UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE YEAR ENDED DECEMBER 31, ~~2015~~2016

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

Commission File No. 1-12497

ALTAIR NANOTECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	~~1-12497~~	33-1084375
(State or Other Jurisdiction of Incorporation or Organization)	~~(Commission File No.)~~	(I.R.S. Employer Identification No.)
204 Edison Way Reno, Nevada 89502-2306	Registrant’s telephone number, including area code: 775-856-2500	92882
(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(g) of the Act: ~~Common Stock, par value $.001 per share~~None

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

Yes [ ] No [X]

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

Yes [ X] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ ] No [X]

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

Yes [] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

~~Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] (Do not check if smaller reporting company) Smaller Reporting Company [X]~~1

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

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

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

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

Yes [ ] No [X]

1The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, as of the last business day of the quarter ended June 30, 2016, was approximately $4.9 million.

~~The~~As ~~aggregate market value~~ of ~~the~~May ~~voting~~15, ~~and~~2017, ~~non-voting~~there ~~common~~were ~~equity held by non-affiliates computed by reference to the price at which the common equity was last sold~~11,606,735 asshares of the ~~last~~registrant’s ~~business~~common ~~day of the quarter ended June 30~~stock, ~~2013, 2014 and 2015, was approximately~~ $~~12.~~0.001 ~~million,~~par ~~$18.6~~value ~~million~~per ~~and~~share, $4outstanding.~~9 million.~~

As of November 15, 2016, there were 11,606,735 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

ALTAIR NANOTECHNOLOGIES INC.

FORM 10-K

For ~~The~~the Year Ended December 31, ~~2015~~2016

INDEX

		Page
PART I
ITEM 1.	Business	54
ITEM 1A.	Risk Factors	1714
ITEM 1B.	Unresolved Staff Comments	3025
ITEM 2.	Properties	3025
ITEM 3.	Legal Proceedings	3025
ITEM 4.	Mine Safety Disclosures	3126
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3226
ITEM 6.	Selected Financial Data	3327
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3327
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	6636
ITEM 8.	Financial Statements and Supplementary Data	6737
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~149~~75
ITEM 9A.	Controls and Procedures	~~149~~76
ITEM 9B.	Other Information	~~150~~78
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	~~150~~79
ITEM 11.	Executive Compensation	~~157~~84
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~166~~86
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	~~169~~88
ITEM 14.	Principal Accounting Fees and Services	~~171~~89
PART IV
ITEM 15.	Exhibits, Financial Statements Schedules	~~173~~90

Explanatory Note

Altair Nanotechnologies Inc. (the “Company” and versions of “we”) is filing this ~~comprehensive~~ Annual Report on Form 10-K for the fiscal ~~years~~year ended December 31, ~~2015,~~2016 ~~2014~~(this ~~and~~“Report”) ~~2013~~in ~~and~~order ~~the~~to ~~quarterly~~comply ~~periods~~with ~~ended~~certain ~~March~~obligations ~~31,~~that ~~2015~~may ~~and~~have ~~2014,~~applied ~~June~~to ~~30,~~it. ~~2015~~On ~~and~~November ~~2014~~17, ~~and September 30~~2016, ~~2015~~the ~~and~~SEC ~~2014~~found (that the ~~“Comprehensive~~Company ~~Report”)~~had asnot ~~part~~complied ofwith ~~its~~a ~~efforts~~settlement toagreement ~~become~~and ~~current~~issued inan ~~its~~Order ~~filing~~Making ~~obligations~~Findings ~~under~~and ~~the~~Revoking ~~Securities~~Registration ~~Exchange Act~~ of ~~1934,~~Securities asPursuant ~~amended~~to Section 12(j) of the “Securities Exchange Act~~”).~~ ~~The~~of ~~Comprehensive~~1934, ~~Report~~as ~~also~~a ~~includes~~result ~~audited~~of ~~annual~~which ~~financial~~the ~~statements~~registration ~~for~~of the ~~year~~common ~~ended~~stock ~~December~~of ~~31,~~the ~~2012~~Company ~~and~~under ~~unaudited~~Section ~~quarterly~~12 ~~financial~~of ~~statements for~~ the ~~periods~~Exchange ~~ended~~Act ~~March~~was ~~31,~~revoked. ~~2013~~Except ~~and~~as ~~2012,~~otherwise ~~June~~required ~~30, 2013~~ and ~~2012~~permitted, asthe ~~well~~Company asdoes ~~September~~not ~~30,~~expect ~~2012,~~to ~~which~~file ~~has~~additional ~~been~~periodic ~~previously filed~~reports.

This Comprehensive Report does not include financial statements as of, and for the period ending, September 30, 2013; due to the notice of non-reliance filed for the third quarter of 2013. Although we have regularly made filings through current reports on Form 8-K when deemed appropriate, this Comprehensive Report is our first periodic filing with the Securities and Exchange Commission (the “SEC”) since the filing of our quarterly report on Form 10-Q for the quarter ended September 30, 2013.

Note About Forward-Looking Statements

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

PART I

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

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

ITEM 1: BUSINESS

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

Since 2012, we have focused on launching our operations in China. Starting in late 2016, we sell our products primarily from China, and all products originate from China. We formed Altair China in China, which in turn formed a wholly owned subsidiary, Northern Altair, to serve as our China-based operating entity. We rely on our key advantage in the market, our proprietary nano lithium titanate (“nLTO”). By increasing manufacturing output and selling nLTO material and battery modules made with our nLTO, we expect the Company’s revenue to increase. In July 2013 we entered into a supply purchase agreement for two thousand tons of generation 2 nLTO with Hebei Yinlong New Energy Co., Ltd. (“Hebei Yinlong”), an affiliate of the majority shareholder of the Company, and have delivered nLTO according to this agreement for the past few years.4

In Since ~~2013~~2012, we ~~transferred~~have ~~the~~focused ~~production~~on oftransitioning our ~~nLTO~~operations ~~material~~from to the ~~New~~United ~~Energy~~States ~~Industrial~~to ~~Park in Wu’an city, Hebei province,~~ China. WeAs ~~built, installed and further improved the manufacturing~~ of ~~our~~December ~~nLTO. In 2013~~31, ~~a 150 metric ton per year manufacturing line was completed and put into production as our phase one nLTO production line. In the same year~~2016, ~~to meet the high demand of Lithium batteries in the China market,~~ we ~~completed~~have the business process of sourcing the equipment to be procured for the phase two nLTO production line, under the joint efforts of the Altair U.S. and Altair China teams. This nLTO line was put into production in ~~fourth~~place ~~quarter of 2015 and has reached an annual production capacity of 2,250 metric tons during 2016, with an expected annual capacity of 3,000 metric tons. We built~~ a phase three nLTO production line ~~and it was completed and installed in the fourth quarter of 2016~~ with an annual production capacity of 3,500 metric tons.

OnWe ~~January~~do 6,not ~~2013,~~currently ~~Northern~~manufacture ~~Altair~~our ~~entered~~batteries, ~~into~~but anour ~~agreement~~Original ~~(the~~Equipment ~~“2013~~Manufacturer ~~Wu’an Agreement~~(“OEM”) ~~with~~cell Wuproducer’ans ~~Municipal~~capacity ~~People’s~~can ~~Government~~reach ~~(“Wu’an”)~~70,000 ~~with~~Altair ~~respect~~format tocells per year. Sometime in the ~~purchase~~future, we expect to validate another OEM cell producer to reduce dependency on one supplier, which we expect will provide competition between suppliers and ~~sale~~reduce our costs. We also have in place two operational battery module production lines with a total capacity of ~~165~~approximately ~~Electric~~6,000 ~~Buses~~modules ~~(“EV~~per ~~Buses”)~~year. InAs ~~2015~~of the date of this Report, we ~~delivered~~manufacture 28all EVof ~~Buses~~our toproducts ~~the~~in ~~Wu’an~~China ~~government.~~and sell all of our products from China.

