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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________
ALTAIR NANOTECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Canada 1-12497 None
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(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
1725 Sheridan Avenue, Suite 140
Cody, Wyoming 82414
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (307) 587-8245
[ ] Securities registered pursuant to Section 12(b) of the Act: None
[X] Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value Nasdaq SmallCap Market
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(Title of Class) (Name of each exchange on which registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES [] NO [X]
The aggregate market value of the common shares held by non-affiliates
of the Registrant on June 30, 2002, based upon the average bid and asked price
of the common shares on the NASDAQ Stock Market of $0.47 per share on June 28,
2002, was approximately $9,928,000. Common Shares held by each officer and
director and by each other person who may be deemed to be an affiliate of the
Registrant have been excluded. As of March 7, 2003, the Registrant had
30,799,492 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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INDEX TO FORM 10-K
PART I.......................................................................................................1
Item 1: Business..........................................................................................1
Item 2. Properties.......................................................................................29
Item 3. Legal Proceedings................................................................................30
Item 4. Submission of Matters to a Vote of Security Holders..............................................30
PART II.....................................................................................................30
Item 5. Market for the Common Shares and Related Shareholder Matters.....................................30
Item 6. Selected Financial Data..........................................................................35
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............35
Item 8. Financial Statements and Supplementary Data......................................................44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............45
Part III....................................................................................................45
Item 10. Directors and Executive Officers of the Registrant...............................................45
Item 11. Executive Compensation...........................................................................45
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................45
Item 13. Certain Relationships and Related Transactions...................................................45
Item 14. Controls and Procedures........................................................................45
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................46
PART I
This Annual Report on Form 10-K for the year ended December 31, 2002 (this "Form
10-K") contains "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve risks and uncertainties. Purchasers of any of the common shares, no
par value (the "common shares") of Altair Nanotechnologies Inc. ("Altair" or the
"Company") are cautioned that the Company's actual results will differ (and may
differ significantly) from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those factors discussed herein under "Factors That May Affect Future Results"
and elsewhere in this Form 10-K generally. The reader is also encouraged to
review other filings made by the Company with the Securities and Exchange
Commission (the "Commission") describing other factors that may affect future
results of the Company.
Item 1: Business
Certain technical terms used in the following description of our
business are defined in a glossary set forth on page 20. We have identified such
terms by italicizing them the first time they are used in the text. Unless the
context requires otherwise, all references to "Altair," "we," "Altair
Nanotechnologies Inc.," or the "Company" in this Form 10-K refer to Altair
Nanotechnologies Inc. and all of its subsidiaries.
In relation to the Tennessee mineral property, Altair is an exploration
stage company (as defined in Guide 7 promulgated under the Securities Act of
1933, as amended), and there is no assurance that a commercially viable mineral
deposit exists on the Tennessee mineral property or any other property leased by
Altair. We will cease to be an exploration stage company with respect to the
Tennessee mineral property only when and if we have established the existence of
a commercially minable deposit.
General
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Altair Nanotechnologies Inc. was incorporated under the laws of the
Province of Ontario, Canada in April 1973 for the purpose of acquiring and
exploring mineral properties. It was redomesticated in July 2002 from the
Business Corporation Act (Ontario) to the Canada Business Corporations Act, a
change which causes Altair to be governed by Canada's federal corporate statute.
The change reduces the requirement for resident Canadian directors from 50% to
25%, thereby allowing us greater flexibility to attract qualified nominees to
our board.
During the period from inception through 1994, we acquired and
explored multiple mineral properties. In each case, sub-economic mineralization
was encountered and the exploration was abandoned. Since 1994, we have also
devoted substantial resources to the development and testing of mineral
processing equipment for use in the recovery of fine, heavy mineral particles.
In November 1999, we acquired all patent applications, technology and
tangible assets related to a hydrometallurgical process developed by BHP
Minerals International, Inc. ("BHP") primarily for the production of titanium
dioxide products from titanium bearing ores or concentrates (the "titanium
processing technology"), and all tangible equipment and other assets used by BHP
to develop and implement the titanium processing technology (the "titanium
processing assets"). We plan to initially employ the titanium processing
technology as a platform for the sale of contract services, intellectual
property licenses and for the production and sale of metal oxide nanoparticles
in various applications. See "--Titanium Pigment Processing Technology."
1
We have also leased, and are exploring, approximately 8,700 acres of
land near Camden, Tennessee (the "Tennessee mineral property") to determine
whether it would be amenable to large-scale mining for titanium and zircon. See
"--Tennessee Mineral Property."
During 1996, we acquired the rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig (the "jig"). The jig is a
machine that uses a rotating circular screen and pulsating water to separate
valueless mineral particles from more valuable mineral particles based on the
differences in their specific gravity. During 2002, we elected to terminate
further development work on the jig for the foreseeable future and instead
concentrate our limited resources on the development of the titanium processing
technology. As a result, we recorded an adjustment during the second quarter of
2002 to write off the remaining net book value of the jig assets and related
patents in our financial statements. See "--The Jig."
We have experienced an operating loss in every year of operation. In
the fiscal year ended December 31, 2002, we experienced a net loss of
$9,921,496. Certain information regarding the net sales, income (loss) from
operations and assets associated with each of the titanium processing, jig and
Tennessee mineral property segments of our business are set forth in Note 13 to
the Consolidated Financial Statements of the Company attached hereto following
the signature and certification pages and are incorporated into this Form 10-K
by this reference.
Altair currently has two wholly-owned subsidiaries, Fine Gold Recovery
Systems, Inc., a Nevada corporation ("Fine Gold"), and Mineral Recovery Systems,
Inc., a Nevada corporation ("MRS"). Altair also has two indirect wholly-owned
subsidiaries, Altair Nanomaterials, Inc., a Nevada corporation, and Tennessee
Valley Titanium, Inc., a Nevada corporation.
Titanium Pigment Processing Technology
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Description of the Titanium Processing Technology.
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On November 15, 1999, we purchased from BHP all patent applications,
technology and tangible assets related to a hydrometallurgical process developed
by BHP primarily for the production of titanium dioxide products from titanium
bearing ores or concentrates (i.e., the titanium processing technology), and all
tangible equipment and other assets used by BHP to develop and implement the
titanium processing technology (i.e., the titanium processing assets). The
titanium processing technology is capable of producing conventional titanium
dioxide pigment products. Conventional titanium dioxide pigments are
finely-sized powders consisting of titanium dioxide crystals. These powders may
be either anatase or rutile phase (shape) and approximate 0.17 to 0.30 microns
in size. Our titanium processing technology is also capable of producing
titanium dioxide and other metal oxide nanoparticles. These are specialty
products with a size range of 10 to 100 nanometers (approximately one tenth the
size of conventional pigments). The primary products currently being produced in
the processing plant are titanium dioxide, lithium titanate and stabilized
zirconia nanoparticles.
The titanium processing technology is based on a proprietary
dense-phase crystal growth technique which controls crystal formation using a
combination of mechanical and fluid dynamics and chemical and thermal control.
Through introduction of very small quantities of selected chemicals ("doping
elements") during crystal growth, the size, phase, catalytic and photocatalytic
activity and size distribution of crystals can be controlled within narrow
limits and to specification.
2
Titanium Processing Assets.
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The titanium processing assets consist principally of a production
facility located in Reno, Nevada in a building, formerly leased, that we
purchased from BHP in 2002. During 2000, we installed additional equipment to
increase production capacity to a nominal annual amount of 200 tons of
nanoparticles. We also added a separate pilot facility to produce large sample
quantities of product for development, test and evaluation purposes. In 2001, we
added hydration and filtering equipment to improve production processing. In
2002, we purchased advanced milling equipment to improve product quality.
Plans for Development of the Titanium Pigment Processing Technology.
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The titanium processing technology has potential to produce both
titanium pigments, which are commercially traded in bulk, and nanoparticles,
which are sold on specialty product markets. During 2002, our efforts were
directed toward development of nanoparticle products, pharmaceutical products
and titanium pigment production.
Nanoparticle Products. For the year ended December 31, 2002, we
generated $134,925 of revenue through sales of titanium dioxide, lithium
titanate and yttria stabilized zirconia nanoparticles and other materials. These
products were used principally in thermal spray and catalyst applications and
for developmental work on battery materials. We are also developing nanoparticle
products that may be useful in controlling algae in swimming pools, in
cosmetics, in self-cleaning and sanitizing and in environmental purification.
Pharmaceutical Products. In the second quarter of 2002, we initiated
research and development efforts directed toward the utilization of
nanomaterials in the pharmaceuticals industry. In July 2002, we announced the
development of a new active pharmaceutical ingredient ("API") for the treatment
of hyperphosphatemia (elevated serum phosphate levels) in patients undergoing
kidney dialysis, as well as a new drug delivery system using inorganic ceramic
nanoparticles. This API, given the name RenaZorb(TM), showed an excellent
capacity for phosphate removal in laboratory tests using simulated stomach acid.
Testing of this product using animals was initiated in late 2002 and is expected
to be completed during the first quarter of 2003. We are currently seeking
business relationships with pharmaceutical companies that can conduct additional
testing and development, seek necessary FDA approvals and take the other steps
necessary to bring the new pharmaceutical ingredient and drug delivery system to
market.
Titanium Pigment Production. In late 2002, we entered into a contract
with a large materials company to determine whether an ore concentrate produced
by them is suitable for making white titanium dioxide pigment. Extraction and
iron removal work has been completed and purification and pigment production
steps have begun. We expect to complete the project during the first quarter of
2003. If the project is successful, we hope to enter into a contract to license
our technology for the production of titanium dioxide pigment. A second
agreement based on an ore body located in Vietnam was also signed in late 2002,
but no work has as yet been done.
Products In Development Using the Titanium Processing Technology.
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To date, we have developed titanium dioxide nanoparticles and other products we
intend to initially produce with the titanium processing technology. The
designation, description, potential applications and status of development of
our products that we have publicly announced are as follows:
3
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Product
Designation Description Potential Applications Status of Development & Sales
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Titanium Dioxide This technology is a low The technology may be The Company is presently working on one
Pigment Process cost, environmentally licensed to mineral development contract of $100,000 and has
preferred method of making companies, coatings signed a $250,000 contract for
titanium dioxide pigment. companies or pigment development, subject to funding.
companies. Additional interest has been expressed.
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TiNano(TM)40 VHP This is an uncoated, high Environmental purification, During 2002, we sold $85,900 of this
purity titanium dioxide photocells, catalyst and product to 31 customers. Of this
nanoparticle product with similar ceramic amount, $61,200 was sold to a customer
good thermal stability. applications, self-cleaning for commercial thermal spray
& sanitizing uses and applications. The remainder was sold
thermal spray coatings. for use primarily in the testing and
Intermediate for development of thermal spray, catalyst
manufacture of derivatives and chemical mechanical planarization
such as lithium titanate applications. We have received follow
and barium titanate. up orders from two customers.
Development of such product is
substantially complete. Commercial
viability is dependent upon when, and
if, potential customers decide to
incorporate such product into end
products they are developing.
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TiNano(TM)40 USP This product meets US Cosmetic and other uses During 2002, we sold $800 of this
Pharmacopeia specifications requiring US Pharmacopeia product to five customers. We are
and exhibits high UV purity specifications. USP developing coating procedures to make
absorption characteristics, grade may also be used in TiNanoTM 40 CNPC from this regulated
and high thermal stability. many of the VHP material.
applications and has
greater temperature Development of such product is
stability. substantially complete. Commercial
viability is dependent upon when, and
if, potential customers decide to
incorporate such product into end
products they are developing.
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TiNano(TM)40 HPC This product exhibits high UV Environmental purification, During 2002, we sold $650 of this product
absorption, high photo photocells, catalysts, and to one customer. We intend to discontinue
catalytic activity and similar ceramic applica- this product as other products overlap
excellent thermal stability. tions. Also may be used this market.
for self-cleaning and
sanitizing applications.
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TiNano(TM)40 RPC This product exhibits high UV Cosmetics, plastics and During 2002, we sold $150 of this
absorption. It exhibits coatings applications product to two customers. We are
reduced photo catalytic requiring reduced developing a dispersion technology for
activity achieved using our photochemical activity. application in plastics, organic
inorganic coating rather than formulations and wood treatment.
the traditional Si-Al
treatment. Also exhibits
excellent thermal stability.
Development of the dispersion technology
is ongoing. Commercial viability is
dependent upon when, and if, potential
customers decide to incorporate such
product into end products they are
developing and is projected during 2003.
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Product
Designation Description Potential Applications Status of Development & Sales
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TiNano(TM)40 CNPC This product exhibits high UV Cosmetic and coating During 2002, we sold $150 of this
absorption and has excellent applications. product to two customers. We are
thermal properties. The developing a coating and dispersion
product is USP grade TiO2 technology.
coated with hydrous alumina
and silica. The coating Development of the dispersion technology
substantially eliminates is ongoing. Commercial viability is
photo catalytic activity. dependent upon when, and if, potential
customers decide to incorporate such
product into end products they are
developing and is projected during 2003.
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Lithium Titanate This product is a robust Lithium ion batteries where During 2001, we sold $18,200 of lithium
Spinel crystalline structure of high charge and discharge titanate to nine customers for use in
lithium titanate. It rates are desired. testing and development of battery
withstands high lithium materials.
insertion rates with very
little distortion.
Development of such product is
substantially complete. Commercial
viability is dependent upon when, and
if, potential customers decide to
incorporate such product into end
products they are developing.
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Yttria Stabilized This product is a nano-sized Used in solid oxide fuel Fuel cell components have been made and
Zirconia crystalline material with cell components and as a tested. In 2002, we sold $1,000 of this
excellent stability and ceramic coating. product for testing in thermal spray
coating characteristics. At applications.
high temperatures, it has the
capability for ionic Development of such product is
conduction of oxygen. substantially complete. Commercial
viability is dependent upon when, and
if, potential customers decide to
incorporate such product into end
products they are developing.
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RenaZorb(TM) This product is a This pharmaceutical can be Laboratory testing was completed in
nanoparticle-sized used for controlling serum 2002. Testing using animals was begun
lanthanum-based ceramic phosphate levels in kidney in late 2002 and will be completed
material with a large surface dialysis patients and in during first quarter 2003.
area and capability to bind chemically related products.
phosphates and selected other Although FDA approval of the product may
anions. take several years, Altair anticipates
(See also text discussion in (See also text discussion receiving license fees in 2003. (See
following subsection) in following subsection) also text discussion in following
subsection and Item 7. Management's
Discussion of Financial Condition and
Results of Operations)
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Product
Designation Description Potential Applications Status of Development & Sales
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Unnamed Drug This product is a Drug delivery device. Development of such product is
Delivery Device micron-sized hollow sphere substantially complete. Commercial
whose structure is composed viability is dependent upon when, and
of interlocked nanoparticles. if, potential customers decide to
It is highly porous. incorporate such products into end
(See also text products they are developing.
discussion in following
subsection)
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This product is a compound This product is intended Several versions are presently
NanoCheck(TM) with large surface area that for the swimming pool and undergoing test and evaluation.
is insoluble in water over a aquarium markets for the
wide pH range. removal of phosphate,
thereby preventing algae
growth.
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The products identified above, and other products we are developing with the
titanium processing technology, are generally not commodities and must be
customized for a specific application working in cooperation with the end user.
Accordingly, unless and until we receive an order containing specifications with
respect to commercial quantities of each nanoparticle product, that product is
necessarily in the development phase. To date, we have sold commercial
quantities of TiNano(TM) 40 to one customer for resale in commercial thermal
spray applications.
Our New Pharmaceutical Ingredient. We have given our API the name
RenaZorb(TM). RenaZorb(TM) is a highly active, lanthanum based nanomaterial with
low intestinal solubility and excellent in vitro phosphate binding. Animal
testing on RenaZorb(TM) has begun in dogs and rats, but no human tests have yet
been conducted. Nonetheless, based upon our initial laboratory testing and
research in simulated human stomach fluid we believe that RenaZorb(TM) may offer
the following advantages over competing products:
o Lower dosage requirements because of better phosphate binding per
gram of drug compared with existing or proposed drugs;
o Fewer and less severe side effects because of less gassing and
lower dosage;
o Better patient compliance because of fewer tablets: and
o Lower cost than existing or proposed prescription drugs in this
therapeutic category
In most kidney dialysis patients, serum phosphate levels must be kept
in check. This is done by ingesting a phosphate binder after meals. Phosphate
binders absorb the phosphate in the food that the patient consumes, preventing
absorption of phosphate in the patient's gastrointestinal tract.
Existing phosphate binders include Tums(TM) antacid, which contains
calcium carbonate, and also aluminum hydroxide-based products such as
Gaviscon(TM) manufactured by Glaxo Smith Kline, both of which are available over
the counter, as well as Renagel(TM) (chemical name sevelmer) manufactured by
Genzyme, which is available only by prescription. In addition, Fosrenol(TM),
lanthanum carbonate tetra hydrate ("LCTH"), developed by Shire Pharmaceuticals
("Shire") of the UK, is awaiting United States FDA and foreign regulatory
approvals, which are expected in mid-2003. Shire announced in March 2003 that it
had received an approvable letter from the FDA for Fosrenol(TM). The approvable
letter requested additional data and analysis from Shire.
While over the counter phosphate binders are relatively inexpensive,
they have several disadvantages. Calcium carbonate-containing phosphate binders,
6
such as Tums(TM), in high doses, may cause increased blood pressure and
increased risk of cardiovascular disease and is generally not recommended for
long-term use by dialysis patients. With prolonged use, aluminum hydroxide-based
phosphate binders, such as Gaviscon(TM), may cause toxic neurological effects
and are generally avoided by physicians. Aluminum dementia has been widely
reported in kidney dialysis patients using these products.
The prescription phosphate binder Renagel(TM) is relatively expensive
(approximately $1,300 per patient per year), has a high dosage requirement (2 x
800 mg or 4 x 400 mg capsules/tablets three times per day) and water intake is
required. The most common side effects related to the use of Renagel(TM) include
nausea (7% of patients), constipation (2% of patients), diarrhea (4% of
patients), gas or bloating (4% of patients) and heartburn or indigestion (5%
patients). Renagel is the only prescription non-calcium phosphate binder
currently approved by the United States FDA.
Fosrenol(TM) (LCTH), for which US FDA approval is pending, is expected
to be marketed as a chewable tablet with a proposed dosage of 1.5 to 3.0 grams
active drug per day. As with all medicines, Fosrenol(TM) will probably display
some side effects but these are expected to be minor. It has been reported that
the use of Fosrenol does increase serum lanthanum levels compared with levels in
patients taking a placebo. RenaZorb(TM), which is nanotechnology based, is
expected to be developed in a tablet or capsule dosage form with a projected
dosage of 0.6 to 2.0 grams per day. Although we have done no human testing on
RenaZorb(TM), we believe RenaZorb(TM) has the potential for fewer side effects,
lower cost and better patient compliance. We base these possible advantages upon
in vitro (laboratory) testing conducted by Altair in which RenaZorb was compared
to LCTH, the active chemical in Fosrenol. Our in vitro testing showed that
RenaZorb binds at least 30% more phosphate per gram of drug than LCTH, therefore
requiring a lower dose. Lower dose often correlates well with a reduction of
observed side effects in chemically related homologous compounds.
Both RenaZorb(TM) and Fosrenol(TM) involve the binding of phosphate by
lanthanum compounds. In fact, the end product of the binding mechanism is
identical; lanthanum orthophosphate is formed. Based on laboratory tests
conducted by Altair comparing RenaZorb(TM) with LCTH, the active ingredient in
Fosrenol(TM), RenaZorb(TM) required 30% less drug to bind the same amount of
phosphate and shows less lanthanum going into solution in simulated stomach
fluid at pH values of 3.0 and 4.5. In addition, in Altair's testing, using
methods published by AnorMED, RenaZorb(TM) reacts with phosphate more rapidly,
possibly because of its high nanoparticle-derived surface area. In 20 minute
simulated stomach acid tests conducted by Altair, RenaZorb(TM) absorbed
approximately 140 mg of phosphate and LCTH absorbed approximately 60 mg of
phosphate. It is reported that Renagel(TM) absorbed less than 100 mg of
phosphate in vivo.
Our New Drug Delivery System. Our new drug delivery system involves
depositing drugs on or inside hollow "wiffle ball" spheres made of titanium
dioxide and other metal oxide nanoparticles.
To date, our research on drug delivery systems involving the use of
nanoparticles has been limited to coating known drugs on the surface of titanium
dioxide nanoparticles. We have not done any animal or human testing with our new
drug delivery systems and do not have the expertise, resources or capacity to
complete such testing. We are currently seeking business relationships with
pharmaceutical companies that can conduct additional testing and development
using their pharmaceutical active ingredients to coat the Altair nanomaterials
and then seek necessary FDA approvals and take the other steps necessary to
bring the combined drug delivery system to market. Because of the early stage of
development of these drug delivery systems, we are unable to state with any
certainty how (or if) such drug delivery systems would be used and, if used,
what the uses for such systems would be and what the comparative advantages,
7
sides effects and other aspects of such drug delivery systems would be.
Nevertheless, based upon our early testing, we believe that the following uses
of a nanoparticle-based drug delivery system are feasible:
o New delivery forms for existing drugs;
o Delivery methods for new drugs;
o Delivery of hard to dissolve drugs;
o Delivery of sustained release drugs; and
o Delivery of dual action drugs.
New Delivery Forms and New Drugs. Our drug delivery system may be
useful in connection with drugs whose patents are expiring. On average, patented
drugs generate $200 to $400 million in sales, with average sales margins of 90%
to 95%. The margin for generic drugs drops, however, to 20% to 30% or less. New
dosage forms are patentable and, if patented, may extend the drug's patent
protection for 20 years. In addition, new dosage forms may reduce the cost of
producing various drugs, increasing margins if exclusive or generic, and may
reduce undesirable side effects.
