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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
|_| 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.
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(Exact name of registrant as specified in its charter)
Province of
Ontario,
Canada 1-12497 None
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
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 Stock Market, Alberta Stock Exchange
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(Title of Class) (Name of each exchange on which registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the Common Shares held by non-affiliates
of the Registrant on February 27, 1998, based upon the closing sale price of the
Common Shares on the NASDAQ Stock Market of $13.438 per share on February 27,
1998, was approximately $168,557,980. 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 February 27, 1998, the Registrant had 15,510,245 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INDEX TO FORM 10-K
PART I .................................................................. 1
Exchange Rate Information......................................... 1
Item 1. Business.......................................................... 1
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General........................................................... 1
Target Markets.................................................... 3
Heavy Minerals Recovery.................................... 3
Coal Washing............................................... 3
Environmental Remediation.................................. 4
Other Testing.............................................. 4
Tennessee Minerals Property....................................... 4
Technology and Proprietary Rights................................. 5
Competition....................................................... 6
Alternative Technologies................................... 6
Competing Products......................................... 6
Plan of Operation................................................. 7
Business Development....................................... 7
Research, Testing and Development.......................... 7
Subsidiaries...................................................... 9
Government Regulation and Environmental Concerns.................. 10
Government Regulation...................................... 10
Environmental Regulation and Liability..................... 11
Employees......................................................... 11
Glossary of Terms................................................. 11
Factors That May Affect Future Results............................ 12
Absence of Operating Revenues; Operating Losses............ 12
Product Development Risk................................... 13
Property Development Risk.................................. 13
Dependence on Third Party Manufacturers.................... 13
Sufficiency and Price of Capital........................... 13
Competing Products and Alternative Technologies............ 14
Dependence on Commodities Markets.......................... 14
Risk of Development, Construction and Mining Operations.... 14
Government Regulation; Environmental Permits and Liability. 14
Enforceability of Civil Liabilities Against Foreign Persons 15
Patents for the Centrifugal Jig............................ 15
Dependence on Key Personnel................................ 15
Acquisition Risks.......................................... 15
Possible Issuance of Substantial Amounts of Additional
Shares Without Stockholder Approval............... 16
Possible Volatility of Stock Price......................... 16
Shares Eligible for Future Sales........................... 16
Absence of Dividends....................................... 16
Item 2. Properties........................................................ 16
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Item 3. Legal Proceedings................................................. 17
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Item 4. Submission of Matters to a Vote of Security Holders............... 17
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PART II .................................................................. 17
Item 5. Market for the Registrant's Common Stock and Related
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Shareholder Matters............................................... 17
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Market Price...................................................... 17
United States.............................................. 17
Canada .................................................. 18
Outstanding Shares and Number of Shareholders..................... 18
Dividends......................................................... 19
Transfer Agent and Registrar...................................... 19
Canadian Taxation Considerations.................................. 19
Recent Sales of Unregistered Securities........................... 19
Item 6. Selected Financial Data........................................... 21
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Item 7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations......................................... 21
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Overview.......................................................... 21
Results of Operations............................................. 22
Fiscal Years 1995, 1996, and 1997.......................... 22
Liquidity and Capital Resources................................... 23
Item 8. Financial Statements and Supplementary Data....................... 23
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Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure.............................................. 23
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PART III .................................................................. 24
Item 10. Directors and Executive Officers of the Registrant................ 24
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Compliance with Section 16(a) of the Exchange Act................. 25
Item 11. Executive Compensation............................................ 25
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Summary Compensation Table........................................ 25
Option Grants in 1997............................................. 26
Aggregated Option Exercises and at Year-End Option Values......... 26
Compensation of Directors......................................... 27
Employment Agreements............................................. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 27
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Item 13. Certain Relationships and Related Transactions.................... 28
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PART IV .................................................................. 29
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 29
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(a) Documents Filed............................................ 29
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1. Financial Statements.............................. 29
2. Financial Statement Schedules..................... 29
3. Exhibit List...................................... 30
(b) Reports on Form 8-K........................................ 31
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(c) Exhibits................................................... 31
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(d) Financial Statement Schedule............................... 31
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SIGNATURES .................................................................. 32
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PART I
This Annual Report on Form 10-K for the year ended December 31, 1997 (this "Form
10-K) contains "forward- looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Exchange Act of 1934, as amended (the "Exchange Act"), that involve
risks and uncertainties. Purchasers of any of the common shares, no par value
(the "Common Stock") of Altair International Inc. ("Altair" or the "Company")
are cautioned that the Company's actual results will differ (and may differ
significantly) from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those factors
discussed herein under "Factors That May Affect Future Results" and elsewhere in
this Form 10-K generally. The reader is also encourage to review other filings
made by the Company with the Securities and Exchange Commission (the
"Commission") describing other factors that may affect future results of the
Company.
Exchange Rate Information
The following exchange rates represent the noon buying rate in New York
City for cable transfers in Canadian dollars, as certified for customs purposes
by the Federal Reserve Bank of New York. The following table sets forth, for
each of the years indicated, the period end exchange rate, the average exchange
rate (i.e., the average of the exchange rates on the last day of each month
during the period), and the high and low exchange rates of the U.S. dollar in
exchange for the Canadian dollar for the years indicated below, based on the
noon buying rates.
Year Ended December 31,
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1997 1996 1995 1994 1993
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(Canadian dollar per US dollar)
High............................... 1.4398 1.3822 1.4238 1.4078 1.3443
Low................................ 1.3392 1.3310 1.3285 1.3103 1.2428
Average............................ 1.3849 1.3638 1.3725 1.3664 1.2902
Year End........................... 1.4288 1.3697 1.3655 1.4030 1.3255
Item 1. Business
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General
A glossary of technical terms used in the following description of the
Company's business is set forth at the conclusion of this Item 1.
The Company was incorporated under the laws of the Province of Ontario,
Canada in April 1973 for the purpose of acquiring and developing mineral
properties. Since 1994, the Company has increasingly shifted its emphasis from
the acquisition and development of mineral properties to the development and
testing of mineral processing equipment for use in the recovery of fine, heavy
mineral particles, including titanium, zircon, gold and environmental
contaminants. The Company is a development stage firm and has been since its
inception. To date, the Company has derived no revenues from product sales or
otherwise and has experienced an operating loss in every year of operation. In
the fiscal year ended December 31, 1997, the Company experienced operating
losses of $1,831,471.
During 1996, the Company acquired the rights to the Campbell
Centrifugal Jig, since modified and renamed the Altair Centrifugal Jig (the
"CJ"), through a merger involving the Company, Fine Gold Recovery Systems, Inc.,
a wholly owned subsidiary of the Company ("Fine Gold"), and Trans Mar, Inc., a
Washington corporation ("TMI"). The CJ is a patented device capable of
segregating and recovering extremely fine mineral particles or contaminants,
many of which are not economically recoverable utilizing conventional techniques
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or processes. See "--Technology and Proprietary Rights." The Company views the
acquisition of and development of the CJ as strategically significant.
Management believes the CJ can be successfully developed in order to recover
extremely fine, heavy particulate matter. The CJ has added to the Company's
historical minerals acquisition and exploration operations an opportunity to
become a developer of unique minerals processing technology. Further, efforts to
develop and test CJ technology have led Altair to identify and lease rights to a
mineral deposit located in Camden, Tennessee (the "Tennessee Minerals
Property"). Management believes that the Tennessee Minerals Property, which
would not have been economically developed without the CJ technology, might
feasibly be developed and mined using the CJ. See "--Tennessee Minerals
Property."
The CJ segregates particles based on differences in their specific
gravity. Such technology may be categorized as a "gravity separation" process.
Gravity separators are widely used in minerals beneficiation because of their
relative simplicity, low cost of operation and ability to continuously treat
large tonnage throughput. Management believes the CJ will be able to
economically recover smaller particles than can be presently economically
recovered by competing gravity technologies. While not yet confirmed through
actual operations, the cost to manufacture and operate the CJ is expected to be
similar to the cost to manufacture and operate competing gravity separators,
which efficiently process only particles larger than 150 mesh. In contrast, the
Company's tests suggest that the CJ will be able to maintain relative efficiency
when processing feeds as small as 400 mesh. See "--Competition." In tests
conducted to date using the CJ to process relatively small particles, the CJ has
yielded product quality (grade and contaminates) equivalent to that yielded by
alternative technologies processing larger particles. See "--Target Markets" and
"--Competition."
Several prototype and demonstration jigs have been built and tested by
the Company and TMI. Continued field testing of the CJ is being undertaken to
increase the volume capacity, identify any design problems that may reside in
the CJ technology, evaluate the CJ's ability to perform sustained operations,
determine the potential for downtime during such operations and estimate the
anticipated maintenance costs associated with continued operations. In addition,
field testing is being carried out to improve operating design for specific
applications. There can be no assurance that the testing program will be
successful for all applications or that testing will demonstrate the CJ to be
economically attractive to end users. See "--Factors That May Affect Future
Results."
During 1997, the Company focused much of its operations on testing of
its Series 12 CJ, designed to be capable of processing 120 tons of solids per
day. Although the test results on the Series 12 CJ suggest that commercial use
of the Series 12 CJ is technically feasible, the Series 12 CJ is a test model
with limited capacity, and therefore, use of the Series 12 CJ is not economical
for most intended applications or target markets, excepting small placer gold
mines or similar operations. During late 1997, the Company designed and built a
larger Series 30 CJ, designed to be capable of processing 500 tons of solids per
day, which intended capacity management believes is sufficient for minerals
processing, coal washing, and many other intended commercial applications. See
"--Target Markets." The Series 30 CJ has been installed for testing at a mineral
recovery plant operated by a large heavy mineral sand producer located in
northern Florida, with testing completion planned for the first half of 1998.
See "--Plan of Operation." The volumes of solids per day that the Series 12 CJ
and Series 30 CJ are actually capable of processing have not yet been
established through testing; however, the Company expects that planned testing
over the next twelve months will confirm that the two models can process the
volumes they have been designed to process. The Company believes that CJ units
larger than the Series 30 CJ could be designed and readily constructed in the
future. Also, multiple units might be used in series or parallel configurations
to process high volume operations.
Preliminary demonstration tests conducted by the Company and TMI
suggest that the CJ may be commercially viable in a number of applications,
including:
o Recovery of ultra fine gold from waste streams or former tailings;
o Recovery of zircon, rutile, leucoxene, and other valuable
fractions from heavy mineral sand operations, especially from
finely sized waste piles;
o Sulfur and ash removal from fine coal;
o Recovery of iron ore fines from fine tailings;
o Concentration of heavy minerals, such as anatase, aparite,
barite, cassiterite, chromite, columbite, industrial diamonds,
fluorite, various garnets, monazite, tantalite and wolframite;
o Remediation of nuclear waste.
2
Target Markets
The Company's present focus is on developing markets for the CJ that
have the greatest near-term profit potential. Although management of the Company
believes that, in the long run, the CJ may potentially be useful for a number of
applications, management believes that, the most promising markets for the CJ in
the short run are for use in (i) processing of heavy mineral sands in order to
recover heavy minerals, particularly zircon and titanium, (ii) washing of coal
fines in order to remove fine pyrite particles and ash, and (iii) to a lesser
extent, environmental remediation.
Heavy Minerals Recovery. In the minerals arena, the Company seeks to
enter into royalty or limited licensing agreements under which the CJ can add
value to the beneficiation process, especially the processing of heavy mineral
sands. Verification testing with the Series 12 CJ suggests the CJ's potential
for recovering zircon from heavy minerals sand dry mill tails in Florida. In
Phase 1 and 2 trials conducted by the Company involving separation of commercial
grade zircon products from mineral sands, the Series 12 CJ withdrew a larger
portion of zircon from the feed ore than other mineral sands processing
equipment in use today. In tests on zircon/contaminate feeds conducted by the
Company, the Series 12 CJ has yielded greater than 90% zircon concentrates and
recovered up to 75% of the zircon fed to the unit.
The primary valuable minerals produced from heavy mineral sands are
titanium and zircon. Titanium is used primarily as a basic component of pigments
which are used in the production of paints, plastics, and paper. Zircon is used
primarily for foundry molds and in the manufacture of certain types of glass and
ceramics. The Company believes the domestic and international markets for both
of these products are significant and well established. Both are commodities
traded in bulk, usually under long term contracts, and are also sold in 50-100
lbs. bags, usually traded as a spot-priced product. The U.S. Geologic Survey has
reported that production of titanium dioxide in the United States during 1997
was approximately 1,330,000 metric tons, representing a market value of
approximately $2.73 billion. The U.S. Geologic Survey does not report zirconium
production for the United States; however, according to the 1993 Mineral
Commodities Summaries prepared by the U.S. Department of the Interior, Bureau of
Mines, consumption of zirconium in the United States during 1992 was
approximately 75,000 metric tons, representing a market value of approximately
$16.1 million. There can be no assurance that testing will demonstrate that the
CJ can economically extract heavy minerals from heavy minerals sands or that the
CJ will prove attractive to end users.
Coal Washing. During 1997, the Company tested the Series 12 CJ to
evaluate its ability to remove fine pyrite particles and ash from coal fines, in
an attempt to create a saleable product from material currently discharged as
mine waste. The tests were carried out at Southern Illinois University in
conjunction with a major coal producer. Tests were conducted on a crushed coal
middlings material with difficult cleaning characteristics. The following
conclusions, have been provided the company by the Southern Illinois University
Department of Mining Engineering:
"1. For the 28 x 325 mesh particle size fraction of a Pittsburgh
No. 8 seam coal, the Altair Centrifugal Jig was found to
provide a reduction in ash content from an average of 30% to
10% while recovering 86% of the combustible material. The
corresponding reduction in total sulfur content was from 2.50%
to 1.40%. This separation performance resulted in a 78%
rejection of ash-bearing material and 62.5% rejection of total
sulfur. Considering that the feed material contained a
significant amount of near-gravity material due to its
origination from the middlings stream of a jig, the high
separation efficiency value of around 55% is a remarkable
achievement for the Altair Jig.
2. Partition curves derived from Altair Jig washability data
indicate the ability to achieve a relatively low specific
gravity cut point (D50) of nearly 1.50 at a probable error
value (Ep) of 0.10. These performance values rank among the
best of those reported for other enhanced gravity
concentrators.
3. The separation performance achieved on the 28 x 325 mesh
particle size fraction by the Altair Jig was found to be
superior to the results obtained from advanced washability
(release) analysis, which represents the ultimate performance
achievable by any flotation technology.
3
4. The separation performance results obtained as a function of
particle size indicates that the optimum separation was
achieved on the 100 x 200 mesh particle size fraction. This
fact was confirmed by both the metallurgical and process
efficiency results. For the coarsest particle size fractions,
the ash-forming material was found to have difficulty in
passing through the screen. Thus, ash recovery to the product
is sufficiently higher than the finer material. However, the
excellent separation performances achieved on the particle
size fractions below 100 mesh are superior to other
commercially available enhanced gravity technologies. This
finding is especially unique due to the use of a relatively
low centrifugal force of 45 g's.
5. A circuit utilizing the Altair Jig to clean the 28 x 325 mesh
particle size fraction and a flotation column to treat the
-325 mesh fraction was predicted to provide a 10% product ash
content while recovering 78% of the combustible material. In
comparison, the use of a flotation column to treat the entire
-28 mesh coal would only recover 60% of the combustible
material while achieving the same product ash content. Thus,
the use of the Altair Jig to treat the high middlings content
coal used in this study would result in an overall increase in
recovery of 18% weight units.
6. A complete parametric study was conducted based on a
statistically designed test program and response evaluation
software. Empirical equations describing the effects of
operating parameters value on important response variables,
i.e., combustible recovery, ash rejection, and sulfur
rejection, have been developed and utilized to identify the
optimum test conditions."
Based on these test results, and others, the Company believes utilities
in the eastern United States may be able to use the CJ to remove pyrite from
high sulphur eastern coals, potentially reducing the need to incur the expense
of transporting low-sulphur western coals. For example, the cost of transporting
coal from Wyoming, a large coal mining area, to the midwestern United States
typically comprises 75% of the cost of the delivered coal product. In addition,
the Company believes the CJ may be used to remove ash from coal, which would
benefit utilities because ash reduces the thermal value of coal and causes
undesirable environmental impacts. Currently, the Company has established a coal
wash test program with Kerr-McGee Coal Corp. and the University of Southern
Illinois. The program is utilizing the Series 12 CJ in processing coal feeds in
an on-line coal wash plant production environment. See "--Plan of Operation."
There can be no assurance that testing will demonstrate that the CJ can
economically remove pyrite, ash, or other substances or that the CJ will be
attractive to coal purchasers.
Environmental Remediation. Testing of the Series 12 CJ conducted under
a grant from the U. S. Environmental Protection Agency at Montana College of
Mineral Science and Technology during 1994 indicated that the CJ may be
effective in removing heavy minerals from old mine and mill tailing sites. The
1994 tests indicated that the CJ removed approximately 64% of the fine pyrite
contained in mill tailings in a single pass through the machine. Nearly 80% of
the fine pyrite content of such tailings was removed in two passes through the
machine. In 1995, the U.S. Department of Energy (the "D.O.E.") sponsored tests
suggesting that the CJ may be capable of removing dense nuclear particles from
radioactive waste. The tests conducted by the D.O.E. reported that the CJ was
able to remove up to 54% of the contained nuclear contaminate in a single pass.
Company management is currently exploring these potential environmental
remediation applications.