InBy ~~January~~building ~~2014, our Board of Directors approved plans to consolidate all US~~ manufacturing ~~operations~~ and ~~transition~~assembly ~~manufacturing~~facilities toin Wu’an, China. Infor ~~the U.S., we are maintaining some of~~ our ~~core~~nLTO ~~R&D personnel~~material, ~~who~~modules ~~provide technical transfer~~ and ~~services~~soon to our ~~China~~energy ~~entities~~storage ~~in the areas of core R&D~~systems, ~~engineering~~we ~~operational~~have ~~capabilities~~centered ~~and~~the ~~technologies~~whole ~~that~~supply ~~influence~~chain ~~our manufacturing~~ in ~~Wu’an,~~ China. ~~Effective~~In inadopting ~~early~~this ~~2016~~strategy, ~~the~~we ~~majority~~expect ofto ~~our principal assets and operations are now located in China.~~ achieve:

On■ ~~May~~Reduction ~~13,~~of ~~2014,~~production Northern Altair and Handan City Public Transportation, a state owned enterprise, entered into an EV Bus sale agreement for 200 EV Buses equipped with high efficiency lithium batteries which have been manufactured with Altair’s nLTO materials. costs

In■ ~~2014~~Better ~~and~~quality 2015, we delivered the contracted 200 EV Buses to Handan City Public Transportation. In 2014 and 2015, we have reported EV Buses income and costs in other income and expense for EV Buses sold to the China local governments. control

In■ ~~2014,~~Decreased inshipping ~~order~~costs todue further cut the cost of our products, improve product chain management efficiencies, and effectively serve the large market in China, we built two battery module production lines with a total capacity of approximately 6,000 modules per year. In the first quarter of 2016, we transferred the U.S. module production line to ~~China.~~all ~~We are expecting the three battery module~~ production ~~lines~~facilities tobeing ~~reach~~located ain ~~total~~one ~~capacity~~central ~~of 9,000 modules per year during the fourth quarter of 2016.~~ location

We■ ~~have~~Centralized ~~completed~~management ~~the~~control ~~technology~~ and ~~production~~internal validation of our Gen 4 modules with China produced nLTO and China made module parts. The Gen 2 modules will still be available in 2016. Both Gen 2 and Gen 4 products have passed the United Nations (“UN”)communications, ~~International Standards Organization (“ISO”), SAE International (“SAE”)~~ and International Electrochemical Commission (“IEC”) testing and reports are being generated by TÜV SÜD (“TUV”). TUV, a German based company, has a test facility in China and results are generally accepted by the UN and U.S. In December 2015, our battery module production line in the U.S. was discontinued. We were able to maintain a very stable period of time overlapping production while transferring the battery module production from the U.S. to China, without any impact on customer order delivery. Our battery modules have been generally used in EV Buses, trolley buses and hoisting equipment in the Europe and the U.S markets. Our OEM cell producer’s capacity can reach 70,000 Altair format cells per year. Sometime in the near future, we expect to validate another OEM cell producer to reduce dependency on one supplier, which will provide competition between suppliers and reduce costs for Altair.

5■ Centralized sales management

We plan on building and validating ALTI-ESS (Energy Storage System) production capabilities in China and exporting them to Europe, the U.S. and to other countries of the world.

We now have a battery management system (“BMS”) distribution center in Europe to provide improved efficiency and timely delivery of our supply of the BMS units to our European customers. Our BMS supplier has a production base in China, which we believe will meet the demand of the China market.

By building manufacturing and assembly facilities in Wu’an, China for our nLTO material, battery cells and modules, and soon our energy storage systems, we have centered the whole supply chain in China. In adopting this strategy, we expect to significantly reduce costs, shorten lead times, reduce cash flow pressures, improve the quality and production management efficiency and increase our profit.

Primary Market Areas

China Market

InOur ~~September~~primary ~~2014,~~business ~~management~~in ~~reviewed~~the ~~its~~China ~~operations~~market is to sell our nLTO to Hebei Yinlong New Energy Co., LTD (“YLE”) and ~~strategies~~Zhuhai Yinlong New Energy Co., LTD (“ZYLE”) for use by YLE and ~~concluded~~ZYLE ~~the~~in ~~focus~~their ~~was~~production batteries to ~~continue~~be toused ~~maintain~~in ~~and~~electric ~~promote~~buses ~~the~~it ~~Power~~manufactures and ~~Electric Group~~sells. ~~The~~ZYLE ~~Company~~is ~~may~~our ~~explore~~majority ~~the~~shareholder EVand ~~Bus~~YLE ~~industry.~~is a subsidiary of ZYLE.

WeIn ~~sell~~the ~~our~~electric grid market, Northern Altair won a bid for a nLTO tobattery ~~our~~module ~~affiliated~~rack ~~company~~system ~~Hebei~~designed ~~Yinlong,~~specifically ~~which~~for ~~uses~~a China State grid 2MW Solar-wind ESS demonstration project. Total value is approximately $2.4 million and this project represents our ~~nLTO~~first bid won in ~~their~~the EVChina ~~Buses~~grid market. The project was completed in January 2017, subject to warranty. China has announced their “Energy Saving and New Energy Auto Industry Development Plan (2012-2020)" issued in 2012 which weprovides: ~~have~~by ~~purchased~~2020, China aims to achieve manufacturing capacity of pure electric car and ~~then~~plug-in ~~sold~~hybrid car for 2 million sets, and the accumulative output and sale of these cars exceeds 5 million sets. The development of fuel cell car and automotive hydrogen energy industry will be in sync with the international society. China announced their “Energy Development Strategic Action Plan (2014-2020)” ~~and~~in ~~2015~~2014. By 2020, China aims to control its primary energy consumption under 4.8 billion tons standard coal to limit greenhouse gas emissions, increase the ~~Wu’an~~share ~~City~~of non-fossil fuels to at least 15% of primary energy consumption, natural gas to more than 10%, and ~~Handan~~restrict ~~City~~coal to beneath 62%. China is investing huge amounts of money to support new energy projects, aims to achieve installed wind power capacity of 0.2 billion KW, installed photovoltaic capacity of about 0.1 billion KW, and geothermal energy usage for 50 million tons of standard coal by 2020.

Meanwhile, in the electric grid market, Northern Altair won a bid for a nLTO battery module rack system designed specifically for a China State grid 2MW Solar-wind ESS demonstration project. Total value is approximately $2.4 million and this project represents our first bid won in the China grid market. The project is expected to be completed in 2016.China has announced their “Energy Saving and New Energy Auto Industry Development Plan (2012-2020)" issued in 2012 which provides: by 2020, China aims to achieve manufacturing capacity of pure electric car and plug-in hybrid car for 2 million sets, and the accumulative output and sale of these cars exceeds 5 million sets. The development of fuel cell car and automotive hydrogen energy industry will be in sync with the international society. China announced their “Energy Development Strategic Action Plan (2014-2020)” in 2014. By 2020, China aims to control its primary energy consumption under 4.8 billion tons standard coal to limit greenhouse gas emissions, increase the share of non-fossil fuels to at least 15% of primary energy consumption, natural gas to more than 10%, and restrict coal to beneath 62%. China is investing huge amounts of money to support new energy projects, aims to achieve installed wind power capacity of 0.2 billion KW, installed photovoltaic capacity of about 0.1 billion KW, and geothermal energy usage for 50 million tons standard coal by 2020. We plan to develop further our China market.