Hard to Dissolve Drugs. Our drug delivery system may also be used to
deliver drugs that work in the gastrointestinal tract without being absorbed.
These types of drugs remove unwanted materials from the digestive systems.
Possible uses for these types of drugs include lowering cholesterol. Another use
for our drug delivery system would be for highly insoluble drugs that need
greater absorption to enter the blood stream. The significant increase in
surface area of our titanium dioxide micro-spheres may allow greater drug
absorption. This greater absorption may also be used to redevelop previously
failed candidate drug compounds that were unsuccessful because of inadequate
absorption rates or amounts.
Sustained Release Drugs and Dual Action Drugs. We also believe our
system may be useful in connection with the sustained release of fungicides,
including the following applications:
o Anti-fungal drugs;
o Topical anti-fungal drugs with sustained release;
o Tile cleaning products (mold, mildew) with residual action;
o Cosmetics (preservatives);
o Mildew prevention in paints and coatings;
o Fabric mildew protection;
o Exterior cleaning systems for removal and prevention of mold,
mildew and green algae;
o Wood protection and preservation; and
o UV protection of wood.
Altair's hollow sphere "wiffle ball" like structures can deliver active
chemicals or drugs in a sustained release fashion because the active component
can be "mounted" on both the outside surface and inside the hollow ball
structure. The dissolution and availability of the surface-mounted active
component will be different than the active component inside the hollow spheres.
Material inside the hollow structure will be released slowly compared to
surface-mounted material. An additional feature of Altair's nanoparticle based
hollow "wiffle ball" structures is that two different active substances could be
mounted, one inside the hollow spheres and another on the surface. This allows
the possibility for dual action pharmaceuticals to be developed using this
technology.
8
Target Market for Products of the Titanium Processing Technology.
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Nanoparticle Products. End users of these specialty chemicals typically
work closely with suppliers to set product specifications, which may or may not
be subsequently certified for individual applications. Very little nanoparticle
product is sold as a fungible "shelf-item" product.
Altair's plan for nanoparticle market entry has been to prepare a suite
of products that have a range of physical and chemical properties. Potential
nanoparticle end users are invited to test our basic products and to separately
work with us so that we may tailor a nanoparticle product for their particular
use. We have filled 380 orders requesting 886 samples of nanoparticle products
from the 470 companies and laboratories that have contacted us. Based on sales
to date and sample requests, applications for and interest in our nanoparticles
are seemingly most advanced in applications for batteries (lithium titanate),
thermal sprays (titanium dioxide), solid oxide fuel cells (yttrium stabilized
zircon) and catalysts (both titanium dioxide and yttrium stabilized zircon).
These are applications from which we hope to make large-volume commercial sales
in the future.
Pharmaceutical Products. Our pharmaceutical product RenaZorb(TM) was
developed for the treatment of elevated phosphate levels in kidney dialysis
patients. According to information published by AnorMED, the worldwide market
for phosphate binders for chronic renal failure patients is approximately $400
million to $600 million annually. It is not our intent to manufacture
pharmaceuticals but, rather, to grant licenses to pharmaceutical companies for
the manufacture and sale of products developed using our technology. We are
seeking business relationships with pharmaceutical companies that can conduct
additional testing and development using their pharmaceutical active ingredients
to coat our experimental drug delivery system and then seek necessary FDA
approvals and take the other steps necessary to bring the combined drug delivery
system to market.
We have entered into eight confidentiality agreements relating to the
development/licensing of RenaZorb(TM), and we have recently received new
inquiries. Animal testing of RenaZorb(TM) began in December 2002 and is
currently being conducted by two pharmaceutical companies, one of which is
testing in dogs and both of which are testing in rats. We have written testing
agreements with both these companies. We expect the results of these tests in
mid-March. Assuming such results are positive, RenaZorb(TM) will have to undergo
human testing and receive FDA approval before it could be approved for
marketing. Human testing typically takes 1 to 2 years and, if merited by the
results of animal testing, is expected to begin in 2003. FDA approval typically
occurs between 3 and 5 years following the completion of animal testing,
although we believe that FDA approval of Fosrenol(TM), a chemically related
drug, could accelerate the approval process for RenaZorb(TM).
Titanium Pigments. Altair is attempting to identify one or
more large minerals companies to license the titanium dioxide pigment
application of its titanium processing technology. Altair has entered into
contracts with two materials companies under which Altair has performed, or will
perform, test work related to large-scale production of titanium dioxide
pigments using our technology. With respect to one of the materials companies,
Altair has submitted a phase-two proposal for the economic evaluation of a
demonstration titanium dioxide pigment plant that could be expanded to a
full-scale plant with production capabilities of between 10,000-20,000 metric
tons of titanium dioxide pigment per year.
Research, Testing and Development of the Titanium Processing
Technology.
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Our titanium processing technology is the result of several years of
research and development work done by BHP. We are continuing the research and
development work to both improve the process and to develop commercial
9
applications for it. Such work is being conducted by the former BHP employees
who became employees of the Company on January 1, 2001. During fiscal 2002, we
incurred $560,000 in research and development expenses related to the titanium
processing technology. During fiscal 2001, we incurred $541,000 in research and
development expenses related to the titanium processing technology, and during
fiscal 2000, we incurred $1,426,000 in research and development expenses related
to the titanium processing technology. During 2002, we received $90,300 from a
materials company in return for testing the company's mineral concentrates in
the production of titanium dioxide pigments using our titanium processing
technology. No customer-sponsored research was undertaken in 2001 or 2000.
In addition, we are engaged in or seeking joint research and
development efforts with potential customers and other interested parties with
regard to our nanoparticle products, pharmaceutical products and titanium
pigment production technology.
The Titanium Processing Technology and Proprietary Rights.
---------------------------------------------------------
BHP filed several patent applications with the United States Patent and
Trademark Office with respect to the titanium processing technology, and the
applications have been transferred to us. We have subsequently filed 13
additional patent applications relating to nanoparticle technology. In August
2002, we filed a patent application covering the development of a new active
pharmaceutical ingredient for the treatment of hyperphosphatemia (elevated serum
phosphate levels) in patients undergoing kidney dialysis, as well as a new drug
delivery system using inorganic ceramic nanoparticles. During 2002, three
patents were awarded to us covering the production of titanium pigment and
nanomaterials using our technology, which patents expire in 2019. All other
applications are in the review process.
The potential value of our titanium processing technology, and each
application of it, lies in the likelihood that patents will be granted with
respect to patent applications and that granted patents are valid and
enforceable. We can provide no assurance that the patents requested in all
patent applications material to our business will be granted or that granted
patents will be enforceable. Our business would be materially adversely affected
if one or more patent applications are not granted or if granted patents are
determined to be unenforceable.
Competition--the Titanium Processing Technology.
------------------------------------------------
Our titanium processing technology is fundamentally different from
current commercial processing techniques. Other processes are based on either a
precipitation of particles from aqueous solution or the formation of
crystallites from molten droplets of titanium oxide generated in high
temperature flame reactors. Our process is a dense-phase crystal growth
technique which controls crystal formation using a combination of mechanical and
fluid dynamics and chemical and thermal control.
Our process permits exceptional control over particle size, shape, and
crystalline form. Our titanium processing technology produces discrete anatase
crystals in nanometer sizes and may be doped to be thermally stable up to 800
degrees Centigrade. By remaining stable in high-temperature processing,
nanoparticles produced by our titanium processing technology retain the desired
nanoparticle size and crystalline phase. In addition, our technology is designed
to minimize process effluents needing environmental remediation and to accept a
wide variety of naturally occurring titanium feed stocks.
10
We have not operated the titanium processing technology at a commercial
scale. Accordingly, we cannot describe processing efficiencies and costs
associated with our titanium processing technology or compare such efficiencies
and costs to those of competitors.
In addition, our ability to capitalize on and develop our technology
may be limited by the limited amount of capital we have available and our lack
of a substantial operating history. Competing nanoparticle producers generally
are financially strong corporations with established customer relationships and
operating histories. The titanium dioxide nanoparticle business is a young
industry subject to rapid technological changes and there is wide disparity
within the industry with respect to the composition and attributes of
nanoparticle products. The manufacturing methods and costs to manufacture also
vary greatly, with certain methods lending themselves to specific niche
applications. As a result, competition within the industry is driven by a
variety of factors, principally price and product attributes. Our marketing
efforts have centered around our ability to produce a wide range of products at
attractive prices.
Royalty Obligations Related to Our Titanium Processing Technology.
-----------------------------------------------------------------
We purchased our titanium processing technology and titanium processing
assets from BHP pursuant to an Asset Purchase and Sale Agreement dated November
15, 1999 which included an obligation to pay royalties based on product sales
realized through use of the titanium processing technology. From November 15,
1999 through August 8, 2002, we paid BHP a total of $2,067 of royalties. On
August 8, 2002, we entered into a transaction with BHP wherein we purchased from
BHP the land and building that houses the titanium processing assets. In
connection with the purchase, the requirement to pay royalties was terminated
effective August 12, 2002. See "Item 2. Properties" for additional information
on the land and building acquired from BHP.
Tennessee Mineral Property
--------------------------
Description of the Tennessee Mineral Property.
----------------------------------------------
The Tennessee mineral property consists of approximately 8,700 acres of
land containing fine, heavy minerals that we have leased in or near Camden,
Tennessee.
Prior to our beginning to acquire leases on the Tennessee mineral
property in 1996, sections of the Tennessee mineral property were leased or
owned by each of E.I du Pont de Nemours and Company (from 1950 to 1954),
KerrMcGee Corporation (from 1975 to 1989), and BHP Minerals International Inc.
(from 1991 to 1994). Each of these predecessors engaged in drilling, sampling
and other exploratory activities on the Tennessee mineral property but, based
upon such predecessors' particular circumstances and the economics of the
period, elected to stop work and relinquish property rights.
The topography of the Tennessee mineral property consists of
vegetation-covered rolling hills comprised of sands deposited in an ancient
beach environment. Minerals on the Tennessee mineral property occur in the
Cretaceous McNairy formation, and heavy minerals comprising 2% to 8% of the sand
(by weight) are typical. The mineralized sands on the Tennessee mineral property
have not yet been proven to be a reserve (as defined in Regulation S-K, Item
802, Guide 7 promulgated under the Exchange Act), and our limited operations and
proposed plan with respect to it are exploratory in nature.
11
Research and Exploration on the Tennessee Mineral Property.
----------------------------------------------------------
From 1996, our exploration activities on the Tennessee mineral property
have included geologic mapping, collection of bulk samples for metallurgical
testing, drilling of 156 auger holes between 30 and 100 feet deep and
preparation of geologic models. Our geologic model also incorporates 40 drill
holes completed by an earlier exploration company.
During 1997, we collected approximately 5,000 pounds of representative
sand for testing from an exposed sand horizon. This sample was processed by an
independent Florida heavy sands producer and Altair to produce representative
samples of market-quality products. The sample results were reviewed by an
independent consulting group hired by us to prepare a pre-feasibility study of
approximately 5,200 acres of the Tennessee mineral property known as the "Camden
Property." The consultants examined heavy mineral suites from the Camden
Property (prepared from sands naturally containing about 4% heavy minerals and
96% quartz) and found that titanium bearing minerals constitute about 65% of the
total heavy mineral portion of the suite, zircon accounted for 15% of the heavy
mineral portion of each suite and the remainder was non-valuable heavy minerals.
The study, completed in July 1998, also indicated that market-quality ilmenite,
rutile and zircon products could be produced from such heavy minerals suites and
that markets currently exist for such products.
In August 1998, based on the consultant's pre-feasibility report, we
commenced additional feasibility testing. This consisted of testing the use of
fine mineral spiral equipment in Florida on Tennessee mineral property sands
followed by spiral equipment testing of Tennessee mineral property sands at an
equipment contractor's facility. In 2000, based on the contractor's test
results, we designed and commissioned construction of a spiral-based pilot plant
for testing at the Tennessee mineral property. The plant was erected at Camden,
and testing operations began in early 2001 (see "Location and Status of Work on
the Tennessee Mineral Property"). Further feasibility testing is expected to
involve, among other things, the following:
o drilling and sampling in order to more accurately determine the
quantity, quality and continuity of minerals on the Tennessee
mineral property;
o examining production costs and the market for products produced at
the pilot facility;
o designing and pricing construction costs associated with any
proposed mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
Subsequent to completion of the 1998 pre-feasibility study, our further
exploration of the Tennessee mineral property has suggested the existence of
additional heavy mineral sands in an area northwest of the Camden Property known
as "Little Benton." Preliminary data indicate that Little Benton contains
mineralization similar to the Camden Property. We have approximately 3,500 acres
under lease in the Little Benton area and intend to conduct further testing in
the future.
Expenditures on the Tennessee mineral property were $599,000 in 2002,
$931,000 in 2001 and $4,769,000 to date. Expenditures have been incurred for
pilot plant design, fabrication and site preparation, leasehold minimum advance
royalty payments, and other related exploration activities. During 2002, due to
a lack of resources, we reduced our expenditures on the Tennessee mineral
property to a minimal amount and did no further exploration or development work.
We anticipate spending between $150,000 and $300,000 maintaining the Tennessee
mineral property during 2003.
Products and Competition--the Tennessee Mineral Property.
--------------------------------------------------------
Based on the exploratory work done to date, we anticipate that the
saleable products which could be produced from the Tennessee mineral property
12
are ilmenite, rutile and zircon. Testing at the Tennessee mineral property
indicates that Camden ilmenites contain from 64% to 72% titanium dioxide.
Ilmenites commercially traded today typically contain 40% to 70% titanium
dioxide and are used primarily in the production of titanium dioxide pigment, a
specialty chemical used principally as a whitener and opacifier for paper,
plastics and paint. According to the latest U.S. Geological Survey report,
ilmenite is the most abundant naturally occurring, commercially produced
titanium mineral and supplies approximately 90% of the world demand for
titaniferous material. The value of titanium mineral concentrates consumed in
the United States in 2002 was approximately $450 million. There are presently
two entities in the United States which produce ilmenite concentrate from heavy
mineral sands and virtually all production is used by four titanium pigment
producers whose plants are primarily located in the southeastern U.S. Pigment
producers use various methods to process ilmenite concentrate into titanium
dioxide pigment and require that the concentrate feedstock meet certain chemical
and size criteria applicable to the process being used.
Rutile, which generally contains greater than 95% titanium dioxide, is
also used in the production of titanium dioxide pigment. In pigment products,
its processing costs are significantly less than ilmenite due to the higher
concentration of titanium dioxide. Although this greatly enhances its market
value, rutile is much less abundant than ilmenite, representing approximately 5%
of the total heavy minerals contained in the Tennessee mineral property.
Zircon, which is used in ceramic, refractory and foundry applications,
represents approximately 15% of the heavy minerals contained in the Tennessee
mineral property. Zircon sand is currently being produced at three mines in the
southeastern U.S. and in several countries around the world. Titanium-bearing
minerals and zircon are commonly found and mined together.
Location and Status of Work on the Tennessee Mineral Property.
--------------------------------------------------------------
On the following page is a location map for the Camden and Little
Benton region, within which are the leased parcels we collectively refer to as
the Tennessee mineral property. Access within blocks is via a network of County
and farm roads. Lease blocks in the Camden area are made up of contiguous rural
tracts. Land uses are dominantly forestry and cattle grazing. Bottom lands are
sometimes used for row crops. There is no history of mining in these areas.
Altair has an operational pilot plant on the Camden lease block. Pilot
plant operations are fully permitted with the state of Tennessee and federal
agencies. The plant includes dedicated electrical service, a lay-down area for
heavy mineral sand samples, and a combined water storage/sand placement
structure. Plant elements include a feed system, conveyors, trommel, two stages
of cyclones, and a five-stage spiral plant.
During 2001, we excavated 970 tons of material from four sites in the
Camden leasehold area and processed it through the test facility. Plant
operations closely approximated design expectations and we incurred no
significant operating problems. Processing of the sample material yielded
titanium recoveries exceeding 80% and zirconium recoveries exceeding 90%. These
percentages represent the amounts of titanium and zirconium recovered as a
percentage of the total titanium and zirconium contained in the sample. Heavy
mineral concentrates were subsequently processed through an off-site dry mill to
prepare sample products which are now being analyzed by interested parties.
13
Research, Testing and Development of the Tennessee Mineral Property.
-------------------------------------------------------------------
During 2002, we did no additional development work and limited our
expenditures to $599,000. This compares to the $931,000 in exploration and
development expenses we incurred in fiscal 2001 and $1,218,000 in exploration
and development expenses we incurred in fiscal 2000 related to the Tennessee
mineral property.
We plan to further develop the property by joining with a qualified
partner, if available, to provide additional financial, engineering and
corporate resources.
14
[MAP OF THE COMPANY'S TENNESSEE MINERAL PROPERTY OMITTED]
15
The Jig
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Description of the Jig.
-----------------------
The Altair Centrifugal Jig segregates particles based on differences in
their specific gravity. Such technology may be categorized as a "gravity
separation" process. Gravity separators are widely used in minerals
beneficiation because of their relative simplicity, low cost of operation and
ability to continuously treat large tonnage throughput. Preliminary
demonstration tests conducted by Altair and a previous owner of the jig suggest
that the jig may be commercially useful in a number of applications, including:
o Recovery of ultra fine gold from waste streams or former tailings;
o Recovery of zircon, rutile, ilmenite, leucoxene, and other valuable
fractions from heavy mineral sand operations;
o Sulfur and ash removal from fine coal;
o Recovery of tin and iron ore fines from fine tailings;
o Concentration of heavy minerals, such as anatase, aparite, barite,
cassiterite, chromite, columbite, industrial diamonds, fluorite,
various garnets, monazite, tantalite and wolframite; and
o Remediation of nuclear waste.
Several prototype and demonstration jigs have been built and tested by
Altair and previous owners of the jig. Our Series 12 Jig stands about six feet
tall, requires floor space of about 25 square feet and weighs approximately
2,000 pounds. Our Series 30 Jig stands about 10 feet tall, requires floor space
of about 54 square feet and weighs approximately 7,000 pounds. Recently
constructed jigs have been mounted on metal frames along with jig auxiliary
equipment--pulse water pump and tank and control panel--for transport by truck
and rapid on-site installation.
How the Jig Works.
------------------
A conventional jig separates a slurry of mineral particles as it flows
across the top of a screen. Water is periodically pulsed up through the screen
to eliminate interparticle friction and allow differential settling according to
the variations in the net specific gravities of the ore. Heavier minerals are
allowed to pass downward through the screen while lighter materials flow across
the screen to a discharge point. The jig operates according to conventional jig
principles except that the screen surface is cylindrical and is rotated to
subject the particles to centrifugal forces. As currently designed, materials to
be processed by the jig are introduced into the top of the jig in a slurry mix
with water. The slurry is diffused across the top of the interior of a vertical
cylindrical screen which is rotating. Water is pulsed through the screen
allowing differential separation in the slurry material. Heavy particles pass
through the screen, are collected, and exit the machine in a "concentrate"
stream. Lighter particles flow down the screen interior, are collected and exit
out the bottom of the machine in a separate "tails" stream. Use of the jig
requires no chemical additives. In operation, the jig utilizes a combination of
standard mechanical jig and centrifugal technologies. The jig is of simple
mechanical design with few wear surfaces. To compete as a viable commercial
unit, the jig must perform reliably over long time periods. The 600+ hours that
we have tested and operated the Series 30 Jig is insufficient to give assurance
as to the length of the operating life of the jig.
Target Markets for the Jig.
---------------------------
In the long run, the jig may potentially be useful for a number of
applications, the most promising of which may be the processing of heavy mineral
sands to recover titanium and zircon. In September 2002, we completed a
16
consulting project for a titanium pigment producer. The project was a test in
which the jig was used to determine the feasibility of recovering fine particles
of titanium dioxide from pigment processing waste at a plant site. The pigment
producer has analyzed the test results and has requested a proposal from us to
proceed with a full-scale project to recover the titanium dioxide from the waste
ponds at the plant. We responded with the requested proposal and are awaiting
further word from the pigment producer.
In the meantime, we are not actively marketing the jig on a retail
basis, but are seeking opportunities to exploit the jig for projects similar to
that described above. We are also seeking a partner who has adequate resources
to develop and market the jig or sell the jig technology.
Jig Technology and Proprietary Rights.
--------------------------------------
Initial patents related to the concept of the jig as a whole were
issued in the United States, South Africa, United Kingdom, Australia and Canada.
These patents expired on various dates between May 1999 and December 2000. A
series of second patents with respect to the process by which water is pulsed
through the cylindrical screen on the jig, a critical component differentiating
the jig from competing products, have been issued in the United States, South
Africa, Japan, Europe, Australia, Canada, United Kingdom, Germany and France.
These patents expire on various dates between January 2010 and January 2011. A
third series of patents with respect to an efficiency enhancing component of the
jig have been issued in the United States, Europe, Australia, Japan, South
Africa, Canada and Brazil. These patents have expiration dates between April and
November 2018.
Competition for the Jig.
------------------------
Various mineral processing technologies perform many functions similar
or identical to those for which the jig is designed. Minerals processing
technologies are generally predicated on the physical and chemical
characteristics of the materials being processed. A minerals processor may
exploit contrasts in size, specific gravity, hardness, magnetic susceptibility,
electrical conductivity, and similar characteristics to selectively extract and
concentrate mineral constituents. Minerals processors also exploit variations in
chemical reactivity and molecular affinity to selectively separate minerals.
