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ALTI > SEC Filings for ALTI > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for ALTAIR NANOTECHNOLOGIES INC

Form 10-Q for ALTAIR NANOTECHNOLOGIES INC


14-Aug-2013

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

We are a Delaware company that develops, manufactures and sells nano lithium titanate batteries and energy storage systems. Our nano lithium titanate battery systems offer higher power density, longer cycle life, rapid charge and discharge capabilities, a wider operating temperature range and higher levels of safety than conventional lithium-ion batteries. We target applications that effectively utilize the key attributes of our technology, and these applications can be found primarily in the electric grid, transportation (commercial vehicles), and industrial market segments.

We believe that in the aggregate, our target markets are multi-billion dollar emerging markets with room for a number of successful suppliers. At the present time, we perceive no dominant provider and we believe that as a result of our significant differentiated product attributes, the overall strength of our management team, and the recognition we are receiving in the marketplace, that we have a reasonable chance of becoming one of the successful suppliers. Our proprietary technology platform gives our products a number of unique, highly sought after attributes that clearly differentiate our products from their alternatives. Included in these attributes are substantially longer cycle and calendar lives, a rapid recharge time, the ability to provide instantaneous high power, a wide operating temperature range and increased operational safety. Generally speaking, our systems are projected to have a longer useful life and a lower total cost of ownership than competing battery systems.


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 government contracts. We currently have agreements in place to deliver: (1) energy storage systems for electric grid applications; (2) battery modules to EV integrators and manufacturers; and (3) battery systems for various industrial applications.

In 2012, we formed Altair Nanotechnologies (China) Co., Ltd. ("Altair China") and Northern Altair Nanotechnologies Co., Ltd. ("Northern Altair") in order to aggregate key elements of our supply chain and expand into the Chinese market. We anticipate this expansion will allow us to participate in the fast-growing China market.

General Outlook

Our current focus is on the development and sale of energy storage 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 expand our revenues from product sales, manufacturing and other sources in 2013, some of the key near-term events that will affect our long-term success prospects include the following:

? In 2012, we adopted a new manufacturing and supply chain strategy. Given that our contract cell manufacturers were all based in Asia, we decided to move our nano lithium titanate materials production to China. In addition, we decided to enhance our battery module and energy storage system manufacturing capabilities by building a new plant in China. In this way, we are better able to aggregate critical portions of our supply chain in order to reduce lead times and cost. Previously, we expected to be manufacturing our nano lithium titanate materials in Reno, Nevada, shipping those materials to our contract cell manufacturer in Asia, and then shipping those cells back to Anderson, Indiana to produce battery modules and packs. We expect that, when implementation is complete, our new manufacturing strategy will greatly streamline this process.

? In April 2012, we entered into an economic development deal with the cities of Wu'an and Handan in Hebei Province in China. Under our multi-year contract with the City of Wu'an, Northern Altair is required to sell and deliver 200 electric buses to Wu'an over a multi-year period. In August 2012, we received a $1.9 million down payment on the first $6.3 million electric bus order from Wu'an. We are currently procuring these buses from an affiliate, Yin tong Energy. We anticipate that the deliveries for this order and the corresponding $4.4 million payment will be made in the second half of 2013, at which time we will be able to recognize the revenue and gross margin associated with this order.

? 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 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 acquired 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 $11.8 million and land transfer taxes and fees of approximately $1.7 million and agreed to make fixed asset investments on the land of approximately $167 million, subject to loan guarantees and other incentives from Wu'an, China, over an unspecified period of time up to the 50 year life of the land use right, with initial construction being required to begin by March 31, 2013.

? In January 2013, initial construction on a manufacturing facility began on the Company's first land use right in China. The Company is building a 136,760 square foot nano lithium titanate production facility and a 130,200 square foot assembly facility for battery modules and energy storage systems. The Company estimates the remaining costs of the initial phase of this project will cost approximately $3 million and will be completed in the third quarter of 2013. Additional construction phases will be contingent upon loan guarantees and other incentives from Wu'an, China as well as other market conditions. The Company has not yet obtained loan guarantees for these costs, but has entered into discussions with a number of banks regarding potential project financing. 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. The total fixed asset investments shall include the cost of buildings, structures, auxiliary facilities, and equipment, as well as the land-use fee. Closing occurred on November 9, 2012. Separate from the Land-Use Agreement, Northern Altair received $11.8 million package of cash incentives in November 2012 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. Northern Altair obtained an independent appraisal for the land use right of 66 acres, which was valued at approximately $32 million.