European Market

●Our EVmarketing ~~Bus:~~and ~~Hybricon~~sales effort in ~~Sweden,~~the aEuropean ~~Swedish~~market ~~public~~are ~~company,~~focused ~~produces~~on athe ~~high~~transportation ~~standard EV Bus incorporated with our nLTO battery modules~~industry. InExamples ~~their~~of ~~EV Buses,~~ our ~~modules~~customers ~~operate~~include inthe ~~-30+°C winter environment in Sweden. In addition, there are some traditional EV Bus conversion companies also using our batteries.~~following:

●■ ~~Trolley~~Electric ~~bus:~~Bus We(“EV ~~sell~~Bus”): ~~nLTO~~Hybricon ~~battery modules~~ in ~~three Middle Europe countries: Czech Republic~~Sweden, ~~Slovakia~~a ~~and~~Swedish ~~Poland.~~public ~~We provide nLTO battery modules to Skoda~~company, ~~Ekowa~~produces ~~Electric~~a ~~and~~high ~~Solaris~~standard EV Bus &incorporated ~~Coach~~with ~~S.A. Since 2014,~~ our nLTO battery modules. ~~have~~In ~~been~~their ~~successfully~~EV ~~operating in transportation vehicles~~Buses, ~~all~~our ~~produced~~modules byoperate ~~middle European producers: 6 Trolley buses~~ in ~~Castellón;~~-30+°C 2winter ~~Trolley~~environment ~~buses~~ in ~~Cagliari;~~Sweden. 12In ~~Trams~~addition, inthere ~~Konya;~~are 1some ~~Tram~~traditional ~~in Beijing; 1 tram and 1 pure~~ EV Bus inconversion ~~Pearson;~~companies ~~and~~also 2using ~~trolley~~our ~~buses in Zlin~~batteries.

●■ ~~Port~~Trolley ~~container~~bus: ~~handling~~We ~~machine:~~sell ~~Cargotec~~nLTO battery modules in ~~Finland,~~three isMiddle aEurope ~~subsidiary~~countries: ~~company~~Czech ofRepublic, ~~Kalmar~~Slovakia ~~the~~and ~~world~~Poland. ~~leader~~We ofprovide ~~port~~nLTO ~~handling~~battery ~~solutions.~~modules ~~Our~~to ~~batteries~~Skoda, ~~have~~Ekowa ~~been~~Electric ~~successfully~~and ~~used~~Solaris inBus ~~their~~& ~~hybrid~~Coach ~~systems~~S.A. ~~and~~Since ~~machines~~2014, ~~which~~our ~~are~~nLTO ~~used~~battery inmodules ~~the~~have ~~development~~been ofsuccessfully ~~their~~operating ~~pure~~in ~~electric~~transportation ~~power~~vehicles, ~~systems.~~all ~~Cargotec~~produced ~~signed~~by ~~long~~middle ~~term~~European ~~purchase~~producers: ~~agreement~~6 ~~with~~Trolley ~~Altair~~buses in ~~2013,~~Castellón; ~~for~~2 aTrolley ~~period~~buses ofin 3Cagliari; ~~years~~12 ~~and~~Trams ~~thereafter~~in ~~for~~Konya; 1 ~~year~~Tram atin aBeijing; ~~time~~1 ~~under~~tram ~~the~~and ~~terms~~1 pure EV Bus in Pearson; and ~~termination~~2 ~~provisions~~trolley ofbuses ~~the~~in ~~agreement~~Zlin.

~~The~~■ EUPort ~~announced~~container ahandling ~~“2020~~machine: ~~Energy~~Cargotec ~~Strategy”~~ in ~~2010. By 2020~~Finland, ~~the~~is EUa ~~aims~~subsidiary tocompany ~~reduce~~of ~~its~~Kalmar ~~greenhouse gas emissions by at least 20%, increase~~ the ~~share~~world ofleader ~~renewable energy to at least 20%~~ of ~~consumption,~~port ~~and~~handling ~~achieve energy savings of 20% or more~~solutions. ~~All~~Our EUbatteries ~~countries~~have ~~must~~been ~~also~~successfully ~~achieve~~used ~~a 10% share of renewable energy~~ in their ~~transport~~hybrid ~~sector.~~systems ~~The~~and EUmachines, iswhich ~~investing~~are ~~huge~~used ~~amounts~~in ofthe ~~money~~development toof ~~support~~their ~~new~~pure ~~energy~~electric ~~projects~~power ~~in EU countries~~systems. ~~Many~~Cargotec ~~new~~signed ~~energy~~long ~~companies~~term orpurchase ~~research~~agreement ~~institutes~~with ~~will~~Altair ~~get~~in ~~funding~~2013, ~~from~~for ~~the~~a ~~strategy.~~period ~~The amount~~ of ~~capital~~3 ~~available~~years toand ~~companies~~thereafter infor ~~the~~1 ~~industry~~year ~~has~~at ~~increased~~a ~~and~~time isunder ~~helping to lead~~ the ~~new~~terms ~~energy~~and ~~industrialization.~~termination ~~The~~provisions ~~European market has 98%~~ of ~~Altair’s~~the ~~nLTO battery module market share~~agreement. ~~We plan to develop further our ESS market in Europe.~~

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

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

Marketing

We ~~do not advertise our products or have an in-house sales force. We~~ market our product primarily through the reputation of our products, providing samples and relationships we have generated over time. As capital becomes available, we may commence a more active marketing campaign.

Global Trends Driving Growth in Our Markets

Driver	Impact	Solution

Energy Security	Smart Grid	Batteries manage frequency regulation, reducing inefficient thermal generation


Emissions Reduction / Global Warming	Growth of Renewable Energy	Batteries manage ramping and smoothing


Variable Costs of Fossil Fuels	Electric and Hybrid Vehicles	High power batteries enable cost effective PHEV and EV with fast charging


Sustainability	Reducing dependency on lead-acid technology	Environmentally-friendly relative to lead acid

~~Certain~~Recent Achievements ~~Since~~and ~~2012~~Key Targets

Since ~~2012~~the beginning of 2016, we have ~~reached~~achieved or began focusing on the following ~~milestones~~:

■ WeIn ~~completed~~2017, ~~phase~~we ~~one~~reached ofa ~~our~~preliminary ~~facilities~~settlement ~~which were constructed~~ in ~~Wu’an, China in 2013. They include~~ our ~~nLTO~~derivative ~~material plant~~proceeding, ~~energy~~subject ~~storage~~to ~~systems~~court ~~and~~approval; ~~modules manufacturing plant and an office building. We built and completed a phase two nLTO production line construction in~~ the ~~fourth~~hearing ~~quarter~~is ofscheduled ~~2015~~for ~~and~~August ~~phase three was completed in the fourth quarter of 2016~~2017. ~~The expected annual production capacity from the three phases is 6,650 metric tons.~~

■ WeIn ~~currently have two battery module production lines in Wu’an~~2016, ~~China~~we ~~with~~built ~~a third one expected to be completed by~~ the ~~end~~new of3,500 ~~the~~metric ~~fourth~~ton ~~quarter~~nLTO ~~of 2016. The expected annual~~ production ~~capacity~~line ~~from~~equipped ~~the~~to ~~three~~produce ~~production~~in ~~lines is 9,000 modules~~2017.

