------- -----------
Net cash used in investing activities (152,363) (226,612) (2,705,600) (5,599,279)
----------- ----------- ----------- -----------
(Continued)
See notes to consolidated financial statements.
F-8
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
-------------------------------------------- December 31,
2001 2000 1999 2001
----------- ----------- ----------- -----------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Issuance of common shares for cash,
net of issuance costs $ 2,650,000 $ 8,904,029 $ 1,862,500 $ 18,173,659
Collection of stock subscription receivable 561,300 -- -- 561,300
Issuance of convertible debenture -- -- -- 5,000,000
Proceeds from exercise of stock options 130,000 335,778 -- 2,708,491
Proceeds from exercise of warrants 713,333 -- -- 4,617,328
Issuance of related party notes 168,000 -- -- 168,000
Issuance of notes payable -- 7,000,000 -- 7,000,000
Payment of notes payable (4,385,599) (6,498,931) (6,191) (11,196,044)
Payment of related party notes (25,000) -- -- (25,000)
Payment on capital lease (24,763) -- -- (24,763)
Purchase of call options -- (449,442) -- (449,442)
Redemption of convertible debentures -- -- -- (2,250,938)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities (212,729) 9,291,434 1,856,309 24,282,591
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (735,845) 1,182,149 (2,951,265) 599,884
CASH AND CASH EQUIVALENTS, Beginning of period 1,335,729 153,580 3,104,845 None
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 599,884 $ 1,335,729 $ 153,580 $ 599,884
=========== =========== =========== ===========
Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- -------- -------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 386,557 $ 85,929 $ 1,966
--------- -------- -------
Cash paid for income taxes None None None
========= ======== =======
(Continued)
See notes to consolidated financial statements.
F-9
ALTAIR INTERNATIONAL INC. and subsidiaries
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended December 31, 2001:
o In connection with amendments to the Doral 18, LLC 2000 Note, we issued
warrants for 300,000 shares of common stock. The warrants had an estimated
fair value of $346,354 of which $239,562 has been amortized into interest
expense during the year ended December 31, 2001. The remaining amount will
be recognized over the life of the note.
o We cancelled call options on 228,456 shares of our common stock to pay
$97,743 of principal and $244,941 of interest on the Doral 18, LLC 2000
Note. In addition, the cancellation of the call options resulted in an
additional interest expense of $210,568.
o In accordance with the terms of our Doral 18, LLC 2000 Note, we paid
$644,804 of principal and $273,731 of interest through the issuance of
824,800 shares of our common stock. In addition, the conversion of the note
resulted in an additional interest expense of $301,888.
o We repriced warrants, held by a shareholder, for 713,333 common shares.
The repriced warrants have an incremental fair value of $52,417 and have
been accounted for as a preferential warrant dividend.
o In connection with the 2001 Note issued to Doral 18, LLC, we issued
warrants for 200,000 common shares. The warrants had an estimated fair
value of $74,733. We also repriced existing warrants for 650,000 common
shares from $3.00 per share to $1.50 per share. The repriced warrants have
an incremental fair value of $199,222.
For the year ended December 31, 2000:
o We entered into a capital lease obligation of $46,395 for laboratory
equipment.
o We issued 1,003,626 shares of common stock as part of a repricing
agreement (see Note 8).
o We recorded a stock subscription receivable for 165,000 shares of
common stock with an investor.
o In conjunction with the Doral 18, LLC note (see Note 6), we issued
warrants to purchase 350,000 common shares at $3.00 per share. The warrants
had an estimated fair value of $824,900.
o We cancelled call options on 19,222 shares of our common stock to pay
$18,221 of interest on the 2000 Note.
For the year ended December 31, 1999:
o On November 16, 1999, we acquired certain assets from BHP Minerals
International, Inc. Liabilities assumed in the acquisition are as follows:
Fair value of assets purchased $ 9,625,500
Cash paid None
-----------
Note payable denominated in U.S. dollars
(15,000,000 Australian dollars) $ 9,625,500
===========
See notes to consolidated financial statements. (Concluded)
F-10
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business - Altair International Inc. is incorporated in the
province of Ontario, Canada and is engaged in the business of (1)
producing titanium dioxide products, (2) exploring and developing mineral
properties in the United States, and (3) developing mineral processing
equipment for use in the recovery of fine and heavy mineral particles,
including titanium, zircon, gold and environmental contaminants. Our
authorized capital stock is comprised of an unlimited number of common
shares with no par value.