Other Testing. The Company has licensed a Series 12 CJ to BHP Minerals
International Inc. ("BHP") for installation at BHP's worldwide testing
laboratory in Reno, Nevada. Under the terms of the license, in exchange for
nominal consideration, the Company has granted BHP a non-exclusive license for
use of the Series 12 CJ until September 1, 1998, subject to a one year extension
at the option of BHP. BHP is not restricted in its choice of ores or minerals
for testing. The Series 12 CJ has been delivered to BHP and is currently in the
process of being installed. The Company has committed to train BHP personnel to
operate and conduct routine maintenance, and to provide limited consulting to
BHP on an on-going basis. See "---Plan of Operation."
Tennessee Minerals Property
The Tennessee Minerals Property consists of approximately 4,300 acres
of land that the Company has leased (or has binding commitments to lease) in or
near Camden, Tennessee, containing fine, heavy minerals. During 1997, the
Company's exploration activities on the Tennessee Minerals Property have
included geologic mapping, sample collection, drilling of 72 auger holes and
preparation of geologic and deposit models. The deposit model also incorporates
40 drill holes completed by an earlier exploration company. Deposit model
4
estimates are consistent with deposit estimates previously determined by other
resource companies. The mineral deposit on the Tennessee Minerals Property has
not yet been proven to be a reserve (as defined in Item 802, Guide 7 promulgated
under the Exchange Act), and the Company's limited Regulation S-K operations and
proposed plan with respect to it are exploratory in nature.
The production of saleable heavy minerals from heavy mineral sand ore
is a two-stage process. At the mine site, heavy mineral ore is treated in a "wet
mill" where a 90% total heavy mineral concentrate is prepared typically
utilizing gravity separation equipment. This concentrate is then taken to a "dry
mill" where individual mineral constituents are extracted using magnetic and
high tension electrical separators.
In order to assess the amenability of the Tennessee Minerals Property
ore to processing with the CJ, two bulk samples were collected by the Company
from the Tennessee Minerals Property. Test work completed by the Company on the
first sample during the spring of 1997 suggested the sands can be processed with
the CJ. Tests performed by the Company which emphasized recovery have yielded up
to 94% heavy mineral recovery with a six- to-one concentration ratio. (Stated
differently, after a single pass through the CJ, 94% of the ore's value was
concentrated in about one-sixth of its original volume, and five sixths of the
sand rendered a non-valuable discard.) As is typical of gravity separation
processing, several passes through the CJ will be necessary to produce a 90%
total heavy mineral concentrate. Further, in the event the Tennessee Minerals
Property is proven to contain significant heavy mineral reserves the CJ would
likely be used in conjunction with traditional gravity separators, primarily
spirals, to most efficiently process the sand ore in the "wet mill". A second
bulk sample was collected during late 1997. Approximately 5,000 pounds of
representative mineralized material was collected from an exposed sand horizon.
This sample is being processed by an independent Florida heavy sands producer
and the Company utilizing both "wet mill" and "dry mill" processes to produce
representative samples of saleable products.
See "--Plan of Operation."
Management believes that because the sands are unconsolidated, and
hence easily worked, the Tennessee Minerals Property deposit may be amenable to
large-scale, low-cost mining. Initial pre-feasibility tests on the Tennessee
Minerals Property, based on tonnage and grade features, indicate the potential
for a large-scale sand mining operation with a multi-decade life. In order to
better assess the feasibility of economically mining the Tennessee Minerals
Property, the Company has retained an independent consulting group to commence a
technical pre-feasibility study to be completed in late 1998. If the results of
the pre-feasibility study suggest that the Tennessee Minerals Property is
amenable to large-scale, low-cost mining, the Company will undertake a thorough
feasibility study beginning late in the 1998 fiscal year. Such a feasibility
study would involve the actual design, pricing, and analysis of equipment and
facilities that would be used to mine the Tennessee Minerals Property. The
Company expects that completion of a feasibility study will take 12-18 months.
If the feasibility study suggests that cost-effective mining of the Tennessee
Minerals Property is feasible, mining could begin on the Tennessee Minerals
Property within 24-36 months after completion of the study, subject to, among
other things, the price of, and demand for, extractable heavy metals and the
Company's ability to obtain necessary financing, permits, and governmental
approvals. See "--Plan of Operation" and "--Government Regulation and
Environmental Concerns."
Technology and Proprietary Rights
In operation, the CJ utilizes a combination of standard mechanical jig
and centrifugal technologies. Without having tested the CJ in sustained,
commercial operations, management believes production models of the CJ, if
completed, will be capable of sustaining high reliability and low maintenance
costs in a production environment. See "--Plan of Operation." Use of the CJ
requires no chemical additives. The Series 12 CJ stands about six feet tall,
requires floor space of about 25 square feet and weighs approximately 2,000
pounds. Recently constructed jigs have been mounted on metal frames along with
jig auxiliary equipment--pulse water pump and tank and control panel--for
transport by truck and rapid on-site installation.
A conventional jig separates a slurry of mineral particles as it flows
across the top of a screen. Water is periodically pulsed up through the screen
to eliminate interparticle friction and allow differential settling according to
the variations in the net specific gravities of the ore. Heavier minerals are
allowed to pass downward through the screen while lighter materials flow across
the screen to a discharge point. The CJ 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 CJ are introduced into the top of the CJ in a slurry mix
with water. The slurry is diffused across the top of the interior of a vertical
5
cylindrical screen which is rotating. Water is pulsed through the screen
allowing differential separation in the slurry material. Heavy particles pass
through the screen, are collected, and exit the machine in a "concentrate"
stream. Lighter particles flow down the screen interior, are collected and exit
out the bottom of the machine in a separate "tails" stream.
The Company does not intend to establish its own manufacturing
facility. Management is considering options for manufacture of the CJ, including
manufacturing under contract, exclusive licensing, or a joint venture. The
arrangement could eventually include an exclusive license for manufacture,
warehousing and distribution of spare parts, as well as maintenance and leasing
of the CJ. Currently, the Company has entered into an agreement with a machine
shop located in Marysville, California, to manufacture the initial models of the
CJ. Under the terms of the agreement, the machine shop has constructed four
Series 12 CJs and one Series 30 CJ.
Initial patents on the CJ have been issued in the United States, South
Africa, United Kingdom, Australia, and Canada. Patent applications are pending
in Germany, France and Japan. A series of second patents have been issued with
respect to a critical component of the CJ in the United States, Australia,
Canada, Great Britain, and South Africa, as well as under General European
procedures. The Company filed an application in the United States seeking a
third patent for a recently developed component of the CJ on May 15, 1997 and
intends to file applications in Canada and certain European nations.
In two separate transactions in 1996 and 1997, the Company purchased an
aggregate of 83% of the capital stock of Intercontinental Development
Corporation ("Indeco") for total consideration of $355,835. Indeco has as its
sole asset a royalty agreement entitling Indeco to 10% of the capital stock of
the cost of manufacturing any CJs which are placed in production, sold or
exploited for profit worldwide.
Competition
Alternative Technologies. Various mineral processing technologies
perform many functions similar or identical to those for which the CJ is
designed. See "Factors That May Affect Future Results - Competing Products and
Alternative Technologies." Minerals processing technologies are generally
predicated on the physical and chemical characteristics of the materials being
processed. Contrasts in size, specific gravity, hardness, magnetic
susceptibility, and electrical conductivity are physical characteristics that
the processor exploits to selectively extract and concentrate mineral
constituents. Variations in chemical reactivity and molecular affinity are also
used to selectively segregate feed components.
The CJ competes in an arena in which particle specific gravity is the
primary criteria for particle segregation and capture. Spirals and cones are
mechanical gravity separation devices commercially used in the recovery of heavy
minerals from sand-sized feeds and are generally most effective when feed sizes
are larger than 150 mesh. Recovery efficiency falls dramatically with smaller
feeds. In contrast, the Company's preliminary tests indicate that the CJ
maintains relative efficiency when separating particles sized from 100 to 400
mesh.
Froth floatation is a minerals beneficiation process used to
selectively separate sulfide particles by introducing chemical agents which
attach to certain sulfides; once attached, the sulfides are separated by
floatation. This method may be effective on particles as small as 200 mesh.
Froth floatation requires the use of chemical agents and does not separate
particles based on density as does the CJ. Froth floatation applications are
limited principally to certain sulfide particles and generally do not work on a
broad range of heavy minerals.
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. Its application elsewhere is limited, however,
because the process is time consuming where the media required is highly
viscous. Also, the cost of the media may limit the commercial usefulness of this
method.
Competing Products. The Company believes that the CJ currently faces
several forms of competition in the commercial segregation of dense particles
contained in feeds between 150 and 400 mesh. "See "Factors That May Affect
Future Results - Competing Products and Alternative Technologies." Another
centrifugal jig device, the Kelsey jig, has been developed in Australia
subsequent to the invention of the CJ. The Kelsey jig is more complicated in
design than the CJ, which the Company believes makes it more expensive to
manufacture, operate and maintain in a production environment. As of mid-1995,
according to the Kelsey jig's manufacturer, Geologics Pty. Ltd., 36 Kelsey jigs
6
were in service at 28 sites worldwide, including two machines at one site in the
United States. In addition, there exists another device that separates dense
particles from feeds sized between 50 and 400 mesh, the Knelsen Bowl. The
Knelsen unit is a batch concentrator, which management believes is best suited
to small volumes. Knelsen units have been installed in various mining
applications, primarily gold, throughout the world.
The Company is a small player in an industry comprised of major mining
companies possessing tremendous capital resources. The Company is an
insignificant competitive factor in the industry. There is no assurance that
competitors, many of whom may have significant capital and resources, will not
develop or are not now in the process of developing competitive equipment that
may be functionally or economically superior to the Company's equipment.
Plan of Operation
Business Development. Testing conducted to date by the Company
indicates the CJ may have economic potential in a wide variety of industries,
and management believes the CJ can be used for finely sized heavy minerals
recovery, coal cleaning and environmental remediation. See "--Target Markets".
During 1998, the Company plans to continue developing these target markets,
which may have near-term profit potential, through implementation of the
following critical steps:
(1) Continued field testing and demonstration of the Series 12 CJ
and experimentation with design manipulations to improve
effectiveness for certain specific applications. In addition,
sustained operational testing is critical in determining if
any material design problems reside in the CJ technology, if
the CJ is capable of sustained operation with little downtime,
and if its maintenance costs are satisfactory. See
"--Research, Testing and Development."
(2) Initial field testing, including sustained operational
testing, of the larger volume, more marketable Series 30 CJ.
See "--Research, Testing and Development."
(3) Development of royalty, rental, or limited licensing
agreements with prospective industrial users and introduction
of the CJs into targeted markets.
In addition, the Company plans to continue pre-feasibility testing of
the heavy mineral sand deposits on the Tennessee Minerals Property. Assuming
final pre-feasibility results are consistent with those the Company has received
to date, the Company intends to hire a consulting firm to commence a complete
feasibility study with respect to the Tennessee Minerals Property. Completion of
such a feasibility study is expected to take 12-18 months. Furthermore, the
Company intends to explore acquisition of additional undervalued proven mineral
deposits for which the Company's patented technology may provide an economic
means of recovery.
The Company's marketing efforts in the near future will continue to be
directed to opportunities within North America, with future expansion into
foreign markets developing over time. Because the Company does not intend to
engage in the actual manufacture of its own products, the Company does not
expect to purchase a manufacturing facility or any significant manufacturing
equipment. Management does not anticipate that the number of Company employees
will significantly increase until the Company has sufficient sales and business
activity to warrant additional employees. Management hopes that circumstances
will warrant the addition of as many as twelve new employees during the next
12-month period; however, the actual number of new employees hired will depend
on the Company's operating results. If hired, such new employees would be
primarily engineering and technical staff to support testing, development and
commercialization programs.
Research, Testing and Development. Field testing to date suggests that
the CJ possesses the ability to process continuous tonnage throughput in several
applications. The CJ has multiple operating parameters -- primarily rotational
speed, pulsing pressure, and screen characteristics -- which must be adjusted to
fit the processing requirements of the particular feed stream being treated.
Management believes that more extensive testing is needed to identify the most
efficient operating parameters for specifically identified applications.
Further, demonstration of sustained operation is critical to marketing efforts.
To this end, the Company has installed or is in the process of installing the CJ
in several test sites. Specifically designed research, testing and development
efforts planned for the upcoming twelve months include the following:
(1) The Company has installed and commenced testing of a Series 30
CJ at a mineral recovery plant located in Northern Florida.
The tests are intended to assess the unit's ability to recover
7
zircon from dry mill tails. The Series 30 CJ is designed to
process 500 tons per day and is considered to be commercial-
sized for this application. Testing scheduled during the first
half of 1998 is intended to verify CJ processing capacity and
improve other operating design parameters. Also, sustained
operational testing is intended to determine the CJ's
capability for sustained operations with limited downtime. To
this end, the high-volume testing will be done on a stream in
the normal plant operating environment. CJ concentrate and
tailings products will be commingled with other plant outputs.
Access to the Florida test site is controlled by a large heavy
minerals sand producer that supplies test materials for
processing. On-site testing is being conducted by two Company
employees. Additional Company employees provide periodic
testing analysis and engineering services at the site. A
Series 12 CJ unit has also been installed at the sand
processing facility in Northern Florida. This unit is being
used to perform testing on various other plant titanium and
zircon feedstreams and to test heavy mineral sand feeds from
other Florida locations. Testing utilizing the Series 12 CJ is
being performed by Company personnel.
(2) A joint coal wash test program with Kerr-McGee Coal Corp. and
the University of Southern Illinois was established during
late 1997. The program is intended to test the CJ in
processing coal feeds in an on-line production environment.
For the initial stage of the test program the Company has
installed a Series 12 CJ in Kerr-McGee's Galatia Coal
Preparation Plant near Harrisburg, Illinois. Testing has
commenced with the CJ treating feeds from the Galatia Plant
coal processing streams to remove fine particles of ash and
pyrite. During the second stage of testing, a Series 30 CJ
will be installed and tested in the Galatia Plant. Testing is
being performed by two Southern Illinois University test
facility employees with periodic reviews conducted by Company
employees. Altair management has planned the testing procedure
and monitors test performance. Completion of this testing is
scheduled to occur during the first half of 1998.
(4) The Company has established a CJ testing facility near Reno,
Nevada to test samples supplied by mineral companies and other
potential users of the CJ. The facility is used for
demonstrations of the CJ technology, provides amenability
testing for a variety of mineral ores, and serves as a test
site for on-going equipment design. The test facility is
equipped with a Series 12 CJ, placed in a "closed loop"
circuit designed to take an initial charge of solids (0.5 to
2.0 tons) which can be continuously fed in slurry form to the
CJ. Concentrate and tails streams produced by the CJ may be
accessed for sampling prior to recombination and return to the
feed circuit. Amenability testing performed at the test
facility during 1997 included heavy mineral sand feeds from
California and from the Tennessee Minerals Property. Other
amenability testing involved a chromite/nickel tailings feed.
Operation of the CJ test facility is performed exclusively by
Company personnel.
(5) Additional testing of fine gold recovery in placer operations
is planned during 1998. The Company plans to use Company
personnel, located at operating mine sites, to perform these
tests.
(6) The Company has commenced a project pre-feasibility study on
the Tennessee Minerals Property. The purpose of the study is
to determine mine and processing characteristics, provide
initial estimates of mine capital and operating costs and
define project economics. The study will also independently
review the Company's mineral deposit estimates. The Company
has engaged an independent consulting group with expertise in
all aspects of the heavy mineral sand industry. The study is
designed to establish mineral product characteristics,
determine mine and mineral processing steps, provide initial
estimates of mine capital and operating cost and initially
define project economics. The Company presently anticipates
that the study will be completed during the first half of
1998.
If the results of the pre-feasibility study suggest that the
Tennessee Minerals Property is amenable to large-scale low-
cost mining, the Company will undertake a thorough feasibility
study beginning late in 1998. Such a feasibility study would
involve the actual design of facilities and equipment, the
solicitation of quotes from manufacturers and contractors, and
other steps designed to obtain a more accurate picture of
project economics. The process would also involve additional
testing of the quantity, quality, and precise location of the
mineral deposit. The Company expects that completion of the
feasibility study will take between 12-18 months. If the
feasibility study suggests that cost-effective mining of the
Tennessee Minerals Property is feasible, mining could begin on
the Tennessee Minerals Property within 24-36 months after
completion of the study, subject to, among other things, the
price of and demand for extractable heavy metals and the
Company's ability to obtain necessary financing, permits, and
government approvals.
In conjunction with the pre-feasibility study, the Company
intends to perform additional geological and mineralogical
studies. Additional drill holes are planned to confirm
geologic interpretations and mineral continuity in the
Tennessee Minerals Property deposit. Heavy mineral sand
samples taken from the drill holes is being taken for analysis
the laboratories of Commercial Test and Engineering ("CT&E")
in Denver, Colorado. As sample results are completed at CT&E,
data is inputted into a computer generated geologic/deposit
model, which has been developed for Altair by Mine Development
Associates of Reno, Nevada. Also, the Company has collected a
bulk sample of approximately 5,000 lbs from an exposed sand
horizon on the property. The bulk sample is being processed to
produce representative samples of saleable products. The
sample was transported to the Company's CJ test facility in
Reno, Nevada. Material sized smaller than 320 mesh and larger
than 50 mesh has been removed (these sizes contain almost no
titanium). The remaining 50 to 325 mesh fraction is being
separated by screen at 200 mesh. The +200 mesh material, which
represents approximately 65% of the total sample by weight but
only contains about 35% of the titanium, will be sent to
Northern Florida for preparation of a heavy mineral
concentrate using conventional spiral technology. The -200
mesh material (approximately 12% by weight, 65% of the
titanium) will be processed in the CJ to produce a fine
mineral concentrate. The heavy mineral concentrates will be
further processed into potentially marketable products using
electrostatic and magnetic separators. Altair plans to utilize
a combination of Company employees and consultants for the
bulk sample work. Bulk sample testing is scheduled to be
completed during the first half of 1998.