The jig competes in an arena in which particle specific gravity is the
primary criteria for particle segregation and capture. Competing technologies
include spirals and cones, which are most effective in feed sizes larger than
150 mesh, froth flotation devices, which can be effective on particles 200 mesh
or smaller in size and heavy media separation, which is effective primarily in
the removal of ash from coal and in small-scale analytic laboratory
applications. Competing jig-like products include the following:
o The Kelsey jig, which was developed in Australia and, although more
complicated than the jig, incorporates similar centrifugal and jig
technologies. According to the Kelsey jig's manufacturer, MD
mineral technologies, Kelsey jigs are in service at 25 plants
worldwide.
o The Falcon Concentrator, which was developed in Canada and is used
mainly for pre-concentration and scavenging. A centrifugal device,
its applications to date have been in the gold and tantalum
industries.
o The Knelson Concentrator, which was developed in Canada and is a
batch concentrator rather than a jig. (A batch concentrator differs
from the jig in that it process a finite "batch" of material, is
17
completely emptied, and then processes a completely new finite
batch, while the jig processes a continuous flow of materials). Our
understanding is that the Knelson Concentrator is best suited to
small volumes. Knelson Concentrators have been installed in various
mining applications, primarily gold, throughout the world.
Long term testing needs to be completed to accurately define operating
costs and operating efficiencies associated with the jig as compared to
competing products. Results from further tests or actual operations may reveal
that these alternative technologies and products are better adapted to any or
all of the uses for which the jig is intended. Moreover, regardless of test
results, consumers may view any or all of such alternative technologies as
technically superior to, or more cost effective than, the jig.
Altair is a small player in an industry comprised of major mining
companies possessing tremendous capital resources and we are an insignificant
competitive factor in the industry. There is no assurance that competitors, many
of whom may have significant capital and resources, will not develop or are not
now in the process of developing competitive equipment that may be functionally
or economically superior to our equipment.
Research, Testing and Development of the Jig.
--------------------------------------------
We have concluded that, in the foreseeable future, our limited human
and financial resources can most effectively be utilized in the development of
the titanium processing assets and titanium processing technology. Accordingly,
during 2002, we incurred only those expenditures (estimated at $27,000)
necessary to maintain the jig. This compares to the $11,000 in research and
development expenses we incurred in fiscal 2001 and $43,000 in research and
development expenses we incurred in fiscal 2000 related to the jig.
We are seeking to sell the jig technology or license it to others who
have adequate resources to complete development of the jig, establish marketing
and distribution channels and initiate manufacturing. At the same time, we are
seeking special project work where the jig may be utilized profitably.
Subsidiaries.
-------------
Altair Nanotechnologies Inc. was incorporated under the laws of the
province of Ontario, Canada in April 1973 under the name Diversified Mines
Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in February
1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold Company
Inc. in July 1988, then to Altair International Gold Inc. in March 1994, then to
Altair International Inc. in November 1996 and then to Altair Nanotechnologies
Inc. in July 2002. In July 2002, Altair Nanotechnologies Inc. redomesticated
from the Ontario Business Corporations Act to Canada's federal corporate
statutes, the Canada Business Corporations Act.
Fine Gold was acquired by Altair in April 1994. Fine Gold has earned no
operating revenues to date. Fine Gold acquired the intellectual property
associated with the jig in 1996. Altair intends that Fine Gold will hold and
maintain jig technology rights, including patents.
MRS was incorporated by Altair in April, 1987 and was formerly known as
Carlin Gold Company. MRS previously has been involved in the exploration for
minerals on unpatented mining claims in Nevada, Oregon and California. All
mining claims have now been abandoned. MRS currently holds, directly or
indirectly, all of Altair's interest in the Tennessee mineral property, and
Altair intends that MRS will continue to lease or acquire and explore mineral
properties in the future, particularly properties that contain minerals that may
be processed with the jig.
18
Altair Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned
subsidiary of MRS and holds all of the Company's interest in our titanium
pigment processing technology and related assets. The remaining 100% owned
subsidiary, Tennessee Valley Titanium, does not presently have any assets or
operations.
Government Regulation and Environmental Concerns.
-------------------------------------------------
Government Regulation.
----------------------
Our exploration of the Tennessee mineral property, testing of the jig,
and operation of the titanium pigment processing facility are, and any future
testing, operation, construction or mining activities of Altair will be, subject
to a number of federal, state, and local laws and regulations concerning mine
and machine safety and environmental protection. Such laws include, without
limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, and the Comprehensive Environmental Response Compensation
Liability Act. Such laws require that we take steps to, among other things,
maintain air and water quality standards, protect threatened, endangered and
other species of wildlife and vegetation, preserve certain cultural resources,
and reclaim exploration, mining and processing sites.
Compliance with federal, state, or local laws or regulations represents
a small part of our present budget; nevertheless, continued compliance may be
extremely costly, especially if we actually commence extraction operations on
the Tennessee mineral property. If we fail to comply with any such laws or
regulations, a government entity may levy a fine on us or require us to take
costly measures to ensure compliance. Any such fine or expenditure may adversely
affect our development.
We are committed to complying with and, to our knowledge, are in
compliance with, all governmental regulations. We cannot, however, predict the
extent to which future legislation and regulation could cause us to incur
additional operating expenses, capital expenditures, and/or restrictions and
delays in the development of our products and properties.
Environmental Regulation and Liability.
---------------------------------------
Any proposed mining or processing operation on the Tennessee mineral
property, at the titanium pigment processing facility or any other property
acquired by us will be subject to federal, state, and local environmental laws.
Under such laws, we may be jointly and severally liable with prior property
owners for the treatment, cleanup, remediation, and/or removal of substances
discovered on the Tennessee mineral property or any other property used by us,
which are deemed by the federal and/or state government to be toxic or hazardous
("Hazardous Substances"). Courts or government agencies may impose liability
for, among other things, the improper release, discharge, storage, use,
disposal, or transportation of Hazardous Substances. We might use Hazardous
Substances and, although we intend to employ all reasonably practicable
safeguards to prevent any liability under applicable laws relating to Hazardous
Substances, companies engaged in mineral exploration and processing are
inherently subject to substantial risk that environmental remediation will be
required.
19
Employees.
----------
The business of Altair is currently managed by Dr. William P. Long,
Chief Executive Officer of the Company, Dr. Rudi E. Moerck, President of the
Company and Mr. C. Patrick Costin, Vice President of the Company and President
of MRS and Fine Gold. In addition, we employ a Chief Financial Officer and 20
additional employees. Aside from Dr. Long, Mr. Costin and the Chief Financial
Officer, we have no employment agreements with any of our personnel.
We do not anticipate that the number of Company employees will
significantly increase until we have sufficient sales and business activity to
warrant it.
Where You Can Find More Information
-----------------------------------
We file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements,
or other information that we file at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
also maintains an Internet site (http://www.sec.gov) that makes available to the
public reports, proxy statements, and other information regarding issuers, such
as Altair, that file electronically with the SEC.
Our common shares are quoted on the Nasdaq SmallCap Market. Reports,
proxy statements and other information concerning Altair can be inspected and
copied at the Public Reference Room of the National Association of Securities
Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
Enforceability of Civil Liabilities Against Foreign Persons.
------------------------------------------------------------
We are a Canadian corporation, and a majority of our directors are
residents of Canada. In addition, certain of our experts (including Canadian
legal counsel) are located in Canada. As a result, investors may be unable to
effect service of process upon such persons within the United States and may be
unable to enforce court judgments against such persons predicated upon civil
liability provisions of the United States securities laws. It is uncertain
whether Canadian courts would (i) enforce judgments of United States courts
obtained against us or such directors, officers or experts predicated upon the
civil liability provisions of United States securities laws or (ii) impose
liability in original actions against Altair or its directors, officers or
experts predicated upon United States securities laws.
20
Glossary of Terms.
------------------
Anatase means one of three naturally occurring mineral phases of
titanium dioxide (along with rutile and brookite). Anatase particles have a
tetragonal crystal structure.
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.
Centrifugal force means the component of force on a body in curvilinear
motion that is directed away from the axis of rotation.
Ilmenite means a titanium-bearing oxide mineral containing variable
percentages of iron and used as a raw material in the production of titanium
pigments.
Iron ore fines means particles of iron ore, usually less than 1
millimeter in diameter.
Lithium titanate is a compound of lithium, titanium and oxygen.
Mesh means one of the openings or spaces in a screen. The value (size)
of the mesh is given as the number of openings per linear inch.
Micron means one millionth of a meter. One micron equals 1000
nanometers.
Mill means a building with machinery for processing ore. Dry mill
refers to heavy minerals sand processing of dry materials. Wet mill refers to
heavy minerals sand process of material that are mixed with water in slurry.
Photocatalytic means a process by which light frequencies activate the
catalytic nature of a substrate.
Rutile means one of three naturally occurring mineral phases of
titanium dioxide (along with anatase and brookite). Rutile particles have a
tetragonal crystal structure.
Specific gravity means the ratio of the mass of a solid or liquid to
the mass of an equal volume of water at a specified temperature.
Suite means an assemblage of minerals which naturally occur together
(i.e. a mineral suite).
Tails or tailings means those portions of washed ore that are regarded
as too poor to be treated further, as distinguished from material (concentrates)
that is to be smelted or otherwise utilized.
Tantalum is rare metal that is ductile (i.e. not brittle) easily
fabricated, highly resistant to corrosion by acids, and a good conductor of heat
and electricity and has a high melting point. The major use for tantalum, as
tantalum metal powder, is in the production of electronic components, mainly
tantalum capacitors. Major end uses for tantalum capacitors include portable
telephones, pagers, personal computers, and automotive electronics.
Yttrium is an element on the periodic table.
21
Forward-looking Statements.
---------------------------
This Form 10-K contains various forward-looking statements. Such
statements can be identified by the use of the forward-looking words
"anticipate," "estimate," "project," "likely," "believe," "intend," "expect," or
similar words. These statements discuss future expectations, contain projections
regarding future developments, operations, or financial conditions, or state
other forward-looking information. When considering such forward-looking
statements, you should keep in mind the risk factors noted in the following
section and other cautionary statements throughout this Form 10-K and our other
filings with the Commission. You should also keep in mind that all
forward-looking statements are based on management's existing beliefs about
present and future events outside of management's control and on assumptions
that may prove to be incorrect. If one or more risks identified in this Form
10-K or any other applicable filings materializes, or any other underlying
assumptions prove incorrect, our actual results may vary materially from those
anticipated, estimated, projected, or intended.
Among the key factors that may have a direct bearing on our operating
results are risks and uncertainties described under "Factors That May Affect
Future Results," including those attributable to the absence of significant
operating revenues, the absence of profits, uncertainties regarding the
development and commercialization of the jig, uncertainties regarding the
quality, quantity and grade of minerals on the Tennessee mineral property, risks
related to our proposed development and exploitation of our titanium processing
technology and titanium processing assets and uncertainties regarding our
ability to obtain capital sufficient to continue our operations and pursue our
proposed business strategy.
Factors that May Affect Future Results.
---------------------------------------
We have not generated any substantial operating revenues and may not ever
generate substantial revenues.
--------------------------------------------------------------------------------
To date, we have not generated substantial revenues from operations. We
have generated $268,041 of revenues from our titanium processing technology and
$28,270 from use of the jig in consulting contracts. We have not completed
exploration of the Tennessee mineral property. We can provide no assurance that
we will ever generate revenues from the Tennessee mineral property or that we
will generate substantial revenues from the titanium processing technology and
the jig.
We may continue to experience significant losses from operations.
--------------------------------------------------------------------------------
We have experienced a loss from operations in every fiscal year since
our inception. Our losses from operations in 2001 were $6,021,532 and our losses
from operations in 2002 were $8,771,378. Although we have made projections of
possible one-time profitability during 2003, such projections are based solely
on an expectation that we will enter into a license agreement with respect to
our new RenaZorb(TM) product and that such license agreement will include, among
other things, a one-time up-front multi-million dollar payment. We may not enter
into any such license agreement, or such license agreement may not involve any
significant up-front payments. Even if we do receive a significant up-front
payment during 2003 and achieve one-time profitability, we will thereafter
experience a net operating loss until, and if, the titanium processing
technology, the jig and/or the Tennessee mineral property begin generating
significant, sustained revenues. Even if any or all such products or projects
begin generating significant, sustained revenues, the revenues may not exceed
our costs of production and operating expenses.
22
We may not be able to raise sufficient capital to meet future obligations.
--------------------------------------------------------------------------------
As of December 31, 2002, we had $244,681 in cash, and a working capital
deficit of $204,365. Although we have raised additional capital since December
31, 2002, we do not expect that this capital, when combined with projected
revenues from nanoparticle sales, will be sufficient to fund our ongoing
operations. Accordingly, we will need to raise significant amounts of additional
capital in the future in order to sustain our ongoing operations and continue
the testing and additional development work necessary to place the titanium
processing technology into continuous operation. In addition, we will need
additional capital for exploration of the Tennessee mineral property. If we
determine to construct and operate a mine on the Tennessee mineral property, we
will need to obtain a significant amount of additional capital to complete
construction of the mine and commence operations.
We may not be able obtain the amount of additional capital needed or
may be forced to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include the following:
o market factors affecting the availability and cost of capital
generally;
o our financial results;
o the amount of our capital needs;
o the market's perception of mining, technology and/or minerals
stocks;
o the economics of projects being pursued;
o industry perception of our ability to recover minerals with the jig
or titanium processing technology or from the Tennessee mineral
property; and
o the price, volatility and trading volume of our common shares.
If we are unable to obtain sufficient capital or are forced to pay a
high price for capital, we may be unable to meet future obligations or
adequately exploit existing or future opportunities, and may be forced to
discontinue operations.
We have a substantial number of warrants, options and other convertible
securities outstanding and may issue a significant number of additional shares
upon exercise or conversion thereof.
--------------------------------------------------------------------------------
As of December 31, 2002, there were outstanding warrants to purchase up
to 9,170,171 common shares at a weighted average exercise price of $1.92 per
share and options to purchase up to 4,061,700 common shares at a weighted
average exercise price of $3.83 per share. The existence of such warrants and
options may hinder future equity offerings, and the exercise of such warrants
and options may further dilute the interests of all shareholders. Future resale
of the common shares issuable on the exercise of such warrants and options may
have an adverse effect on the prevailing market price of the common shares.
In addition, we have issued a Second Amended and Restated Secured Term
Note. Under the Second Amended and Restated Secured Term Note, a conversion
right with respect to $280,000 of principal accrues on each of March 1, 2003,
June 1, 2003, September 1, 2003, December 1, 2003 and March 1, 2004. If the
amount that would be subject to a conversion right is prepaid prior to the date
of accrual, such conversion right does not accrue. Once a conversion right has
accrued, the principal amount subject to that conversion right cannot be prepaid
unless all principal amounts not subject to a conversion right have been prepaid
in full. Each conversion right gives the holder the right to convert the subject
principal amount into common shares at a conversion price equal to the lesser of
(a) $1.00 per share and (b) 70% of the average of the closing price of our
common shares for the five trading days ending on the trading day immediately
preceding the date on which that conversion right accrued.
23
In order to illustrate the relationship between the market price of our
common shares and the issuance of common shares upon the exercise of conversion
rights that may accrue under the Second Amended and Restated Secured Term Note,
the following table sets forth how many additional common shares would be issued
upon the exercise of such conversion rights if such conversion rights accrue and
the average of the closing price of our common stock for the five trading days
ending on the day before each conversion right accrues are (a) $1.43 or greater,
(b) $0.50 per share, (c) $0.25 per share, and (d) $0.10 per share. Such prices
are selected for illustration purposes only and do not reflect our actual
estimate of the average of the closing price of our common stock for any
particular period.
$1.43 or $0.50 $0.25 $0.10
Greater
Shares Issuable(1) 1,400,000 4,000,000 8,000,000 20,000,000
Percentage of Outstanding(2)
Common Shares 4.4% 11.7% 20.9% 39.8%
(1) Assumes that shareholder approval is obtained for the transaction
in which we issued the Second Amended and Restated Secured Term Note
and all related transactions, that no principal is prepaid, that all
conversion rights accrue and are exercised at the same time and that no
default occurs and that no penalties or premiums are required to be
paid.
(2) Represents percentage of outstanding common shares following
exchange assuming the 30,244,348 common shares outstanding on December
31, 2002 are outstanding on the date of conversion.
The potential accrual of such conversion rights may hinder future
equity offerings, and the exercise of any conversion rights that accrue may
further dilute the interests of all shareholders. The sale in the open market of
common shares issuable upon the exercise of conversion rights may place downward
pressure on the market price of our common shares. Speculative traders may
anticipate the exercise of conversion rights and, in anticipation of a decline
in the market price of our common shares, engage in short sales of our common
shares. Such short sales could further negatively affect the market price of our
common shares.
Our competitors may be able to raise money and exploit opportunities more
rapidly, easily and thoroughly than we can.
--------------------------------------------------------------------------------
We have limited financial and other resources and, because of our early
stage of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. Because of
their size, resources, reputation, history and other factors, certain of our
competitors may have better access to capital and other significant resources
than we do and, as a result, may be able to exploit acquisition and development
opportunities more rapidly, easily or thoroughly than we can.
We have pledged substantial assets to secure the Second Amended and Restated
Secured Term Note.
--------------------------------------------------------------------------------
We have pledged all of the intellectual property, fixed assets and
common stock of Altair Nanomaterials, Inc., our second-tier wholly-owned
subsidiary, to secure repayment of a Second Amended and Restated Secured Term
Note with a face value of $1,400,000 and a due date of March 31, 2004. Altair
24
Nanomaterials, Inc. owns and operates the titanium processing technology we
acquired from BHP in 1999. The Second Amended and Restated Secured Term Note is
also secured by a pledge of the common stock and leasehold assets of Mineral
Recovery Systems, Inc., which owns and operates our leasehold interests in the
Camden, Tennessee area. If we default on the Second Amended and Restated Secured
Term Note, severe remedies will be available to the holder of the Second Amended
and Restated Secured Term Note, including immediate seizure and disposition of
all pledged assets.
We have issued a $3,000,000 note to secure the purchase of the land and the
building where our titanium processing assets are located.
--------------------------------------------------------------------------------
In August 2002, we entered into a purchase and sale agreement with BHP
Minerals International Inc. to purchase the land, building and fixtures in Reno,
Nevada where our titanium processing assets are located. In connection with this
transaction, BHP also agreed to terminate our obligation to pay royalties
associated with the sale or use of the titanium processing technology. In
return, we issued to BHP a note in the amount of $3,000,000, at an interest rate
of 7%, secured by the property we acquired. The first payment of $600,000 of
principal plus accrued interest is due February 8, 2006. Additional payments of
$600,000 plus accrued interest are due annually on February 8, 2007 through
2010. If we fail to make the required payments on the note, BHP has the right to
foreclose and take the property. If this should occur, we would be required to
relocate our titanium processing assets and offices, causing a significant
disruption in our business.
Operations using the titanium processing technology, the jig or the Tennessee
mineral property may lead to substantial environmental liability.
--------------------------------------------------------------------------------
Virtually any proposed use of the titanium processing technology, the
jig or the Tennessee mineral property would be subject to federal, state and
local environmental laws. Under such laws, we may be jointly and severally
liable with prior property owners for the treatment, cleanup, remediation and/or
removal of any hazardous substances discovered at any property we use. In
addition, courts or government agencies may impose liability for, among other
things, the improper release, discharge, storage, use, disposal or
transportation of hazardous substances. We might use hazardous substances and,
if we do, we will be subject to substantial risks that environmental remediation
will be required.
Certain of our experts and directors reside in Canada and may be able to avoid
civil liability.
--------------------------------------------------------------------------------
We are a Canadian corporation, and a majority of our directors and our
Canadian legal counsel are residents of Canada. As a result, investors may be
unable to effect service of process upon such persons within the United States
and may be unable to enforce court judgments against such persons predicated
upon civil liability provisions of the United States securities laws. It is
uncertain whether Canadian courts would (i) enforce judgments of United States
courts obtained against us or such directors, officers or experts predicated
upon the civil liability provisions of United States securities laws or (ii)
impose liability in original actions against Altair or its directors, officers
or experts predicated upon United States securities laws.
We are dependent on key personnel.
--------------------------------------------------------------------------------
Our continued success will depend to a significant extent on the
services of Dr. William P. Long, our Chief Executive Officer, Dr. Rudi Moerck,
our President, and Mr. C. Patrick Costin, our Vice President and President of
Fine Gold and MRS. The loss or unavailability of Dr. Long, Dr. Moerck or Mr.
Costin could have a material adverse effect on us. We do not carry key man
insurance on the lives of Dr. Long, Dr. Moerck or Mr. Costin.
25
We may issue substantial amounts of additional shares without stockholder
approval.
--------------------------------------------------------------------------------
Our Articles of Incorporation authorize the issuance of an unlimited
number of common shares. All such shares may be issued without any action or
approval by our stockholders. In addition, we have two stock option plans which
have potential for diluting the ownership interests of our stockholders. The
issuance of any additional common shares would further dilute the percentage
ownership of Altair held by existing stockholders.
The market price of our common shares is extremely volatile.
--------------------------------------------------------------------------------
Our common shares are listed on the Nasdaq SmallCap Market. Trading in
our common shares has been characterized by a high degree of volatility. Trading
in our common shares may continue to be characterized by extreme volatility for
numerous reasons, including the following:
o Uncertainty regarding the viability of the titanium processing
technology, the jig or the Tennessee mineral property;
o Dominance of trading in our common shares by a small number of
firms;
o Positive or negative announcements by us or our competitors;
o Uncertainty regarding our ability to maintain our listing on the
Nasdaq SmallCap Market and/or continue as a going concern;
o Industry trends, general economic conditions in the United States
or elsewhere, or the general markets for equity securities,
minerals, or commodities; and
o Speculation by short sellers of our common shares or other persons
who stand to profit from a rapid increase or decrease in the price
of our common shares.
We may be delisted from the Nasdaq SmallCap Market.