? In May 2013, Northern Altair bid for and acquired a second conditional 50-year land use right with respect to approximately 40 acres of industrial land in Wu'an, China with an acquisition price of approximately $8,600,000 which includes various land transfer taxes and fees that are equal to approximately $1,200,000. In turn, we expect to receive cash incentives as part of our economic development deal, which shall be equal to our acquisition price. The closing occurred on May 27, 2013 and Northern Altair received the Land Use Right (Wu State-Used, State-Owned Land Use) on this date. This Land will be used for the Company's nano lithium titanate and energy storage system manufacturing operations in China.

? In 2012, we built five 1 to 2 megawatt energy storage systems for our energy storage system customers. Four of these systems were shipped during the year.

o Two 1 megawatt systems were built for the Hawaiian Electric Light Company ("HELCO") and Hawaii Natural Energy Institute ("HNEI"). The first HELCO/HNEI system was commissioned at the Hawi Wind Farm on Hawaii's Big Island in March 2013. The second HNEI system, which is slated for installation on Oahu, was built in 2012. We are currently finalizing the site location details with our customer and anticipate that this system will be commissioned in the first quarter of 2014.

o We built a 1.2 megawatt system for Vestas Wind Systems, which is being used to integrate wind power at a wind farm in Denmark. This system was fully commissioned in March 2013. We received a final payment of $117,035 in July 2013.

o We built a 1.8 megawatt system for Energy Storage Holdings, LLC. (ESH), which is providing commercial frequency regulation services in the PJM market on the East Coast. This system went into operation in January 2013. We are leasing the ALTI-ESS Advantagetm system to ESH and receive monthly lease payments and a share of the revenue generated by the system under the agreed upon terms. The lease term ends February 2016, and ESH has an option to purchase the system during the lease term.

o We built a 2 megawatt ALTI-ESS AdvantageTM system for TSK Solar, which shall be used for the integration of solar power at the San Fermin 26 MW photovoltaic solar farm in Loiza, Puerto Rico. This system was installed on November 16, 2013 and is scheduled to be commissioned in the third quarter of 2013 upon the completion of the solar farm.

We anticipate that the deployment, demonstration and commercial use of these energy storage systems will further establish the commercial value of our products and facilitate the future sale of our systems.

? In January 2013, the Hawaii Natural Energy Institute agreed to purchase its third energy storage system from us. They ordered our new 2 megawatt ALTI-ESS Advantagetm, and we are working with them to schedule the installation of this system in early-2014.

? In May 2012, we signed a contract to supply nano lithium titanate battery modules to Proterra, a leading developer of all-electric transit buses. Proterra uses Altair's battery modules to create a rapid charging electric bus, which can recharge in as little as six minutes. Proterra's buses can deliver 22.5 miles per gallon (mpg) equivalent versus 3.8 mpg for a comparable diesel bus. The running cost per mile for a Proterra electric bus is just $0.18 versus $1.05 for a diesel bus. In June 2012, Proterra released its first purchase order under the agreement. We commenced shipments to Proterra in February 2013 and are scheduled to ship modules through the end of the year. Proterra's customers include Foothill Transit and San Joaquin Regional Transit District in California; the City of Seneca in South Carolina; Star Metro in Florida; and Via Metropolitan in Texas. In 2013, Proterra expanded their target market to include commercial customers.

? We have entered into discussions with a number of transportation and industrial customers in the U.S, Europe and Asia regarding joint development products or purchases of our battery products. Some of these customers are now testing our modules, application kits and Power Rack battery systems in a variety of applications, where the unique attributes of a nano lithium titanate battery system are a critical consideration.

? In August 2012, we entered into a memorandum of understanding with Shenhua Science & Technology and the National Institute of Low Carbon Energy (NICE) in China. We entered into discussions about a possible pilot project that would test and demonstrate the commercial use of our systems. We continue to work with Shenhua to identify the best commercial applications of our technology.