During 1997, the Company incurred $480,248 in deferred exploration
expenditures on the Tennessee Minerals Property. Expenditures were incurred on
leasehold minimum advance royalty payments, auger hole drilling, sampling,
sample analysis and assay, geological and mineral deposit characterizations
studies and other related exploration activities.
Provided that the planned testing of the CJ over the next twelve months
as described above is successful, the Company believes the Series 30 CJ would be
ready at that time for commercial use in applications involving the recovery of
titanium, zircon and gold. While such capabilities of the CJ could then be
marketed, the Company expects that the CJ's multiple operating parameters would
need to be adjusted to fit the requirements of each particular customer's and
application's requirements. In the event any of the foregoing tests are not
successful, the Company expects that it would conduct additional testing, the
nature of which would depend upon the results obtained in the above-described
tests.
Subsidiaries
Altair International Inc.1 was incorporated under the laws of the
province of Ontario, Canada in April 1973. The Company currently has two wholly-
owned subsidiaries, Fine Gold Recovery Systems, Inc. ("Fine Gold") and Mineral
Recovery Systems, Inc., a Nevada corporation ("MRS"), and one majority-owned
subsidiary, Intercontinental Development Corporation ("Indeco").
Fine Gold was acquired by the Company in April 1994. Fine Gold is a
development stage company with no operating revenues earned to date. The
Company's acquisition of TMI in February 1996 was effected by merging TMI with
and into Fine Gold (the "TMI Merger"). Fine Gold also now includes the
operations of a wholly-owned subsidiary of the Company formerly known as Mineral
Recovery Systems, Inc., which was merged with and into Fine Gold in June 1996.
As discussed below, another wholly-owned subsidiary of the Company, formerly
known as Carlin Gold Company, is now operated under the name Mineral Recovery
Systems, Inc. The Company intends that Fine Gold will hold and maintain CJ
technology rights, including patents, and will enter into a royalty arrangements
to allow MRS to develop and commercially utilize the CJ.
- --------
1 The Company was incorporated in April 1973 under the name Diversified
Mines Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in
February 1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold
Company Inc. in July 1988, to Altair International Gold Inc. in March 1994, and
to Altair International Inc. in November 1996.
8
As a result of the TMI Merger: (i) TMI was merged with Fine Gold, with
Fine Gold surviving as a wholly-owned subsidiary of the Company; (ii) the
Articles of Incorporation of Fine Gold became the Articles of Incorporation of
the surviving corporation and the officers and directors of Fine Gold became the
officers and directors of the surviving corporation, (iii) all outstanding
options to purchase TMI stock were terminated and, in exchange therefor, the
Company issued 580,000 Series E warrants, each entitling the holder thereof to
purchase one share of Common Stock for $2.00 until January 31, 1997; (iv) all
shares of the capital stock of TMI were converted into and exchanged for
1,919,957 shares of Common Stock, which were issued and deposited into escrow
pursuant to the terms of two escrow agreements. Of the 580,000 Series E Warrants
issued, 561,585 were exercised prior to January 31, 1997; the remaining 18,415
warrants have been canceled.
Of the 1,919,957 shares of Common Stock initially deposited into
escrow, in connection with the TMI Merger, 749,957 shares have been released
pursuant to the terms of the governing agreements. Of the remaining 1,170,000
shares of Common Stock initially deposited into escrow, 266,170 shares are
subject to a Performance Escrow Agreement dated February 29, 1996 ("Performance
Escrow Agreement"), which provides for release of one share of Common Stock for
each $1.80 in cash flow received by Altair, provided that no more than one-third
of the original number of shares of Common Stock escrowed may be released in any
one year over the first three years of the escrow. Shares of Common Stock still
in escrow at the end of five years may be canceled by the Alberta Stock
Exchange.
The remaining 903,830 shares of Common stock initially deposited into
escrow were subject to the terms of the Performance Escrow Agreement. However,
on March 19, 1998, the Alberta Stock Exchange approved (and thereby made
effective) a settlement agreement (the "Settlement") with respect to such
903,830 shares. Pursuant to the Settlement, 180,765 of the affected 903,830
shares will be released effective March 19, 1998 (subject to certain resale
restrictions) to the beneficial owners, and the remaining 723,065 shares subject
to the Settlement will be canceled.
MRS was incorporated by the Company in April, 1987(2). MRS previously
has been involved in the exploration for minerals and development of unpatented
mining claims in Nevada, Oregon and California. All mining claims have now been
abandoned. The Company currently intends that MRS will arrange for the
manufacture of the CJ for commercial sales, rental or royalty arrangements with
end users. In addition the Company intends that MRS will lease or acquire and
develop mineral properties, particularly properties that contain mineral
resources that may be processed with the CJ.
In numerous transactions in 1996 and 1997, the Company purchased an
aggregate of 83% of the capital stock of Indeco for total consideration of
$355,835. Indeco has as its sole asset a royalty agreement entitling Indeco to
10% of the cost of manufacturing any CJs which are placed in production, sold or
exploited for profit worldwide. The Company's acquisition of Indeco has been
accounted for using the purchase method, and the entire amount of the purchase
price of Indeco stock has been allocated to the CJ royalty agreement.
Government Regulation and Environmental Concerns
Government Regulation. The Company's present exploration of the
Tennessee Minerals Property, and testing of the CJ, and any prospective testing,
construction or mining activities the Company may conduct are subject to
numerous federal, state, and local laws and regulations concerning mine and
machine safety and environmental protection, including without limitation the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response Compensation Liability Act. Some of
the laws and regulations that would pertain to mining, construction or testing
activities require, among other things, maintenance of air and water quality
standards, the protection of threatened endangered and other species of wildlife
and vegetation, the preservation of certain cultural resources, and the
reclamation of exploration, mining and processing sites. In addition, the
Company will be required to obtain certain permits, approvals and/or licenses
from federal, state and local entities before developing and mining the
Tennessee Minerals Property or any other mining property. These laws and
requirements are continually changing and, as a general matter, are becoming
more restrictive. Although compliance with federal, state or local ordinances,
regulations, and permitting requirements represents a small part of the
Company's present budget, continued compliance or procurement of required
approvals may necessitate significant capital expenditures. In the event the
- --------
2 MRS was formerly known as Carlin Gold Company. The name change was
effective in June 1996.
9
Company fails to comply, or is delayed in coming into compliance with any such
ordinances or regulations, the Company may be subject to substantial fees or may
be required to expend significant capital to ensure compliance.
The Company is committed to complying with and, to its knowledge, is in
compliance with all governmental regulations. The Company's primary product, the
CJ, does not require the addition of chemicals in its processing of minerals.
The Company cannot, however, predict the extent to which future legislation and
regulation could cause the Company to incur additional operating expenses,
capital expenditures, and/or restrictions and delays in the development of the
Company's products and properties.
Environmental Regulation and Liability. Any proposed mining operation
of the Company on the Tennessee Minerals Property or any subsequently acquired
or leased property will be subject to environmental regulation by federal,
state, and local authorities. Under federal and state law, the Company may be
jointly and severally liable with prior property owners for the treatment,
cleanup, remediation, and/or removal of substances discovered on the Tennessee
Minerals Property or any other property used by the Company, which are deemed by
the federal and/or state government to be toxic or hazardous ("Hazardous
Substances"). Liability may be imposed, among other things, for the improper
release, discharge, storage, use, disposal or transportation of Hazardous
Substances. The Company might use Hazardous Substances and, although the Company
intends to employ all reasonably practicable safeguards to prevent any liability
under applicable laws relating to Hazardous Substances, mineral exploration and
extraction by its very nature will subject the Company to substantial risk that
remediation will be required.
Employees
The business of the Company is currently managed by Dr. William P.
Long, President and Chief Executive Officer of the Company, Mr. C. Patrick
Costin, Vice President of the Company and President of MRS and Fine Gold, and
Mr. Edward Dickinson, Director of Finance of MRS. In addition, MRS employs a
senior process engineer, a metallurgist, a geologist, a controller and a
part-time employee in an office management and administrative assistance
capacity. There are no other employees of the Company or its subsidiaries.
Other than the employment agreements of Dr. Long and Mr. Costin
described below, and our employment agreement with Mr. Dickinson, there are no
employment agreements between the Company or its subsidiaries and their
respective executive officers. See "Item 11. Executive Compensation --
Employment Agreements." The future success of the Company will depend, in part,
on its ability to attract and retain highly qualified technical, marketing and
management personnel. There is no assurance the Company will be successful in
retaining or attracting highly qualified individuals in key positions. See
"Factors That May Affect Future Results--Dependence on Key Personnel."
Glossary of Terms
Amenability means responsiveness of an ore deposit to processing.
Ash means inorganic residue remaining after coal combustion. Ash is an
undesirable component of coal because it reduces thermal value and produces a
waste product after combustion.
Assay means to analyze an ore or other substance to determine the
present, absence, and quantity of one or more components.
Benificiate means to improve the grade of ore by processing.
Centrifugal force means the component of force on a body in curvilinear
motion that is directed away from the axis of rotation.
Coal fines means finely pulverized coal particles which will pass
through a 28 mesh screen.
Coal washing means processing of pulverized coal to remove ash and
pyrite.
Environmental remediation means removal of harmful mineral particles
from a site previously altered by human activities.
10
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.
Jig means a device for concentrating minerals based on specific gravity
and particle size.
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.
Mill means a building with machinery for processing ore. (Dry mill
refers to heavy minerals sand processing of dry materials.)
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.
Pyrite means a yellowish-brown mineral sulfide containing iron and
sulphur. Pyrite is an undesirable component of coal because sulphur dioxide gas
is released when it is burned with coal.
Specific gravity means the ratio of the mass of a solid or liquid to
the mass of an equal volume of water at a specified temperature.
Tails or tailings means those portions of washed ore that are regarded
as too poor to be treated further, as distinguished from material (concentrates)
that is to be smelted or otherwise utilized.
Thermal value means a measure of the ability of a fuel (coal) to
produce energy when ignited.
Factors That May Affect Future Results
This Form 10-K contains various forward-looking statements and
information that are based on management's belief, as well as assumptions made
by, and information currently available to, management. When used in these
documents, the words "anticipate," "expect," "estimate," "project," "likely,"
"believe," "intend," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected, or expected, or intended. Among the key
factors that may have a direct bearing on the Company's operating results are
the risks and uncertainties described below. The reader should also consult
other factors identified from time to time in the Company's reports to the
Commission.
Absence of Operating Revenues; Operating Losses. The Company is a
development stage company and has been since its inception. To date, the Company
has not generated revenues from operations or realized a profit. The Company's
losses from operations in 1996 were $1,327,226 and the Company's losses from
operations in 1997 were $1,831,471. Based upon management's current estimates
for revenues and operation expenses during the fiscal year ending December 31,
1998, management currently anticipates that the Company will experience a net
loss from operations in 1998 and may continue to experience losses into the
future. The Company is presently investing substantial resources in the testing
and development of the CJ and the testing of the Tennessee Minerals Property.
There can be no assurance that the CJ, the Tennessee Minerals Property or any
other project being undertaken or proposed by the Company will enable the
Company to generate revenues or that the Company will ever realize a profit from
operations.
Product Development Risk. The CJ is in the development stage. The
Company has completed only preliminary testing of the Series 12 CJ, designed to
process approximately 120 tons of solids per day. The Company has not completed
sufficient testing of the Series 12 CJ to determine the volume of solids that
the Series 12 CJ is capable of processing. In addition, even if the Series 12 CJ
proves capable of processing 120 tons of solids per day, such capacity is too
small for most commercial operations, with the possible exception of small
placer gold mines or similar operations. There can be no assurance that the
Series 12 CJ will prove capable of processing 120 tons of solids per day or
of recovering all of the minerals it is designed to recover. Even if the Series
11
12 CJ performs to design specifications, because of its small capacity, the
Company does not expect that the Series 12 CJ will be able to recover minerals
in a cost-effective manner for most applications.
In 1997, the Company designed and constructed a Series 30 CJ, designed
to be capable of processing 500 tons of solids per day. There can be no
assurance that the Series 30 CJ or larger CJ will prove capable of processing
the volume of solids it is designed to process or that such a larger volume CJ
will prove capable of recovering the minerals it is designed to recover. Even if
the Series 30 CJ or larger CJ performs to design specifications, there can be no
assurance that the Series 30 CJ will be able to recover minerals in a
cost-effective manner or otherwise prove attractive to end users. In addition,
the introduction of new technologies by competitors could render the Series 30
CJ or larger CJ obsolete or unmarketable or require costly alterations to make
it marketable.
Property Development Risk. The Tennessee Minerals Property is currently
in the exploratory stage. The Company is engaged in pre-feasibility testing to
determine the size and quality of mineral deposits on the Tennessee Minerals
Property. If the results of such tests suggest that the deposits are amenable to
large scale, low-cost mining, the Company will undertake a feasibility study of
the Tennessee Minerals Property. Such a feasibility study would involve the
actual design, pricing, and analysis of equipment and facilities that would be
used to mine the Tennessee Minerals Property. The Company expects that
completion of a feasibility study will take 12-18 months and that, if the
feasibility study suggests that cost-effective mining of the Tennessee Minerals
Property is feasible, a mine would not be operational for 24-36 months after
completion of the study. There can be no assurance that the pre-feasibility
testing or the feasibility study will indicate that the Tennessee Minerals
Property contains minable quantities of heavy minerals or that such deposits are
amenable to large-scale, low-cost mining, as contemplated by the Company. Even
if the testing and studies suggest that mining is economically feasible on the
Tennessee Minerals Property, there can be no assurance that the Company will be
able to obtain the capital, resources, and permits necessary to mine the
Tennessee Minerals Property. Nor can there be any assurance that market factors,
such as a decline in the price of, or demand for, minerals recoverable at the
Tennessee Minerals Property, will not have an adverse effect on the development
of mining operations on such property.
Dependence on Third Party Manufacturers. The Company currently
contracts with a machine shop located in central California for assembly of the
CJ. If the Company completes testing and develops a final production model of
the CJ, of which there can be no assurance, the Company does not currently have
the know-how or resources to establish its own manufacturing facility.
Management is considering options for manufacture of the CJ, including
manufacturing under contract, exclusive licensing or a joint venture. There can
be no assurance that the Company will obtain suitable manufacturing capacity or
that such manufacturing capacity, if found, will produce affordable,
high-quality units capable of sustaining high reliability and low maintenance
costs in a production environment.
Sufficiency and Price of Capital. Due to, among other factors,
unanticipated expenses of development, the absence of manufacturers or licensees
interested in entering into an alliance, increases in costs of necessary capital
equipment, uncertainties relating to acquisitions of equipment, properties,
intellectual property rights or companies, general and industry market factors,
or other unforeseen events affecting the Company's use of and need for capital,
the Company's existing capital may prove insufficient to complete testing and
development of the CJ, the Tennessee Minerals Property, or other new or ongoing
projects. In addition, depending on market factors affecting the costs of
capital generally, the performance of the Company, the Company's capital needs,
the market perception of mining or mining equipment stocks, the economics of
projects being pursued, industry perception of the Company's ability to recover
minerals with the CJ or otherwise, and other factors affecting the availability
of capital and/or price of obtaining capital, the Company may unable to obtain
necessary capital, or may be forced to pay a price for capital that is higher
than the Company is presently paying or is generally available in the industry.
If the Company is unable to obtain sufficient capital or is forced to pay a high
price for capital, the Company may be unable to pursue or fully exploit existing
or future development opportunities. Also, because of their size, resources,
history and other factors, certain competitors of the Company may have better
access to capital than the Company and, as a result, may be able to exploit
opportunities more easily or thoroughly than the Company.
Competing Products and Alternative Technologies. The CJ competes in an
arena in which particle specific gravity is the primary criteria for particle
segregation and capture. Mechanical gravity separation devices such as spirals
and cones, froth flotation devices, and heavy media separators may be used to
12
perform some of the functions for which the CJ is designed. See "Item 1.
Business--Competition--Alternative Technologies." In addition, competitors of
the Company have designed jig or jig-like devices for use in the separation of
mineral particles and environmental contaminants. These devices include the
Kelsey Jig and the Knelsen batch concentrator unit, which are currently being
used worldwide. As of mid-1995, according to the Kelsey jig's manufacturer,
Geologics Pty. Ltd., 36 Kelsey jigs were in service at 28 sites worldwide,
including two machines at one site in the United States. Knelsen units have been
installed in various mining applications, primarily gold, throughout the world.
See "Competition--Competing Products." Results from further tests or actual
operations may reveal that existing alternative technologies or jig-like
products are better adapted to any or all of the uses for which the CJ is
intended. Regardless of test results, consumers may view such alternative
technologies or products as technically superior to, or more cost effective
than, the CJ. Moreover, 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, superior or less expensive alternatives to the CJ.
