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 YEAR ENDED DECEMBER 31, 2016

 

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No.   1-12497

 

ALTAIR NANOTECHNOLOGIES INC.

 

(Exact Name of Registrant as Specified in Charter)

 

Delaware		33-1084375
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
204 Edison Way Reno, Nevada 89502-2306	Registrant’s telephone number, including area code: 775-856-2500	92882
(Address of Principal Executive Offices)		(Zip Code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ]  No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes [X]  No []

 

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 [ ]  No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes []  No [X]

 

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 a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		[x]
				Emerging growth company		☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes [  ]  No [X] 

   

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, as of the last business day of the quarter ended June 30, 2016, was approximately $4.9 million.

 

As of May 15, 2017, there were 11,606,735 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

 

 

ALTAIR NANOTECHNOLOGIES INC.

 

FORM 10-K

 

For the Year Ended December 31, 2016

 

 

 

 

INDEX

 

 

		Page
PART I
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	14
ITEM 1B.	Unresolved Staff Comments	25
ITEM 2.	Properties	25
ITEM 3.	Legal Proceedings	25
ITEM 4.	Mine Safety Disclosures	26
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
ITEM 6.	Selected Financial Data	27
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
ITEM 8.	Financial Statements and Supplementary Data	37
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
ITEM 9A.	Controls and Procedures	76
ITEM 9B.	Other Information	78
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	79
ITEM 11.	Executive Compensation	84
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	88
ITEM 14.	Principal Accounting Fees and Services	89
PART IV
ITEM 15.	Exhibits, Financial Statements Schedules	90

 

 

 Explanatory Note

 

Altair Nanotechnologies Inc. (the “Company” and versions of “we”) is filing this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (this “Report”) in order to comply with certain obligations that may have applied to it. On November 17, 2016, the SEC found that the Company had not complied with a settlement agreement and issued an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934, as a result of which the registration of the common stock of the Company under Section 12 of the Exchange Act was revoked. Except as otherwise required and permitted, the Company does not expect to file additional periodic reports.  

 

Note About Forward-Looking Statements

 

This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act that involve risks and uncertainties, as well as assumptions that, if they prove incorrect or never materialize, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Item 1—“Business” and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may also appear in other areas of this Report. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements regarding or assuming our ability to continue as a going concern; any statements regarding development of customers in China or elsewhere; statements concerning our customers and diversification of our customer base; statements concerning new products or services; statements related to change of control transactions and how any transaction may affect our business or financial situation; statements related to future economic conditions or performance; statements as to industry trends; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” or “plan,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed under Part I, Item 1.A. “Risk Factors” in this Report, and such forward looking statements are qualified in their entirety by reference to such risk factors. Furthermore, such forward-looking statements speak only as of the date of this 10-K. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. New factors emerge from time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

 

PART I

 

 

Unless the context requires otherwise, all references to “Altair,” “we,” “Altair Nanotechnologies Inc,” or the “Company” in this Report refer to Altair Nanotechnologies Inc. and all of its consolidated subsidiaries. Altair currently has one wholly owned subsidiary, Altair U.S. Holdings, Inc. Altair U.S. Holdings, Inc. directly or indirectly wholly owns Altairnano, Inc. Altairnano, Inc. directly wholly owns Altair Nanotechnologies (China) Co., Ltd., a Wholly Foreign Owned Enterprise (“WOFE”) in China (“Altair China”) and Altair China directly wholly owns Northern Altair Nanotechnologies Co., Ltd., a domestic company in China (“Northern Altair”).

 

We have registered the following trademarks: Altair Nanotechnologies Inc^® and Altairnano^®. Any other trademarks and service marks used in this Report are the property of their respective holders.

 

 

ITEM 1: BUSINESS

 

We are a Delaware corporation that develops, manufactures and sells nano lithium titanate (“nLTO”) materials, batteries and energy storage systems (referred to as “ESS” or by our brand name “ALTI-ESS”). 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.

 

 

             Since 2012, we have focused on transitioning our operations from the United States to China. As of December 31, 2016, we have in place a phase three nLTO production line with an annual production capacity of 3,500 metric tons.

 

We do not currently manufacture our batteries, but our Original Equipment Manufacturer (“OEM”) cell producer’s capacity can reach 70,000 Altair format cells per year. Sometime in the future, we expect to validate another OEM cell producer to reduce dependency on one supplier, which we expect will provide competition between suppliers and reduce our costs. We also have in place two operational battery module production lines with a total capacity of approximately 6,000 modules per year. As of the date of this Report, we manufacture all of our products in China and sell all of our products from China. 

 

By building manufacturing and assembly facilities in Wu’an, China for our nLTO material, modules and soon our energy storage systems, we have centered the whole supply chain in China. In adopting this strategy, we expect to achieve:

 

■

Reduction of production costs

■

Better quality control

■

Decreased shipping costs due to all production facilities being located in one central location

■

Centralized management control and internal communications, and

■

Centralized sales management

 

 

Primary Market Areas

 

China Market

 

Our primary business in the China market is to sell our nLTO to Hebei Yinlong New Energy Co., LTD (“YLE”) and Zhuhai Yinlong New Energy Co., LTD (“ZYLE”) for use by YLE and ZYLE in their production batteries to be used in electric buses it manufactures and sells. ZYLE is our majority shareholder and YLE is a subsidiary of ZYLE.  

 

In the electric grid market, Northern Altair won a bid for a nLTO battery module rack system designed specifically for a China State grid 2MW Solar-wind ESS demonstration project. Total value is approximately $2.4 million and this project represents our first bid won in the China grid market. The project was completed in January 2017, subject to warranty. China has announced their “Energy Saving and New Energy Auto Industry Development Plan (2012-2020)" issued in 2012 which provides: by 2020, China aims to achieve manufacturing capacity of pure electric car and plug-in hybrid car for 2 million sets, and the accumulative output and sale of these cars exceeds 5 million sets. The development of fuel cell car and automotive hydrogen energy industry will be in sync with the international society. China announced their “Energy Development Strategic Action Plan (2014-2020)” in 2014. By 2020, China aims to control its primary energy consumption under 4.8 billion tons standard coal to limit greenhouse gas emissions, increase the share of non-fossil fuels to at least 15% of primary energy consumption, natural gas to more than 10%, and restrict coal to beneath 62%. China is investing huge amounts of money to support new energy projects, aims to achieve installed wind power capacity of 0.2 billion KW, installed photovoltaic capacity of about 0.1 billion KW, and geothermal energy usage for 50 million tons of standard coal by 2020.

 

European Market

 

Our marketing and sales effort in the European market are focused on the transportation industry. Examples of our customers include the following:

 

■

Electric Bus (“EV Bus”): Hybricon in Sweden, a Swedish public company, produces a high standard EV Bus incorporated with our nLTO battery modules. In their EV Buses, our modules operate in -30+°C winter environment in Sweden. In addition, there are some traditional EV Bus conversion companies also using our batteries.

■

Trolley bus: We sell nLTO battery modules in three Middle Europe countries: Czech Republic, Slovakia and Poland. We provide nLTO battery modules to Skoda, Ekowa Electric and Solaris Bus & Coach S.A. Since 2014, our nLTO battery modules have been successfully operating in transportation vehicles, all produced by middle European producers: 6 Trolley buses in Castellón; 2 Trolley buses in Cagliari; 12 Trams in Konya; 1 Tram in Beijing; 1 tram and 1 pure EV Bus in Pearson; and 2 trolley buses in Zlin.

 

 

■

Port container handling machine: Cargotec in Finland, is a subsidiary company of Kalmar the world leader of port handling solutions. Our batteries have been successfully used in their hybrid systems and machines, which are used in the development of their pure electric power systems. Cargotec signed long term purchase agreement with Altair in 2013, for a period of 3 years and thereafter for 1 year at a time under the terms and termination provisions of the agreement.

■	In 2016, we delivered approximately 1,249 modules to our European customers with a plan to increase this quantity to approximately 3,232 modules to our European customers in 2017.

 

The EU announced a “2020 Energy Strategy” in 2010. By 2020, the EU aims to reduce its greenhouse gas emissions by at least 20%, increase the share of renewable energy to at least 20% of consumption, and achieve energy savings of 20% or more. All EU countries must also achieve a 10% share of renewable energy in their transport sector. The EU is investing huge amounts of money to support new energy projects in EU countries. Many new energy companies or research institutes will get funding from the strategy. The amount of capital available to companies in the industry has increased and is helping to lead the new energy industrialization. The European market has 98% of Altair’s battery module market share. Over the long term, we plan to seek to sell ESS in Europe.

 

Marketing

 

We market our product primarily through the reputation of our products, providing samples and relationships we have generated over time. As capital becomes available, we may commence a more active marketing campaign.

 

Global Trends Driving Growth in Our Markets

 

	Driver			Impact			Solution
	Energy Security			Smart Grid			Batteries manage frequency regulation, reducing inefficient thermal generation
	Emissions Reduction / Global Warming			Growth of Renewable Energy			Batteries manage ramping and smoothing
	Variable Costs of Fossil Fuels			Electric and Hybrid Vehicles			High power batteries enable cost effective PHEV and EV with fast charging
	Sustainability			Reducing dependency on lead-acid technology			Environmentally-friendly relative to lead acid

 

 

Recent Achievements and Key Targets

  

Since the beginning of 2016, we have achieved or began focusing on the following:

 

■

In 2017, we reached a preliminary settlement in our derivative proceeding, subject to court approval; the hearing is scheduled for August 2017.

■

In 2016, we built the new 3,500 metric ton nLTO production line equipped to produce in 2017.

■

In 2016, we delivered approximately 1,249 modules to European clients with plans to increase this quantity to 3,232 modules to customers in 2017.

 

 

■

We are submitting proposals to customers Altair Energy Storage Systems (“ESS””) in 2017, as we continue to focus on developing the energy storage market for China, as well as focusing on the European and American market. We are actively responding to customer inquiries for our products and plan to sell a higher volume in 2017.

■

In 2016, we began the process establishing a research and development team testing facility in China to carry forward continued product research and development to enhance and control costs even further for the products we already produce.

■

We offer a range of products for 2017 including: nLTO powder, cells, modules, packs, configurable Power-Rack systems, and turn-key energy storage systems (ESS) for our target customers. Our standard module size is 24V 70 Amp, however higher, voltages are available.

 

We also are working towards improving and developing our opportunities in the ESS market, while seeking to expand our footprint in the European EV Bus, equipment handling machines and ESS markets. 

 

Primary Products and Target Energy Markets

 

Primary Products

 

We have developed, and continue to develop, through our primary materials science research, a lithium-ion battery chemistry using nanotechnologies to create materials offering unique electrochemistry properties for rechargeable batteries. We refer to this material as nano lithium titanate, or nLTO, and it is applied to the battery anode. Our nLTO battery cells offer 5 to 11 times greater cycle life than conventional lithium-ion technologies, an ability to rapidly discharge and charge, an ability to operate in extremely cold and hot temperatures, and a greater margin of safety than conventional lithium-ion technologies. Our Gen 4 products have improved on these aspects. Our nLTO batteries are designed to focus on high power applications, and are ideally suited for fast response applications in the electric grid segment for grid stability, hybrid and all-electric vehicles, and industrial applications.

 

We offer a range of products for 2017 including: nLTO powder, cells, modules, packs, configurable PowerRack systems, and turn-key energy storage systems (ESS) for our target customers. Our standard module size is 24V, however higher voltages are available.

 

 

Target Energy Related Markets

 

Transportation (Commercial Vehicles)

 

Large cities, counties and transit authorities are increasingly turning to electric and hybrid EV Buses to reduce pollution and reliance on diesel fuel for their transportation systems, especially in markets like China where there are significant levels of pollution. Commercial vehicle manufacturers, including medium-duty and heavy-duty trucks, are likewise evaluating hybrid systems to improve fuel economy and in some instances run battery-only systems at low speeds. At this stage of the market development, electric and hybrid electric vehicles generally cost more than their conventional counterparts, although the upfront cost may be offset by lower operating costs and a potentially longer operating life. Proterra, a U.S based EV Bus manufacturer had one of its all-EV Buses using our batteries tested at the Altoona Test Track by Penn State University and demonstrated a 17.5 to 29.5 miles per gallon (mpg) fuel equivalent vs. a normal diesel bus that achieved under 4 mpg. This difference translates into a fuel savings of about $350,000 over the life of the bus assuming a fuel cost of $3.50 per gallon. This is in addition to the savings in maintenance costs over the life of the bus, as a result of fewer mechanical systems and moving parts to maintain. We believe that cities, counties and commercial vehicle operators are willing to accept the higher upfront costs in order to benefit from the expected savings in long-term operating costs and potentially longer operating life, as well as the environmental benefits.

 

Electric and hybrid-electric commercial vehicles require a significant amount of power, operate throughout the day, have a long-expected life and run in extreme temperature ranges. The relative strengths of our nLTO batteries, including the high levels of power, rapid charge and discharge rates, long cycle life and ability to function at temperature extremes, are particularly well suited for electric and hybrid commercial vehicles, giving us what we believe is a compelling competitive advantage in this market.

 

 

With the growing concern regarding the release of pollutants associated with burning fossil fuels, the attractiveness of all electric and hybrid EV Buses is rapidly growing. We are attempting to establish our nLTO batteries as the power source of choice in this emerging market. Given the projected growth of EV Buses in the Asia Pacific region, we view China as one of our largest market opportunities within the transportation segment.

 

Electric Grid

 

Globally, electric utilities and power generation companies seek to maintain high levels of grid stability while seeking cost effective ways to accurately match electricity generation with demand. Essentially, there is no inventory of electricity; demand and generation must match. While the industry is capable of doing this from hour to hour, variations in load and demand from minute to minute cannot be accurately forecasted. When imbalances occur, the frequency (60 Hz in the U.S) can vary and must be balanced within very tight tolerances. Maintaining these tolerances is typically achieved through the use of auxiliary generators. If the load is either higher or lower than the power being generated, an auxiliary generator is either started or stopped. However, it takes these generators from generally five to fifteen minutes to ramp up to full efficient operation or to shut down. During that period, the load may change directions and the grid operator then must direct another auxiliary generator to shut down or ramp up. This is a very inefficient process with the grid operators constantly chasing a variable load. The process of managing these very short-term changes in energy demand is referred to as “frequency regulation.”

  

Utilities can address frequency regulation issues by maintaining on-line generating capacity at a level that is always higher than expected peak demand; however, this can be an expensive solution, particularly where natural gas, diesel and other alternative fuels are not affordable alternatives. Most U.S. utilities are required to maintain between 1% - 1.5% of their peak load capacity to provide frequency regulation. In many foreign countries where the electric grid is not as well developed as it is in the U.S., utilities need to reserve up to 5% or more of their capacity strictly to provide frequency regulation.

 

To reduce the costs of providing frequency regulation, utilities and grid operators are seeking “fast response” energy storage systems, and battery-based systems can offer significant advantages over slower response sources of conventional generation. When supply exceeds demand for a short period, fast response storage systems deliver electric energy back to the grid for a short period to give operators time to reroute energy from another power generator or power-up a new power source. Our large-scale nLTO battery systems can react in milliseconds and meet this need.

 

The need for a fast response energy storage technology, like our large-scale nLTO ESS, is increased by the accelerated use of renewable energy sources. Photo Voltaic (PV) solar and wind power generation by nature are intermittent and unpredictable sources of energy that can fluctuate widely in a very short period of time. For example, it is not uncommon for a PV array to fluctuate +/- 50% in less than 90 seconds. With a small rooftop array, it isn’t an issue, because the size of the generator is too small to matter. However, with a 50+ megawatt array, problems arise as the electric grid isn’t currently built to handle this kind of a fluctuation. According to the Federal Energy Regulatory Commission, as of December 2016, twenty-nine states, the District of Columbia and three territories require the integration of renewable energy sources into the power grid through legislated renewable portfolio standards, while eight states and one territory have set renewable energy goals.

 

Many of these states have established targets requiring the integration of renewable generation sources equal to or exceeding 25% of total generation within the next decade. California is a good case in point. California has a mandate to generate 33% of its electricity from renewable energy sources by 2020. The mandated adoption of these renewable energy sources is likely to increase the need for effective, efficient, clean energy storage technologies to provide frequency regulation services and maintain the reliability and stability of the associated electric grid systems. For example, California Assembly Bill 2514 enacted in 2010, requires the California Public Utilities Commission (CPUC) to establish energy storage procurement targets for California load serving entities in 2015 and 2020, if cost effective and commercially viable by October 2013. Implementation of AB 2514 is underway, and in February 2013, CPUC approved a long-term procurement decision and ordered Southern California Edison (SCE) to procure between 1,400 and 1,800 megawatts of energy resource capacity in the Los Angeles basin to meet long term local capacity requirements by 2021. Of this amount, CPUC required SCE to procure at least 50 megawatts from energy storage resources, as well as up to an additional 600 megawatts of capacity from preferred resources, which include energy efficiency, demand response and distributed generation, along with additional energy storage resources.

 

 

In our view, the key to addressing this market is to continually improve the performance of our energy storage systems, while reducing their cost (or the perception of their higher cost) to the end user. One key advantage that our nLTO batteries have is their projected higher cycle life, which can be four to six times higher than that of certain competing lithium battery technologies, such as lithium iron phosphate. Accordingly, we seek to market our products not on an initial cost of acquisition basis or even on a watt-hours per kilogram basis, but rather on the total cost of ownership over time. In addition, we seek to market the fast response capabilities of our battery, the value of which cannot be captured on a simple watt-hours per kilogram basis. The importance of fast response resources is beginning to gain considerable traction, as evidenced by the Federal Energy Regulatory Commission’s (FERC) Order 755, whose “pay for performance” rules not only value the capacity of frequency regulation services, but also its speed and accuracy. We believe that these pay for performance rules will help mitigate the impact that low natural gas prices have had on the U.S. energy storage market for the electric grid.

 

Industrial

 

The industrial market segment encompasses a broad range of applications, ranging from the use of battery systems on cargo cranes to the use of battery systems with heavy industrial equipment. We believe that our high-power batteries can play an important role within this market segment. For example, our battery modules have been successfully integrated into the power system of Cargotec’s port handling machine. The company is a subsidiary of Kalmar who is the world leader of port handling solution provider.

 

Key Features of Our nLTO Batteries

 

One of the principal advantages of our nLTO battery is its rapid charge and discharge rate. The charge rate is the rate at which a battery’s energy is replenished, and the discharge rate is the rate at which the energy stored in a battery is transferred (or, in the case of self-discharge, leaked) out. Through the optimization of materials used in our nLTO battery cells, our current cells are capable of recharge times of 10 minutes to 95% or more of initial battery capacity. This rapid charge capability is important in our target markets.

 

Our nLTO batteries have both a longer cycle life and calendar life than commercially available rechargeable battery technologies such as conventional lithium ion, nickel-metal hydride (NiMH) batteries and nickel cadmium (NiCd) batteries. The ability of any rechargeable battery to store energy will diminish as a result of repeated charge/discharge cycles. A battery’s “cycle life” is the number of times it can be charged and discharged without a significant reduction in its energy storage capacity. Our nLTO is termed a zero-strain material, meaning that the material essentially does not change shape upon the entry and exit of a lithium ion in the material. Graphite, the most common material in conventional lithium ion batteries, will expand and contract as much as 8% with each charge/discharge cycle. This constant change in volume rapidly breaks down the battery resulting in significantly shorter calendar and cycle life than with our nLTO anodes. Our current generation of cells can achieve 16,000 cycles, which represents a significant improvement over conventional lithium batteries, which typically retain that level of charge capacity only through 2,500 to 4,000 deep charge/discharge cycles. Depending on the actual duty cycles and temperature, those figures can drop even lower.

 

Our nLTO also represents a breakthrough in low and high-temperature performance. Nearly 90% of room temperature charge retention is realized at -30°C from our nLTO battery cells. In contrast, common lithium ion technology possesses virtually no charging capabilities at this low temperature, and the other rechargeable battery types such as lead acid, NiMH and NiCd take 10 to 20 times longer to charge at this low temperature.

 

We also believe that relative safety is one of the strengths of our nLTO batteries. Any battery cell or large battery unit with lithium ion cell technology must take into account safety considerations, the most important of which is thermal runaway.  Thermal runaway is the temperature at which the battery chemistry will break down causing the battery to overheat and potentially explode or catch fire. This temperature is often referred to as the critical temperature.  Critical temperature for lithium ion battery cells using conventional graphite anodes is around 130° C, a direct result of chemical reaction between the graphite and the electrolyte.  With our current nLTO anode in place of graphite and an appropriate cathode material, that critical temperature will be close to 200° C, an increase in safety margin of approximately 70° C.  Materials we are using in our lab operate at 250° C before the critical temperature is reached. The batteries we and our partners are developing for high power applications often consist of dozens or even thousands of battery cells working together as part of a single modular battery unit. When a large number of cells are aggregated into a single battery unit, the likelihood of, and risks associated with, thermal runaway increases.  In this context, we believe that the additional temperature margin our individual battery cells experience before reaching the critical temperature makes our battery cells better suited than competing lithium ion batteries for the high-power applications we are targeting. 

 

 

The current generation of batteries made with our nLTO exhibit lower energy density at room temperatures than conventional lithium ion systems, although we are developing newer generations of nLTO batteries, which will increase our energy density. Energy density is normally described as watt-hours per kilogram or watt-hours per liter and refers to the available energy per unit weight or per unit volume. A battery with high energy density will deliver more energy per unit weight or volume than a battery with lower energy density. Our batteries made with our nLTO have energy densities, watt-hours per kilogram, that are better than lead acid, NiCd and NiMH batteries and approximately 50-70% of conventional lithium ion batteries when operated at room temperature. However, this energy density disadvantage is significantly less compared to conventional lithium ion batteries as the operating temperature moves away from room temperature, particularly to colder environments, and less significant in environments such as large vehicles and utilities in which battery volume is not a significant issue. When the end use of the battery requires constant performance across a wide range of temperatures, such as the need for a hybrid bus to function comparably in both winter and summer, our nLTO cells may be the preferred solution. Also, conventional lithium ion batteries prefer to cycle between approximately 30% and 80% state of charge to achieve optimum cycle life. As a result, they only use about 50% of their nominal available energy. Our nLTO batteries, on the other hand, are not so limited and as a result can use approximately 90% of their nominal available energy. Given this, we believe that comparisons of battery technologies on a watt-hours per kilogram basis can be misleading, as nLTO batteries offer a greater range of actual usable energy, along with four-to-six times the cycle life across a wider range of operating conditions.

 

Sources of Supply and Raw Materials

 

An important consideration, as we begin to grow our revenue stream, is to ensure that we have access to the various components and raw materials we need to manufacture and assemble our various products. As we anticipate larger orders, establishing multiple sources for key components is becoming much more important to us. Moreover, a key focus of our business plan is to aggregate our supply chain not only to reduce cost, but also to accelerate our ability to deliver products on a timely basis to our customers.

 

The basic building block for our battery cell’s anode is nLTO powder. We use compounds of lithium and of titanium to manufacture our nLTO. We currently source our lithium compound from the largest producers in China and do not foresee any problems in scaling up our purchases as our volume of business increases. Meanwhile we are developing and qualifying more suppliers in U.S., Australia and China. From end of 2015, Lithium material price has been rising rapidly, and our company has to be ready for solutions. We currently source our titanium compound from a supplier who is a global leader in the field and a Chinese domestic supplier, and we are in the process of identifying and qualifying additional sources for this key material. The supply of our cathode material of our cells supply is from a single supplier; therefore, we are planning to test materials from another Japanese supplier. At this point we are not anticipating any problems or disruptions to our supply of these raw material compounds.

 

As of the date hereof, we have only one source for the contract manufacturing of our nLTO battery cells, which are the building blocks of our battery modules and energy storage systems. This supplier has passed our rigorous technical requirements to be as our qualified supplier. We plan over the long run to qualify more OEM suppliers to reduce our dependency on one single supplier and meanwhile create competition between suppliers and eventually reduce cost.

 

Having multiple qualified suppliers for components and materials used in the manufacture and assembly of our primary products is part of the business plan and has been realized for many of the components and materials. Supplier qualification for additional sources of components and materials will continue in 2017.

 

Competition

 

Electric Grid: A number of advanced energy storage and power electronic component producers have entered into the frequency regulation market. They include Wanxiang, BYD, GS Yuasa, LG Chem, Mitsubishi, Saft, Microvast, Toshiba, Enerdel and XtremePower. As we or others continue to demonstrate traction in this market we expect to see increasing levels of competition from other suppliers and systems integrators, especially as the market rules in the U.S. and other markets move towards the acceptance of battery-based energy storage for frequency regulation. Favorable signs emerged in 2012, such as California Independent System Operator’s (CAISO) decision to adopt market changes which would reward frequency regulation resources for fast performance. CAISO now joins PJM Interconnection as the first to propose new rules which seek to comply with FERC’s Order 755, which requires pay for performance, especially for fast response resources that provide frequency regulation services. We believe that these changes are favorable for battery-based energy storage systems in general and for our nLTO battery technologies specifically, due to our unique fast response capabilities.

 

 

Our products typically compete with existing methods for providing frequency regulation and renewable integration rather than competing battery manufacturers. Today, most utilities and regional transmission organizations use existing coal, gas and diesel generating sources to provide frequency regulation. While these sources are inefficient and can be highly polluting (coal and diesel), they are known quantities and accepted by the various regulators and utilities. In many instances, particularly in the U.S., we are attempting to displace this accepted way of doing things. Consequently, the typical sales cycle for selling an energy storage system for frequency regulation can be quite lengthy.

 

Another challenge is the cost of natural gas in the U.S. Much of the existing frequency regulation in the U.S. is provided by natural gas powered generators, and the price of natural gas pricing has been at historic lows. As a result, there is less of a financial incentive for utilities to implement our solution. This cost environment, however, is not expected to be sustainable. Natural gas prices are volatile and may rise over time, and batteries, like all technologies, will eventually see their prices drop as efficiencies are gained and as production volumes increase. As a result, we see greater opportunities for our frequency regulation products emerging over time in the U.S., especially with the introduction of new market mechanisms that place greater emphasis on fast response services. Moreover, we expect to see growing demand outside of the U.S., where fuel costs are significantly higher. If this new energy storage capability starts to get market traction, we expect the rate of acceptance to accelerate. Until then, however, we are experiencing a long sales cycle and don’t expect that to materially change in the near future. We believe that once we demonstrate revenue traction and demonstrate that the market does exist and is very large, other larger suppliers may also target this market.

 

In the Transportation (Commercial Vehicles), automotive passenger car markets, there are a large number of battery manufacturers and systems integrators currently serving the market. Many of them are larger companies with substantially stronger financial resources than we have. We believe the passenger car market will be driven by low margins and volume. As a result, we believe that only larger, well-capitalized companies will ultimately be successful in this market. We believe that commercial vehicles, including buses, medium- and heavy-duty trucks, on the other hand, present a different set of dynamics. The characteristics of our batteries are an excellent fit to satisfy the requirements of this market, and the needs here are different than in the general passenger car automotive market. We believe that we can be a successful competitor in this segment of the overall transportation market.