Prior to fiscal year 1998, we prepared our financial statements in
accordance with accounting principles generally accepted in Canada. Due to
substantially all of our operations being located in the United States, we
have elected to present our financial statements in accordance with
accounting principles generally accepted in the United States of America.
Principles of Consolidation - The consolidated financial statements
include the accounts of Altair International Inc. and its subsidiaries
which include (1) Mineral Recovery Systems, Inc. (MRS), (2) Fine Gold
Recovery Systems, Inc. (FGRS), (3) Altair Nanomaterials, Inc. (ANI), and
(4) Tennessee Valley Titanium, Inc. (TVT), (collectively referred to as
the "Company"), all of which are 100% owned. Intercompany transactions and
balances have been eliminated in consolidation.
Basis of Presentation - The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. As shown in the consolidated financial statements for
the years ended December 31, 2001, 2000, and 1999, we incurred net losses
of $7,754,031, $5,914,474, and $3,689,866, respectively, and since the
date of inception have incurred cumulative losses of $29,360,409. At
December 31, 2001 and 2000, we had stockholder's equity of $8,676,494 and
$10,220,911, respectively. At December 31, 2001, current liabilities
exceeded current assets by $81,154. However, at December 31, 2000, current
assets exceeded current liabilities by $234,714. These factors among
others may raise substantial doubt about the Company's ability to continue
as a going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern. Because the
Company is still in the exploration stage, there have been no adjustments
to record potential impairment on long-term assets. Our continuation as a
going concern is dependent upon our ability to generate sufficient cash
flow to meet our obligations on a timely basis, to obtain additional
financing or refinancing as may be required, to develop commercially
viable products and processes, and ultimately to establish successful
operations. We are in the process of developing the titanium processing
technology, the Tennessee mineral property, and the centrifugal jig. We
have financed operations primarily through the issuance of equity
securities (common stock, convertible debentures, stock options and
warrants), and by the issuance of debt (term notes). Additional funds will
be required to complete development activities. We believe that current
working capital, cash receipts from anticipated sales, and funding through
sales of common stock will be sufficient to enable us to continue as a
going concern.
F-11
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - Cash and cash equivalents are highly liquid
investments with an original maturity of three months or less. Cash
equivalents are recorded at cost, which approximates fair value.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded using the straight-line
method over the following useful lives:
Furniture and office equipment 3 - 7 years
Vehicles 5 years
Centrifugal jig equipment 7 years
Jig testing equipment 7 years
Pigment production equipment 5 - 10 years
Patents and Related Expenditures - Patents related to the pigment
production technology and centrifugal jig technology are carried at cost
and amortized on a straight-line basis over their estimated useful lives,
which range from 14 to 20 years.
Exploration - Expenditures incurred in the search for mineral deposits and
the determination of the commercial viability of such deposits are charged
to expense as incurred.
Research and Development Expenditures - Research and development
expenditures are charged to expense as incurred.
Debt Issuance Costs - Debt issuance costs are recorded at cost and
amortized over the life of the note payable, which ranged from 15 to 24
months. Debt issuance costs totaled $475,694 and $195,833 at December 31,
2001 and 2000, respectively.
Foreign Currency Translation - Asset and liability accounts, which are
originally recorded in the appropriate local currencies, are translated
into U.S. dollars at year-end exchange rates. Revenue and expense accounts
are translated at the average exchange rates for the period. Transaction
gains and losses are included in the accompanying consolidated statements
of operations. Substantially all of our assets are located in the United
States of America.
Stock-Based Compensation - We have elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and to furnish the pro forma disclosures
required under Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation.
Long-Lived Assets - We evaluate the carrying value of long-term assets,
including intangibles, when events or circumstance indicate the existence
of a possible impairment, based on projected undiscounted cash flows, and
recognize impairment when such cash flows will be less than the carrying
values. Measurement of the amounts of impairments, if any, is based upon
the difference between carrying value and fair value. Events or
circumstances that could indicate the existence of a possible impairment
include obsolescence of the technology, an absence of market demand for
the product, and/or continuing technology rights protection.