■ ~~From~~In ~~2013 until late 2015~~2016, we delivered ~~six~~approximately ~~grid-scale ALTI-ESS (energy storage systems) for six customers~~1,249 ~~who~~modules ~~included~~to ~~the~~European ~~Hawaii~~clients ~~Natural~~with ~~Energy~~plans ~~Institute~~to ~~(“HNEI”)~~increase ~~and~~this ~~Hawaiian~~quantity ~~Electric~~to ~~Light Company (“HELCO”)~~3,232 ~~Vestas~~modules in Denmark, TSK Solar in Spain and Nextera, a U.S. utility company in the U.S.A based on the East Coast, HNEI/Hawaii Electric Company (“HECO”) and HNEI/Molokai Electric Company (“MECO”). All six of these systems are to becustomers ~~used for integration of renewable energy~~ in ~~addition to providing frequency regulation services~~2017.

■ InWe ~~2013,~~are wesubmitting ~~signed~~proposals ato ~~long~~customers ~~term~~Altair ~~supply~~Energy ~~agreement~~Storage ~~with~~Systems ~~Cargotec~~(“ESS””) in 2017, aas ~~Finnish~~we ~~subsidiary~~continue ~~company~~to offocus ~~Kalmar~~on developing the energy storage market for China, as well as focusing on the ~~world~~European ~~leading~~and ~~port~~American ~~handling~~market. ~~solution~~We ~~provider~~are actively responding to customer inquiries for our products and plan to sell a higher volume in 2017.

■ In ~~2014~~2016, we ~~successfully~~began ~~completed~~ the ~~design~~process ofestablishing ~~our~~a ~~Gen~~research 4and ~~nLTO~~development ~~cells.~~team ~~From~~testing ~~May~~facility ~~2015~~in China to ~~July~~carry ~~2016~~forward ~~our~~continued ~~Gen~~product 4research ~~battery cell~~ and ~~module~~development ~~validation~~to ~~occurred.~~enhance ~~The~~and ~~Gen~~control 4costs ~~technology~~even ~~offers~~further ~~significant~~for ~~improvements over~~ the ~~Gen~~products 2we ~~technology;~~already module capacity increase of 15%, module impedance decrease of 20% which decreases heat generation during charge/discharge and improves safety, specific energy (Wh/kg) increase of 10%, cycle life extended by 56%, and operating temperature range increased by 10°Cproduce.

■ OnWe ~~January~~offer 6,a ~~2013,~~range ~~the~~of ~~Company,~~products ~~through~~for ~~its~~2017 ~~wholly-owned~~including: ~~subsidiary~~nLTO powder, ~~Northern~~cells, ~~Altair~~modules, ~~entered~~packs, ~~into~~configurable ~~the~~Power-Rack ~~2013 Wu’an Agreement with Wu’an~~systems, ~~the~~and ~~total~~turn-key ~~contract~~energy ~~amount~~storage ~~was~~systems ~~$25.1~~(ESS) ~~million~~ for ~~165~~our EVtarget ~~Buses equipped with high efficiency lithium battery~~customers. NoOur EVstandard ~~Buses~~module ~~were~~size ~~delivered~~is ~~during~~24V ~~the~~70 ~~year~~Amp, ~~ended~~however ~~December 31~~higher, ~~2013~~voltages are available.

■We Onalso ~~May~~are ~~13,~~working ~~2014,~~towards ~~the~~improving ~~Company,~~and ~~through~~developing ~~its~~our ~~wholly-owned~~opportunities ~~subsidiary,~~in ~~Northern Altair, entered into~~ the ~~2014~~ESS ~~Handan Agreement~~market, ~~the~~while ~~total~~seeking ~~contract~~to ~~amount~~expand ~~was~~our ~~$44.5~~footprint ~~million~~in ~~for~~the ~~200~~European EV ~~Buses~~Bus, ~~equipped~~equipment ~~with~~handling ~~high~~machines ~~efficiency~~and ~~lithium~~ESS ~~battery~~markets.

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

■ During the year ended December 31, 2015, the Company delivered 28 EV Buses to Wu’an and 47 EV Buses to Handan and recognized revenue of $11.3 million net of the fair value of the financial guarantee provided for Handan.

Strategic plan

In 2014 and 2015, we stabilized and enlarged our nLTO, OEM cell and module production to expand our market share in 2016. We also are working towards improving and developing our opportunities in the ESS market. We are seeking to expand our footprint in the European EV Bus, equipment handling machines and ESS markets.

From late 2016 and into 2017, Altair U.S. will continue to emphasize technical support for research and development and Northern Altair, China will become the main production base for nLTO, battery modules and ESS systems. We, alone or with affiliated entities, intend to create a complete circular industrial supply chain for nLTO products.

From phase one, the capacity for nLTO production is 150 metric tons per year. For the second phase, we increased our 150 metric tons per year, up to approximately 3,000 metric tons per year in one of the facilities we have built. For the third phase, we built and completed in the fourth quarter of 2016 an additional facility fully equipped to produce an annual capacity of 3,500 metric tons. The expected annual production capacity from these three phases is 6,650 metric tons. Currently, we are building a phase four facility to produce an additional 3,500 metric tons per year.

Meanwhile, we have expanded our battery module production to three lines for a capacity of up to 9,000 modules per year and we are expecting to develop ESS system assembly lines with greater capacities than previously provided in the U.S.A. It is a strategic product supply change with all of the production facilities in Wu’an, China. The potential advantages of this transformation are:

● Reduction of production costs

● Better quality control

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

● Centralized management control and internal communications

● Centralized sales management

In late 2016 and into 2017, we will focus on developing the energy storage market for China, as well as focusing on the European and American market.

Primary Products and Target Energy Markets

Primary Products

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

We ~~manufacture~~offer a range of products for 2017 including: nLTO powder, cells, modules, packs, configurable PowerRack systems, and turn-key energy storage systems (ESS) for our target customers. WeOur ~~produce~~standard ~~modules~~module insize is 24V, ~~36V,~~however ~~and~~higher ~~48V~~voltages ~~sizes~~are ~~industrial and transportation systems, including with a configurable industrial PowerRack system~~available.

Target Energy Related Markets

Transportation (Commercial Vehicles)

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

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

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

Electric Grid

Globally, electric utilities and power generation companies seek to maintain high levels of grid stability while seeking cost effective ways to accurately match electricity generation with demand. Essentially, there is no inventory of electricity; demand and generation must match. While the industry is capable of doing this from hour to hour, variations in load and demand from minute to minute cannot be accurately forecasted. When imbalances occur, the frequency (60 Hz in the U.S) can vary and must be balanced within very tight tolerances. Maintaining these tolerances is typically achieved through the use of auxiliary generators. If the load is either higher or lower than the power being generated, an auxiliary generator is either started or stopped. However, it takes these generators from generally five to 15fifteen minutes to ramp up to full efficient operation or to shut down. During that period, the load may change directions and the grid operator then must direct another auxiliary generator to shut down or ramp up. This is a very inefficient process with the grid operators constantly chasing a variable load. The process of managing these very short-term changes in energy demand is referred to as “frequency regulation.” The chart below depicts what a typical workday in the PJM Regional Transmission Organization that manages the electric grid in the Mid-Atlantic States region looks like and how our battery can help smooth out the fluctuations.

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

Utilities can address frequency regulation issues by maintaining on-line generating capacity at a level that is always higher than expected peak demand; however this can be an expensive solution, particularly where natural gas, diesel and other alternative fuels are not affordable alternatives. Most U.S. utilities are required to maintain between 1% - 1.5% of their peak load capacity to provide frequency regulation. As an example, for the PJM Regional Transmission Organization, this requirement translates into a 900 megawatt daily requirement. In many foreign countries where the electric grid is not as well developed as it is in the U.S., utilities need to reserve up to 5% or more of their capacity strictly to provide frequency regulation.