 

With respect to the electric and hybrid electric commercial vehicle markets, we are not aware of any commercially available products that have similar performance attributes as our nLTO batteries, although we suspect that similar batteries exist. Nonetheless, competitors have announced advanced lithium ion batteries and battery products aimed at these markets. Some may have greater energy density than our nLTO batteries.

  

Currently, NiMH batteries dominate the hybrid electric vehicle market, although major hybrid manufacturers are beginning to switch to lithium ion batteries. NiMH batteries improve upon the energy capacity and power capabilities of older alternatives, such as NiCd (for the same size cell) by 30% to 40%. Since they contain fewer toxins than NiCd batteries, NiMH batteries are more environmentally friendly than NiCd batteries, although they are not as environmentally friendly as our nLTO battery. Like NiCd batteries, NiMH batteries can be charged in about 3 hours. Charging rates must be reduced by a factor of 5 to 10 at temperatures below 0°C (32°F) and above 40°C (104°F). NiMH batteries suffer from poor deep cycle ability (i.e. the ability to be discharged to 10% or less of their capacity), possessing a recharge capability following deep discharge on the order of 200 to 300 cycles. While NiMH batteries are capable of high power discharge, dedicated usage in high power applications limits cycle life even further. NiMH batteries also possess high self-discharge rates, which is unintentional leaking of a battery’s charge. NiMH batteries are intolerant to elevated temperature and, as a result, performance and capacity degrade sharply above room temperature. The most serious issue with NiMH, though, involves safety accompanying recharge. The temperature and internal pressure of a NiMH battery cell rises sharply as the cell nears 100% state of charge, necessitating the inclusion of complex cell monitoring electronics and sophisticated charging algorithms in order to prevent thermal runaway, and ultimately fire. A potential limiting factor for the widespread use of NiMH batteries may be the supply of nickel, potentially rendering the technology economically infeasible for these applications as demand continues to rise.

 

Producers of electric and hybrid electric vehicles are seeking to replace NiMH batteries with lithium ion batteries for several reasons. The demand for these vehicles is placing pressures on the limited supply of nickel, potentially rendering the technology economically infeasible for these applications as the demand continues to rise. Compared to NiMH batteries, lithium ion batteries are stable, charge more rapidly (in hours), exhibit low self-discharge, and require very little maintenance. Except as explained below, the safety, cycle life, calendar life, environmental impact and power of lithium ion batteries is comparable to those of NiMH and NiCd batteries.

 

 

Lithium ion batteries are the batteries of choice in small electronics, such as cell phones and portable computers, where high energy density and light weight are important. These same attributes are desired for electric vehicle, hybrid electric vehicle, fast energy storage and other markets. However, these applications are principally high power demand applications and/or pose other demands on usage, such as extremes of temperature, need for extremely short recharge times, and even longer extended lifetimes. Because of safety concerns related principally to the presence of graphite in conventional lithium ion batteries, conventional graphite-based lithium ion batteries sufficiently large for such power uses may raise safety concerns. In addition, current lithium ion technology is only capable of about 2,500 to 4,000 cycles. Conventional lithium ion batteries also do not function well at extremely hot or cold temperatures. Our batteries - which are safer, have a longer cycle life, rapid charge and discharge rates and function well at extreme temperatures - are designed to address the power market by providing many of the key benefits of lithium ion batteries without the shortcomings relative to the power market. As noted above, our competitors are developing high power, and temperature resilient non-conventional lithium ion batteries. We do not know the exact attributes of the evolving batteries.

 

Intellectual Property

 

We currently have a total of 12 U.S. and 33 foreign patents.  Of these foreign patents, none are issued in China.  We have 2 patent applications pending and these applications have been made in the U.S. and in 14 foreign countries, including China. The U.S. patents begin to expire in 2020. 

 

The granted patents covering our nLTO technology include: 1) Method for producing catalyst structures, 2) Method for producing mixed metal oxides and metal oxide compounds, 3) Process for making lithium titanate, 4) Process for making nano-sized and sub-micron-sized lithium-transition metal oxides, 5) High performance Lithium Titanium spinel Li4Ti5o12 for electrode material, 6) Method for Preparing a Lithium Ion Cell, and 7) Lithium Ion Cell Preparation. 

 

Pending patent applications are directed to a variety of inventions including: “Method for Preparing a Lithium Titanate Cell”; and “Process to Make Rutile Pigment”.

 

Research and Development Expenses

 

Research and development (“R&D”) expenditures include salaries, wages and other costs of personnel engaged in R&D, costs of services performed by others for R&D on our behalf are expensed as R&D costs when incurred. 

 

Our total R&D expenses were $3.2 million and $0.8 million for the years ended December 31, 2016 and 2015, respectively. Included in the R&D expenses are engineering, development and internal product innovation costs not billed to customers. From 2014 to 2015, we concentrated on stabilizing and expanding production in Wu’an, China and from 2016 and into 2017 we plan to put a large investment again into R&D in China with the support from our U.S. team.

 

Dependence on Significant Customers

 

For the year ended December 31, 2016, YLE (a related party) and ZYLE (a related party) were our two largest customers accounting for 66% and 18% of our total recognized revenues. For the year ended December 31, 2015, Hebei Yinlong (a related party) and TSK, were our two largest customers accounting for 49% and 12% of our total recognized revenues.

 

Open contracts include the China State Grid Project and an agreement to sell up to 2,000 tons of nLTO to our affiliate Hebei Yinlong. Completion of on-site installation, debugging and required performance testing was completed in January 2017. Thirty days from completion starts a five-year guarantee period. The Company will receive ten percent of the contract price at each stable operational use verification period, February 2018, 2019 and 2022, respectively.

  

Government Regulation

 

Our manufacturing activities and most of the business activities are now in China, we are supposed to comply with the stipulations of PRC environmental laws and regulations, including but not limited to those on air emissions, waste water discharge, solid waste disposal and noise control.  The main environmental regulations applicable to us include the PRC Environmental Protection Law, the PRC Law on the Prevention and Control of Water Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Air Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution.  We are also subject to laws supervising the packaging and shipment of some of our products, including our nLTO batteries, flammable and dangerous articles. Such laws and regulations define that we take steps to, among other measures, maintain air, water and soil quality standards, as well as ensure the safety of people concerned during the production, packaging, shipment, installation and use of the products. Strict government required testing standards must pass before the shipment of our products. 

 

 

Compliance with federal, state, or local laws or regulations represents a small part of our present budget. If we fail to comply with any such laws or regulations, however, 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.

 

Environmental Regulation and Liability  

 

As we conduct all of our manufacturing activities in China, we are subject to the requirements of PRC environmental laws and regulations on air emission, waste water discharge, solid waste and noise. The major environmental regulations applicable to us include the PRC Environmental Protection Law, the PRC Law on the Prevention and Control of Water Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Air Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution. We aim to comply with environmental laws and regulations and have been pushing ahead with the authentication of ISO 14001 for environmental practices. We have already passed the first step of the ISO 14001 appraisal and the second step of the appraisal is in process. Passing the second step of the appraisal will give us ISO 14001 certification.  We have built environmental treatment facilities concurrently with construction of our manufacturing facilities, where waste air, waste water and waste solids we generate can be treated in accordance with the relevant requirements. We also outsource disposal of solid waste we generate to a third-party contractor. Certain key materials used in manufacturing, such as cobalt dioxide, electrolyte and separators, have proven innocuous to worker’s health and safety as well as the environment. We are not subject to any admonitions, penalties, investigations or inquiries imposed by the environmental regulators, nor are we subject to any claims or legal proceedings to which we are named as defendant for violation of any environmental law or regulation. We do not have any reasonable basis to believe that there is any threatened claim, action or legal proceedings against us that would have a material adverse effect on our business, financial condition or results of operations.

 

Financial Information Geographic Information about Foreign Sales

 

Information with respect to foreign and domestic sales and related information is also presented in Note 16, Geographic Operating Information, of Notes to Consolidated Financial Statements in Part IV. 

 

Subsidiaries

 

Altair U.S. Holdings, Inc. was incorporated by Altair in December 2003 for the purpose of facilitating a corporate restructuring and consolidation of all U.S. subsidiaries under a U.S. holding company. Altair U.S. Holdings owns the capital stock of Mineral Recovery Systems, Inc., which currently has no operations, and Altairnano, Inc.

 

Altairnano, Inc. (f/k/a Altair Nanomaterials Inc.) holds all of our interest in our nanomaterials and titanium dioxide pigment technology and related assets. Altairnano, Inc. also owns Altair China, a WFOE in China, and Altair China owns Northern Altair, a domestic company in China.

 

Corporate History

 

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. At that time, its name was 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. domesticated from the Ontario Business Corporations Act to Canada’s federal corporate statute, the Canada Business Corporations Act. On May 15, 2012, Altair Nanotechnologies Inc. domesticated from Canada to the State of Delaware under the Delaware General Corporation Law.

 

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. Beginning in 1996, we entered into leases for mineral property near Camden, Tennessee and owned the rights to the Altair jig. Subsequently, we have terminated our leases on all of the Tennessee mineral properties and during 2009 disposed of the remaining centrifugal jigs and abandoned the applicable patents since we were unable to identify an interested party to purchase them.

 

 

In November 1999, we acquired all the rights of BHP Minerals International, Inc., or BHP, in the nanomaterials and titanium dioxide pigment technologies and the nanomaterials and titanium dioxide pigment assets from BHP. We are employing the nanomaterials technology as a platform for the production and sale of metal oxide nanoparticles in our nLTO batteries.

  

In July 2011, Energy Storage (China) (“EST China”), acquired 6,172,801 shares of common stock, representing 53% of the outstanding shares of common stock of Altair Nanotechnologies Inc.

 

On November 17, 2016, the Security Exchange Commission revoked the registration of our securities under Section 12 of the Securities Exchange Act of 1934, as amended. Following such revocation, FINRA promptly cancelled our stock trading symbol.

 

Employees

 

Our business is currently managed by Mr. Guohua Sun, Chief Executive Officer, and Ms. Karen Werner, Interim Chief Financial Officer. For the years ended December 31, 2016 and 2015; our U.S. operations had 18 and 31 employees; respectively. As of December 31, 2016 and 2015, our China operations had 1,107 and 598 employees; respectively. During 2017, we anticipate additional hiring, although this is dependent upon business volume growth and demand for our products. During 2016, we hired additional employees in China primarily in operations, engineering, research & development and sales & marketing.

 

As of January 2016, the module production was transferred from Anderson, Indiana to our manufacturing location in Wu’an, China. In the U.S., we are maintaining some of our core R&D personnel, who work out of offices in Reno, Nevada and Anderson, Indiana, who provide technical transfer and services to our China entities in the areas of core R&D, engineering operational capabilities and technologies that influence our manufacturing in Wu’an, China.

 

 

ITEM 1A. RISK FACTORS

 

An investment in our shares of common stock and related derivative securities involves significant risks. You should carefully consider the risks described in this Report before making an investment decision. Any of these risks could materially and adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your investment. Some factors in this section are forward-looking statements.

 

We may continue to experience significant losses from operations.

 

We have experienced a net loss in every fiscal year since our inception. Our loss from operations was $3.18 million for the year ended December 31, 2016 and $15.5 million for the year ended December 31, 2015. We may, or may not, be profitable in the future. Even if we are profitable in one or more future years, subsequent developments in the economy, our industry, customer base, business or cost structure, or an event such as significant litigation or a significant transaction, may cause us to again experience losses.

 

We may not be able to raise sufficient equity capital to finance our operations due to our operating results, the lack of a market for our common stock and similar factors.

 

As of December 31, 2016, we had approximately $0.8 million in cash and cash equivalents, $0.2 million in restricted cash and approximately $8.06 million in debt coming due during 2017 and approximately $37.95 million payable in and after 2018. We expect that in the future we will again need to raise capital.  With respect to any such capital raise, we may be unable to raise the amount of capital needed and may be forced to pay an extremely high price for capital.  Factors affecting the availability and price of capital may include the following:

 

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market factors affecting the availability and cost of capital generally, including increases or decreases in major stock market indexes, the stability of the banking and investment banking systems and general economic stability or instability;

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whether or stock is quoted on a stock market or listed on an exchange (which it currently is not);

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our financial results, particularly the amount of revenue we are generating from product sales;

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the market's perception of our ability to execute our business plan and any specific projects identified as uses of proceeds;

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our ownership structure and recent or anticipated dilution;

 

 

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the amount of our capital needs;

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our project investment requirements in China;

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the amount of our outstanding debt;

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the extent to which we are subject to material legal or regulatory proceeding or restrictions arising from such proceedings;

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the influence of EST China and its appointees on the Board of Directors which, among other things, may cause the Company to seek indebtedness as a source of capital, as opposed to the sale of capital stock, in order to permit EST China to maintain control;

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the absence of public information about our company;

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the perception by potential investor of our company and companies in our line of business; and

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the economics of projects being pursued.

 

If we are unable to raise required capital, we may be forced to discontinue operations.

 

The significant amount of debt we owe creates a material risk of default and insolvency.

 

As of December 31, 2016, we had approximately $8.06 million in debt that will come due in the next twelve months and approximately $37.95 million payable in and after 2018. This debt is secured by machinery and equipment, land use rights in China, third party guarantee, related party guarantee, and our building in Reno, Nevada. We do not have sufficient capital to repay such debt. If we are unable to refinance this debt, or otherwise raise sufficient capital to repay this debt, we will default. If we are in default, our creditors have a broad range of remedies, including taking action against the collateral. A default on our indebtedness, particularly that secured by our land use rights in China, would likely lead to our insolvency and a bankruptcy or similar event. In such a context, it is unlikely that there will be any amount available for distribution to its shareholders.

 

Our business is dependent upon two customers, both of which are affiliates of our majority shareholder.

 

During 2016, 84% of our revenue came from the sale of our nLTO powder to two customers in the electric bus business, both of which are affiliates of our majority shareholder EST China.  We expect our dependence upon these customers to continue in the foreseeable future. If one or both of these customers were to experience a business slowdown or begin purchasing substitute products from another provider, our business would be harmed.   This concentration also give these customer leverage in any negotiation with regard to price and other terms.  Any use of this leverage could harm our business and ability to continue as a going concern.

 

We have entered into contractual provisions that may significantly limit our ability to raise capital.

 

In conjunction with the closing of the purchase by EST China, an affiliate of Canon Investment Holdings Ltd. of shares representing over 50% of our outstanding shares in 2011, we granted certain rights to EST China, including the right to proportional representation on our Board of Directors, certain registration rights, and an option to purchase a sufficient number of our equity securities at market price to maintain their percentage of ownership should we offer, sell or issue new securities. These rights may dissuade potential investors from purchasing our capital or may require us to accept less than favorable terms in future financings.

 

Fluctuation in the value of the RMB may have a material adverse effect on your investment. 

 

The change in value of the RMB against the U.S. dollar is affected by changes in China’s political and economic conditions, among other things, as well as government actions and policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation, or depreciation, of the RMB against the U.S. dollar. As substantially all of our revenues and expenses are in RMB, an increase in the value of the RMB against the dollar would increase our expenses (and revenues) in U.S. dollars, and a decrease in the value of the RMB against the dollar would decrease our revenues (and our expenses) in U.S. dollars.  In recent years, there has been a trend of the Chinese government permitting the RMB to decrease in value relative to the U.S. dollars which would reduce our revenue and profits, if any, as reported in U.S. dollars and reduce the value of money repatriated to the United States.

 

We are subject to various regulatory regimes, and may be adversely affected by inquiries, investigations and allegations that we have not complied with governing rules and laws.

 

  

In light of the ownership structure of our company and our lines of business, we are subject to a variety of laws and regulatory regimes in addition to those applicable to all businesses generally.  For example, we were a reporting company registered under Section 12 under the Securities Exchange Act but were delisted in 2016 for failing to timely file our annual, quarterly and other reports. Such delisting does not eliminate our obligation under Section 12 under the Securities Exchange Act to be a registered and reporting issuer due to the amount of our assets and the number of our stockholders. We are currently not in compliance with such registration obligation. The absence of such registration will limit our ability to raise capital and leaves us vulnerable to regulatory and shareholder laws suits. If we attempted to re-register under the Securities Exchange Act, we would expect to be subject to an extended review by the staff at the SEC. We are also subject to Delaware corporate laws and state and federal environmental, health, safety and similar laws. Such laws and rules change frequently and are often complex.  In connection with such laws, we are subject to periodic audits, inquiries and investigations.  Any such audits, inquiries and investigations may divert considerable financial and human resources and adversely affect the execution of our business plan. 

 

Through such audits, inquiries and investigations, we or a regulator may determine that we are out of compliance with one or more governing rules or laws.  Remedying such non-compliance would divert additional financial and human resources.  In addition, in the future, we may be subject to a formal charge or determination that we have materially violated a governing law, rule or regulation. We may also be subject to lawsuits as a result of alleged violation of the securities laws or governing corporate laws.  Any charge or allegation, and particularly any determination, that we had materially violated a governing law would harm our ability to enter into business relationships, recruit qualified officers and employees and raise capital.

 

Laws governing repatriation of investments in a China WFOE may contribute to a need to obtain capital to finance our non-China operations in the near future.

 

We have established a Wholly Foreign Owned Enterprise, or WFOE, in China through which we directly or indirectly conduct our Chinese operations. When establishing a WFOE, we have been required to designate a minimum registered capital amount and contribute at least such amount to the WFOE. Chinese law severely limits the ability of a WFOE to repatriate money to its non-Chinese parent. In general, any distributions to the non-Chinese parent must derive from profits, as determined in accordance with Chinese accounting standards and regulations. Our WFOE will also be required to set aside at least 10% of its after-tax profit based on Chinese accounting standards each year to a statutory surplus reserve fund until the accumulative amount of such reserve reaches 50% of registered capital. These reserves are not distributable as dividends.

 

In addition, our WFOE may be required to allocate a portion of its after-tax profit to a staff welfare and bonus fund. Moreover, if our WFOE incurs debt on its own behalf in the future, the instruments governing the debt may restrict our WFOEs’ ability to pay dividends or make other distributions to us. Any limitation on the ability of our WFOE to distribute dividends and other distributions to us could materially and adversely limit our ability to make investments or enter into joint ventures that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

U.S. news sources report that the Chinese government has placed, or began enforcing, limitations on lending by Chinese banks, which limits may affect our ability to borrow capital for our Chinese capital investment projects, for operations and to refinance existing debt.

 

Many U.S. news sources have reported in recent years that, due to an increase in bad loans and other reasons, the Chinese government has imposed, or began enforcing, limitations on lending by Chinese banks and other lending entities. Northern Altair has been seeking loans from Chinese banks and other lending entities for its proposed capital investments and operations. This increased regulation and scrutiny may decrease the likelihood that Northern Altair can qualify for debt financing to fund proposed projects and to refinance existing indebtedness. Even if Northern Altair does qualify, terms of financing may be more onerous than anticipated. Any inability to finance our Chinese operations through debt would likely slow our growth in China and may prevent us from completing all aspects of our proposed nLTO and energy storage system manufacturing facility in China. Any failure to refinance existing indebtedness may lead to a default and insolvency.

  

We may become subject to international economic and political risks over which we have little or no control and may be unable to alter our business practice in time to avoid the possibility of reduced revenues.

 

We conduct substantially all our business outside the United States and plan to significantly increase our presence in China. Doing business outside the United States subjects us to various risks, including changing economic and political conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation. We have no control over most of these risks and may be unable to anticipate or adapt to changes in international economic and political conditions. This may lead to sudden and unexpected revenue reductions or expense increases.

 

 

China’s economic policies, laws and regulations could affect our business.

 

While China’s economy has experienced significant growth in the past twenty years, such growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but they may also have a negative effect on us. For example, operating results and financial conditions may be adversely affected by the government control over capital investments or changes in tax regulations. The economy of China has been transitioning from a planned economy to a more market-oriented economy. In recent years, the PRC government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets, and the establishment of corporate governance in business enterprises; however, a substantial portion of productive assets in China are still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over China’s economic growth through the allocation of resources, the control of payment of foreign currency-denominated obligations, the setting of monetary policy and the provision of preferential treatment to particular industries or companies. Any adverse change in the economic conditions or government policies in China could directly harm our business or harm overall economic growth in China, which in either case could increase our expenses and decrease expected revenues.

 

We may have difficulty establishing adequate management, legal and financial controls internationally.

 

We are a small company with operation in multiple countries, particularly the United States and China. As a result of differences in management, accounting, legal, language and cultural norms, we may experience difficulty in establishing and enforcing management, legal and financial controls. We may also experience difficulty collecting financial data and preparing financial statements, books of account and corporate records and instituting standard business practices for our international projects as well as in our China-based operations. In fact, such difficulty is the principal reason that we failed to timely file required periodic reports beginning in 2013 and were deregistered as a reporting issuer in 2016. This issue also led to our delisting the Nasdaq Stock Market, the removal of our stock symbol by FINRA and various direct, derivative, regulatory and other investigations and lawsuits. This has harmed the price of our common stock, our ability to raise capital, our ability to sign agreements with customers and suppliers, our ability to retain key employees and hire replacement employees and other aspects of our business.

 

Such difficulties may continue in the future. Any failure to maintain controls, institute business practices or accurately collect information may have an effect on the efficiency of our business and could lead to a restatement, a regulatory action or a legal action, in addition to our inability to gain the trust of customers and suppliers.

 

If relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease.

 

At various times during recent years, the United States and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and China, whether or not directly related to our business, could reduce the price of our common stock.

 

China could change its policies toward private enterprise or even nationalize or expropriate private enterprises.

 

Our business is expected to be subject to significant political and economic uncertainties and may be affected by political, economic and social developments in China. Over the past several years, the PRC government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The PRC government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice.

 

Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to shareholders, or devaluations of currency could cause a decline in the price of our common stock.

 

The nature and application of many laws of China create an uncertain environment for business operations and they could have a negative effect on us.

 

 

The legal system in China is a civil law system. Unlike the common-law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could harm our business operations and financial condition. In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty. Furthermore, the political, governmental and judicial systems in China are sometimes impacted by corruption. There is no assurance that we will be able to obtain recourse in any legal disputes with suppliers, customers or other parties with whom we conduct business.

 

We may not be able to sell the land use rights in China we have acquired, and expect to acquire, at appraised value or at all, in part due to applicable restrictions.

 

In October 2012, we acquired a 50-year land use right in China related to 66 acres of commercial land north of Dongzhuchang Village in Wu'an City, China. In May 2013, we acquired a 50-year land use right for an adjoining 40 acre parcel. Our land use rights are subject to certain requirements and limitations. In May 2014 and in August 2015, we purchased three more pieces of land. The requirements on the existing five land use rights, totaling 138.3 acres, include an obligation, over the life of the land use rights, to invest approximately $314.85 million in the combined projects. The limitations include a prohibition on the transfer of the land use right prior to our investment of at least 25% of our committed investment. These requirements and limitations may harm the value of the land use right.

 

We may face delays or related issues if we cannot effectively transfer know-how from our U.S.-based employees to our China-based employees.

 

We have constructed a facility in China to be the sole site for our nLTO manufacturing and an additional site for our energy storage system and module assembly. The processes of manufacturing nLTO and assembling energy storage systems and modules are complex. We will need to transfer the complex know-how for the manufacturing and assembly from our U.S.-based employees to our existing or new Chinese employees. Language and cultural differences, as well as the inherent difficulty of communicating skills learned through experience, may lead to difficulties in the education and training of Chinese employees. Any failure to adequately educate and train Chinese employees in company-specific know-how may result in additional costs, delays, quality concerns, warranty costs and other issues.

 

Following the acquisition of a majority interest in the Company by EST China, we face risks associated with having a majority shareholder.

 

In July 2011, EST China acquired a majority of our outstanding shares of common stock. Having a controlling shareholder presents certain risks to us, including the following:

 

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The majority shareholder controls the appointments on the Board of Directors and may appoint persons less qualified, or more loyal to the majority shareholder, than would be appointed absent a controlling shareholder;

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The majority shareholder may be able to influence our Board of Directors to enter into transactions with related or third parties that are more favorable to such parties than would be negotiated by an independent Board of Directors;

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We may hire employees who also work for 100% owned subsidiaries of EST China, which may create conflicts of interest and concerns regarding protection of trade secrets

■

The majority shareholder controls all matters requiring approval by the shareholders, including any determination with respect to the acquisition or disposition of assets, future issuances of a material number of securities and other major transactions; and

■

This concentration of ownership may also delay, defer or prevent a change in control and otherwise prevent shareholders other than our affiliates from influencing our direction and future.

 

 

If one or more of these risks, or other risks, materializes, our business will be harmed, and it may be harmed materially.

 

Cultural, language and other differences between the U.S. and China may create inefficiencies in our management and operations.

 

Our majority shareholder, and a majority of our directors, reside in China and several of our directors exclusively speak Chinese. As we ramp up our China-based operations, we may experience conflicts or misunderstandings within our management structure that are primarily or partially rooted in language and cultural differences, particularly differences in management and communication styles. Language and cultural differences may also affect strategy formation and create inefficient and limited communication among technical and management employees located in different countries. The occurrence of any of these events may harm our growth potential, increase costs and decrease operational efficiency.

  

 

Our nLTO, battery materials and battery business is currently dependent upon several customers and potential customers, which presents various risks.

 

Our nLTO materials and battery business is dependent upon several current or potential customers. In addition, many of these customers are, or are expected to be, development partners who are subsidizing the research and development of products for which they may be the sole, or one of several, potential purchasers. As a result of the several potential customers and partners, our existing or potential customers and partners may have significant leverage on pricing terms, exclusivity terms and other economic and noneconomic terms. This may harm our attempts to sell products at prices that reflect desired gross margins. In addition, the decision by a single or potential customer to choose not to purchase or abandon the use or development of a product may significantly harm both our financial results and the development track of one or more products.

 

We depend upon several sole-source and limited-source third-party suppliers.

 

We rely on certain suppliers as the sole-source, or as a primary source, of certain services, raw materials and other components of our products. We do not yet have long-term supply or service agreements engaged with any such suppliers. As a result, the providers of such services and components could terminate or alter the terms of service or supply with little or no advance notice. If our arrangements with any sole-source supplier were terminated, or if such a supplier failed to provide essential services or deliver essential components on a timely basis, failed to meet our product specifications and/or quality standards, or introduced unacceptable price increases, our production schedule would be delayed, possibly by as long as one year. Any such delay in our production schedule would result in delayed product delivery and may also result in additional production costs, customer losses and litigation.

