Edgar Filing: ALTAIR NANOTECHNOLOGIES INC

altair_10q-093009.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________

ALTAIR NANOTECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

Canada	1-12497	33-1084375
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)


	204 Edison Way Reno, Nevada 89502
	(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (775) 856-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o.

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o.

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

Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): YES o NO x

As of November 3, 2009 the registrant had 105,519,855 Common Shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	September 30,			December 31,
	2009			2008
ASSETS
Current assets
Cash and cash equivalents	$	23,939		$	28,088
Restricted cash		1			-
Investment in available for sale securities		766			-
Accounts receivable, net		620			955
Product inventories		3,715			98
Prepaid expenses and other current assets		1,838			572
Total current assets		30,879			29,713

Investment in available for sale securities		3,277			3,174

Property, plant and equipment, net held and used		10,729			11,637

Property, plant and equipment, net held and not used		1,823			2,377

Patents, net		572			636

Other assets		500			534

Total Assets	$	47,780		$	48,071

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable	$	1,625		$	749
Accrued salaries and benefits		1,789			1,361
Accrued warranty		33			36
Accrued liabilities		763			765
Current portion of long-term debt		925			736
Total current liabilities		5,135			3,647

Long-term debt, less current portion		41			608

Stockholders' equity
Common stock, no par value, unlimited shares authorized;
105,519,855 and 93,143,271 shares issued and
outstanding at September 30, 2009 and December 31, 2008		188,525			180,105
Additional paid in capital		10,735			5,378
Accumulated deficit		(156,987	)		(140,892	)
Accumulated other comprehensive loss		(611	)		(1,873	)
Total Altair Nanotechnologies, Inc’s stockholders’ equity		41,662			42,718
Noncontrolling interest in subsidiary		942			1,098
Total stockholders' equity		42,604			43,816

Total liabilities and stockholders' equity	$	47,780		$	48,071

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenues
Product sales	$	409		$	166		$	662		$	555
Less sales returns		-			-			(183	)		-
License fees		750			-			750			-
Commercial collaborations		122			129			888			1,642
Contracts and grants		386			1,507			449			2,577
Total net revenues		1,667			1,802			2,566			4,774
Operating expenses
Cost of sales - product		171			59			519			138
Cost of sales - warranty and inventory reserves		68			-			68			(2,865	)
Research and development		2,219			3,320			7,516			13,690
Sales and marketing		761			661			1,969			2,096
Notes receivable extinguishment		-			-			-			1,722
Settlement and release		-			3,605			-			3,605
General and administrative		2,001			2,756			7,598			8,459
Depreciation and amortization		686			724			2,093			1,937
Total operating expenses		5,906			11,125			19,763			28,782
Loss from operations		(4,239	)		(9,323	)		(17,197	)		(24,008	)
Other income (expense)
Interest expense		(61	)		(23	)		(92	)		(73	)
Interest income		38			180			157			810
Realized gain on investment		868			-			850			-
Loss on foreign exchange		-			(1	)		(2	)		(5	)
Total other income, net		845			156			913			732

Net loss		(3,394	)		(9,167	)		(16,284	)		(23,276	)

Less: Noncontrolling interests’ share		78			56			189			216

Net loss attributable to Altair Nanotechnologies, Inc.	$	(3,316	)	$	(9,111	)	$	(16,095	)	$	(23,060	)

Loss per common share - basic and diluted	$	(0.03	)	$	(0.11	)	$	(0.16	)	$	(0.27	)

Weighted average shares - basic and diluted		105,089,234			84,635,878			98,521,157			84,448,743

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

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

(Unaudited)


	Altair Nanotechnologies, Inc. Shareholders															Noncontrolling Interest in Subsidiary
										Accumulated									Accumulated
										Other									Other
					Additional					Compre-						Interest			Compre-
	Common Stock				Paid In		Accumulated			hensive						In			hensive
	Shares		Amount		Capital		Deficit			Gain (Loss)			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total

Balance, July 1, 2008		84,744,322	$	165,599	$	5,107	$	(125,773	)	$	(1,584	)	$	43,349		$	1,209		$	-	$	1,209		$	44,558
Comprehensive loss:
Net loss		-		-		-		(9,111	)		-			(9,111	)		(56	)		-		(56	)		(9,167	)
Other comprehensive
loss net of taxes of $0		-		-		-		-			(307	)		(307	)		-			-		-			(307	)
Comprehensive loss:														(9,418	)							(56	)		(9,474	)
Share-based compensation		-		68		440		-			-			508			-			-		-			508
Exercise of stock options		10,000		12		-		-			-			12			-			-		-			12
Exercise of warrants		373,949		727		-		-			-			727			-			-		-			727
Capital stock subscribed		5,882,353		10,000		-		-			-			10,000			-			-		-			10,000
Issuance of common stock		2,117,647		3,605		-		-			-			3,605			-			-		-			3,605
Balance, September 30, 2008		93,128,271	$	180,011	$	5,547	$	(134,884	)	$	(1,891	)	$	48,783		$	1,153		$	-	$	1,153		$	49,936



