Altair Nantechnologies

Q3 2008 Conference Call

Terry Copeland: Good morning and welcome to our third quarter conference call.  This is Terry Copeland, president and CEO of Altairnano.  With me today are John Fallini , CFO, and  Robert Pedraza, Vice President of corporate strategy.

Today we’ll review our performance for the 3rd quarter and highlight some of our recent accomplishments.  I sometimes refer to Altairnano as a thirty-five-year-old start-up company as this characterization is descriptive of our position in the market place.  Our primary businesses in stationary power and transportation are both new markets that we’re targeting for introduction and entry with our new technology.  In that sense we certainly do resemble a start up.  New businesses in early stage markets have to be vigilant of their cash burn rate particularly before revenue ramp begins.  We have reported to you in past quarterly conference calls that our first quarter cash burn rate was higher than what we were comfortable with and that we made some progress against that in the second quarter.  I’m pleased to tell you that we have continued that effort and that in the third quarter our cash burn was roughly $4 M, down more than $3.5M from the second quarter.  In addition we added $10M through the recently announced Al Yousuf investment.  John Fallini will give you more on the financials in a few minutes.

Let’s talk about Life Sciences first today.  In July, we were surprised to learn that Elanco Animal Health, a division of Eli Lilly, was going to halt spending on the Development Services Agreement that had been in place since September of 2007.  The reason given was that they were asked to significantly reduce their spending rate on product development and that they had to curtail product development programs in order to meet that internal directive.  We worked diligently with Elanco to find a path around this challenge but it did not surface.  Consequently, after reviewing our broader research license and commercialization agreement, we made the decision to terminate that relationship.  This resulted in all of the licensing rights to the compound developed for Elanco reverting to us.  This event does not change our relationship with Spectrum Pharmaceuticals.  That work continues to proceed as planned.

We have since talked to several other companies regarding their interest in the product but at this point none of the discussions have move to an advanced stage.  Our experience, much like other companies, is that the challenging economic environment and volatility in the capital markets has triggered a retrenchment in the product development activities of our potential licensing partners.

Let me now turn to Performance Materials and particularly our joint venture with Sherwin Williams /AlSher.  Through the quarter we continued work developing sufficient data that would enable a more detailed engineering analysis for a scaled up production facility.  In July and August we had ongoing dialog with a third party that was interested in licensing our technology for the production of TiO2.  Our intent had been to generate sufficient cash up front so that we could then complete the engineering analysis and, in conjunction with the third party, proceed to the scaled up plant.  That particular company has now decided to end that dialog.  No reason was given for their reluctance in proceeding however several companies with considerable raw material resources have expressed interest in our process but to date none have made any firm commitment.  Without such a commitment it will be difficult for AlSher to independently fund the next scale up investment. 

As you are aware we have been putting greater emphasis on our Power and Energy Systems as we believe this is our greatest opportunity.  I’ll speak first about stationary power and then move to transportation and finish with some comments on military applications.

I know everyone is anxious to hear about our relationship with AES.  Our relationship continues to be strong and we’re working hard to put together a commercial proposition that benefits everyone.  It’s important to recognize that the 2MW system built for AES was designed, constructed and delivered in about 4 months.  It was recognized to be a prototype.  Moving from prototype to commercial design requires considerably more value engineering and supply chain management efforts.  We have initiated this undertaking and are working swiftly to achieve our goals in these areas.  We also have a much better understanding of the economics of the specific applications we are targeting and consequently where our own cost targets need to be in order to successfully enter those markets.

We next want to target a photovoltaic solar smoothing application.  This application helps solve a critical problem when connecting utility scale PV solar generating assets to the grid.  For example, when a cloud comes over the solar panel array the power output drops dramatically.  This creates a problem for the supporting distribution grid as the utilities cannot respond quickly enough with traditional generating assets to make up for the sudden drop in power.  Our energy storage technology appears to be a perfect solution to this problem.  Our battery can respond within milliseconds to deliver the supporting power to allow for controlled reduction in output to the utility.  Conversely, when the cloud disappears, and the PV solar output suddenly jumps dramatically, the battery can again respond within milliseconds to capture the increased output to allow for a controlled increase in output of power to the grid.  We’re in discussions with several companies to put in place a demonstration facility similar to that which we had with AES.  I will give you more information on this once we have a contractual development agreement in place with an appropriate partner.

In the transportation sector, we recently announced that Design Line International is building prototype hybrid buses based on our cell technology.  This is exciting because it reinforces our belief that hybrid buses will be a significant early adaptor of alternative energy power systems.  The needs of this industry match very well with the distinctive capability that we offer - high power, rapid recharge, long cycle life and broad range of operating temperature.  DLI should complete their prototype testing in the fourth quarter.