 

An area in which our dependence upon a limited number of sources creates significant vulnerability is the manufacturing of our nLTO cells. As of the date hereof, we have one contract manufacturing source for our nLTO cells, and we are currently working with a second manufacturer to qualify their cells.  We have had quality issues with some of our past contract manufacturers. Our nLTO battery cells are the building blocks of all of our products (other than our nLTO powder). If we were to experience quality issues with any of our suppliers, we may be unable to meet our deadlines, or quality specifications, with respect to existing or future orders.  This would harm our reputation and our ability to grow our business. 

 

Our operating results have fluctuated significantly in the past and will continue to fluctuate in the future, which could cause our stock price to decline.

 

Our operating results have fluctuated significantly in the past, and we believe that they will continue to fluctuate in the future, due to a number of factors, many of which are beyond our control. If in future periods our operating results do not meet the expectations of investors or analysts who choose to follow our company, the price of our shares of common stock may fall. Factors that may affect our operating results include the following:

 

■

fluctuations in the size, quantity and timing of customer orders;

■

timing of delivery of our services and products;

■

additions of new customers or losses of existing customers;

■

positive or negative business or financial developments announced by us or our key customers;

■

our ability to commercialize and obtain orders for products we are developing;

■

costs associated with developing our manufacturing capabilities;

■

the loss of our key employees;

■

new product announcements or introductions by our competitors or potential competitors;

■

the effect of variations in the market price of our shares of common stock on our equity-based compensation expenses;

■

disruptions in the supply of raw materials or components used in the manufacture of our products;

■

the pace of adoption of regulation facilitating our ability to sell our products in our target markets;

■

technology and intellectual property issues associated with our products;

■

general political, social, geopolitical and economic trends and events; and

■

availability of components sourced from Korea if tensions between North Korea and South Korea erupt into a greater military conflict.

 

Our patents and other protective measures may not adequately protect our proprietary intellectual property.

  

 

We regard our intellectual property, particularly our proprietary rights in our nLTO technology, as critical to our success. We have received various patents, and filed other patent applications, for various applications and aspects of our nLTO technology and other intellectual property. Such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

 

■

Our pending patent applications may not be granted for various reasons, including the existence of conflicting patents or defects in our applications, the existence of relevant prior art or the determination by an examiner that an invention was obvious to a person skilled in the art, whether or not there were other existing patents. Risks associated with patent applications are enhanced because patent applications of others remain confidential for a period of approximately 18 months after filing; as a result, our belief that we are the first creator of an invention or the first to patent it may prove incorrect, as information related to conflicting patents is first published or first brought to our attention;

■

The patents we have been granted may be challenged, invalidated, narrowed or circumvented because of the pre-existence of similar patented or unpatented intellectual property rights or for other reasons;

■

The patents we have been granted have a limited life span, and many will expire in the coming years and offer no legal protection to the technologies and processes described therein;

■

The costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement cost prohibitive;

■

We have not filed for patent protection in many countries in which we are currently selling product or seek to sell product; as a result, we may be unable to prevent competitors in such markets from selling infringing products;

■

Even if we enforce our rights aggressively, injunctions, fines and other penalties may be insufficient to deter violations of our intellectual property rights;

■

Many of our key patents begin expiring in 2020; we may be unable to protect key proprietary rights after the expiration of key patents; and

■

Other persons may independently develop proprietary information and techniques that, although functionally equivalent or superior to our intellectual proprietary information and techniques, do not breach proprietary rights.

 

Our inability to protect our proprietary intellectual property rights or gain a competitive advantage from such rights could harm our ability to generate revenues and, as a result, our business and operations.

 

We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and involve adverse publicity and adverse results.

 

 Competitors or others may infringe our patents. To counter infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time-consuming. Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications. Litigation or interference proceedings may result in substantial costs and be a distraction to our management.

 

 Because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of this litigation (even if ultimately successful), there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our shares of common stock.

 

 In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover that technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

 

We may not prevail in any litigation or interference proceeding in which we are involved. Even if we do prevail, these proceedings can be expensive, result in adverse publicity and distract our management.

 

Other parties may bring intellectual property infringement claims against us, which would be time-consuming and expensive to defend, and if any of our products or processes is found to be infringing, we may not be able to procure licenses to use patents necessary to our business at reasonable terms, if at all.

 

Our success depends in part on avoiding the infringement of other parties’ patents and proprietary rights. We may inadvertently infringe existing third-party patents or third-party patents issued on existing patent applications. Third party holders of such patents or patent applications could bring claims against us that, even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could cause us to pay substantial damages. Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs.

 

 

If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder. In addition, we have, and may be required to, make representations as to our right to supply and/or license intellectual property and to our compliance with laws. Such representations are usually supported by indemnification provisions requiring us to defend our customers and otherwise make them whole if we license or supply products that infringe on third party technologies or violate government regulations. Further, if a patent infringement suit were brought against us, we and our customers, development partners and licensees could be forced to stop or delay research, development, manufacturing or sales of products based on our technologies in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Such a license may not be available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with products based on our technologies. Even if we were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property.

 

Any successful infringement action brought against us may also adversely affect marketing of products based on our technologies in other markets not covered by the infringement action. Furthermore, we may suffer adverse consequences from a successful infringement action against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder. As a result, any infringement action against us would likely harm our competitive position, be costly and require significant time and attention of our key management and technical personnel.

 

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

 

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets are difficult to protect, in particular with respect to a company controlled by a potential customer and competitor. We rely in part on confidentiality agreements with our employees, contractors, consultants, outside scientific collaborators and other advisors to protect our trade secrets and other proprietary information. Parties to the confidentiality agreements may have such agreements declared unenforceable or, even if the agreements are enforceable, may breach such agreements. Remedies available in connection with the breach of such agreements may not be adequate, or enforcing such agreement may be cost prohibitive. Courts outside the United States may be less willing to protect trade secrets. In addition, others may independently discover our trade secrets or independently develop processes or products that are similar or identical to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection would harm our competitive business position.

 

If we are sued on a product liability claim, our insurance policies may not be sufficient.

 

Our insurance may not cover all potential types of product liability claims to which manufacturers are exposed or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of our insurance coverage could harm our business, including our relationships with current customers and our ability to attract and retain new customers. In addition, if the liability were substantial relative to the size of our business, any uncovered liability could harm our liquidity and ability to continue as a going concern.

 

Laws regulating the manufacture or transportation of batteries have been and may be enacted which could impose additional costs that could harm our ability to be profitable.

 

International, federal, state and local laws regulate the storage, use and disposal of the component parts of our batteries in limited ways. However, laws and regulations may be enacted in the future which could impose environmental, health and safety controls on the storage, use and disposal of certain chemicals and metals used in the manufacture of lithium and lithium-ion batteries. Satisfying any future laws or regulations could require significant time and resources from our technical staff, including those related to possible redesign which may result in substantial expenditures and delays in the production of our product, all of which could harm our business and reduce our future profitability.

 

The transportation of lithium and lithium-ion batteries is regulated both domestically and internationally. Under recommendations adopted by the International Air Transport Association (“IATA”), our batteries and battery systems currently fall within the level such that they are not exempt and require a Class 9 designation for transportation. Future U.S, Chinese, international or IATA approval process and regulations could require significant time and resources from out technical staff and, if redesign were necessary, could delay the introduction of new products.

  

 

If our warranty expense estimates differ materially from our actual claims, or if we are unable to estimate future warranty expense for new products, our business and financial results could be harmed.

 

Our warranty for our products ranges from one to three years from the date of sale, depending on the type of product and its application. We expect that in the future some of our warranties may extend for longer periods. Because our supply arrangements are negotiated, the scope of our product warranties differ substantially depending upon the product, the purchaser and the intended use; however, we have granted and may grant broad warranties, addressing such issues as leakage, cycle life and decline in power. We have a limited product history on which to base our warranty estimates. Because of the limited operating history of our batteries and battery systems, our management is required to make assumptions and to apply judgment regarding a number of factors, including anticipated rate of warranty claims, the durability and reliability of our products, and service delivery costs. Our assumptions could prove to be materially different from the actual performance of our batteries and battery systems, which could cause us to incur substantial expense to repair or replace defective products in the future and may exceed expected levels against which we have reserved. If our estimates prove incorrect, we could be required to accrue additional expenses from the time we realize our estimates are incorrect and also face a significant unplanned cash burden at the time our customers make a warranty claim, which could harm our operating results.

 

In addition, with our new products and products that remain under development, we will be required to base our warranty estimates on historical experience of similar products, testing of our batteries under laboratory conditions and limited performance information learned during our development activities with the customer. As a result, actual warranty claims may be significantly different from our estimates and our financial results could vary significantly from period-to-period.

  

Product liability or other claims could cause us to incur losses or damage our reputation.

 

The risk of product liability claims and associated adverse publicity is inherent in the development, manufacturing and sale of batteries and battery systems. Certain materials we use in our batteries, as well as our battery systems, could, if used improperly, cause injuries to others. Improperly charging or discharging our batteries could cause fires, as could a puncture, collision or other event. Any accident involving our batteries or other products could decrease or even eliminate demand for our products. Because some of our batteries are designed to be used in electric and hybrid EV Buses, and because vehicle accidents can cause injury to persons and damage to property, we are subject to a risk of claims for such injuries and damages. In addition, we could be harmed by adverse publicity resulting from problems or accidents caused by third party products that incorporate our batteries. We could even be harmed by problems or accidents involving competing battery systems if the market viewed our batteries as being vulnerable to similar problems. Any such claims, loss of customers or reputation harm would harm our financial results and ability to continue as a going concern.

 

The commercialization of many of our products is dependent upon the efforts of commercial partners and other third parties over which we have no or little control.

 

The commercialization of our principal products requires the cooperation and efforts of commercial partners and customers. For example, because completion and testing of our large-scale stationary batteries for power suppliers requires input from utilities and connection to a power network, commercialization of such batteries can only be done in conjunction with a power or utility company. The commercialization of transportation and other applications of our technology are also dependent, in part, upon the expertise, resources and efforts of our commercial partners. This presents certain risks, including the following:

 

■

we may not be able to enter into development, licensing, supply and other agreements with commercial partners with appropriate resources, technology and expertise on reasonable terms or at all;

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our commercial partners may not place the same priority on a project as we do, may fail to honor contractual commitments, may not have the level of resources, expertise, market strength or other characteristics necessary for the success of the project, may dedicate only limited resources to, and/or may abandon, a development project for reasons, including reasons such as a shift in corporate focus, unrelated to its merits;

■

our commercial partners may be in the early stages of development and may not have sufficient liquidity to invest in joint development projects, expand their businesses and purchase our products as expected or honor contractual commitments;

■

our commercial partners may terminate joint testing, development or marketing projects on the merits of the projects for various reasons, including determinations that a project is not feasible, cost-effective or likely to lead to a marketable end product;

 

 

■

our commercial partners may not protect our intellectual property adequately or they may infringe our intellectual property rights;

■

at various stages in the testing, development, marketing or production process, we may have disputes with our commercial partners, which may inhibit development, lead to an abandonment of the project or have other negative consequences; and

■

even if the commercialization and marketing of jointly developed products is successful, our revenue share may be limited and may not exceed our associated development and operating costs.

  

As a result of the actions or omissions of our commercial partners, or our inability to identify and enter into suitable arrangements with qualified commercial partners, we may be unable to commercialize apparently viable products on a timely and cost-effective basis, or at all.

 

Interest in our nLTO batteries is affected by energy supply and pricing, political events, popular consciousness and other factors over which we have no control.

 

Currently, our marketing and development efforts for our batteries and battery materials are focused primarily on stationary power and transportation applications. In the transportation market, batteries containing our nLTO materials are designed to replace or supplement gasoline and diesel engines. In the stationary power applications, our batteries are designed to conserve and regulate the stable supply of electricity, including from renewable source, and to displace coal, gas and diesel generators used in frequency regulation. The interest of our potential customers and business partners in our products and services is affected by a number of factors beyond our control, including:

 

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economic conditions and capital financing and liquidity constraints;

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short-term and long-term trends in the supply and price of natural gas, gasoline, diesel, coal and other fuels;

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the anticipated or actual granting or elimination by governments of tax and other financial incentives favoring electric or hybrid electric vehicles and renewable energy production;

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the ability of the various regulatory bodies to define the rules and procedures under which this new technology can be deployed into the electric grid;

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the anticipated or actual funding, or elimination of funding, for programs that support renewable energy programs and electric grid improvements;

■

changes in public and investor interest for financial and/or environmental reasons, in supporting or adopting alternatives to gasoline and diesel for transportation and other purposes;

■

the overall economic environment and the availability of credit to assist customers in purchasing our large battery systems;

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the expansion or contraction of private and public research and development budgets as a result of global and U.S. economic trends; and

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the speed of incorporation of renewable energy generating sources into the electric grid.

 

 

Adverse trends in one or more of these factors may inhibit our ability to commercialize our products and expand revenues from our battery materials and batteries.

 

Our competitors may have more resources than we do, and may be supported by more prominent partners, which may give them a competitive advantage.

 

We have limited financial, personnel 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. In addition, certain of our competitors may be partnered with, associated with or supported by larger business or financial partners. This may increase their ability to raise capital, attract media attention, develop products and attract customers. Because of their size, resources, reputation and history (or that of their business and financial partners), certain of our competitors may be able to exploit acquisition, development and joint venture opportunities more rapidly, easily or thoroughly than we can. In addition, potential customers may choose to do business with our more established competitors, without regard to the comparative quality of our products, because of their perception that our competitors are more stable, are more likely to complete various projects, are more likely to continue as a going concern and lend greater credibility to any joint venture.

  

As manufacturing becomes a larger part of our operations, we will become exposed to accompanying risks and liabilities.

 

 

In-house and outsourced manufacturing is becoming an increasingly significant part of our business. As a result, we expect to become increasingly subject to various risks associated with the manufacturing and supply of products, including the following:

 

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If we fail to supply products in accordance with contractual terms, including terms related to time of delivery and performance specifications, we may be required to repair or replace defective products and may become liable for direct, special, consequential and other damages, even if manufacturing or delivery was outsourced;

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Raw materials used in the manufacturing process, labor and other key inputs may become scarce and expensive, causing our costs to exceed cost projections and associated revenues;

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Manufacturing processes typically involve large machinery, fuels and chemicals, any or all of which may lead to accidents involving bodily harm, destruction of facilities and environmental contamination and associated liabilities;

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As our manufacturing operations expand, we expect that a significant portion of our manufacturing will be done overseas, either by third-party contractors or in a plant owned by the Company. Any manufacturing done overseas presents risks associated with quality control, currency exchange rates, foreign laws and customs, timing and loss risks associated with overseas transportation and potential adverse changes in the political, legal and social environment in the host county; and

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We have made, and may be required to make, representations as to our right to supply and/or license intellectual property and to our compliance with laws. Such representations are usually supported by indemnification provisions requiring us to defend our customers and otherwise make them whole if we license or supply products that infringe on third-party technologies or violate government regulations.

 

Any failure to adequately manage risks associated with the manufacture and supply of materials and products could lead to losses (or smaller than anticipated gross profits) from that segment of our business and/or significant liabilities, which would harm our business, operations and financial condition.

 

Our past and future operations may lead to substantial environmental liability.

 

Virtually any prior or future production of our nanomaterials and titanium dioxide pigment technology is 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. If we incur any significant environmental liabilities, our ability to execute our business plan and our financial condition would be harmed.

 

Certain of our experts and directors reside in China and may be able to avoid civil liability.

 

A majority of our directors reside outside the United States, primarily in China. 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 U.S. securities laws. It is uncertain whether Chinese courts would enforce judgments of U.S. courts obtained against us or such directors, officers or experts predicated upon the civil liability provisions of U.S. securities laws or impose liability in original actions against us or our directors, officers or experts predicated upon U.S. securities laws.

 

We are dependent on key personnel.

 

Our continued success will depend, to a significant extent, on the services of our executive management team and certain key scientists and engineers. We do not have key man insurance on any of these individuals. We have experienced, and may continue to experience, turnover in key positions, which could result in the loss of company-specific knowledge, experience and expertise. The loss or unavailability of any or all of these individuals could harm our ability to execute our business plan, maintain important business relationships and complete certain product development initiatives, which would harm our business.

 

We will not be able to issue any substantial amounts of additional shares. 

 

Our articles of incorporation authorize the issuance of 200 million shares of common stock that may be issued without any action or approval by our stockholders. In addition, we have various stock option plans that have potential for diluting the ownership interests of our stockholders. The issuance of any additional shares of common stock would further dilute the percentage ownership of our company held by existing stockholders.

 

 

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 shares of common stock. We currently intend to retain any future earnings, if any, for use in our business and, therefore, do not anticipate paying dividends on our shares of common stock in the foreseeable future.  

 

  

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our U.S. Corporate Headquarters is located at 204 Edison Way, Reno, Nevada 89502, in a building we purchased in August 2002 which is approximately 79,392 square feet on 6.773 acres of land. In the building, we continue to use laboratory space and equipment for testing nLTO manufactured at our location in Wu’an, China to provide quality control analysis. We utilize about 21,000 square feet of space, including offices, in this building. We currently lease, to a short-term tenant, approximately 10,000 square feet of warehouse space in our building at $2,500 per month.

 

The Company leased a 70,000 square feet facility in Flagship Business Accelerator Building located at 3019 Enterprise Drive, Anderson, Indiana under a triple net lease with Flagship Enterprise Center, Inc. The facility was used for the production of prototype batteries and battery systems.  The lease amended on January 27, 2015 will expire on June 30, 2017. Any lease renewal options will be negotiated no less than six (6) months prior to the expiration of this lease. Annual rent under this lease is $0.26 million plus IT fees, utilities and maintenance. Effective May 1, 2016, the Company agreed to pay $0.14 million as a payment to terminate the lease effective by the end of May 2016. Use of the facility has been agreed upon until a new tenant is found. The landlord will give the Company thirty days notice at their discretion to vacate the premises. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017. 

 

In 2012, Northern Altair acquired land use rights in Altair New Energy Industrial Park, Wu’an city, Hebei Province, China. In the New Energy Industrial Park, Northern Altair has purchased the right to use approximately 138.3 acres of land for approximately $28.12 million, consisting of five parcels of useable land use rights for a lifespan of 50 years each. In addition, we have agreed to invest a minimum of $314.85 million on fixed asset investments with respect to such land use rights. We have built four factory buildings and an office building totaling a gross area of approximately 613,457 square feet. Included in the 613,457 square feet is approximately 54,820 square feet of employee housing and a new building being constructed with approximately 192,029 square feet of floor area. The factory buildings are being used for production, laboratories, testing and storage.

  

 

ITEM 3. LEGAL PROCEEDINGS

 

 

We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Legal expenses associated with the contingency are expensed as incurred. Material legal proceedings that are currently pending are as follows:

 

In re Altair Nanotechnologies Shareholder Derivative Litigation, 1:14-cv-09418, 1:14-cv-09958 (S.D.N.Y.): In late 2014, two shareholder derivative actions were filed against the Company and certain of its current and former officers and directors of the Company in the United States District Court for the Southern District of New York.  Altair was named as a nominal defendant. The two cases, which were consolidated on May 15, 2015, allege violations of Section 14(a) of the Securities Exchange Act of 1934, as well as breaches of fiduciary duty and unjust enrichment based on substantially the same facts underlying the putative securities litigation. In July 2016, certain parties executed a stipulation of settlement, without defendants admitting liability, whereby Altair agreed to adopt certain governance proposals and pay an amount not exceeding $150,000 in plaintiffs’ attorneys’ fees and expenses. This initial stipulation and settlement was modified following the deregistration of the Altair as a reporting issuer in November 2016 because certain of the agreed to governance proposals would not apply to a corporation that was not a reporting issuer. The court entered an order preliminarily approving this modified stipulation and settlement on March 8, 2017. .  A final settlement hearing has been scheduled for August 10, 2017. If the settlement receives final approval, this action will be dismissed in its entirety.  Notice of the proposed settlement is available on Altair’s website.  A summary notice has also been published online.   

 

 

In the Matter of Altair Nanotechnologies, Inc. (LA-4452): In or around January 2015, SEC opened an investigation into the resignation of Crowe Horwath LLP (“Crowe”) as Altair’s independent auditor in August 2014.  As part of its investigation, the SEC issued several subpoenas to the Company and its current and former officers relating to Crowe’s resignation and a Form 8-K filed by the Company on March 13, 2015.  On May 4, 2016, the SEC sent Altair a Wells Notice identifying possible violations of Sections 13(a) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 thereunder.  On August 29, 2016, the Company made an offer of settlement to the SEC whereby it consented to the entry of an order, without admitting or denying the findings therein except as to the SEC’s jurisdiction, that the Company:  (i) cease and desist from committing or causing violations of Sections 13(a) and 13(b)(2)B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder; (ii) make certain filings with the SEC by November 15, 2016 or have the registration of its securities under the Exchange Act revoked; and (iii) pay a civil money penalty in the amount of $250,000 within 10 days of the entry of the order.  Such offer of settlement was accepted by the SEC and resulted in a Release No. 78997 dated September 29, 2016 with respect to the same. As of the balance sheet date, the Company did not have reasonable estimation of settlement amount. In August 2016, the Company paid $250,000 and deposited the funds into escrow which was paid from escrow to the SEC in October 2016. However, on November 17, 2016, the SEC found that Altair had not fully complied with the settlement agreement and issued an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934.

 

In the matter of James Zhan v. Altairnano, Inc., Altair Nanotechnologies, Inc., Guohua Sun, and Andy Wei, Case No.: CV16-01674 (Second Judicial District Court for the State of Nevada, Washoe County). James Zhan, the former CEO of the Company, has filed a complaint against Altair Nanotechnologies, Altairnano, Inc., Andy Wei and Guohua Sun (two Board members) asserting the following claims for relief in connection with the termination of his employment in September 2015: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) fraud. Because Mr. Zhan’s employment agreement contains an alternative dispute resolution clause, the Company moved to compel alternative dispute resolution. On April 12, 2017, the case was dismissed (but remains subject to being refiled in arbitration). As of the balance sheet date, the Company has accrued $100,000 for the insurance deductible with respect to this matter.

 

  

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Price

 

The common stock of the Company is not listed or quoted on any market or exchange of which the Company is aware. Following the deregistration of the Company’s common stock on November 17, 2016, which caused the Company to cease to be a reporting issuer, FINRA canceled the Company stock trading symbol, which had been “ALTI”. There is currently no market for the common stock of the Company, the Company has no current plans to facilitate the common stock trading on an exchange or a market.

 

 

Outstanding Shares and Number of Shareholders

 

As of March 31, 2017, the number of shares of common stock outstanding was 11,606,735 held by approximately 191 registered holders of record.  

 

Dividends

 

 

We do not anticipate paying dividends in the foreseeable future and currently intend to retain any future earnings to support the development and expansion of our business. The declaration and payment of dividends is subject to the discretion of our board of directors and to certain limitations imposed under Delaware statutes. The timing, amount and form of dividends, if any, will depend upon, among other things, our results of operation, financial condition, cash requirements, and other factors deemed relevant by our board of directors.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We have stock option plans administered by the Compensation Committee of our Board of Directors that provide for the granting of options to employees, officers, directors and other service providers of the Company.  Security holders have approved all option plans.  See Note 14 to our consolidated financial statements contained elsewhere herein this Report. We reserved 1,187,849 shares of common stock for issuance upon exercise of options that have been, or may be, granted under our employee stock option plans and there are no outstanding warrants as of December 31, 2016.

 

Recent Sales of Unregistered Securities

 

We did not sell any securities in transactions that were not registered under the Securities Act during the years ended December 31, 2016 and 2015.

 

Transfer Agent and Registrar

 

The Transfer Agent and Registrar for our shares of common stock is Computershare, 8742 Lucent Boulevard, Suite 225, Highlands Ranch, CO 80129.

 

 

ITEM 6.     Selected Financial Data.

 

Smaller reporting companies are not required to provide the information required by this item.

 

 

 

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this Report.

 

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” above under Item 1A 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.

 

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

 

Overview

 

 

We are a Delaware corporation that develops, manufactures and sells our proprietary nano lithium titanate (“nLTO”), battery modules and energy storage systems. Our nLTO 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.

 

Since 2012, we have focused on transitioning our operations from the United States to China. As of December 31, 2016, we have in place a phase three nLTO production lines for an annual production capacity of 6,650 metric tons. We do not currently manufacture our batteries, but our Original Equipment Manufacturer (“OEM”) cell producer’s capacity can reach 70,000 Altair format cells per year. Sometime in the future, we expect to validate another OEM cell producer to reduce dependency on one supplier, which we expect will provide competition between suppliers and reduce our costs. We also have in place two operational battery module production lines with a total capacity of approximately 6,000 modules per year. In the first quarter of 2016, we transferred the U.S. module production line to China which will become operational as demand increases. The three battery module production lines will be able to reach a total capacity of 9,000 modules per year. As of the date of this Report, we manufacture all of our products in China and sell all of our products from China.  

 

By building manufacturing and assembly facilities in Wu’an, China for our nLTO material, modules, and soon our energy storage systems, we have centered the whole supply chain in China. In adopting this strategy, we expect to achieve:

 

■

Reduction of production costs

■

Better quality control

■

Decreased shipping costs due to all production facilities being located in one central location

■

Centralized management control and internal communications, and

■

Centralized sales management

 

Critical Accounting Policies

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to inventories, financial guaranty, long term payable, refundable security deposit, income taxes, accounts receivable allowance, fair value of derivatives, stock based compensation and reserve for warranty claims. We base our estimates on historical experience, performance metrics 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 will differ from these estimates under different assumptions or conditions.

  

Our significant accounting policies are discussed in Note 3, Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements included elsewhere in this Form10-K Report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors.

 

Foreign Currency Translation and Transactions 

 

The consolidated financial statements are presented in U.S. Dollars. The functional currency for the subsidiaries in China is the Chinese Yuan or RMB. Assets and liabilities are translated to the reporting currency at exchange rates on the balance sheet dates, revenue and expenses are translated at average exchange rates during the period, and equity accounts are translated at historical exchange rates except for the change in retained earnings during the year which is the result of the income. The cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders' deficit. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign currency transaction gain or loss in the statements of operations.

 

 

Inventory

 

The Company values its inventories generally at the lower of cost or market price. Market price is based on estimated selling prices less any further costs expected to be incurred for completion and disposal.

 

For the U.S. operations, the cost of raw materials and finished goods is determined on a first-in, first-out method and finished goods is comprised of direct materials, direct labor and an appropriate proportion of overhead.

 

For the China operations, the cost of nLTO materials is determined on a weighted average method and finished goods is comprised of direct materials, direct labor and an appropriate proportion of overhead.

 

The allocation of fixed and variable overhead is reviewed every three months and are recorded to inventory based on normal capacity.

 

Inventory reserves are provided to cover risks arising from slow-moving items. The Company writes down the inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. Any idle facility costs or excessive spoilage are recorded as current period charges.