	Altair Nanotechnologies, Inc. Shareholders															Noncontrolling Interest in Subsidiary
										Accumulated									Accumulated
										Other									Other
					Additional					Compre-						Interest			Compre-
	Common Stock				Paid In		Accumulated			hensive						In			hensive
	Shares		Amount		Capital		Deficit			Gain (Loss)			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total

Balance, July 1, 2009		105,519,855	$	188,437	$	10,479	$	(153,670	)	$	(195	)	$	45,051		$	987		$	-	$	987		$	46,038
Investment from non-controlling interest		-		-		-		-			-			-			33			-		33			33
Comprehensive loss:
Net loss		-		-		-		(3,317	)		-			(3,317	)		(78	)		-		(78	)		(3,395	)
Other comprehensive
loss net of taxes of $0		-		-		-		-			(416	)		(416	)		-			-		-			(416	)
Comprehensive loss:														(3,733	)							(78	)		(3,811	)
Share-based compensation		-		88		256		-			-			344			-			-		-			344
Balance, September 30, 2009		105,519,855	$	188,525	$	10,735	$	(156,987	)	$	(611	)	$	41,662		$	942		$	-	$	942		$	42,604

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS

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

(Unaudited)


	Altair Nanotechnologies, Inc. Shareholders															Noncontrolling Interest in Subsidiary
										Accumulated									Accumulated
										Other									Other
					Additional					Compre-						Interest			Compre-
	Common Stock				Paid In		Accumulated			hensive						In			hensive
	Shares		Amount		Capital		Deficit			Gain (Loss)			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total

Balance, January 1, 2008		84,068,377	$	163,780	$	5,490	$	(111,824	)	$	(485	)	$	56,961		$	1,369		$	-	$	1,369		$	58,330
Comprehensive loss:
Net loss		-		-		-		(23,060	)		-			(23,060	)		(216	)		-		(216	)		(23,276	)
Other comprehensive
loss net of taxes of $0		-		-		-		-			(1,406	)		(1,406	)		-			-		-			(1,406	)
Comprehensive loss:														(24,466	)							(216	)		(24,682	)
Share-based compensation		193,713		1,187		57		-			-			1,244			-			-		-			1,244
Exercise of stock options		324,211		510		-		-			-			510			-			-		-			510
Exercise of warrants		400,224		752		-		-			-			752			-			-		-			752
Recovery of short swing profits		-		177		-		-			-			177			-			-		-			177
Capital stock subscribed		5,882,353		10,000		-		-			-			10,000			-			-		-			10,000
Issuance of common stock		2,117,647		3,605		-		-			-			3,605			-			-		-			3,605
Issuance of restricted stock		141,746		-		-		-			-			-			-			-		-			-
Balance, September 30, 2008		93,128,271	$	180,011	$	5,547	$	(134,884	)	$	(1,891	)	$	48,783		$	1,153		$	-	$	1,153		$	49,936



	Altair Nanotechnologies, Inc. Shareholders															Noncontrolling Interest in Subsidiary
										Accumulated									Accumulated
										Other									Other
					Additional					Compre-						Interest			Compre-
	Common Stock				Paid In		Accumulated			hensive						In			hensive
	Shares		Amount		Capital		Deficit			Gain (Loss)			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total

Balance, January 1, 2009		93,143,271	$	180,105	$	5,378	$	(140,892	)	$	(1,873	)	$	42,718		$	1,098		$	-	$	1,098		$	43,816
Comprehensive loss:
Investment from non-controlling interest		-		-		-		-			-			-			33			-		33			33
Net loss		-		-		-		(16,095	)		-			(16,095	)		(189	)		-		(189	)		(16,284	)
Other comprehensive
gain net of taxes of $0		-		-		-		-			1,262			1,262			-			-		-			1,262
Comprehensive loss:														(14,833	)							(189	)		(15,022	)
Share-based compensation		-		231		733		-			-			964			-			-		-			964
Issuance of common stock, net of $1.2 million issuance costs and $4.6 million warrant fair value costs		11,994,469		8,189		4,624		-			-			12,813			-			-		-			12,813
Issuance of restricted stock		382,115		-		-		-			-			-			-			-		-			-
Balance, September 30, 2009		105,519,855	$	188,525	$	10,735	$	(156,987	)	$	(611	)	$	41,662		$	942		$	-	$	942		$	42,604