F-12
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Revenue Recognition - Revenue is recognized at the time the purchaser has
accepted delivery of the product. For the year ended December 31, 2001, we
sold titanium dioxide and lithium titanate nanoparticles, and other
materials, to customers involved in research activities totaling $42,816.
To date, none of our sales have been utilized by customers in commercial
products held for sale.
Net Loss Per Common Share - Basic net loss per common share is calculated
by dividing net loss by the weighted average number of common shares
outstanding during the period. The existence of stock options, warrants,
and convertible debentures does not affect the calculation of net loss per
share on a fully diluted basis because the effect of including the
additional common stock equivalents would be antidilutive.
Recent Accounting Pronouncements-SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, requires that all
derivative instruments, including certain derivative instruments embedded
in other contracts and hedging activities, be recognized as either assets
or liabilities at fair market value. We adopted the standard on January 1,
2001. There has been no impact on our financial statements of adopting
this statement.
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities - A Replacement of FASB Statement No.
125, requires disclosures related to securitization transactions and
collateral. We adopted this statement at January 1, 2001. There has been
no impact on our financial statements of adopting this statement.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, Business Combinations. SFAS No. 141 establishes accounting
and reporting standards for business combinations and is effective for
business combinations initiated after June 30, 2001. We adopted this
statement at July 1, 2001. There has been no impact on our financial
statements of adopting this statement.
In June 2001, the FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 establishes accounting and reporting
standards for goodwill and intangible assets, requiring annual impairment
testing for goodwill and intangible assets, and the elimination of
periodic amortization of goodwill and certain intangibles. We will adopt
the provisions of SFAS No. 142 in 2002. Net intangible assets as of
December 31, 2001 are $3,739,864. We have not yet completed an analysis of
the impact of the adoption of the statement. The impairment analysis will
be completed by June 30, 2002 as required by SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which requires asset retirement obligations to be
recognized when they are incurred and displayed as liabilities. SFAS No.
143 is effective for the year ending December 31, 2003. Management is
currently evaluating the impact of this pronouncement on the consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived
assets, including the disposal of a segment of business. SFAS No. 144 is
effective for the year ending December 31, 2002. Management is currently
evaluating the impact of this pronouncement on the consolidated financial
statements.
F-13
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Comprehensive Income - The only component of comprehensive income in 2001,
2000, and 1999 was net loss.
Deferred Income Taxes - We use the asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes
are provided for temporary differences in the bases of assets and
liabilities as reported for financial statement purposes and income tax
purposes. We have recorded a valuation allowance against all deferred tax
assets.
Extraordinary Items - As a result of a 1994 merger with TransMar, Inc.
(TMI), FGRS assumed all of TMI's liabilities. During 1999, 1998, and 1996,
FGRS extinguished certain of TMI's liabilities at less than the recorded
amounts of such debt. The gain on forgiveness of debt totaled $67,442,
$25,805, and $702,725 in 1999, 1998, and 1996, respectively.
During 1998, we redeemed convertible debentures of $2,250,000, incurring a
redemption loss of $193,256.
Deferred Revenue - We entered into a sales contract on October 6, 2000
with a customer for titanium dioxide nanoparticles under which the total
contract amount was prepaid. During 2001, $16,476 of products was
delivered under the contract and recognized as sales revenues.
Fair Value of Financial Instruments - Our financial instruments, when
valued using market interest rates, would not be materially different from
the amounts presented in the consolidated financial statements.
Reclassifications - Certain reclassifications have been made to the prior
year amounts to conform to classifications adopted in the current year.
3. ACQUISITION OF CERTAIN ASSETS
On November 16, 1999, we entered into an Asset Purchase and Sale Agreement
with BHP Minerals International Inc. (BHP), an Australian company,
pursuant to which we purchased all tangible equipment and other assets
related to a hydrometallurgical process developed by BHP primarily for the
production of titanium dioxide products from titanium bearing ores or
concentrates (the "Technology"), in process patent applications and the
use of the services of certain BHP personnel involved in the development
of the Technology for a period of one year.