  

Long-Lived Assets and Impairment

 

The Company evaluates the carrying value of its long-lived assets whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  The carrying value of long-lived assets are considered impaired when the total projected undiscounted cash flows expected to be generated by the asset are less than the carrying value.  The Company’s estimates of cash flows are based on the information available at the time including the following:  internal budgets; sales forecasts; customer trends; anticipated production volumes; and market conditions over an estimate of the remaining useful life of the asset which may range from 3 to 10 years for most equipment and up to 30 years for building and related building improvements.  If impairment is indicated, the asset value is written down to its estimated 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 or the assets used to produce it, a history of operating or cash flow losses and/or the partial or complete lapse of technology rights protection.

 

During the year ended December 31, 2016, the Company recognized impairment loss of $0.13 million for the two EV buses delivered to Wu’an government as the application for their operating license was unsuccessful. During the year ended December 31, 2015, the Company incurred an impairment loss of $0.65 million related to the write-down to fair market value for an asset that was leased to a customer under an operating lease. The impairment was to reflect the anticipated loss on the sale of the leased asset incurred in the subsequent period.

 

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 estimated useful lives: 

 

Building and improvements (years)	20	-	30
Machinery and equipment (years)	5	-	10
Furniture, office equipment and others (years)	3	-	7
Leased asset (years)		10

 

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for our intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold improvements commences once they are ready for our intended use. Land is not depreciated. Construction in progress represents capital expenditures for direct costs of construction or acquisition and design fees incurred, and the interest expenses directly related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. Construction in progress is not depreciated.

 

Patents

 

 

Patents are related to the Company’s nanoparticle production technology and stated at cost less accumulated amortization. Amortization is recorded using the straight-line method. The patents have been fully amortized as of December 31, 2016.

 

Land use rights

 

Land use rights are stated at cost less accumulated amortization.  Amortization is recorded using the straight-line method over their 50 year useful lives. All land in China is owned by the Chinese government. The government in China, according to law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in China are considered to be leasehold land under lease and are stated at cost less accumulated amortization.

 

Revenue Recognition 

 

The Company generates its revenues primarily from four sources: (1) nLTO related product sales, (2) Energy storage systems (referred to as “ESS” or by our brand name “ALTI-ESS”), (3) Collaborations and (4) License fees. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been performed, the fee is fixed and determinable, and collectability is reasonably assured.

 

Revenue from nLTO related product sales is recognized upon delivery of the product, unless specific contractual terms dictate otherwise.

 

Revenue from commercial collaborations and license fees is recognized based on various performance measures, such as stipulated milestones.  As these milestones are achieved, revenue is recognized.

 

Revenue from ESS projects is recognized using the Completion Method under the long-term contract accounting. The Company recognizes the full amount of revenue from long-term contracts, defined as contracts longer than twelve months, upon completion, delivery and written acceptance received from the customer. All contract costs incurred are included in the balance sheet as deferred costs until the related revenue is recognized. At each reporting date, the Company reviews its long-term contracts to determine if revenue from contracts are expected to exceed the related estimated total costs. In the cases where estimated costs will exceed revenues, the Company recognizes as an expense in cost of goods sold the full amount of the estimated costs above the contract revenue value. Cash received in advance relating to the future performance of services, deliveries of products and/or long term contracts are deferred until the performance of the service is completed, the product is shipped, and/or the contract is completed and accepted by the customer.

 

Grant Incentives

 

Grant incentives were obtained from the Wu’an China Government to be used for construction, purchases of equipment and other expenditures for the nLTO manufacturing facility. The amount received is included in the balance sheet as deferred income and is recognized in the statement of operations as other income over the useful life of the related assets upon placing such assets into service. In all cases, grants are recognized as other income when there is a reasonable assurance that the Company has complied with the conditions attaching to them.

 

Comprehensive Loss

 

Recognized revenue, expenses, gains and losses are included in net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income or loss, are components of comprehensive income or loss. The components of other comprehensive income or loss are consisted solely of foreign currency translation adjustments.

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common stockholders by the weighted average number of common and potentially dilutive shares outstanding during the period.  Potentially dilutive shares consist of the incremental shares of common stock issuable upon the exercise of stock options and warrants.  Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive. The Company had a net loss for all periods presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented were included in the computation of diluted loss per share as they were anti-dilutive. Stock options and warrants can exercise a total amount of common stock for 20,484 and 441,864 shares as of December 31, 2016 and 2015, respectively, were excluded from the calculations of diluted loss per share.

  

 

Income Taxes 

 

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted.

 

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and the Company’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance.

 

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

 

Litigation Matters 

 

For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is deemed probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, but not probable, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss.

 

Accrued Warranty Expense

 

The Company’s U.S operation provides a three-year limited warranty for battery packs and energy storage systems sold. While the Company’s China operation offers a limited one-year warranty on energy storage systems. A liability is recorded for estimated warranty obligations at the date products are sold.  The estimated cost of warranty coverage is based on historical experience with cell and module life cycle testing.  As additional actual historical data is collected on the new product, the estimated cost of warranty coverage will be adjusted accordingly.  The liability for estimated warranty obligations may also be adjusted based on specific warranty issues identified.  

 

 

Results of Operations

 

The following summarizes our revenue, operating expenses, and net loss for all periods presented below The Company develops, produces, sells battery systems and nLTO materials. 

 

The table below sets forth line items from the Company’s audited consolidated Statements of Operations (In thousands of dollars):

 

		Years ended December 31,
		2016				2015				Increase, (Decrease)				Percentage Increase, (Decrease)
Revenues		$	54,687			$	14,278			$	40,409				283	%
Cost of goods sold			37,561				14,034				23,527				168	%
Gross profit			17,126				244				16,882				6,919	%
Operating expenses
Research and development			3,163				808				2,355				291	%
Sales and marketing			291				862				(571	)			(66	)%
General and administrative			15,655				11,709				3,946				34	%
Depreciation and amortization			1,093				1,560				(467	)			(30	)%
(Gain) loss on disposal of assets			(29	)			142				(171	)			(120	)%
Impairment expense			129				652				(523	)			(80	)%
Total operating expenses			20,302				15,733				4,569				29	%
Loss from operations			(3,176	)			(15,489	)			12,313				(79	)%
Other (expense) income
Interest (expense), net			(3,708	)			(2,533	)			(1,175	)			46	%
Gain on foreign exchange			-				1				(1	)			(100	)%
Other income-buses			21				11,419				(11,398	)			(100	)%
Other expenses-buses			-				(13,548	)			13,548				(100	)%
Other income			3,222				644				2,578				400	%
Total other (expense) income			(465	)			(4,017	)			3,552				(88	)%
Net loss		$	(3,641	)		$	(19,506	)		$	15,865				(81	)%

 

 

Year Ended December 31, 2016 compared with Year Ended December 31, 2015

 

Revenues: The consolidated revenues for the year ended December 31, 2016 were $54.69 million, an increase of $40.41 million or 283% from $14.28 million for the year ended December 31, 2015. The increase was primarily related to the China operations which is caused by a significant increase in sales of nLTO materials to related parties. The U.S. operations revenue increased minimally by $0.92 million due to recognition of two long term projects, offset by lower sales of nLTO modules and related product sales.

 

Cost of goods sold: The consolidated costs of goods sold for the year ended December 31, 2016 was $37.56 million, an increase of $23.53 million or 168% from $14.03 million for the year ended December 31, 2015. The increase was primarily related to $22.93 million significant increase in China operations due to the increased sales of nLTO materials to related parties. The cost of goods sold in the U.S. operations increased by $0.6 million mainly due to the recognition of deferred costs associated with the completion of two long term projects, offset by lower cost of goods sold for nLTO modules and related product sales, write-down of inventory sold at lower than cost and scrapped inventory.

 

Gross Profit: The gross profit for the year ended December 31, 2016 was $17.13 million, an increase of $16.88 million or 6,919% from $0.24 million for the year ended December 31, 2015. The increase was primarily related to $14.88 million significant increase in China operations due to the increased sales of nLTO materials to related parties and the production of nLTO products reached economic scale.

 

 

Research and development: The consolidated research and development costs increased by $2.36 million, or 291%, to $3.16 million for the year ended December 31, 2016 from $0.81 million for the year ended December 31, 2015. The substantial increase was due to $2.47 million increase in China for the research and development of storage energy vehicles. The increase was offset by slight decrease of $0.11 million due to lower salaries and benefits expense due to lower headcount at our U.S. facilities.

 Sales and marketing: The consolidated sales and marketing expenses decreased by $0.57 million, or 66%, to $0.29 million for the year ended December 31, 2016 from 0.86 million for the year ended December 31, 2015. The decrease was mainly attributable to lower China operations sales and marketing expenses in advertising and marketing activities.

 

General and administrative: The consolidated general and administrative expenses increased $3.95 million, or 34%, to $15.66 million for the year ended December 31, 2016 from $11.71 million for the year ended December 31, 2015. The increase was attributable to the China operations where general and administrative expenses increased due to increased headcount in China and increased professional fees to handle the SEC investigation and to prepare the SEC required filings. The general and administrative expense in the U.S. operations decreased due to the net effect of lower operating expenses as we shifted our operation focus to China.

 

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.47 million, or 30%, to $1.09 million for the year ended December 31, 2016 from $1.56 million for the year ended December 31, 2015. The decrease was primarily related to the portion of fixed assets that were fully depreciated and selling the leased fixed asset in January 2016.

 

(Gain) loss on disposal of fixed assets: The 2016 consolidated $0.03 million gain on the disposal of fixed assets was due to an auction held in the first half of 2016, compared to a loss on disposal of fixed assets of $0.14 million, or 120% for the year ended December 31, 2015. This was primarily due to relatively more proceeds received on the fixed assets sold in the U.S. during the year ended December 31, 2016, compared to the year ended December 31, 2015.

 

Impairment: The Company incurred an impairment expense of $0.13 million during the year ended December 31, 2016 for the two EV buses to be delivered to Wu’an Bus Company because the application for their operation licenses was unsuccessful. The Company incurred a $0.65 million impairment expense related to the write-down to fair market value for an asset during the year ended December 31, 2015 that was leased to a customer under an operating lease in January 2016.

 

Interest (expense), net: The consolidated interest expense, net increased to $3.71 million for the year ended December 31, 2016 from $2.53 million, an increase of $1.17 million or 46%, for the year ended December 31, 2015. The increase was mainly attributable to the China operations where interest expense increased due to interest charge on new long term loans obtained during the year ended December 31, 2016. The interest expense in the U.S. operations decreased slightly by $0.1 million due to lower loan balances.

 

Change in fair value of warrants: The value of warrants that were previously issued were re-measured at the end of every reporting period with the change in fair value recognized as a gain or loss in our statement of operations. During the years ended December 31, 2016 and 2015, the Company recorded a gain of $1 thousand and $5 thousand, respectively, due to the change in the fair value of the warrants. All the warrants expired in September 2016.

 

Gain (loss) on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were $nil and $1 thousand during the years ended December 31, 2016 and 2015, respectively.

 

Other income - buses: Other income - buses decreased to $0.02 million for the year ended December 31, 2016 from $11.42 million for the year ended December 31, 2015, a decrease of $11.40 million or 100%. The decrease was mainly due to no bus sales incurred during the year ended December 31, 2016, while 75 buses were sold during the year ended December 31, 2015.

 

Other expenses - buses: Other expenses - buses decreased to $nil for the year ended December 31, 2016 from $13.55 million for the year ended December 31, 2015, a decrease of $13.55 million or 100%. The decrease is attributed to no buses were sold in 2016 as compared to the bus costs and other expenses related to the 75 buses sold in 2015.

 

Other income: Other income increased to $3.22 million for the year ended December 31, 2016 compared to $0.64 million for the year ended December 31, 2015, respectively, an increase of $2.58 million or 404%. The increase was mainly due to grant incentives, which amounting to $2.80 million and was recognized as other income in 2016.

 

 

Net loss: Net loss decreased by $15.87 million, or 81%, to $3.64 million for the year ended December 31, 2016 from net loss of $19.51 million for the year ended December 31, 2015. The decrease in net loss was driven by an increase of $16.88 million in total gross profit and offset by an increase in total operating expenses of $4.57 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015.

 

 

Liquidity and Capital Resources

 

Our working deficit is as follows (In thousands of dollars):

 

		As of December 31, 2016				As of December 31, 2015
Current Assets		$	60,383			$	63,102
Current Liabilities			(113,805	)			(110,948	)
Net Working Deficit		$	(53,422	)		$	(47,846	)

 

 

On December 31, 2016, we had a working capital deficit of $ (53.42) million compared to a working capital deficit of ($47.85) million on December 31, 2015. The increase was primarily related to a decrease in current assets of $2.72 million and an increase of $2.86 million in current liabilities on December 31, 2016 compared to 2015. The decrease in current assets is attributable mainly to an increase of $2.13 million in related party receivable, an increase of $17.62 million in inventory, and a $8.15 million increase in prepaid expenses and other current assets, offset by a $25.41 million decrease in short-term investment, $1.29 million decrease in cash and cash equivalents and a decrease of $3.45 million in deferred contract costs. The increase in current liabilities of $2.86 million was primarily related to $56.78 million increase in amounts due to related parties and $9.62 million increase in trade payables offset by $44.22 million and $18.59 million decrease in short term notes payables and current portion of long term notes payables respectively and further $3.33 million decrease in deferred revenues.

  

 

 A summary of our cash flow activities is as follows (In thousands of dollars):

 

 

		For the Years Ended December 31,
		2016				2015
Net cash provided by Operating Activities		$	4,279			$	15,111
Net cash used in Investing Activities			(16,587	)			(32,840	)
Net cash provided by Financing Activities			11,325				21,501
Effect of exchange rate changes on cash and cash equivalents			(304	)			(2,685	)
Increase (Decrease) in Cash during the period			(1,287	)			1,087
Cash, Beginning of Period			2,088				1,001
Cash, End of Period		$	801			$	2,088

 

 

Year Ended December 31, 2016 as Compared to Year Ended December 31, 2015

 

Net cash provided by operating activities was $4.28 million for the year ended December 31, 2016 as compared to a net cash provided of $15.11 million for the year ended December 31, 2015. The net decrease in cash from operations resulted primarily from purchases of inventory and prepaid expenses and other current assets offset by amount due to related party.

  

Net cash used in investing was ($16.59) million for the year ended December 31, 2016 as compared to ($32.84) million for the year ended December 31, 2015. Cash used in investing activities was driven by our purchases of production equipment and loan to related party offset by the maturing of the term deposit in China.

 

Net cash provided by financing activities was $11.33 million for the year ended December 31, 2016 as compared to net cash provided by financing activities of $21.50 million for the year ending December 31, 2015. The decrease in cash from financing activities primarily related to higher payments of outstanding notes payable offset by higher loan from related party.

 

 

Going Concern

 

As of December 31, 2016, the Company had a working capital deficiency of $53.4 million and a stockholders’ deficiency of $16.4 million. During the years ended December 31, 2016, the Company incurred a net loss of $3.64 million. In addition, the Company has $8.06 million of debt coming due in the next 12 months. The Company had capital commitments of $25.47 million as of December 31, 2016, of which $22.93 million is within one year. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the filing of this report.

 

The Company’s primary source of operating funds has been debt financing and cash flow from operations. The Company anticipates continuing to have positive cash flows from operations as it ramps up production at their new manufacturing facilities. The management is taking actions to pay off loans when due, refinance existing loans if needed, obtain additional loans collateralized by the land use rights and Machinery and equipment, related party guarantees, third party guarantees and other assets. However, there is no assurance that additional grant funds to cover our capital needs will be available to us and that we will be able to refinance existing loans, obtain additional loans, or raise additional funds through other sources such as through an equity offering. Even if we are able to obtain additional financing, it may contain undue restrictions, be on terms that are not satisfactory to us, or contain covenants on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of convertible debt and equity financing. We may not be able to raise sufficient equity capital to finance our operations due to our operating results, the lack of a market for our common stock and similar factors.

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. 

  

Off-Balance Sheet Arrangements

 

As of December 31, 2016, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

 

Capital Commitments Equipment

 

The Company has contractual obligations related to future capital expenditures for equipment as of December 31, 2016. The Company's commitment for minimum payment under these contractual obligations as of December 31, 2016 is $25.47 million.

 

Capital Commitment - Construction 

 

As discussed further in Note 9, in conjunction with the Land Use Rights obtained by Northern Altair, the Company agreed to make fixed asset investments on the land of approximately $314.85 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 rights, with initial construction occurring in 2013.

 

Debt 

 

As of December 31, 2016, we were required to pay principal amounts of $8.06 million payable in 2017.with the remainder of $37.95 million payable in and after 2018.

 

Lease

 

On January 27, 2015, we entered into a Client NNN Lease (the “Lease”) with Flagship Enterprise Center, Inc.  Under the Lease, the Company will continue to lease the 70,000 square feet of space it currently occupies in Anderson, Indiana. The lease amended on January 27, 2015 will expire on June 30, 2017. Any lease renewal options will be negotiated no less than six (6) months prior to the expiration of this lease. Annual rent under the lease is $0.26 million plus IT fees, utilities and maintenance. The majority of the space was used for the production of prototype batteries and battery systems until December 31, 2015. The rest of the space is used for office space to provide technical engineering and support services, primarily to our China entities.  Effective May 1, 2016, we agreed to pay $0.14 million as a payment to terminate this lease effective by the end of May 2016. We have been granted use of the office space from the termination date, at no additional charge, until the landlord finds a new tenant. The landlord will give the Company thirty days’ notice at their discretion to vacate the premises. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017. 

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 7A.

 

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

INDEX TO CONSOLIDATED FINANCIAL STATMEMENTS

 

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	38
Consolidated Balance Sheets as of December 31, 2016 and 2015	40
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016 and 2015	41
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015	42
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	43
Notes to Consolidated Financial Statements	44-74

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

 

To the Audit Committee of the

 

Board of Directors and Stockholders

 

of Altair Nanotechnologies, Inc.

 

 

 

We have audited the accompanying consolidated balance sheet of Altair Nanotechnologies, Inc. and Subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Altair Nanotechnologies, Inc. and Subsidiaries, as of December 31, 2016, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Marcum Bernstein & Pinchuk LLP

 

 

 

Marcum Bernstein & Pinchuk LLP

 

Guangzhou, China

 

May 1, 2017

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Audit Committee of the

Board of Directors and Shareholders

of Altair Nanotechnologies, Inc. 

 

 

We have audited the accompanying consolidated balance sheet of Altair Nanotechnologies, Inc. and its Subsidiaries (the “Company”) as of December 31, 2015, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flow for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Altair Nanotechnologies, Inc. and its Subsidiaries, as of December 31, 2015, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/Marcum llp

 

Marcum llp

New York, NY 
November 15, 2016

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States Dollars, except shares)

 

		As of December 31,
		2016				2015
ASSETS
Current assets:
Cash and cash equivalents		$	801			$	2,088
Restricted cash			216				231
Short-term investment			-				25,410
Accounts receivable, net			137				523
Amounts due from related parties			18,062				15,923
Notes receivable			-				74
Inventories			25,290				7,671
Prepaid expenses and other current assets			15,877				7,728
Deferred contract costs			-				3,454
Total current assets			60,383				63,102
Prepaid expenses, non-current			855				3,792
Property, plant and equipment, net			74,143				36,395
Land use right, net			24,422				26,685
Patents, net			-				47
Long term receivable, net of current portion			3,136				4,138
Total assets		$	162,939			$	134,159
LIABILITIES AND EQUITYLIABILITIES AND STOCKHOLDERS’DEFICIT
Current Liabilities
Trade accounts payable		$	16,723			$	7,107
Amounts due to related parties			82,239				25,459
Deferred revenues and customer deposit			443				3,776
Deferred income - grant incentives, current			536				551
Current portion of long term notes payable			6,974				25,564
Accrued expenses and current liabilities			5,801				3,518
Notes payable			750				44,973
Capital lease obligation, current portion			339				-
Total current liabilities			113,805				110,948
Long term notes payable, net of current portion			29,148				6,622
Other non-current liabilities			3,062				3,565
Deferred income - grant incentives, non-current			24,536				26,192
Capital lease obligation, less current portion			8,804				-
Total liabilities			179,355				147,327
Commitments and contingencies			-				-
Stockholders' deficit:
Common stock, $0.001 par value, 200,000,000 shares authorized; 11,606,735 shares issued and outstanding at December 31, 2016 and 2015			12				12
Additional paid in capital			259,912				259,102
Accumulated deficit			(276,136	)			(272,495	)
Accumulated other comprehensive (loss) income			(204	)			213
Total stockholders’ deficit			(16,416	)			(13,168	)
Total liabilities and stockholders’ deficit		$	162,939			$	134,159

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in thousands of United States Dollars, except share and per share amounts)

 

		Years Ended December 31,
		2016				2015
Revenue:
Product sales		$	8,348			$	5,883
Product sales – related parties			45,856				7,919
License fees			400				332
Commercial collaborations			83				144
Total revenues			54,687				14,278
Cost of goods sold:
Product costs			6,981				5,159
Cost to related party sales			30,580				7,523
Inventory write down			-				1,352
Total cost of goods sold			37,561				14,034
Gross profit			17,126				244
Operating expenses:
Research and development			3,163				808
Sales and marketing			291				862
General and administrative			15,655				11,709
Impairment loss			129				652
Depreciation and amortization			1,093				1,560
(Gain) loss on disposal of assets			(29	)			142
Total operating expenses			20,302				15,733
Loss from operations			(3,176	)			(15,489	)
Other income (expense):
Interest expense, net			(3,708	)			(2,533	)
Gain on foreign currency transactions			-				1
Other income - electric bus sales			21				11,419
Other expense – electric bus sales			-				(13,548	)
Other income			3,222				644
Total other expense			(465	)			(4,017	)
Net loss		$	(3,641	)		$	(19,506	)
Other comprehensive loss:
Foreign currency translation adjustments			(417	)			(492	)
Comprehensive loss		$	(4,058	)		$	(19,998	)
Loss per common share - basic and diluted		$	(0.31	)		$	(1.68	)
Weighted average shares - basic and diluted			11,606,735				11,606,735

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Expressed in thousands of United States Dollars, except shares) 

 

																		Accumulated
																		Other
		Common Stock								Additional Paid				Accumulated				Comprehensive
		Shares				Amount				In Capital				Deficit				Income (Loss)				Total
Balance, December 31, 2014			11,606,735			$	12			$	259,091			$	(252,989	)		$	705			$	6,819
Net loss			-				-				-				(19,506	)			-				(19,506	)
Currency translation adjustment			-				-				-				-				(492	)			(492	)
Stock-based compensation			-				-				11				-				-				11
Balance, December 31, 2015			11,606,735				12				259,102				(272,495	)			213				(13,168	)
Waiver of payable by a related party			-				-				810				-				-				810
Net loss			-				-				-				(3,641	)			-				(3,641	)
Currency translation adjustment			-				-				-				-				(417	)			(417	)
Balance, December 31, 2016			11,606,735			$	12			$	259,912			$	(276,136	)		$	(204	)		$	(16,416	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States Dollars)

 

		Years Ended December 31
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,641	)		$	(19,506	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			3,626				1,560
Inventory reserve			281				1,352
Accretion of other non-current liabilities			317				255
Accretion of long term receivables			(155	)			(424	)
Accretion of long term notes payable			431				-
Accretion of capital lease obligation			175				-
Share-based compensation			-				11
Bad debt expense			-				(6,287	)
Impairment loss			129				652
Changes in operating assets and liabilities:
Accounts receivable			385				52
Note receivables			73				-
Inventories			(19,170	)			(2,109	)
Prepaid expenses and other current assets			(9,159	)			25,511
Deferred contract costs			3,454				(1,022	)
Trade accounts payable			1,803				(1,885	)
Long term receivable			1,808				(3,324	)
Accrued expenses and current liabilities			2,574				922
Deferred revenue and customer deposit			(3,308	)			(2,952	)
Deferred income - grant incentives			70				1,238
Other non-current liabilities			(594	)			3,217
Amounts due from related parties			(617	)			17,740
Amounts due to related parties			25,797				110
Net cash provided by operating activities			4,279				15,111
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity (placement) of term deposit			24,834				(19,726	)
Purchase of property, plant and equipment			(25,961	)			(12,421	)
Sale of property, plant and equipment			565				-
Purchase of land use right			-				(1,435	)
Payment from (loan to) related parties			(16,025	)			742
Net cash used in investing activities			(16,587	)			(32,840	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash			-				4,673
Proceeds from trade acceptance			678				10,236
Repayment of trade acceptance			(5,022	)			(5,610	)
Proceeds from notes payable			36,416				39,538
Repayment of notes payable			(70,179	)			(26,402	)
Loan from (repayment to) related party			49,432				(934	)
Net cash provided by financing activities			11,325				21,501
Effect of exchange rate changes on cash and cash equivalents			(304	)			(2,685	)
Net change in cash and cash equivalents			(1,287	)			1,087
Cash and cash equivalents at beginning of year			2,088				1,001
Cash and cash equivalents at end of year		$	801			$	2,088
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years for:
Income taxes		$	-			$	-
Interest expense		$	4,328			$	5,467
NONCASH INVESTING AND FINANCING ACTIVITIES
Equipment acquired through capital lease		$	9,382			$	-
Related parties debt settlement		$	13,323			$	-

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

NOTE 1 – NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

 

Description of the Company and Business

 

Altair Nanotechnologies Inc., (the “Company”) is a Delaware corporation that develops, manufactures and sells nano lithium titanate batteries and energy storage systems. The Company’s 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. The Company targets applications that utilize the key attributes of its technology with product applications mainly found in the electric grid, transportation (commercial vehicles), and industrial market segments.

 

In January 2014, the Company approved plans to consolidate all manufacturing operations in the United States of America (“U.S.A.”) and to move them to Wu’an, China.  The Company will continue to retain engineering, research and development, sales and marketing, and support capabilities in the U.S.A. Starting in early 2016, the Company’s principal assets and operations were located in China. Management believed that moving manufacturing operations to China represented a strategic shift such that the change had a major effect on the Company’s operations.

 

 

NOTE 2 – GOING CONCERN AND MANAGEMENT’S PLANS

 

As of December 31, 2016, the Company had a working capital deficiency of $53.4 million and a stockholders’ deficiency of $16.4 million. During the years ended December 31, 2016, the Company incurred a net loss of $3.64 million. In addition, the Company has $8.06 million of debt coming due in the next 12 months. The Company has capital commitments of $25.47 million as of December 31, 2016, of which $22.93 million is within one year. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year from the date of this report.

 

The Company’s primary source of operating funds has been debt financing and cash flow from operations. The Company anticipates continuing to have positive cash flows from operations as it ramps up production at their new manufacturing facilities. The management is taking actions to pay off loans when due, refinance existing loans if needed, obtain additional loans collateralized by the land use rights and Machinery and equipment, related party guarantees, third party guarantees and other assets. However, there is no assurance that additional grant funds to cover our capital needs will be available to us and that we will be able to refinance existing loans, obtain additional loans, or raise additional funds through other sources such as through an equity offering. Even if we are able to obtain additional financing, it may contain undue restrictions, be on terms that are not satisfactory to us, or contain covenants on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of convertible debt and equity financing. We may not be able to raise sufficient equity capital to finance our operations due to our operating results, the lack of a market for our common stock and similar factors.