We continue to have success on the military front.  The Office of Naval Research development program is moving forward.  You will recall that the objective of the ONR project is to provide backup electrical power on a destroyer that enables, what the Navy refers to as, single generator operations where they don’t need to run a backup power plant continuously.  The first phase, ONR1, has been centered on module design and build and should be complete in the fourth quarter.  The second phase, ONR2, valued at $3.8M, will be a scale up to, perhaps, a 500kw unit for larger scale testing by the Navy.  We have not finalized the phase II contract yet but anticipate doing so in the fourth quarter.  Roughly $4M was appropriated by Congress in the recent Continuing Resolution for Additional Development beyond ONR II.

The Army has been pleased with test results to date on our modules for the M119 - 105mm howitzer program.  I will share with you one interesting finding from the abuse testing that has been recently performed.  Two modules were subjected to testing at the firing range.  These types of tests are well attended because the results can be… entertaining.  The first test consisted of firing a 7.62mm round directly at the module.  When nothing happened, at least one voice in the crowd was heard to say ‘you missed’.   Actually, the bullet hit dead center on the battery module with no catastrophic consequences.  In fact, open circuit voltage on the battery was monitored for three additional hours.  The second test was even harsher.  This time a 50 caliber round was fired through the battery.  Again, to the amazement of all observers no catastrophic event occurred.  There was no fire.  Not even any smoke.  The US Army was completely surprised by this outcome and excited for obvious reasons.  Functional testing of the M119 modules will continue in the 4th quarter.

Also, on the military front, just this week BAE Systems gave us authorization to proceed on what we call phase 1A of a technology development program investigating the use of our battery technology with the UK Navy.  This part of the program is for $406 K dollars.  We anticipate that phase 1B will follow later in the fourth quarter.

Before turning the microphone over to John Fallini I’d like to make one more comment.  I’m am very pleased with the recent transaction with Al Yousuf LLC  in which they reiterated their strong belief in our technology and commitment to the company.  With the added $10M in cash to bolster our balance sheet, we can weather a very difficult economic environment, proceed forward with our plans to commercialize our technology, and avoid having to raise money in the public markets.  I look forward to working with Mr. Al Yousuf as a new member of our board of directors.  He has personally helped build Al Yousuf LLC into a major company, and has an intimate understanding of the challenges that must be overcome in building a successful company.  Let me now turn it over to John Fallini , our CFO, for discussion of our financials.  John …?

    John Fallini: Thanks Terry.  For the quarter ended September 30th, 2008, revenues declined to $1.80 M dollars from $3.37 M in 2007.  Operating expenses increased to $11.12 M from $9.92 M in the same period of 2007.  Net loss for the period was $9.11 M dollars, or 11 cents per share, compared to a net loss of $6.13 M, or 9 cents per share, in 2007.  Net cash consumed for the first nine months of 2008 was $26.42 M dollars vs. $1.83 M in 2007.  There were three major drivers that caused this huge difference between cash consumed in 2008 vs. 2007.  First, cash used in operations was $11 M dollars higher in 2008 than in 2007.  Second, in 2007 the Company received cash investments of $2 M dollars from Sherwin Williams for the AlSher joint venture and $3 M dollars from The AES Corporation in conjunction with the large stationary power project undertaken with that company.  Finally, $10.6 M dollars of auction rate notes were converted to cash in early 2007 prior to the market for them freezing up.  Basic and diluted weighted average shares outstanding for the year were $84.4 M compared to $69.7 M for 2007.  Revenue generated from product sales and commercial collaborations declined by $1.70 M and $850 K dollars respectively in the third quarter of 2008 compared to 2007 primarily as a result of decreased sales in the automotive sector and the completion of a number of commercial collaborations.  Revenue from contracts and grants increased by $980 K dollars in 2008 over 2007 primarily as a result of the Office of Navel Research grant.  Operating expenses were $11.12 M dollars for the third quarter of 2008 up from $9.92 M for the same period in 2007.  The major driver for this increase was the $3.6 M dollar settlement of all potential issues with Al Yousuf, LLC resulting from their 2007 investment in the Company.  Our balance sheet strengthened during the third quarter of 2008 primarily as a result of the committed $10 M dollar investment from Al Yousuf LLC.  This investment was subsequently received on October 14th.  Although cash declined from $27.77 M to $23.73 M, total assets increased from $48.99 M at the start of the quarter to $54.8 M at the end of the quarter.  Net cash consumed by the company for the first nine months of 2008 was $26.42 M dollars but only $4.04 M was consumed in the third quarter.  We stated in our first quarter conference call that the burn rate was too high and we’re taking steps to address that fact.  Since then we have taken a number of steps as discussed with last quarter’s earnings release to reduce that burn rate and we continue to focus on those efforts as we go forward.

