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ALTI > SEC Filings for ALTI > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for ALTAIR NANOTECHNOLOGIES INC

Form 10-Q for ALTAIR NANOTECHNOLOGIES INC


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Report 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 under "Risk Factors" below and other cautionary statements throughout this Report and our other filings with the SEC. 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 Report 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.

Overview

Our primary focus is marketing advanced energy storage solutions for the electric grid, transportation, and industrial markets. In 2010, we expanded our sales focus to include original equipment manufacturers in the commercial vehicle and industrial markets targeting applications that leveraged the key attributes of our technology. These markets include medium and heavy-duty trucks, rail, stationary industrial applications and micro-grid systems. We believe that in the aggregate, our target markets are multi-billion dollar emerging markets with room for a number of successful suppliers. We believe the markets for advanced energy storage are maturing and as a result of our differentiated product attributes and the growing recognition we are receiving in the marketplace, that we will be successful in expanding orders. Customers are now telling us that unique attributes of our nano lithium titanate chemistry create real value for their businesses by allowing them to use energy storage in ways previously unachievable. Customers are most interested in the safety of our batteries, the long calendar and cycle life and the very fast charging capabilities over the widest temperature operating range in the industry.

Our historical revenues have been generated by license fees, product sales, commercial collaborations, and government contracts and grants. We expect future revenues to consist primarily of product sales and turnkey projects. Our current customer backlog includes purchase orders to (1) supply a 1 MW ALTI-ESS energy storage system for a test of wind energy integration in Hawaii, (2) supply a 1 MW ALTI-ESS energy storage system for a test of solar energy integration in Hawaii, (3) supply a 1.8 MW ALTI-ESS energy storage system to an electric utility in New Jersey, (4) supply a 1.2 MW ALTI-ESS energy storage system to a wind turbine manufacturer for integration into their wind energy systems for testing in Europe, (5) supply a 2 MW ALTI-ESS energy storage system for integration with a solar energy system in Puerto Rico, (7) supply battery modules to an electric bus manufacturer, (8) supply Altair Power Rack systems to numerous integration firms, and (9) supply application kits to various OEMs for testing.

During the three months ending March 31, 2012 we formed Altair China. Our intention is to launch manufacturing and sales operations in China with the goal of supplying the Chinese government with advanced energy solutions for the electric grid, transportation and industrial market segments. Initially, the operation will focus on powering electric buses, taxis, and assembling energy storage systems for large residential complexes as well as for the electric grid. Consistent with this goal, in April 2012, Altair Northern signed an Agreement (the "Wu'an Agreement") with Wu'an Municipal People's Government ("Wu'an") and Handan Municipal People's Government ("Handan"). On October 25, 2012, Northern Altair successfully completed a bidding process for a 66 acre parcel of land in Wu'an China, which will be used for the Company's nLTO and energy storage system ("ESS") manufacturing operations in China. On October 31, 2012, Northern Altair entered into a Contract on Assignment of State-owned Construction Land Use Right (the "Land-Use Agreement"), pursuant to which Northern Altair will acquire the right to use the 66 acres of commercial land north of Dongzhuchang Village in Wu'an City, China for a period of 50 years subject to the terms and conditions of the Land-Use Agreement. As consideration for the land use right, Northern Altair paid a land use fee of approximately $12 million and land transfer taxes and fees of approximately $1.9 million and agreed to make fixed asset investments on the land of approximately $167 million over an unspecified period of time, with initial construction to begin by March 31, 2013. The total fixed asset investments shall include the cost of buildings, structures, auxiliary facilities, and equipment, as well as the land-use fee. Northern Altair may transfer and sublease portions of the granted land once it has invested 25% of the total fixed asset investments amount and completed 25% of the project. Closing occurred on November 9, 2012. Separate from the Land-Use Agreement, Northern Altair is in the midst of negotiating with Wu'an City regarding a package of incentives to facilitate Northern Altair's establishment of operations and construction efforts. The actual scope of Northern Altair's construction project and manufacturing operations will be based on the anticipated market demand for the Company's products and on the level of negotiated incentives.

During the quarter ended September 30, 2012, we made significant progress on our contract deliverables. Two energy storage systems totaling 2 MW were built for HNEI, and one of those systems was shipped to the end user, the Hawaii Electric Company ("HELCO") on September 5, 2012. We finished its installation work on October 4, 2012, and the HELCO energy storage system should be commissioned in mid- to late-November. Work on the second HNEI energy storage system has been completed and we anticipate that we will ship the system to the end user in the first quarter of 2013. A third ESS system was installed on October 12, 2012, for a renewable energy company based in Europe, who will use the system within a wind farm application. We recently completed production of a fourth energy storage system for another utility customer, but construction at the proposed installation site has not been completed by the end user. We also worked on a fifth ESS system during the third quarter, which was sold to TSK Solar, a leading energy EPC contractor and engineering firm, in September 2012. We have has received contractual milestone payments during the third quarter for most of these systems, but not all of these payments have been recognized as revenue for the third quarter due to GAAP-related considerations.