Dependence on Commodities Markets. If the CJ is successfully developed
and manufactured, of which there can be no assurance, the Company intends to use
the CJ to separate and recover valuable, heavy mineral particles at deposits
owned or leased by the Company, including the Tennessee Minerals Property, and
market the CJ to other companies. Active international markets exist for gold,
titanium, zicron, and many other minerals potentially recoverable with the CJ.
Prices of certain minerals have fluctuated widely, and are beyond the control of
the Company. A significant decline in the price of minerals being produced or
expected to be produced, among other factors, could have a material adverse
effect on the Company. In addition, a general economic downturn in the mining or
mineral industries or the global economy may have an adverse effect on the
Company.
Risk of Development, Construction and Mining Operations. In connection
with the development of a mineral deposits, the ability to meet cost estimates
and construction and production time estimates cannot be assured. Technical
considerations, delays in obtaining governmental approvals and permits,
inability to obtain financing or other factors could cause delays in developing
mineral deposits.
Government Regulation; Environmental Permits and Liability. The
Company's present exploration of the Tennessee Minerals Property, its ongoing
testing of the CJ, and any prospective testing, construction or mining
activities the Company may conduct are subject to certain permitting or approval
requirements and numerous federal, state, and local laws and regulations
concerning mine and machine safety and environmental protection, including,
without limitation, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, and the Comprehensive Environmental Response
Compensation Liability Act. Some of the laws and regulations that would pertain
to mining, construction or testing operations require, among other things,
maintenance of air and water quality standards, the protection of threatened
endangered and other species of wildlife and vegetation, the preservation of
certain cultural resources, and the reclamation of exploration, mining and
processing sites. These laws and approval requirements are continually changing
and, as a general matter, are becoming more restrictive. Although compliance
with federal state or local ordinances, regulations, and permitting or approval
requirements represents a small part of the Company's present budget, continued
compliance may necessitate significant, and even crippling, capital
expenditures. In the event the Company fails to comply with such laws or
regulations, fails to obtain a necessary permit or approval, or is delayed in
coming into compliance with any governing ordinances or regulations, the Company
may be forced to cease operations, be subject to substantial fees or may be
required to expend significant capital to ensure compliance. Although no such
problems or delays are anticipated, there can be no assurance that the Company
will be able to comply with all applicable laws and regulations, or that
compliance or necessary approvals will be obtained without substantial delays or
expenses.
In addition, under federal law and applicable state law, the Company
may be jointly and severally liable with prior property owners for the
treatment, cleanup, remediation, and/or removal of substances discovered on the
Tennessee Minerals Property or any other property used by the Company, which are
deemed by the federal and/or state government to be toxic or hazardous
("Hazardous Substances"). Liability may be imposed, among other things, for the
improper release, discharge, storage, use, disposal or transportation of
Hazardous Substances. The Company might use Hazardous Substances and, although
the Company intends to employ all reasonably practicable safeguards to prevent
any liability under applicable laws relating to Hazardous Substances, mineral
exploration and extraction by its very nature will subject the Company to
substantial risk that remediation will be required.
Enforceability of Civil Liabilities Against Foreign Persons. The
Company is an Ontario corporation, a majority of its directors are residents of
13
Canada, and certain of the Company's experts (including its principal
accountants and Canadian legal counsel) are located in Canada. As a result, it
may be difficult for shareholders or investors to effect service of process
within the United States upon such persons or to enforce court judgments against
such persons in United States predicated upon civil liability provisions of the
federal securities laws. It is uncertain whether Canadian courts would (i)
enforce judgments of United States courts obtained against the Company 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 the Company or its directors, officers or experts predicated solely upon
United States securities laws.
Patents for the Centrifugal Jig. Initial patents on the CJ have been
issued in the United States, South Africa, United Kingdom, Australia, and
Canada. Patent applications are pending in Germany, France, and Japan. A second
series of patents have been issued with respect to a critical component of the
CJ in the United States, Australia, Canada, Great Britain, General European, and
South Africa, as well as under General European procedures. The Company has also
filed an additional application in the United States seeking a third patent for
a critical component of the CJ. There can be no assurance that pending patent
applications will be granted or that persons in countries in which the Company
has not patented the CJ, or certain critical components, will not develop and
market infringing products. The cost of, and other obstacles to, enforcing the
Company's patents, especially outside of North America, may also limit the
Company's ability to prevent infringing products from entering the market.
Dependence on Key Personnel. The continued success of the Company is
dependent to a significant extent on the services of 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 Fine Gold and MRS, the Company's
subsidiaries. The loss or unavailability of Mr. Long or Mr. Costin could have a
material adverse effect on the Company. No key man insurance is carried on the
lives of such key officers. In addition to Dr. Long and Mr. Costin, the Company
employs a Director of Finance, a senior process engineer, a metallurgist, a
geologist, and a part-time administrative assistant. There are no other
employees of the Company or its subsidiaries. Aside from Dr. Long, Mr. Costin
and the Director of Finance, the Company has no employment agreements with any
of its personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract and maintain all personnel
necessary for the development and operation of its business. The loss of the
services of key personnel or an inability to attract, retain and motivate
qualified personnel could have a material adverse effect on the business,
financial condition or results of operations of the Company.
Acquisition Risks. The Company is currently evaluating, and plans to
continue to evaluate, additional opportunities for the license or acquisition of
additional mining products or properties, as well as the possible acquisition
of, or development of strategic relations with, other companies who may have
products, assets, manufacturing capabilities, or other qualities that are
compatible with the Company's business objectives. The Company must compete for
attractive acquisition or strategic alliance candidates with numerous other
companies, many of whom have significantly greater financial and technological
resources than the Company. There can be no assurance that the Company will be
able to successfully identify attractive acquisition or strategic alliance
opportunities. Such acquisitions and alliances, if identified and completed, of
which there can be no assurance, could involve the incurrence of additional
debt, amortization expenses related to goodwill and intangible assets or the
dilutive issuance of equity securities, all of which could adversely affect the
Company's operating results or financial condition. Accordingly, future
acquisitions and alliances may have an adverse effect on the Company's operating
results and financial condition, particularly in periods immediately following
the consummation of such transactions, while the operations of the acquired or
combined business are being integrated into the Company's operations. There can
be no assurance that capital sought by the Company to pursue such opportunities
can be obtained on terms favorable to the Company, if at all. The failure of the
Company to obtain such financing could restrict its ability to pursue such
business opportunities. Further, there can be no assurance that any particular
acquisition or alliance will be successfully integrated into the Company's
operations or will achieve profitability.
Possible Issuance of Substantial Additional Shares Without Stockholder
Approval. The Company's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Common Stock. All such shares may be issued
without any action or approval by the Company's stockholders. In addition, the
Company has a stock option plan which has potential for dilution of the
ownership interests of the Company's stockholders. Any shares of Common Stock
issued would further dilute the percentage ownership of the Company held by
existing stockholders.
14
Possible Volatility of Stock Price. The Common Stock is listed on the
Alberta Stock Exchange and has been listed on the Nasdaq National Market System
since January 26, 1998. Between March 24, 1997 and January 23, 1998, the Common
Stock was listed on the Nasdaq SmallCap Market. Trading in the Common Stock has
been characterized by a high degree of volatility. See "Item 5. Market for the
Registrant's Common Stock and Related Shareholder Matters--Market Price."
Trading in the Common Stock to date has been dominated by a small number of
firms which make a market in such securities. To the extent that the market for
the Common Stock continues to be dominated by a small number of market makers,
the market may continue to experience a high degree of volatility. Such market
dominance and volatility may adversely affect the price and liquidity of the
Common Stock in the future. In addition, the trading price of the Common Stock
could fluctuate widely in response to variations in quarterly financial results,
announcements by the Company or its competitors, industry trends, general
economic conditions or other events or factors. Among other factors, it is
possible that in some future quarters the Company's operating results will be
below the expectations of public market analysts and investors. Regardless of
the general outlook for the Company's business, the announcement of financial or
research and development results that differ from analyst and investor
expectations could have a material and adverse effect on the market price of the
Common Stock.
Shares Eligible for Future Sales. The resale of "restricted
securities," as well as securities held by "affiliates" of the Company (as such
terms are defined in releases and rules promulgated under the Securities Act),
is generally subject to the provisions of Rule 144 promulgated under the
Securities Act ("Rule 144"). In general, under Rule 144 as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for at least one year (including the holding period of any
prior owner except an affiliate), including persons who may be deemed
"affiliates" of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the number
of shares of Common Stock then outstanding or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owners except an
affiliate), would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above. The Company is unable to predict the
effect that future sales under Rule 144 may have on the then prevailing market
price of Common Stock. In addition, shares issued upon exercise of options
granted pursuant to the Company's employee stock option plan are presently
registered under the Securities Act and, subject to certain restrictions on
resale by affiliates, may be sold without restriction. It can be expected that
the sale of any substantial number of shares of Common Stock would have a
depressive effect on the market price of the Common Stock.
Absence of Dividends. The Company has never declared or paid dividends
on the Common Stock. Moreover, the Company currently intends to retain any
future earnings for use in its business and, therefore, does not anticipate
paying dividends on the Common Stock in the foreseeable future.
Item 2. Properties
----------
The Company maintains a registered office at 67 Richmond Street West,
Suite 500, Toronto, Ontario M5H 1Z5. The Company does not lease any space for,
or conduct any operations out of, the Toronto, Ontario registered office. In
addition, the Company leases 900 square feet of office space at 1725 Sheridan
Avenue, Suite 140, Cody, Wyoming 82414, which serves as the corporate
headquarters for the Company and its subsidiaries. The Company's lease to the
Cody, Wyoming office space may be terminated by either party on 30 days' prior
written notice.
Fine Gold and MRS lease 4,500 square feet of office space at 230 South
Rock Boulevard, Suite 21, Reno, Nevada 89502. The lease for the Reno, Nevada
offices expires on January 31, 2000. MRS leases approximately 1,550 square feet
of laboratory space at 7950 Security Circle, Reno, Nevada 89506, for its CJ
testing operations. The test facility lease may be terminated by either party
upon eight weeks prior written notice. Management believes that the existing
offices and test facilities of the Company and its subsidiaries are adequate for
their current needs. In the event that alternative or additional office space is
required, the Company believes it could obtain additional space on commercial
acceptable terms.
15
The Tennessee Minerals Property consists of approximately 4,300 acres
of real property located near Camden, Tennessee, which MRS leases (or has
binding commitments to lease) from multiple owners of the real property. Such
leases grant MRS certain exclusive rights, including the right to explore, test,
mine, extract, process, and sell any minerals or other materials found on the
land, in exchange for the payment of minimum annual advanced royalty payments
prior to commencement of production on the properties (or after commencement of
production, to the extent production royalty payments do not equal nominal
royalty payments) and, thereafter, production royalty payments in an amount
equal to a percentage of the value of minerals mined and sold from the property.
See Note 5 to the Consolidated Financial Statements for information regarding
present and future minimum advanced royalty payments. The leases typically are
for a minimum term of ten years, and may be extended indefinitely provided the
Company 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 mineral deposit on the
Tennessee Minerals Property, and the Company's operations and proposed plan with
respect to it are exploratory in nature. See "Item 1. Business--Tennessee
Minerals Property." The Tennessee Minerals Property is accessed by public roads
and, to the Company's knowledge, has not been used in prior mining operations.
During 1997 and 1996, the Company incurred $480,249 and
$126,302 respectively in deferred exploration expenditures on the Tennessee
Minerals Property. Expenditures were incurred on leasehold minimum advance
royalty payments, auger hole drilling, sampling, sample analysis and assay,
geological and mineral deposit characterizations studies, and other related
exploration activities.
Item 3. Legal Proceedings
-----------------
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company is currently not involved
in any suit, action or other legal proceedings, nor is it aware of any
threatened suit, action or other legal proceedings which management believes
will materially and adversely affect the business or operations of the Company
or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the 1997 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
----------------------------------------------------------------
Matters
-------
Market Price
United States. In the United States, beginning on January 26, 1998, the
Common Stock began trading on the Nasdaq Stock Market National Market System
under the symbol "ALTIF." From March 24, 1997 until January 23, 1998, the shares
of Common Stock were quoted on the Nasdaq Stock Market SmallCap Market under the
symbol "ALTIF." The follow table sets forth in United States dollars, for the
period from March 24, 1997 through the conclusion of the 1997 fiscal year, the
high and low sales prices for the Common Stock, as reported by the Nasdaq
SmallCap Market.
Fiscal Year Ended Low High
December 31, 1997:
---------- -----------
1st Quarter (beginning March 24, $8.5625 $12.25
1997)..............................
2nd Quarter............................ 4.75 9.625
3rd Quarter............................ 5.125 9.875
4th Quarter............................ 7.75 16.625
16
Prior to March 24, 1997, the Common Stock was listed under the symbol
"AIGDF" on the over-the-counter bulletin board maintain by the National
Association of Securities Dealers the ("OTCBB"). The prices listed below
represent the closing high and low bid prices for the Common Stock on OTCBB
during the 1996 fiscal year and for the period from January 1, 1997 through
March 23, 1997. Prior to March 27, 1996, the common Stock was not listed on the
OTCBB. Quotes for the first quarter of the 1996 fiscal year represent only
trading from March 27 through March 29. The bid prices set forth below are
market quotations based on interdealer bid prices, without markup, markdown or
commission, and may not represent actual transactions.
Fiscal Year Ended Low High
December 31, 1997:
---------- ----------
1st Quarter (through March 23, 1997) $6.5 $11.375
Fiscal Year Ended Low High
December 31, 1996:
---------- ----------
1st Quarter (March 27 - March 29, $2.30 $2.30
1996)...............................
2nd Quarter............................ 1.375 4.125
3rd Quarter............................ 2.85 4.625
4th Quarter............................ 3.89 3.31
Canada. In Canada, the Common Stock is traded under the symbol "AIL" on
the Alberta Stock Exchange (the "ASE"). The following tables set forth, on a
quarterly basis, the high and low closing sales prices during the last two
fiscal years for shares of the Common Stock on the ASE. All amounts are stated
in Canadian dollars, the currency in which the prices are quoted by the ASE. See
"--Exchange Rate Information."
Low High
------------ -------------
Fiscal Year Ended
December 31, 1997:
1st Quarter...................... $ Cdn. 7.75 $ Cdn. 16.55
2nd Quarter...................... 6.90 13.00
3rd Quarter...................... 7.40 13.50
4th Quarter...................... 11.10 23.50
Fiscal Year Ended
December 31, 1996:
1st Quarter...................... 1.78 4.25
2nd Quarter...................... 2.70 6.50
3rd Quarter...................... 3.98 6.20
4th Quarter...................... 5.30 11.40
Outstanding Shares and Number of Shareholders.
As of February 27, 1998, the number of shares of Common Stock
outstanding was 15,510,245 held by 504 holders of record. In addition, the
Company has reserved 1,418,000 shares of Common Stock for issuance upon exercise
of options that have been, or may be, granted under its employee stock option
plan and has reserved an estimated 539,223 shares of Common Stock for issuance
upon conversion of outstanding convertible debentures and exercise of certain
warrants. See "Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters--Recent Sales of Unregistered Securities". During the period
from December 31, 1997, the date of the most recent financial statements, to
February 27, 1998, 17,500 options issued pursuant to the Altair International
Stock Option Plan were exercised.
Dividends
The Company has never declared or paid dividends on the Common Stock.
Moreover, the Company currently intends to retain any future earnings for use in
its business and, therefore, does not anticipate paying any dividends on the
Common Stock in the foreseeable future.
17
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Equity
Transfer Services, Inc., Suite 800, 120 Adelaide, Toronto, Ontario, M5H 3V1.
Canadian Taxation Considerations
Dividends paid on shares of Common Stock owned by non-residents of
Canada are subject to Canadian withholding tax. The rate of withholding tax on
dividends under the Income Tax Act (Canada) (the "Act") is 25%. However, Article
X of the reciprocal tax treaty between Canada and the United States of America
(the "Treaty") generally limits the rate of withholding tax on dividends paid to
United States residents to 15%. The Treaty further generally limits the rate of
withholding tax to 5% if the beneficial owner of the dividends is a U.S.
corporation which owns at least 10% of the voting shares of the Company.
If the beneficial owner of the dividend carries on business in Canada
through a permanent establishment in Canada, or performs in Canada independent
personal services from a fixed base in Canada, and the shares of stock with
respect to which the dividends are paid is effectively connected with such
permanent establishment or fixed base, the dividends are taxable in Canada as
business profits at rates which may exceed the 5% or 15% rates applicable to
dividends that are not so connected with a Canadian permanent establishment or
fixed base. Under the provisions of the Treaty, Canada is permitted to apply its
domestic law rules for differentiating dividends from interest and other
disbursements.
A capital gain realized on the disposition of shares of Common Stock by
a person resident in the United States ("a non-resident") will be subject to tax
under the Act if the shares held by the non-resident are "taxable Canadian
property." In general, shares of Common Stock will be taxable Canadian property
if the particular non-resident used (or in the case of a non-resident insurer,
used or held) the shares of 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 the shares of Common Stock constitute taxable Canadian property,
relief nevertheless may be available under the Treaty. Under the Treaty, gains
from the alienation of shares of Common Stock owned by a non-resident who has
never been resident in Canada generally will be exempt from Canadian capital
gains tax if the shares do not relate to a permanent establishment or fixed base
which the non-resident has or had in Canada, and if not more than 50% of the
value of the shares was derived from real property (which includes rights to
explore for or to exploit mineral deposits) situated in Canada.