The company has an investment of $3.9 M dollars in auction rate notes.  During the first quarter we determined that the financial market for these instruments was not recovering in the short term and reflected a current impairment of 20% of the value of these notes, or $780 K dollars, on our balance sheet as of March 31st.  Financial markets have continued to deteriorate during the second and third quarters, but the underlying corporate bonds that comprise these notes and the banks holding them remain strong.  It is our conclusion that these notes are still only temporarily impaired although at a greater extent than at the end of the second quarter. Consequently we took an additional impairment allowance of $312 K dollars during the third quarter raising the total impairment allowance on these notes to $1 M, 92 thousand dollars.  We will continue to closely monitor this situation in the fourth quarter and beyond.  I will now turn the call back over to Terry.

 

Terry Copeland:  Thanks John.  As he has indicated to you our cash burn rate in the third quarter was significantly improved over that of the first and second quarters.  We recognize that we still have a long way to go and that it’s important for us to improve the revenue line in the fourth quarter and in 2009.  That is certainly our intention. Now we’d like to open the call up for investor questions. Operator, please go ahead…

Q&A Session

Operator:  And our first question today is from Michael Lew with Think Equity.

Terry:  Good Morning Michael.

Michael: Hi. I had a couple of questions.  You highlighted the shipment of battery packs to DesignLine International.  With regards to the qualification of the process, which you expect to be completed in Q4, what are some of the metrics that they’re gauging right now?  And, also, as you see it today, how big is this potential opportunity?

Terry:  Thanks Michael.  DLI is working with several potential customers on their side for analyses and evaluation of these prototypes.  Some of the prototypes will go directly to those end customers for that evaluation and I can’t say who those customers are but they’re very large and I’m absolutely confident that you’ll recognize who they are. They will go through a typical process of evaluating those buses vs. other busses that they might have on-site looking at all of those attributes which we’ve touted for those batteries. They’re going to want to look at charge rate. They’re going to want to look at the energy, at how far they’re able to travel, and their reliability most importantly.  In addition there are other tests that DLI will be doing that have to be done for any lithium ion battery system basically that’s going to be on the road.  Those are common tests. So we’re looking forward to those results.  Then your second point of the question was how big is the market?  It’s significant in size.  Particularly if you simply think of any urban area with busses is a target for this kind of thing.  In addition it’s important to recognize that the purchase of these buses in these urban areas are typically subsidized by the federal government anywhere from 60 to 80 percent.  And I think that that will certainly be encouraged by the incoming administration.

Michael:  OK. And also just to confirm… the plan going forward will be to just provide the cells and not build the battery packs?

Terry:  That’s exactly right.

Michael:  The other question that I had also was with regards to Elanco, now that the partnership came to a halt, could you share with us how far along Renazorb is on the development curve? In other words is this product almost market-ready for, let’s say, a potential additive, or is there, like, significant additional development work that would be required for somebody who came on board… who partnered up with Altair?

Terry: Any new partner that comes along is essentially going to have to start over doing their own efficacy tests, and measurements of effectiveness, based on their own standards. Even if we were allowed to share development results from Elanco, which we are not, and, of course, we would not, other companies by default have to do their own testing.  So, while it won’t go back to ground zero, it will take a step back for these companies to begin doing that analysis. Typically… no I don’t even want to say typically how long such analysis might take.  We were reasonably far along with Elanco but still had a way to go particularly with regards to setting up broader tests with a wider ranging group of animals.

Michael:  OK.  That helps enough.  Also with regards to Al Yousuf being appointed a board seat can you discuss his role?  Is he going to be a more active board member involved with the daily ongoing development efforts?

Terry:  I don’t expect any of our board members to be involved with day to day activities of the business.  That’s the responsibility of me and my management team.  That said, I do believe Al Yousuf will be a very active board member.  We’re looking forward to his integration into that group.  He, of course, has several interests with this technology.  You’re aware of his relationship with Phoenix , I’m sure. And he’s very supportive and will help us in that role.

Michael:  Thank-you.

Operator: And we’ll go next to Len Cuthbert with Hayward Securities.

Terry: Good-morning, Len.

Len: Hi.  How are you?  You addressed one of my questions which was the large megawatt battery for AES. Basically, just to sum up, so I understand this, for analysis it is still ongoing with AES Corporation additional testing  uhm different prototypes are going to be used.  It’s pretty much on schedule.  Is that correct?

Terry:  I would say that’s correct.  AES is also supporting us in our efforts to reach out to other potential customers.  We are able to schedule visits with those customers to the AES facility to show them the power plant – the battery.  We’re very excited about the relationship and it continues well.

Len: Um… in that regards… in the Millarstown PA area, AES is basically, I’ve received a schematic, one of their power plants out there that they’re going to be putting on line and there are two large batteries, storage units, showing there.  Are those the old style megawatt batteries or are you aware of any new technology?

Terry:  A couple of points;…

Len: PMCO.

Terry: I’m sorry!?

Len: With PMCO? Pennsylvania Electric.

Terry: I’ll give you two answers. Number one: I’m not specifically sure where.  I know that AES has moved one of the batteries that we had in Indianapolis to a facility with PJM.  I’m not certain the exact site of that. It may well be Norristown – I don’t know. But we also know, as has been stated in A123’s S1, in August, that they are planning to build a system for AES and that could perhaps be there as well.  I don’t know.