--------------------------------------------------------------------------------
Our listing on the Nasdaq SmallCap Market is conditioned upon our
compliance with the NASD's continued listing requirements for such market by
June 2003, including the $1.00 per share minimum bid requirement. If the market
price for our common shares has not increased to $1.00 per share for at least 10
consecutive days by June 2003, we expect to be delisted from the Nasdaq SmallCap
Market. The Staff of Nasdaq has indicated that it may submit to the SEC a
proposed rule or policy change which, if approved by the SEC, could lead to an
additional 180 day extension beyond June 2003 in order to meet the $1.00 per
share minimum bid requirement; however, even if such change were to be approved,
we would not likely be eligible for such additional 180 extension unless our we
had a minimum stockholders' equity balance of $5,000,000 in June 2003. We
presently do not have a stockholders' equity balance of $5,000,000 and, absent a
significant infusion of capital, do not expect to have such a balance in June
2003. Delisting from the Nasdaq SmallCap Market may have a significant negative
impact on the trading price, volume and marketability of our common shares.
We have never declared a cash dividend and do not intend to declare a cash
dividend in the foreseeable future.
--------------------------------------------------------------------------------
We have never declared or paid cash dividends on our common shares. We
currently intend to retain any future earnings, if any, for use in our business
and, therefore, do not anticipate paying dividends on our common shares in the
foreseeable future.
We may be unable to exploit the potential pharmaceutical application of our
titanium processing technology.
--------------------------------------------------------------------------------
We do not have the technical or financial resources to complete
development of, and take to market, any pharmaceutical application of our
26
titanium processing technology. In order for Altair to get any significant,
long-term benefit from any potential pharmaceutical application of our
technologies, the following must occur:
o we must enter into an evaluation license or similar agreement with
an existing pharmaceutical company under which such company would
pay a fee for the right to evaluate a pharmaceutical use of our
technology for a specific period of time and for an option to
purchase or receive a license for such use of our technology;
o tests conducted by such pharmaceutical company would have to
indicate that the pharmaceutical use of our technology is safe,
technically viable and financially viable;
o such pharmaceutical company would have to apply for and obtain FDA
approval of the pharmaceutical use of our technology, or any
related products, which would involve extensive additional testing;
and
o such pharmaceutical company would have to successfully market the
product incorporating our technology.
Although we may receive some significant one-time payments in various stages of
the testing and evaluation of the pharmaceutical application of our technology,
we are not expecting to receive significant ongoing revenue unless and until an
end product incorporating the technology goes to market.
We may not be able to license our technology for titanium dioxide pigment
production.
--------------------------------------------------------------------------------
Because of our relatively small size and limited resources, we do not
plan to use our titanium processing technology for large-scale production of
titanium dioxide pigments; we have, however, entered into discussions with
various minerals and materials companies about licensing our technology to such
entities for large-scale production of titanium dioxide pigments. We have not
entered into any long-term licensing agreements with respect to the use of our
titanium processing technology for large-scale production of titanium dioxide
pigments and can provide no assurance that we will be able to enter into any
such an agreement. Even if we enter into such agreement, we would not receive
significant revenues from such license until feasibility testing is complete
and, if the results of feasibility testing were negative, would not receive
significant revenues at any time.
We may not be able to sell nanoparticles produced using the titanium processing
technology.
--------------------------------------------------------------------------------
We plan to use the titanium processing technology to produce titanium
dioxide nanoparticles. Titanium dioxide nanoparticles and other products we
intend to initially produce with the titanium processing technology generally
must be customized for a specific application working in cooperation with the
end user. We are still testing and customizing our titanium dioxide nanoparticle
products for various applications and have no long-term agreements with end
users to purchase any of our titanium dioxide nanoparticle products. We may be
unable to recoup our investment in the titanium processing technology and
titanium processing equipment for various reasons, including the following:
o we may be unable to customize our titanium dioxide nanoparticle
products to meet the distinct needs of potential customers;
o potential customers may purchase from competitors because of
perceived or actual quality or compatibility differences
27
o our marketing and branding efforts may be insufficient to attract a
sufficient number of customers; and
o because of our limited funding, we may be unable to continue our
development efforts until a strong market for nanoparticles
develops.
In addition, the uses for such nanoparticles are limited, and the
market for such nanoparticles is small. In light of the small size of the
market, the addition of a single manufacturer may cause the price to drop to a
point at which we cannot produce the nanoparticles at a profit.
Our costs of production may be too high to permit profitability.
--------------------------------------------------------------------------------
We have not produced any mineral products using our titanium processing
technology and equipment on a commercial basis. Our actual costs of production
may exceed those of competitors and, even if our costs of production are lower,
competitors may be able to sell titanium dioxide and other products at a lower
price than is economical for Altair.
In addition, even if our initial costs are as anticipated, the titanium
processing equipment may break down, prove unreliable or prove inefficient in a
commercial setting. If so, related costs, delays and related problems may cause
production of titanium dioxide nanoparticles and related products to be
unprofitable.
We have not completed testing and development of the jig and are presently
focusing our resources on other projects.
--------------------------------------------------------------------------------
We have not completed testing of, or developed a production model of,
any series of the jig. We do not expect to complete testing and development of
the jig during the coming year and have determined to focus most of our limited
resources on the titanium processing technology. We may never develop a
production model of the jig.
Even if we complete development of the jig, the jig may prove unmarketable and
may not perform as anticipated in a commercial operation.
--------------------------------------------------------------------------------
The designed capacity of the Series 12 jig is too small for coal
washing, heavy minerals extraction, and most other intended applications of the
jig, except use in small placer gold mines or similar operations. Even if the
Series 12 jig is completed and performs to design specifications in subsequent
tests or at a commercial facility, we believe that, because of its small
capacity, the potential market for the Series 12 jig is limited.
If we complete development of and begin marketing a production model of
the Series 30 jig, it may not prove attractive to potential end users, may be
rendered obsolete by competing technologies or may not recover end product at a
commercially viable rate. Even if technology included in the jig initially
proves attractive to potential end users, performance problems and maintenance
issues may limit the market for the jig.
The jig faces competition from other jig-like products and from alternative
technologies.
--------------------------------------------------------------------------------
Various jig-like products and alternative mineral processing
technologies perform many functions similar or identical to those for which the
jig is designed. Results from further tests or actual operations may reveal that
these alternative products and technologies are better adapted to any or all of
the uses for which the jig is intended. Moreover, regardless of test results,
consumers may view any or all of such alternative products and technologies as
technically superior to, or more cost effective than, the jig.
28
Certain patents for the jig have expired, and those that have not expired may be
difficult to enforce.
--------------------------------------------------------------------------------
All of the initial patents issued on the jig have expired, and we are
unable to prevent competitors from copying the technology once protected by such
patents. Additional patents related to the process through which water is pulsed
through the cylindrical screen on the jig expire beginning in 2010, and patents
for an efficiency-enhancing aspect of the cylindrical screen expire during 2018.
The cost of enforcing patents is often significant, especially outside of North
America. Accordingly, we may be unable to enforce even our patents that have not
yet expired.
We have suspended examining the feasibility of mining the Tennessee mineral
property and may not have working capital sufficient to again continue testing
efforts.
--------------------------------------------------------------------------------
Due to a shortage of working capital, we have suspended feasibility
testing of the Tennessee mineral property. We do not expect to obtain an amount
of working capital sufficient to again start feasibility testing of the
Tennessee mineral property in the foreseeable future.
Even if we again commence feasibility testing on the Tennessee mineral
property, we are unable to provide any assurance that mining of the Tennessee
mineral property is feasible or to identify all processes that we would need to
complete before we could commence a mining operation on the Tennessee mineral
property. To the extent early feasibility testing yields positive results, we
expect feasibility testing to involve, among other things, the following:
o operating a pilot mining facility to determine mineral recovery
efficiencies and the quality of end products;
o additional drilling and sampling in order to more accurately
determine the quantity, quality and continuity of minerals on the
Tennessee mineral property;
o examining production costs and the market for products produced at
the pilot facility;
o designing any proposed mining facility;
o identifying and applying for the permits necessary for any proposed
full-scale mining facility; and
o attempting to secure financing for any proposed full-scale mining
facility.
Our test production at the pilot plant, economic analysis and additional
exploration activities may indicate any of the following:
o that the Tennessee mineral property does not contain heavy minerals
of a sufficient quantity, quality or continuity to permit any
mining;
o that production costs exceed anticipated revenues;
o that end products do not meet market requirements or customer
expectations;
o that there is an insufficient market for products minable from the
Tennessee mineral property; or
o that mining the Tennessee mineral property is otherwise not
economically or technically feasible.
Even if we conclude that mining is economically and technically
feasible on the Tennessee mineral property, we may be unable to obtain the
capital, resources and permits necessary to mine the Tennessee mineral property.
Market factors, such as a decline in the price of, or demand for, minerals
recoverable at the Tennessee mineral property, may adversely affect the
development of mining operations on such property. In addition, as we move
through the testing process, we may identify additional items that need to be
researched and resolved before any proposed mining operation could commence.
29
We cannot forecast the life of any potential mining operation located on the
Tennessee mineral property.
--------------------------------------------------------------------------------
We have not explored and tested the Tennessee mineral property enough
to establish the existence of a commercially minable deposit (i.e. a reserve) on
such property. Until such time as a reserve is established (of which there can
be no assurance), we cannot provide an estimate as to how long the Tennessee
mineral property could sustain any proposed mining operation.
We may be unable to obtain necessary environmental permits and may expend
significant resources in order to comply with environmental laws.
--------------------------------------------------------------------------------
In order to begin construction and commercial mining on the Tennessee
mineral property, we must obtain additional federal, state and local permits. We
will also be required to conform our operations to the requirements of numerous
federal, state and local environmental laws. Because we have not yet commenced
design of a commercial mining facility on the Tennessee mineral property, we are
not in a position to definitively ascertain which federal, state and local
mining and environmental laws or regulations would apply to a mine on the
Tennessee mineral property. Nevertheless, we anticipate having to comply with
and/or obtain permits under the Clean Air Act, Clean Water Act and Resource
Conservation and Recovery Act, in addition to numerous state laws and
regulations before commencing construction or operation of a mine on the
Tennessee mineral property. We can provide no assurance that we will be able to
comply with such laws and regulations or obtain any such permits. In addition,
obtaining such permits and complying with such environmental laws and
regulations may be cost prohibitive.
The market for commodities produced using the jig or at the Tennessee mineral
property may significantly decline.
--------------------------------------------------------------------------------
If the jig is successfully developed and manufactured on a commercial
basis, we intend to use the jig, or lease the jig for use, to separate and
recover valuable, heavy mineral particles. Active international markets exist
for gold, titanium, zircon and many other minerals potentially recoverable with
the jig. Prices of such minerals fluctuate widely and are beyond our control. A
significant decline in the price of minerals capable of being extracted by the
jig could have significant negative effect on the value of the jig. Similarly, a
significant decline in the price of minerals expected to be produced on the
Tennessee mineral property could have a significant negative effect on the
viability of a mine or processing facility on such property.
Item 2. Properties
We maintain a registered office at 56 Temperance Street, Toronto,
Ontario M5H 3V5. We do not lease any space for, or conduct any operations out
of, the Toronto, Ontario registered office. In addition, we lease 900 square
feet of office space at 1725 Sheridan Avenue, Suite 140, Cody, Wyoming 82414,
which serves as the corporate headquarters for Altair and its subsidiaries. Our
lease for the Cody, Wyoming office space may be terminated by either party on 30
days' prior written notice.
On August 8, 2002, we entered into a purchase and sale agreement with
BHP wherein we purchased the land, building and fixtures at 204 Edison Way,
Reno, Nevada 89502, where our titanium processing assets are located. The
building contains approximately 80,000 square feet of production, laboratory,
testing and office space. Upon completion of the purchase transaction, we
vacated 5,700 square feet of leased office space at 230 South Rock Boulevard,
Suite 21, Reno, Nevada which had been leased on a month-to-month basis, and
relocated the employees that had occupied that office to the 204 Edison Way
building.
30
MRS leases approximately 1,550 square feet of laboratory space at 7950
Security Circle, Reno, Nevada 89506, for its jig testing operations. The test
facility lease may be terminated by either party upon eight weeks prior written
notice. We believe that the existing offices and test facilities of Altair and
its subsidiaries are adequate for our current needs. In the event that
alternative or additional office space is required, we believe we could obtain
additional space on commercially acceptable terms.
The Tennessee mineral property consists of approximately 8,700 acres of
real property located near Camden, Tennessee, which MRS leases from multiple
owners of the real property. Such leases grant MRS certain exclusive rights,
including the right to explore, test, mine, extract, process, and sell any
minerals or other materials found on the land, in exchange for the payment of
minimum annual advanced royalty payments prior to commencement of production on
the properties (or after commencement of production, to the extent production
royalty payments do not equal nominal royalty payments) and, thereafter,
production royalty payments in an amount equal to a percentage of the value of
minerals mined and sold from the property. See the Notes to the Consolidated
Financial Statements for information regarding present and future minimum
advance royalty payments. The leases typically are for a minimum term of ten
years, and may be extended indefinitely at MRS' option, provided Altair is
actively conducting exploration, development, or mining operations. The leases
are cancelable by MRS at any time, and are cancelable by the lessor in the event
MRS breaches the terms of the lease. The minerals on the Tennessee mineral
property have not yet proven to be a reserve, and our operations and proposed
plan with respect to it are exploratory in nature. See "Item 1.
Business--Tennessee Mineral Property." The Tennessee mineral property is
accessed by public roads and, to our knowledge, has not been used in prior
mining operations.
Item 3. Legal Proceedings
We are from time to time involved in routine litigation incidental to
the conduct of our business. We are currently not involved in any suit, action
or other legal proceedings, nor are we aware of any threatened suit, action or
other legal proceedings which management believes will materially and adversely
affect the business or operations of Altair or its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of security holders during the
fourth quarter of the 2002 fiscal year.
PART II
Item 5. Market for the Common Shares and Related Shareholder Matters
Market Price
------------
Our common shares are traded on the Nasdaq SmallCap Market under the
symbol "ALTI." The following table sets forth, for the periods indicated, the
high and low sales prices for our common shares, as reported on our principal
trading market at the time.
31
Fiscal Year Ended December 31, 2001 Low High
---------------- ----------------
1st Quarter $1.000 $3.406
2nd Quarter $1.969 $2.890
3rd Quarter $1.230 $2.710
4th Quarter $1.010 $1.790
Fiscal Year Ended December 31, 2002 Low High
---------------- ----------------
1st Quarter $0.750 $1.560
2nd Quarter $0.370 $1.140
3rd Quarter $0.300 $0.930
4th Quarter $0.450 $0.800
The quotations set forth above reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions. The
last sale price of our common shares, as reported on the Nasdaq National Market,
on March 7, 2003 was $.39 per share.
Outstanding Shares and Number of Shareholders
---------------------------------------------
As of March 7, 2003, the number of common shares outstanding was
30,799,492 held by 497 holders of record. In addition, as of the same date, we
have reserved 4,991,700 common shares for issuance upon exercise of options that
have been, or may be, granted under our employee stock option plans and
9,157,671 common shares for issuance upon exercise of outstanding warrants.
Dividends
---------
We have never declared or paid cash dividends on our common shares.
Moreover, we currently intend to retain any future earnings for use in our
business and, therefore, do not anticipate paying any dividends on our common
shares in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
------------------------------------------------------------------
We have stock option plans administered by the Board of Directors that
provide for the granting of options to employees, officers, directors and other
service providers of the Company. All option plans have been approved by
security holders. We also have an Employee Stock Purchase Plan ("ESPP") which
allows employees to purchase common shares through payroll deductions. The ESPP,
which is a broadly-based plan open to all employees, has not been approved by
shareholders. The following table sets forth certain information with respect to
compensation plans under which equity securities are authorized for issuance at
December 31, 2002:
32
-----------------------------------------------------------------------------------------------------
Number of Number of securities
securities to be remaining available for
issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation
outstanding outstanding plans (excluding
options, warrants options, securities reflected in
and rights warrants and rights column (a))
Plan Category (a) (b) (c)
-----------------------------------------------------------------------------------------------------
Equity compensation plans 4,061,700 $3.83 930,000
approved by security holders
-----------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders None N/A 338,450
-----------------------------------------------------------------------------------------------------
Total 4,061,700 $3.83 1,268,450
-----------------------------------------------------------------------------------------------------
Recent Sales of Unregistered Securities.
----------------------------------------
During the three-month period ended December 31, 2002, we offered and sold the
following equity securities in private placements intended to be exempt from the
registration requirements of the Securities Act and similar state securities
laws:
Between October 4, 2002 and October 15, 2002, we sold 266,667 common shares and
266,670 warrants to purchase common shares to six accredited investors for net
proceeds of $200,000. Each of these sales also included four options (for a
total of 1,066,668 options), each option granting the investor the right to
purchase the same quantity, and no less, of common shares and warrants at the
same price as the initial placement. The options expire at staggered dates, the
latest being April 15, 2003, and all of the options terminated if one of the
options is permitted to expire without being exercised in full. Half of the
warrants are exercisable at $1.25 and the other half are exercisable at $1.75.
The warrants expire on the earlier of five years from the date of issue or,
after one year from date of issue or anytime after the shares are registered,
the 180th day following the date the closing price equals or exceeds the
exercise price by more than $2.00 for 10 days, whether or not consecutive. The
target price is $3.25 for half of the warrants and $3.75 for the other half of
the warrants. During the three-month period ended December 31, 2002, options
were exercised for 133,333 common shares, resulting in net proceeds of $100,000.
All remaining options have terminated because of the holders' failures to
exercise an option prior to its expiration.
On November 21, 2002, we issued 1,500,000 common shares to Doral 18, LLC
("Doral") in exchange for a reduction of the principal amount owed to Doral
under a term note. The principal amount was reduced from $2,000,000 to
$1,400,000. We also issued to Doral a warrant for 750,000 common shares
exercisable at $1.00 per share which expires on the earlier of November 21, 2007
or the 180th day following the date the closing price of our common shares
equals or exceeds $3.00 for 5 consecutive days.
On November 26, 2002, we sold 1,562,500 common shares and 585,938 warrants to
purchase common shares to six investors for net proceeds of $625,000. The
warrants are exercisable at $1.00 and expire on the earlier of five years from
the date of issue or, after one year from date of issue or anytime after the
shares are registered, the 180th day following the date the closing price equals
or exceeds $3.00 for 10 days, whether or not consecutive.
33
The above-described common shares, options and warrants were offered and sold in
reliance upon the exemption for sales of securities not involving a public
offering, as set forth in Section 4(2) of the Securities Act and Rule 506
promulgated under the Securities Act based upon the following: (a) each investor
represented and warranted to the Company that it was an "accredited investor,"
as defined in Rule 501 of Regulation D promulgated under the Securities Act and
had such background, education, and experience in financial and business matters
as to be able to evaluate the merits and risks of an investment in the
securities; (b) there was no public offering or general solicitation with
respect to the offering, and each investor represented and warranted that it was
acquiring the securities for its own account and not with an intent to
distribute such securities; (c) each investor was provided with an offering
summary, a copy of the most recent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K of the Company and all
other information requested by the investor with respect to the Company, (d)
each investor acknowledged that all securities being purchased were "restricted
securities" for purposes of the Securities Act, and agreed to transfer such
securities only in a transaction registered with the SEC under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates and other documents representing each such security
stating that it was restricted and could only be transferred if subsequently
registered under the Securities Act or transferred in a transaction exempt from
registration under the Securities Act.
In addition to the sales of unregistered securities described above, we adopted
the ESPP on August 6, 2002, which allows employees to purchase common shares
through payroll deductions and registered the common shares issuable under the
ESPP on a Registration Statement on From S-8. Through December 31, 2002, a total
of 161,550 common shares were issued under the ESPP, resulting in proceeds of
$92,183.
Transfer Agent and Registrar
----------------------------
The Transfer Agent and Registrar for our common shares is Equity
Transfer Services, Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario,
M5H 4C3.
Canadian Taxation Considerations
--------------------------------
Dividends paid on common shares owned by non-residents of Canada are
subject to Canadian withholding tax. The rate of withholding tax on dividends
under the Income Tax Act (Canada) (the "Act") is 25%. However, Article X of the
reciprocal tax treaty between Canada and the United States of America (the
"Treaty") generally limits the rate of withholding tax on dividends paid to
United States residents to 15%. The Treaty further generally limits the rate of
withholding tax to 5% if the beneficial owner of the dividends is a U.S.
corporation which owns at least 10% of the voting shares of the Company.
If the beneficial owner of the dividend carries on business in Canada
through a permanent establishment in Canada, or performs in Canada independent
personal services from a fixed base in Canada, and the shares of stock with
respect to which the dividends are paid is effectively connected with such
permanent establishment or fixed base, the dividends are taxable in Canada as
business profits at rates which may exceed the 5% or 15% rates applicable to
dividends that are not so connected with a Canadian permanent establishment or
fixed base. Under the provisions of the Treaty, Canada is permitted to apply its
domestic law rules for differentiating dividends from interest and other
disbursements.
34
A capital gain realized on the disposition of common shares by a person
resident in the United States ("a non-resident") will be subject to tax under
the Act if the shares held by the non-resident are "taxable Canadian property."
In general, common shares will be taxable Canadian property if the particular
non-resident used (or in the case of a non-resident insurer, used or held) the
Common Stock in carrying on business in Canada or, pursuant to proposed
amendments to the Act, where at any time during the five-year period immediately
preceding the realization of the gain, not less than 25% of the issued and
outstanding shares of any class or series of shares of the Company were owned by
the particular non-resident, by persons with whom the particular non-resident
did not deal at arms' length, or by any combination thereof. If common shares
constitute taxable Canadian property, relief nevertheless may be available under
the Treaty. Under the Treaty, gains from the alienation of common shares owned
by a non-resident who has never been resident in Canada generally will be exempt
from Canadian capital gains tax if the shares do not relate to a permanent
establishment or fixed base which the non-resident has or had in Canada, and if
not more than 50% of the value of the shares was derived from real property
(which includes rights to explore for or to exploit mineral deposits) situated
in Canada.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial
information with respect to the Company and its subsidiaries for the periods
indicated. The data is derived from financial statements prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP"). The selected financial data should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
accompanying notes included herein. All amounts are stated in U.S. dollars.