General Outlook

Our current focus is on the development of battery systems that we anticipate will eventually bring a substantial amount of revenue volume and gross profit from product sales into the electric grid, transportation, and industrial markets. As we attempt to significantly expand our revenues from licensing, manufacturing and other sources, some of the key near-term events that will affect our long-term success prospects include the following:

ˇ Based on the success of the 2008 AES 2 MW frequency regulation trial, as validated in the KEMA, Inc. analysis and report, we have experienced a substantial amount of interest in our large scale battery systems from other entities and are in active sales development discussions with a number of them. In 2011, we accepted purchase orders to supply the University of Hawaii
- Hawaii Natural Energy Institute ("HNEI") with two 1 MW energy storage systems, one of which is for a test of wind energy integration and the other of which is for a test of solar energy integration. We shipped the wind system in the third quarter of 2012, and are in the final stages of the installation. We are currently scheduled to install the solar system in the first quarter of 2013.


ˇ In addition, as noted above, we have recently delivered, or expect to deliver in the next few months, five 1-2 MW energy storage systems. We anticipate that these smaller-scale energy storage systems will help establish the value of our products and facilitate future sales of similarly sized, or larger, systems.

ˇ On February 9, 2011, we signed an $18 million contract with Inversiones Energéticas, S.A. de C.V. ("INE") for the supply and installation of a 10 MW ALTI-ESS advanced battery system in El Salvador. Total revenue under the Contract is expected to be recognized over an expected 14-month period following Altair's receipt of the notice to proceed. This project has been delayed as a result of obtaining necessary regulatory approvals to enable battery-based energy storage on the El Salvador electric grid. We believe the necessary regulatory approvals will eventually be received.

ˇ We have supplied battery modules to Proterra, LLC, a Greenville, South Carolina based leading designer and manufacturer of heavy-duty drive systems, energy storage systems, vehicle control systems and transit buses for their all-electric and hybrid-electric buses. In 2011, we sold $2.1 million of battery modules to Proterra. In May 2012, we signed a contract to supply battery modules to Proterra. On June 19, 2012, Proterra released its first purchase order under the agreement for deliveries in the first quarter of 2013.

ˇ Based on the demonstrated success of our battery modules in the Proterra bus application, we have also entered into discussions with a number of other bus rail and systems integrators regarding joint development products or purchases of our battery products for transportation applications in the U.S., Europe and China. These customers are now testing and prototyping our products.

ˇ We are in discussions with a number of industrial manufacturers of forklifts, elevators, mining, rail and other electric equipment whose use requires the long-life, rapid recharge, extreme operating temperature range or other differentiating attributes of our battery technology. We have supplied application kits to several of these companies for testing and evaluation.

ˇ We are targeting China as a primary source of revenue for our battery systems targeted at the electric bus and electric grid markets. We recently formed Altair China in Zhuhai China, which signed the Wu'an Agreement related to a number of transactions between Altair China and Wu'an or Handan. Consistent with the Wu'an Agreement, we recently acquired rights to use approximately 66 acres of commercial land in Wu'an under an arrangement in which benefits received will directly offset the purchase price. This is to facilitate Altair China's construction of a manufacturing facility in an industrial park being promoted by Wu'an. We are still in the process of documenting the transfer. Under the Wu'an agreement, the city also agreed to place orders for electrical buses and energy storage systems for large residential complexes. Wu'an placed an initial deposit in August 2012 in the amount of $1.9 million for its initial order of fifty electric buses.

ˇ On October 25, 2012, Northern Altair successfully completed a bidding process for a 66 acre parcel of land in Wu'an China, which will be used for the Company's nLTO and energy storage system ("ESS") manufacturing operations in China. On October 31, 2012, Northern Altair entered into a Contract on Assignment of State-owned Construction Land Use Right (the "Land-Use Agreement"), pursuant to which Northern Altair will acquire the right to use the 66 acres of commercial land north of Dongzhuchang Village in Wu'an City, China for a period of 50 years subject to the terms and conditions of the Land-Use Agreement. As consideration for the land use right, Northern Altair paid a land use fee of approximately $12 million and land transfer taxes and fees of approximately $1.9 million and agreed to make fixed asset investments on the land of approximately $167 million over an unspecified period of time, with initial construction to begin by March 31, 2013. The total fixed asset investments shall include the cost of buildings, structures, auxiliary facilities, and equipment, as well as the land-use fee. Northern Altair may transfer and sublease portions of the granted land once it has invested 25% of the total fixed asset investments amount and completed 25% of the project. Closing occurred on November 9, 2012. Separate from the Land-Use Agreement, Northern Altair is in the midst of negotiating with Wu'an City regarding a package of incentives to facilitate Northern Altair's establishment of operations and construction efforts. The actual scope of Northern Altair's construction project and manufacturing operations will be based on the anticipated market demand for the Company's products and on the level of negotiated incentives.