Len:  In the same regards in a related event are you aware, or has ALTI been informed at all regarding the tariff application made by AES regarding the use of the new megawatt batteries?

Terry: Robert, do you want to…?

Robert:  Yes, we are aware of their application.

Len: OK.  I don’t expect that you can elaborate any more on that I just wanted to clarify that you are aware?  And my last and final question:  And this is what we’re doing in our on-going analysis, one of the things that we looked at really closely in our recommendation of Altairnano was the relationship with Phoenix and the batteries that were going into the vehicles.  We followed fairly closely.  We were aware of the, basic, triumvirate conference in Dubai , where Phoenix actually shipped the vehicles there as well as your staff members were presenting with Al Yousuf.  Could you update me at all as to how things were going there and what’s the latest with Phoenix ?

Terry:  The latest with Phoenix , obviously with the addition of Al Yousuf to our board, I’ll say, it gives us heightened attention and ability to discuss things with Phoenix .  Phoenix earlier this year having some cars on the road in October.  That obviously has not happened.  I think that that’s principally as a result of financial issues.  Hopefully those will be resolved.  I think our presentation that was in conjunction, I’ll say,  with Phoenix in Dubai went well.  It was received well.  Phoenix CEO, Dan Elliot, spoke highly of our batteries, and basically said that, particularly in that environment, that our batteries were the only ones that would work.  We continue to be optimistic but, you know, when you’re working with a start-up company that’s having financial issues the timing of those successes can be somewhat problematic.

Len:  My smallest and final point will be that, in relation to the Dubai conference and the Al Yousuf investment, how do you think the atmosphere was for additional investment regarding our cash burn problems from other people who attended that conference? Could you address that or do you care not to go into it?

Terry:  I was not at the Dubai conference.  Robert Pedrazza was.  Robert, do you have any comments that you’d like to make?

Robert: Yes.  The Phoenix presentation at the Dubai conference was well-received.  Phoenix also had some very high level meetings with government officials relative to showcasing the car for potential fleet acquisitions for commercial development purposes and Phoenix also had dialogues, at the same level, regarding additional funding for their company.  So, I think it was a productive conference.  I think efforts were made and beyond that I really don’t want to make any predictions or forecasts as to the outcome.

Len: Robert, could I just address one final thing again, what you can say, what you can’t say, are we, and I’m say we/Altair, were we also promoting ourselves for additional investment possibilities in Dubai?

Robert:  No. The purpose of the trip to Dubai and the participation in the conference was really to expose our company, from an investor relations perspective, to a broader audience.  With the increased involvement and support of Al Yousuf we decided to go over there and participate in this conference.  We were not looking for additional capital.  It was not a corporate finance mission. It was purely to coordinate our efforts with Phoenix .  They were showcasing their vehicle. We wanted to showcase our battery technology.  Just an overall introduction of the company to those investors and agencies that were participating at the conference.

Len:  So basically I could sum up and say that at this particular point our cash burn problems are fairly under control.  We’re not in the market to either dilute our shares on the marketplace at all through a secondary issue or we’re not looking, at the present time, for additional financing.  Would that be correct?

John:  Yeah, this is John Fellini.  That is correct.

Len: OK.  I thank you guys very much for your candid answers and I’m done.

Terry:  OK, Len, thank-you.

Operator:  And we’ll go next to Bill Morrison with Sythful Nicholas & Company.

Terry:  Hello Bill.

Bill: Hi. Couple of questions: First off on the Power Systems and the motive side, specifically busses.  You’ve kind of been in a constant state of prototyping for a few years really pretty much across the board in Power Systems but specifically in busses.  Is there any fruit that’s being born from some of the prototyping with ISE and if not can some of the data that was used in that work be used, you know, for some of the new motive applications so we don’t have to start the clock from ground zero to start prototyping.  That’s my first question.

Terry:  The answer is yes and no.  When we develop, and work with, a company like ISE, that’s done under confidentiality where we’re restricted from what we can use with other customers.  Obviously anything that we put into that equation we can use on our side other potential customers but what ISE would put in we can’t share. I would say that particularly with regards to test results that a customer under NDA, where that’s under a confidentiality agreement, those test results really can’t be shared with other potential customers.  That said we have been working with others and have we’ve been prototyping.  Most of that activity has really occurred this year.  You said ‘In previoius years” but most of the prototype activity and focus on the large transit vehicles has been, really, this year and principally in the second or third quarters.

Bill:  OK. So, with ISE is there any expectation that we might move from the prototyping stage to production at some point?  Maybe in ’09?

Terry: That’s certainly a potential.  I’ll tell you that ISE has changed their leadership structure some and they are reevaluating how they want to address the whole marketplace.  We’re a part of that reevaluation.