The purchase price for the assets and technology was 15,000,000 Australian
dollars (AUD$), or $9,625,500 U.S. dollars (US$), and was payable in four
equal installments. The first installment was paid at closing on November
16, 1999, the second and third installments were paid on May 12, 2000 and
the remaining installment was paid on August 1, 2000. The installments due
in AUD$ were translated into US$ at the date of payment and the related
foreign currency gain (loss) was recorded as other income or expense. We
are also required to pay to BHP, until the earlier of (1) November 15,
2014 or (2) the date we have paid an aggregate royalty of 105,000,000
AUD$, a quarterly royalty of from 1.5% to 3% of certain titanium dioxide
products produced and 3% of other products sold. As of December 31, 2001,
$922 of royalties were payable under this agreement.
In connection with the Asset Purchase Agreement, we entered into a lease
with BHP pursuant to which we lease approximately 20,000 square feet of
laboratory and testing space at BHP's testing facility in Reno, Nevada for
a monthly rent of $16,153. The lease is subject to automatic renewal for
six-month periods at inflation-adjusted rent until terminated by us. The
lease grants us a right of first refusal in the event BHP intends to sell
the building and property subject to the lease.
F-14
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
The acquisition was accounted for as a purchase. The assets (consisting of
property and equipment, service agreement, and technology) have been
recorded at their estimated fair values at the date of acquisition. The
amount of the purchase price allocated to property and equipment was
$6,568,839, service agreement was $1,538,985, and technology was
$1,517,736. The technology is being amortized using the straight-line
method over seventeen years, which approximates the remaining life of the
patents pending. Subsequent to the acquisition, we applied for four United
States patents related to the technology acquired from BHP.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2001
and December 31, 2000:
2001 2000
---------- ----------
Furniture and office equipment $ 75,833 $ 82,582
Vehicles 125,031 125,031
Centrifugal jig equipment 649,065 644,632
Jig testing equipment 45,128 45,128
Pigment production equipment 6,974,548 6,822,679
---------- ----------
Total 7,869,605 7,720,052
Less accumulated depreciation (1,881,655) (1,118,135)
---------- ----------
Total property and equipment $ 5,987,950 $ 6,601,917
=========== ===========
Depreciation expense for the years ended December 31, 2001, 2000, and 1999
totaled $772,268, $751,846, and $169,234, respectively.
5. PATENTS AND RELATED EXPENDITURES
Patents and related expenditures consisted of the following at December 31, 2001
and December 31, 2000:
2001 2000
---------- ----------
Pigment production patent applications $ 1,517,736 $ 1,523,670
Centrifugal jig patents 4,210,987 4,210,987
Royalty agreement 424,881 424,881
Mineral recovery technology rights 243,000 243,000
---------- ----------
6,396,604 6,402,538
Less accumulated amortization (2,656,740) (2,290,798)
---------- ----------
Total patents and related expenditures $ 3,739,864 $ 4,111,740
=========== ===========
F-15
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable consisted of the following at December 31, 2001 and 2000:
2001 2000
----------- -----------
Note payable to Doral 18, LLC $ 1,867,857 $ 7,000,000
Less current portion (3,500,004)
Less discount resulting from allocation
of debt proceeds to warrant (405,797) (812,815)
----------- -----------
Long-term portion of notes payable $ 1,462,060 $ 2,687,181
=========== ===========
On December 15, 2000, pursuant to a securities purchase agreement, we
sold to Doral 18, LLC ("Doral") a $7 million 10% Asset-Backed
Exchangeable Term Note (the 2000 Note) and detachable warrants to
purchase 350,000 common shares at $3.00 per share. At the same time, we
acquired call options on 247,678 shares of our common stock held by
Doral 18, LLC.