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States Dollars)

(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(16,284	)	$	(23,276	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,093			1,937
Securities received in payment of license fees		(750	)		-
Share-based compensation		964			1,244
Loss on disposal of fixed assets		10			96
Gain on sale of available for sale securities		(868	)		-
Settlement and release		-			3,605
Accrued interest on notes receivable		-			(83	)
Changes in operating assets and liabilities:
Restricted cash		(1	)		-
Accounts receivable, net		335			(87	)
Notes receivable from related party		-			1,722
Product inventories		(3,580	)		(98	)
Prepaid expenses and other current assets		(1,266	)		393
Other assets		34			(500	)
Trade accounts payable		875			(6,680	)
Accrued salaries and benefits		428			(329	)
Accrued warranty		(4	)		(2,857	)
Accrued liabilities		(3	)		(217	)

Net cash used in operating activities		(18,017	)		(25,130	)

Cash flows from investing activities:
Sale of available for sale securities		2,006			-
Purchase of available for sale securities		4			6
Purchase of property and equipment		(612	)		(2,130	)

Net cash provided by (used in) investing activities		1,398			(2,124	)

					(continued)

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States Dollars)

(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
Cash flows from financing activities:
Issuance of common stock shares for cash, net of issuance costs	$	12,813		$	-
Proceeds from exercise of stock options		-			510
Proceeds from exercise of warrants		-			752
Proceeds from recovery of short swing profits		-			177
Proceeds from notes payable		178			-
Payment of notes payable		(600	)		(600	)
Proceeds from long-term debt		58			-
Repayment of long-term debt		(12	)		-
Contributions from minority interest		33			-

Net cash provided by financing activities		12,470			839

Net decrease in cash and cash equivalents		(4,149	)		(26,415	)

Cash and cash equivalents, beginning of period		28,088			50,146

Cash and cash equivalents, end of period	$	23,939		$	23,731

Supplemental disclosures:
Cash paid for interest	$	89		$	126

Cash paid for income taxes	None			None

Supplemental schedule of non-cash investing and financing activities:

For the nine months ended September 30, 2009:

- We received stock valued at $750,000 in payment of license fees.

- We realized $868,000 of gain from the sale of Spectrum stock.

- We issued 382,115 shares of restricted stock to directors having a fair value of approximately $397,000 for which no cash will be received.

- We had an unrealized gain on available for sale securities of $481,099

For the nine months ended September 30, 2008:

- We made property and equipment purchases of $21,798 which are included in trade accounts payable at September 30, 2008.

- We had an unrealized loss on available for sale securities of $1,406,400.

- We issued 143,079 shares of restricted stock to employees and directors having a fair value of approximately $303,000 for which no cash will be received.

- We issued 2,117,647 shares of stock as a settlement and release of all known claims to Al Yousuf, LLC having a fair value of $3,605,294 for which no cash will be received.

- We received a subscription for 5,882,353 shares of common stock in exchange for $10,000,000 which was received after the end of the current reporting period.

See notes to the unaudited condensed consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Preparation of Consolidated Financial Statements

These unaudited interim condensed consolidated financial statements of Altair Nanotechnologies Inc. and its subsidiaries (collectively, “Altair” “we” or the “Company”) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “Commission”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, so long as the statements are not misleading. In the opinion of Company management, these consolidated financial statements and accompanying notes contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position and results of operations for the periods shown. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Commission on March 16, 2009.

The results of operations for the nine-month period ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year.

Note 2. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Investment in Available for Sale Securities (short-term) - 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 maturities of 90 days or less are classified as cash and cash equivalents. Investments that do not meet the definition of cash equivalents are classified as held-to-maturity or available-for-sale.

Our cash balances are maintained in bank accounts that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of US $250,000 and CN $100,000 on non-interest bearing accounts. At September 30, 2009 and December 31, 2008 there were no cash deposits in excess of FDIC insurance limits. Additionally, we had $2.0 million and $852,000 at September 30, 2009 and December 31, 2008, respectively, in a money market fund that was and is insured at an unlimited amount through December 31, 2009. Funds from this account are swept out to the operating bank accounts as funds are expended each period.

Our $766,000 investment in available for sale securities consists of 113,809 Shares of Spectrum Pharmaceuticals, Inc. common stock. This stock was received in exchange for ownership assignment of all patent rights associated with RenazorbTM and RenalanTM compounds to Spectrum. Spectrum must also pay us future milestone and royalty payments as they develop revenues for these compounds.