ˇ In August 2012, we entered into a memorandum of understanding with a leading coal company in China, which also operates utilities and railroads. We are currently in discussions about a possible pilot project that would test and demonstrate the Company's systems when integrated with a wind farm.

ˇ In September 2012, we signed a memorandum of understanding with EnerDel, a manufacturer of lithium-ion batteries and systems, to collaborate on the joint marketing and sales of each other's products.

Although it is not essential that all of these markets become successful for our battery technology in order to permit substantial long-term revenue growth, we believe that full commercialization of several of our battery applications will be necessary in order to expand our revenues enough to create a likelihood of our becoming profitable in the long-term. We remain optimistic with respect to our current key projects, as well as others we are pursuing, but recognize that, with respect to each, there are development, marketing, partnering and other risks to be overcome.


Liquidity and Capital Resources

Current and Expected Liquidity

Altair's cash and cash equivalents decreased by $14.3 million, from $46.5 million at December 31, 2011 to $32.2 million at September 30, 2012. The decrease in cash was primarily due to the $15.7 million of cash used in operating activities during the nine months ending September 30, 2012. The bulk of the cash used in operations went to cover our net loss of $14.4 million offset by $1M in proceeds from a short-term note payable used towards the $4.7 million build-up of work in process inventory related to the fulfillment of customer sales backlog, of which $1.2 million is included in deferred contract costs.

During the nine months ending September 30, 2011 we issued shares of common stock and warrants to purchase shares of common stock for net proceeds of $61.8 million. We recorded a $1.9 million warrant liability related to this capital raise. We also paid off $206,000 of debt and $530,000 in warrant redemptions. On July 22, 2011 we issued 37,036,807 shares at $1.55 each to Canon for gross proceeds of $57.5 million. As of September 30, 2011, we had paid $1.4 million in related expenses.

As of September 30, 2012, we had cash totaling $32.2 million. In April 2012, $32.0 million was transferred to Altair China in to be used towards our China operations. The Board of Directors has developed a funding process for both our U. S. operations and our China operations moving forward. For China, assuming our completion of the land transfer, development of suitable manufacturing plans and finalization of orders, we believe that project financing or indebtedness may be available to facilitate operations. In the U.S., our operations may be supported in the near term by selling inventory, equipment and services to Altair China, and receiving fees associated with intellectual property licensing; however, in the longer term, we may need to raise equity capital for the U.S. and China operation, particularly to build out inventory if orders from China, Central America or other areas increase.

We evaluate our capital needs and the availability of capital on an ongoing basis and, consistent with past practice, expect to seek capital when and on such terms as we deem appropriate based upon our assessment of our current liquidity, capital needs and the availability of capital. Given that we are not yet in a positive cash flow or earnings position, the options available to us are fewer than to a positive cash flow company. Specifically, we would not generally qualify for long-term institutional debt financing. Consistent with past practice, we expect to raise additional capital through loans, the sale of shares of common stock, convertible notes, stock options, and warrants. We do not expect the current economic environment to preclude our ability to raise capital, but the overall cost of doing so may be high.

Over the long-term, we anticipate substantially increasing revenues by entering into new contracts and increasing product sales in the stationary power, electric bus and selected other industrial markets.

Capital Commitments and Expenditures

  The following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of September 30, 2012:

   In thousands of dollars

Contractual Obligations           Total      < 1 yr       1-3 yrs       3-5 yrs       > 5 yrs
Note payable                     $ 1,000     $ 1,000     $       -     $       -     $       -
Contractual service agreements       846         846             -             -             -
Capital leases                        16          10             6             -             -
Purchase obligations                 635         635             -             -             -
Total                            $ 2,497     $ 2,491     $       6     $       -     $       -

Off-Balance Sheet Arrangements

The company did not have any off-balance sheet transactions during the nine months ending September 30, 2012.

Recently Adopted and Recently Issued Accounting Guidance


See Note 2 to the interim consolidated financial statements in Part I Item 1 of this form 10-Q.

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