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

The need for a fast response energy storage technology, like our large-scale nLTO ~~battery~~ESS, is increased by the accelerated use of renewable energy sources. Photo Voltaic (PV) solar and wind power generation by nature are intermittent and unpredictable sources of energy that can fluctuate widely in a very short period of time. For example, it is not uncommon for a PV array to fluctuate +/- 50% in less than 90 seconds. With a small rooftop array, it isn’t an issue, because the size of the generator is too small to matter. However, with a 50+ megawatt array, problems arise as the electric grid isn’t currently built to handle this kind of a fluctuation. According to the Federal Energy Regulatory Commission, as of December ~~2013~~2016, twenty -nine states, ~~and~~ the District of Columbia and three territories require the integration of renewable energy sources into the power grid through legislated renewable portfolio standards, aswhile ~~shown~~eight instates ~~the~~and ~~following~~one ~~table~~territory have set renewable energy goals.

10Many of these states have established targets requiring the integration of renewable generation sources equal to or exceeding 25% of total generation within the next decade. California is a good case in point. California has a mandate to generate 33% of its electricity from renewable energy sources by 2020. The mandated adoption of these renewable energy sources is likely to increase the need for effective, efficient, clean energy storage technologies to provide frequency regulation services and maintain the reliability and stability of the associated electric grid systems. For example, California Assembly Bill 2514 enacted in 2010, requires the California Public Utilities Commission (CPUC) to establish energy storage procurement targets for California load serving entities in 2015 and 2020, if cost effective and commercially viable by October 2013. Implementation of AB 2514 is underway, and in February 2013, CPUC approved a long-term procurement decision and ordered Southern California Edison (SCE) to procure between 1,400 and 1,800 megawatts of energy resource capacity in the Los Angeles basin to meet long term local capacity requirements by 2021. Of this amount, CPUC required SCE to procure at least 50 megawatts from energy storage resources, as well as up to an additional 600 megawatts of capacity from preferred resources, which include energy efficiency, demand response and distributed generation, along with additional energy storage resources.

Many of these states have established targets requiring the integration of renewable generation sources equal to or exceeding 25% of total generation within the next decade. California is a good case in point. California has a mandate to generate 33% of its electricity from renewable energy sources by 2020. The mandated adoption of these renewable energy sources is likely to increase the need for effective, efficient, clean energy storage technologies to provide frequency regulation services and maintain the reliability and stability of the associated electric grid systems. For example, California Assembly Bill 2514 enacted in 2010, requires the California Public Utilities Commission (CPUC) to establish energy storage procurement targets for California load serving entities in 2015 and 2020, if cost effective and commercially viable by October 2013. Implementation of AB 2514 is underway, and in February, 2013, CPUC approved a long term procurement decision and ordered Southern California Edison (SCE) to procure between 1,400 and 1,800 megawatts of energy resource capacity in the Los Angeles basin to meet long term local capacity requirements by 2021. Of this amount, CPUC required SCE to procure at least 50 megawatts from energy storage resources, as well as up to an additional 600 megawatts of capacity from preferred resources, which include energy efficiency, demand response and distributed generation, along with additional energy storage resources. 8

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

Industrial

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

Key Features of Our nLTO Batteries

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

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

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

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

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

Sources of Supply and Raw Materials

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

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

12As of the date hereof, we have only one source for the contract manufacturing of our nLTO battery cells, which are the building blocks of our battery modules and energy storage systems. This supplier has passed our rigorous technical requirements to be as our qualified supplier. We plan over the long run to qualify more OEM suppliers to reduce our dependency on one single supplier and meanwhile create competition between suppliers and eventually reduce cost.

AsHaving ofmultiple ~~the~~qualified ~~date~~suppliers ~~hereof,~~for wecomponents ~~have~~and ~~only~~materials ~~one~~used ~~source~~in ~~for~~ the ~~contract~~manufacture ~~manufacturing~~and assembly of our ~~nLTO~~primary ~~battery~~products ~~cells,~~is ~~which~~part ~~are~~of the ~~building~~business ~~blocks~~plan ~~of our battery modules~~ and ~~energy storage systems. This supplier~~ has ~~passed~~been ~~our~~realized ~~rigorous~~for ~~technical~~many ~~requirements~~of tothe becomponents asand ~~our qualified supplier~~materials. ~~Currently~~Supplier wequalification ~~are~~for ~~planning~~additional tosources ~~qualify~~of ~~more~~components ~~OEM suppliers to reduce our dependency on one single supplier~~ and ~~meanwhile~~materials ~~create~~will ~~competition~~continue ~~between~~in ~~suppliers and eventually reduce cost~~2017.

Many of the other components and materials used in the manufacture of our nLTO battery products are readily available from multiple suppliers.

Competition

Electric Grid: A number of advanced energy storage and power electronic component producers have entered into the frequency regulation market. They include ~~A123 Systems (which was acquired by~~ Wanxiang), BYD, GS Yuasa, LG Chem, Mitsubishi, Saft, Microvast, Toshiba, Enerdel and XtremePower. As we or others continue to demonstrate traction in this market we expect to see increasing levels of competition from other suppliers and systems integrators, especially as the market rules in the U.S. and other markets move towards the acceptance of battery-based energy storage for frequency regulation. Favorable signs emerged in 2012, such as California Independent System Operator’s (CAISO) decision to adopt market changes which would reward frequency regulation resources for fast performance. CAISO now joins PJM Interconnection as the first to propose new rules which seek to comply with FERC’s Order 755, which requires pay for performance, especially for fast response resources that provide frequency regulation services. We believe that these changes are favorable for battery-based energy storage systems in general and for our nLTO battery technologies specifically, due to our unique fast response capabilities.

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

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

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

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

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

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

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

Intellectual Property

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

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

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

Research and Development Expenses

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

Our total R&D expenses were $~~0.8 million, $1.1 million, $~~3.92 million and $60.48 million for the years ended December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012; respectively, while R&D costs funded by customers were $1,920, $2,040, $1,200 and $23,000 for the years ended December 31,~~ 2015, ~~2014, 2013 and 2012,~~ respectively. Included in the R&D expenses are engineering, development and internal product innovation costs not billed to customers. From 2014 to 2015, we concentrated on stabilizing and expanding production in Wu’an, China and from 2016 and into 2017 we plan to put a large investment again into R&D in China with the support from our U.S. team.

Dependence on Significant Customers

For the year ended December 31, ~~2015~~2016, ~~Hebei~~YLE ~~Yinlong~~ (a related ~~entity~~party) and ~~TSK,~~ZYLE (a related party) were our two largest customers accounting for 4966% and 1218% of our total recognized revenues;. ~~for~~For the year ended December 31, ~~2014~~2015, Hebei Yinlong (a related ~~entity~~party), ~~Proterra LLC~~ and ~~Nanopower~~TSK, ~~a.s.~~ were our ~~three~~two largest customers accounting for 3049%, ~~19%~~ and 1612% of our total recognized revenues; and for year ending December 31, 2013, we had three major customers (1) Proterra LLC accounted for 32% of our total recognized revenues (2) Hawaiian Electric Light Company accounted for 25% of our total recognized revenues and (3) Vestas accounted for 16% of our total recognized revenues. During the year ended December 31, 2012, we recorded revenues from three major customers who accounted for 16% and 14% and 13% of our total recognized revenues; they were Alsher Titania LLC, Gen-X and Emrol; respectively.