Restricted Cash - In February 2009, we opened a $450,000 certificate of deposit as collateral on our forward currency contract related to a forecasted transaction that was to be settled in Korean Won with an approximate value in US dollars of $2.2 million. The transaction was not completed and the collateral was reduced in April 2009 to $1,000 in order to maintain an open credit line for anticipated future transactions.

Accounts Receivable - Accounts receivable consists of amounts due from customers for services and product sales, net of an allowance for losses. We determine the allowance for doubtful accounts by reviewing each customer account and specifically identifying any potential for loss.

The allowance for doubtful accounts is as follows:

In thousands of dollars

Beginning Balance, January 1, 2009	$	83
Additions charged to costs and expenses		193
Net deductions (write-offs, net of collections)		(112	)
Ending Balance, September 30, 2009	$	164

Investment in Available for Sale Securities (long-term) - Available for sale securities (long-term) includes publicly traded equity investments that are classified as available for sale and recorded at market using the specific identification method. Unrealized gains and losses (except for other than temporary impairments) are recorded in other comprehensive loss, which is reported as a component of stockholders’ equity. We evaluate our investments on a quarterly basis to determine if a potential other than temporary impairment exists. Our evaluation considers the investees’ specific business conditions as well as general industry and market conditions.

Accumulated Other Comprehensive Loss - Accumulated other comprehensive loss consists entirely of unrealized loss on the investment in available for sale securities. The components of comprehensive loss for the nine-month periods ended September 30, 2009 and 2008 are as follows:

In thousands of dollars	Nine months ended
	September 30,
	2009			2008
Net loss	$	16,284		$	23,276
Unrealized (gain)/loss on investment in available for sale securities, net of taxes of $0		(1,262	)		1,407

Comprehensive loss		15,022			24,683

Comprehensive loss attributable to noncontrolling interest		(189	)		(216	)

Comprehensive loss attributable to Altair Nanotechnologies, Inc.	$	14,833		$	24,467

Long-Lived Assets - We evaluate the carrying value of 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 a long-lived asset is considered impaired when the total projected undiscounted cash flows expected to be generated by the asset are less than the carrying value. Our estimate of the cash flows is 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 23 years for our building and related building improvements. If an impairment is indicated, the asset value is written to its fair value based upon market prices, or if not available, upon discounted cash flow value, at an appropriate discount determined by us to be commensurate with the risk inherent in the business model. The determination of both undiscounted and discounted cash flows requires us to make significant estimates and consider the expected course of action at the balance sheet date. Our assumptions about future sales and production volumes require significant judgment because actual sales prices and volumes have fluctuated significantly in the past and are expected to continue to do so. Until the Company’s products reach commercialization, the demand for our products is difficult to estimate. Subsequent changes in estimated undiscounted and discounted cash flows arising from changes in anticipated actions could impact the determination of whether an impairment exists, the amount of the impairment charge recorded and whether the effects could materially impact our consolidated financial statements. 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.

As a result of management’s determination to focus on the Power and Energy segment of the business and reduce resources committed to Performance Materials and Life Sciences, in combination with the delays experienced in commercializing our products, the following qualitative reviews were performed regarding our patents and fixed assets in addition to an undiscounted cash flow analysis to determine if our long-lived assets are impaired:

Our Chief Technology Officer reviewed and confirmed that the capitalized patents with a net book value of $572,000, relating to processing titanium dioxide and pigment have not been impaired. These patents also are the underlying basis for production of our nano-structured lithium titanate spinel (“LTO”), which is utilized as the anode material in our battery products in the Power and Energy segment. LTO is a fundamental building block of our batteries; we do not see these patents’ value being impaired unless we are unable to commercialize our battery products. We believe this outcome is unlikely.

Detailed review of the Performance Materials fixed assets with a net book value of $676,000, was performed with operations management to understand the purpose, use, and potential disposition of these fixed assets. Based on this detailed review, it was determined that the assets which consist primarily of production assets such as mills, furnaces and laboratory equipment suited for general use in our business would be re-purposed to the Power and Energy segment to support the anticipated growth in sales volume within the next two years. These assets are expected to have in-service lives at least equal to their depreciation lives and with reasonable ongoing maintenance are expected to continue functioning throughout that period. If we are unable to commercialize our battery products, the value of these assets could be impaired, but we have reason to believe this outcome is unlikely.