Recent Sales of Unregistered Securities
Following is a summary of all securities of the Company sold during the
fiscal year ended December 31, 1997 that were not registered under the
Securities Act, other than unregistered sales disclosed in Quarterly Reports
filed on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997.
Unless otherwise indicated, all amounts set forth below are stated in United
States dollars.
On December 29, 1997, pursuant to the terms of a Securities Purchase
Agreement dated December 24, 1997 (the "Purchase Agreement"), the Company
completed the private placement of $5,000,000 in principal amount of 5%
convertible subordinated debentures due December 29, 2001 (the "Debentures") and
warrants to purchase 75,000 shares of the Common Stock on or before December 29,
1999 at a price equal to $16.7188 per share (the "Investor Warrants") to a small
number of institutional investors in an offering exempt from the registration
requirements under the Securities Act. The Company also issued to the placement
agent which arranged the transaction warrants to purchase 105,000 shares of
Common Stock on or before December 29, 1999, at a price equal to $16.7188 per
share (the "Placement Warrants"; collectively, with the Investor Warrants, the
"Warrants"). The following descriptions do not purport to be complete and are
qualified by reference to the definitive agreements, Debentures, and Warrants
filed as exhibits to the Company's Current Report on Form 8-K filed with the
Commission on January 13, 1998, as amended by Amendment No. 1 to Current Report
on Form 8-K/A, filed on January 21, 1998.
18
The Debentures have an aggregate face value and "issue price" of
$5,000,000 and bear interest at a rate of 5% per annum, payable in cash or
shares of Common Stock at the Company's option. The Company may redeem the
Debentures at a price equal to 110% of the unpaid principal amount to be
redeemed, plus any accrued interest and other charges, provided that, among
other conditions, a Registration Statement on Form S-3 (or other practicable
form) to be filed by the Company with respect to shares of Common Stock issuable
upon conversion of the Debentures or exercise of the Warrants (the "Registration
Statement") is effective and the market price per share of Common Stock is less
than $6.50 per share.
Subject to certain restrictions set forth in the Debentures, the
Debentures are each convertible by their holders into the number of shares of
Common Stock equal to the quotient of (a) the sum of the principal amount of
such Debenture and all accrued but unpaid interest and charges, divided by (b)
the lesser of (i) an amount equal to 92% of the average market price for one
share of Common Stock for the five preceding trading days and (ii) $14.36875
(subject to an increase of $.50 on each of December 29, 1999 and December 29,
2000). In addition, the Company may require conversion of all or part of the
Debentures at the above-described conversion rate if, among other conditions,
the Registration Statement is effective and the market price per share of Common
Stock equals or exceeds $18.679 (subject to an increase of $.65 on each of
December 29, 1999 and December 29, 2000).
Pursuant to a Registration Rights Agreement dated as of December 24,
1997, entered into in conjunction with the Purchase Agreement, the Company is
required to file the Registration Statement and cause it to be effective within
150 days of December 29, 1997. If the Registration Statement is not declared
effective within 150 days of December 29, 1997, the Company shall be obligated
to pay each holder of the Debentures or Warrants an amount equal to two percent
(2%) of the principal amount of the relevant Debentures per month.
In addition, subject to the terms and conditions of the Purchase
Agreement, the Company has the right to cause the initial purchasers of the
Debentures to purchase up to an additional $5,000,000 aggregate principal amount
of 5% Convertible Subordinated Debentures (the "Put Debentures"). If issued, the
Put Debentures will be accompanied by warrants to purchase an aggregate number
of shares of Common Stock equal to the product of (i) 75,000 multiplied by (ii)
the quotient of the principal amount of all Put Debentures divided by $5,000,000
(the "Put Warrants"). The exercise price for the Put Warrants shall be an amount
equal to 125% of the closing price per share of the Common Stock on the Nasdaq
SmallCap Market or the Nasdaq National Market, as applicable, on the date
immediately prior to the date the Put Warrants are issued. As of March 23, 1998,
the Company has not issued the Put Debentures or issued the Put Warrants.
The placement of the Debentures and Warrants was effected in reliance
upon the exemption from registration provided by Rule 506 of Regulation D,
promulgated under the Securities Act, based on a number of considerations,
including the following: (i) each of the purchasers of the Debentures and/or
Warrants represented and warranted to the Company that it was an "accredited
investor", as defined in Rule 501(a)(3) of Regulation D under the Securities
Act; (ii) no general solicitation or general advertising accompanied the
offering or sale of the Debentures and Warrants; (iii) each of the purchasers
represented and warranted to the Company that it was acquiring the Debentures,
Warrants, and any shares of Common Stock issuable upon conversion or exercise
thereof, for investment purposes only and not with view towards resale, except
pursuant to a sale registered or exempted under the Securities Act; (iv) the
Securities Purchase Agreement and other documents disclosed, and each of the
Warrants and Debentures was imprinted with a legend providing, that the
Debentures and Warrants had not been registered under the Securities Act and
cannot be resold except pursuant to an exemption from the Securities Act or
effective registration statement; and (v) each of the purchasers was furnished,
or offered access to, the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, the definitive proxy statement filed in
connection therewith, copies of interim or current reports filed in the 1997
fiscal year, and other information requested about the Company or the terms and
conditions of the transaction described in the Purchase Agreement.
Item 6. Selected Financial Data
-----------------------
The following table sets forth selected consolidated financial
information with respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP"), which
differ in certain respects from those in the United States. See Note 14 to the
consolidated financial statements included herein for certain reconciliations to
accounting principles generally accepted in the United States ("US GAAP"). The
19
selected financial data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
the consolidated financial statements and accompanying notes included herein.
The TMI Merger was consummated in February 1996, and treated as a purchase for
accounting purposes. Accordingly, the following selected financial data was
derived solely from the consolidated financial statements of the Company, which
were audited for the years 1992-1996 by McGovern, Hurley, Cunningham,
independent chartered accountants. All amounts are stated in U.S. dollars,
unless otherwise indicated.
Year Ended December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------------ -------------- ---------- ------------ -----------
Statements of Operations:
Revenues from Operations....................$ -0- $ -0- $ -0- $ -0- $ -0-
Operating Expenses.......................... 1,858,033 1,335,725 438,103 573,049 234,294
Interest Expense............................ 43,497 19,373 -0- -0- -0-
Interest Income............................. 70,059 27,872 1,000 979 2,315
Net Loss.................................... 1,831,471 1,327,226 437,103 572,070 231,979
Loss per Common Share....................... (0.13) (0.12) (0.07) (0.12) (0.05)
Cash Dividends declared per Common Share.... -0- -0- -0- -0- -0-
Deficit, Beginning of Year.................. 3,956,564 3,332,064 2,894,961 2,322,891 2,092,912
Net Loss.................................... 1,831,471 1,327,226 437,103 572,070 231,979
Other Expense (Income) ..................... 515,844 (702,726) -0- -0- -0-
Deficit, End of Year........................ 6,303,879 3,956,564 3,332,064 2,894,961 2,322,891
Balance Sheet Data:
Working Capital ............................ 7,480,153 2,974,955 313,502 (113,116) 20,861
Total Assets................................ 13,125,804 8,042,888 975,259 384,923 488,910
Long-term Obligations....................... 602,451 269,685 -0- -0- -0-
Current Liabilities......................... 712,810 308,762 90,910 164,011 118,085
Net Stockholders' Equity.................... 11,810,543 7,464,441 884,349 220,912 370,825
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Overview
From inception through the end of 1993, the Company's business
consisted principally of the exploration of mineral properties for acquisition
and development. During 1994, the Company's focus changed as it became engaged
in the acquisition, development and testing of mineral processing equipment for
use in the recovery of fine, heavy mineral particles, including gold, titanium,
zircon and environmental contaminants. Nevertheless, the Company continues
exploring mineral properties suitable for development using the Company's
patented mineral processing equipment.
On November 15, 1994, the Company executed an option agreement to
acquire TMI, a development stage enterprise which owned all patent rights to
Campbell Centrifugal Jig, an early-stage version of the CJ. The Company funded
$373,955 of option-related costs during 1994 and 1995. Subsequently, during
early 1996, the Company renegotiated the acquisition agreement and acquired all
of the outstanding common stock of TMI. The acquisition was accounted for as a
purchase by the Company, which agreed to issue to TMI's shareholders 1,920,000
shares of its common stock over a five-year period and 580,000 warrants
entitling the holder to purchase one share of Common Stock for $2.00 (Canadian)
until March 1, 1997.
The effective purchase price of TMI was $3,732,450. This consisted of
the issuance to the former TMI shareholders of Common Stock valued at $2,521,469
(1,919,557 shares of Common Stock with a deemed value of $1.31 per share) and
the absorption of Trans Mar's assets and liabilities, with liabilities exceeding
assets by $1,210,981 at February 29, 1996. The purchase price was allocated to
CJ patents and development costs. On March 19, 1998, the ASE notified the
Company that it had approved a settlement agreement between the Company and
several former TMI shareholders, resulting in (i) the release of 180,765 shares
20
of Common Stock placed in escrow in connection with the Company's acquisition of
TMI and (ii) the cancellation of 723,065 shares of Common Stock owned by such
former TMI shareholders, which were also subject to the escrow arrangement. See
Item 1, "Business--Subsidiaries."
Prior to 1994, the Company operated its minerals business with the
intent of receiving income from property sales, joint ventures, or other
business arrangements with larger companies, rather than developing and placing
its properties into production on its own. To date, no royalty income has been
received by the Company, and at present, there are no business arrangements or
joint venture prospects involving the Company's properties or potential property
sales from which the Company presently expects to receive income. The Company
continues to explore minerals properties, such as the Tennessee Minerals
Property, but its exploration efforts are primarily focused on locating property
suitable for development using the CJ.
Results of Operations
Fiscal Years 1995, 1996, and 1997
The Company has earned no revenues to date. Operating losses before
extraordinary items totaled $1,831,471 ($0.13 per share) for the 1997 fiscal
year, $1,327,226 ($0.12 per share) for the 1996 fiscal year, and $437,103 ($0.07
per share) for the 1995 fiscal year. Principal factors contributing to the
losses during these periods were the absence of revenues, coupled with the
incurrence of operating expenses.
Operating expenses increased from $438,103 during 1995 to $1,335,725
during 1996 and to $1,858,033 during 1997. Of the $1,858,033 total operating
expenses incurred during 1997, $590,831, representing 32% of the total operating
expenses, was related to amortization of the company's assets, as compared to
amortization of $385,633 (29% of total operating expenses) and $3,151 (less than
1% of total operating expenses) during 1996 and 1995, respectively. Increases in
1997 and 1996 amortization were due primarily to amortization of CJ patent and
development costs acquired in the TMI Merger. Operating expenses, exclusive of
amortization, increased from $434,952 in 1995 to $950,092 during 1996 and
$1,267,202 in 1997, due primarily to increased activity in acquiring, testing
and developing the CJ and its potential applications. The Company installed a
Series 12 CJ and commenced CJ testing at the University of Illinois during 1996,
and continued such testing during 1997. During 1996, the Company expanded into
new leased office space in Reno, Nevada and increased the level of staffing at
this location from one to four personnel. In addition, the Company had increased
expenditures associated with its commencement of operations at its CJ testing
facility in Reno, Nevada during the first quarter of 1997. Also during 1996, the
Company incurred costs for corporate services beyond the level of similar costs
incurred during earlier periods. Commencing during mid-1996, and through 1997
increased expenditures were required for professional fees, largely legal and
accounting costs related to the Company's election to permit the Common Stock to
trade in the U.S. public markets, including expenses associated with Commission
filings and NASDAQ compliance, as well as the Company's decision to aggressively
enforce its licenses and patent rights.
As a result of the TMI Merger, Fine Gold assumed all of TMI's
liabilities. During 1996, Fine Gold entered into agreements extinguishing
certain of the TMI accounts payable and notes payable at less than the book
amounts of such debt. The net of such forgiveness of debt was $702,726 and
resulted in an extraordinary gain of $0.06 per share for 1996. There were no
extraordinary items during 1997 or 1995.
21
Liquidity and Capital Resources
The Company has financed its operations since inception primarily by
the issuance of equity securities (Common Stock, the Debentures, and options and
warrants to purchase Common Stock) with aggregate net proceeds of $18,942,453 as
of December 31, 1997. The Company received cash proceeds from the sale of Common
Stock and the exercise of options and warrants to acquire Common Stock of
$1,100,540 in 1995; $7,156,846 in 1996 (including $2,521,469 deemed value of
shares of Common Stock issued in the TMI Merger - $4,635,377 without such deemed
value); and $2,569,194 in 1997. In addition, during 1997, the Company received
net proceeds of $4,484,156 ($5,000,000 less $515,844 costs of issuance) from the
issuance of the Debentures and Warrants. See "Item 5. Market for Registrant's
Common Stock and Related Shareholder Matters--Recent Sales of Unregistered
Securities."
The Company has earned no revenues from operations and has incurred
recurring losses. At December 31, 1997, the Company's accumulated deficit was
$6,303,879. However, due to proceeds from the issuance of Common Stock, the
Debentures, warrants, and options, the Company has increased its working capital
and improved its financial condition and resources during the last three years.
The Company's working capital was $313,502 at December 31, 1995 and improved to
$2,974,955 at December 31, 1996. This trend continued in 1997 as working capital
at December 31, 1997 rose to $7,480,153 and the Company's cash position
increased from $309,489 and $3,270,161 at December 31, 1995 and 1996,
respectively, to $8,161,770 at December 31, 1997. See "Item 5. Market for the
Registrant's Common Stock and Related Shareholder Matters."
The Company currently maintains working capital which management
believes will be sufficient for the Company's needs during 1998; however, there
can be no assurance that the Company will be able to raise capital to fund the
Company's long-term capital requirements. As of December 31, 1997, the Company
had $8,161,770 in cash and short-term investments available to meet its
near-term development and operating needs. In addition, the Company had obtained
a firm commitment for the purchase of $5,000,000 of additional Debentures. See
"Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters." Subject to the terms and conditions of the Purchase Agreement, the
Company has the discretion to compel the purchasers of the Debentures and
Warrants to purchase any amount up to $5,000,000 in such additional Debentures
between August 26, 1998 and October 28, 1998. In the event the Company does
elect to draw full funding, proceeds in the amount of approximately $4,750,000
($5,000,000 less approximately $250,000 cost of issuance) would be received by
the Company. The Company continues to use its working capital to invest in the
testing and development of the CJ and to invest in the Tennessee Minerals
Property. During 1997, the Company invested $480,249 in the Tennessee Minerals
Property, and has used $165,423 to construct additional CJs and $45,128 to build
a CJ testing facility in Reno, Nevada. The Company has not yet earned revenues,
although limited revenue from the sale or rental of CJs now being fabricated is
anticipated during 1998. This anticipation of limited revenues is based upon
"proof of process" tests completed during 1997 which indicate the CJ's
suitability in a variety of applications. See "Item 1. Business--Plan of
Operation -- Research, Testing and Development." There can be no assurance,
however, that such discussions will result in an agreement or generation of
revenue.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements required by this Item appear on pages F-1
through F-17 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
22
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth certain information regarding the
executive officers and directors of the Company.
Held Position
Name Office Since
- ------------------------ -------------------------------- ---------------
William P. Long......... President, Chief Executive
Officer and Director 1988
C. Patrick Costin....... Vice President, Principal
Financial Officer; President of 1996
MRS and Fine Gold
James I. Golla.......... Secretary and Director 1994
Robert F. Sheldon....... Director 1997
George E. Hartman....... Director 1997
The directors of the Company are elected at the annual meeting of
shareholders of the Company. Each director of the Company holds office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The executive officers of the Company serve at the discretion of the
Company's Board of Directors. None of the foregoing officers and directors of
the Company was selected pursuant to any arrangement or understanding between
him and any other person.
William P. Long, 51, has been the President, Chief Executive Officer
and a director of the Company since 1988, and the Secretary and a director of
Fine Gold since the TMI Merger. Dr. Long also served as the Vice President of
the wholly-owned subsidiary of the Company formerly known as Mineral Recovery
Systems, Inc. which was merged with and into Fine Gold in June, 1996. Dr. Long
has been an executive officer and director of Carlin Gold Company, now MRS,
since its formation in April, 1987. From 1987 to 1988, Dr. Long was a mineral
and energy consultant, providing various services to clients in the mining and
energy industries, including arranging precious metal property acquisitions,
supervising mineral evaluations, and providing market analyses. From 1980 to
1986, Dr. Long served as the Executive Vice President and Chief Financial
Officer of Thermal Exploration Company. From 1974 to 1980, Dr. Long was employed
by Amax Exploration, Inc. in various capacities, including Systems Engineer,
Business Analyst and Business Manager. Dr. Long is affiliated with the American
Institute of Chemical Engineers and the American Institute of Mining Engineers.
He obtained a bachelors degree in Chemical and Petroleum Refining Engineering
and a Ph.D. in Mineral Economics from the Colorado School of Mines in 1969 and
1974, respectively.