Net proceeds of $4 million from the 2000 Note were placed in a
restricted bank account to secure a letter of credit and were scheduled
to be released as principal payments were made. Under the 2000 Note, we
were required to make monthly payments on or before the 15th day of
each calendar month in the principal amount of $291,667 plus accrued
interest. We had the right to redeem the monthly payment amounts in
cash at any time throughout the term of the 2000 Note and could prepay
the 2000 Note in $250,000 increments at any time at a price equal to
115% of the sum of outstanding principal and accrued interest. If we
elected not to redeem the monthly payment amount in cash, on each due
date, the holder of the 2000 Note automatically received the right to
exchange (immediately or at any later date during the term) the monthly
payment amount into common shares at the applicable exchange price. The
exchange price for any date was the lesser of (a) a fixed exchange
price of $3.00, subject to adjustment, and (b) the average of the
lowest three daily trading prices of the common shares during the 15
trading days ending on the day before an exchange right was exercised.
At its option, the holder of the 2000 Note could reduce at fair market
value the number of shares subject to the call option described in Note
8 in lieu of receiving shares upon the exercise of exchange rights. The
2000 Note was due and payable in full on December 15, 2003.
During 2000, we paid $18,221 of interest through the cancellation of
call options on 19,222 shares of our common stock.
During 2001, we made cash principal payments of $1,894,394, interest
payments of $286,557, and incurred additional interest expense of
$100,000 related to fees to extend the registration statement
associated with the 2000 Note. In addition, we paid $97,743 of
principal and $244,941 of interest on the 2000 Note through the
cancellation of call options on 228,456 shares of our common stock.
Doral also converted $644,804 of principal and $273,731 of interest
payable on the 2000 Note into 824,800 shares of common stock. These
conversions resulted in additional interest expense of $301,888 which
is equal to the difference between the fair value of the stock at the
date of conversion and the conversion price stated on the note
agreement.
On June 7, 2001, we entered into an agreement with Doral under which we
were granted the option to redeem up to $1,652,252 of the unpaid
monthly payment amounts with the addition of a 10% redemption premium.
In addition, Doral agreed to waive the penalties associated with late
effectiveness of the registration statement and gave us the option to
F-16
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
redeem the unexercised portion of exchange rights that are not
exercised within 90 days of becoming exercisable. In return for this,
we granted Doral warrants to purchase 300,000 common shares at an
exercise price of $3.00. The warrants expire on the earlier of December
15, 2005 or the date 60 days following the fifth day the closing price
of our common shares equals or exceeds $12.00. The warrants have a fair
value of $346,354 of which $239,562 has been amortized into interest
expense during the year ended December 31, 2001. The remaining amount
will be recognized over the life of the note.
On December 28, 2001, a Termination and Issuance Agreement was signed
with Doral. The 2000 Note was exchanged for a new note ("2001 Note")
having a face amount of $2,000,000. In addition, the letter of credit
discussed above was terminated and $2,500,733 of restricted cash
securing the letter of credit was paid to Doral. The 2001 Note has an
interest rate of 11% per annum (see below). Interest is due and payable
monthly. If interest is not paid, Doral automatically receives the
right to exchange (immediately or at any later date during the term)
the monthly interest payment amount into common stock at the applicable
exchange price. The exchange price for any date is equal to 75% of the
average of the closing price of our common stock for the five trading
days ending on the trading day immediately preceding the respective due
date for payment of interest. The principal amount of the 2001 Note is
due and payable on March 31, 2003.
In connection with the 2001 Note, 200,000 warrants were issued to Doral
to purchase common stock at an exercise price of $1.50. The warrants
are exercisable at any time on or before the earlier of (a) December
15, 2006, or (b) the date 60 days after the market price of the common
stock has been equal to or greater than $12.00 for five consecutive
days. The warrants have an estimated fair value of $74,733, as
determined using the Black-Scholes pricing model.
In addition, the exercise price of 650,000 warrants previously issued
to Doral in conjunction with the 2000 Note were repriced from $3.00 per
share to $1.50 per share. The repriced warrants have an incremental
fair value of $199,222, as determined using the Black-Scholes pricing
model.
Doral also received contingent warrants to purchase up to 500,000
shares of common stock. The warrants expire on the later of March 31,
2003 or the date the 2001 Note has been paid in full. The warrants are
subject to a vesting schedule under which 25,000 shares of common stock
vest when the closing price of our common stock exceeds $2.00 per share
for a period of ten consecutive trading days. Thereafter, additional
shares of common stock vest in increments of 25,000 on the day
following the first time the closing price exceeds a number greater
than $2.00 that is evenly divisible by .5 (e.g. $2.50, $3.00, $3.50)
for ten consecutive trading days. The warrant exercise price is $.01
per common share. The fair value of these warrants will be recognized
if and/or when such contingencies are resolved and the warrants vest.