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

~~U.S.~~ Government Regulation

Most of our current and proposed activities in the U.S. are subject to numerous federal, state, and local laws and regulations concerning machine and chemical safety and environmental protection. Such laws include, without limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response Compensation Liability Act. We are also subject to laws governing the packaging and shipment of some of our products, including our nLTO batteries. Such laws require that we take steps to, among other things, maintain air and water quality standards, protect threatened, endangered and other species of wildlife and vegetation, preserve certain cultural resources, reclaim processing sites and package potentially flammable materials in appropriate ways and pass stringent government mandated testing standards before shipping our battery products.

China Government Regulation

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

Compliance with federal, state, or local laws or regulations represents a small part of our present budget. If we fail to comply with any such laws or regulations, however, a government entity may levy a fine on us or require us to take costly measures to ensure compliance. Any such fine or expenditure may adversely affect our development.

Environmental Regulation and Liability

~~Any~~As ~~proposed~~we ~~processing~~conduct ~~and~~all of our manufacturing ~~operations~~activities in China, we are subject to the ~~United~~requirements ~~States~~of ~~will~~PRC beenvironmental ~~subject~~laws toand ~~federal~~regulations on air emission, ~~state~~waste water discharge, solid waste and ~~local~~noise. The major environmental ~~laws.~~regulations ~~Under~~applicable ~~such~~to ~~laws~~us include the PRC Environmental Protection Law, wethe ~~may~~PRC beLaw ~~jointly~~on the Prevention and ~~severally~~Control ~~liable~~of ~~with~~Water ~~prior~~Pollution ~~property~~and ~~owners~~its ~~for~~Implementation Rules, the ~~treatment,~~PRC ~~cleanup,~~Law ~~remediation~~on the Prevention and Control of Air Pollution and its Implementation Rules, the PRC Law on the Prevention and~~/or~~ ~~removal~~Control of ~~substances~~Solid ~~discovered~~Waste atPollution, ~~any~~and ~~other~~the ~~property~~PRC ~~used~~Law byon ~~us;~~the Prevention and Control of Noise Pollution. We aim to ~~the~~comply ~~extent~~with environmental laws and regulations and have been pushing ahead with the ~~substances~~authentication ~~are~~of ~~deemed~~ISO by14001 for environmental practices. We have already passed the ~~federal~~first step of the ISO 14001 appraisal and~~/or~~ ~~state~~the ~~government~~second tostep beof ~~toxic~~the orappraisal ~~hazardous~~is in process. ~~Courts~~Passing orthe ~~government~~second ~~agencies~~step ~~may~~of ~~impose~~the ~~liability~~appraisal will ~~for~~give us ISO 14001 certification. We have built environmental treatment facilities concurrently with construction of our manufacturing facilities, ~~among~~where ~~other~~waste ~~things~~air, waste water and waste solids we generate can be treated in accordance with the ~~improper~~relevant ~~release,~~requirements. ~~discharge,~~We ~~storage,~~also ~~use,~~outsource disposal, orof ~~transportation~~solid ofwaste ~~hazardous~~we ~~substances~~generate to a third-party contractor. WeCertain ~~use~~key ~~hazardous~~materials ~~substances~~used in ~~our~~manufacturing, ~~testing~~such ~~and~~as ~~operations~~cobalt ~~and~~dioxide, ~~although~~electrolyte weand ~~employ~~separators, ~~reasonable~~have ~~practicable~~proven ~~safeguards~~innocuous to ~~prevent~~worker’s ~~any~~health ~~liability~~and ~~under~~safety ~~applicable~~as ~~laws~~well ~~relating~~as the environment. We are not subject to ~~hazardous~~any ~~substances~~admonitions, ~~companies~~penalties, ~~engaged~~investigations inor ~~materials~~inquiries ~~production~~imposed by the environmental regulators, nor are ~~inherently~~we subject to ~~substantial~~any ~~risk~~claims ~~that~~or ~~environmental~~legal ~~remediation~~proceedings ~~will~~to bewhich ~~required~~we are named as defendant for violation of any environmental law or regulation. We do not have any reasonable basis to believe that there is any threatened claim, action or legal proceedings against us that would have a material adverse effect on our business, financial condition or results of operations.

15Financial Information Geographic Information about Foreign Sales

AsInformation wewith ~~conduct~~respect ~~our manufacturing activities in China, we are subject~~ to ~~the~~foreign ~~requirements of PRC environmental laws~~ and ~~regulations~~domestic onsales ~~air emission, waste water discharge, solid waste~~ and ~~noise.~~related ~~The~~information major environmental regulations applicable to us include the PRC Environmental Protection Law, the PRC Law on the Prevention and Control of Water Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Air Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution. We aim to comply with environmental laws and regulations and have been pushing ahead with the authentication of ISO 14001 for environmental practices. We have already passed the first step of the ISO 14001 appraisal and the second step of the appraisal is in process. Passing the second step of the appraisal will give us ISO 14001 certification. We have built environmental treatment facilities concurrently with construction of our manufacturing facilities, where waste air, waste water and waste solids we generate can be treated in accordance with the relevant requirements. We also ~~outsource~~presented ~~disposal of solid waste we generate to a third party contractor. Certain key materials used~~ in ~~manufacturing,~~Note ~~such as cobalt dioxide~~16, ~~electrolyte~~Geographic ~~and~~Operating ~~separators~~Information, have proven innocuous to worker’s health and safety as well as the environment. We are not subject to any admonitions, penalties, investigations or inquiries imposed by the environmental regulators, nor are we subject to any claims or legal proceedings to which we are named as defendant for violation of ~~any~~Notes ~~environmental law or regulation. We do not have any reasonable basis~~ to ~~believe~~Consolidated ~~that~~Financial ~~there~~Statements isin ~~any~~Part ~~threatened claim, action or legal proceedings against us that would have a material adverse effect on our business, financial condition or results of operations~~IV.

Financial Information about Segments and Foreign Sales

Information with respect to assets, net sales, loss from operations and depreciation and amortization for the Power and Energy Group and the All Other Division is presented in Note 13, Business Segment Information, of Notes to Consolidated Financial Statements in Part IV.

Information with respect to foreign and domestic sales and related information is also presented in Note 13, Business Segment Information, of Notes to Consolidated Financial Statements in Part IV.

Subsidiaries

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

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

Corporate History

Altair Nanotechnologies Inc. was incorporated under the laws of the Province of Ontario, Canada in April 1973 for the purpose of acquiring and exploring mineral properties. At that time, its name was Diversified Mines Limited, which was subsequently changed to Tex-U.S. Oil & Gas Inc. in February 1981, then to Orex Resources Ltd. in November 1986, then to Carlin Gold Company Inc. in July 1988, then to Altair International Gold Inc. in March 1994, then to Altair International Inc. in November 1996 and then to Altair Nanotechnologies Inc. in July 2002. In July 2002, Altair Nanotechnologies Inc. domesticated from the Ontario Business Corporations Act to Canada’s federal corporate statute, the Canada Business Corporations Act. On May 15, 2012, Altair Nanotechnologies Inc. domesticated from Canada to the State of Delaware under the Delaware General Corporation Law.

During the period from inception through 1994, we acquired and explored multiple mineral properties. In each case, sub-economic mineralization was encountered and the exploration was abandoned. Beginning in 1996, we entered into leases for mineral property near Camden, Tennessee and owned the rights to the Altair jig. Subsequently, we have terminated our leases on all of the Tennessee mineral properties and during 2009 disposed of the remaining centrifugal jigs and abandoned the applicable patents since we were unable to identify an interested party to purchase them.

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

16In July 2011, Energy Storage (China) (“EST China”), acquired 6,172,801 shares of common stock, representing 53% of the outstanding shares of common stock of Altair Nanotechnologies Inc.