C. Patrick Costin, 55, was appointed a Vice President and Principal
Financial Officer of the Company in June, 1996, and also currently serves as the
President and a director of Fine Gold and MRS. Mr. Costin also served as the
President of the wholly-owned subsidiary of the Company formerly known as
Mineral Recovery Systems, Inc. from March 1995 until its merger with and into
Fine Gold in June 1996. Mr. Costin is the chief executive officer of Costin and
Associates, a minerals consulting organization founded by Mr. Costin in 1992,
which specializes in identification and evaluation of North American mine and
mineral deposit acquisition opportunities. From 1982 to 1992, Mr. Costin served
as the manager of U.S. exploration for Rio Algom Ltd. Mr. Costin's additional
experience in the mining and minerals industry includes Senior Mineral Economist
for the Stanford Research Institute from 1977 to 1982, Senior Geologist for
Chevron Resources from 1975 to 1976, Senior Geologist for Newmont Mining
Corporation of Canada from 1967 to 1975, and Geologist for United Keno Hill
Mines Ltd. from 1965 to 1967. Mr. Costin obtained a bachelors degree in
Geological Engineering and a masters degree in Minerals Economics from the
Colorado School of Mines in 1965 and 1975, respectively.
Robert F. Sheldon, 75, has been a director of the Company since June,
1997. Since his retirement in 1988, Mr. Sheldon has performed consulting work
23
for several clients, including Newmont Exploration. Mr Sheldon has served, and
continues to serve, on the Board of Directors of several companies in addition
to Altair. Mr. Sheldon served as President of Newmont Exploration of Canada
Limited and Vice President of Newmont Mines Limited from 1975 until 1988 when he
retired. Mr. Sheldon was responsible for mineral exploration, appraisals and
development of mining properties throughout Canada for Newmont Mining
Corporation, a natural resource company with worldwide operations. Mr. Sheldon
obtained a bachelors degree in Geological Engineering from the University of
British Columbia in 1948. He is a member of the Association of Professional
Engineers of B.C., the American Institute of Mining and Metallurgy, the Canadian
Institute of Mining and Metallurgy, the B.C. and Yukon Chamber of Mines (past
president), and the Engineers Club, Vancouver, B.C. (past president).
James I. Golla, 65, was appointed Secretary of the Company in November,
1996 and has been a director of the Company since February, 1994. He also
currently serves as a director of Blake River Explorations Ltd. and Consolidated
Richland Mines Inc. Mr. Golla was a journalist with the Globe and Mail, Canada's
national newspaper, from 1954 until his retirement early in 1997.
George E. Hartman, 48, was elected a director of the Company in March,
1997. Since 1995, Mr. Hartman has served as President of Planvest Pacific
Financial Corporation ("Planvest Pacific"), a Vancouver-based financial planning
firm with over 250 representatives, 27,500 clients and $1 billion of assets
under management. Mr. Hartman also is on the Board of Directors of Planvest
Capital Corp., the parent of Planvest Pacific. In addition, Mr. Hartman
continues to serve as President of Hartman & Company, Inc., a firm founded by
Mr. Hartman in 1991 which provides consulting services to the financial services
industry. Mr. Hartman is the author of Risk is a Four-Letter Word--The Asset
Allocation Approach to Investing, a Canadian best-seller published in 1992 and
now in its fifth printing, and host of a weekly personal finance radio program,
"Money Matters," aired on AM 1040 in Vancouver, British Columbia.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors to file reports ("Section 16 Reports") concerning their
ownership of the Common Stock with the Commission and to furnish the Company
with copies of such reports. Based solely upon the Company's review of Section
16 Reports and amendments thereto furnished to the Company, the Company believes
that the following reports were not filed with the Commission on a timely basis.
Bill Long (President and Director), Pat Costin (Vice President), James Golla
(Secretary and Director), and George Hartman (Director) were each required to
file a Form 3 on March 20, 1997. The Company believes such Forms 3 were received
by the Commission on March 21, 1997. Robert Sheldon was required to file a Form
3 on June 10, 1997, which Form 3 the Company believes was received by the
Commission on March 27, 1998. With respect to transactions completed in August,
1997, Patrick Costin, Vice President of the Company, was required to file a Form
4 on September 10, 1997, which Form the Company believes 4 was received by the
Commission on September 11, 1997.
Item 11. Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth all annual and long-term compensation
for services rendered in all capacities to the Company for the fiscal years
ended December 31, 1997, 1996 and 1995 by William P. Long, the President of the
Company. The Company had no other executive officers whose total compensation
during the fiscal year ended December 31, 1997 exceeded $100,000.
Annual Compensation (1) Long Term Compensation
-------------------------------------- --------------------------------------
Awards Payouts
--------------------------- ---------
iscal alary ($)( Other Restrict ecurities Unde
FYear Annual Stock ptions Granted LTIP All Other
Name and nded ompensa- Awards ed S (3) Payouts Compensa-
Title E S 2) Bonus ($) C tion ($) O r ($) tion
- ----------- ------ ----------- ----------- ---------- --------- --------------- --------- -----------
William 1997 91,200 9,120 -0- -0- 100,000 -0- -0-
P. Long 1996 90,000 9,120 -0- -0- 250,000 -0- -0-
1995 91,200 9,120 -0- -0- 166,000 -0- -0-
24
- -------------------------
(1) All compensation paid is stated in United States dollars.
(2) Bonus and salary amounts reflect amounts accrued and payable to Dr.
Long for each fiscal year in accordance with the terms of his
employment agreement with the Company. See "--Employment Agreements."
Amounts actually paid to Dr. Long in fiscal years 1997, 1996, and 1995
were $75,600, $60,000 and $110,000, respectively. The fiscal year 1995
payments included earned but unpaid salary and bonus of $9,680 from the
1994 fiscal year. At December 31, 1997 $142,816 remained outstanding
and payable to Dr. Long, including interest on unpaid bonuses ($5,472).
(3) Options to purchase shares of Common Stock granted pursuant to the
Altair International Inc. Stock Option Plan (the "Option Plan").
Option Grants in 1997
The following table sets forth grants of options to purchase shares of
Common Stock granted to Dr. Long during the year ended December 31, 1997:
% of Total
Options Potential Realizable
Securities Granted to Exercise Value at Assumed Annual
Underlying Employees Price Rates of Stock Price
Options in Fiscal ($Cdn. Expiration Appreciation for Option
Name Granted (#) Year /sh) Date Term
- --------------------------- ------------- ------------ ----------- ----------- ---------------------------
5% 10%
($Cdn) ($Cdn.)
------------ ------------
William P. Long, 100,000 (1) 16.4% 10.25 (2) 05/15/02 283,188.69 625,772.75
President and Director
- -------------------------
(1) Represents options granted on May 14, 1997 pursuant to the Option Plan.
(2) The market value of the underlying shares of Common Stock as reported
by the Alberta Stock Exchange on May 13, 1997, the day prior to the
grant date, was $10.25 (Cdn.).
Aggregated Option Exercises and at Year-End Option Values
The following table sets forth information regarding options held by
Dr. Long as of December 31, 1997, and options exercised during the year ended
December 31, 1997.
Securities
Acquired Aggregate Number of Securities Value of Unexercised In-the-
on Value Underlying Unexercised Money Options at
Exercise Realized Options at December 31, December 31, 1997 ($Cdn.)
Name (#) ($Cdn.) 1997 (#) (1)
- ------------------- ---------- ------------ ------------------------------ --------------------------------
nexercisable
Exercisable U Exercisable Unexercisable
------------- -------------- ------------- ----------------
William P. Long, -0- -0- 250,000 -0- 4,400,000 -0-
President and 100,000 1,135,000
Director
- -------------------------
25
(1) Based on the closing price of the Common Stock on December 30, 1997, as
reported by The Alberta Stock Exchange, of $(Cdn.)21.60
Compensation of Directors
Directors who are not officers of the Company are not currently paid
any fees for their services as directors. Directors who are not officers are
entitled to receive compensation to the extent that they provide services to the
Company at rates that would be charged by such directors for such services to
arm's length parties.
Directors also have been and currently are entitled to participate in
the Option Plan. As of December 31, 1997, the Company had outstanding options to
purchase 962,500 shares of Common Stock pursuant to the Option Plan, 417,500 of
which are held by directors of the Company.
Employment Agreements
William P. Long, President of the Company, has entered into an
employment agreement with the Company dated January 1, 1998. The term of the
agreement commenced on January 1, 1998 and, unless earlier terminated, expires
on December 31, 2007. Pursuant to the agreement, Dr. Long is paid a salary of
$7,600 per month and an annual bonus, determined by the board of directors of
the Company, of not less than 10% of Dr. Long's annual compensation. In the
event the voting control of over 35% of the issued and outstanding Common Stock
is acquired by an individual or group (a "Change of Control") and the agreement
is terminated by the Company or Dr. Long within 180 days before the Change of
Control or at any time thereafter, Dr. Long is entitled to be issued 200,000
shares of Common Stock. Absent a Change of Control, if the agreement is
terminated for any reason except by Dr. Long, by mutual consent, by the Company
for cause, or at the end of the term, Dr. Long is entitled to be issued 200,000
shares of Common Stock.
C. Patrick Costin, a Vice President of the Company and the President of
MRS and Fine Gold, is employed by Fine Gold pursuant to the terms of an
employment agreement entered into August 15, 1994. The agreement expired by its
terms on December 31, 1997, but has been orally extended pending execution of a
renewal employment agreement during the second quarter of 1998. The agreement
provides that Mr. Costin shall be paid a salary of at least $7,500 per month and
may be entitled to bonuses as determined by the Board of Directors of Fine Gold.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Following is information with respect to beneficial ownership of shares
of the Common Stock as of February 27, 1998 by persons known to the Company to
own more than 5% of the outstanding Common Stock, each of the Company's
executive officers and directors, and by all officers and directors of the
Company as a group. Unless otherwise indicated, each of the shareholders named
in the table has sole voting and investment power with respect to the shares
identified as beneficially owned. The Company is not aware of any arrangements,
the operation of which may at a subsequent date result in a change in control of
the Company.
- ---------------------------------------------------------------------------------------------------
Amount and
Nature of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner Ownership (1) of Class(2)
- ---------------------------------------------------------------------------------------------------
Common William P. Long 2,101,529 (3) 14.6%
57 Sunset Rim
Cody, Wyoming 82414
26
Common C. Patrick Costin 1,033,333 (4) 6.7%
1850 Aquila Avenue
Reno, Nevada 89509
Common James I. Golla 22,000 (5) *
829 Terlin Boulevard
Mississauga, Ontario L5H 1T1
Common George Hartman 25,000 (6) *
233 Bayview Road
Lyon's Bay, British Columbia
Canada V2N 2E0
Robert Sheldon 25,000 (7) *
3475 Mathers Avenue
West Vancouver, British Columbia
Canada V7V 2K8
Common All Directors and Officers as a Group 3,364,362 (8) 21.4%
(5 persons)
- --------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Includes all shares issuable pursuant to the exercise or conversion of
options and warrants that are exercisable within 60 days.
(2) Based on 15,110,245 shares outstanding as of February 27, 1998. Shares
of Common Stock underlying options or other convertible securities are
deemed to be outstanding for purposes of calculating the percentage
ownership of the owner of such securities, but not for purposes of
calculating any other person's percentage ownership.
(3) Includes 46,000 shares held by Dr. Long's minor daughter, 47,500 shares
held by Dr. Long's minor son, and 162,500 shares held by the MBRT
Trust, an irrevocable trust for the benefit of the minor children of
Dr. Long. Dr. Long disclaims any beneficial interest in such 275,500
shares. Also includes 350,000 shares subject to presently exercisable
options granted to Mr. Long pursuant to the Option Plan.
(4) Includes 411,667 shares held in escrow and to be released one-half on
June 1, 1998 and one-half on June 1, 1999. Mr. Costin is entitled to
exercise all voting rights applicable to the escrowed shares. Also
includes 225,000 shares subject to presently exercisable options
granted to Mr. Costin pursuant to the Option Plan.
(5) Includes 15,000 shares subject to presently exercisable options granted
to Mr. Golla pursuant to the Option Plan.
(6) Includes 25,000 shares subject to presently exercisable options granted
to Mr. Hartman pursuant to the Option Plan.
(7) Includes 25,000 shares subject to presently exercisable options granted
to Mr. Sheldon pursuant to the Option Plan.
(8) Includes 640,000 shares subject to presently exercisable options
granted to officers and directors pursuant to the Option Plan.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Included in accounts payable and accrued liabilities of the Company for
fiscal years 1997 and 1996 are approximately $142,816 and $115,360,
respectively, owing to Dr. William P. Long, President of the Company. Such
amounts represent accrued salary and bonuses payable to Dr. Long. No terms of
repayment have been negotiated with respect to such amounts. See Item 11.
"Executive Compensation--Summary Compensation Table."
Pursuant to an agreement dated April 21, 1994, the Company issued
750,000 shares of Common Stock, with a deemed value of $0.47 per share
($352,500) for all of the outstanding common shares of Fine Gold. Mr. Costin
owned 95% of the Fine Gold common shares and, as a result, was issued 712,500
27
shares of Common Stock. Of the shares of Common Stock issued to Mr. Costin,
411,667 remain in escrow, to be released one-half on June 1, 1998 and one-half
on June 1, 1999, pursuant to the terms of an escrow agreement among the Company,
Equity Transfer Services, Inc., Thomas P. Campbell and Mr. Costin, dated June 1,
1994 (the "Fine Gold Escrow Agreement"). See "Item 12. Security Ownership of
Certain Beneficial Owners and Management".
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) Documents Filed
---------------
1. Financial Statements. The following Consolidated
Financial Statements of the Company and Auditor's
Report are filed as part of this Annual Report on
Form 10-K:
o Report of McGovern, Hurley, Cunningham, for
the years ended December 31, 1997, 1996 and
1995
o Consolidated Balance Sheets at December 31,
1997 and 1996
o Consolidated Statements of Operations and
Deficit for the years ended December 31,
1997, 1996 and 1995
o Consolidated Statements of Changes in
Financial Position for the years ended
December 31, 1997, 1996 and 1995
o Notes to Consolidated Financial Statements
2. Financial Statement Schedules. Not applicable.
28
3. Exhibit List
Exhibit Incorporated Filed
No. Exhibit by Reference Herewith
- ------- --------------------------------------------------------- ------------ --------
3.1.1 Articles of Incorporation of the Registrant (1)
3.1.2 Amendment to Articles of Incorporation of the
Registrant dated November 6, 1996 (2)
3.2 Bylaws of the Registrant (1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Series 5% Convertible Debenture (3)
4.3 Form of Warrant (3)
10.1 Articles of Merger of Mineral Recovery Systems, Inc.
with and into Fine Gold Recovery Systems Inc. dated
June 21, 1996, including Exhibit A thereto, Plan of
Merger and Merger Agreement (1)
10.2 Merger Agreement among Fine Gold Recovery Systems
Inc., Altair International Inc. and Trans Mar, Inc. dated
February 8, 1996, as amended February 22, 1996 (the
"TMI Merger Agreement") (1)
10.2.1 Exhibit 1.1(c) to the TMI Merger Agreement -- Articles
of Merger (1)
10.2.2 Exhibit 1.1(e)(1) to the TMI Merger Agreement --
Principal Escrow Agreement dated February 29, 1996 (1)
10.2.3 Exhibit 1.1(e)(2) to the TMI Merger Agreement --
Performance Escrow Agreement dated February 27,
1996 (1)
10.2.4 Exhibit 1.1(h) to the TMI Merger Agreement -- Warrant
Certificate (1)
10.2.5 Schedule 1.1(e)(ii) to the TMI Merger Agreement --
Principal Escrow Release Schedule (1)
10.2.6 Schedule 1.1(e)(iii) to the TMI Merger Agreement --
Performance Escrow Release Schedule (1)
10.3 Employment Agreement between Altair International
Inc. and William P. Long dated January 1, 1998 (5)
10.4 Employment Agreement between Fine Gold Recovery
Systems Inc. and C. Patrick Costin dated August 15,
1994 (1)
10.5 Altair International Inc. Stock Option Plan adopted by
shareholders May 10, 1996 (4)
10.6 Share Purchase Agreement between Altair International
Inc. and Fine Gold Recovery Systems, Inc. dated April
21, 1994 (1)
10.7 Escrow Agreement among Altair International Inc.,
Equity Transfer Services Inc., Thomas P. Campbell and
C. Patrick Costin dated June 1, 1994 (1)
29
Exhibit Incorporated Filed
No. Exhibit by Reference Herewith
- ------- --------------------------------------------------------- ------------ --------
10.8 Securities Purchase Agreement dated as of December
24, 1997, among Altair International, Inc. and certain
investors (3)
10.9 Registration Rights Agreement dated as of December
24, 1997, among Altair International, Inc., Prudential
Securities Incorporated, and certain investors (3)
10.10 Form of 5% Convertible Debenture (3)
10.11 Form of Mineral Lease (5)
22 Subsidiaries of the Registrant (2)
23.1 Consent of McGovern, Hurley, Cunningham (5)
27 Financial Data Schedule (5)
- -----------------------
(1) Incorporated by reference to Registration Statement on Form 10-SB filed
with the Commission on November 25, 1996.
(2) Incorporated by reference to Amendment No. 1 to Registration Statement
on Form 10 filed with the Commission on December 23, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on January 13, 1998, as amended by Amendment
No. 1 to Current Report on Form 8-K/A, filed on January 21, 1998.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8 filed with the Commission on July 11, 1997.
(5) Filed herewith and attached to this Annual Report on Form 10-K
following page F-17 hereof.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K on December 11,
1997, in which the Company reported the issuance of press
release regarding its retention of a financial advisor to
assist the Company in raising money through a private
placement.
(c) Exhibits
--------
Exhibits to this Report are attached following page F-17
hereof.
(d) Financial Statement Schedule
----------------------------
Not applicable.
30
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 23, 1998.
ALTAIR INTERNATIONAL INC.