For the Year Ended December 31, 2002 2001 2000 1999 1998
----------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Revenues $ 253,495 $ 42,816 $ -- $ -- $ --
Cost of sales $ 93,583 $ 18,175 $ -- $ -- $ --
Operating expenses $ 8,016,623 $ 6,046,173 $ 6,647,367 $ 3,729,534 $ 3,842,441
Interest expense $ 1,151,388 $ 1,881,077 $ 215,216 $ 1,966 $ 959,612
Interest income $ (2,105) $ (148,980) $ (83,440) $ (134,811) $ (335,037)
(Gain) loss on foreign exchange $ 835 $ 402 $ (864,669) $ 160,619 $ 17,109
Loss on extinguishment of debt $ 914,667 $ -- $ -- $ -- $ --
Gain on forgiveness of debt $ -- $ -- $ -- $ (67,442) $ (25,805)
Loss on redemption of convertible
debentures $ -- $ -- $ -- $ -- $ 193,256
Net Loss $ 9,921,496 $ 7,754,031 $ 5,914,474 $ 3,689,866 $ 4,651,576
Basic and diluted net loss per
common share from operations $ 0.40 $ 0.39 $ 0.34 $ 0.24 $ 0.31
Cash dividends declared per
common share $ -- $ -- $ -- $ -- $ --
Deficit, beginning of year $ 29,412,826 $ 21,606,378 $ 15,691,904 $ 12,002,038 $ 7,350,462
Net loss 9,921,496 7,754,031 5,914,474 3,689,866 4,651,576
Preferential dividend 48,666 52,417 -- -- --
----------------------------------------------------------------------------
Deficit, end of year $ 39,382,988 $ 29,412,826 $ 21,606,378 $ 15,691,904 $ 12,002,038
============================================================================
BALANCE SHEET DATA
Working capital $ (204,365) $ (81,154) $ 234,714 $ (5,931,717) $ 3,008,789
Total assets $ 8,914,405 $ 10,853,243 $ 16,651,770 $ 13,365,848 $ 7,103,267
Long-term obligations $ 3,905,040 $ 1,462,060 $ 2,689,493 $ -- $ 31,091
Current liabilities $ 604,503 $ 714,689 $ 3,741,366 $ 7,578,083 $ 222,431
Net shareholders' equity $ 4,404,862 $ 8,676,494 $ 10,220,911 $ 5,787,765 $ 6,849,745
35
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Overview
--------
From inception through the end of 1993, our business consisted
principally of the exploration of mineral properties for acquisition and
exploration. During 1994, our focus changed as we became engaged in the
acquisition, development and testing of mineral processing equipment for use in
the recovery of fine, heavy mineral particles including gold, titanium, zircon
and environmental contaminants. Since that time, we have continued exploring
mineral properties on which we might use our patented mineral processing
equipment.
In 1996, we acquired all patent rights to the Campbell Centrifugal Jig,
since modified and renamed the Altair Centrifugal Jig. Since April 1996, we have
acquired mineral leaseholds on approximately 8,700 acres of land in Tennessee. A
prefeasibility study issued in July 1998 confirmed the existence of heavy
minerals and suggests that the property warrants further exploration. Based on
the results of these independent studies, we initiated additional feasibility
testing, but have since suspended such testing due to a shortage of working
capital.
In November 1999, we acquired all patent applications and technology
related to a hydrometallurgical process developed by BHP Minerals International,
Inc. ("BHP") primarily for the production of titanium dioxide products from
titanium bearing ores or concentrates (the "titanium processing technology") and
all tangible equipment and other assets (the "titanium processing assets") used
by BHP to develop and implement the titanium processing technology.
The titanium processing technology has potential to produce both
titanium pigments, which are commercially traded in bulk, and nanoparticles,
which are sold on specialty product markets. During 2002, our efforts were
directed toward development of nanoparticle products, pharmaceutical products
and titanium pigment production.
Liquidity and Capital Resources.
--------------------------------
We generated sales revenues of $253,495 in 2002 but incurred a net loss
of $9,921,496. At December 31, 2002, our accumulated deficit was $39,382,988, or
an increase of $9,970,162 over the accumulated deficit at December 31, 2001.
This increase was due to the net loss for the year and a preferential warrant
dividend of $48,666 recorded in connection with the repricing of certain
warrants during 2002.
36
Our cash and short-term investments decreased from $599,884 at December
31, 2001 to $244,681 at December 31, 2002 due to the incurrence of operating
costs and the lack of substantial revenues.
Amendment To Note Purchase Agreement; Security Issuances. On December
15, 2000, we and an investor entered into a Securities Purchase Agreement
pursuant to which we issued an Asset-Backed Exchangeable term Note (the "2000
Note") and detachable warrants to purchase 350,000 common shares at $3.00 per
share. The 2000 Note was in the principal amount of $7,000,000 with interest at
a rate of 10% per annum. Net proceeds of $4 million from the 2000 Note were
placed in a restricted bank account to secure a letter of credit and were
scheduled to be released as principal payments were made. The 2000 Note was due
and payable in full on December 15, 2003 and was secured by a pledge of the
intellectual property and common stock of Altair Nanomaterials, Inc. and the
common stock of Mineral Recovery Systems, Inc.
During 2001, we made cash payments of principal and interest against
the 2000 Note of $1,894,000 and $387,000, respectively, and paid $919,000 of
principal and interest through the exchange of 824,800 shares of our common
stock in accordance with the terms of the 2000 Note.
On December 28, 2001, we entered into a Note Termination and Issuance
Agreement with the investor. The 2000 Note was exchanged for a new note (the
"2001 Note") having a face amount of $2,000,000. In addition, the letter of
credit was terminated and $2,500,733 of restricted cash securing the letter of
credit was paid to the investor. The 2001 Note had an interest rate of 11% per
annum with interest payments due monthly. If interest was not paid, the investor
automatically received the right to exchange (immediately or at any later date
during the term) the monthly interest payment amount into common stock at a
specified exchange price. The principal amount of the 2001 Note was due and
payable on March 31, 2003. During 2002, a total of $215,808 in accrued interest
was exchanged for an aggregate of 299,304 common shares.
In November 2002, we entered into a Note Amendment Agreement with the
investor pursuant to which the $2,000,000 2001 Note was terminated in exchange
for our issuance of 1,500,000 common shares and a $1,400,000 Second Amended and
Restated Secured Term Note (the "2002 Note"). We also issued to the investor a
warrant for 750,000 common shares exercisable at $1.00 per share during a
five-year term in exchange for the investor's agreement to extend the due date
of the 2002 Note to March 31, 2004 and eliminate certain restrictive covenants.
The 2002 Note has an interest rate of 11% with the interest payable monthly in
cash. The principal amount may be prepaid at any time with a 5% prepayment
penalty. Under the terms of the 2002 Note, a conversion right with respect to
$280,000 of principal accrues on each of March 1, 2003, June 1, 2003, September
1, 2003, December 1, 2003 and March 1, 2004. If the amount that would be subject
to a conversion right is prepaid prior to the date of accrual, such conversion
right does not accrue. Once a conversion right has accrued, the principal amount
subject to that conversion right cannot be prepaid unless all principal amounts
not subject to a conversion right have been prepaid in full. Each conversion
right gives the investor the right to convert the subject principal amount into
common shares at a conversion price equal to the lesser of (a) $1.00 per share
and (b) 70% of the average of the closing price of our common shares for the
five trading days ending on the trading day immediately preceding the date on
which that conversion right accrued.
The 2002 Note is secured by a pledge of the equipment, intellectual
property and common stock of Altair Nanomaterials Inc., which holds the titanium
processing technology and titanium processing assets, and by a pledge of the
leasehold interest in mineral deposits and common stock of Mineral Recovery
Systems, Inc.
During 2002, we sold 4,903,093 common shares together with 3,584,334
warrants in private placements for gross proceeds of $3,335,122. The warrants
are exercisable at prices ranging from $1.00 to $2.50 and expire on the earlier
of five years from the date of issue or on specified dates after the closing
price equals or exceeds prices ranging from $2.50 to $5.50. In addition, 286,169
previously issued warrants were exercised during 2002, resulting in net proceeds
to us of $300,477.
37
Capital Commitments. The following table discloses aggregate
information about our contractual obligations including notes payable, mineral
lease payments, facilities lease payments and contractual service agreements,
and the periods in which payments are due as of December 31, 2002:
Less Than After
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
---------- ---------- ---------- ---------- ----------
Notes Payable $4,400,000* $1,120,000 $ 280,000 $1,200,000 $1,800,000
Mineral Leases 1,135,021 147,467 452,868 392,055 142,631
Contractual Service Agreements 423,080 260,580 100,000 62,500 --
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $5,958,101 $1,528,047 $ 832,868 $1,654,555 $1,942,631
========== ========== ========== ========== ==========
* Before discount of $494,960.
Current and Expected Liquidity. At December 31, 2002, we had cash and
cash equivalents of $244,681, an amount sufficient to fund our basic operations
through January 31, 2003. From December 31, 2002 through the date of this
report, we received cash from product sales, collection of accounts receivable,
and commitments for external funding in an amount sufficient to fund our
operations through April 30, 2003. After that date, we will require additional
financing to provide working capital to fund our day-to-day operations. We will
also require additional financing to continue our development work on the
titanium processing technology and the Tennessee mineral property.
In light of the decreasing price of, and limited market for, our common
shares, our ability to continue to fund our operations primarily through sales
of securities is limited, although we expect to generate some funds through
offerings of our common stock and warrants to purchase our common stock, and
additional exercises of outstanding warrants, during 2003. We also expect to
generate limited revenues from the sales of nanoparticle products and fees
generated from development and testing services provided to potential licensors
of our titanium processing technology. As of March 7, 2003, we have no
commitments to provide additional financing for periods after April 30, 2003, to
purchase titanium dioxide nanoparticles or to license our titanium processing
technology.
We also expect to generate revenues through the licensing of our
titanium processing technology, specifically the pharmaceutical application of
the technology (i.e. RenaZorb(TM)) and the application of our technology for
large-scale titanium pigment production. With respect to large-scale titanium
pigment production, Altair has completed initial testing for a materials company
and has submitted a phase-two proposal for the economic evaluation of a
demonstration titanium dioxide pigment plant that could be expanded to a
full-scale plant with production capabilities of between 10-20 metric tons of
titanium dioxide pigment per year. If the phase-two proposal is accepted in some
form, Altair would expect to generate limited revenues in 2003 (but not
sufficient to cover monthly operating expenses) in exchange for the testing and
development work associated with the evaluation of a demonstration titanium
dioxide plant. A licensing agreement associated with a full-scale plant would be
expected to generate significant revenues in the long-term, but significant
up-front revenues from such an agreement are unlikely.
With respect to RenaZorb(TM), testing of this product using animals was
initiated in late 2002 and is expected to be completed during the first quarter
of 2003. Assuming that, consistent with the initial partial-results we have
received, such tests demonstrate the therapeutic potential of RenaZorb(TM) in
38
animal testing, we expect to be able to negotiate a license agreement with one
or more pharmaceutical companies during the first six months of 2003. Altair is
uncertain what the terms of such license agreement would be, but pharmaceutical
license agreements often involve up front or staged payments, in addition to
royalties once the drug is approved by the FDA and marketed. Based on our
understanding of terms of license agreements under similar circumstances, we
believe that up-front or early stage payments associated with such a license
agreement may be large enough to provide liquidity for Altair throughout 2003,
and even permit Altair to report one-time profitability during 2003. We can,
however, provide no assurance that we will enter into such a license agreement
or that such license agreement would involve any significant up-front payments.
If we are unable to enter into a license agreement with respect to RenaZorb(TM)
or another product during the first six months of 2003 (or otherwise consummate
a significant licensing or sale transaction), we will be forced to significantly
curtail our operations and expenses, and our ability to continue as a going
concern will be uncertain.
Critical Accounting Policies and Estimates
Management based the following discussion and analysis of our financial
condition and results of operations on our consolidated financial statements.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our critical accounting policies and estimates,
including those related to long-lived assets and stock-based compensation. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Company's future results of operations and cash flows.
o Long-lived assets. Our long-lived assets consist principally of
titanium processing assets, the intellectual property (patents and
patent applications) associated with it, and a building. At December
31, 2002, the carrying value of these assets was $8,475,732, or 94% of
total assets. We evaluate the carrying value of long-lived assets when
events or circumstances indicate that an impairment may exist. In our
evaluation, we estimate the net undiscounted cash flows expected to be
generated by the assets, and recognize impairment when such cash flows
will be less than the carrying values. Events or circumstances that
could indicate the existence of a possible impairment include
obsolescence of the technology, an absence of market demand for the
product, and/or continuing technology rights protection.
o Stock-Based Compensation. We have two stock option plans which provide
for the issuance of stock options to employees and service providers.
Although Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation," encourages entities to adopt
a fair-value-based method of accounting for stock options and similar
equity instruments, it also allows an entity to continue measuring
compensation cost for stock-based compensation using the
intrinsic-value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." We have elected to follow the accounting provisions of
APB 25 and to furnish the pro forma disclosures required under SFAS No.
123, but we also issue warrants and options to non-employees that are
recognized as expense when issued in accordance with the provisions of
SFAS No. 123. We calculate compensation expense under SFAS No. 123
using a modified Black-Scholes option pricing model. In so doing, we
estimate certain key variables used in the model. We believe the
estimates we use are appropriate and reasonable.
39
Results of Operations.
----------------------
Operating losses totaled $9,921,496 ($0.40 per share) for the 2002
fiscal year, $7,754,031 ($0.39 per share) for the 2001 fiscal year, and
$5,914,474 ($0.34 per share) for the 2000 fiscal year. Principal factors
contributing to the losses during these periods were the lack of substantial
revenues coupled with the incurrence of operating expenses.
Fiscal Year 2002 vs. 2001
During 2002, we generated $134,925 of revenues through sales of
titanium dioxide nanoparticles, lithium titanate nanoparticles and other
materials. Titanium dioxide nanoparticle sales included $62,073 sold to a
customer for use in commercial thermal spray applications. Revenues also
included $90,300 earned under a services agreement entered into with a materials
company in September 2002. Under the terms of the agreement, we are testing the
materials company's mineral concentrates in the production of titanium dioxide
pigments using our titanium processing technology. The testing is being
conducted over a five-month period and will generate total revenues of
approximately $100,000. Also included in revenues in 2002 was $28,270 earned
from a consulting project involving use of the jig to recover titanium dioxide
from pigment processing waste, and $40,972 of previously deferred revenues for
which product shipments were made and received by the customer in 2002.
During 2002, we suffered from a shortage of working capital which
forced us to reassess planned expenditures for our development projects. We
elected to concentrate our resources on the development of the titanium
processing technology and suspend development work on the Tennessee mineral
property and jig. We are currently making only minimal expenditures on the
Tennessee mineral property. As a result of this, expenditures for mineral
exploration and development have decreased from $930,777 in 2001 to $598,977 in
2002. This reduced level of expenditures will continue until we have adequate
working capital available to resume development. At present, we are unable to
determine a date when this may occur.
During 2002, our research and development ("R&D") efforts were directed
toward pharmaceuticals, the titanium pigment process, batteries, catalysts,
thermal spray coatings and fuel cells. R&D expense increased from $559,454 in
2001 to $587,137 in 2002, primarily as a result of increased staff time being
devoted to these R&D projects with a resulting decrease in time spent on
construction projects and administrative and general activities.
Professional services, which consist principally of legal, consulting
and audit expenses, increased from $593,088 in 2001 to $712,530 in 2002.
Consulting expenses increased from $238,000 in 2001 to $347,000 in 2002,
primarily as a result of our efforts to locate and secure additional financing.
Legal fees increased from $197,000 in 2001 to $235,000 in 2002, primarily as a
result of the preparation of regulatory filings and other documents associated
with financing activities and costs associated with patent applications. These
increases were partially offset by a decrease in audit expenses of $27,000.
40
During 2002, we reduced our general and administrative expenses as much
as possible in order to conserve cash. As a result, these expenses decreased by
$464,331 to $2,360,315 in 2002, compared to $2,824,646 in 2001. The major
components of general and administrative expenses that decreased in 2002 were:
o Investor relations - these expenses decreased by $283,000 (from
$336,000 to $53,000) due to a significant reduction in investor
relations programs.
o Rents - Our purchase of the building that we previously rented at 204
Edison Way in Reno, Nevada, and the relocation of staff from rented
office space to the purchased building resulted in a reduction of rents
expense by $67,000 (from $274,000 to $207,000).
o Sample costs - these decreased by $64,000 (from $173,000 to $109,000)
due to the purchase of raw materials in bulk quantities as opposed to
smaller lots, and less labor being required in sample production.
o Bank charges - these decreased by $28,000 (from $34,000 to $6,000) due
to a decrease in fees for a letter of credit associated with a term
note. The letter of credit was terminated in 2001.
o Stock options expense - this decreased by $105,000 (from $105,000 to
zero) due to a reduction in options granted.
o Other - expenses for such items as tools, operating supplies,
laboratory supplies and temporary labor decreased by $138,000 (from
$459,000 to $321,000) as a result of our efforts to reduce costs.
These decreases were partially offset by an increase in property taxes
of $87,000 (from $1,000 to $88,000), and an increase in property and liability
insurance expenses of $47,000 (from $96,000 to $143,000). In addition, salary
expense increased by $84,000 (from $1,143,000 to $1,227,000) due to a payment in
connection with an employment agreement.
In November 2002, we entered into a note amendment agreement with an
investor who held a $2,000,000 term note issued by us in December 2001. In
accordance with the terms of the note amendment agreement, we issued to the
investor 1,500,000 common shares and a warrant for 750,000 common shares in
return for a reduction in the principal balance of the note by $600,000 and
changes to certain terms contained in the prior note. We then issued to the
investor an amended term note in the amount of $1,400,000. Under generally
accepted accounting principles, the transaction is recorded as an extinguishment
of debt and the issuance of a new note. Accordingly, costs associated with the
issuance of the 1,500,000 common shares and warrant for 750,000 common shares,
together with the write off of costs incurred in the issuance of the prior note,
have been recorded as a loss on extinguishment of debt in the amount of
$914,667.
During the second quarter of 2002, due to a shortage of cash, we
elected to reduce expenditures on the Tennessee mineral property to a minimal
amount. As a result of this, development activities have been delayed, including
our intended use of the jig to enhance the recovery of heavy minerals on the
property. Since we cannot determine when adequate funds will be available to
further develop and utilize the jig, we have recorded an impairment of jig
assets in the amount of $2,759,956. This impairment charge had the effect of
reducing the jig assets' depreciable balance to zero, thereby terminating
further depreciation charges. As a result, depreciation and amortization expense
decreased by $140,500 to $997,708 in 2002 compared to $1,138,208 for 2001.
Interest expense decreased from $1,881,077 in 2001 to $1,151,388 in
2002 due principally to a reduction in the balance of our term note for much of
the year 2002.
41
During most of 2001, we had a restricted cash balance associated with
the term note of between $2,500,000 and $4,000,000 that was earning interest
income. In December 2001, we terminated the term note, transferred the
restricted cash to the holder of the note and issued a new term note in a lesser
amount. As a result of this, cash balances available for investment were
significantly reduced during 2002 and interest income declined from $148,980 in
2001 to $2,105 in 2002.
There are several recent pronouncements of the Financial Accounting
Standards Board that have or may have an effect on our reported results of
operations. See Note 2 of Notes to the Consolidated Financial Statements in Item
8 for a discussion of these pronouncements.
Fiscal Year 2001 vs. 2000
During 2001, we generated $42,816 of revenues through sales of titanium
dioxide nanoparticles, lithium titanate nanoparticles and other materials.
Titanium dioxide nanoparticle sales represented 70% of revenues during 2001 with
the primary application for this product being thermal spray coatings. Sales
revenues in 2001 included $16,985 of previously deferred revenues for which
product shipments were made in 2001.
Mineral exploration and development expenses decreased from $1,217,966
in 2000 to $930,777 in 2001. During 2000, we began construction of a mineral
processing pilot plant at the Tennessee mineral property. In connection with
such construction, we incurred $413,000 of costs for permitting, design and
construction of the plant site and ancillary facilities, and $388,000 for design
and fabrication of the processing equipment. During 2001, we incurred $188,000
of costs to complete construction of the pilot plant. This decline in
construction costs from 2000 to 2001 was partially offset by the incurrence of
operating costs at the plant.
Research and development expense decreased from $1,555,472 in 2000 to
$559,454 in 2001. On January 1, 2001, we hired fourteen former BHP employees who
had been involved in the development of the titanium processing technology that
we acquired from BHP in November 1999. When we acquired the titanium processing
technology, we entered into a services agreement with BHP under which we
obtained the services of these fourteen individuals, and certain other BHP
employees, for the period November 15, 1999 through December 31, 2000. In 2000,
the cost associated with this services agreement was $1,368,000 and was charged
to research and development expense. During 2001, of the $1,190,000 in total
salaries and overheads, $354,000 was allocated to research and development
expense, resulting in a decrease of $996,000 in research and development expense
in 2001 from 2000.
Professional services increased from $366,275 in 2000 to $593,088 in
2001. In the first quarter of 2001, we hired new auditors to audit our financial
statements. As a result of this, our audit fees increased from $26,000 in 2000
to $157,000 in 2001. We also experienced an increase in legal fees from $176,000
in 2000 to $198,000 in 2001, primarily as a result of preparation of regulatory
filings and other documents associated with financing activities. Consulting
expenses increased from $164,000 in 2000 to $238,000 in 2001, also as a result
of financing activities.