Bill: OK.  The second question:  As far as the medium-duty truck space. I know that you had some work going on there a few years back. Is there anything that’s going to come to fruition commercially there?

Terry:  In that space we have been re-engaged this year with several major integrators.  How quickly that will come to fruition I really can’t say.  I did use the word “Re-engage” this year.  So those are really in a relatively early stage.  But we can leverage what we have learned, again, on the inside of Altair as far as design requirements, and what not, for these kinds of facts to those companies.

Bill:  OK, thank-you!

Terry:  Thanks Bill.

Operator: And our next question will come from Craig Irwin with Merriman.

Terry: Hi Craig.

Craig: Hey Terry. Quick question: First one:  The 250 Kw unit that was moved from the substation in Indianapolis Power and Light over to PJM do you expect to recognize any revenue from that in this current quarter?

Terry:  No.  That was uh… The revenue came in, what, in July so it came in in the third quarter.  That was all part of the essential 2 megawatt system that we put into Indianapolis . 

Craig: So there’s no residual revenue behind that from the original sale?

Terry:  That’s correct.

Craig:  OK. OK. Excellent.  Then, really, the most important question that I have is around cost.  A lot of your customers, when I speak to them, they say that your battery is very very expensive compared to the other alternatives out there but that it works.  Those of them that have cycled the product out thousands of cycles all say that the test data matches pretty well with what you show around to prospect customers.  Can you talk a little bit about what you’re doing about taking cost out of your cells; How much you want to get out and really what sort of time line this might take?

Terry:  As with any manufacturer of cells of anything when you look at the cost/weight you want to take out as much as possible, of course.  One of the things that’s difficult to change is how customers evaluate the cost of, in this case, cells.  The traditional way of valuing cells has been dollars per watt/hr. and they always look at dollars per nominal watt/hr.  If you look at lithium ion, and we’re getting into some technical detail here, but if you look at a typical lithium ion battery, it might have about 160 watt/hrs per kilogram. Where, in fact, we’re about half that, at 80.  However, you have to look at, not the nominal, value but what’s the practical value.  How’s is this used in the environment and typically to optimize the life of a lithium ion system you can only run it between about a 30% state of and 80% state of charge. Do the math that says you can only use about 50% of the available energy. 50% of 160 is, guess what?  80.  Which is right exactly where we are.  Our batteries, on the other hand, you could run easily between 90 and 10 so that the discrepancy between the two isn’t nearly as great as you might expect and then when you begin to look at real world conditions then you start looking at temperatures.  You have to be able to run this thing in Phoenix in the summer.  You have to be able to run it in Boston in the winter and we have a much flatter performance profile over that wide temperature range than anybody else.  So we really need to drive away from the typical dollars per watt/hr more towards dollars per useful watt/hr.  I think that that’s becoming slowly clearer to these folks but we’re not there yet.

Craig: Does this mean that your relationship with Kokam, the sort of, outsource manufacturing and the questions that people have about potentially being able to bring down the cost of your powders by producing them through an alternative method, that these are not things that are on the drawing board for the short term?

Terry:  Our relationship with Kokam is very strong.  We continue to work with them and they support our cost reduction initiative.  With regard to the manufacture of the powder, we, of course do that here in Reno .  We think we have certainly the largest lithium titanate facility in the world right now and we understand what those costs are and we continue to work on those cost reductions as well.  I don’t think that there’s another process out there, another generic process, that will enable a cheaper LTO while maintaining the optimum morphology of our system.

Craig: OK.  Excellent.  Thank-you very much.

Terry: OK Craig.

Operator: And our next question is with Justin Cable with Global Hunter Securities.

Terry: Good-morning, Justin.

Justin:  Good-morning. Thank-you.  Most of my questions have been answered but I did want to get a little more clarity with regards to the overall head count and cost reductions.  What cost structure are we at now on a quarterly run rate basis and where’s our head count going to?

Terry: Our current head count is roughly 105.  That’s down some from a couple of quarters ago.  We were up, at one time, to around 117 people.  So that’s, 12 out of 117, that’s roughly a 10 percent reduction.  We’re working aggressively on what I call “value engineering”.  Again, this gets back to a prototype system that was put together in record time where you’re looking for function.  Now we have to go back and redesign that looking for value and function at the same time.  That takes time.  That’s work with the entire supply chain.  And that’s what we’re doing from copper purchases to electronics - everything.

Justin:  OK.  But in terms of quarterly cost structure.  What’s our quarterly run rate for total cost of business?

Terry:  I think that we said that our cash burn for the quarter was $4.04 M.  Is that right, John?

John:  Yes.

Justin: For the third quarter, correct?

Terry: Yes. Just as an example I think our first quarter was on the order of 15 million and then 7.8 in our second quarter.

Justin: 15. Then 7.8.

Terry:  And then 7.8 during the second quarter.

Justin: Were there any further cost reductions made during the third quarter?