In accordance with EITF 96-19, Debtor's Accounting for a Modification
or Exchange of Debt Instruments, the exchange of the notes discussed
above was not considered to result in a substantially different debt
instrument. Accordingly, although the note has a face amount of
$2,000,000, the carrying amount of the note on the date of modification
remains at $1,867,857 and the difference between this amount and the
face amount of $2,000,000 will be recorded as additional interest
expense over the life of the note. The new warrants issued and the
repricing of the existing warrants were recorded at a fair value of
$273,955 and represent additional debt modification costs. Such costs
are being amortized using the interest method over the new term of the
debt.
The proceeds of the 2000 Note were allocated between the debt and the
warrants based on relative fair values on the date of issuance. Because
the 2001 Note was not substantially different from the 2000 Note, the
remaining unamortized discount on the note payable is being accreted to
interest expense over the term of the 2001 Note.
F-17
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Under the terms of the 2001 Note, we are required to maintain a minimum
cash and cash equivalents balance of $250,000 at the end of each
calendar quarter and at any time the closing price of our common stock
has been below $1.00 per share for three or more trading days. As of
December 31, 2001, we complied with these requirements.
The 2001 Note is secured by a pledge of the equipment, intellectual
property and common stock of ANI, and by a pledge of the leasehold
interest in mineral deposits and common stock of MRS.
We have long-term capital leases 4 related to the acquisition of
equipment. Long-term capital lease obligations as of December 31, 2001
are as follows:
Year ending December 31, 2002 $ 2,353
Less amounts representing interest (41)
Less current portion (2,312)
------
Total None
------
The gross book value of equipment under capital leases was $46,395 at
December 31, 2001 and 2000. The amortization expense associated with
these capital leases is included in depreciation expense.
7. STOCK OPTIONS AND WARRANTS
Stock Options - We have stock option plans administered by the Board of
Directors that provide for the granting of options to employees,
officers, directors and other service providers of the Company. Options
granted under the plans generally are granted with an exercise price
equal to the market value of a common share at the date of grant, have
five-year terms and typically vest over periods ranging from
immediately to three years from the date of grant.
Stock option activity for the years ended December 31, 2001, 2000 and
1999 is summarized as follows:
2001 2000 1999
------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- -------- ----------
Outstanding at beginning
of year 2,958,700 $ 5.37 3,060,000 $ 5.92 1,965,000 $ 6.61
Granted during the year 1,368,000 2.12 420,000 3.86 1,550,000 5.74
Cancelled (595,000) 4.14 (450,000) 7.80 (455,000) 8.30
Exercised (65,000) 2.00 (71,300) 4.71
--------- -------- --------- -------- -------- ----------
Outstanding at end of year 3,666,700 $ 4.38 2,958,700 $ 5.37 3,060,000 $ 5.92
========= ========= ========= ========= ========= =========
Options exercisable at year end 2,999,700 $ 4.84 2,153,700 $ 5.45 1,835,000 $ 5.64
========= ========= ========= ========= ========= =========
Weighted average fair value of
options granted during year $ 1.70 $ 3.24 $ 2.83
========= ========= =========
F-18
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
The following table summarizes information about stock options
outstanding at December 31, 2001:
Stock Options
Stock Options Outstanding Exercisable
--------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------- ----------- ------------ ----- ----------- -----
$2.00 to$ 2.10 973,000 4.0 $ 2.00 411,000 $ 2.00
$2.25 to$ 4.00 825,000 2.9 2.62 795,000 2.61
$4.38 to$ 6.75 1,008,700 2.3 5.09 933,700 5.14
$6.79 to$ 10.00 860,000 1.6 7.93 860,000 7.93
- ----- ------- ------- --- ---- ------- ----
3,666,700 2.7 $ 4.38 2,999,700 $ 4.84
========= === ====== ========= ======
We have elected to follow the measurement provisions of APB Opinion No.
25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals
or exceeds the fair market value of the stock at the grant date.