General and administrative expenses increased by $553,396 to $2,824,646
in 2001, compared to $2,271,250 in 2000. Salaries and overheads increased by
$820,000 to $1,268,000 in 2001, compared to $448,000 in 2000, as a result of
hiring the fourteen former BHP employees, the president of Altair Nanomaterials,
a marketing manager and a general counsel. With respect to the titanium
processing technology, we experienced an increase in expenses of $245,000 to
$610,000 in 2001, compared to $365,000 for 2000, for operating supplies, small
tools, maintenance, office supplies and production of product samples. Our
general corporate expenses decreased by $508,000 to $738,000 in 2001, compared
to $1,246,000 for 2000, principally due to a decrease in expense recognized for
options granted to employees and service providers.
42
Depreciation and amortization expense decreased by $98,196 to
$1,138,208 in 2001, compared to $1,236,404 for 2000, principally as a result of
lengthening the amortization periods of certain patents. The amortization
periods were extended to equal the patent lives.
On December 15, 2000, we and an investor entered into a Securities
Purchase Agreement pursuant to which we issued to the investor the 2000 Note and
a Warrant to purchase 350,000 common shares at an initial exercise price of
$3.00 at any time on or before December 15, 2005 (the "Warrant"). The 2000 Note,
Warrant and related rights were sold to the investor in exchange for $7,000,000
(less financing fees). Proceeds from the 2000 Note were allocated between the
2000 Note and the Warrant; the portion allocated to the Warrant resulted in a
discount on the 2000 Note which was being accreted to interest expense over the
term of the 2000 Note. Interest expense for 2001 was $1,881,077, compared to
interest expense of $215,216 in 2000. The increase results from interest expense
of $805,000 on the 2000 Note, amortization of the Warrant discount of $403,000,
amortization of debt issue costs of $100,000 and interest related to the
issuance of common shares as payment of principal and interest on the 2000 Note
of $301,000. In addition to this, interest expense of $240,000 was incurred
related to the estimated fair value of warrants issued to the investor in
exchange for the waiver of penalties that would have accrued due to late
effectiveness of the registration statement associated with the 2000 Note and
modification to the 2000 Note terms involving the redemption of exchange
amounts. At the same time, interest income increased in 2001 over 2000 due to
interest earned on the proceeds received from the 2000 Note.
The purchase price for the titanium processing technology that we
acquired from BHP was stated in Australian dollars and was payable in
installments through August 2000. During 2000, the United States dollar
strengthened against the Australian dollar resulting in a gain on foreign
exchange of $864,000.
Carrying Value of Assets
We have recorded our investments in the titanium processing technology
and titanium processing assets at actual cost. We depreciate such assets using
the straight-line method over their estimated useful life. The asset carrying
value is the actual cost less accumulated depreciation. We assess the carrying
values of these assets on a quarterly basis by comparing the projected
undiscounted cash flows to be generated by the assets to the carrying costs of
the assets. In order to determine the projected cash flows related to these
assets, we use the information and feedback obtained from prospective customers
together with general information as to product markets, competitive forces and
our production capability to arrive at assumptions with respect to sales volumes
and pricing. We next estimate costs of sales based on engineering analysis and
actual experience. Operating margins are then calculated based on these
assumptions and compared to the carrying cost of the assets. Delays in revenue
generation may make the recoverability of our assets less likely.
When we acquired the titanium processing technology and titanium
processing assets from BHP, the core technology for producing titanium dioxide
nanoparticles was completely developed, a pilot plant was under construction,
and we believed the titanium processing technology and titanium processing
assets had near-term commercial value. We expected to complete the pilot plant
as a processing facility and begin generating sales revenues through
nanoparticle product sales in 2000. We completed construction of the processing
facility, made a single small sale of nanoparticles in 2000, sold $42,816 of
nanoparticles in 2001 and sold $134,925 of nanoparticles in 2002, $62,073 of
which were sold for use in commercial thermal spray applications. In 2002, we
also earned $90,300 under a services agreement entered into with a materials
company. We are testing the materials company's mineral concentrates in the
43
production of titanium dioxide pigments using our titanium processing
technology. If the testing indicates that our technology has certain advantages
with respect to cost, product quality and/or processing efficiencies, we expect
to license it for use in the manufacture of titanium dioxide pigments. During
2002, we also initiated R&D work utilizing nanoparticles in the development of
pharmaceuticals. We subsequently developed RenaZorb(TM) for the treatment of
hyperphosphatemia in kidney dialysis patients. Testing of this product using
animals was begun in late 2002 and we are currently seeking business
relationships with pharmaceutical companies that can conduct additional testing
and development, seek necessary FDA approvals and take the other steps necessary
to bring the new product to market. If testing is successful, we expect to
license RenaZorb(TM) to a pharmaceutical manufacturer. We presently estimate
that cash flows from future nanoparticle sales and fees from licensing the
titanium processing technology and RenaZorb(TM) will be in excess of the
carrying value of the assets. However, the delay in sales, combined with cash
outlays for construction and operation, has affected our current cash position
and financing plans as more fully described in "Liquidity and Capital Resources"
above.
As discussed above in "Results of Operations - Fiscal Year 2002 vs.
2001", a cash shortage during 2002 required that we delay development of the
Tennessee mineral property and jig. Since we could not determine when adequate
funds would be available to further develop and utilize the jig, we recorded an
impairment of jig assets in the amount of $2,759,956. This impairment charge had
the effect of reducing the jig assets' carrying cost to zero.
Item 8. Financial Statements and Supplementary Data.
Supplementary Data. The following Supplementary Financial Information
for the fiscal quarters ended March 31, June 30, September 30 and December 31 in
each of the years 2001 and 2002 were derived from our unaudited quarterly
consolidated financial statements filed by us with the SEC in our Quarterly
Reports on Form 10-Q with respect to such periods (except for 4th quarter data
which was determined by comparing annual financial data with 3rd quarter
financial data).
Supplementary Financial Information by Quarter, 2002 and 2001
(Unaudited)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31 June 30 September 30 December 31
Year Ended December 31, 2002:
Sales $ 48,937 $ 4,734 $ 45,089 $ 154,735
Gross Margin $ 18,762 $ 3,583 $ 28,387 $ 109,180
Net Loss $ 1,679,531 $4,588,254 $ 1,531,005 $ 2,122,706
Loss per Common Share: (1)
Basic and Diluted $ 0.07 $ 0.19 $ 0.06 $ 0.08
Year Ended December 31, 2001:
Sales None None None $ 42,816
Gross Margin None None None $ 18,175
Net Loss $ 1,903,774 $2,335,304 $ 1,600,556 $ 1,914,397
Loss per Common Share: (1)
Basic and Diluted $ 0.10 $ 0.12 $ 0.08 $ 0.09
44
(1) Loss per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly loss per common share amounts
does not necessarily equal the total for the year.
Financial Statements. The financial statements required by this Item
appear on pages F-1 through F-26 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the section entitled "Election of Directors" in the Company's definitive proxy
statement to be filed with the Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's definitive proxy
statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive proxy statement to be filed with the
Commission.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement to be filed with the Commission.
Item 14. Controls and Procedures
a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-14(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on this
evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures are
effective in alerting them on a timely basis to material information
relating to our Company (including its consolidated subsidiaries)
required to be included in our reports filed or submitted under the
Exchange Act.
45
b) There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referenced in
paragraph (a) above.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed
---------------
1. Financial Statements. The following Consolidated Financial
Statements of the Company and Auditors' Report are filed as part of this Annual
Report on Form 10-K:
o Independent Auditors' Report of Deloitte & Touche LLP
o Consolidated Balance Sheets, December 31, 2002 and 2001
o Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 2002 and for the Period from April
9, 1973 (Date of Inception) to December 31, 2002
o Consolidated Statements of Shareholders' Equity from April 9, 1973
(Date of Inception) to December 31, 2002
o Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 2002 and for the Period from April
9, 1973 (Date of Inception) to December 31, 2002
o Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Not applicable.
3. Exhibit List
Exhibit No. Description Incorporated by Reference/
Filed Herewith (and Sequential Page #)
Incorporated by reference to the Current
3.1 Articles of Continuance Report on Form 8-K filed with the SEC on July
18, 2002.
3.2 Bylaw No. 1
Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on
July 18, 2002.
46
Exhibit No. Description Incorporated by Reference/
Filed Herewith (and Sequential Page #)
Incorporated by reference to Registration
4.1 Form of Common Stock Certificate Statement on Form 10-SB filed with the
Commission on November 25, 1996, File No.
1-12497.
Incorporated by reference to the Company's
Amended and Restated Shareholder Rights Current Report on Form 8-K filed with the
4.2 Plan dated October 15, 1999, between the Commission on November 19, 1999, File No.
Company and Equity Transfer Services, Inc. 1-12497.
Incorporated by reference to the Company's
Employment Agreement between Altair Annual Report on Form 10-K filed with the
10.1 International Inc. and William P. Long Commission on March 31, 1998, as amended by
dated January 1, 1998 Amendment No. 1 to Annual Report on Form
10-K/A filed on May 15, 1998.
Employment Agreement between Fine Gold Incorporated by reference to Registration
10.2 Recovery Systems Inc. and C. Patrick Costin Statement on Form 10-SB filed with the
dated August 15, 1994 Commission on November 25, 1996.
10.3 Altair International Inc. Stock Option Plan Incorporated by reference to the Company's
adopted by shareholders on May 10, 1996 Registration Statement on Form S-8 filed with
the Commission on July 11, 1997.
1998 Altair International Inc. Stock Option
10.4 Plan adopted by Shareholders on June 11, Incorporated by reference to the Company's
1998 Definitive Proxy Statement on Form 14A filed
with the Commission on May 12, 1998.
Incorporated by reference to the Company's
10.5 2002 Employee Wage Stock Purchase Plan Registration Statement on Form S-8, File No.
333-99099, filed with the Commission on
September 3, 2002.
Incorporated by reference to the Company's
Annual Report on Form 10-K filed with the
10.6 Form of Mineral Lease Commission on March 31, 1998, as amended by
Amendment No. 1 to Annual Report on Form
10-K/A filed on May 15, 1998.
Incorporated by reference to the Company's
10.7 Purchase and Sale Agreement dated August 8, Amendment No. 1 to Registration Statement on
2002 between the Company and BHP Minerals Form S-2, File No. 333-102592, filed with the
International Inc. (re Edison Way property) Commission on February 7, 2003.
Incorporated by reference to the Company's
Amendment No. 1 to Registration Statement on
10.8 Installment Note dated August 8, 2002 (re Form S-2, File No. 333-102592, filed with the
Edison Way property) Commission on February 7, 2003.
47
Exhibit No. Description Incorporated by Reference/
Filed Herewith (and Sequential Page #)
10.9 Trust Deed dated August 8, 2002 (re Edison Incorporated by reference to the Company's
Way property) Amendment No. 1 to Registration Statement on
Form S-2, File No. 333-102592, filed with the
Commission on February 7, 2003.
10.10 Note Amendment Agreement dated November 21, Incorporated by reference to the Company's
2002 Current Report on Form 8-K filed with the
Commission on November 27, 2002.
Second Amended and Restated Secured Term Incorporated by reference to the Company's
10.11 Note dated November 21, 2002 Amendment No. 1 to Current Report on Form 8-K
filed with the Commission on December 4, 2002,
File No. 1-12497.
Stock Pledge Agreement dated December 15, Incorporated by reference to the Company's
10.12 2000 (Mineral Recovery Systems common Current Report on Form 8-K filed with the
stock). Commission on December 26, 2000.
Incorporated by reference to the Company's
10.13 Stock Pledge Agreement dated December 15, Current Report on Form 8-K filed with the
2000 (Altair Technologies common stock). Commission on December 26, 2000.
10.14 First Amendment to Stock Pledge Agreement Incorporated by reference to the Company's
Current Report on Form 8-K filed with the SEC
on January 4, 2002.
23.1 Consent of Deloitte & Touche LLP Filed herewith.
24 Powers of Attorney Included in the Signature Page hereof.
99.1 Certification of Chief Executive Officer Filed herewith
99.2 Certification of Chief Financial Officer Filed herewith
(b) Reports on Form 8-K
-------------------
We filed a Current Report on Form 8-K on November 27, 2002 in which we
(i) reported the partial prepayment and amendment of the $2,000,000 Secured Term
Note dated December 28, 2001 and related transactions, (ii) filed, among other
exhibits, an amended and restated note, and (iii) in order to satisfy certain
requirements related to our listing on the Nasdaq SmallCap Market, provided a
proforma balance sheet as of October 31, 2002 showing shareholders' equity in
excess of $5 million.
We filed a Current Report on Form 8-K/A on December 4, 2002 in order to
file a second amended and restated note which superceded and replaced the first
amended and restated note filed with the Form 8-K on November 27, 2002. The
second amended and restated note contained a new provision regarding conversion
rights of the holder, and a covenant by us to submit the second amended and
restated note for approval by shareholders at the next annual meeting.
48
(c) Exhibits
Exhibits to this Report are attached following page F-26
hereof.
(d) Financial Statement Schedule. Not applicable.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 14, 2003.
ALTAIR NANOTECHNOLOGIES INC.
By: /s/ William P. Long
----------------------------------------
William P. Long,
Chief Executive Officer
Date: March 14, 2003
POWER OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature to this Form 10-K appears below
hereby constitutes and appoints William P. Long and Edward Dickinson, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form 10-K
or the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William P. Long Chief Executive Officer and March 14, 2003
---------------------------
William P. Long Director (Principal Executive
Officer)
/s/ Edward Dickinson Chief Financial Officer, March 14, 2003
---------------------------
Edward Dickinson Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ James I. Golla Director March 14, 2003
---------------------------
James I. Golla
/s/ George Hartman Director March 14, 2003
---------------------------
George Hartman
/s/ Robert Sheldon Director March 14, 2003
---------------------------
Robert Sheldon
50
CERTIFICATIONS
I, William P. Long, certify that:
1. I have reviewed this annual report on Form 10-K of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003 /s/ William P. Long
--------------------------------------------
William P. Long, Chief Executive Officer
51
I, Edward Dickinson, certify that:
1. I have reviewed this annual report on Form 10-K of Altair
Nanotechnologies Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003 /s/ Edward Dickinson
----------------------------------------------
Edward Dickinson, Chief Financial Officer.
52
Altair Nanotechnologies Inc.
and Subsidiaries
(An Exploration Stage Company)
Consolidated Financial Statements as of December 31, 2002 and 2001 and for
Each of the Three Years in the Period Ended December 31, 2002 and for the
Period from April 9, 1973 (Date of Inception) to December 31, 2002 and
Independent Auditors' Report
53
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
TABLE OF CONTENTS
-------------------------------------------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 31, 2002 and 2001 F-2
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 2002 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2002 F-3
Consolidated Statements of Shareholders' Equity for the Period from April 9, 1973
(Date of Inception) to December 31, 2002 F-4 - F-7
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2002 and for the Period from April 9, 1973
(Date of Inception) to December 31, 2002 F-8 - F-11
Notes to Consolidated Financial Statements F-12 - F-26
54
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Altair Nanotechnologies Inc.
Reno, Nevada
We have audited the accompanying consolidated balance sheets of Altair
Nanotechnologies Inc. (an exploration stage company) and subsidiaries
(collectively referred to as the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002,
and for the period from April 9, 1973 (date of inception) to December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The Company's consolidated financial
statements for the period from April 9, 1973 (date of inception) to December 31,
1997 were audited by other auditors whose report, dated February 17, 2000,
expressed an unqualified opinion on those statements. The financial statements
for the period from April 9, 1973 (date of inception) through December 31, 1997
reflect a net loss of $7,350,462 of the related totals. The other auditors'
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for such prior periods, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, and for the period from April 9, 1973 (date of
inception) to December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is an exploration
stage enterprise engaged principally in the business of developing and
commercializing ceramic oxide nanoparticle products. As discussed in Note 1 to
the consolidated financial statements, the Company's operating losses raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. In addition, because the Company is still in the
exploration stage, there have been no adjustments to record potential
impairments on long-term assets that are currently being developed.
/s/ DELOITTE & TOUCHE, LLP
----------------------
Salt Lake City, Utah
March 11, 2003
F-1
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
(Expressed in United States Dollars)
-------------------------------------------------------------------------------
ASSETS 2002 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 244,681 $ 599,884
Accounts receivable, net 132,859 4,154
Other current assets 22,598 29,497
------------ ------------
Total current assets 400,138 633,535
PROPERTY, PLANT, AND EQUIPMENT, Net 7,349,818 5,987,950
PATENTS AND RELATED EXPENDITURES, Net 1,146,249 3,739,864
OTHER ASSETS 18,200 491,894
------------ ------------
TOTAL ASSETS $ 8,914,405 $ 10,853,243
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 455,246 $ 373,690
Accrued liabilities 149,257 154,715
Loans payable--related parties -- 143,000
Capital lease obligations--current portion -- 2,312
Deferred revenue -- 40,972
------------ ------------
Total current liabilities 604,503 714,689
------------ ------------
NOTES PAYABLE, Long-term portion 3,905,040 1,462,060
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 6, 7, 8, 9, 10, and 11)
SHAREHOLDERS' EQUITY:
Common stock, no par value, unlimited shares authorized;
30,244,348 and 22,694,142 shares issued and outstanding
at December 31, 2002 and 2001 43,787,850 38,089,320
Deficit accumulated during the development stage (39,382,988) (29,412,826)
------------ ------------
Total shareholders' equity 4,404,862 8,676,494
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,914,405 $ 10,853,243
============ ============
See notes to the consolidated financial statements.
F-2
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
-------------------------------------------- December 31,
2002 2001 2000 2002
------------ ------------ ------------ ------------
SALES $ 253,495 $ 42,816 $ -- $ 296,311
COST OF SALES 93,583 18,175 -- 111,758
------------ ------------ ------------ ------------
GROSS MARGIN 159,912 24,641 -- 184,553
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Mineral exploration and development 598,977 930,777 1,217,966 6,517,642
Research and development 587,137 559,454 1,555,472 3,716,096
Professional services 712,530 593,088 366,275 3,276,442
General and administrative expenses 2,360,315 2,824,646 2,271,250 14,207,797
Depreciation and amortization 997,708 1,138,208 1,236,404 5,515,122
Asset impairment 2,759,956 -- -- 2,759,956
------------ ------------ ------------ ------------
Total operating expenses 8,016,623 6,046,173 6,647,367 35,993,055
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS 7,856,711 6,021,532 6,647,367 35,808,502
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 1,151,388 1,881,077 215,216 4,535,339
Interest income (2,105) (148,980) (83,440) (815,945)
Loss (gain) on foreign exchange 835 402 (864,669) (557,942)
Loss on extinguishment of debt 914,667 -- -- 914,667
Gain on forgiveness of debt -- -- -- (795,972)
Loss on redemption of convertible debentures -- -- -- 193,256
------------ ------------ ------------ ------------
Total other expense (income), net 2,064,785 1,732,499 (732,893) 3,473,403
------------ ------------ ------------ ------------
NET LOSS 9,921,496 7,754,031 5,914,474 39,281,905
PREFERENTIAL WARRANT DIVIDEND 48,666 52,417 -- 101,083
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO SHAREHOLDERS $ 9,970,162 $ 7,806,448 $ 5,914,474 $ 39,382,988
============ ============ ============ ============
LOSS PER COMMON SHARE--Basic and diluted $ 0.40 $ 0.39 $ 0.34 $ 4.82
============ ============ ============ ============
WEIGHTED AVERAGE SHARES--Basic and diluted 24,975,837 20,063,473 17,371,214 8,164,811
============ ============ ============ ============
See notes to the consolidated financial statements.