Terry:  Well, again, from a cash burn rate we reduced about 3 and a half million dollars. 

Justin: OK.  What is the new share count as well as any options and warrants outstanding?

Terry:  John?  Can you handle that one?

John: Ooo… uhm… our new share count, as of right now, today is about 95 million.  Options and warrants have not changed materially.  There were no new warrants that were issued, as part of the Al Yousuf investment, for example. So they’re the same as they were previously.

Justin: What’s the total on that?  On the options?

Terry:  We’ve gotta pull that up out of the last…

Justin: No problem.  In terms of the 4th quarter you still have numerous prototypes still in testing phases.  Is there anything that we should anticipate in terms of new contracts or that we should look out for in any of the sectors that you’re targeting, before the end of the year?

Terry:  We have several irons in the fire.  I don’t want to speculate on when they might come to fruition.  I’ve indicated, relative to, for instance, BAE that we just got the contract with them this week. We’d expect phase 2 of that within the fourth quarter.  We’d like to see DLI’s testing come to fruition in the fourth quarter and would anticipate further orders beyond that.  Beyond those at this time I’m reluctant to give any specific guidance.

Justin: OK.  Now in terms of the DLI opportunity.  How quickly have they said that they would want to engage in terms of a commercial roll-out?

Terry: I don’t want to speak to DLI’s timelines.  That’s privy to them.  But it’s safe to assume that, based on successful completion of prototype testing, that they would proceed forward at a reasonable pace.

Justin: And remind us again; what the, uh… if we were to build out into a model what kind of (indiscernible), margin structure, that sort of thing, should we assume on a per unit basis?

Terry: I don’t think that we’re going to give any guidance on that at this time.

Justin: OK. Thank-you.

Terry:  Alright?

Operator: And we’ll go next to Raymond Korea with Oppenheimer.

Raymond:  How you doing, gentlemen?

Terry: Hello Raymond.

Raymond: How’s everything?  Good?

Terry: Very well, thank-you.

Raymond: Good. I have two questions and I think that they’re pretty direct and questions that we’re all waiting to hear:  In your opinion, Terry, why hasn’t Altair been selected to participate in any automotive demonstration programs domestically or globally?

Terry:  It’s a good question.  Which, specifically, would you be speaking of?

Raymond:  I’m talking in terms of the batteries.

Terry:  For whom? What companies are you referring to?

Raymond:  I’m talking about the major automobile manufacturers.

Terry:  The primary one, of course, is the GM’s Volt.  And that decision was made some time ago.  Certainly well before I joined the company.  I’m reluctant, really, to speak to that not having been part of those discussions.  Any others in particular you’re interested in?

Raymond: Just in general anyone that you know of that has ongoing demonstration programs.  Have you either tried to be part of a demonstration? Or has anyone ever contacted you with regards to a demonstration?  Maybe you declined? That’s what I’m basically getting at.

Terry: We’re in discussions with a number of companies, as you might guess.  Some of these have, well I’ll call them, more “open” prototyping going on.  Others do not. And we are working with those, again, as a supplier of cells to the transportation market and we need to be working with an integrator and those companies and we have those on-going.

Raymond:  And my last question is: In your opinion, why haven’t you received any orders from any of the major auto manufacturers yet because as far as I see it, it’s the best technology out there and I would imagine that they would be knocking down Altair’s door to grasp the technology before someone else did.

Terry: We’re… as I said… we have active discussions going on.  The developments, particularly in the automotive world take a lot of time to come to fruition.  Are you aware, other than, of course, the Prius, where they’re working building those hybrids, of any other major movement in the battery world as far as automotive goes?   GM has the Volt that’s 2010.  They haven’t officially announced even who they’re going to be going with much less how much they’re going to be ordering.

Raymond:  I’m also aware that Chrysler recently had a presentation on CNBC outlining the specs of their vehicle, and it had very similar specs to your battery.  Any comment on that?

Terry:  I thought that I saw that Chrysler had just dropped their hybrid vehicles.

Raymond: My understanding was just the trucks.

Terry:  OK.

Raymond: The Durango , and, I don’t know what they call the other name but my understanding that it was just the trucks that they were dropping because, if there’s a merger, they’d obviously use GM’s technology.  The world saw UQM’s propulsion system in there and obviously Phoenix , in the past, was using the propulsion system and Altair’s battery.

Terry: Right.

Raymond:  Was there any correlation there or is it just something that you don’t care to discuss at this point?

Terry:  I would say that we can’t discuss it at this point.  As I said we’re re talking with numbers of people all the time.  We continue to have discussions with Phoenix .  I know that they have been involved talking with Chrysler.  I don’t know the extent of those discussions.  Unfortunately right now I think that Chrysler right now may have some other issues that they have to deal with on the immediate horizon – like survival.

Raymond: I do believe that they were proceeding forward on their EV sports car. 

Terry:  OK.

Raymond: Any thoughts on that?

Terry: No.