Fixed assets held by our joint venture with The Sherwin-Williams Company (“Sherwin-Williams”), AlSher Titania LLC (“AlSher”) with a net book value of $1,823,000, previously included in the Performance Materials segment, were also evaluated. We are currently working with Sherwin-Williams and AlSher to identify and qualify an interested third party to purchase our interest in the AlSher joint venture. AlSher is also actively seeking a partner or partners to participate in the next phase of their project to scale up to a 5,000 ton annual capacity pigment processing plant. Based on information to date and preliminary indications of interest by third parties, it appears that the value of Altair’s interest in AlSher is expected to be recoverable and is sufficient to cover the cost of our interest in the AlSher fixed assets. We will re-evaluate our determination if, after a reasonable period, we are unable to consummate a transaction relating to our interest in AlSher, we may recognize an impairment related to this asset group.

Detailed review of the Life Sciences fixed assets with a net book value of $1,220,000, was performed with operations management to understand the purpose, use, and potential disposition of these fixed assets. The assets relating to this segment are primarily building improvements that expand production and lab areas. It was determined that these improvements do add to the value of the building and the space will be required for the expansion of Power and Energy operations based on anticipated growth in sales volume within the next two years. Failure to commercialize our battery products and a significant drop in real estate values could lead to impairment of these assets. We believe that the occurrence of such events is unlikely.

As of September 30, 2009, we estimate that our future cash flows, on an undiscounted basis, are greater than our $13.1 million investment in long-lived nanomaterial gross assets, the AlSher Titania joint venture, and our corporate facility. Our estimated future cash flows include anticipated product sales, commercial collaborations, and contracts and grant revenue, since our long-lived asset base, which is primarily composed of production, laboratory and testing equipment is utilized to fulfill contracts in all revenue categories. Estimated future cash flows in connection with the AlSher Titania assets were based on the anticipated sale of our ownership interest in the joint venture.

Based on our assessment, which represents no change from the prior year in our approach to valuing long-lived assets, we believe that our long-lived assets are not impaired.

Deferred Income Taxes - We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences on the basis of assets and liabilities as reported for financial statement purposes and income tax purposes. We have recorded a valuation allowance against all net deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

Revenue Recognition - We recognize 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 probable. Our revenues were derived from product sales, commercial collaborations and contracts and grants. Revenue from product sales is recognized upon delivery of the product, unless specific contractual terms dictate otherwise. Based on the specific terms and conditions of each contract/grant, revenues are recognized on a time and materials basis, a percentage of completion basis and/or a completed contract basis. Revenue under contracts based on time and materials is recognized at contractually billable rates as labor hours and expenses are incurred. Revenue under contracts based on a fixed fee arrangement is recognized based on various performance measures, such as stipulated milestones. As these milestones are achieved, revenue is recognized. From time to time, facts develop that may require us to revise our estimated total costs or revenues expected. The cumulative effect of revised estimates is recorded in the period in which the facts requiring revisions become known. The full amount of anticipated losses on any type of contract is recognized in the period in which it becomes known. Payments received in advance relating to the future performance of services or deliveries of products are deferred until the performance of the service is complete or the product is shipped. Upfront payments received in connection with certain rights granted in contractual arrangements are deferred and revenue is recognized over the related time period which the benefits are received. Based on specific customer bill and hold agreements, revenue is recognized when the inventory is shipped to a third party storage warehouse, the inventory is segregated and marked as sold, the customer takes the full rights of ownership and title to the inventory upon shipment to the warehouse per the bill and hold agreement. When contract terms include multiple components that are considered separate units of accounting, the revenue is attributed to each component and revenue recognition may occur at different points in time for product shipment, installation, and service contracts based on substantial completion of the earnings process.

Accrued Warranty - We provide a limited warranty for battery packs and energy storage systems. A liability is recorded for estimated warranty obligations at the date products are sold. Since these are new products, the estimated cost of warranty coverage is based on cell and module life cycle testing and compared for reasonableness to warranty rates on competing battery products. As sufficient 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.

Overhead Allocation - Facilities overhead, which is comprised primarily of occupancy and related expenses, and fringe benefit expenses are initially recorded in general and administrative expenses and then allocated to research and development and product inventories based on relative labor costs.

Derivatives and Hedging - Derivatives are held for purposes other than trading. We account for hedges of foreign currency exposures and certain forecasted transactions as cash flow hedges. The fair value of the derivatives is recorded in other current and noncurrent assets or liabilities in the consolidated balance sheet. The effective portions of the changes in the fair values of these derivatives are recorded in other comprehensive income/(loss) and are reclassified to sales, cost of goods sold, or other income in the period in which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow hedge. The Company had no active hedges in place at September 30, 2009 or December 31, 2008.