Generally, stock options are granted at an option price at or greater
than fair market value on the date of grant. We recorded compensation
expense of $158,089, $424,063, and $765,386 for stock options granted
to non-employees for the years ended December 31, 2001, 2000, and 1999,
respectively.
We have adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. To estimate compensation
expense that would be recognized under SFAS 123, we have used the
modified Black-Scholes option pricing model. If we had accounted for
our stock options using the accounting method prescribed by SFAS 123,
our net loss and loss per share would be as follows:
2001 2000 1999
----------- ----------- -----------
Net loss (both basic and diluted):
As reported $ 7,754,031 $ 5,914,474 $ 3,689,866
Pro forma 9,228,721 9,637,609 4,628,960
Loss per common share (both basic and diluted):
As reported 0.39 0.34 0.23
Pro forma 0.46 0.56 0.30
In calculating pro forma compensation, the fair value of each stock
option is estimated on the date of grant using the Black-Scholes
option-pricing model and the following weighted average assumptions:
2001 2000 1999
------ ------ ------
Dividend yield None None None
Expected volatility 81 % 93 % 75 %
Risk-free interest rate 4.76 % 6.40 % 5.80 %
Expected life (years) 5.0 4.6 5.0
F-19
ALTAIR INTERNATIONAL INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2001
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
Warrants - Warrant activity for the years ended December 31, 2001,
2000, and 1999 is summarized as follows:
2001 2000 1999
---------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
-------- ----- -------- ----- -------- -----
Outstanding at beginning
of year 1,883,672 $ 5.175 150,000 $ 8.50 180,000 $ 16.72
Granted during the year 3,441,668 1.24 1,733,672 4.89 150,000 8.50
Expired (180,000) 16.72
Exercised (713,333) 1.00
--------- ---- --------- ---- ------- ----
Outstanding at end of year 4,612,007 $ 2.92 1,883,672 $5.175 150,000 $ 8.50
========= ======= ========= ====== ======= ======
The warrants were issued in conjunction with debt offerings, issuance
of common stock, and payment for outside services. The warrants expire
on various dates ranging from March 2002 to July 2006. Most warrants
contain provisions whereby the expiration date is accelerated if our
Common Shares close at or above specified prices ranging from $2.50 to
$14.00 per share.
8. OTHER TRANSACTIONS
On March 31, 2000, we entered into a common stock purchase agreement
with a private equity fund pursuant to which the equity fund purchased
1,251,303 Common Shares of Altair for an aggregate purchase price of
$6,000,000; however, the number of shares received by the equity fund
in exchange for $6,000,000 was subject to repricing adjustments if the
lowest average closing price for any ten days during each of four
30-day repricing periods did not meet a certain threshold. Prior to
December 15, 2000, the equity fund repriced 750,782 of the initial
shares it purchased under the common stock purchase agreement and
received an additional 1,003,626 Common Shares.
Pursuant to an assignment and agreement dated December 15, 2000, the
equity fund referred to in the preceding paragraph transferred all of
its remaining rights under the common stock purchase agreement,
including its right to reprice the remaining 500,521 of the initial
1,251,303 shares, to Doral 18, LLC (Doral) (see Note 6). Pursuant to
this purchase agreement, Doral exercised its right to reprice
approximately 70,928 of the initial shares and received 247,678 Common
Shares. In exchange for approximately $1,650,000, we bought from Doral
and terminated all remaining rights under the common stock purchase
agreement, including all remaining repricing rights. In conjunction
with this buyout, Doral granted us a call option to purchase 247,678
Common Shares for a nominal exercise price. Between December 15, 2000
and December 28, 2001, we paid $97,743 of principal and $244,941 of
interest on the $7 million 10% Asset-Backed Exchangeable Term Note
through the cancellation of call options on the 247,678 Common Shares
(see Note 6).
In 2001, we received payment of $561,300 from an investor on a stock
subscription receivable.
On March 26, 2001, 266,170 shares of common stock held in escrow as
part of the 1999 TransMar, Inc. merger agreement were cancelled because
the assets acquired from TransMar, Inc. did not generate the cash flow
required by the escrow agreement.