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. 

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries which include (1) Altair U.S. Holdings, (2) Altairnano, Inc., (3) Altair Nanotechnologies (China) Co., Ltd., and (4) Northern Altair Nanotechnologies Co., Ltd. All of the subsidiaries are either incorporated in the United States of America or China. Inter-company transactions and balances have been eliminated in consolidation.

 

Reclassification

 

The Company has reclassified certain comparative balances in the consolidated balance sheet for December 31, 2015 to conform to the current period’s presentation. The reclassification is related to the aggregation of the balances of certain accruals and other liability accounts; accrued salaries and benefits, accrued warranty, accrued liabilities, warrant liabilities, into the other payables and current liabilities account. The reclassification did not have an impact on the reported total assets, liabilities and stockholders’ equity.

 

Foreign Currency Translation and Transactions

 

The consolidated financial statements are presented in thousands of U.S. Dollars. The functional currency for the subsidiaries in China is the Chinese Yuan or RMB. Assets and liabilities are translated to the reporting currency at exchange rates on the balance sheet dates, revenue and expenses are translated at average exchange rates during the period, and equity accounts are translated at historical exchange rates except for the change in retained earnings during the year which is the result of the income. The cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders' deficit. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign currency transaction gain or loss in the statements of operations.

 

Use of Estimates

 

Financial statements prepared in accordance with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the assumptions used to calculate deferred revenue, inventory reserve, allowance for bad debt, warranty, impairment, financial guaranty, long term payable, refundable security deposit, deferred income taxes, contingencies, and equity instruments issued for financing and compensation. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist principally of bank deposits and institutional money market funds.  Short-term investments that are highly liquid have insignificant interest rate risk and original maturities of 90 days or less, when purchased are classified as cash and cash equivalents. Cash and cash equivalent accounts maintained in financial institutions in the U.S.A. are insured up to $250,000 for each “depositor” by the Federal Deposit Insurance Corporation (“FDIC”).  In the event of bank failure, there is no rule or regulation for obligatory insurance regarding to cash deposit accounts maintained within China. However, the Company has not experienced any losses in such accounts.

 

Restricted Cash

 

The Company’s restricted cash represents cash restricted as performance guarantee for China State Grid Project.

 

  

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Short-term investment

 

Short-term investments consist primarily of investments in certificate of deposit with maturities between three months and one year.

 

Accounts Receivable

 

Accounts receivable consists of amounts due from customers for services and product sales, net of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts by reviewing each customer account and specifically identifying any potential for loss. As of December 31, 2016 and 2015, an allowance for doubtful accounts amounted to $nil and $30,000, respectively, was provided.

 

Inventory

 

The Company values its inventories generally at the lower of cost or market price. Market price is based on estimated selling prices less any further costs expected to be incurred for completion and disposal.

 

For the U.S. operations, the cost of raw materials and finished goods is determined on a first-in, first-out method and finished goods is comprised of direct materials, direct labor and an appropriate proportion of overhead.

 

For the China operations, the cost of nLTO materials is determined on a weighted average method and finished goods is comprised of direct materials, direct labor and an appropriate proportion of overhead.

 

The allocation of fixed and variable overhead is reviewed every three months and is recorded to inventory based on normal capacity.

 

Inventory reserves are provided to cover risks arising from slow-moving items. The Company writes down the inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. Any idle facility costs or excessive spoilage are recorded as current period charges.

 

Prepaid expenses

 

Prepaid expenses represent cash paid in advance to suppliers for purchases of raw materials. Advances paid to suppliers for purchases of equipment and construction are classified as long term prepaid expenses.  

 

Research and Development Expenditures

 

Research and development expenditures include salaries, wages and other costs of personnel engaged in research and development, costs of services performed by others for research and development on our behalf are expensed when incurred. 

 

Stock-Based Compensation

 

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which employee services are provided in exchange for the award, known as the requisite service period.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Defined contribution plan

 

Full-time employees of the Company in the People Republic China (“PRC”) participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that PRC operating entities make contributions to the government for these benefits based on certain percentages of the employees’ salaries. Except for required contributions mentioned above, the Company has no legal obligation for the benefits.

 

The total contributions paid were $2.02 million and $0.32 million for the years ended December 31, 2016 and 2015, respectively.

 

Long-Lived Assets

 

The Company evaluates the carrying value of its long-lived assets whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  The carrying value of long-lived assets are considered impaired when the total projected undiscounted cash flows expected to be generated by the asset are less than the carrying value.  The Company’s estimates of cash flows are based on the information available at the time including the following:  internal budgets; sales forecasts; customer trends; anticipated production volumes; and market conditions over an estimate of the remaining useful life of the asset which may range from 3 to 10 years for most equipment and up to 30 years for building and related building improvements.  If impairment is indicated, the asset value is written down to its estimated 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 or the assets used to produce it, a history of operating or cash flow losses and/or the partial or complete lapse of technology rights protection.

 

During the year ended December 31, 2016, the Company recognized impairment loss of $0.13 million for the two EV buses delivered to Wu’an government as the application for their operating licenses was unsuccessful. During the year ended December 31, 2015, the Company incurred an impairment loss of $0.65 million related to the write-down to fair market value for an asset that was leased to a customer under an operating lease. The impairment was to reflect the anticipated loss on the sale of the leased assets incurred in the subsequent period.

 

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 estimated useful lives: 

 

Building and improvements (years)	20	-	30
Machinery and equipment (years)	5	-	10
Furniture, office equipment and others (years)	3	-	7
Leased asset (years)		10

 

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for our intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold improvements commences once they are ready for our intended use. Land is not depreciated. Construction in progress represents capital expenditures for direct costs of construction or acquisition and design fees incurred, and the interest expenses directly related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. The leased assets are depreciated over the useful lives of the assets. Construction in progress is not depreciated.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Patents

 

Patents are related to the Company’s nanoparticle production technology and stated at cost less accumulated amortization. Amortization is recorded using the straight-line method. The patents have been fully amortized as of December 31, 2016.

 

Land use rights

 

Land use rights are stated at cost less accumulated amortization.  Amortization is recorded using the straight-line method over their 50 year useful lives. All land in China is owned by the Chinese government. The government in China, according to law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in China are considered to be leasehold land under lease and are stated at cost less accumulated amortization.

 

Revenue Recognition 

 

The Company generates its revenues primarily from four sources; (1) nLTO related product sales, (2) Energy storage systems (referred to as “ESS” or by our brand name “ALTI-ESS”), (3) Collaborations and (4) License fees. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been performed, the fee is fixed and determinable, and collectability is reasonably assured.

 

Revenue from nLTO related product sales is recognized upon delivery of the product, unless specific contractual terms dictate otherwise.

 

Revenue from commercial collaborations and license fees is recognized based on various performance measures, such as stipulated milestones.  As these milestones are achieved, revenue is recognized.

 

Revenue from ESS projects is recognized using the Completion Method under the long-term contract accounting. The Company recognizes the full amount of revenue from long-term contracts, defined as contracts longer than twelve months, upon completion, delivery and written acceptance received from the customer. All contract costs incurred are included in the balance sheet as deferred costs until the related revenue is recognized. At each reporting date, the Company reviews its long-term contracts to determine if revenue from contracts are expected to exceed the related estimated total costs. In the cases where estimated costs will exceed revenues, the Company recognizes as an expense in cost of goods sold the full amount of the estimated costs above the contract revenue value. Cash received in advance relating to the future performance of services, deliveries of products and/or long term contracts are deferred until the performance of the service is completed, the product is shipped, and/or the contract is completed and accepted by the customer.

 

Grant Incentive

 

Grant incentives were obtained from the Wu’an China Government to be used for construction, purchases of equipment and other expenditures for the nLTO manufacturing facility. The amount received is included in the balance sheet as deferred income and is recognized in the statement of operations as other income over the useful life of the related assets upon placing such assets into service. In all cases, grants are recognized as other income when there is a reasonable assurance that the Company has complied with the conditions attaching to them.

 

Accrued Warranty 

 

The Company’s U.S operation provides a three-year limited warranty for battery packs and energy storage systems sold, while the Company’s China operation offers a limited one-year warranty on energy storage systems. A liability is recorded for estimated warranty obligations at the date products are sold.  The estimated cost of warranty coverage is based on historical experience with cell and module life cycle testing.  As additional actual historical data is collected on the new product, the estimated cost of warranty coverage will be adjusted accordingly.  The liability for estimated warranty obligations may also be adjusted based on specific warranty issues identified.  

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Overhead Allocation 

 

Facilities overhead and production employee’s fringe benefit costs are allocated to research and development and inventories based on relative labor costs. Production equipment depreciation expense is recorded to cost of goods sold as the equipment is used to produce product sold to customers.

 

Comprehensive Loss

 

Recognized revenue, expenses, gains and losses are included as net income or loss. Although certain changes in assets and liabilities are reported as separate components of the equity section of the consolidated balance sheet, such items, along with net income or loss, are components of comprehensive income or loss. The components of other comprehensive income or loss consist solely of foreign currency translation adjustments.

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common stockholders by the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental shares of common stock issuable upon the exercise of stock options and warrants.  Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive. The Company had a net loss for all periods presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented were included in the computation of diluted loss per share as they were anti-dilutive. Stock options and warrants can exercise a total amount of common stock for 20,484 and 441,864 shares as of December 31, 2016 and 2015, respectively, were excluded from the calculations of diluted loss per share.

 

Advertising, Sales and Marketing Costs

 

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses in the Company’s consolidated statement of operations. Advertising, sales and marketing costs were approximately $0.29 and $0.87 million, respectively, for the years ending December 31, 2016 and 2015.

 

Income Taxes 

 

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted.

 

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and the Company’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (continued)

 

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

 

 Geographic Information and Concentration

 

Geographic operating information is consistent with how the Chief Executive Officer and Interim Chief Financial Officer reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Power and Energy Group (PEG) is the Company’s current and future focus for corporate development. The PEG group develops, produces, and sells nLTO battery modules and larger utility-scale energy storage system projects. Resource allocation and performance assessment is concentrated as one operating level and the Company manages its current business primarily on a geographic basis.

 

Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of December 31, 2016 and 2015, the Company’s consolidated balance sheets included the fair value of a warrant liability of $nil and $nil, respectively (see Note 5 and Note 15).

 

Recently Issued Accounting Guidance

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-18, “Statement of Cash Flows-Restricted Cash”. ASU 2016-18 modifies the requirement on the statement of cash flow to explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flow. ASU No. 2016-18 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is in the process of evaluating the impact of ASU 2016-18 on the Company’s financial statements and disclosures.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Issued Accounting Guidance (continued)

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.

 

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. The Company early adopted this guidance, prospectively, as of January 1, 2016. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

 

In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin. ASU 2015-11 requires an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016 (January 1, 2017 for the Company). The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard by one year. As a result, the ASU No. 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company plans to adopt this standard on January 1, 2018. As of December 31, 2016, the majority of the Company’s revenue is generated from product sales. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and disclosures. .The Company is still evaluating the impact on its results of operations or cash flows. The Company expects to complete its assessment of the effect of adopting ASU No. 2014-09 by the end of 2017, as well as the selection of a transition approach. 

 

 

NOTE 4 – ELECTRIC BUS SALES

 

On April 19, 2012, the Company entered into an Agreement (the “Agreement") with Wu’an Municipal People's Government ("Wu'an") and Handan Municipal People's Government ("Handan Government") regarding the establishment by Altair China of a manufacturing facility in the City of Wu'an, in Hebei Province in China. The Agreement also indicates the purchase by Wu'an and Handan of EV Buses beginning in late 2012 and continuing over five years, and the future purchase of electric taxis and energy storage systems.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 NOTE 4 – ELECTRIC BUS SALES (CONTINUED)

 

Pursuant to the Agreement, on January 6, 2013, the Company, through its wholly-owned subsidiary, Northern Altair, entered into an EV Buses sale agreement with Wu’an Transport Bureau, the total contract price, with VAT included was $25.1 million for 165 EV Buses equipped with high efficiency lithium battery. No EV Buses were delivered during the year ended December 31, 2013.

 

Pursuant to the Agreement, on May 13, 2014, the Company, through its wholly-owned subsidiary, Northern Altair, entered into an EV Buses sale agreement with Handan City Public Transportation (“Handan”), the total contract price, with VAT included was $44.5 million for 200 EV Buses.

 

During the year ended December 31, 2014, the Company delivered 153 EV Buses to Handan and recognized other income of $28.4 million net of the fair value of the financial guarantee provided for Handan.

 

During the year ended December 31, 2015, the Company delivered 28 EV Buses to Wu’an and 47 EV Buses to Handan and recognized other income of $11.3 million net of the fair value of the financial guarantee provided for Handan. The unearned financial guaranty premium will be amortized using straight-line amortization method over 10 years.

 

During the year ended December 31, 2016, the Company did not deliver any buses to Wu’an.

 

In connection with the bus sales to Handan, the Company agreed to provide to a third-party leasing entity a security deposit equals to 20% of the contract price. The security deposit is refundable over a ten-year period when Handan completes its obligations to the third-party leasing entity. The difference between the present value of the refundable security deposit and the gross amount was recorded as current period expense and unearned interest income to the security deposit. The unearned interest income is being amortized straight line over the refund period of 10 years.

 

In addition, the Company agreed to pay an initial 8% of the contract price for rebates and to make subsequent quarterly payments, for a ten-year period, to a third-party leasing company as an incentive. The net present value of the quarterly payments is recorded as current period expense. The difference between the present value of subsequent quarterly payments and the gross amount was recorded as unrecognized interest expense and then amortized over ten-year period.

 

 

In thousands except for bus delivered quantities:

		Years Ended December 31,
		2016				2015
Buses delivered			-				75
Other income- buses, gross		$	-			$	11,473
Financial guarantee premium			21				(54	)
Other income- buses, net			21				11,419

 

Other cost of buses purchased from related parties (Note 18)

 

			-				11,409
Security deposit expense			-				727
Rebates expense			-				1,412
Other expenses- buses		$	-			$	13,548

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 5 – FAIR VALUE MEASUREMENTS AND OTHER FINANCIAL MEASUREMENTS

 

The Company’s financial instruments are accounted for at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of the fair value hierarchy are described below:

 

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.

 

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and short-term notes receivable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. The estimated fair values of the Company's debt approximately carrying values as the interest rates under the loan agreements either approximately current market rates or there were not significant fluctuations in current market rates to change the fair values of the underlying instruments. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

NOTE 6 –INVENTORIES

 

Inventory relates to the production of battery systems and nLTO related products targeted at the electric grid, transportation, and industrial markets, which consisted of the following: (In thousands of dollars):

 

		December 31,
		2016				2015
Raw materials		$	4,756			$	2,800
Work in process			1,638				1,041
Finished goods			18,896				3,830
Total inventories		$	25,290			$	7,671

 

 

  ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 7 – PREPAID EXPENSES AND OTHER ASSETS

 

Prepaid expenses and other assets consist of the following (In thousands of dollars):

 

		December 31,
		2016				2015
Prepaid inventory purchases		$	3,243			$	623
Prepaid Service Fee			1,597				1,016
Prepaid VAT			8,508				3,207
Current portion of long term receivable			1,501				1,603
Electric bus for resale (Note 4)			-				132
Other receivables – electric bus (Note 4)			409				437
Deposits			118				97
Prepaid insurance			126				221
Others			375				392
Total prepaid expenses and other current assets		$	15,877			$	7,728
Deferred contract costs		$	-			$	3,454
Prepaid equipment purchases, non-current		$	855			$	3,792
Patents, net		$	-			$	47
Long term receivable		$	3,136			$	4,138

 

 

Other receivable consists of amount due from the third-party companies, which was incurred when the Company agreed to resell the EV Bus to the third-party companies. For the year ended December 31, 2016, the Company recorded an impairment loss of $0.13 million for electric bus for resale, as the application for their operating license was unsuccessful.

 

Long term receivable consists of due from a third-party leasing company, which were incurred when the Company agreed to provide to a third-party leasing company a security deposit equals to 20% of the contract price and is refundable over a ten-year period upon Handan’s completion of its obligations to the third-party leasing entity (Note 4). Included in the other assets, non-current account is the guarantee deposit for the failed sales-leaseback transaction (Note 12) and capital lease transaction (Note 13).

 

The following lists the components of the net present value of long term receivable (In thousands of dollars):

 

		December 31,
		2016				2015
Gross long term receivable		$	6,827			$	8,243
Less: unearned interest income			(2,190	)			(2,502	)
Net present value of long term receivable			4,637				5,741
Less: Current portion of long term receivable			(1,501	)			(1,603	)
Net present value of long term receivable, net of current portion		$	3,136			$	4,138

 

As of December 31, 2015, the effective interest rate on amortized unearned interest income of long term receivable from refundable security deposit was approximately 10.00% per annum.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 7 – PREPAID EXPENSES AND OTHER ASSETS (CONTINUED)

 

As of December 31, 2016, the effective interest rate on amortized unearned interest income of long term receivable from guarantee deposit for sale-leaseback was approximately 7.13% per annum and the effective interest rate on amortized unearned interest income of long term receivable from guarantee deposit for capital lease transaction ranged from 9.29% to 9.45%.

 

As of December 31, 2016, future minimum collections are as follows (In thousands of dollars):

 

Years ended December 31,		Future minimum collections
2017		$	1,797
2018			-
2019			138
2020			1,438
2021			1,090
Later years			2,364
Total		$	6,827

 

 

Deferred contract costs were costs deferred for multiple large scale projects for which revenue was received and was recognized in accordance with the completed contract method in August 2016.

 

Patents are associated with the nanomaterials and titanium dioxide pigment technology, which the Company is amortizing on a straight-line basis over their useful lives.  

 

Amortization expense, for the years ended December 31, 2016 and 2015, was approximately $47,000 and $80,000 for each year. Annual amortization expense relating to patents has ended in 2016.

 

 

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consists of the following (In thousands of dollars):

 

		December 31,
		2016				2015
Machinery and equipment		$	41,904			$	11,049
Building and improvements			22,762				13,498
Furniture, office equipment & others			1,731				1,844
Leased assets			15,824				1,682
			82,221				28,073
Less: accumulated depreciation			(12,452	)			(12,864	)
			69,769				15,209
Add: construction in process			4,374				21,186
Total property, plant and equipment, net		$	74,143			$	36,395

 

 

The leased assets were pledged against the lease payments associated with the capital lease transactions as of December 31, 2016 (Note 13). Machinery and equipment amounting to $13.26 million was pledged against the lease payments associated with the sale-leaseback transaction as of December 31, 2016 (Note 12).

 

Depreciation expense for the years ended December 31, 2016 and 2015 totaled approximately $3.03 million and $0.93 million, respectively.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 NOTE 9 – LAND USE RIGHTS

 

From fiscal year 2012 to 2015, Northern Altair signed agreements to receive five separate Land Use Rights for a period of 50 years with land sizes of approximately 66 acres, 40 acres, 10 acres, 8.6 acres and, 13.7 acres, respectively, of industrial land in Wu’an, China from Hebei Wu’an Municipal People’s Government. The Company paid approximately $12.17 million, $8.58 million, $1.86 million, $2.15 million and $ 2.93 million for each Land Use Right respectively. Payment amount included land transfer tax and other fees. These Land Use Rights are being used for the Company’s nLTO and energy storage system manufacturing operations in China. Upon the 50-year expiration of the Land Use Rights, the Company will be required to bid again to obtain an extension of these rights. The company received various incentives and grants from the Wu’an government in conjunction with obtaining the Land Use Rights (see Note 11).

 

 As consideration for the land use rights, Northern Altair agreed to make fixed asset investments on the land of approximately $314.85 million, subject to grant incentives from Wu’an, China, over period of 50-year life of the land use rights, with initial construction occurring in 2013. Additional construction phases will be contingent upon loan guarantees and other incentives from Wu’an, China as well as other market conditions. The total fixed asset and intangible asset investments shall include the cost of buildings, structures, auxiliary facilities and equipment. Northern Altair is prohibited from transferring the Land Use Right until funding at least 25% of the land investment commitment noted above.

 

The following summarizes Land Use Rights (In thousands of dollars):

 

		December 31,
		2016				2015
Land use rights		$	26,292			$	28,119
Less: accumulated amortization			(1,870	)			(1,434	)
Total land use rights, net		$	24,422			$	26,685

  

The carrying amount pledged (In thousands of dollars): 

 

		December 31,
		2016				2015
Pledged for bank loan (Note 12)		$	11,398			$	20,222
Pledged for guarantee provided to a related party (Note 18)			5,919				3,671
Total		$	17,317			$	23,893

 

 

The Land Use Rights were recorded at cost and are being amortized on a straight-line basis over its 50-year useful life. The amortization expense was approximately $0.55 million each for the years ended December 31, 2016 and 2015, respectively. The Company expects to record annual amortization expense of approximately $0.55 million for each of the five succeeding years.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 10 – ACCRUED EXPENSES AND OTHER LIABILITIES

 

Accrued expenses and other liabilities consisted of the following (In thousands of dollars):

 

		December 31,
		2016				2015
Accrued salaries and benefits		$	4,084			$	1,915
Accrued warranty			71				168
Accrued professional fee			790				252
Other payable			380				290
Other taxes payable			88				587
Current portion of rebate and guarantee from bus sales			273				266
Other current liabilities			115				40
Total accrued expenses and other liabilities		$	5,801			$	3,518
Other non-current liabilities		$	3,062			$	3,565

 

Other non-current liabilities mainly consists of due to a third-party leasing company, which were incurred when the Company agreed to pay an initial 8% of the contract price for rebates and to make subsequent quarterly payments, for a ten-year period, to a third-party leasing company as an incentive (Note 4).

 

Accrued warranty consisted of the following (In thousands of dollars):

 

		December 31,
		2016				2015
Beginning Balance – January 1,		$	168			$	173
Charges for accruals in the current period			91				265
Reductions for expired warranty or services provided			(188	)			(270	)
Ending Balance – December 31,		$	71			$	168

 

  

NOTE 11 – GRANT INCENTIVES

 

In conjunction with the Land Use Rights obtained by Northern Altair (Note 9), Northern Altair applied for and received various incentives and grants from the Wu’an China Government. Such grants and incentives are required to be used to support the construction of planned facilities in Wu’an China and the purchase of related manufacturing equipment. During the years ended December 31, 2016 and 2015, the Company received grant incentives of $0.67 million and $2.58 million, respectively.

 

The Company received $2.7 million in a loan interest subsidy during the year ended December 31, 2016. Part of the loan interest subsidy was capitalized and the remaining amount of the subsidy, $0.28 million, should be amortized based on the useful life of the plant. The Company received grant incentives $0.64 million to be used for plant construction during year ended December 31, 2015.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 11 – GRANT INCENTIVES (CONTINUED)

 

Grant amounts received are included in the balance sheet as deferred income and are recognized as income over the useful life of the related assets upon placing such assets into service. The following summarizes grant incentives for the years ended December 31 (In thousands of dollars):

  

		2016				2015
Beginning balance, January 1,		$	26,743			$	25,505
Grants received in the current year			664				3,216
Foreign currency translation adjustment			(1,741	)			(1,429	)
Grants recognized in other income			(594	)			(549	)
Ending balance December 31		$	25,072			$	26,743
Less: current portion of deferred income – grant incentive		$	(536	)		$	(551	)
Deferred income – grant incentive - non current		$	24,536			$	26,192

 

 

NOTE 12 – NOTES PAYABLE

 

Notes payable consist of trade acceptances and bank loans as discussed below (in thousands of dollars):

 

 

		December 31,
		2016				2015
Trade acceptances		$	-			$	4,445
Short-term bank loans			750				40,528
Notes payable - short-term		$	750			$	44,973
Long-term bank loans		$	21,599			$	32,186
Less: current maturities of long-term bank loans			(6,480	)			(25,564	)
Long-term bank loans, net of current portion		$	15,119			$	6,622
Failed sale-leaseback financing obligation		$	14,523			$	-
Less: current portion of failed sale-leaseback financing obligation			(494	)			-
Failed sale-leaseback financing obligation, net of current portion		$	14,029			$	-
Long-term notes payable		$	36,122			$	32,186
Less: current maturities of long-term notes payable			(6,974	)			(25,564	)
Long-term notes payable, net of current portion		$	29,148			$	6,622

 

 

Trade Acceptances

 

The Company issued trade acceptances to suppliers. Trade acceptances are presented to certain suppliers as a payment against the outstanding trade payable. These trade acceptances are non-interest bearing and mature within six months. Trade acceptances are secured by certificate of deposit in the bank for the amount of $nil and $5.39 million as of December 31, 2016 and 2015, respectively.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 12 – NOTES PAYABLE (CONTINUED)

 

Bank Loans

 

Bank loans represent loans from commercial banks that were used for working capital and capital expenditures purposes.

 

		2016					2015
Short-term bank loan
Weighted-average interest rate as of December 31			18.00%					7.06%
Maturities			June 2017				May 2016	to	September 2016
Weighted average balance during the year ended December 31 (in thousands of dollars)			$29,302					$20,502

 

 

		2016					2015
Long-term bank loan
Weighted-average interest rate of the loans outstanding as of December 31			11.62%					11.03%
Maturities		September 2017	to	June 2018			September 2016	to	September 2017
Weighted average balance during the year ended December 31 (in thousands of dollars)			$20,729					$33,015

 

The total carrying amount of Land Use Rights that have been pledged as collateral to secure financing from commercial banks is $11.40 and $20.22 million as of December 31, 2016 and 2015, respectively.

 

The total carrying amount of certificate of deposits that have been pledged as collateral to secure financing from commercial banks is $nil and $20.02 million, as of December 31, 2016 and 2015, respectively.

 

The total carrying amount of note receivable from related parties that have been pledged as collateral to secure financing from commercial banks is $nil and $1.54 million, as of December 31, 2016 and 2015, respectively (See Note 18).

 

As of December 31, 2016 and 2015, a short term bank loan with amounting to $nil and $20.02 million was secured of guarantee from a related party, Zhuhai Yinlong New Energy Co., Ltd, personal guarantees executed by certain directors of the Company (See Note 18), and guarantee from a third party; long term bank loans with amounting to $6.48 and $6.93 million was secured of guarantee from a third party.

 

Interest expense for the years ended December 31, 2016 and 2015 was $4.69 million and $2.95 million, respectively. Capitalized interest expense for the years ended December 31, 2016 and 2015 was $1.31 million and $2.79 million, respectively.

 

In addition to guarantee provided by related parties discussed above, some third parties have also pledge on same guarantee for total amount of $nil and $20.02 million, as of December 31, 2016 and 2015 respectively.