Noncontrolling Interest - In April 2007, Sherwin-Williams entered into an agreement with us to form AlSher Titania LLC, a Delaware limited liability company (“AlSher”). AlSher is a joint venture combining certain technologies of ours and Sherwin-Williams in order to develop and produce titanium dioxide pigment for use in paint and coatings and nano titanium dioxide materials for use in a variety of applications, including those related to removing contaminants from air and water. Pursuant to a Contribution Agreement dated April 24, 2007 among Sherwin-Williams, AlSher, and us, we contributed to AlSher an exclusive license to use our technology (including our hydrochloride pigment process) for the production of titanium dioxide pigment and other titanium containing materials (other than battery or nanoelectrode materials) and certain pilot plant assets with a net book value of $3.1 million. We received no consideration for the license granted to AlSher other than our ownership interest in AlSher. Sherwin-Williams contributed to AlSher cash and a license agreement related to a technology for the manufacture of titanium dioxide using the digestion of ilmenite in hydrochloric acid. As a condition to enter into the second phase of the joint venture, we agreed to complete the pigment pilot processing plant and related development activities by January 2008. The 100 ton pigment pilot processing plant was commissioned in February 2008 and the costs associated with this effort were partially reimbursed by AlSher. AlSher is consolidated with our subsidiaries because we have a controlling interest in AlSher and any inter-company transactions are eliminated (refer to Note 1 – Basis of Preparation of Consolidated Financial Statements). The noncontrolling shareholder’s interest in the net assets and net income or loss of AlSher are reported as noncontrolling interest in subsidiary on the condensed consolidated balance sheet and as noncontrolling interest share in the condensed consolidated statement of operations, respectively.

Net Loss Per Common Share - Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of stock options and warrants, as well as unvested restricted stock. Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive. We had a net loss for all periods presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented or unvested restricted stock were included in the computation of diluted loss per share as they were anti-dilutive.

Recently Adopted and Recently Issued Accounting Guidance

Adopted

On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Financial Statements.

Fair Value Accounting.

On June 30, 2009, the Company adopted changes issued by the FASB to fair value disclosures of financial instruments. These changes require a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures, the adoption of these changes had no impact on the Financial Statements.

On June 30, 2009, the Company adopted changes issued by the FASB to fair value accounting. These changes provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is 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 under current market conditions. The adoption of these changes had no impact on the Financial Statements.

On June 30, 2009, the Company adopted changes issued by the FASB to the recognition and presentation of other-than-temporary impairments. These changes amend existing other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The adoption of these changes had no impact on the Financial Statements.

On January 1, 2009, the Company adopted changes issued by the FASB to fair value accounting and reporting as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. These changes define fair value, establish a framework for measuring fair value in GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or permit fair value measurements and is to be applied prospectively with limited exceptions. The adoption of these changes, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on the Financial Statements. These provisions will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of these changes.

Business Combinations and Consolidation Accounting.

On January 1, 2009, the Company adopted changes issued by the FASB on April 1, 2009 to accounting for business combinations. These changes apply to all assets acquired and liabilities assumed in a business combination that arise from certain contingencies and requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period otherwise the asset or liability should be recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be recognized initially at fair value; (iii) subsequent measurements of assets and liabilities arising from contingencies be based on a systematic and rational method depending on their nature and contingent consideration arrangements be measured subsequently; and (iv) disclosures of the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. The adoption of these changes had no impact on the financial statements.

On January 1, 2009, the Company adopted changes issued by the FASB to consolidation accounting and reporting. These changes establish accounting and reporting for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. These changes require, among other items, that a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and noncontrolling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. Other than the change in presentation of noncontrolling interests, the adoption of these changes had no impact on the Financial Statements. The presentation and disclosure requirements of these changes were applied retrospectively.

On January 1, 2009, the Company adopted changes issued by the FASB to accounting for business combinations. While retaining the fundamental requirements of accounting for business combinations, including that the purchase method be used for all business combinations and for an acquirer to be identified for each business combination, these changes define the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control instead of the date that the consideration is transferred. These changes require an acquirer in a business combination, including business combinations achieved in stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This guidance also requires the recognition of assets acquired and liabilities assumed arising from certain contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. Additionally, these changes require acquisition-related costs to be expensed in the period in which the costs are incurred and the services are received instead of including such costs as part of the acquisition price. The adoption of these changes had no impact on the financial statements.

Other

On June 30, 2009, the Company adopted changes issued by the FASB to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as “subsequent events.” Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of these changes had no impact on the Financial Statements as management already followed a similar approach prior to the adoption of this new guidance.