? In June 2013, we entered into a memorandum of understanding with Tauron Dystrybucja SA. to jointly determine the necessary infrastructure needs for stationary energy storage systems based on nano lithium titanate batteries, and for the construction of power and frequency stabilization systems in Poland. TAURON is a subsidiary of TAURON Polska Energia S.A., Poland's second largest energy company.

? In 2012, we submitted our nano lithium titanate battery cells for testing at the 201 Institute, which regulates the sale of batteries in China. We received approval for the sale of our nano lithium titanate batteries in China in December 2012.


The Company operates in emerging markets for energy storage. We remain optimistic with respect to our current key projects, but we continue to face development, marketing, partnering and other risks. However, we now have a growing number of reference customers, including AES, Vestas, HNEI, HELCO and ESH, which should help us validate the technical merits and commercial operation of our systems to our prospective customers.

Liquidity and Capital Resources

Current and Expected Liquidity

Altair's cash and cash equivalents decreased by $3.7 million, from $12.4 million at December 31, 2012 to $8.7 million at June 30, 2013. The net decrease of $3.7 million resulted from the net change in operating activities of $(4.3) million, net change in investing activities of $(1.6) million and the net change in financing activities of $1.9 million. The investing activities included the acquisition of the second land use right from the Government of Wu'an, China, which was paid for by using restricted cash and the purchase of fixed assets by Northern Altair. The financing activity included the increase of deferred income against the amortization period cost for the second land use right and the receipt of the $1.9 million grant incentive which was applied for after the receipt of the first land use right.

Cash inflows included receipts related to closing three large projects during the six months ending June 30, 2013. Two of these projects were completed contracts; one for an ALTI-ESS Advantagetm to Vestas Wind Systems A/S and one for an ALTI-ESS to Hawaiian Electric Light Company ("HELCO") and Hawaii Natural Energy Institute ("HNEI"). The third project was for an ALTI-ESS Advantagetm system which was delivered as an equipment lease to Energy Storage Holdings, LLC.

A summary of our cash position at June 30, 2013 included cash and cash equivalents of $8.7 million. In addition, we had $9.1 million in restricted cash of which $6.1 million, related to collateral for indebtedness, is classified as short-term leaving $3.0 million in long-term grant incentives. We have applied for additional grant incentives in the amount of approximately $8.6 million. We expect to receive information on the grant incentive approval in the third quarter of 2013. We received $4.0 million in customer receipts during the six months ended June 30, 2013.

We believe that cash on hand and restricted cash available for certain operations in China will be sufficient to fund the remaining costs of approximately $3 million to complete construction of the facilities in China. In May 2013, we applied for grant incentives in the amount of $7.4 million and $1.2 million which we expect to receive in the third quarter of 2013. In the U.S., our operations have been supported by existing cash and $5.7 million in loans, secured by cash pledged by our Chinese affiliates, which come due in the fourth quarter of 2013. We intend to seek a renewal of those loans. In the near term, U.S. operations may be supported from revenues from product sales, by selling inventory, equipment and services to Altair China and receiving fees associated with intellectual property licensing and royalties. In the longer term, U.S. operations will need to obtain capital, which we anticipate it would obtain through the issuance of equity securities, strategic partnerships or investments or loans supported by its Chinese assets.

We evaluate our capital needs and the availability of capital on an ongoing basis and, consistent with past practice, expect to seek capital when appropriate and on such terms as are available to us and we deem appropriate, based upon our assessment of our current liquidity, capital needs and the availability of capital. We continue to use significant amounts of cash for our operations and have no commitments to receive capital and can provide no assurance adequate capital will be available when and as required.

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 June 30, 2013:

In thousands of dollars

Contractual Obligations           Total      < 1 yr       1-3 yrs       3-5 yrs       > 5 yrs
Note payable                     $ 6,680     $ 5,730     $     950     $       -     $       -
Contractual service agreements       574         574
Capital leases                         7           6             1
Purchase obligations               1,249       1,249
Total                            $ 8,510     $ 7,559     $     951     $       -     $       -

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet transactions during the six months ending June 30, 2013.

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.

Results of Operations

Three and Six Months Ended June 30, 2013 and Compared to Three and Six Months Ended June 30, 2012

In thousands of dollars

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