InOn ~~July~~November ~~2011~~17, ~~Energy~~2016, ~~Storage~~the ~~(China)~~Security ~~(“EST~~Exchange ~~China”),~~Commission anrevoked ~~indirect~~the ~~subsidiary~~registration of ~~Canon~~our ~~Investment~~securities ~~Holding~~under ~~Ltd,~~Section ~~acquired~~12 ~~6,172,801 shares~~ of ~~common~~the ~~stock,~~Securities ~~representing~~Exchange ~~53%~~Act of ~~the~~1934, ~~outstanding~~as ~~shares~~amended. ofFollowing ~~common~~such ~~stock~~revocation, ofFINRA ~~Altair~~promptly ~~Nanotechnologies~~cancelled ~~Inc~~our stock trading symbol.

In December 2012, we completed a 1-for-6 reverse stock split. All share and per share amounts included in this filing have been restated for the effects of this reverse stock split.

Employees

Our business is currently managed by Mr. Guohua Sun, Chief Executive Officer, and Ms. Karen Werner, Interim Chief Financial Officer. For the years ended December 31, ~~2015,~~2016 ~~2014~~ and ~~2013~~2015; our U.S. operations had ~~31,~~18 30 and 4231 employees; respectively. As of December 31, ~~2015,~~2016 ~~2014~~ and ~~2013~~2015, our China operations had ~~598~~1,107 ~~254~~ and ~~240~~598 employees; respectively. During ~~2016~~2017, we anticipate additional hiring, although this is dependent upon business volume growth and demand for our products. During 2016, we hired additional employees in China primarily in operations, engineering, research & development and sales & marketing. ~~This is dependent upon business volume growth and demand for our products.~~

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

Available Information

We file annual, quarterly and current reports and other information with the SEC. These materials can be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials may also be obtained by mail at prescribed rates from the SEC’s Public Reference Room at the above address. Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s Internet site is www.sec.gov. In addition, we provide electronic or paper copies of our filings free of charge upon request.

ITEM 1A. RISK FACTORS

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

We may continue to experience significant losses from operations.

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

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

As of December 31, ~~2015~~2016, we had approximately $20.18 million in cash and cash equivalents, $0.2 million in restricted cash and approximately $708.506 million in debt coming due during ~~2016.~~2017 ~~Restricted cash~~ and ~~Term Deposit of~~ approximately $2537.695 million ~~serves~~payable asin ~~collateral for short-term loans~~ and ~~trade~~after ~~acceptance bills~~2018. We expect that in the future we will again need to raise capital. With respect to any such capital raise, we may be unable to raise the amount of capital needed and may be forced to pay an extremely high price for capital. Factors affecting the availability and price of capital may include the following:

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

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

●■ ~~the~~our ~~price~~financial results, ~~volatility~~particularly ~~and~~the ~~trading~~amount ~~volume~~ of ~~our~~revenue ~~shares~~we ofare ~~common~~generating ~~stock~~from product sales;

●■ the market's perception of our ~~financial~~ability ~~results,~~to ~~particularly~~execute ~~the~~our ~~amount~~business ofplan ~~revenue~~and weany ~~are~~specific ~~generating~~projects ~~from~~identified ~~product~~as ~~sales~~uses of proceeds;

●■ ~~the market's perception of~~ our ~~ability~~ownership tostructure ~~execute our business plan~~ and ~~any~~recent ~~specific~~or ~~projects~~anticipated ~~identified as uses of proceeds~~dilution;

~~● our ownership structure and recent or anticipated dilution;~~14

●■ the amount of our capital needs;

●■ our project investment requirements in China;

●■ the amount of our outstanding debt;

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

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

●■ ~~volume limitations on~~ the ~~use~~absence of ~~our~~public ~~shelf~~information ~~registration~~about ~~statement~~our company;

●■ the ~~market's~~ perception by potential investor of our company and companies in our line of business; and

●■ the economics of projects being pursued.

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

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

As of December 31, ~~2015~~2016, we had approximately $708.506 million in debt that will come due in the next twelve months and approximately $37.95 million payable in and after 2018. This debt is secured by ~~restricted~~machinery ~~cash,~~and ~~short-term investments~~equipment, land use rights in China, third party guarantee, related party guarantee, ~~note receivable from a related party,~~ and our building in Reno, Nevada. We do not have sufficient capital to repay such debt. If we are unable to refinance this debt, or otherwise raise sufficient capital to repay this debt, we will default. If we are in default, our creditors have a broad range of remedies, including taking action against the collateral. A default on our indebtedness, particularly that secured by our land use rights in China, would likely lead to our insolvency and a bankruptcy or similar event. In such a context, it is unlikely that there will be any amount available for distribution to its shareholders.

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

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

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

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

~~The~~Fluctuation ~~ultimate~~in ~~parent~~the value of ~~EST~~the ~~China~~RMB ~~has~~may ~~announced~~have ~~its intention to sell its business and holdings to Gree Electric Appliances Inc., or Gree,~~ a ~~major~~material ~~Chinese~~adverse ~~air~~effect ~~conditioner~~on ~~manufacturer.~~your ~~We have no basis for knowing how and to the extent Gree will exercise influence over our company and our Board of Directors~~investment.

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

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

In light of our status as a public company and our lines of business, we are subject to a variety of laws and regulatory regimes in addition to those applicable to all businesses generally. For example, we are subject to the reporting requirements applicable to United States reporting issuers, such as the Sarbanes-Oxley Act of 2002 and certain other securities laws. We are also subject to Delaware corporate laws and state and federal environmental, health, safety and similar laws. Such laws and rules change frequently and are often complex. In connection with such laws, we are subject to periodic audits, inquiries and investigations. Any such audits, inquiries and investigations may divert considerable financial and human resources and adversely affect the execution of our business plan. 15

18In light of the ownership structure of our company and our lines of business, we are subject to a variety of laws and regulatory regimes in addition to those applicable to all businesses generally. For example, we were a reporting company registered under Section 12 under the Securities Exchange Act but were delisted in 2016 for failing to timely file our annual, quarterly and other reports. Such delisting does not eliminate our obligation under Section 12 under the Securities Exchange Act to be a registered and reporting issuer due to the amount of our assets and the number of our stockholders. We are currently not in compliance with such registration obligation. The absence of such registration will limit our ability to raise capital and leaves us vulnerable to regulatory and shareholder laws suits. If we attempted to re-register under the Securities Exchange Act, we would expect to be subject to an extended review by the staff at the SEC. We are also subject to Delaware corporate laws and state and federal environmental, health, safety and similar laws. Such laws and rules change frequently and are often complex. In connection with such laws, we are subject to periodic audits, inquiries and investigations. Any such audits, inquiries and investigations may divert considerable financial and human resources and adversely affect the execution of our business plan.

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

Without limiting the generality of the foregoing, as described in Item 3 of the Comprehensive Report, as a result of issues with our internal controls and our related failure to file reports required under the Exchange Act, we were delisted from the Nasdaq Stock Market and have been subject to direct, derivative, regulatory and other investigations and lawsuits. This has harmed the price of our common stock, our ability to raise capital, our ability to sign agreements with customers and suppliers, our ability to retain key employees and hire replacement employees and other aspects of our business.