F-3
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
------------------------ Subscription Development
Shares Amount Receivable Stage Total
---------- ---------- ---------- ---------- ----------
APRIL 9, 1973 (DATE OF INCEPTION) -- $ -- $ -- $ -- $ --
Common stock issued 101,668 387,073 -- -- 387,073
Net loss -- -- -- (361,572) (361,572)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1984 101,668 387,073 -- (361,572) 25,501
Common stock issued 40,000 240,770 -- -- 240,770
Common stock issued for management fees 1,280 7,004 -- -- 7,004
Net loss -- -- -- (78,606) (78,606)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1985 142,948 634,847 -- (440,178) 194,669
Common stock issued for property 3,333 18,058 -- -- 18,058
Acquisition of subsidiary 780,000 44,551 -- -- 44,551
Common stock issued for underwriter bonus 4,000 1 -- -- 1
Net loss -- -- -- (210,667) (210,667)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1986 930,281 697,457 -- (650,845) 46,612
Common stock issued for property 6,667 8,027 -- -- 8,027
Flow through shares 298,650 463,301 -- -- 463,301
Common stock issued for rights offering 257,822 253,947 -- -- 253,947
Net loss -- -- -- (696,642) (696,642)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1987 1,493,420 1,422,732 -- (1,347,487) 75,245
Common stock issued for services 16,667 14,592 -- -- 14,592
Common stock issued 16,667 14,592 -- -- 14,592
Common stock issued in settlement of debt 233,333 51,073 -- -- 51,073
Net loss -- -- -- (149,316) (149,316)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1988 1,760,087 1,502,989 -- (1,496,803) 6,186
Common stock issued 127,500 75,058 -- -- 75,058
Common stock issued in settlement of lawsuit 41,667 22,800 -- -- 22,800
Net loss -- -- -- (151,372) (151,372)
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1989 1,929,254 1,600,847 -- (1,648,175) (47,328)
---------- ---------- ---------- ---------- ----------
(Continued)
F-4
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
------------------------ Subscription Development
Shares Amount Receivable Stage Total
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1989 1,929,254 $ 1,600,847 $ -- $(1,648,175) $ (47,328)
Common stock issued 133,333 218,882 -- -- 218,882
Exercise of stock options 33,333 18,240 -- -- 18,240
Common stock issued for property 11,666 11,674 -- -- 11,674
Common stock issued for services 13,333 21,888 -- -- 21,888
Net loss -- -- -- (230,125) (230,125)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1990 2,120,919 1,871,531 -- (1,878,300) (6,769)
Common stock issued 266,667 196,994 -- -- 196,994
Common stock issued for property 28,333 17,146 -- -- 17,146
Net loss -- -- -- (258,209) (258,209)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1991 2,415,919 2,085,671 -- (2,136,509) (50,838)
Common stock issued 1,086,753 443,237 -- -- 443,237
Common stock issued for property 115,000 49,249 -- -- 49,249
Common stock issued for settlement of debt 55,177 24,155 -- -- 24,155
Net loss -- -- -- (353,665) (353,665)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1992 3,672,849 2,602,312 -- (2,490,174) 112,138
Common stock issued 48,000 36,393 -- -- 36,393
Common stock issued for property 46,667 55,012 -- -- 55,012
Net loss -- -- -- (193,323) (193,323)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 3,767,516 2,693,717 -- (2,683,497) 10,220
Common stock issued 600,000 131,329 -- -- 131,329
Common stock issued for shares of subsidiary 750,000 257,187 -- -- 257,187
Common stock issued for royalties 83,333 33,641 -- -- 33,641
Net loss -- -- -- (227,860) (227,860)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 5,200,849 3,115,874 -- (2,911,357) 204,517
Common stock issued 2,700,000 875,529 -- -- 875,529
Exercise of stock options 247,000 53,553 -- -- 53,553
Exercise of stock warrants 350,000 171,458 -- -- 171,458
Net loss -- -- -- (424,109) (424,109)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 8,497,849 4,216,414 -- (3,335,466) 880,948
----------- ----------- ----------- ----------- -----------
(Continued)
F-5
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
-------------------------- Subscription Development
Shares Amount Receivable Stage Total
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1995 8,497,849 $ 4,216,414 $ -- $ (3,335,466) $ 880,948
Common stock issued 554,027 1,637,307 -- -- 1,637,307
Exercise of stock options 702,000 526,850 -- -- 526,850
Exercise of stock warrants 3,012,463 2,471,219 -- -- 2,471,219
Stock options issued to non-employees -- 285,503 -- -- 285,503
Common stock issued for acquisition of TMI 1,919,957 2,521,469 -- -- 2,521,469
Net loss -- -- -- (1,032,903) (1,032,903)
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1996 14,686,296 11,658,762 -- (4,368,369) 7,290,393
Exercise of stock options 362,500 1,530,406 -- -- 1,530,406
Stock options issued to non-employees -- 528,555 -- -- 528,555
Stock options issued to employees -- 62,800 -- -- 62,800
Exercise of stock warrants 443,949 1,038,788 -- -- 1,038,788
Net loss -- -- -- (2,982,093) (2,982,093)
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1997 15,492,745 14,819,311 -- (7,350,462) 7,468,849
Stock options issued to non-employees -- 841,944 -- -- 841,944
Stock options issued to employees -- 15,420 -- -- 15,420
Common stock cancelled (723,065) -- -- -- --
Common stock issued for convertible debenture 387,735 3,061,444 -- -- 3,061,444
Exercise of stock options 17,500 113,664 -- -- 113,664
Net loss -- -- -- (4,651,576) (4,651,576)
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1998 15,174,915 18,851,783 -- (12,002,038) 6,849,745
Stock options issued to non-employees -- 765,386 -- -- 765,386
Common stock issued 300,000 1,862,500 -- -- 1,862,500
Net loss -- -- -- (3,689,866) (3,689,866)
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1999 15,474,915 21,479,669 -- (15,691,904) 5,787,765
Stock options issued to non-employees -- 424,063 -- -- 424,063
Stock subscription receivable -- -- (561,300) -- (561,300)
Stock warrants issued -- 1,245,050 -- -- 1,245,050
Exercise of stock options 71,300 335,778 -- -- 335,778
Common stock issued 3,779,273 8,904,029 -- -- 8,904,029
Net loss -- -- -- (5,914,474) (5,914,474)
---------- ---------- -------- ----------- ----------
BALANCE, DECEMBER 31, 2000 19,325,488 32,388,589 (561,300) (21,606,378) 10,220,911
---------- ---------- -------- ----------- ----------
(Continued)
F-6
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Stock During the
---------------------------- Subscription Development
Shares Amount Receivable Stage Total
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 19,325,488 $ 32,388,589 $ (561,300) $(21,606,378) $ 10,220,911
Stock options issued to non-employees -- 158,089 -- -- 158,089
Stock subscription receivable -- -- 561,300 -- 561,300
Stock warrants issued -- 776,469 -- -- 776,469
Preferential warrant dividend -- 52,417 -- (52,417) --
Shares issued for settlement of debt 824,800 1,220,423 -- -- 1,220,423
Exercise of stock options 65,000 130,000 -- -- 130,000
Common stock expired (266,170) -- -- -- --
Exercise of warrants 713,333 713,333 -- -- 713,333
Common stock issued 2,031,691 2,650,000 -- -- 2,650,000
Net loss -- -- -- (7,754,031) (7,754,031)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2001 22,694,142 38,089,320 -- (29,412,826) 8,676,494
Stock options issued to non-employees -- 27,601 -- -- 27,601
Shares issued under Employee Stock
Purchase Plan 161,550 92,183 -- -- 92,183
Stock warrants issued -- 347,773 -- -- 347,773
Preferential warrant dividend -- 48,666 -- (48,666) --
Shares issued for settlement of debt 1,500,090 975,000 -- -- 975,000
Shares issued for interest 299,304 292,208 -- -- 292,208
Shares issued for services 400,000 279,500 -- -- 279,500
Exercise of warrants 286,169 300,477 -- -- 300,477
Common stock issued 4,903,093 3,335,122 -- -- 3,335,122
Net loss -- -- -- (9,921,496) (9,921,496)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2002 30,244,348 $ 43,787,850 $ -- $(39,382,988) $ 4,404,862
========== ============ ============ ============ ============
(Concluded)
See notes to consolidated financial statements.
F-7
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
-------------------------------------------- December 31,
2002 2001 2000 2002
------------ ------------ ------------ ------------
CASH FLOWS FROM EXPLORATION ACTIVITIES:
Net loss $ (9,921,496) $ (7,754,031) $ (5,914,474) $(39,281,905)
Adjustments to reconcile net loss to net cash used
in exploration activities:
Depreciation and amortization 997,708 1,138,208 1,236,404 5,515,122
Shares issued for services 203,500 -- -- 303,426
Shares issued for interest 292,208 819,755 -- 1,116,035
Issuance of stock options to non-employees 27,601 158,089 424,063 3,031,141
Issuance of stock options to employees -- -- -- 78,220
Issuance of stock warrants 108,556 396,123 420,182 924,861
Amortization of discount on note payable 384,616 403,021 12,052 799,689
Amortization of debt issuance costs 404,567 100,000 -- 504,567
Asset impairment 2,759,956 -- -- 2,759,956
Loss on extinguishment of debt 914,667 -- -- 914,667
Loss on redemption of convertible debenture -- -- -- 193,256
Gain on forgiveness of debt -- -- -- (795,972)
Loss on disposal of fixed assets -- -- -- 1,945
Loss (gain) on foreign currency translation -- 402 (864,669) (559,179)
Deferred financing costs written off -- -- -- 515,842
Changes in assets and liabilities (net of effects
of acquisition):
Restricted cash -- 4,000,000 (4,000,000) --
Accounts receivable (128,705) (4,154) -- (132,859)
Other current assets 6,899 18,170 990,579 1,712,000
Other assets (2,000) 886 (169,606) (170,720)
Accounts payable 81,556 369,763 (75,161) 340,747
Accrued liabilities (5,458) -- -- (5,458)
Deferred revenue (40,972) (16,985) 57,957 --
------------ ------------ ------------ ------------
Net cash used in exploration activities (3,916,797) (370,753) (7,882,673) (22,234,619)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Asset acquisition -- -- -- (2,422,417)
Purchase of property and equipment (2,525,916) (158,296) (226,612) (3,661,425)
Disposal (purchase) of patents and related expenditures -- 5,933 -- (1,882,187)
------------ ------------ ------------ ------------
Net cash used in investing activities (2,525,916) (152,363) (226,612) (7,966,029)
------------ ------------ ------------ ------------
(Continued)
F-8
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002 AND
FOR THE PERIOD FROM APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
Period April 9,
1973 (Date of
Year Ended December 31, Inception) to
-------------------------------------------- December 31,
2002 2001 2000 2002
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares for cash, net of issuance costs $ 3,335,122 $ 2,650,000 $ 8,904,029 $ 21,508,781
Collection of stock subscription receivable -- 561,300 -- 561,300
Issuance of shares under Employee Stock Purchase Plan 92,183 -- -- 92,183
Issuance of convertible debenture -- -- -- 5,000,000
Proceeds from exercise of stock options -- 130,000 335,778 2,708,491
Proceeds from exercise of warrants 300,477 713,333 -- 4,917,805
Issuance of related party notes 6,243 168,000 -- 174,243
Issuance of notes payable 2,505,040 -- 7,000,000 9,505,040
Payment of notes payable -- (4,385,599) (6,498,931) (11,120,816)
Payment of related party notes (149,243) (25,000) -- (174,243)
Payment on capital lease (2,312) (24,763) -- (27,075)
Purchase of call options -- -- (449,442) (449,442)
Redemption of convertible debentures -- -- -- (2,250,938)
------------ ------------ ------------ ------------
Net cash (used in) provided by financing activities 6,087,510 (212,729) 9,291,434 30,445,329
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (355,203) (735,845) 1,182,149 244,681
CASH AND CASH EQUIVALENTS, Beginning of period 599,884 1,335,729 153,580 None
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 244,681 $ 599,884 $ 1,335,729 $ 244,681
============ ============ ============ ============
Year Ended December 31,
---------------------------------
2002 2001 2000
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ -- $ 386,557 $ 85,929
============ ============ ============
Cash paid for income taxes $ -- $ -- $ --
============ ============ ============
F-9
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
-------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended December 31, 2002:
o We issued 50,000 common shares in payment of financing fees associated with
the Doral 18, LLC 2001 Note. The common shares had a fair value of $76,000
which was recorded as debt issuance cost on the balance sheet.
o In connection with the extinguishment of the Doral 18, LLC 2001 Note, we
issued 1,500,000 shares of our common stock to reduce our note payable
balance by $600,000. We also issued to Doral 18, LLC a warrant for 750,000
common shares that had a fair value of $239,217, as determined by the
Black-Scholes pricing model. As a result of this transaction, we recorded a
loss on extinguishment of debt of $914,667.
o We entered into a note payable with BHP with a face amount of $3,000,000.
There is no interest due on the note for the first 36 months. As a result,
we imputed the interest and reduced the face amount of the note payable by
$566,763. The imputed interest expense for the period was $71,803.
o We repriced warrants, held by a shareholder, for 582,500 common shares. The
repriced warrants have an incremental fair value of $48,666 and have been
accounted for as a preferential warrant dividend.
For the year ended December 31, 2001:
o In connection with amendments to the Doral 18, LLC 2000 Note, we issued
warrants for 300,000 shares of common stock. The warrants had an estimated
fair value of $346,354 of which $239,562 has been amortized into interest
expense during the year ended December 31, 2002. The remaining amount will
be recognized over the life of the note.
o We cancelled call options on 228,456 shares of our common stock to pay
$97,743 of principal and $244,941 of interest on the Doral 18, LLC 2000
Note. In addition, the cancellation of the call options resulted in an
additional interest expense of $210,568.
o In accordance with the terms of our Doral 18, LLC 2000 Note, we paid
$644,804 of principal and $273,731 of interest through the issuance of
824,800 shares of our common stock. In addition, the conversion of the note
resulted in an additional interest expense of $301,888.
o We repriced warrants, held by a shareholder, for 713,333 common shares. The
repriced warrants have an incremental fair value of $52,417 and have been
accounted for as a preferential warrant dividend.
o In connection with the 2001 Note issued to Doral 18, LLC, we issued
warrants for 200,000 common shares. The warrants had an estimated fair
value of $74,733. We also repriced existing warrants for 650,000 common
shares from $3.00 per share to $1.50 per share. The repriced warrants have
an incremental fair value of $199,222.
f-10
(Continued)
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
-------------------------------------------------------------------------------
For the year ended December 31, 2000:
o We entered into a capital lease obligation of $46,395 for laboratory
equipment.
o We issued 1,003,626 shares of common stock as part of a repricing
agreement.
o We recorded a stock subscription receivable for 165,000 shares of common
stock with an investor.
o In conjunction with the Doral 18, LLC note, we issued warrants to purchase
350,000 common shares at $3.00 per share. The warrants had an estimated
fair value of $824,900.
o We cancelled call options on 19,222 shares of our common stock to pay
$18,221 of interest on the 2000 Note.
See notes to consolidated financial statements. (Concluded)
F-11
ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000,
AND FOR THE PERIOD APRIL 9, 1973 (DATE OF INCEPTION) TO DECEMBER 31, 2002
(Expressed in United States Dollars)
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business--Altair Nanotechnologies Inc. is incorporated in
Canada and is engaged in the business of (1) developing and
commercializing ceramic oxide nanoparticle products, (2) exploring and
developing mineral properties in the United States, and (3) developing
mineral processing equipment (a centrifugal jig) for use in the recovery
of fine and heavy mineral particles. During 2002, we experienced a
shortage of working capital. As a result, we concentrated our limited
resources on the development of nanoparticle products, reduced our
expenditures on the mineral properties to a minimal level and stopped
development of the centrifugal jig. Our authorized capital stock is
comprised of an unlimited number of common shares with no par value.
Principles of Consolidation--The consolidated financial statements include
the accounts of Altair Nanotechnologies Inc. and its subsidiaries which
include (1) Mineral Recovery Systems, Inc. (MRS), (2) Fine Gold Recovery
Systems, Inc. (FGRS), (3) Altair Nanomaterials, Inc. (ANI), and (4)
Tennessee Valley Titanium, Inc. (TVT), (collectively referred to as the
"Company"), all of which are 100% owned. Intercompany transactions and
balances have been eliminated in consolidation.
Basis of Presentation--The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. As shown in the consolidated financial statements for
the years ended December 31, 2002, 2001, and 2000, we incurred net losses
of $9,921,496, $7,754,031, and $5,914,474, respectively, and since the
date of inception have incurred cumulative losses of $39,281,905. At
December 31, 2002 and 2001, we had stockholder's equity of $4,404,862 and
$8,676,494, respectively. At December 31, 2002, current liabilities
exceeded current assets by $204,365. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going
concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern. Our
continuation as a going concern is dependent upon our ability to generate
sufficient cash flow to meet our obligations on a timely basis, to obtain
additional financing or refinancing as may be required, to develop
commercially viable products and processes, and ultimately to establish
successful operations. We are in the process of developing and
commercializing ceramic oxide nanoparticle products. We have financed
operations primarily through the issuance of equity securities (common
stock, convertible debentures, stock options and warrants), and by the
issuance of debt (term notes). Additional funds will be required to
complete development activities. We believe that current working capital,
cash receipts from anticipated sales, and funding through sales of common
stock will be sufficient to enable us to continue as a going concern.
F-12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates--The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents--Cash and cash equivalents are highly liquid
investments with an original maturity of three months or less. Cash
equivalents are recorded at cost, which approximates fair value.
Accounts Receivable--Accounts receivable consists of amounts due from
customers for sales of products and services, net of an allowance for
losses of $3,203 and $0 at December 31, 2002 and 2001, respectively.
Property, Plant, and Equipment--Property, plant, and equipment are stated
at cost less accumulated depreciation. Depreciation is recorded using the
straight-line method over the following useful lives:
Furniture and office equipment 3-7 years
Vehicles 5 years
Pigment production equipment 5-10 years
Building 30 years
Patents and Related Expenditures--Patents related to the pigment
production technology are carried at cost and amortized on a straight-line
basis over their estimated useful lives, which range from 14 to 20 years.
Exploration--Expenditures incurred in the search for mineral deposits and
the determination of the commercial viability of such deposits are charged
to expense as incurred.
Research and Development Expenditures--Research and development
expenditures are charged to expense as incurred.
Debt Issuance Costs--Debt issuance costs are recorded at cost and
amortized over the life of the note payable. Debt issuance costs were $0
and $475,694 at December 31, 2002 and 2001, respectively.
Foreign Currency Translation--Asset and liability accounts, which are
originally recorded in the appropriate local currencies, are translated
into U.S. dollars at year-end exchange rates. Revenue and expense accounts
are translated at the average exchange rates for the period. Transaction
gains and losses are included in the accompanying consolidated statements
of operations. Substantially all of our assets are located in the United
States of America.
Stock-Based Compensation--We have elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and to furnish the pro forma
disclosures required under Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation."
F-13
To estimate compensation expense that would be recognized under SFAS 123,
we have used the modified Black-Scholes option pricing model. If we had
accounted for our stock options using the accounting method prescribed by
SFAS 123, our net loss and loss per share would be as follows:
2002 2001 2000
Net loss (both basic and diluted):
As reported $ 9,921,496 $ 7,754,031 $ 5,914,474
Deduct: stock-based employee compensation
expense included in reported net income,
net of related tax effects -- -- --
Add: stock-based employee compensation
expense determined under value based
method for all awards, net of related tax
effects 235,823 1,474,690 3,723,135
Pro forma net loss 10,157,319 9,228,721 9,637,609
Loss per common share (both basic and diluted):
As reported 0.40 0.39 0.34
Pro forma 0.41 0.46 0.56
In calculating pro forma compensation, the fair value of each stock option
is estimated on the date of grant using the Black-Scholes option-pricing
model and the following weighted average assumptions:
2002 2001 2000
Dividend yield None None None
Expected volatility 67% 81% 93%
Risk-free interest rate 2.19% 4.76% 6.40%
Expected life (years) 1.8 5.0 4.6
Long-Lived Assets--We evaluate the carrying value of long-term assets,
including intangibles, when events or circumstance indicate the existence
of a possible impairment, based on projected undiscounted cash flows, and
recognize impairment when such cash flows will be less than the carrying
values. Measurement of the amounts of impairments, if any, is based upon
the difference between carrying value and fair value. Events or
circumstances that could indicate the existence of a possible impairment
include obsolescence of the technology, an absence of market demand for
the product, and/or continuing technology rights protection.
Revenue Recognition--Revenue is recognized at the time the purchaser has
accepted delivery of the product. For the year ended December 31, 2002, we
sold titanium dioxide and lithium titanate nanoparticles, and other
materials, to customers totaling $134,925. Of that amount, $62,073 of
F-14
titanium dioxide nanoparticles was sold to a customer for use in
commercial products held for sale. Revenue also includes $90,300 earned
under a services agreement with a materials company where we are testing
the company's mineral concentrates in the production of titanium dioxide
pigments using our titanium processing technology. Revenue also includes
$28,270 earned from a consulting project involving use of the jig to
recover titanium dioxide from pigment processing waste and $40,972 of
previously deferred revenues for which product was shipped and the
purchaser accepted delivery during 2002.
Net Loss Per Common Share--Basic net loss per common share is calculated
by dividing net loss by the weighted average number of common shares
outstanding during the period. The existence of stock options, warrants,
and convertible debentures does not affect the calculation of net loss per
share on a fully diluted basis because the effect of including the
additional common stock equivalents would be antidilutive.
Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 establishes accounting and reporting
standards for goodwill and intangible assets, requiring annual impairment
testing for goodwill and intangible assets, and the elimination of
periodic amortization of goodwill and certain intangibles. We adopted SFAS
No. 142 on January 1, 2002. There was no impact on our consolidated
financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires asset retirement obligations to be
recognized when they are incurred and displayed as liabilities. SFAS No.
143 is effective for the year ending December 31, 2003. Management is
currently evaluating the impact of this pronouncement on the consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived
assets, including the disposal of a segment of business. We adopted SFAS
No. 144 on January 1, 2002. During the quarter ended June 30, 2002,
changes in circumstances regarding the development and use of the jig
indicated that an impairment adjustment for the jig was required. See Note
3 for information regarding the adjustments we have recorded for asset
impairment.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections." FAS No. 145 rescinds several statements, including
SFAS No, 4, "Reporting Gains and Losses from Extinguishment of Debt." The
statement also makes several technical corrections to other existing
authoritative pronouncements. We adopted SFAS No. 145 effective July 1,
2002 and, as a result, the loss on extinguishment of debt is reflected in
the accompanying consolidated financial statements as other expense rather
than an extraordinary loss. In addition, the gain on forgiveness of debt
and the loss on redemption of convertible debentures that were previously
reflected as extraordinary items have been reclassified to other expense
(income).
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred and nullifies Emerging Issues
Task Force (EITF) Issue 94-3. We adopted SFAS No. 146 effective July 1,
2002 and it had no material impact on our consolidated financial
statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for
F-15
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. Adoption of this
statement by the Company will be effective January 1, 2003; however, the
Company has adopted the disclosure provisions of SFAS No. 148. Management
is currently evaluating this pronouncement and its potential impact on the
consolidated financial statements.
In November 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," which requires the guarantor to recognize as a liability the
fair value of the obligation at the inception of the guarantee. The
disclosure requirements in FIN 45 are effective for financial statements
of interim or annual periods ending after December 15, 2002. Management
believes we have no guarantees that are required to be disclosed in the
financial statements. The recognition provisions are to be applied on a
prospective basis to guarantees issued after December 31, 2002. The
adoption of the recognition provisions of FIN 45 is not expected to have a
material impact on our consolidated financial statements.
Comprehensive Income--The only component of comprehensive income in 2002,
2001, and 2000 was net loss.
Deferred Income Taxes--We use the asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes
are provided for temporary differences in the bases of assets and
liabilities as reported for financial statement purposes and income tax
purposes. We have recorded a valuation allowance against all net deferred
tax assets.
Other Expense (Income) Items--As a result of a 1994 merger with TransMar,
Inc. (TMI), FGRS assumed all of TMI's liabilities. During 1999, 1998, and
1996, FGRS extinguished certain of TMI's liabilities at less than the
recorded amounts of such debt. The gain on forgiveness of debt totaled
$67,442, $25,805, and $702,725 in 1999, 1998, and 1996, respectively.