F-20
On October 18, 2001, we reduced the exercise price of 255,000
outstanding warrants to $1.00 per share for a period of 45 days and we
reduced the exercise price of 458,333 outstanding warrants to $1.00 per
share through December 14, 2001. As a result of these repricings, we
recorded a preferential warrant dividend of $52,417 as of the repricing
date. The warrants had been previously issued with exercise prices
ranging from $4.00 to $8.00.
9. LEASES
Operating Leases - We lease certain premises and equipment under
operating leases. As of December 31, 2001, future minimum lease
payments under non-cancelable operating leases were $5,415 due in 2002.
Lease expense for the years ended December 31, 2001, 2000, and 1999
totaled $304,330, $283,964, and $104,622, respectively.
Mineral Leases - Our subsidiary, MRS, has entered into various mineral
leases for a 100% interest in approximately 9,700 acres of land in the
state of Tennessee, United States with minimum annual advance royalty
payments as follows:
Year ending December 31:
2002 $ 139,761
2003 157,537
2004 248,411
2005 254,807
2006 254,807
Thereafter 355,405
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. The
Company has paid royalties of $87,593, $101,559, and $55,440 for the
years ended December 31, 2001, 2000, and 1999, respectively. As of
December 31, 2001, we owed $8,868 of royalty payments to lessors.
10. INCOME TAXES
Because of the net operating losses and a valuation allowance on
deferred tax assets, there was no provision for income taxes recorded
in the accompanying consolidated financial statements for the three
years in the period ended December 31, 2001.
A reconciliation of the federal statutory income tax rate and our
effective income tax rates is as follows:
Year Ended December
------------------------------------------------
2001 2000 1999
Federal statutory income taxes (benefit) $ (2,713,911) $ (2,010,921) $ (1,254,554)
Meals and entertainment 601 1,824 2,349
Valuation allowance 2,713,310 2,009,097 1,252,205
--------- --------- ---------
Total None None None
--------- --------- ---------
F-21
The components of the deferred tax assets consisted of the following as
of December 31, 2001 and 2000:
2001 2000
---------- ----------
Deferred tax assets:
Net operating loss carryforward $ 6,238,645 $ 3,349,475
Unrealized loss 80,359 24,312
---------- ----------
Total deferred tax assets 6,319,004 3,373,787
Deferred tax liabilities
- basis difference in assets (879,780) (725,740)
Valuation allowance (5,439,224) (2,648,047)
---------- ----------
Total deferred tax assets None None
========== ==========
The net operating loss carryforwards total $17,824,699 as of December
31, 2001 will expire at various dates beginning in 2001 through 2020.
11. COMMITMENTS AND CONTINGENCIES
Employment Agreement - Under the current employment agreement between
Altair and our president, Dr. William P. Long, Dr. Long is entitled to
receive 200,000 Common Shares in the event (i) voting control of over
35% of the issued stock is acquired in a merger, takeover or similar
transaction (a "change of control") and Dr. Long's employment agreement
is terminated within 180 days before or at any time after such change
of control, or (ii) absent a change of control, if Dr. Long's
employment agreement is terminated for any reason except by Dr. Long,
by mutual consent, by Altair for cause, or at the end of the term.
Litigation - We are currently not aware of any investigations, claims,
or lawsuits which we believe could have a material adverse effect on
our consolidated financial position or on our consolidated results of
operations.
12. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2001, officers made loans to us of
$168,000. These are short-term, unsecured, non-interest bearing loans
payable on demand, the proceeds of which were used to meet working
capital needs. A total of $25,000 was repaid during 2001.
13. SUBSEQUENT EVENT
On March 11, 2002, we entered into a stock subscription agreement with
a private investor which provides for the sale of 666,667 common shares
and 1,000,002 warrants to purchase common shares at exercise prices
between $2.00 and $3.00 per share for $1,000,000 on or before May 31,
2002.
******
F-22
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statement Nos.
333-76820, 333-54092, 333-36462, 333-45511 of Altair International, Inc. on Form
S-3 and Registration Statement Nos. 333-64495 and 333-33481 of Altair
International, Inc. on Form S-8 of our report dated March 25, 2002, appearing in
this Annual Report on Form 10-K of Altair International, Inc. for the year ended
December 31, 2001.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 27, 2002
44