Raymond:  OK. Thank-you.

Operator:  And we’ll go next to Hugh Huddleson with Nature’s  Corporation Capital.

Terry:  Hi Hugh… Hugh,.. you there?

Hugh: (British Accent) Hi. Good morning. How you doing?

Terry: Good. Thank-you.

Hugh: Hi. Sorry about that.  I just wanted to just quickly ask could you confirm whether you’re in discussions with regards to BEA systems and the U.K. Navy, designing something specifically for the new Queen Elizabeth Aircraft Carrier?

Terry:  I can’t speak specifically to the application.  It is with the UK Navy and that’s really all we can say at this time.

Hugh:  OK.  Thank-you very much.

Terry:  I will add that that we’re very excited about it. It’s a very interesting application and they’re excited about it to with some of the results that they’ve seen.

Hugh: Do you have a more specific time line or just that phase two is going to be in the fourth quarter?

Terry: When you’re just starting phase one I’m not sure that it’s proper to define the time line but I anticipate success there just as we’ve had with our own ONR, Office of Naval Research, and army presence.

Hugh: Great.  Thanks very much.

Operator: And our next question is from Mike Yasdenda.

Terry:  Hello Mike.

Mike: Hey Terry. How you doing?

Terry: Good.

Mike: I have a question on the AES application or the stationary power agenda, in general.  I understand the cloud scenario.  Is there any application for your battery in providing additional peaking power?  Or is that too much of a… you know I understand that it’s a quick discharge and you need a real quick recharge.  Do you see peaking power and wind power applications for your battery?

Terry:  With regards to “peaking power”…

Mike:  Well… mid day is peak…

Terry:  I understand.  It’s conceivable that in some cases you might have a dual performance system, for instance, tied to a PV solar application, where the PV solar is running quite well and you still have the battery sitting there, you could potentially use it for some peaking applications, but what we’re really looking at is high power applications requiring millisecond responses for relative short term durations.  Typically peaking power you’re looking for a longer duration event greater than 20 or 30 minutes and I’d say that that’s probably not the optimum spot for our system but, if you’ve got it sitting in a solar farm, and the weather is good, then you could throw it into that application to your advantage.

Mike: Do you see it in wind farms?  The battery in wind farms?  Performing the same kind of thing?  Variable winds?

Terry:  We’re certainly looking at that.   I think that the rate of change in a wind farm is somewhat different than in a solar power system so that’s, sort of, step 3 here with PV solar being step 2.  We’re talking with wind generators, looking at the application, and evaluating its potential use.  I can’t say that it’s definitively there that there’s an application as well understood as it is withn PV solar.

Mike: And just one more follow-up on that, just in terms of the economics on that application I guess there’s kind of an “A” and “B” model in my head.  The “A” is… when the power goes away you’ve got to provide the power or else all hell breaks loose from a utility standpoint.  “B” is your provide 2 mw of power for 30 minutes that’s one megawatt hour of power at, what would be, a very expensive rate, and you can multiply that out over the number of times of day its used and kind of come out with a breakeven model of the battery in that application.  When they’re evaluating it are they on the “A” or on the “B” side of that?

Terry:  There’s actually some of both and this is an emerging market with technology that’s never before been available.  The markets are trying to understand how best to value that system.  I think in general in these applications, and Robert, you may be able to add to this, but I thin in general in these applications you’re bidding on power ahead of time and you’re paid on that power in whatever form you deliver it and so this is supporting that kind of bid structure for companies that are tying into the grid.  (pause)  I’ll give you an example that AES has quoted publicly, this was actually given in a presentation earlier this year in California at one of the, I think it was, the Electrical Storage Association event.  They talked about the New York market looking at a value of $55 per megawatt and did a calculation over 8000 hours per year as a potential revenue stream.

Mike: 55 Megawatts for 8000 hours?

Terry:  $55 per megawatt per 8000 hours a year.

Mike: Hmm.  That’s a… OK.  Cause I was thinking, when you have the batteries installed, you have a charge event, and a discharge event so your charging at some lower rate and discharging when you need it…

Terry:  That’s all part of the cost of operation.

Mike: How many cycles do you think a battery like that would go through during the course of a day?  Is that something that just gets called on occasionally during the month or is it a couple of times a day, or…?

Terry: Again, it depends on the situation, but typically if you look at California ISO, they put their own model together, and it calls for changing the output every 4 seconds.

Mike:  Oh really!

Terry: Did you have any other questions, Mike?
Mike:  No. Thanks for the time.

Operator: And we’ll go next to Barry Quat.

Terry: Hello Barry.
Barry: I have a question.  With the very successful pilot for AES, why, in your opinion, has AES not placed an order for additional battery systems with Altair?

Terry:  Well I think that I addressed this in the prepared portion of my remarks.  What we built was a one-off, very rapid prototype.  In those situations the costs for building that are very high.  And we are working with AES and with our own supply chain to reduce the costs and to do what we call “value engineering” of that design to make it a commercially applicable design that you could then build in multiple units and not just a one-off design.  That’s a cost issue.