On January 1, 2009, the Company adopted changes issued by the FASB to disclosures about derivative instruments and hedging activities. These changes require enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Other than the required disclosures, the adoption of these changes had no impact on the Financial Statements.

On January 1, 2009, the Company adopted changes issued by the FASB to accounting for intangible assets. These changes amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset outside of a business combination and the period of expected cash flows used to measure the fair value of an intangible asset in a business combination. The adoption of these changes had no impact on the Financial Statements.

On January 1, 2009, the Company adopted changes issued by the FASB to the calculation of earnings per share. These changes state that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method for all periods presented. The adoption of these changes had no impact on the financial statements.

Issued

In August 2009, the FASB issued changes to fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. These changes become effective for the Company on October 1, 2009. Management has determined that the adoption of these changes will not have an impact on the Financial Statements.

In June 2009, the FASB issued changes to the accounting for variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. These changes become effective for the Company on January 1, 2010. Management has determined that the adoption of these changes will not have an impact on the Financial Statements.

In June 2009, the FASB issued changes to the accounting for transfers of financial assets. These changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of variable interest accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. These changes become effective for the Company on January 1, 2010. Management has determined that the adoption of these changes will not have an impact on the Financial Statements.

Reclassifications - Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current period.

Note 3. Fair Value Measurements

Our financial instruments are accounted for at fair value on a recurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. A market or observable inputs is the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 -

Quoted prices for identical instruments in active markets.

Level 2 -

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 -

Significant inputs to the valuation model are unobservable.

The following table summarizes the valuation of our assets by the fair value hierarchy at September 30, 2009:

In thousands of dollars

Assets at fair value :	Total		Level 1		Level 2		Level 3
Auction rate corporate notes	$	3,277	$	-	$	-	$	3,277
Spectrum Pharmaceuticals, Inc.		766		766		-		-
Investment in available for sale securities	$	4,043	$	766	$	-	$	3,277

The following table summarizes the valuation of our assets by the fair value hierarchy at December 31, 2008:

Assets at fair value:	Total		Level 1		Level 2		Level 3
Auction rate corporate notes	$	2,816	$	-	$	-	$	2,816
Spectrum Pharmaceuticals, Inc.		358		358		-		-
Investment in available for sale securities	$	3,174	$	358	$	-	$	2,816

The Spectrum Pharmaceuticals shares listed above for the period ended September 30, 2009 were acquired from Spectrum on August 4, 2009 when we entered into an amended agreement with Spectrum in which we licensed them the rights to RenalanTM in addition to RenaZorbTM. A component of this agreement was the payment to us of an additional 113,809 shares of Spectrum common stock.

The Spectrum Pharmaceuticals shares listed above for the period ended December 31, 2008 were received as partial payment of licensing fees when Spectrum entered into a license agreement with us for RenaZorbTM in January 2005 and in payment of the first milestone achieved in June 2006. The shares were sold during the quarter ended September 30, 2009.

The activity relating to assets valued on a recurring basis utilizing Level 3 inputs for the three months ended September 30, 2009 and September 30, 2008 is summarized below:

In thousands of dollars

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)	Auction rate corporate notes 2009			Auction rate corporate notes 2008
Beginning Balance, July 1	$	3,013		$	3,126
Total gains or losses (realized/unrealized):
Included in other comprehensive income		266			(310	)
Other adjustments		(2	)		-
Ending Balance, September 30	$	3,277		$	2,816

The activity relating to assets valued on a recurring basis utilizing Level 3 inputs for the nine months ended September 30, 2009 and September 30, 2008 is summarized below:

In thousands of dollars

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)	Auction rate corporate notes 2009			Auction rate corporate notes 2008
Beginning Balance, January 1	$	2,816		$	3,912
Total gains or losses (realized/unrealized):
Included in other comprehensive income		465			(1,092	)
Other adjustments		(4	)		(4	)
Ending Balance, September 30	$	3,277		$	2,816

The amount of total gains or losses for the nine months ended September 30, 2009 and September 30, 2008 respectively, included in other comprehensive income in Stockholder’s Equity attributable to the change in unrealized losses relating to assets still held at the reporting date was ($627,000) and ($1.1 million). A realized gain of $868,000 was recorded during the third quarter associated with the sale of 240,000 shares of the Spectrum common stock that we held.