By: /s/ William P. Long
-----------------------------------
William P. Long,
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William P. Long
- -------------------------
William P. Long President and Chief Executive March 23, 1998
Officer and Director (Principal
Executive Officer)
/s/ C. Patrick Costin Vice President (Principal March 23, 1998
- ------------------------- Financial and Accounting
C. Patrick Costin Officer)
/s/ James I. Golla Secretary and Director March 23, 1998
- -------------------------
James I. Golla
/s/ George Hartman Director March 23, 1998
- -------------------------
George Hartman
/s/ Robert Sheldon Director March 23, 1998
- -------------------------
Robert Sheldon
ALTAIR INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States Dollars)
ALTAIR INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States Dollars)
INDEX PAGE
Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Deficit 3
Consolidated Statements of Changes in Financial Position 4
Notes to the Consolidated Financial Statements 5 - 17
Page F-1
AUDITORS' REPORT
To the Shareholders of
Altair International Inc.
We have audited the consolidated balance sheets of Altair International Inc. as
at December 31, 1997 and 1996 and the consolidated statements of operations and
deficit, and changes in financial position for the years ended December 31,
1997, 1996 and 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years ended December 31, 1997, 1996 and 1995 in accordance with
generally accepted accounting principles in Canada.
McGOVERN, HURLEY, CUNNINGHAM
/s/ McGovern, Hurley, Cunningham
Chartered Accountants
North York, Canada
February 9, 1998, except for
Note 2(b)(i) which is dated
March 19, 1998
ALTAIR INTERNATIONAL INC. Page F-2
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
================================================================================
1997 1996
$ $
(Expressed in United States Dollars - Note 1) (Note 12)
ASSETS
CURRENT
Cash and short-term investments 8,161,770 3,270,161
Advances and accounts receivable 1,170 13,556
Prepaid expenses 30,023 -
8,192,963 3,283,717
CAPITAL (Note 3) 397,723 257,017
CENTRIFUGAL JIG (Note 4) 3,918,378 4,365,064
--------- ---------
MINERAL PROPERTIES AND RELATED DEFERRED
EXPLORATION EXPENDITURES (Note 5) 606,551 126,302
GOODWILL 10,189 10,788
------ ------
13,125,804 8,042,888
========== =========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 9) 227,439 155,726
Current portion of notes payable (Note 6) 253,890 153,036
Current portion of convertible debentures - Liability element (Note 8) 231,481 -
------- -------
712,810 308,762
NOTES PAYABLE (Note 6) 5,901 269,685
CONVERTIBLE DEBENTURES - Liability element (Note 8) 596,550 -
------- -------
1,315,261 578,447
--------- -------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 7)
Issued
15,492,745 Common shares (1996 - 14,686,296) 13,942,453 11,373,259
COMMON SHARES TO BE ISSUED - 47,746
CONVERTIBLE DEBENTURES - Equity element (Note 8) 4,171,969 -
DEFICIT (6,303,879) (3,956,564)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,810,543 7,464,441
---------- ---------
13,125,804 8,042,888
========== =========
- ------------------------------------------------------------------------------------------------------------------------
APPROVED ON BEHALF OF THE BOARD:
"JAMES I. GOLLA" , Director
---------------------------------------
"WILLIAM P. LONG" , Director
---------------------------------------
See Accompanying Notes to the Consolidated Financial Statements
ALTAIR INTERNATIONAL INC. Page F-3
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
================================================================================
1997 1996 1995
$ $ $
(Expressed in United States Dollars - Note 1) (Note 12)
OPERATING EXPENSES
Professional Fees 293,883 321,363 66,582
Wages and employee benefits 256,033 223,987 103,235
Loss (gain) on foreign exchange 123,612 (7,888) 6,489
Shareholder relations 105,993 22,480 21,021
Shareholder meetings 96,308 51,348 5,068
Travel 87,777 23,416 749
Testing, research and development 78,034 159,679 162,228
General and office 74,266 78,672 21,435
Insurance 48,120 11,769 8,359
Occupancy costs 43,146 27,140 --
Government fees and taxes 25,447 4,208 1,933
Transfer agent=s fees 17,390 13,978 6,842
Accounting and corporate services 8,166 6,700 6,091
Stock exchange fees 7,438 3,502 3,714
Bank charges 1,589 763 --
Patent Maintenance -- 8,975 --
Financing fees -- -- 12,994
Write-off of mineral properties and related
deferred exploration expenditures -- -- 8,212
Amortization 590,831 385,633 3,151
----------- ----------- -----------
1,858,033 1,335,725 438,103
Add: Interest on long-term debt 43,497 19,373 --
Less: Interest income (70,059) (27,872) (1,000)
----------- ----------- -----------
Loss from operations 1,831,471 1,327,226 437,103
(Gain) on forgiveness of debt -- (702,726) --
----------- ----------- -----------
NET LOSS for the year 1,831,471 624,500 437,103
DEFICIT, beginning of year 3,956,564 3,332,064 2,894,961
Convertible debenture issuance costs (Note 8) 515,844 -- --
----------- ----------- -----------
DEFICIT, end of year 6,303,879 3,956,564 3,332,064
=========== ========= =========
Net loss per share from operations
Basic (Note 10) $ (0.13) $ (0.12) $ (0.07)
=========== ========= =======
Net income per share from gain on forgiveness of debt $ -- $ 0.06 $ --
=========== ========= =======
See Accompanying Notes to the Consolidated Financial Statements
ALTAIR INTERNATIONAL INC. Page F-4
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
================================================================================
1997 1996 1995
$ $ $
Expressed in United States Dollars - Note 1) (Note 12)
CASH WAS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the year (1,831,471) (624,500) (437,103)
Charges not involving cash:
Amortization 590,831 385,633 3,151
Write-off of mineral properties and related
deferred exploration expenditures -- -- 8,212
---------- ---------- ----------
(1,240,640) (238,867) (425,740)
---------- ---------- ----------
Changes in noncash working capital balances:
(Increase) in prepaid expenses (30,023) -- --
Decrease (increase) in advances and accounts receivable 12,386 81,367 (51,191)
Increase (decrease) in accounts payable
and accrued liabilities 71,444 64,816 (73,099)
53,807 146,183 (124,290)
(1,186,833) (92,684) (550,030)
---------- ---------- ----------
FINANCING ACTIVITIES
Increase in convertible debenture 5,000,000 -- --
Issuance of common shares for cash -- 222,530 --
Issuance of common shares pursuant to a private placement -- 1,414,778 875,529
Issuance of common shares for shares of subsidiary -- 2,521,467 --
Convertible debenture issuance costs (515,844) -- --
Common shares to be issued -- 47,746 --
Exercise of stock options 1,530,406 526,850 53,553
Exercise of warrants 991,042 2,471,219 --
Increase (decrease) in notes payable (162,930) 422,721 171,458
6,842,674 7,627,311 1,100,540
---------- ---------- ---------
INVESTING ACTIVITIES
Mineral properties and related deferred exploration expenditures (480,248) (125,648) (8,212)
Purchase of capital assets (237,283) (254,709) (22,787)
Centrifugal Jig patents and related expenditures (46,701) (4,193,598) (4,352)
Option agreement costs -- -- (212,832)
(764,232) (4,573,955) (248,183)
---------- ---------- ----------
Increase in cash and short-term investments 4,891,609 2,960,672 302,327
Cash and short-term investments, beginning of year 3,270,161 309,489 7,162
---------- ---------- ----------
Cash and short-term investments, end of year 8,161,770 3,270,161 309,489
========== ========== ==========
See Accompanying Notes to the Consolidated Financial Statements
ALTAIR INTERNATIONAL INC. Page F-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
As the majority of transactions occur in United States dollars (U.S.$),
commencing with the current period, the consolidated financial
statements have been expressed in United States dollars. Previously,
the Canadian dollars (CDN) was used as the unit of measure. This change
has been applied retroactively.
The Company has restated the prior year=s figures whereby the
consolidated balance sheets, consolidated statements of operations and
deficit and the consolidated statements of changes in financial
position have been translated at the year end (December 31, 1996) rate
of CDN$1.3706 = U.S.$1.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The financial statements include the accounts of the Company and
its subsidiaries, Mineral Recovery Systems, Inc. (100% owned),
Intercontinental Development Corporation (83% owned), Fine Gold
Recovery Systems, Inc. (Fine Gold) (100% owned) and 660250 Ontario
Limited (100% owned).
Nature of Operations:
The Company and its subsidiaries are engaged in the business of
developing and testing mineral processing equipment in the United
States for use in the recovery of fine and heavy mineral
particles, including gold, titanium, zircon and environmental
contaminants. The Company and its subsidiaries are also in the
process of exploring mineral properties in the United States.
Mineral Properties and Related Deferred Exploration Expenditures:
Mineral properties are carried at cost until they are brought into
production at which time they are depleted on a unit-of-production
method based on proven and probable reserves. If a property is
subsequently determined not to be economic, the property and
related deferred costs are written down to net realizable value.
Exploration expenses, as well as advance royalty payments,
relating to mineral properties in which the Company has an
interest are deferred until the properties are brought into
production at which time they are amortized on a
unit-of-production basis. Other general exploration expenses are
charged to operations as incurred. The cost of the mineral
properties abandoned or sold and the related deferred exploration
costs are charged to operations in the current year.
The Company reviews its mineral properties on an annual basis to
determine if events or changes in circumstances have transpired
which indicate that the carrying value of its assets may not be
recoverable. In performing its review, the Company estimates the
future cash flows expected to result from each asset and its
eventual disposition. If the sum of the undiscounted, expected
future cash flow is less than the carrying value of the asset, an
impairment loss is recognized. It is reasonably possible, based on
existing knowledge, that changes in future conditions in the near
term could require a change in the determination of the need for
and amount of any writedown.
Administrative Expenditures:
Administrative expenditures are charged to operations as incurred.
Short-term Investments:
Surplus cash of the Company is invested in a diversified portfolio
of United States dollar - denominated money market instruments.
These investments are liquid and can be converted to cash at any
time through the public money market. The carrying amount of the
short-term investments approximates their market value.
Continued...
ALTAIR INTERNATIONAL INC. Page F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Capital Assets and Amortization:
Capital assets are stated at acquisition cost. Amortization is
provided based on the estimated useful life of the assets as
follows:
Furniture and office equipment 20% declining balance
Mining equipment 20% declining balance
Vehicles 20% declining balance
Centrifugal Jig equipment 7 year straight line
Test facility 20% declining balance
Centrifugal Jig Patents and Related Expenditures:
The Centrifugal Jig patents are carried at acquisition cost and
are being amortized on a straight-line basis over their remaining
lives.
The related expenditures are also being carried at acquisition
costs and the amortization policies are as follows:
Royalty agreement (Note 2(c)) - 15 year straight
line
License agreement - No amortization as
the Company
intends to sell
the licence
Mineral recovery technology rights - Costs are deferred
until the jig
technology
produces revenue
The Company reviews its centrifugal jig patents and related
expenditures on an annual basis to determine if events or changes in
circumstances have transpired which indicate that the carrying value of
its assets may not be recoverable. In performing its review, the
Company estimates the future cash flows expected to result from each
asset and its eventual disposition. If the sum of the undiscounted,
expected future cash flow is less than the carrying value of the asset,
an impairment loss is recognized. It is reasonably possible, based on
existing knowledge, that changes in future conditions in the near term
could require a change in the determination of the need for and amount
of any writedown.
Research and Development Expenditures:
Research and development expenditures are charged to operations as
incurred.
Goodwill:
Goodwill is the excess of the cost of the investment in
subsidiaries over the estimated fair value of the net assets
acquired and is amortized on a straight-line basis over 20 years.
Goodwill is written down (to fair value) when declines in value
are considered other than temporary based on expected future cash
flows of the respective subsidiary.
Foreign Currency Translation:
The Company's consolidated operations are integrated and balances
denominated in currencies other than U.S. dollars are translated
into U.S. dollars using the temporal method. This method
translates monetary balances at the rate of exchange at the
balance sheet date, non-monetary balances at historical exchange
rates and revenue and expense items at average exchange rates. The
resulting gains and losses are included in income (loss) in the
reporting period.
Continued...
ALTAIR INTERNATIONAL INC. Page F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates:
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the related reported amounts of revenue and expense during the
report period. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
Financial Instruments:
The carrying amounts for accounts receivable, advances, accounts
payable and accrued liabilities and notes payable on the balance
sheets approximate fair value because of the limited term of these
instruments. Fair value estimates are made at the balance sheet
date, based on relevant market information and information about
the financial instrument. These estimates are subjective in nature
and involve uncertainties in significant matters of judgement and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
2. ACQUISITIONS
(a) Fine Gold Recovery Systems, Inc. (Fine Gold)
Pursuant to an agreement dated April 21, 1994 the Company
issued 750,000 common shares, with a deemed value of $0.34 per
share ($255,000) for all of the outstanding common shares of
Fine Gold, a corporation incorporated in the State of Nevada
and involved in the development of a "Centrifugal Jig", an
apparatus designed to recover fine gold from mineral
properties. Pursuant to an agreement dated January 1, 1994,
between Thomas P. Campbell, the inventor of the Centrifugal
Jig, and Fine Gold, Fine Gold acquired the rights to develop
and market applications for the Centrifugal Jig at specified
target sites and utilize the Centrifugal Jig in the
exploitation of such sites, and further obtained the agreement
of Mr. Campbell to provide certain services and assistance to
Fine Gold during the term of the agreement. The agreement is
valid throughout the world except (i) areas subject to patents
held by Trans Mar, Inc. (Note 2 (b)), (ii) the Republic of
Costa Rica and certain areas in Mexico and Guiana, South
America.
A total of 650,000 shares issued pursuant to the acquisition
were subject to a Performance Escrow Agreement. As at December
31, 1997, 433,334 common shares remain in escrow, of which
216,666 will be released on June 1, 1998 and the balance
released on June 1, 1999.
As at December 31, 1997, Fine Gold was still in the
development stage in that no operating revenues have been
earned and no operating expenses have been incurred.
Continued...
ALTAIR INTERNATIONAL INC. Page F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
2. ACQUISITIONS (Continued)
(b) Trans Mar, Inc. (TMI)
In March 1996, the Company acquired 100% of the issued and
outstanding common stock of TMI for total consideration of
1,919,957 common shares at $1.31 each ($2,521,469), the assumption
of $1,210,981 of net liabilities, and 580,000 Series E share
purchase warrants (Note 7(i)).
TMI was involved in the development of the patented Campbell
Centrifugal Jig and held patent rights to the Centrifugal Jig
technology (subject to a 10% royalty - See Note 2(c)) in the
United States, South Africa, United Kingdom, Australia and Canada.
The transaction was accounted for using the purchase method. The
excess paid over the net book value (which approximates fair
value) of the assets acquired was allocated to the Centrifugal Jig
patents. TMI was merged with Fine Gold immediately after the
acquisition. The 1,919,957 common shares were deposited into
escrow pursuant to the terms of two escrow agreements as follows:
i) 1,170,000 common shares are to be released dependent upon the
Company receiving revenues from the sale of the Centrifugal Jigs
formerly held by TMI. The basis of the share release is one common
share for each $1.31 in cash flow received by the Company,
provided that no more than one-third of the original number of
common shares escrowed may be released in any one year over the
first three years of the escrow. Common shares still in escrow at
the end of five years may be cancelled by the Alberta Stock
Exchange (ASE). On March 19, 1998, the ASE notified the Company
that it have approved a settlement agreement between the Company
and several former TMI shareholders, resulting in (i) the release
of 180,765 common shares placed in escrow in connection with the
Company's acquisition of TMI and (ii) the cancellation of 723,065
common shares owned by such former TMI shareholders, which were
also subject to the escrow arrangement.
ii) The remaining 749,957 common shares have been released from
escrow. Each former TMI shareholder or warrant holder is
restricted from selling more than the greater of 15,000 shares or
10% of such holder's holdings in any calendar quarter.
(c) Intercontinental Development Corporation (INDECO)
In 1996, the Company purchased 66% of the issued and outstanding
shares of INDECO for total consideration of $319,298. This
acquisition has been accounted for using the purchase method.
INDECO is a dormant company whose sole asset is a royalty
agreement entitling the corporation to 10% of the cost of
manufacturing any Centrifugal Jigs which are placed in production,
sold or exploited for profit worldwide. The entire amount of the
purchase price has been allocated to the Centrif ugal Jig Royalty
Agreement. During 1997, the Company acquired an additional 17%
interest in INDECO for total consideration of $36,537. The
additional cost of the investment has been allocated to
Centrifugal Jig Royalty Agreement.
3. CAPITAL ASSETS
Accumulated Net Net
Cost Amortization 1997 1996
---- ------------ ---- ----
$ $ $ $
Furniture and office equipment 42,473 16,935 25,538 27,131
Vehicles 92,629 26,555 66,074 63,493
Mining equipment 9,501 4,917 4,584 8,096
Centrifugal jig equipment 333,028 70,182 262,846 158,297
Testing facility 45,128 6,447 38,681 -
------ ----- ------
522,759 125,036 397,723 257,017
======= ======= ======= =======
Continued...