During 1998, we redeemed convertible debentures of $2,250,000, incurring a
redemption loss of $193,256.
These items were previously shown as extraordinary items but were
reclassified as other expense (income) in conjunction with the adoption of
SFAS No. 145 during the current year.
Deferred Revenue--We entered into a sales contract on October 6, 2000 with
a customer for titanium dioxide nanoparticles under which the total
contract amount was prepaid. During 2002, $40,972 of products was
delivered under the contract and recognized as sales revenues.
Fair Value of Financial Instruments--Our financial instruments, when
valued using market interest rates, would not be materially different from
the amounts presented in the consolidated financial statements.
Reclassifications--Certain reclassifications have been made to the prior
period amounts to conform to classifications adopted in the current year.
F-16
3. ASSET IMPAIRMENT
During the quarter ended June 30, 2002, we made the determination that
certain assets of the Company were impaired. Due to a shortage of cash, we
made the decision to reduce expenditures associated with exploring and
developing the Tennessee mineral property to a minimal amount. As a
result, development activities have been delayed, including our intended
use of the jig to enhance the recovery of heavy minerals on this property.
Although we have utilized the jig to perform tests for fine particle
recovery at a third party's facility and we continue to seek manufacturers
and distributors for marketing the jig under licensing and/or
distributorship agreements, we cannot determine when and if the jig will
generate substantial revenues and profits. This, in combination with our
lack of funds to further develop the jig for commercial use, caused us to
believe that the jig assets were impaired. Since we cannot determine when
adequate funds will be available to further develop and utilize the jig,
we have recorded an impairment charge related to the jig assets in the
amount of $2,759,956, which represents the remaining net book value of the
jig patents and related expenditures of $2,366,155 and the jigs included
in property, plant, and equipment of $393,801.
We also assessed the carrying value of the titanium processing technology
and titanium processing assets during the quarter ended June 30, 2002 by
analyzing future estimated cash flows associated with these assets over
the succeeding ten-year period. These assets have begun generating sales
revenues, we have entered into development contracts and non-disclosure
agreements with companies interested in joint development and/or testing
of certain nanomaterials products, and we are in discussions regarding
licensing of our technology to others. In our future estimated cash flow
analysis, we examined product markets, assessed our opportunities for
market entry and sales based on current sales and/or customer interest,
including samples supplied and development agreements signed, and
estimated the costs, including capital costs, associated with the
generation of revenues. At the same time, we took into consideration
recent developments with respect to licensing our technology to others and
pharmaceutical applications that have significant revenue potential, and
estimated future cash flows associated with these activities. Based on our
future estimated cash flow analysis, we believe that the titanium
processing technology and titanium processing assets are not impaired as
of December 31, 2002.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following as of December
31, 2002 and 2001:
2002 2001
Furniture and office equipment $ 82,113 $ 75,833
Vehicles 125,031 125,031
Pigment production equipment 7,162,641 6,974,548
Building 2,335,978 --
Centrifugal jig equipment -- 649,065
Jig testing equipment -- 45,128
----------- -----------
Total 9,705,763 7,869,605
Less accumulated depreciation (2,355,945) (1,881,655)
----------- -----------
Total property, plant, and equipment $ 7,349,818 $ 5,987,950
=========== ===========
F-17
Depreciation expense for the years ended December 31, 2002, 2001, and 2000
totaled $770,250, $772,268, and $751,846, respectively.
5. PATENTS AND RELATED EXPENDITURES
Patents and related expenditures consisted of the following at December
31, 2002 and 2001:
2002 2001
Pigment production patent applications $ 1,517,736 $ 1,517,736
Centrifugal jig patents -- 4,210,987
Royalty agreement -- 424,881
Mineral recovery technology rights -- 243,000
----------- -----------
1,517,736 6,396,604
Less accumulated amortization (371,487) (2,656,740)
----------- -----------
Total patents and related expenditures $ 1,146,249 $ 3,739,864
=========== ===========
Patents and related expenditures are being amortized over their useful
lives with a weighted average amortization period of approximately 16.5
years. Amortization expense was $227,458 for the year ended December 31,
2002, which represented the amortization relating to the identified
intangible assets still required to be amortized under SFAS No. 142. This
amount included $141,779 of amortization expense related to the jig
patents which was recorded prior to an adjustment for asset impairment at
June 30, 2002. For each of the next five years, amortization expense
relating to intangibles will be $85,680 per year. Amortization expense was
$365,940 and $484,558 for the years ended December 31, 2001 and 2000,
respectively.
6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 2002 and 2001:
2002 2001
Note payable to BHP Minerals International, Inc. $ 2,505,040 $ --
Note payable to Doral 18, LLC 1,400,000 1,867,857
Less current portion -- --
Less discount resulting from allocation
of debt proceeds to warrant -- (405,797)
----------- -----------
Long-term portion of notes payable $ 3,905,040 $ 1,462,060
=========== ===========
On December 15, 2000, pursuant to a securities purchase agreement, we sold
to Doral 18, LLC ("Doral") a $7 million 10% Asset-Backed Exchangeable Term
Note (the 2000 Note) and detachable warrants to purchase 350,000 common
shares at $3.00 per share. Net proceeds of $4 million from the 2000 Note
were placed in a restricted bank account to secure a letter of credit and
were scheduled to be released as principal payments were made. Under the
2000 Note, we were required to make monthly payments in the principal
F-18
amount of $291,667 plus accrued interest and we had the right to redeem
the monthly payment amounts in cash at any time. If we elected not to
redeem the monthly payment amount in cash, on each due date, the holder of
the 2000 Note automatically received the right to exchange (immediately or
at any later date during the term) the monthly payment amount into common
shares at a specified exchange price. The 2000 Note was due and payable in
full on December 15, 2003.
During 2001, we made cash principal payments of $1,894,394, interest
payments of $286,557, and incurred additional interest expense of $100,000
related to fees to extend the registration statement associated with the
2000 Note. Doral also converted $644,804 of principal and $273,731 of
interest payable on the 2000 Note into 824,800 shares of common stock.
On December 28, 2001, a Termination and Issuance Agreement was signed with
Doral. The 2000 Note was exchanged for a new note ("2001 Note") having a
face amount of $2,000,000. In addition, the letter of credit discussed
above was terminated and $2,500,733 of restricted cash securing the letter
of credit was paid to Doral. The 2001 Note had an interest rate of 11% per
annum with interest payments due monthly. If interest was not paid, Doral
automatically received the right to exchange (immediately or at any later
date during the term) the monthly interest payment amount into common
stock at a specified exchange price. The principal amount of the 2001 Note
was due and payable on March 31, 2003.
During the first quarter of 2002, a total of $53,644 of monthly interest
payment amounts were exchanged by Doral for 59,599 common shares. The
conversion of these shares resulted in additional interest expense of
$16,095. On April 2, 2002, we entered an agreement with Doral whereby
Doral agreed to waive, for the period March 27, 2002 through September 27,
2002, a provision of the 2001 Note that required us to maintain a cash and
cash equivalents balance of $250,000 any time our common shares closed at
less than $1.00 per share for three consecutive trading days. In addition,
Doral agreed to amend, for the period March 27, 2002 through September 27,
2002, a provision of the 2001 Note which required us to have a cash and
cash equivalents balance of at least $250,000 at the end of every quarter.
Such amount was reduced to $125,000. In return, we prepaid a total of
$110,904 of interest on the 2001 Note for the period March 27, 2002
through September 27, 2002 by issuing Doral 143,791 common shares. The
conversion of these shares resulted in additional interest expense of
$35,762.
On September 23, 2002, we entered an agreement with Doral whereby Doral
agreed to waive, for the period September 28, 2002 through January 1,
2003, a provision of the 2001 Note that required us to maintain a cash and
cash equivalents balance of $250,000 any time our common shares closed at
less than $1.00 per share for three consecutive trading days. In addition,
Doral agreed to amend, for the period September 28, 2002 through January
1, 2003, a provision of the 2001 Note which required us to have a cash and
cash equivalents balance of at least $250,000 at the end of every quarter.
Such amount was reduced to $125,000. In return, we prepaid a total of
$57,260 of interest on the 2001 Note for the period September 28, 2002
through January 1, 2003 by issuing Doral 95,914 common shares. The
conversion of these shares resulted in additional interest expense of
$18,543.
On November 21, 2002, a Second Amended and Restated Secured Term Note
("2002 Note") was signed with Doral. At closing, we issued to Doral
1,500,000 common shares in exchange for a reduction of the principal
amount outstanding from $2,000,000 to $1,400,000. We also issued to Doral
a warrant for 750,000 common shares in exchange for Doral's agreement to
(i) extend the due date of the 2002 Note to March 31, 2004, (ii) eliminate
the requirement that we maintain a cash and cash equivalents balance of
$250,000 any time our common shares close at less than $1.00 per share for
F-19
three consecutive trading days, and (iii) eliminate the requirement that
we have a cash and cash equivalents balance of at least $250,000 at the
end of every quarter. The warrant is exercisable at $1.00 per share and
expires on the earlier of November 21, 2007 or the 180th day following the
date the closing price equals or exceeds $3.00 for 5 consecutive days. The
fair value of the warrants, as determined by the Black-Scholes pricing
model, is $239,217. The 2002 Note has an interest rate of 11% with the
interest payable monthly in cash. The principal amount may be prepaid at
any time with a 5% prepayment penalty. Under the terms of the 2002 Note, a
conversion right with respect to $280,000 of principal accrues on each of
March 1, 2003, June 1, 2003, September 1, 2003, December 1, 2003 and March
1, 2004. If the amount that would be subject to a conversion right is
prepaid prior to the date of accrual, such conversion right does not
accrue. Once a conversion right has accrued, the principal amount subject
to that conversion right cannot be prepaid unless all principal amounts
not subject to a conversion right have been prepaid in full. Each
conversion right gives Doral the right to convert the subject principal
amount into common shares at a conversion price equal to the lesser of (a)
$1.00 per share and (b) 70% of the average of the closing price of our
common shares for the five trading days ending on the trading day
immediately preceding the date on which that conversion right accrued.
Because this is a contingent embedded beneficial conversion feature, no
amounts have been allocated to the beneficial conversion feature until the
contingency is resolved.
In accordance with EITF 96-19, "Debtor's Accounting for a Modification or
Exchange of Debt Instruments," the exchange of the notes discussed above
was considered to result in a substantially different debt instrument.
Accordingly, the note was recorded at its face amount of $1,400,000. The
new warrants issued, recorded at a fair value of $239,217, the unamortized
debt discount and debt issuance costs associated with the 2001 Note and
the debt issuance costs associated with the 2002 Note were included in the
calculation of loss on extinguishment of debt.
The 2002 Note is secured by a pledge of the equipment, intellectual
property and common stock of ANI, and by a pledge of the leasehold
interest in mineral deposits and common stock of MRS.
On August 8, 2002, we entered into a purchase and sale agreement with BHP
Minerals International, Inc. ("BHP") wherein we purchased the land,
building and fixtures in Reno, Nevada where our titanium processing assets
are located. In connection with this transaction, BHP also agreed to
terminate our obligation to pay royalties associated with the sale or use
of the titanium processing technology. In return, we issued to BHP a note
in the amount of $3,000,000, at an interest rate of 7%, secured by the
property we acquired. Interest does not begin to accrue until August 8,
2005. As a result, we imputed the interest and reduced the face amount of
the note payable by $566,763, an amount that is being amortized to
interest expense over the life of the note. The first payment of $600,000
of principal plus accrued interest is due February 8, 2006. Additional
payments of $600,000 plus accrued interest are due annually on February 8,
2007 through 2010.
7. STOCK OPTIONS AND WARRANTS
Stock Options--We have stock option plans administered by the Board of
Directors that provide for the granting of options to employees, officers,
directors and other service providers of the Company. Options granted
under the plans generally are granted with an exercise price equal to the
market value of a common share at the date of grant, have five-year terms
and typically vest over periods ranging from immediately to three years
from the date of grant.
F-20
Stock option activity for the years ended December 31, 2002, 2001 and 2000
is summarized as follows:
2002 2001 2000
----------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning
of year 3,666,700 $ 4.38 2,958,700 $ 5.37 3,060,000 $ 5.92
Granted during the year 975,000 0.94 1,368,000 2.12 420,000 3.86
Cancelled/Expired (580,000) 1.93 (595,000) 4.14 (450,000) 7.80
Exercised -- -- (65,000) 2.00 (71,300) 4.71
---------- ------ ---------- ------ --------- ------
Outstanding at end of year 4,061,700 $ 3.83 3,666,700 $ 4.38 2,958,700 $ 5.37
========== ====== ========== ====== ========== ======
Options exercisable at year end 3,410,700 $ 4.26 2,999,700 $ 4.84 2,153,700 $ 5.45
========== ====== ========== ====== ========== ======
Weighted average fair value of
options granted during year $ 0.64 $ 1.70 $ 3.24
====== ====== ======
The following table summarizes information about stock options outstanding
at December 31, 2002:
Stock Options
Stock Options Outstanding Exercisable
---------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
$0.70 to $1.30 1,030,000 4.4 $ 1.05 710,000 $ 1.05
$2.00 to $3.06 1,143,000 2.9 2.16 822,000 2.22
$4.00 to $6.85 1,178,700 1.6 5.27 1,168,700 5.28
$7.15 to $10.00 710,000 0.8 8.17 710,000 8.17
--------- ----- -------- --------- --------
4,061,700 2.5 $ 3.83 3,410,700 $ 4.26
========= ===== ======== ========= ========
We have elected to follow the measurement provisions of APB Opinion No.
25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. Generally,
stock options are granted at an option price at or greater than fair
market value on the date of grant. We recorded compensation expense of
$27,601, $158,089, and $424,063 for stock options granted to non-employees
for the years ended December 31, 2002, 2001, and 2000, respectively.
F-21
Warrants--Warrant activity for the years ended December 31, 2002, 2001,
and 2000 is summarized as follows:
2002 2001 2000
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
Outstanding at beginning
of year 4,612,007 $ 2.92 1,883,672 $ 5.18 150,000 $ 8.50
Granted during the year 5,069,333 1.41 3,441,668 1.24 1,733,672 4.89
Expired (225,000) 9.00 -- -- -- --
Exercised (286,169) 1.05 (713,333) 1.00 -- --
--------- ------ --------- ------ --------- ------
Outstanding at end of year 9,170,171 $ 1.92 4,612,007 $ 2.92 1,883,672 $ 5.18
========= ====== ========= ====== ========= ======
The warrants were issued in conjunction with debt offerings, issuance of
common stock, and payment for outside services. To estimate expense
related to the issuance of warrants, we have used the modified
Black-Scholes option pricing model. The warrants expire on various dates
ranging from January 2003 to November 2007. Most warrants contain
provisions whereby the expiration date is accelerated if our Common Shares
close at or above specified prices ranging from $2.50 to $12.00 per share.
8. OTHER TRANSACTIONS
On March 31, 2000, we entered into a common stock purchase agreement with
a private equity fund pursuant to which the equity fund purchased
1,251,303 Common Shares of Altair for an aggregate purchase price of
$6,000,000; however, the number of shares received by the equity fund in
exchange for $6,000,000 was subject to repricing adjustments if the lowest
average closing price for any ten days during each of four 30-day
repricing periods did not meet a certain threshold. Prior to December 15,
2000, the equity fund repriced 750,782 of the initial shares it purchased
under the common stock purchase agreement and received an additional
1,003,626 Common Shares.
Pursuant to an assignment and agreement dated December 15, 2000, the
equity fund referred to in the preceding paragraph transferred all of its
remaining rights under the common stock purchase agreement, including its
right to reprice the remaining 500,521 of the initial 1,251,303 shares, to
Doral 18, LLC (Doral). Pursuant to this purchase agreement, Doral
exercised its right to reprice approximately 70,928 of the initial shares
and received 247,678 Common Shares. In exchange for approximately
$1,650,000, we bought from Doral and terminated all remaining rights under
the common stock purchase agreement, including all remaining repricing
rights. In conjunction with this buyout, Doral granted us a call option to
purchase 247,678 Common Shares for a nominal exercise price. Between
December 15, 2000 and December 28, 2001, we paid $97,743 of principal and
$244,941 of interest on the $7 million 10% Asset-Backed Exchangeable Term
Note through the cancellation of call options on the 247,678 Common
Shares.
F-22
In 2001, we received payment of $561,300 from an investor on a stock
subscription receivable.
On March 26, 2001, 266,170 shares of common stock held in escrow as part
of the 1999 TransMar, Inc. merger agreement were cancelled because the
assets acquired from TransMar, Inc. did not generate the cash flow
required by the escrow agreement.
On October 18, 2001, we reduced the exercise price of 255,000 outstanding
warrants to $1.00 per share for a period of 45 days and we reduced the
exercise price of 458,333 outstanding warrants to $1.00 per share through
December 14, 2001. As a result of these repricings, we recorded a
preferential warrant dividend of $52,417 as of the repricing date. The
warrants had been previously issued with exercise prices ranging from
$4.00 to $8.00.
On April 16, 2002, we reduced the exercise price of 582,500 outstanding
warrants to $1.05 per share for the period April 26, 2002 through June 30,
2002. The warrants had been previously issued with exercise prices ranging
from $3.50 to $5.00. As a result of these repricings, we recorded a
preferential warrant dividend of $48,666 as of the repricing date. A total
of 286,169 warrants were exercised prior to the expiration date.
On August 6, 2002, we adopted an Employee Stock Purchase Plan ("ESPP")
which allows employees to purchase common shares at the fair market value
through payroll deductions. Through December 31, 2002, a total of 161,550
common shares were issued under the ESPP at prices ranging from $0.38 to
$0.78 per share.
9. LEASES
Operating Leases--We lease certain premises and equipment under operating
leases, all of which are on a month-to-month basis.
Lease expense for the years ended December 31, 2002, 2001, and 2000
totaled $207,265, $304,330, and $283,964, respectively.
Mineral Leases--Our subsidiary, MRS, has entered into various mineral
leases for a 100% interest in approximately 8,700 acres of land in the
state of Tennessee, United States with minimum annual advance royalty
payments as follows:
Year ending December 31:
2003 $ 147,467
2004 223,236
2005 229,632
2006 229,632
2007 162,423
Thereafter 142,631
The mineral leases are subject to a production royalty; however, MRS will
receive a credit against production royalties for all advance royalties
paid. The lessors can only terminate the leases upon failure of MRS to
make the minimum payments as required by the leases. The Company has
incurred royalties of $129,691, $87,593, and $101,559 for the years ended
December 31, 2002, 2001, and 2000, respectively. As of December 31, 2002,
we owed $124,959 of royalty payments to lessors.
F-23
10. INCOME TAXES
Because of the net operating losses and a valuation allowance on deferred
tax assets, there was no provision for income taxes recorded in the
accompanying consolidated financial statements for the three years in the
period ended December 31, 2002.
A reconciliation of the federal statutory income tax rate and our
effective income tax rates is as follows:
Year Ended December
------------------------------------------
2002 2001 2000
Federal statutory income taxes (benefit) $(3,489,557) $(2,713,911) $(2,010,921)
Meals and entertainment 3,470 601 1,824
Valuation allowance 3,486,087 2,713,310 2,009,097
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
The components of the deferred tax assets consisted of the following as of
December 31, 2002 and 2001:
2002 2001
Deferred tax assets:
Net operating loss carryforward $ 10,502,652 $ 6,238,645
Unrealized loss 172,557 80,359
------------ ------------
Total deferred tax assets 10,675,209 6,319,004
Deferred tax liabilities:
Basis difference in assets (1,748,777) (879,780)
Allowance for bad debts (1,121) --
Valuation allowance (8,925,311) (5,439,224)
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
The net operating loss carryforwards total $30,007,577 as of December 31,
2002 and will expire at various dates beginning in 2002 through 2021.
11. COMMITMENTS AND CONTINGENCIES
Litigation--We are currently not aware of any investigations, claims, or
lawsuits which we believe could have a material adverse effect on our
consolidated financial position or on our consolidated results of
operations.
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12. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2002, officers made loans to us of
$6,243 and we repaid loans from officers of $149,243. These were
short-term, unsecured, non-interest bearing loans payable on demand, the
proceeds of which were used to meet working capital needs. As of December
31, 2001, we had related party loans outstanding of $143,000. There were
no related party loans outstanding at December 31, 2002.
13. BUSINESS SEGMENT INFORMATION
In accordance with SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," management views the Company as being
three business segments: Titanium Pigment Processing Technology, Tennessee
Mineral Property, and the Jig.
Reportable segment data reconciled to the consolidated financial
statements as of and for the fiscal years ended December 31, 2002, 2001,
and 2000 is as follows:
Net Sales Net Loss Assets
2002:
Titanium Pigment Processing Technology $ 225,225 $ 2,456,771 $ 6,274,732
Tennessee Mineral Property -- 598,977 18,200
The Jig 28,270 2,929,010 10,270
Unallocated -- 2,786,600 2,611,203
----------- ----------- -----------
Consolidated total $ 253,495 $ 8,771,358 $ 8,914,405
=========== =========== ===========
2001:
Titanium Pigment Processing Technology $ 45,816 $ 2,783,647 $ 6,752,399
Tennessee Mineral Property -- 930,777 16,200
The Jig -- 300,913 2,929,930
Unallocated -- 2,006,195 1,154,714
----------- ----------- -----------
Consolidated total $ 45,816 $ 6,021,532 $10,853,243
=========== =========== ===========
2000:
Titanium Pigment Processing Technology $ -- $ 2,908,436 $ 7,260,506
Tennessee Mineral Property -- 1,217,966 --
The Jig -- 366,370 3,385,967
Unallocated -- 2,154,595 6,005,297
----------- ----------- -----------
Consolidated total $ -- $ 6,647,367 $16,651,770
=========== =========== ===========
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