Barry:  OK. My next thing is: The S1 filing with the SEC by A123 indicated that that they received an order from AES for 5 battery systems to be shipped when A123 completes a successful pilot.  How does A123’s battery compare with Altair?

Terry:  It’s, of course, a completely different chemistry than what we have.  Ours is lithium titanate on the anode and theirs is an iron phosphate on the cathode.  The performance characteristics/response characteristics are different and the life cycle characteristics will be different as well.  We believe that our life cycle for our battery system is considerably longer than that for the A123 system.  We welcome their participation in this market.  That validates that the market is real.  But we have to wait and see if they’re successful in putting this together.  If you look at, dimensionally, an A123 system right now their primary product is what’s called a 26650 cell which is about the size of a D cell consumer battery – a little bit larger than that. And for a one megawatt battery that’s going to take 900,000, or so, of those which consequently means 1.8 million welds per megawatt.  That’s a significant difference over what we have just from a manufacturing perspective.

Barry:  I had another question and I can’t find it. Damn it. OK. I had written them all down because I couldn’t get through earlier. Alright I guess that will be fine for now.  Thank-you.

Operator: And our next question is from Kenneth Young.

Terry: Ok, Kenneth?

Ken:  Hi.  How are you guys doing?

Terry: Very well, thank-you.

Ken:  As one who is not particularly steeped in battery technology I have to bring this down to simple minded stuff.  I’d like to come back to the GM Volt for a moment if you don’t mind.  As everyone, I’m sure, is aware, they’ve been blanketing the air waves with their advertising of the Volt and particularly the big hook is that they can get 40 miles initially on a charge without any gas at all.  Is that below, or above, the parameters that you’d expect from an Altair battery pack?

Terry:  Well, that’s difficult to say because each vehicle will require its own battery design.  Each vehicle has a limited amount of space, of volume, for the battery and, at the end of the day, you want to stuff as much in there as you possibly can.  I think that the real question is: Is forty miles, on an electric charge, going to be sufficient to draw in consumers?  And that, by the way, that’s forty miles in a “no headwind” situation and no hills and more or less in a perfect environment.  Applaud them for going there and hope they’re successful.  Again, that’ll validate the industry.

Ken:  Well seeing that the Phoenix is showing much better characteristics than that…

Terry: Well recognize that the Volt is really a hybrid system.  It’s not an all-electric vehicle.

Ken:  No, I understand.  I understood that but still if you’re going to start out all-electric whether you go to a hybrid or not after a while the Phoenix Motor vehicles are supposed to do much better than that.

Terry: Certainly much better on an all-electric basis but, again, that’s not what the Volt is trying to do, and I’m not going to sit here and defend GM, but it’s a hybrid application. They do have a gas engine in there. It’s a very small one.  But your total range for that vehicle is going to be considerably more than forty miles it’s just that much of it will be on gas and, it’ll all be on electric, but you have the gasoline motor charging the battery while the battery is running the car.  The hybrid system… they really aren’t comparable in the way that you’re trying to do it.  At the end of the day the consumer’s going to have to make the decision on which they prefer.

Ken: OK. Am I correct that you’re primary raw material is lithium?

Terry:  It’s a lithium-based system.  Yes.  Lithium titanate.

Ken:  In the last year there’s been a huge variation in the price of hard commodities. Oil. Coal. You name it. You know. Steel. Whatever. It went way up. Copper went way up then, of course, it crashed down.  Does this valuation in hard commodities affect your input costs at all?

Terry:  If you use the claim “at all” yes, of course it does, but it’s not a significant issue at this time.

Ken:  The other thing is that it seems that lithium ion batteries, in whatever guise, are proliferating.  Is that going to create a problem as far as the supply of lithium?

Terry:  There’s an awful lot of lithium available throughout the world right now.  The primary sources are coming out of South America .  There are even lithium deposits here in our home state of Nevada .  There are untold amounts of lithium, in brine, in ocean water.  So, I think that there’s plenty of lithium there for a long, long time.  It’s not unlike oil in that, depending on the value that someone can get for it, that’s how hard they’re going to go in trying to refine it…   Jill, I think we have time for one more question.

Operator: And due to time constraints I’ll now turn the call back over to Dr. Copeland.

Terry:  OK. Thanks, everybody, for your questions.  It’s always a pleasure to speak with everyone.  We’re making progress in building a strong, high growth, company and let me assure you once again that we are committed to building Altairnano in ways that will make our shareholders proud and profitable, and enhance shareholder value.  We’ll continue to lead Altairnano with an honest, ethical, strong and decisive leadership style, providing clear direction to meet our business objectives.  On behalf of the entire management team and all Altairnano employees, we would like to thank you for your time, interest and support of Altairnano.  Thank you very much.

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