ALTAIR INTERNATIONAL INC. Page F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
4. CENTRIFUGAL JIG PATENTS AND RELATED EXPENDITURES
Royalty Agreement (Note 2(c)) $ 355,835
Less: Accumulated amortization (34,449) $ 321,386
---------
Patents 4,095,302
Less: Accumulated amortization (817,477) 3,277,825
---------
Patent application 10,164
Mineral recovery technology rights 243,000
License agreement 66,003
------
$3,918,378
==========
License Agreement
On June 10, 1996, the Company entered into an agreement with RDR,
Inc. to acquire the entire right, title and interest in a license
agreement related to the Centrifugal Jig. The Company agreed to
purchase the right for $75,000 with an initial deposit of $5,000
and monthly payments of $2,000 commencing July 1, 1996 over a
35-month period. The Company intends to resell the license.
5. MINERAL PROPERTIES AND RELATED DEFERRED EXPLORATION EXPENDITURES
The Company's subsidiary, Mineral Recovery Systems, Inc. (MRS), has
entered into various mineral leases for a 100% interest in
approximately 4,300 acres of land in Benton County, State of Tennessee,
United States for $18,712 and minimum annual advance royalty payments
as follows:
Year Amount
---- ------
$
1998 18,712
1999 32,348
2000 36,423
2001 36,423
2002 36,423
2003 and each thereafter 442,186
-------
602,515
=======
The mineral leases are subject to a production royalty, however, MRS
will receive a credit for all advance royalties paid against production
royalties. The lessors can only terminate the leases upon the failure
of MRS to make the required minimum payments as required by the leases.
During the year approximately $480,000 (1996 - $110,000) was incurred
on exploration.
Continued...
ALTAIR INTERNATIONAL INC. Page F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
1997 1996
---- ----
$ $
Notes payable assumed from Trans Mar, Inc., interest payable at
various rates, unsecured, principal and interest due December 31, 1999 190,559 198,702
Notes payable to former shareholders of Trans Mar, Inc., non-interest
bearing, unsecured, principal due December 31, 1999 41,141 175,842
Note payable, interest payable at 10% per annum, unsecured,
blended payments of $2,000 per month, due April 1, 1999 28,091 48,177
------ ------
259,791 422,721
Less: Current portion 253,890 153,036
------- -------
Long-term portion of notes payable 5,901 269,685
===== =======
Notes payable to former shareholders of Trans Mar, Inc. (TMI), are
subject to a repayment agreement with the former shareholders of TMI
dated March 3, 1996. Although the original notes payable are due
December 31, 1999, the Company agreed to retire $50,000 per month of
the TMI debt assumed by the Company.
7. CAPITAL STOCK
The capital stock is as follows:
Authorized
Unlimited common shares
Issued
15,492,745 common shares $13,942,453
===========
Transactions during the prior three years are as follows:
Shares Amount
------ ------
# $
Balance, December 31, 1994 5,200,849 3,115,873
Common shares issued for cash 2,700,000 875,529
Exercise of stock options 247,000 53,553
Exercise of warrants 350,000 171,458
------- -------
Balance, December 31, 1995 8,497,849 4,216,413
--------- ---------
Private placements 554,027 1,414,778
Exercise of stock options 702,000 526,850
Exercise of warrants 2,912,463 2,471,219
Common shares issued for cash 100,000 222,530
Common shares issued for the acquisition of TMI (Note 2(b)) 1,919,957 2,521,469
--------- ---------
Balance, December 31, 1996 14,686,296 11,373,259
Exercise of stock options 362,500 1,530,406
Exercise of warrants 411,229 991,042
Common shares issued on warrants exercised in December, 1996 32,720 47,746
------ ------
Balance, December 31, 1997 15,492,745 13,942,453
========== ==========
Continued...
ALTAIR INTERNATIONAL INC. Page F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
7. CAPITAL STOCK (Continued)
Stock Options
As at December 31, 1997, 962,500 common shares of the Company ("Common
Shares") are reserved for issuance to directors, officers and employees
under the Company's stock option plan. The exercise price and expiry
dates of options outstanding as of December 31, 1997 are as follows:
Number of Price
Shares $ Expiry Date
------ ----- -----------
125,000 2.70 March 7, 2001
250,000 2.92 May 27, 2001
75,000 3.06 July 29, 2001
17,500 6.13 November 6, 2001
15,000 6.86 December 31, 2001
25,000 9.00 March 10, 2002
200,000 7.42 May 14, 2002
25,000 6.77 June 3, 2002
150,000 7.78 August 26, 2002
80,000 12.78 December 22, 2002
-------
962,500
=======
Warrants
i) Series E
Issued and outstanding, beginning of the year 319,644
Exercised during the year (301,229)
Expired during the year (18,415)
--------
Issued and outstanding, end of the year NIL
========
ii) Series F
Issued and outstanding, beginning of the year 50,000
Exercised during the year (50,000)
-------
Issued and outstanding, end of the year NIL
=======
iii) Series H
Issued and outstanding, beginning of the year 60,000
Exercised during the year (60,000)
-------
Issued and outstanding, end of the year NIL
=======
iv) Convertible Debentures Placement Warrants (Note 8)
Issued and outstanding, end of the year 105,000
=======
v) Convertible Debenture Transaction Warrants (Note 8)
Issued and outstanding, end of the year 75,000
======
Continued...
ALTAIR INTERNATIONAL INC. Page F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
8. CONVERTIBLE DEBENTURES
On December 29, 1997, the Company issued $5,000,000 in convertible
subordinated debentures due December 29, 2001 (the Debentures) bearing
interest at 5% per annum payable in cash or common shares of the
Company (Common Shares), annually or upon conversion or maturity, at
the discretion of the Company. Subject to certain restrictions during
the first 180 days after closing, the Debentures are convertible by
holders of the Debentures into Common Shares at a conversion rate equal
to the lesser of (i) 92% of the average price of the Common Shares for
the five trading days prior to submission of a notice of conversion by
the holder, or (ii) $14.36875 (the Ceiling Price). The Ceiling Price
will be increased by $0.50 at the end of the second year following
closing and an additional $0.50 at the end of the third year following
closing. The Company may force conversion of the Debentures if, among
other things, the average closing price for the five preceding trading
days exceeds 130% of the Ceiling Price ($18.68). The Company may redeem
outstanding Debentures at a price of 110% of face value if, among other
things, the price of the Common Shares is trading below $6.50 per share
for the preceding 10 consecutive trading days. In addition to the
above, the Company has the right to cause initial purchasers of the
Debentures to purchase up to an additional $5,000,000 of convertible
subordinated debentures on terms and conditions similar to the
Debentures.
The purchasers of the Debentures also received transaction warrants
entitling the holders to purchase 75,000 Common Shares on or before
December 29, 1999, at a price of $16.7188 per share. Any additional
placement of convertible subordinated debentures will also include
transaction warrants entitling the holder to purchase 75,000 Common
Shares, or a lesser proportionate number if the aggregate value of such
debentures is less than $5,000,000, at a price equal to 125% of the
closing bid price of the Common Shares on the closing date. The
placement agent received 105,000 placement warrants entitling the agent
to purchase 105,000 Common Shares at $16.7188 per share on or before
December 29, 1999.
The Company's convertible debentures contain both debt and equity
components. The Company has accounted for the present value of the
interest portion as a liability. At December 31, 1997, this liability
amounted to $828,031. The present value of the principal and the
holders' conversion option have been classified as a component of
shareholders' equity and was $4,171,969 at December 31, 1997. The fair
value of the liability element of convertible debentures at December
31, 1997 was approximately equal to the book value.
As part of the placement of the Debentures, the Company has filed a
registration statement with the Securities and Exchange Commission
registering the Common Shares issuable upon conversion of the
Debentures and related warrants. If such registration statement is not
declared effective within 150 days from closing, a penalty of 2% of the
face value of the Debentures per month will be payable to the holders
of the Debentures.
9. COMMITMENT
Under the current employment agreement between the Company and its
president, Dr. William P. Long, Dr. Long is entitled to receive payment
of 200,000 Common Shares in the event: (i) voting control of over 35%
of the issued stock is acquired by a person or a group of persons in a
merger, takeover, or similar transaction, and Dr. Long's employment
agreement is terminated within 180 days before or at any time after
such change of control, or (ii) absent, a change of control, if Dr.
Long's employment agreement is terminated for any reason, except by Dr.
Long, by mutual consent, by the Company for cause or at the end of the
term. In addition, included in accounts payable and accrued liabilities
is $142,816 (1996 - $115,361) owing to Mr. Long.
Continued...
ALTAIR INTERNATIONAL INC. Page F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
10. NET LOSS PER SHARE
The existence of stock options, warrants and convertible debentures
affects the calculation of loss per share on a fully diluted basis. As
the effect of this dilution is to reduce the reported loss per share,
the fully diluted loss per share has not been presented.
11. INCOME TAXES
As at December 31, 1997, The Company has approximately $939,000 of
non-capital losses carried forward for income tax purposes which are
available to reduce future year's income for tax purposes which will
begin to expire in 1998.
12. COMPARATIVE FIGURES
Certain of the 1996 comparative figures have been reclassified to
conform with the financial statement presentation adopted for 1997.
13. CONCENTRATION OF CREDIT RISK
As at December 31, 1997, MRS had $216,181 invested in a diversified
portfolio of United States dollar-denominated money market instruments
in the United States. This portfolio is neither insured nor guaranteed
by the United States Government. Subsequent to the year end,
substantially all of the cash and short-term investments on hand were
transferred to the money market.
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares its accounts in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP") which
conform, in all material respects, with accounting principles generally
accepted in the United States ("U.S. GAAP"), except as described below.
Development Stage Company
As of December 31, 1997, the Company would be characterized as a
"development stage enterprise" under U.S. GAAP due to Statement of
Financial Accounting Standards No. 7 (SFAS 7). Under Canadian GAAP,
there are no requirements for the indication or reporting of
development stage entities. The following is a summary of the deficit
accumulated during the development stage prepared in accordance with
SFAS 7:
Continued...
ALTAIR INTERNATIONAL INC. Page F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
Accumulated
deficit during the
development stage
-----------------
$
Professional Fees 1,115,663
Salaries and wages 1,620,432
Shareholders= expenses 776,846
Office and general 832,508
Loss on sale of mining claims 101,047
Amortization 981,926
Interest on long-term debt 62,870
Write-off of mineral properties and related deferred
exploration expenditures 1,292,354
Write-off of organization costs 8,563
-----
6,792,209
Less: Interest Income
(111,572)
Gain on sale of marketable securities (35,773)
Lease payments (143,754)
Gain on forgiveness of debt (702,726)
Option payments (70,906)
-------
Total accumulated loss 5,727,478
Convertible debenture costs 515,844
Share issue costs 60,557
------
Accumulated deficit, December 31, 1997 6,303,879
=========
Foreign Currency Translation
In Canada and the United States, a distinction is made between the
measurement and accounting for an enterprise's own transactions in a
foreign currency. The Company remeasures its books and records into the
functional currency prior to translation into the reporting currency.
The Company maintains its books and records in Canadian dollars and the
U.S. subsidiaries maintain their books and records in United States
dollars. The remeasurement of the Company's financial statements
according to U.S. GAAP would not change the results of the consolidated
financial statements prepared in accordance with Canadian GAAP.
Statement of Changes in Financial Position
The U.S. Financial Accounting Standards Board (FASB) issued its
Statement of Financial Accounting Standards No. 95 (SFAS No. 95)
effective for years ending after July 15, 1988. SFAS No. 95, which is
entitled "Statement of Cash Flows", established standards for cash flow
reporting with its primary purpose being to provide information about
the cash receipts and cash payments of an entity during the period.
Canadian Generally Accepted Accounting Principles (GAAP) dealing with
the statement of changes in financial position is based on a broad
concept, embracing all changes in financial position. The following are
the Statements of Cash Flow prepared in accordance with U.S. GAAP based
upon the financial statements in accordance with Canadian GAAP for each
of the three years ended December 31, 1997:
Continued....
ALTAIR INTERNATIONAL INC. Page F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
14 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
(Expressed in United States Dollars) 1997 1996 1995
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year (1,831,471) (624,500) (437,103)
Adjustments to reconcile net loss for the year to net cash (used):
Amortization 590,831 385,633 3,151
Write-off of mineral properties and related exploration expenditures - - 8,212
Gain on forgiveness of debt - (702,726) -
Changes in assets and liabilities:
Prepaid expenses (30,023) - -
Advances and accounts receivable 12,386 81,367 (51,191)
Accounts payable and accrued liabilities 71,444 64,816 (73,099)
--------- --------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES (1,186,833) (795,410) (550,030)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mineral properties and related (480,248) (275,790) (8,212)
deferred exploration expenditures
Purchase of capital assets (237,283) (87,114) (22,787)
Purchase of Centrifugal Jig (46,701) (351,503) (4,352)
Option agreement costs - - (212,832)
--------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (764,232) (714,407) (248,183)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares for cash - 222,530 -
Proceeds from exercise of stock options 1,530,406 526,850 53,553
Proceeds from exercise of warrants 991,042 2,411,219 171,458
(Decrease) in notes payable (162,930) (152,634) -
Issuance of common shares pursuant to a 1,414,778 875,529
private placement -
Common shares to be issued - 47,746 -
Issuance of convertible debentures 5,000,000 - -
Convertible debenture issuance costs (515,844) - -
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,842,674 4,470,489 1,100,540
--------- --------- ---------
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 4,891,609 2,960,672 302,327
CASH AND SHORT-TERM INVESTMENTS, beginning of year 3,270,161 309,489 7,162
--------- ------- -----
CASH AND SHORT-TERM INVESTMENTS, end of year 8,161,770 3,270,161 309,489
========= ========= =======
Continued...
ALTAIR INTERNATIONAL INC. Page F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
14 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
Non-Cash Investing and Financing Activities
SFAS No. 95 requires the Company to disclose information about all
investing and financing activities that affect recognized assets or
liabilities but do not result in cash receipts or cash payments. The
following is a summary of the 1996 and 1997 non-cash investing and
financing activities:
a) For the year ended December 31, 1997. There were no non-cash
investing or financing activities.
b) For the year ended December 31, 1996. The company acquired 100% of
the issued and outstanding common stock of TMI for total
consideration of 1,919,957 common shares at $1.31 each
($2,515.144), the assumption of $1,210,981 of net liabilities, and
the issuance of the 580,000 Series E share purchase warrants.
Under Canadian GAAP, there is no requirement to disclose the Company's
policy for determining which items are treated as cash equivalents.
Under U.S. GAAP cash equivalents are short-term, highly liquid
investments that are readily converted to known amounts of cash and are
so near their maturities that they present an insignificant risk of
change in value because of changes in interest rates.
The cash and short-term investments on hand as at December 31, 1997
represent cash, short-term investments with original maturity dates of
less than 30 days and a diversified portfolio of United States
dollar-denominated money market instruments which are considered cash
equivalents under U.S. GAAP.
Income Taxes
Under Canadian GAAP, the future tax benefit related to the non-capital
loss carry forwards have not been recorded in the accounts. Under U.S.
GAAP, companies must follow the requirements of Statement of Financial
Accounting Standards No. 109 (SFAS 109) which required the use of the
asset/liability method for measurement of tax liabilities, wherein
deferred tax assets are recognized as well as deferred tax liabilities.
The Company has significant non-capital loss carryforwards (Note 11).
SFAS 109 would require the recognition of a long-term tax asset for the
future benefit expected from the application of these carryforwards to
future profitable years. If it is expected that the entire amount of
non-capital loss carryforwards will not be utilized, then a valuation
allowance is applied to the asset to reasonably state the asset at its
expected value. Under SFAS 109, disclosure of the amount of the
valuation allowance is required. As at December 31, 1997, the valuation
allowance is equal to 100% of the deferred tax asset. Changes in the
value of the deferred asset are recognized each year as income tax
expense.
Continued...
ALTAIR INTERNATIONAL INC. Page F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Expressed in United States dollars - Note 1)
- --------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)
Stock Options
All 962,500 (1996 - 745,000) of the common share stock options
outstanding at December 31, 1997, are currently exercisable. As at
December 31, 1997, 443,000 (1996 - 723,630) common shares were
available for granting of options. The following summary sets out the
activity during the year.
1997 1996
---- ----
$ $
Outstanding at beginning of year 745,000 677,000
Granted during the year 580,000 770,000
Exercised at an average price of $4.22 (1996 - $0.75) (362,500) (702,000)
------- -------
Outstanding at end of year 962,500 745,000
======= =======
Under Canadian GAAP, there is no requirement to record compensation on
the issuance of stock options to employees or directors. Under U.S.
GAAP, compensation would be accrued at the date of granting of the
options calculated as the difference between the market price and
exercise price at the date of grant.
For the fiscal years ended December 31, 1997 and 1996 the exercise
price of all stock options granted has been equal to or greater than
the market price on the date of the grant and therefore the
compensation cost under U.S. GAAP would be $Nil.
Reconciliation to accounting principles generally accepted in the
United States.
The following presents amounts that would have been reported had the
Company's consolidated financial statements been prepared on the basis
of United States accounting principles.
Consolidated Balance Sheets
1997 1996
---- ----
$ $
Deferred convertible debenture issuance costs (i) 515,844 -
Deficit (i) 3,956,564 -
Total shareholders' equity (i) 11,294,699 -
Total assets (i) 13,641,648 -
i) Convertible debenture issuance costs in the amount of $515,844
have been added to the deficit under Canadian GAAP. According
to U.S. GAAP the amount is classified as deferred financing
costs.
ii) Under U.S. GAAP, interest expense would be imputed with
respect to a non-interest bearing note payable as in Note 6.
The effect on net income of not recording imputed interest is
negligible.
Other
There are no other material differences between Canadian GAAP and U.S.
GAAP.