Financial instruments that trade in less liquid markets with limited pricing information generally include both observable and unobservable inputs. In instances where observable data is unavailable, we consider the assumptions that market participants would use in valuing the asset. Such investments are categorized in Level 3 as the inputs generally are not observable. Our evaluation included consultation with our investment advisors, assessment of the strength of the financial institution paying the interest on these investments, ratings of the underlying collateral, and a probability-weighted discounted cash flow analysis. Underlying assumptions relating to the probability-weighted discounted cash flow analysis were changed from September 30, 2008 to September 30, 2009. In 2008, the Company believed the market would recover and the auction rate notes would be liquidated prior to maturity based on a range of estimated time periods. In 2009, the Company believes there is a greater likelihood that the market will not recover and as such assumes the auction rate notes may be held to maturity.

Note 4. Investment in Available for Sale Securities

Investment in available for sale securities (long-term) includes auction rate corporate notes and investments in common stock as discussed below.

The auction rate corporate notes are long-term instruments with expiration dates through 2017. Through the third quarter of 2007, the interest was settled and the rate reset every 7 to 28 days and historically these investments were classified as short-term investments. However, in the fourth quarter of 2007 due to a change in the liquidity of the auction rate market, sell orders have exceeded bid orders in that market, and the interest rate relating to these investments was reset to a contractual rate of London Interbank Offering Rate plus 50 basis points. The auction rate markets have not yet recovered. As such, we evaluated these investments at September 30, 2009 to determine if they were impaired. Our evaluation included consultation with our investment advisors, assessment of the strength of the financial institution paying the interest on these investments, ratings of the bonds that are the underlying collateral, prices of similar instruments, our ability to hold the notes to maturity, and a probability-weighted discounted cash flow analysis. Based on this analysis, we estimate that at September 30, 2009 their fair value was $3.3 million, representing a cumulative unrealized holding loss of approximately $627,000. Based on our evaluation and our ability and intent to hold the investment for a reasonable period of time sufficient for an expected recovery of fair value, we do not consider this investment to be other than temporarily impaired at September 30, 2009.

At the beginning of the quarter, investment in available for sale securities (long-term) included 240,000 shares of Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock. The shares were received as partial payment of licensing fees when Spectrum entered into a license agreement for RenaZorbTM in January 2005 and in payment of the first milestone achieved in June 2006. On receipt, the shares were recorded at their market value of $1.1 million as measured by their closing price on the NASDAQ Capital Market. On September 11, 2009 we sold these shares for $2.0 million, recognizing a gain of $868,000.

On August 4, 2009 we entered into an amended agreement with Spectrum where we assigned all patent rights associated with RenalanTM and RenaZorbTM. As part of this Agreement, we received 113,809 unregistered and restricted shares of Spectrum common stock. On receipt these shares were recorded at their market value of $750,000 as measured by their closing price on the NASDAQ Capital Market as of July 1, 2009. This investment had a market value of $766,000 as of September 30, 2009.

Note 5. Product Inventories

Product inventories consist of the following:

In thousands of dollars

	September 30, 2009		December 31, 2008

Raw materials	$	2,919	$	98
Work in process		641		-
Finished goods		155		-
Total product inventories	$	3,715	$	98

As products reach the commercialization stage, the related inventory is recorded. The costs associated with products undergoing research and development are expensed as incurred. As of September 30, 2009 and December 31, 2008, inventory consisted primarily of nano-structured lithium titanate spinel, battery cells and battery modules in various stages of the manufacturing process.

Note 6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

In thousands of dollars

	September 30, 2009		December 31, 2008

Prepaid inventory purchases	$	731	$	-
Prepaid insurance		430		283
Deposits		337		25
Other prepaid expenses and current assets		340		264
Total prepaid expenses and other current assets	$	1,838	$	572

Our prepaid inventory purchases are associated with unfulfilled purchase orders of $2.3 million placed during the quarter ended September 30, 2009. Other prepaid expenses and current assets consist primarily of prepaid property taxes, insurance, service contracts, marketing expenses and rent.

Note 7. Patents

Our patents are associated with the nanomaterials and titanium dioxide pigment technology. We are amortizing these assets on a straight-line basis over their useful lives. The amortized patents’ balances as of September 30, 2009 and December 31, 2008 were:

In thousands of dollars

	September 30, 2009			December 31, 2008
Patents and patent applications	$	1,518		$	1,518
Less accumulated amortization		(946	)		(882	)
Total patents and patent applications	$	572		$	636

The weighted average amortization period for patents is approximately 16.5 years. Amortization expense, which represents the amortization relating to the identified amortizable patents, for the nine months ended September 30, 2009 and September 30, 2008, was $42,000 in each period. For each of the next five years, amortization expense relating to patents is expected to be approximately $85,000 per year.