 

As of December 31, 2016, the Company is required to pay principal amounts of $7.23 million payable in 2017 with $15.12 million payable in 2018.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 12 – NOTES PAYABLE (CONTINUED)

 

Failed Sale-Leaseback Financing Obligation (in thousands of dollars)

 

On July 26, 2016, the Company entered into a contract with Hengqin Golden Investment International Financial Leasing Co., Ltd (“Golden Investment”) to sell fifty-five pieces of equipment (the "Equipment") currently in use and simultaneously leased it back. The Company regains the ownership of Equipment at the end of the lease term and the Company also assumes all risks of damages to the Equipment and continued to manage, control, administrate, and operate the Equipment. These rights and obligations constitute continuing involvement, which result in a failed sale-leaseback financing obligation. Under the failed sale-leaseback financing obligation, the Company is deemed owner of the Equipment and the transaction is treated as a financing arrangement. The lease term is for sixty months commencing on July 28, 2016. The first lease payment was made on July 27, 2016 and the subsequent payment is due every six months starting from the first payment date.

 

In connection with the failed sale-leaseback financing obligation, the Company pledged the fifty-five pieces of Equipment with carrying amount to $13.26 million as of December 31, 2016 as collateral to Golden Investment and the following related parties individually entered into a guaranty contract with Golden Investment to provide joint liability guarantee for the payments under the financing arrangement:

 

1

Zhuhai Yinlong New Energy Co., Ltd.

2

Zhuhai Guangtong Auto Co., Ltd.

3

Shijiazhuang Zhongbo Auto Co., Ltd.

4

Hebei Yinlong New Energy Co..

 

The arrangement also contained two special provisions:

 

(1)

The lease-term would be reduced from sixty months to thirty-six months if an anticipated merger failed. On November 17, 2016, the anticipated merger was rejected by Zhuhai Yinlong New Energy Co, Ltd. and Golden Investment confirmed that the lease terms would remain unchanged.

(2)

The lease term would be accelerated if certain affiliated companies of the Company breach their separately signed contracts with Golden Investment.

 

The following lists the components of the net present value of financing obligation: (In thousands of dollars)  

 

 

		December 31,
		2016
Gross failed sale-leaseback financing obligation payments		$	16,948
Less: Discount on gross failed sale-leaseback financing obligation payments			(2,425	)
Net present value of failed sale-leaseback financing obligation payments			14,523
Less: Current portion of failed sale-leaseback financing obligation payments			(494	)
Net present value of failed sale-leaseback financing obligation payments, net of current portion		$	14,029

 

 

As of December 31, 2016, the aggregate effective interest rate on the failed sale-leaseback financial obligation is approximately 7.13% per annum.

 

The amortization for discount on the failed sale-leaseback financing obligation for the year ended December 31, 2016 was approximately $0.4 million.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 12 – NOTES PAYABLE (CONTINUED)

 

The present value of the net minimum payments on the failed sale-leaseback financing obligation as of December 31, 2016 is as follows (In thousands of dollars):

 

 

		2017				2018				2019				2020				2021				Total
Minimum lease payments		$	1,460			$	4,548			$	6,297			$	2,537			$	2,106			$	16,948
Less: Amortization of discount			(966	)			(790	)			(433	)			(194	)			(42	)			(2,425	)
Failed Sale- Leaseback - Financing Obligation		$	494			$	3,758			$	5,864			$	2,343			$	2,064			$	14,523

 

 

NOTE 13 – CAPITAL LEASES OBLIGATION

 

On August 8, 2016, Northern Altair entered into a purchasing contract with Haitong Hengxin International Financial Leasing Co., Ltd. (“Hengxin”), a third party and thirteen other suppliers, where Hengxin will purchase the equipment selected by the Company from the suppliers and then lease them back to the Company. The lease term is initially for five years and contingent upon the occurrence of certain events, Hengxin has the rights to (i) reduce the lease term from five years to three years or (ii) upon default by the Company, Hengxin has the right to convert the remaining balance owed under the financing arrangement into the equity of the Company.

 

On November 17, 2016, the contingent event was triggered when the anticipated merger was rejected by majority shareholders and Hengxin confirmed that it would not exercise the right and that the lease terms remained unchanged and no conversion right would be exercised.

 

In connection with the financing arrangement, the Company pledged the leased equipment as collateral to Hengxin and certain related parties including Zhuhai Yinlong New Energy Co., Ltd., Shijiazhuang Zhongbo Auto Co., Ltd., and Hebei Yinlong New Energy Co., who individually entered into a guaranty contract with Hengxin to provide joint liability guarantee for the lease payments. In addition, Hebei Yinlong New Energy Co. pledged its accounts receivable with Hengxin.

 

In connection with the financing arrangement, the Company entered into a consulting agreement with Hengxin. The consulting agreement stipulated an additional consulting fee of 6% of the total purchase price of the equipment by Hengxin. The Company accounted for the consulting agreement as down payment for the capital lease as in substance those payments resemble required return by Hengxin.

 

The first lease payment was made in September 2016, and a subsequent payment is due every six months from the first lease payment date. According to the lease contract, the Company has a purchase option, renewal option or can just return the equipment at the end of lease term provided that the Company is not in default.

 

The following lists the components of the net present value of capital leases obligation: (In thousands of dollars)  

 

 

		December 31,
		2016
Gross capital lease obligation		$	11,418
Less: Discount on capital lease obligation			(2,275	)
Net present value of capital lease obligation			9,143
Less: Current portion of capital lease obligation			(339	)
Net present value of capital lease obligation, net of current portion		$	8,804

 

 

 As of December 31, 2016, the aggregate effective interest rate on amortized discount on capital lease obligation is in the range of 9.29% to 9.45% per annum.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 12 – NOTES PAYABLE (CONTINUED)

 

The amortization for discount on capital lease obligation for the year ended December 31, 2016 was approximately $0.2 million.

 

The present value of the net minimum payments on capital leases as of December 31, 2016 is as follows (In thousands of dollars):

 

		2017				2018				2019				2020				2021				Total
Minimum lease payments		$	1,142			$	2,284			$	2,854			$	2,854			$	2,284			$	11,418
Less: Amortization of discount			(803	)			(640	)			(489	)			(268	)			(75	)			(2,275	)
Capital lease obligation		$	339			$	1,644			$	2,365			$	2,586			$	2,209			$	9,143

 

 

NOTE 14 – STOCK BASED COMPENSATION

 

The Company has a 2005 Stock Incentive Plan (the “Plan”), which is administered by the Board of Directors and provides for the granting of options and restricted shares to employees, officers, directors and other service providers and expires 25 years from plan adoption date.   The total number of shares authorized to be granted under the Plan, as amended, is 1,208,333 and of this amount, 833,333 shares are not approved for stock option issuance at this time. The net amount of authorized shares is 375,000. As of December 31, 2016, we have reserved 354,516 shares of common stock for issuance upon exercise of options that have been, or may be, granted under our employee stock option plans. As of December 31, 2016, options to purchase 20,484 shares of common stock are outstanding. The plan expires ten years from the date of the last amendment approved by the stockholders, which was November 21, 2012.

 

 

The 1994 and 1998 stock option plans, under which the Company may not make future grants, authorized a total of 275,000 shares, of which options to purchase 38,105 shares of common stock were granted (net of expirations) and no options are outstanding and unexercised at December 31, 2016. Both plans have expired

 

Options granted under the Plans are granted with an exercise price equal to the fair value of a common share at the date of grant, have five-year or ten-year terms and typically vest over periods ranging from immediately to four years from the date of grant.  The estimated fair value of equity-based awards, less expected forfeitures, is amortized over the awards’ vesting period utilizing the graded vesting method.  Under this method, unvested amounts begin amortizing at the beginning of the month in which the options are granted.

  A summary of option activity under the Plans as of December 31, 2016 and 2015, and changes during the year then ended is presented below:

 

		2016												2015
		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term
Outstanding at January 1,			33,041			$	53.67				2.2				110,350			$	23.05				6.8
Forfeited / expired			(12,557	)			45.78				-				(77,309	)			8.96				-
Outstanding at December 31,			20,484				50.00				1.6				33,041				53.67				2.2
Exercisable at December 31,			20,484			$	50.00				1.6				33,041			$	53,67				2.2

 

 As of December 31, 2016 and 2015, the aggregate intrinsic value was $nil. As of December 31, 2016, there was no unrecognized compensation cost related to non-vested options granted under the plans.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 14 – STOCK BASED COMPENSATION (CONTINUED)

 

A summary of the status of non-vested options at December 31, 2015 and changes during the year then ended, is presented below:

 

		2015
		Shares				Weighted Average Grant Date Fair Value
Non-vested shares at January 1,			67,150			$	2.88
Granted			-				-
Vested			(16,668	)			2.88
Forfeited/Expired			(50,482	)			2.88
Non-vested options at December 31,			-			$	-

 

 

 NOTE 15 – WARRANTS

 

Warrants to purchase were 412,779 shares of common stock at an average price of $14.93. Warrants outstanding were 0 and 412,779 as of December 31, 2016 and 2015, respectively, and there were no warrants issued, expired, redeemed or exercised during each of the years ended December 31, 2016 and 2015. The warrants expired on various dates through September 2016.

 

 

NOTE 16 – GEOGRAPHIC OPERATING INFORMATION

 

The Company operates under one reportable segment because resource allocation and performance assessment have been concentrated as one operating level and the Company manages its business primarily on a geographic basis.

 

Sales to customers which accounted for more than 10% of Revenues:

Customers		Customers with Sales for Year Exceeding 10% of Total
List of Customers Year Ended 31 December 2016:
Hebei Yinlong New Energy Co., Ltd. – a related party			66	%
Zhuhai Yinlong New Energy Co., Ltd – a related party			18	%
List of Customers Year Ended 31 December 2015:
Hebei Yinlong New Energy Co., Ltd – a related party			49	%
TSK Solar			12	%

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 16 – GEOGRAPHIC OPERATING INFORMATION (CONTINUED)

 

Sales to customers which accounted for more than 10% of Account Receivable:

 

Customers		Customers with Trade Accounts Receivable at Year End Exceeding 10% of Total Accounts Receivable
December 31, 2016:
Alsher Titania, LLC			73	%
Nano Power a.s.			17	%
December 31, 2015:
Maui Electric Company, Ltd.			47	%
Hybricon			33	%

 

 

 Revenues for the years ended December 31, 2016 and 2015 by geographic area based on location of customers were as follows (In thousands of dollars):

 

		2016				2015
United States		$	6,074			$	812
China			45,876				7,919
Belgium			327				403
Australia			9				-
UK			-				117
Finland			1,610				936
Sweden			143				989
Spain			8				-
Czech Republic			640				829
Other foreign countries			-				2,273
Total		$	54,687			$	14,278

 

Geographic information for long-lived assets, which was based on physical location of the assets, was as follows (In thousands of dollars):

 

		2016				2015
United States		$	1,888			$	1,867
China			100,668				69,190
Total		$	102,556			$	71,057

 

Geographic information for revenue, which was based on physical location of operations, was as follows (In thousands of dollars):

 

		2016				2015
United States		$	7,280			$	6,359
China			47,407				7,919
Total		$	54,687			$	14,278

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 17 –TAXATION

 

Income Tax

 

United States

 

The Company and its subsidiaries included Altair U.S. Holdings and Altairnano, Inc., were incorporated in Nevada and are subject to U.S. federal income tax with a system of graduated tax rates ranging from 15% to 35%.

 

The Peoples Republic of China 

 

The PRC Corporate Income Tax (“CIT”) is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008. CIT Law imposes a unified income tax rate of 25% for all resident enterprises in China, including both domestic and foreign invested enterprises. Altair China and Northern Altair were incorporated in the PRC and are subject to an income tax rate of 25%.

 

The U.S. and non-U.S. component of income (loss) before income taxes for the years ended December 31, 2016 and 2015 are as follows (In thousands of dollars):

 

		2016				2015
U.S.		$	(5,174	)		$	(6,503	)
Non-U.S.			1,533				(13,003	)
Loss before provision for income taxes		$	(3,641	)		$	(19,506	)

  

The Company’s components of tax expense for the years ended December 31, 2016 and 2015 is as follows (In thousands of dollars):

  

		2016				2015
Loss before income taxes:		$	(3,641	)		$	(19,506	)
Provision for income taxes:
Current:
U.S. Federal			-				-
U.S. State			-				1
Non-U.S			-				-
Amount Reported as G&A			-				(1	)
			-				-
Deferred:
U.S. Federal			(1,625	)			(2,189	)
U.S. State			(2	)			(1	)
Non- U.S.			1,810				(2,893	)
Valuation allowance			(183	)			5,083
Subtotal			-				-
Provision for income taxes		$	-			$	-

 

Because of net operating losses and the full valuation allowance on deferred tax assets, there was no provision for income taxes recorded in the accompanying consolidated financial statements for the years ended December 31, 2016 and 2015.

 

 

  ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 17 –TAXATION (CONTINUED)

 

Income Tax (continued)

 

 

The components of the deferred tax assets and liabilities consisted of the following as of December 31, 2016 and 2015 (In thousands of dollars):

 

		2016				2015
NOL carryforwards		$	24,636			$	24,844
Tax credit carryforwards			276				276
Intangibles			(16	)			(16	)
Accruals & Reserves			781				3,233
Other			32				33
PP&E			664				328
Valuation allowance			(26,373	)			(28,698	)
Net deferred taxes		$	-			$	-

 

 

Reconciliation of income tax expense         

		For the Years ended December 31
		2016				2015
Book Income (Loss)		$	(1,274	)		$	(6,827	)
Expiration of NOLs			-				-
Stock options			-				4
Other			239				363
Valuation allowance			(183	)			5,083
Accrued social benefits			227				221
Accrued Audit and Legal Fees			1,147				-
Foreign tax rate differential			(154	)			1,157
State taxes			(2	)			(1	)
Provision for income taxes		$	-			$	-

 

Based on the historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets become deductible, management believes it is more likely than not that the Company will not realize benefits of these deductible differences as of December 31, 2016. Management has, therefore, established a full valuation allowance against its net deferred income tax assets as of December 31, 2016 and 2015.

 

As of December 31, 2016, the Company had federal and state net operating loss carry-forwards of $68.5 million and $2.3 million, respectively. The Company’s federal and state net operating loss carry-forwards begin to expire in 2018 and 2016, respectively. At December 31, 2016, the Company had net operating loss carry-forwards in China of $2.1 million that begin to expire in 2022.

 

Utilization of the Company’s NOLs may be subject to substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The Company has not performed a Section 382 study since 2012. Due to changes in stock ownership since 2012, there may be additional limitations on the utilization of the Company’s NOLs.

 

The Company is subject to taxation in the U.S., and China. The Company has not been audited by any jurisdiction since its inception in 1998. The Company is open for audit by the U.S. Internal Revenue Service, the Canada Revenue Agency, and the Chinese Ministry of Finance and U.S. state tax jurisdictions from 2013 to 2016.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 17 –TAXATION (CONTINUED)

 

Income Tax (continued)

 

There were no material uncertain tax positions as of December 31, 2016 and 2015. Interest or penalties related to unrecognized tax benefits are not material. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense, if any.

 

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS

 

Related parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.

 

During the years presented, the details of the related party balances and transactions were as follows (In thousands of dollars)

 

Balances 

 

						December 31,
		Note				2016				2015
Amounts due from related parties:
Accounts receivable						$	2,943			$	203
Other receivable							-				582
Note receivable							-				1540
Loans receivable							15,119				13,598
Total Amount due from related parties						$	18,062			$	15,923

 

1. Accounts receivable

						December 31,
		Note				2016				2015
Hebei Yinlong New Energy Co., Ltd			b			$	2,943			$	-
Zhuhai Yinlong New Energy Co., Ltd			a				-				203
Total						$	2,943			$	203

 

During the years presented, the Company sold products to related parties (listed above), mainly engaged in businesses of production and selling of lithium-ion power batteries and energy storage batteries.

 

 2. Other receivable

						December 31,
		Note				2016				2015
Zhuhai Yinlong New Energy Co., Ltd			a			$	-			$	308
Zhuhai Guangtong Auto Co., Ltd (Handan Branch)			c				-				274
Total						$	-			$	582

 

During year ended December 31, 2016, the Company settled the receivables by cash refund and net settlement agreement with the parties.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)

 

3. Note receivable

						December 31,
		Note				2016				2015
Hebei Yinlong New Energy Co., Ltd			b			$	-			$	1,540

 

Related Party (listed above) issued trade acceptances to the Company during 2015. Trade acceptances are presented to the Company as a payment against the outstanding trade payable. These trade acceptances are non-interest bearing and mature within six months.

 

4. Loans receivable

						December 31,
		Note				2016				2015
Hebei Yinlong New Energy Co., Ltd			b			$	15,119			$	-
Guangdong Yintong Investment Holdings Group Co., Ltd			e				-				2,772
Zhuhai Guangtong Auto Co., Ltd (Handan)			c				-				10,826
Total						$	15,119			$	13,598

 

During the years presented, the Company provided the non-interest bearing loans to related parties (listed above) and all loans are due on demand.

 

						December 31,
		Note				2016				2015
Amounts due from related parties:
Trade accounts payable and other payable						$	886			$	679
Sales deposit received in advance							24,270				1,426
Borrowing payable							56,382				23,354
Payment behalf of Northern Altair							701				-
Total Amount due to related parties						$	82,239			$	25,459

 

 

 1. Trade accounts payable and other payable

						December 31,
		Note				2016				2015
Hebei Yinlong New Energy Co., Ltd			b			$	254			$	3
Zhuhai Guangtong Auto Co., Ltd			c				632				676
Total						$	886			$	679

 

During the years presented, the Company had trade payable and other payable to related parties (listed above), mainly engaged in purchasing of electric cells from Hebei Yinlong New Energy and purchasing of electric buses from Zhuhai Guangtong Auto. Hebei Yinlong waived payable debt of $0.79 million.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)

 

2. Sales deposit received in advance

 

						December 31,
		Note				2016				2015
Zhuhai Yinlong New Energy Co.,Ltd			a			$	24,270			$	-
Hebei Yinlong New Energy Co., Ltd			b				-				1,426
Total						$	24,270			$	1,426

 

During the years presented, the Company sold products to related party (listed above), mainly engaged in producing and selling of lithium-ion power batteries and energy storage batteries.

 

3. Borrowing payable

						December 31,
		Note				2016				2015
Hebei Yinlong New Energy Co., Ltd			b			$	-			$	14,033
Zhuhai Yinlong New Energy Co., Ltd			a				56,382				1,529
Zhuhai Guangtong Auto Co., Ltd			c				-				5,698
Shijiazhuang Zhongbo Auto Co., Ltd			d				-				2,094
Total						$	56,382			$	23,354

 

During the years presented, the Company received non-interest bearing loans from related parties (listed above) and all loans are due on demand.

 

4. Payment behalf of Northern Altair

						December 31,
		Note				2016				2015
Zhuhai Yinlong Electrical Appliance Co., Ltd			i			$	701			$	-

 

 

During the years presented, the Company entrusted Zhuhai Yinlong Electrical Appliance Co., Ltd to settle the payable to Gree related to purchase of materials.

 

 

Transactions

 

						For the Years Ended
						December 31,
		Note				2016				2015
1. Sales
Hebei Yinlong New Energy Co., Ltd			b			$	35,873			$	6,981
Zhuhai Yinlong New Energy Co., Ltd			a				9,983				938
Total						$	45,856			$	7,919

 

During the years presented, the Company sold products to related parties (listed above), mainly engaged in businesses of production and selling of lithium-ion power batteries and energy storage batteries.

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)

 

						For the Years Ended
						December 31,
		Note				2016				2015
2. Purchase
Hebei Yinlong New Energy Co., Ltd			b			$	934			$	3
Zhuhai Yinlong New Energy Co., Ltd			a				-				154
Zhuhai Guangtong Auto Co., Ltd			c				-				7,193
Total						$	934			$	7,350

 

During the years presented, the Company purchased from related parties (listed above), mainly engaged in purchasing of electric cells from Hebei Yinlong New Energy and purchasing of electric buses from Zhuhai Yinlong New Energy Co., Ltd and Zhuhai Guangtong Auto Co., Ltd.

 

						For the Years Ended
						December 31,
		Note					2016				2015
3. Advances provided
Mr. Sun Guohua			f			$	-			$	56

 

During the years presented, the Company provided Mr. Sun Guohua with a traveling advance.

 

						For the Years Ended
						December 31,
		Note				2016				2015
4. Borrowing from related parties
Hebei Yinlong New Energy Co., Ltd			b			$	95,056			$	32,948
Zhuhai Yinlong New Energy Co., Ltd			a				-				29,039
Shijiazhuang Zhongbo Auto Co., Ltd			d				6,893				5,386
Total						$	101,949			$	67,373

 

During the years presented, the Company received the non-interest bearing loans from related parties (listed above) and all loans are due on demand.

 

						For the Years Ended
						December 31,
		Note				2016				2015
5. Loan to related party
Hebei Yinlong New Energy Co., Ltd			b			$	15,803			$	-

 

During the years presented, the Company provided the non-interest bearing loans to a related party (listed above) and all loans are due on demand.

 

 

6. Guarantee Provided to related party

 

During the years ended December 31, 2016 and 2015, the Company used the Land Use Right as a pledge and provided guarantee for the amount of $5.92 million and $3.67 million, respectively, to Shijiazhuang Zhongbo Auto Co., Ltd to secure financing from commercial banks (Note 9).

 

 

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)

 

7. Guarantee Provided by related party

 

During year ended December 31, 2015, Mr. Wei Yincang (h), Mr. Wei Guohua (g), and Mr. Sun Guohua (f) jointly provided guarantees to the Company to secure financing from commercial banks for total amount of $20.02 million.

 

In connection with the financing arrangement with Golden Investment, and capital lease with Hengxin, certain related parties individually entered into a guaranty contract with Golden Investment and Hengxin, respectively, to provide joint liability guarantee for payments under the financing arrangement and capital lease (see Notes 12 and 13).

 

In addition, Hebei Yinlong New Energy Co., Ltd pledged its accounts receivable with the Hengxin (see Note 13).

 

Tick marks

a.	Zhuhai Yinlong New Energy Co., Ltd is the majority shareholder of Altair Nanotechnologies Inc.

b.	Hebei Yinlong New Energy Co., Ltd is the wholly owned subsidiary of Zhuhai Yinlong New Energy Co., Ltd, hence Hebei Yinlong New Energy Co., Ltd, and Altair Nanotechnologies Inc. are companies commonly controlled by the same parent company.

c.	Zhuhai Guangtong Auto Co., Ltd. (and its Handan Branch) is the wholly owned subsidiary of Zhuhai Yinlong New Energy Co., Ltd, hence Zhuhai Guangtong Auto Co., Ltd and Altair Nanotechnologies Inc. are companies commonly controlled by the same parent company.

d.	Zhuhai Yinlong New Energy Co., Ltd indirectly holds 100% ownership of Shijiazhuang Zhongbo Auto Co., Ltd, hence Shijiazhuang Zhongbo Auto Co., Ltd and Altair Nanotechnologies Inc., are the companies commonly controlled by the same parent company.

e.	Guangdong Yintong Investment Holdings Group Co., Ltd is owned by Wei Yincang, Chairman of the Company.

f.	Mr. Sun Guohua is the Chief Executive Officer of the Company.

g.	Mr. Wei Guohua is the Director of Board of the Company.

h.	Mr. Wei Yincang is the Chairman of the Company.

i.	Zhuhai Yinlong New Energy Co., Ltd holds 100% ownership of Zhuhai Yinlong Electrical Appliance Co., Ltd, hence Zhuhai Yinlong Electrical Appliance Co., Ltd and Altair Nanotechnologies Inc., are the companies commonly controlled by the same parent company.

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

NOTE 18 – RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)

 

Related Parties Debt Netting Off

 

In May 2016, the Company, related party creditors, and related party debtors agreed to net off the amount due from related parties against the amount due to related parties. Thereby, the Company is released from the debt obligation for a total amount of $13.32 million and the Company transferred the ownership of loans receivable to related parties for total amount of $13.32 million.

  

Related parties involved in settlement are presented in the following table (In thousands of dollars):

 

		May 2016
1. Loans receivable
Guangdong Yintong Investment Holdings Group Co., Ltd		$	2,755
Zhuhai Guangtong Auto Co., Ltd (Handan)			10,568
		$	13,323

 

 

		May 2016
2. Borrowing payable
Hebei Yinlong New Energy Co., Ltd		$	7,662
Zhuhai Guangtong Auto Co., Ltd			5,661
		$	13,323

 

 

NOTE 19 – COMMITMENTS AND CONTINGENCIES

 

Capital Commitment - Construction

 

As discussed further in Note 9, in conjunction with the Land Use Rights obtained by Northern Altair, the Company agreed to make fixed asset investments on the land of approximately $314.85 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 Rights, with initial construction occurring in 2013. The remaining commitment as of December 31, 2016 is $202.48 million.

 

Capital Commitment – Equipment

 

The Company has contractual obligations to vendors of machine and equipment related to future capital expenditures as of December 31, 2016. The Company's commitment for minimum payment under these contractual obligations as of December 31, 2016 is $25.47 million. The Company's commitment for minimum payment under these contractual obligations as of December 31, 2016 is as follow:

 

Minimum future commitments under capital agreements payable (in thousands of dollars):

 

		Capital commitments
Year ending December 31, 2017		$	22,926
Year ending December 31, 2018			2,547
Total		$	25,473

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

NOTE 19 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

Lease

 

The Company leased a 70,000 square feet facility in Flagship Business Accelerator Building located at 3019 Enterprise Drive, Anderson, Indiana under a triple net lease with Flagship Enterprise Center, Inc. The facility was used for the production of prototype batteries and battery systems.  The lease amended on January 27, 2015 will expire on June 30, 2017. Any lease renewal options will be negotiated no less than six (6) months prior to the expiration of this lease. Annual rent under this lease is $0.26 million plus IT fees, utilities and maintenance. Effective May 1, 2016, the Company agreed to pay $0.14 million as a payment to terminate the lease effective by the end of May 2016. Use of the facility has been agreed upon until a new tenant is found. The landlord will give the Company thirty days’ notice at their discretion to vacate the premises. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017. 

 

 

Environmental Settlement

 

The Company has received from the State of Nevada a request to contribute to the clean-up of an environmental issue on the Company’s Reno property at 204 Edison Way, Reno, NV. Based on a phase II environmental study for soil and water testing, the Company identified a few non-biodegradable chemicals contaminating the ground in specific areas that the Company’s business did not cause or contribute to during its ownership of the property. The Company plans to settle with the State of Nevada in the first half of 2017, as soon as the settlement amount has been agreed upon. The Company has already spent approximately $150,000 on monitoring wells, the removal of a building and engineering and legal fees and has accrued an estimated $170,000 for the settlement, as of December 31, 2016.

