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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-