 

Litigation

 

The Company is in certain legal proceedings that arise from time to time in the ordinary course of our business. Legal expenses associated with the contingency are expensed as incurred. Material legal proceedings that are currently pending are as follows:

 

In re Altair Nanotechnologies Shareholder Derivative Litigation, 1:14-cv-09418, 1:14-cv-09958 (S.D.N.Y.): In late 2014, two shareholder derivative actions were filed against the Company and certain of its current and former officers and directors of the Company in the United States District Court for the Southern District of New York.  Altair was named as a nominal defendant. The two cases, which were consolidated on May 15, 2015, allege violations of Section 14(a) of the Securities Exchange Act of 1934, as well as breaches of fiduciary duty and unjust enrichment based on substantially the same facts underlying the putative securities litigation. In July 2016, certain parties executed a stipulation of settlement, without defendants admitting liability, whereby Altair agreed to adopt certain governance proposals and pay an amount not exceeding $150,000 in plaintiffs’ attorneys’ fees and expenses. This initial stipulation and settlement was modified following the deregistration of the Altair as a reporting issuer in November 2016 because certain of the agreed to governance proposals would not apply to a corporation that was not a reporting issuer. The court entered an order preliminarily approving this modified stipulation and settlement on March 8, 2017.  A final settlement hearing has been scheduled for August 10, 2017. If the settlement receives final approval, this action will be dismissed in its entirety.  Notice of the proposed settlement is available on Altair’s website.  A summary notice has also been published online. 

 

 

 ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States Dollars, except shares)

 

 

NOTE 19 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

Litigation (continued)

 

In the Matter of Altair Nanotechnologies, Inc. (LA-4452): In or around January 2015, SEC opened an investigation into the resignation of Crowe Horwath LLP (“Crowe”) as Altair’s independent auditor in August 2014.  As part of its investigation, the SEC issued several subpoenas to the Company and its current and former officers relating to Crowe’s resignation and a Form 8-K filed by the Company on March 13, 2015.  On May 4, 2016, the SEC sent Altair a Wells Notice identifying possible violations of Sections 13(a) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 thereunder.  On August 29, 2016, the Company made an offer of settlement to the SEC whereby it consented to the entry of an order, without admitting or denying the findings therein except as to the SEC’s jurisdiction, that the Company:  (i) cease and desist from committing or causing violations of Sections 13(a) and 13(b)(2)B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder; (ii) make certain filings with the SEC by November 15, 2016 or have the registration of its securities under the Exchange Act revoked; and (iii) pay a civil money penalty in the amount of $250,000 within 10 days of the entry of the order.  Such offer of settlement was accepted by the SEC and resulted in a Release No. 78997 dated September 29, 2016 with respect to the same. As of the balance sheet date, the Company did not have reasonable estimation of settlement amount. In August 2016, the Company paid $250,000 and deposited the funds into escrow which was paid from escrow to the SEC in October 2016. However, on November 17, 2016, the SEC found that Altair had not fully complied with the settlement agreement and issued an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934. 

 

In the matter of James Zhan v. Altairnano, Inc., Altair Nanotechnologies, Inc., Guohua Sun, and Andy Wei, Case No.: CV16-01674 (Second Judicial District Court for the State of Nevada, Washoe County). Holland & Hart is handling a case brought by the company’s former CEO, James Zhan. Mr. Zhan’s employment with Altairnano, Inc. ended on or about September 23, 2015, and he has brought a lawsuit against Altair Nanotechnologies, Altairnano, Inc., Andy Wei, and Guohua Sun (two Board members), asserting the following claims for relief: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) fraud. Because Mr. Zhan’s employment agreement contains an alternative dispute resolution clause (mediation and arbitration in Indiana, under Indiana law), we moved to compel alternative dispute resolution. The Court held the ruling in abeyance to allow the parties to participate in mediation, which took place on March 13, 2017 in Reno, Nevada. The mediation is unsuccessful, and as a result, on April 12, 2017, the parties appeared for a one-day evidentiary hearing on our motion to compel arbitration. We prevailed on the motion, and the case has been dismissed. We submitted a memorandum of costs on Friday, April 28, 2017, and we are working on a motion for attorney’s fees. At this point, it is unknown whether opposing counsel will submit a request to arbitrate. Because of the procedural status of the case, to date, we have not received an actual calculation of Mr. Zhan’s alleged damages. As of the balance sheet date, the Company has accrued $100,000 for the insurance deductible.

 

note 20 – subsequent events

 

The Company evaluated events occurring subsequent to December 31, 2016 through May 1, 2017, which represents the date the financial statements were available to be issued.

 

Reno Property

 

On January 8, 2017, the Company’s headquarters in Reno, Nevada was flooded due to an unusual weather pattern which caused the Truckee River to overflow. The Company filed a property flood insurance claim immediately. Under the insurance policy there is a required deductible of $251,604. The estimated total cost is $530,208. The Company proceeded immediately, following the flood event, to address the clean-up and repairs. We expect all replacement and repairs to be completed by the end of the second quarter of 2017.

 

 

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  

As discussed on page 4, on November 17, 2016, the Security Exchange Commission revoked the registration of our securities under Section 12 of the Securities Exchange Act of 1934, as amended, and we were unable to report an event that occurred (change in auditor) within four business days in a Form 8-K under Item 4.01. Accordingly, we are providing the following required disclosures under Item 4.01 of Form 8-K:

 

Change in Registrant's Certifying Accountant

 

(a)

On November 16, 2016, the Company dismissed its independent registered public accounting firm, Marcum LLP (“Marcum”), and subsequently engaged Marcum Bernstein & Pinchuk LLP (“MarucmBP”) on January 6, 2017. The decision to dismiss Marcum and engage MarcumBP was approved by the Company’s full Board of Directors (the “Board”) and the Audit Committee of the Board.

 

The audit reports of Marcum on the consolidated financial statements of the Company for each of the two most recent fiscal years ended December 31, 2015 and 2014 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles; however, Marcum’s report on the Company’s financial statements for the year ended December 31, 2015 contained a provision concerning uncertainty as to the Company’s ability to continue as a going concern. The financial statements did not include any adjustments that might have resulted from the outcome of this uncertainty.

 

During the Company’s two most recent fiscal years ended December 31, 2015 and 2014, and any subsequent interim period through the date of Marcum’s dismissal, there were no: (1) disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Marcum’s satisfaction, would have caused Marcum to make reference to the subject matter of the disagreement in connection with their reports on the Company’s consolidated financial statements, or (2) except for the matter relating to internal control over financial reporting described below, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K (“Regulation S-K”) of the rules and regulations of the Securities and Exchange Commission (the “SEC”), during the Company’s years ended December 31, 2015 or 2014 or in any subsequent interim period.

 

Marcum has communicated to the Company that we did not maintain effective internal controls over financial reporting.  Specifically,

 

■

The Company experienced significant executive management and accounting level turnover in 2013 and 2014 which led to a lack of segregation of duties throughout the Company and resulted in a lack of controls to perform a timely review of transactions at an appropriate level of precision.

■

The Company did not implement adequate procedures and controls over the 2013, 2014 and 2015 year-end financial close and reporting process to ensure timely filings in compliance with its financial reporting requirements.

■

The Company did not implement adequate procedures and controls to appropriately evaluate routine and non-routine transactions, and as a result, did not detect the material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure accurate and timely communication with its subsidiaries in China, and as a result, led to material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure the completeness and accuracy of its consolidated financial statements and related subsequent events.

■

The Company did not maintain effective controls over certain aspects of the financial reporting process due to the lack of sufficient complement of personnel with a level of accounting expertise that is commensurate with the financial reporting requirements. This resulted in inappropriate classifications of current assets as wells as inappropriate classification between current and long term assets and liabilities.

 

  

■

The Company did not implement adequate procedures and controls to appropriately evaluate related party transactions, and as a result, did not detect the material misstatements that were identified during the audit process.

 

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, our internal controls are still in a state of transition as we work to remedy the material weaknesses in our internal control over financial reporting.

 

The Company provided Marcum with a copy of the disclosures in this report prior to filing with the SEC. Marcum furnished to the Company a letter addressed to the SEC regarding the statements contained in this report. A copy of Marcum’s letter has been filed as Exhibit 16.1 to this report.

 

(b)

On January 6, 2017, the Audit Committee engaged MarcumBP as the Company's independent registered public accounting firm for the year ending December 31, 2016. In deciding to select MarcumBP, the Audit Committee reviewed auditor independence issues and existing commercial relationships with MarcumBP and concluded that MarcumBP has no commercial relationship with the Company which would impair its independence for the two most recent fiscal years ended December 31, 2015 and 2014 and through September 30, 2016. However, MarcumBP was engaged as a component auditor in connection with Marcum’s audits.

 

Item 9A.   Controls and Procedures

 

Disclosure Controls and Procedures.  Based on an evaluation consistent with by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, as of December 31, 2016 which is the end of the annual period covered by this Report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are not effective due to material weaknesses identified in our internal control over financial reporting.

  

Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes those written policies and procedures that:

 

■

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

■

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America;

■

provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

■

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our consolidated financial statements.

 

Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016.  Our management’s assessment was based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework of 2013” issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Our management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting.  Our management reviewed the results of its assessment with the Audit Committee of our Board of Directors.  Based on this assessment, our management identified the following material weaknesses, as of December 31, 2016:

 

 

■

The Company lacked competent accounting staff and key monitoring mechanism such as internal audit department to oversee and monitor Company’s risk management, business strategies and financial reporting procedures

■

The Company did not implement adequate procedures and controls to appropriately evaluate routine and non-routine transactions, and as a result, did not detect the material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure accurate and timely communication with its subsidiaries in China, and as a result, led to material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure the completeness and accuracy of its consolidated financial statements and related subsequent events.

■

The Company did not maintain effective controls over certain aspects of the financial reporting process due to the lack of sufficient complement of personnel with a level of accounting expertise that is commensurate with the financial reporting requirements. This resulted in inappropriate classifications of current assets as wells as inappropriate classification between current and long term assets and liabilities.

 

In response, management has changed and added personnel in our Chinese subsidiaries and in its corporate accounting function, engaged outside accounting consultants to assist with certain process and has strengthened internal controls to provide more rigorous approval, reporting and recording procedures. These actions are in the process of being tested; however, as of December 31, 2016, the controls and processes documented and implemented have not been in place long enough to provide sufficient assurances to support the conclusion that the above identified material weaknesses have been fully remediated. Once in operation for a sufficient period of time, these actions will be fully tested to determine whether they are operating effectively.

 

Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP. Except as noted in the preceding paragraphs, there has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only management’s report in this Report.

 

Changes in Internal Control over Financial Reporting.  Except as set forth above, there were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the fourth quarter of 2016 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

The disclosure on Item 4 of each of the Form 10-Q filed on November 16, 2016 with SEC, for the periods ended March 31, 2016 June 30, 2016 and September 30, 2016 was incomplete and is presented here below in its entirety and reviewed by Marcum LLP.

 

Item 4.   Controls and Procedures

 

Management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) Rules 13a-15(e) and 15d-15(e)) as of the end of each of the period covered by the March 31, 2016, June 30, 2016 and September 30, 2016 quarterly report on Form 10-Q (the “Quarterly Evaluation Date”). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the Quarterly Evaluation Date, our disclosure controls and procedures are not effective due to the following material weaknesses were identified in our internal controls over financial reporting:

 

■

The Company experienced significant executive management and accounting level turnover in 2013 and 2014 which led to a lack of segregation of duties throughout the Company and resulted in a lack of controls to perform a timely review of transactions at an appropriate level of precision.

 

 

■

The Company did not implement adequate procedures and controls over the 2013, 2014 and 2015 year-end financial close and reporting process to ensure timely filings in compliance with its financial reporting requirements.

■

The Company did not implement adequate procedures and controls to appropriately evaluate routine and non-routine transactions, and as a result, did not detect the material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure accurate and timely communication with its subsidiaries in China, and as a result, led to material misstatements that were identified during the audit process.

■

The Company did not implement adequate procedures and controls to ensure the completeness and accuracy of its consolidated financial statements and related subsequent events.

■

The Company did not maintain effective controls over certain aspects of the financial reporting process due to the lack of sufficient complement of personnel with a level of accounting expertise that is commensurate with the financial reporting requirements. This resulted in inappropriate classifications of current assets as wells as inappropriate classification between current and long term assets and liabilities.

■

The Company did not implement adequate procedures and controls to appropriately evaluate related party transactions, and as a result, did not detect the material misstatements that were identified during the audit process.

 

In response, management has changed and added personnel in our Chinese subsidiaries and in its corporate accounting function, engaged outside accounting consultants to assist with certain process and has strengthened internal controls to provide more rigorous approval, reporting and recording procedures. However, there can be no assurance of when we will be able to remediate these identified material weaknesses.

 

Changes in Internal Control over Financial Reporting.  Except as set forth above, there were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the latest quarter covered by each Form 10-Q of fiscal 2016 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

Item 9B.   Other Information

 

None

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The following are the names, officers and dates of services of our current executive officers and Directors and information on their services to the Company.

 

 

	Name & Province/State and Country		Office with Company		Dates in Position or Office
	Guohua Sun Zhuhai, Guangdong, China		Chief Executive Officer and Director (B)		September 23, 2015-Present (Chief Executive Officer); March 18, 2014-August 26, 2014 (Interim Chief Executive Officer); July 22, 2011-Present (Board Member)
	Karen Werner Nevada, U.S.A		Interim Chief Financial Officer & Secretary		Since March 18, 2014
	Yincang Wei Zhuhai, Guangdong, China		Chairman of the Board of Directors (B)		Since July 22, 2011
	Guohua Wei Zhuhai, Guangdong, China		Director and General Manager of Altair China and Northern Altair		Since September 26, 2013
	Zhigang Zhao Beijing, China		Director (A)		Since July 22, 2011
	Yuhong Li Beijing, China		Director (A)		Since September 26, 2013
	Dr. Chin Chuen Chan Washington, U.S.A		Director		Since November 28, 2012
	Jun Liu British Columbia, Canada		Director (B)		Since July 22, 2011
	Li Yang Flushing, NY		Director (A)		Since August 15, 2014

 

(A) Members of the Audit Committee.

 (B) Members of the Compensation, Governance and Nominating Committee.

 

 

All Directors hold office until the next annual meeting of shareholders or until their successors are elected and qualified. At present, our Articles of Incorporation provide for not less than 1 or more than 9 directors. Currently, we have 8 directors. Our by-laws permit the Board to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. Officers serve at the discretion of the Board.

  

Background of Directors and Executive Officers:

 

Yincang Wei
Age:		57

 

 

Director Since:		Jul 2011
Committees:		Compensation, Governance and Nominating Committee
Principal Occupation:		Chairman, Huineng Investment Holdings Limited, Zhuhai YinLong NewEnergy Company Ltd. and Guangdong Yintong Investment Holdings Group Co., Ltd.
Experience:		Mr. Yincang Wei has served as the chairman of Huineng Investment Holdings Limited, Zhuhai YinLong NewEnergy Company Ltd. and Guangdong Yingtong Investment Holdings Group Co., Ltd. from 2004 until the present time.  Prior to that, Mr. Wei served as the chairman of Nan-Ming-He Iron Ore Limited, a company engaged in the business of iron mine operations from 2001 to 2002.  Mr. Wei also previously served in various senior management positions at Hebei Yinda Transportation Industrial Group 1984 to 2001), Hong Kong Dalong Investment Holdings Limited 1998 to 2001, Transportation Industrial Group Corporation, and Transportation Safety Equipment Factory 1995 to 2001.
		Mr. Wei graduated from Xi’an Highway University with a degree in engineering.
Specific Qualifications		Mr. Wei was appointed to the Board of Directors of the Company (the “Board”) pursuant to a covenant in an agreement between the Company and EST China. Pursuant to the covenant, the Board of the Company is required, except where legal or fiduciary duties would require otherwise, to appoint a number of directors nominated by EST China representing a majority of the Board.
Family Relationships		Mr. Yincang Wei is the uncle of Mr. Guohua Wei.
Guohua Sun
Age:		42
Director Since:		Jul 2011
Committees:		None
Principal Occupation:		Chief Executive Officer of the Company, General Manager, Huineng Investment Holdings Limited and Guangdong Yintong Investment Holdings Group Co., Ltd; Director, Zhuhai YinLong NewEnergy Company Ltd.
Experience:		Mr. Sun was appointed Chief Executive Officer of the Company in September 2015. Mr. Sun previously served as Interim Chief Executive Officer of the Company from March 2014 to August 2014. Mr. Sun has served as the general manager of Huineng Investment Holdings Limited and Guangdong Yintong Investment Holdings Group Co., Ltd. from April 2005 to the present and currently serves as a director of Zhuhai YinLong NewEnergy Company Ltd.  Prior to that, Mr. Sun served as General Manager of Beijing Yinda Transportation Investment Limited from 2003 to 2005, prior to that time, as vice general manager from 2001 to 2003.  Mr. Sun also served as vice general manager of Nan-Ming-He Iron Ore Limited from 2001 to 2003.
		Mr. Sun graduated with a degree in business administration from Handan University and with a master’s degree in business administration from the University of Wales.
Specific Qualifications		Mr. Sun was appointed to the Board pursuant to a covenant in an agreement between the Company and EST China.  Pursuant to the covenant, the Board of the Company is required, except where legal or fiduciary duties would require otherwise, to appoint a number of directors nominated by EST China representing a majority of the Board.
Guohua Wei
Age:		41
Director Since:		Sep 2013
Principal Occupation:		Legal Representative and General Manager of Altair China and Northern Altair; the Company’s indirect subsidiaries in China

 

 

Experience:		Mr. Wei has served as the legal representative and general manager of Altair Nanotechnologies (China) Co., Ltd., and Northern Altair Nanotechnologies Co., Ltd. since September 27, 2013.  Mr. Wei served as executive director of Zhuhai Henggu New Energy Technology Co., Ltd., and head of administrative department of Huineng Investment Holdings Co., Ltd and Guangdong Yintong Investment Holdings Group Co., Ltd from 2007-2013. Mr. Wei served as the general manager assistant of Zhuhai Huayin Investment Company Limited from 2004-2007. Mr. Wei served as the general manager assistant of Beijing Yinda Transportation Investment Limited from 2001-2004. Mr. Wei is currently a director of Energy Storage Technology Group (China) Co., Ltd., Zhuhai Henggu New Energy Technology Co., Ltd and Zhuhai Yintong New Power Technology Co., Ltd.
		Mr. Wei graduated from Beijing Canada Delter International Business College. Mr. Wei received his MBA degree from University of Wales in 2009.
Specific Qualifications		Mr. Wei was appointed to the Board pursuant to a covenant in an agreement between the Company and EST China.  Pursuant to the covenant, the Board of the Company is required, except where legal or fiduciary duties would require otherwise, to appoint a number of directors nominated by EST China representing a majority of the Board.
Family Relationships		Mr. Yincang Wei is the uncle of Mr. Guohua Wei.
Zhigang Zhao
Age:		57
Director Since:		July 2011
Committees:		Audit Committee
Principal Occupation:		Chief Financial Officer, Borqs WOWO Limited
Experience:		Since June 2014 Mr. Zhao has worked for WOWO Limited, a B2B online e-commerce platform that provides integrated services to suppliers and customers in the foodservice industry in China. Mr. Zhao previously served as chief financial officer for Borqs International Holding Corporation from September 2012 to May 2014, a technology company that provides Android software and end-to-end service platform solutions. Prior to that, Mr. Zhao served as CFO of KingMed Diagnostics, an independent medical testing service company through May 2012. Prior to joining KingMed in January 2011, Mr. Zhao served as chief financial officer for Simcere Pharmaceutical Group (NYSE: SCR) from October 2006 to January 2011.  Mr. Zhao served as chief financial officer for Sun New Media/Hurray in China from September 2005 to October 2006, as controller for Faro Technology (Nasdaq: FARO) in the United States from September 2003 to August 2005, and as vice president of finance for 800 Travel (U.S.A), an Intrawest Company from June 1997 to August 2003.  Prior to that, Mr. Zhao worked at PriceWaterhouseCoopers in the United States as a senior auditor from September 1993 to May 1997.
		Mr. Zhao earned his bachelor’s degree in economics from Beijing University and his master of business administration from the University of Hartford. Mr. Zhao is a member of the American Institute of Certified Public Accountants.
Other Directorships		Uni-Bio Science Company, a Hong Kong listed pharmaceuticals Company.
Specific Qualifications		Mr. Zhao’s appointment as a director is based on his accounting and financial services expertise, his management experience and his experience in overseeing public companies with ties to both the United States and China.
Dr. Ching Chuen Chan
Age:		80
Director Since:		November 2012

 

 

Committees:		None
Principal Occupation:		Chief Scientist of Zhuhai YinLong NewEnergy Company Ltd.
Experience:		Dr. Chan is currently the chief scientist of Zhuhai YinLong NewEnergy Company Ltd, in a consulting capacity. He is also the Honorary Professor 2012 to present and former head of the Department of Electrical and Electronic Engineering, the University of Hong Kong (1994 - 2012). Dr. Chan was the founding president of the International Academy for Advanced Study in 2012. Dr. Chan was the Co-Founder of the World Electric Vehicle Association and the Electric Vehicles Association of Asia Pacific in 1990, and president of the Hong Kong Institution of Engineers (1999 - 2000). Prof. Chan is a fellow of the Royal Academy of Engineering, U.K., the Chinese Academy of Engineering, the Ukraine Academy of Engineering Sciences, the Institute of Electrical and Electronics Engineers, the Institution of Engineering and Technology, and the Hong Kong Institute of Engineers, Honorary Member of Hungarian Academy of Engineering. He authored and coauthored 11 books, over 300 technical papers and holds 9 patents.
		Dr. Chan holds BSc, MSc, PhD and degrees from China University of Technology in 1957, Tsinghua University in 1959 and University of Hong Kong in 1982 respectively.
Specific Qualifications		Dr. Chan was appointed to the Board of Directors because of his technical expertise in electrical engineering, his experience as a leader and innovator in the electrical engineering field and his reputation in the industry in China and other parts of the world.
Yuhong Li
Age:		50
Director Since:		Sep 2013
Committees:		Audit Committee
Principal Occupation:		Partner and Practicing Lawyer, Beijing Chang An Law Firm
Experience:
		Since 2004, Ms. Li has been working at Beijing Chang An Law Firm as a lawyer and partner. Before joining the firm, Ms. Li served as lawyer and partner of Hebei Yu Ta Law Firm from 1996 to 2004. Ms. Li is a Member of the Beijing Lawyers Association (2004-present), Director of China Mining Association (2006-present); Director of the China International Chamber of Commerce for Private Sector (2012-present); Deputy Secretary of Private Branch, China Mining Association (2012-present); Deputy Director of Natural Resources Law Committee, Beijing Lawyers Association (2009-present); Consultant of Environmental and Resource Seminar, Beijing Chaoyang, District Lawyers Association (2011-present); Environmental protection lawyer of All-China Environment Federation (2009-present) and Member of the eighth session of the Beijing Women Lawyers Association (2009-2012).
		Ms. Li obtained her bachelor degree of law from Hebei University.
Specific Qualifications		Ms. Li is being appointed to the Board of Directors because of her knowledge of China law, her legal background generally and her experience working with Chinese companies.
Jun Liu
Age:		60
Director Since:		Jul 2011
Committees:		Compensation, Governance and Nominating Committee
Principal Occupation:		Foreign Affairs Assistant of Chairman Office, Zhuhai YinLong NewEnergy Company, Ltd.
Experience:		Since June 1, 2013, Mr. Liu is the Foreign Affairs Assistant of Chairman Office, Zhuhai YinLong NewEnergy Company, Ltd. Mr. Liu was Interim vice head of the International Department of YinLong NewEnergy Company from June 2013 to October 2013. Mr. Liu served as vice president and director of Marketing Strategy & Development of Northern Altair Nanotechnologies Co., Ltd, from November 2012 to May 2013. Mr. Liu served as general manager of Vantech Enviro Plastics Corp. Canada, a company focused on the development and production of plastic film products from May 2000 to June 2011. Mr. Liu previously served as Marketing and Sales director for Morgan Grandview Group (Canada) from November 2008 to October 2009.   Mr. Liu served as account manager and then as authorized supervisor at JNE (Canada) from September 2004 to December 2007.

 

 

		Mr. Liu earned his bachelor’s degree in chemistry from Beijing University and a certificate of executive in marketing strategy from the State University of New York at Buffalo.
Specific Qualifications		Mr. Liu was appointed to the Board pursuant to a covenant in an agreement between the Company and EST China.  Pursuant to the covenant, the Board of the Company is required, except where legal or fiduciary duties would require otherwise, to appoint a number of directors nominated by EST China representing a majority of the Board.
Li Yang
Age:		60
Director Since:		Aug 2014
Committees:		Audit Committee
Principal Occupation:		Principle and Practicing Lawyer, Yang & Associates, PC
Experience:		Mr. Yang has worked as lawyer in his own private practice for Yang & Associates, PC since 1997. Mr. Yang started as an associate with U.S. based Ceaser & Nopoli. Mr. Yang is a legal advisor to the American Ethnic Small Business Council, a member of the New York State Bar Association and a member of Legislative Committee, Real Property Section and International Law Section of the New York State Bar Association.
		Mr. Yang obtained a law degree from Fudan University School of Law, Shanghai, China in 1988 and received a J.D. from the University of Georgia School of Law in 1993.
Specific Qualifications		Mr. Yang was appointed to the Board pursuant to a covenant in an agreement between the Company and EST China.  Pursuant to the covenant, the Board of the Company is required, except where legal or fiduciary duties would require otherwise, to appoint a number of directors nominated by EST China representing a majority of the Board.

 

 

All Directors hold office until the next annual meeting of shareholders or until their successors are elected and qualified. At present, our Articles of Incorporation provide for not less than 1 or more than 9 directors. Currently, we have 8 directors. Our by-laws permit the Board to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. Officers serve at the discretion of the Board.

 

Background of Executive Officers

 

Information on Guohua Sun, our Chief Executive Officer and Andy Wei, the Chief Executive Officer of our operating subsidiary, is set forth above.

 

Karen Werner
Age:		61
Principal Occupation:		Interim Chief Financial Officer and Secretary of the Company
Experience:		Ms. Werner was appointed to Interim Chief Financial Officer and Secretary on March 18, 2014. Prior to such appointment, Ms. Werner served as corporate senior assistant controller of the Company from February 2012 to January 2014. Ms. Werner served as corporate controller for Windspire Energy, Inc. during 2011 and as corporate controller for Winkel Motors, Inc. from January 2008 to February 2011.

 

 

Ms. Werner has public and private company experience and holds a bachelor of science degree in business administration from the University of Phoenix. Ms. Werner is a member of the Institute of Management Accountants (from 2007).

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) required the Company’s officers, directors and persons who own more than 10% of the Company’s common stock to file reports concerning their ownership of common stock with the SEC and to furnish the Company with copies of such reports.  Based solely upon the Company’s review of the reports required by Section 16 and amendments thereto furnished to the Company, the Company believes that all reports required to be filed pursuant to Section 16(a) of the Exchange Act during 2016.  

 

 Code of Ethics

 

The Company has adopted the Code of Ethics for Senior Executives, Financial Officers, Members of the Management Executive Committee, and Directors (the “Code of Ethics”), which constitutes a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as defined in Item 406 of Regulation S-K under the Exchange Act.  The Code of Ethics is available on the Company’s website at www.altairnano.com under “Investors” – “Governance.”

 

Audit Committee

 

The Audit Committee operates pursuant to a written charter adopted by the Board, a copy of which may be found on the Company’s website www.altairnano.com under the heading “Investors”.  A copy may also be obtained free of charge by mailing a request in writing to: Secretary, Altair Nanotechnologies Inc., 204 Edison Way, Reno, Nevada 89502, U.S.A.

 

During 2016, the Audit Committee was comprised of Zhigang (Frank) Zhao (Chair), Hong Guo and Li Yang. The Audit Committee held eight meetings via conference call during the fiscal year ended December 31, 2016. The audit committee chairman attended every meeting held during 2016, and each meeting was represented by a minimum of two members.

 

The Board has determined in its business judgment that each member of the Audit Committee satisfies the requirements with respect to financial literacy set forth in Nasdaq Rule 5605(c)(2)(iv); that Zhigang (Frank) Zhao is an “audit committee financial expert” as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act; that each member of the Audit Committee is independent under Rule 10A-3(b)(1)(ii) under the Exchange Act and are, as a result of their past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background, sophisticated with respect to financial matters.**

 

The Audit Committee’s responsibility is to assist the Board in its oversight of (a) the quality and integrity of the Company’s financial reports, (b) the independence and qualifications of the Company’s independent auditor, and (c) the compliance by the Company with legal and regulatory requirements.  Management of the Company has the responsibility for the Company’s financial statements as well as the Company’s financial reporting process, principles and internal controls.  The Company’s independent public accounting firm is responsible for performing an audit of the Company’s financial statements and expressing an opinion as to the conformity of such financial statements with accounting principles generally accepted in the United States of America.

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth information concerning all cash and non-cash compensation paid or to be paid by us as well as certain other compensation awarded to, earned by and paid to, during the indicated fiscal years, to (a) any person who served as our Chief Executive Officer during 2016, (b) the two most highly compensated executive officers other than the Chief Executive Officer with respect to 2016 (to the extent such persons were paid more than $100,000 with respect to such years), and (c) up to two persons who would have been listed under (b) above but were not named executive officers as of the end of 2016 (collectively, the “named executive officers”).

 

 

Name and Principal Position	Year		Salary ($)				Option Awards ($)*				All Other Compensation ($)				Note				Total ($)
Guohua Sun – Chief Executive Officer (September 2015 – Present) and Interim Chief Executive Officer (March 2014 – August 2014)	2016		$	20,000							$								$	20,000
	2015			20,000								15,000				(1)				35,000
Karen Werner - Interim Chief Financial Officer (January 2014 – Present)	2016			150,000												(2)				150,000
	2015			149,903																149,903

 

 *The amounts in the “option awards” column represent the grant date fair value of the stock option awards determined in accordance with Accounting Standards Codification Topic 718 of the Financial Accounting Standards Board (“FASB ASC Topic 718”) pursuant to the Company’s stock incentive plans. Assumptions used in the calculation of these amounts are included in Note 11 to the Company’s audited financial statements for the three years ended December 31, 2015 included in this Comprehensive Report and Note 11 to the Company’s audited financial statements for the year ended December 31, 2012 included in the Company’s Annual Report on Comprehensive Report filed with the Securities and Exchange Commission on April 2, 2013.

 

	(1)	Mr. Sun was not compensated with respect to his appointment of Interim Chief Executive officer in 2014. Other Compensation in 2015 represents compensation Mr. Sun received for his service as a director.

(2)

Ms. Werner is entitled to salary at the rate of $150,000 per annum.

 

Employment Agreements

 

Ms. Karen Werner, the current Interim Chief Financial Officer, is party to a standard written employment agreement and is currently entitled to a base salary of not less than $150,000 per year with standard health and other benefits. The employment agreement includes terms related to protection of confidential information and 12-month non-competition and non-solicitation covenants, and Ms. Werner was required when hired in 2012 to sign the Company’s standard agreement related to assignment of inventions.

 

Mr. Sun, the current Chief Executive Officer, is party to a written employment agreement and is currently entitled to a base salary of $20,000 per year through Altair China. Under Mr. Sun’s employment agreement with the Company, he is entitled to an annual base salary of not less than $20,000 (which is his current salary), with standard health and other benefits. The employment agreement does not include an agreement by the Company to grant him stock options and other equity awards. The employment agreement includes terms related to protection of confidential information and 12-month non-competition and non-solicitation covenants, and Mr. Sun is required to sign the Company’s standard agreement related to assignment of inventions. The employment agreement does not have a fixed term.

 

Annual Non-Equity Incentive Compensation  

 

With respect to 2016 and, as of the date hereof, 2017, the Compensation, Governance and Nominating Committee did not approve an annual incentive bonus plan for the named executive officers and did not consult with the named executive officer or executive officers regarding target bonuses under the respective employment agreements.

 

 

Equity Incentive Compensation

 

No equity awards were granted to the named executive officers in 2016.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

   There were no outstanding equity awards held by the named executive officers as of December 31, 2016.

 

Pension Benefits and Non-Qualified Deferred Compensation

 

 

The Company does not sponsor, and is not obligated to provide, any benefits under any defined benefit or non-qualified deferred compensation plan.  Executive officers are entitled to benefits generally available to all full-time salaried employees of the Company.  These benefits include up to 5 weeks per-year of paid time off for medical and vacation leave, subsidized group health plan coverage offered to all salaried employees of the Company, and eligibility to participate in the Company’s 401(k) Profit Sharing Plan (the “401(k) Plan”), matching contributions under the 401(k) Plan in an amount up to the greater of 50% of the first $2,500 contributed or 3% of the employee’s base salary.

 

Potential Payments upon Termination or Change-in-Control

 

No plan or employment agreement with any named executive officer include any provisions requiring a payment or increased payment as a result of termination of employment or a change of control.

 

Compensation Risks

 

The Company’s management and the Compensation, Governance and Nominating Committee have assessed the risks associated with our compensation policies and practices for all employees, including non-executive officers. Based on the results of this assessment, we do not believe that our compensation policies and practices for all employees, including non-executive officers, create risks that are reasonably likely to have a material adverse effect on the Company.

 

 

Director Compensation

 

Summary Compensation Table. Other than Mr. Sun and Mr. Zhan, whose compensation is disclosed above, the following table sets forth information regarding the compensation we paid to our directors in 2016:

 

Name

Fee Earned or Paid in Cash ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

All Other Compensation ($)

Total

Yincang Wei

$

20,000

Nil

Nil

Nil

Nil

$

20,000

Jun (Eddie) Liu

$

20,000

Nil

Nil

Nil

Nil

$

20,000

Guohua Wei

Nil

Nil

Nil

Nil

Nil

Nil

Zhigang (Frank) Zhao

$

26,000

Nil

Nil

Nil

Nil

$

26,000

Dr. Chin Chuen Chan

$

20,000

Nil

Nil

Nil

Nil

$

20,000

Li Yang

$

20,000

Nil

Nil

Nil

Nil

$

20,000

Yu-hong Li

$

26,000

Nil

Nil

Nil

Nil

$

26,000

 

 

 

 

 

With respect to 2016, the Company paid all directors who are not employees of the Company a fee of $5,000 per quarter. In addition, directors who are not employees and provide service in the following positions received the following additional fees:

Position	Additional Compensation
Audit Committee Chair	$1,500 in 2015
Other Committee Chair or Member	Determined upon formation

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information regarding the ownership of our common stock the only class or series of capital stock outstanding, as of May 15, 2017 by (i) each person known by the Company to own beneficially more than 5% of our common stock; (ii) each Director of the Company; (iii) each named executive officer; and (iv) all Directors and officers of the Company as a group. This table is based upon information supplied by such officers, directors and principal stockholders to the extent they continue to maintain a relationship with the Company (and otherwise is based upon the information we last possessed or publicly disclosed information). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

 

 

Name of Officer or Director	Amount and Nature of Beneficial Ownership(1)	Percentage of Class(2)
Guohua Sun (Chief Executive Officer and Director)	None	N/A
Karen Werner (Interim Chief Executive Officer)	None	N/A
Yincang Wei (Director)	6,172,801(3)	53.18%
Jun (Eddie) Liu (Director)	None	N/A
Zhigang Zhao (Director)	None	N/A
Yuhong Li (Director)	None	N/A
Dr. Ching Chuen Chan (Director)	None	N/A
Guohua Wei (Director)	None	N/A
Li Yang (Director)	None	N/A
All Directors and Executive Officers as a Group (14 persons)	6,207,678	53.48%

 

Name and Address of 5% Beneficial Owner	Amount and Nature of Beneficial Ownership	Percentage of Class
Al Yousuf LLC Sheikh Zayed Rd., P.O. Box 25, Dubai, United Arab Emirates	849,828(4)	7.32%
EST China and Affiliates Villa 1, Huajing Garden, Jida, Zhuhai, Guangdong, China	6,172,801(3)	53.18%

 

	(1)	Includes all common stock issuable pursuant to the exercise of options and warrants that are exercisable on or before July 15, 2017 by the respective person but does not include shares issuable pursuant to options and warrants that are held by any other person.
	(2)	Based on 11,606,735 shares of common stock outstanding as of May 15, 2017. Common stock underlying options, warrants or other convertible or exercisable securities are, to the extent exercisable on or before July 15, 2017, are deemed to be outstanding for purposes of calculating the percentage ownership of the owner of such convertible and exercisable securities, but not for purposes of calculating any other person’s percentage ownership.
	(3)	Represents shares owned of record by Energy Storage Technology (China) Group Ltd, a Hong Kong corporation.  Such shares are beneficially owned by Energy Storage Technology (China) Group Ltd, a Hong Kong corporation, Canon Investment Holdings Limited, a Hong Kong corporation, Mr. Yincang Wei, the Executive Director and sole stockholder of Canon, Zhuhai Jiamei Energy Technology Co., Ltd., a company organized under the laws of China, and Zhuhai Yintong Energy Co., Ltd., a Hong Kong corporation.
	(4)	Information based on an Amendment No. 2 to Schedule 13D filed by Al Yousuf LLC and its affiliates on October 8, 2010, as adjusted to reflect any subsequent consolidations of our common stock. Mr. Eqbal Al Yousuf has voting and dispository authority with respect to such shares.

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We have stock option plans administered by the Compensation, Nominating and Governance Committee of our Board of Directors that provide for the granting of options to employees, officers, directors and other service providers of the Company.  Security holders have approved all option plans.  The following table sets forth certain information with respect to compensation plans under which equity securities are authorized for issuance at December 31, 2016 and 2015.

 

Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2016

 

 

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	20,484	$50.00	1,187,849
Equity compensation plans not approved by security holders	None	N/A	None
Total	20,484	$50.00	1,187,849

 

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Policies for Approval of Related Party Transactions

 

Pursuant to the written charter of the Audit Committee, the Audit Committee has the authority and responsibility to review and approve any proposed transactions between the Company (including its subsidiaries) and any person that is an officer, key employee, director or affiliate of the Company or any subsidiary), other than transactions related to the employment and compensation of such persons, which are reviewed and approved by the Compensation, Governance and Nominating Committee.

 

 Related Party Transactions

 

Set forth below is information on transactions, other than employment arrangements with officers, entered into between the Company and certain related persons since January 1, 2016 and selected prior transactions with continuing significance:

 

Investor Rights. On July 22, 2011, the Company and EST China completed the sale by the Company, and the purchase by EST China of 6,172,801 shares of common stock of the Company at a purchase price of $9.32 per share, or $57.5 million in the aggregate, pursuant to the Share Subscription Agreement dated September 20, 2010 between the Company and Canon Investment Holdings, Ltd. As a result of the closing under the Share Subscription Agreement, a change of control in the Company occurred.  EST China, which is controlled by Mr. Yincang Wei, owns 53.18% of the outstanding common stock of the Company.  In addition, pursuant to the Investor Rights Agreement, the Company has granted certain rights to Canon, including (i) rights to representation on the Board of Directors proportionate with ownership, (ii) the right to cause the Company to file a shelf registration statement two years after closing, together with certain demand and piggy-back registration rights, (iii) certain indemnification rights related to the registration rights, and (iv) an option to purchase common stock of the Company at market price in an amount sufficient to maintain proportionate ownership in connection with future dilutive issuances.

 

Loan Transactions. During 2016, there were several loans between Northern Altair and certain affiliated entities. The table below set forth the loans or trade acceptance balance between Northern Altair and certain affiliated entities as of the dates specified:

 

Related Party				As of December 31, 2016			Note
Amounts Owed To Northern Altair
Hebei Yinlong New Energy Co., Ltd			$	15,119				(1)
Amounts Owed By Northern Altair
Zhuhai Yinlong New Energy Co., Ltd			$	56,382				(2)

 

 

(1) Represents the balance of a loan owed by the specified related party to Northern Altair. All such loans are non-interest bearing and due on demand.

 

(2) Represents the balance of a loan or trade acceptance owed by Northern Altair to such related party. All such loans are non-interest bearing and due on demand.                    

 

Related Party Structure. Mr. Yincang Wei (individual) owns 100% of Hui Neng Investment Holdings Ltd (HK), formally Canon Investment Holdings, Ltd., who owns 57.5% of Zhuhai Yinlong; who owns 100% of EST China; who owns 53.18% of Altair Nanotechnologies Inc. Zhuhai Yinlong also owns 100% of Hebei Yinlong and Zhuhai Guangtong, of which both are EV Bus manufacturing companies, Shijiazhuang Zhongbo Auto Co., Ltd., and Zhuhai Yinlong Electronic Co., Ltd.

 

 

Director Independence

 

The Board of Directors is currently comprised of nine directors, of whom three are independent using the listing standards and definitions applicable to the Nasdaq Stock Market: Zhigang Zhao, Yuhong Li and Li Yang.  The members of the Compensation, Governance and Nominating Committee as of the date of this Comprehensive Report are Yincang Wei, Guohua Sun and Jun (Eddie) Liu, none of whom is independent under the listing standards and definitions applicable to the Nasdaq Stock Market.

 

The members of the Audit Committee as of the date of this report are Zhigang Zhao, Yuhong Li and Li Yang, each of whom has been determined by the Board to be independent under the listing standards of the Nasdaq Stock Market and Rule 10A-3(b)(1)(ii) under the Exchange Act.

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Services Provided by our Independent Registered Public Accountants

 

Marcum LLP served as our independent registered public accountants from April 2, 2015 through November 16, 2016. On January 6, 2017, the Audit Committee approved the engagement of MarcumBP as the Company’s independent registered accounting firm for the year ending December 31, 2016. This action effectively amounted to fees for professional services rendered as follows:

 

 

			2016			2015
			MarcumBP			Marcum LLP
Audit fees		$	300,000		$	906,532
Audit-related fees			Nil			Nil
Tax fees			50,000			50,000
All other fees			Nil			Nil
		$	350,000		$	956,532

 

Audit Fees

 

Audit fees were for professional services rendered for the audits of our financial statements and for review of the financial statements included in our annual and quarterly reports for the annual and quarterly periods during the 2016 and 2015 fiscal years.

 

 Audit-related Fees

 

During the 2016 and 2015 fiscal years, our independent registered public accountants did not provide any assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported under the caption “Audit Fees” above. Therefore, there were no audit-related fees billed or paid during the 2015 and 2016 fiscal years.

 

Tax Fees

 

 

Our independent registered public accountants did provide services to us for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2016 and 2015.

 

All Other Fees

 

Our independent registered public accountants did provide other products and services disclosed in the table above during the 2016 and 2015 fiscal years. As a result, there were no other fees billed or paid during those fiscal years.

 

 Audit Committee Pre-approval Policies and Procedures

 

The Audit Committee has certain policies and procedures in place requiring the pre-approval of audit and non-audit services to be performed by our independent registered public accountants. Such pre-approval can be given as part of the Audit Committee’s approval of the scope of the engagement of the independent public registered accountants or on an individual basis. The Audit Committee can delegate the pre-approval of non-auditing services to the Chairman of the Audit Committee, but the decision must be presented to the full Audit Committee at the next scheduled meeting.

 

All work performed by our independent registered public accountants for us in 2016 and 2015 was pre-approved by the Audit Committee. None of the work performed by our independent registered public accounts during 2016 or 2015 was approved in reliance upon paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

 

 

PART IV

 

Item 15.                Exhibits and Financial Statement Schedules.

 

(a) The following documents are filed as part of this report

 

1.     Financial Statements: All financial statements as set forth under Item 8 of this report.

 

2.     Exhibits: See Item 15(b) below.

 

(b) Exhibits:

 

The exhibit list required by this Item is incorporated by reference to the Exhibit Index immediately following the signature page of this report.

 

(c) Financial Statement Schedules: None

 

  

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.

 

		ALTAIR NANOTECHNOLOGIES INC.
	By:	/s/ Guohua Sun
		Chief Executive Officer

 

Date: May 18, 2017

 

 

ADDITIONAL SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant.

 

Signature	Title	Date
/s/ Guohua Sun	Chief Executive Officer	May 18, 2017
Guohua Sun	(Principal Executive Officer)
	and Director
/s/ Karen Werner Karen Werner	Interim Chief Financial Officer (principal financial officer and principal accounting officer)	May 18, 2017
/s/ Yincang Wei	Chairman of the Board	May 18, 2017
Yincang Wei
/s/ Zhigang Zhao	Director	May 18, 2017
Frank Zhao
/s/ Yuhong Li	Director	May 18, 2017
Yuhong Li
/s/ Jun Liu	Director	May 18, 2017
Jun Liu
/s/ Guohua Wei	Director and General Manager of Altair China and Northern Altair	May 18, 2017
Guohua Wei
/s/ Dr Ching Chuen Chan	Director	May 18, 2017
Dr. Ching Chuen Chan
/s/ Li Yang (Director)	Director	May 18, 2017
Li Yang

 

 

 Exhibit Index

 

Exhibit No.				Description			Incorporated by Reference/ Filed Herewith (and Sequential Page #)
3.1				Certificate of Incorporation, as amended			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 20, 2012. **
3.2				Amended and Restated Bylaws			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 15, 2012. **
4.1				Form of Common Stock Certificate			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 15, 2012. **
4.2				Revised Amended and Restated Shareholder Rights Agreement dated May 31, 2012 with Registrar and Transfer Company			Incorporated by reference to the Company’s Annual Report on Form 8-K filed with the SEC on July 10, 2012. **
10.1				1998 Altair International Inc. Stock Option Plan***			Incorporated by reference to the Company’s Definitive Proxy Statement on Form 14A filed with the SEC on May 12, 1998. **
10.2				Altair Nanotechnologies Inc. 2005 Stock Incentive Plan (Second Amended and Restated)***			Incorporated by reference to the Company’s Definitive Proxy Statement on Form 14A filed with the SEC on June 23, 2011. **
10.3				Standard Form of Stock Option Agreement under 2005 Stock Incentive Plan***			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2007. **
10.4				Standard Form of Stock Option Agreement for Executives under 2005 Stock incentive Plan ***			Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2008. **
10.5				Standard Form of Director’s Indemnification Agreement***			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 20, 2008. **
10.6				Registration Rights Agreement dated November 29, 2007 with Al Yousuf LLC			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 30, 2007. **
10.7.1				Amendment No. 1 to Registration Rights Agreement with Al Yousuf, LLC dated as of September 30, 2008			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2008. **
10.7.2				Amendment No. 2 to Registration Rights Agreement with Al Yousuf, LLC dated August 14, 2009			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on September 4, 2009. **
10.8				Stock Purchase and Settlement Agreement with Al Yousuf, LLC dated as of September 30, 2008			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2008. **
10.9				Share Subscription Agreement dated September 20, 2010 with Canon Investment Holdings Limited			Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 4, 2010. **
10.10.1				First Amendment to Share Subscription Agreement dated February 16, 2011 with Canon Investment Holdings Limited			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on February 16, 2011. **
10.10.2				Second Amendment to Share Subscription Agreement dated May 17, 2011 with Canon Investment Holdings Limited			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on May 17, 2011. **
10.10.3				Third Amendment to Share Subscription Agreement dated June 3, 2011 with Canon Investment Holdings Limited			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 3, 2011. **

 

 

10.10.4				Fourth Amendment to Share Subscription Agreement dated June 20, 2011 with Canon Investment Holdings Limited			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 21, 2011. **
10.10.5				Fifth Amendment to Share Subscription Agreement dated July 21, 2011 with Canon Investment Holdings Limited			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 25, 2011. **
10.11				Investor Rights Agreement dated September 20, 2010 with Canon Investment Holdings Limited			Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 4, 2010. **
10.12				Waiver and Rights Agreement dated September 20, 2010 with Al Yousuf LLC and Canon Investment Holdings Limited			Incorporated by reference to the Quarterly Report on Form 10-Q filed with the SEC on November 4, 2010 **
10.13				Note Secured By a Deed of Trust dated as of July 25, 2012 with Suncrest Homes 30, LLC			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2012. **
10.14				Deed of Trust dated as of July 25, 2012 in favor of Suncrest Homes 30, LLC			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2012. **
10.15				Guaranty dated July 25, 2012 in favor of Suncrest Homes 30, LLC			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2012. **
10.16				Hazardous Material Indemnity Agreement dated July 25, 2012 in favor of Suncrest Homes 30, LLC			Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2012. **
10.17				Land Contract dated October 19, 2012 with Bank of China Limited, Seoul Branch			Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2012. **
10.18				Contract on Assignment of State-owned Construction Land Use Right dated as of October 31, 2012 with Wu’an City			Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2012. **
10.19				Contract on Assignment of State-owned Construction Land Use Right with Land and Resources Bureau of Wu’an City.			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 7, 2013**
10.20				Building Lease dated January 27, 2015 with Flagship Enterprise Center, Inc.			Incorporated by reference to the Current Report on Form 8-K filed with the SEC on February 2, 2015. **
10.20.1				Lease Settlement Agreement dated March 11, 2016			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016.**

 

 

10.21				Current Fund Loan Contract dated September 4, 2014 with Bank of Handan Wu’an Branch			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.22				Loan Contract of Association dated September 5, 2014 with Wu’an Rural Credit Cooperative Union, Handan Fengfeng Mine Rural Credit Cooperative and Daming County Rural Credit Cooperative			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.23				Loan Contract of Association dated November 6, 2014 with Cixian Rural Credit Cooperative Union and Wu’an Rural Credit Cooperative Union			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.24				Current Capital Loan Contract dated September 24, 2015 with Wu’an Branch Bank of Handan			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.25				Current Capital Loan Contract dated September 28, 2015 with Wu’an Branch Bank of Handan			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.26				Discount Agreement of Bank Acceptance Bill dated November 16, 2015 with Anshan Rural Commercial Bank			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.27				Current Capital Loan Contract dated May 6, 2016 with Wu’an Branch of Handan Bank			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.28				Pledge Contract of Rights dated May 6, 2016 with Wu’an Branch of Handan Bank			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.29				Deposit Contract dated July 6, 2015 with Minsheng Financial Leasing Co., Ltd.			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.30				Repurchase Agreement dated July 6, 2015 with Minsheng Financial Leasing Co., Ltd.			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.31				Manufacture Rebate Contract dated July 6, 2015 with Minsheng Financial Leasing Co., Ltd. and Handan Public Transport Corporation*			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.32				Deposit Contract dated June 10, 2015 with Minsheng Financial Leasing Co., Ltd.			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.33				Repurchase Agreement dated June 10, 2015 with Minsheng Financial Leasing Co., Ltd.			Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **

 

 

10.34			Manufacture Rebate Contract dated June 10, 2015 with Minsheng Financial Leasing Co., Ltd. and Handan Public Transport Corporation*				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.35			Deposit Contract dated January 20, 2015 with Minsheng Financial Leasing Co., Ltd.				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.36			Repurchase Agreement dated January 20, 2015 with Minsheng Financial Leasing Co., Ltd.				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.37			Manufacture Rebate Contract dated January 20, 2015 with Minsheng Financial Leasing Co., Ltd. and Handan Public Transport Corporation*				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.38			Deposit Contract dated August 12, 2014 with Minsheng Financial Leasing Co., Ltd.				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.39			Repurchase Agreement dated August 12, 2014 with Minsheng Financial Leasing Co., Ltd.				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.40			Manufacture Rebate Contract dated August 12, 2014 with Minsheng Financial Leasing Co., Ltd. and Handan Public Transport Corporation*				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.41			Purchasing and Sales Contract of Electric Bus Products dated May 13, 2014 with Handan Bus Corporation*				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.42			Transfer Contract for State-owned Construction Land Use Right C1304812014004 dated March 3, 2014 with Wu’an City Land and Resources Bureau				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.43			Transfer Contract for State-owned Construction Land Use Right C13048120140002 dated March 3, 2014 with Wu’an City Land and Resources Bureau				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.44			Transfer Contract for State-owned Construction Land Use Right dated April 20, 2015 with Wu’an City Land and Resources Bureau				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.45			Guohua Sun Employment Agreement***				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.46			Agreement with Wu’an Municipality and Handan Municipality dated April 19, 2012*				Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2012. **
10.47			Loan Contract for Working Capital dated March 15, 2016				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **

 

 

10.48			Complementary Agreement of Land Mortgage Loan Contract dated January 1, 2015				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.49			Land Mortgage Loan Contract dated August 5, 2015				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.50			Capital Inter-Banking Lending Contract dated January 1, 2015				Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on November 16, 2016. **
10.51			Wu'an Rural Credit Cooperative Land Mortgage Loan Contract dated December 19, 2016				Filed herewith.
16.1			Marcum LLP Letter				Filed herewith.
21			List of Subsidiaries				Incorporated by reference from Item 1 of this report.
31.1			Rule 13-14(a)/15d-14a Certification of Chief Executive Officer				Filed herewith.
31.2			Rule 13-14(a)/15d-15a Certification of Chief Financial Officer				Filed herewith.
32.1			Section 1350 Certification of Chief Executive Officer				Filed herewith.
32.2			Section 1350 Certification of Chief Financial Officer				Filed herewith.
101			Attached as Exhibit 101 are the following documents in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2016 and 2015, (ii) Consolidated Statements of Operations for the years ended December 31, 2016 and December 31, 2015, (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015 and (iv) Consolidated Statements of Stockholders’ Equity for the period from January 1, 2015 to December 31, 2016, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.				Filed herewith.

 

*Portions of this Exhibit have been omitted pursuant to Rule 24b-2, are filed separately with the SEC and are subject to a confidential treatment request.

 

** SEC File No 1-12497

 

*** Indicates management contract or compensatory plan or arrangement.

 

 

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