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

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

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

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

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

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

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

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

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

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

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

Such difficulties may continue in the future. Any failure to maintain controls, institute business practices or accurately collect information may have an effect on the efficiency of our business and could lead to a restatement, a regulatory action ~~(including delisting from an exchange~~ or ~~trading market) or~~ a legal action, in addition to our inability to gain the trust of customers and suppliers. ~~In addition, our international efforts may divert management attention and consume a significant amount of capital without anticipated results.~~

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

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

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

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

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

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

The legal system in China is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could harm our business operations and financial condition. In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty. Furthermore, the political, governmental and judicial systems in China are sometimes impacted by corruption. There is no assurance that we will be able to obtain recourse in any legal disputes with suppliers, customers or other parties with whom we conduct business.17

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

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

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

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

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

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

In July 2011, EST China acquired a majority of our outstanding shares of common stock~~; it may soon be sold to Gree~~. Having a controlling shareholder presents certain risks to us, including the following:

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

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

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

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

●■ ~~The~~This ~~majority~~concentration ~~shareholder~~of ~~controls~~ownership ~~all~~may ~~matters~~also ~~requiring approval by the shareholders~~delay, ~~including~~defer ~~any~~or ~~determination~~prevent ~~with~~a ~~respect~~change toin ~~the~~control ~~acquisition~~and orotherwise ~~disposition~~prevent ofshareholders ~~assets,~~other ~~future~~than ~~issuances~~our ofaffiliates afrom ~~material~~influencing ~~number~~our ofdirection ~~securities~~ and ~~other major transactions; and~~future.

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

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

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

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

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

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

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

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

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

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

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

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

●■ timing of delivery of our services and products;

●■ additions of new customers or losses of existing customers;

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

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

●■ costs associated with developing our manufacturing capabilities;

●■ the ~~retention~~loss of our key employees;

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

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

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

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

●■ technology and intellectual property issues associated with our products;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Continuing adverse economic conditions could reduce, or delay demand for our products.

The financial markets and general economic conditions are still relatively weak in certain geographic markets worldwide. Our products are targeted primarily at large power producers worldwide bus manufacturers and other industrial parties. Due to economic factors, companies and government agencies in some of our target markets have reduced, delayed or eliminated many research and development initiatives, including those related to energy storage. This reduction or delay in development spending by targeted key customers is hindering our development and production efforts and will continue to do so until development spending increases from current depressed levels.

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

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

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

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

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

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

2622

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

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

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

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

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

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

●■ economic conditions and capital financing and liquidity constraints;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Virtually any prior or future production of our nanomaterials and titanium dioxide pigment technology is subject to federal, state and local environmental laws. Under such laws, we may be jointly and severally liable with prior property owners for the treatment, cleanup, remediation and/or removal of any hazardous substances discovered at any property we use. In addition, courts or government agencies may impose liability for, among other things, the improper release, discharge, storage, use, disposal or transportation of hazardous substances. If we incur any significant environmental liabilities, our ability to execute our business plan and our financial condition would be harmed.

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

A majority of our directors reside outside the United States, primarily in China. As a result, investors may be unable to effect service of process upon such persons within the United States and may be unable to enforce court judgments against such persons predicated upon civil liability provisions of the U.S. securities laws. It is uncertain whether Chinese courts would enforce judgments of U.S. courts obtained against us or such directors, officers or experts predicated upon the civil liability provisions of U.S. securities laws or impose liability in original actions against us or our directors, officers or experts predicated upon U.S. securities laws.

We are dependent on key personnel.

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

We ~~may~~will not be able to issue any substantial amounts of additional shares ~~without stockholder approval~~.

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

~~The market price of our shares of common stock is highly volatile and may increase or decrease dramatically at any time.~~24

The market price of our shares of common stock is highly volatile. Our stock price may change dramatically as the result of announcements of product developments, new products or innovations by us or our competitors, uncertainty regarding the viability of our technology or our product initiatives, significant customer contracts, significant litigation, regulatory or legal issues, being delisted from an exchange, our liquidity situation, revenues or losses, or other factors or events that would be expected to affect our business, financial condition, results of operations and future prospects.

The market price for our shares of common stock may be affected by various factors not directly related to our business or future prospects, including the following:

● intentional manipulation of our stock price by existing or future shareholders or a reaction by investors to trends in our stock rather than the fundamentals of our business;

● a single acquisition or disposition, or several related acquisitions or dispositions, of a large number of our shares, including by short sellers covering their position;

● the interest of the market in our business sector, without regard to our financial condition, results of operations or business prospects;

● positive or negative statements or projections about our company or our industry, by analysts, stock gurus and other persons;

● the adoption of governmental regulations or government grant programs and similar developments in the United States or abroad that may enhance or detract from our ability to offer our products and services or affect our cost structure; and

● economic and other external market factors, such as a general decline in market prices due to poor economic conditions, investor distrust or a financial crisis.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our shares of common stock, our stock price and trading volume could decline.

The trading market for our shares of common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our shares of common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our shares of common stock would likely decline. If any analyst who may cover us cease coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial market, which in turn could cause the price or trading volume of our shares of common stock to decline.

We have never declared a cash dividend and do not intend to declare a cash dividend in the foreseeable future.

We have never declared or paid cash dividends on our shares of common stock. We currently intend to retain any future earnings, if any, for use in our business and, therefore, do not anticipate paying dividends on our shares of common stock in the foreseeable future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

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

OnThe ~~January~~Company ~~27,~~leased ~~2015~~a 70,000 wesquare ~~entered~~feet ~~into~~facility ain ~~Client~~Flagship ~~NNN~~Business ~~Lease~~Accelerator ~~(the~~Building ~~“Lease”)~~located ~~with~~at ~~Flagship~~3019 Enterprise ~~Center~~Drive, ~~Inc. Under the Lease~~Anderson, ~~the~~Indiana ~~Company~~under ~~will~~a ~~continue~~triple tonet lease ~~the~~with 70Flagship Enterprise Center,~~000~~ ~~square~~Inc. ~~feet~~The offacility ~~space~~was itused ~~currently~~for ~~occupies~~the inproduction ~~Anderson,~~of ~~Indiana.~~prototype ~~The~~batteries ~~initial~~and ~~term~~battery ofsystems. The ~~the~~lease ~~Lease~~amended ~~begins~~on ~~July~~January 127, 2015 ~~and~~will ~~expires~~expire on June 30, 2017. ~~Lease~~Any lease renewal options will be negotiated no less than six (6) months prior to the expiration of this lease. Annual rent under ~~the~~this ~~two (2) year~~ lease is $~~262,500~~0.26 million plus ~~$1,680 in~~ IT fees, ~~plus~~ utilities and maintenance. The majority of the space was used for the production of prototype batteries and battery systems until December 31, 2015. The rest of the space is used for office space to provide technical engineering and support services, primarily to our China entities. Effective May 1, 2016, wethe Company agreed to pay $~~140,000~~0.14 million as a payment to terminate ~~this~~the lease ~~with~~effective anby ~~effective~~the ~~date~~end of May ~~31,~~ 2016. WeUse ~~have been granted use~~ of the ~~office~~facility ~~space~~has ~~from~~been ~~the~~agreed ~~termination~~upon ~~date, at no additional charge,~~ until ~~the landlord finds~~ a new tenant is found. The landlord will give the Company thirty days notice at their discretion to vacate the premises. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017.

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

ITEM 3. LEGAL PROCEEDINGS

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

In re Altair Nanotechnologies ~~Securities~~Shareholder Derivative Litigation, 1:14-cv-~~07828~~09418, 1:14-cv-09958 (S.D.N.Y.): OnIn ~~September~~late ~~26,~~ 2014, atwo shareholder ofderivative ~~the~~actions ~~Company~~were filed ~~a putative class action~~ against the Company and certain of its current and former officers and directors of the Company in the United States District Court for the Southern District of New York. Altair Anwas ~~amended~~named ~~complaint~~as ~~was~~a ~~filed~~nominal ondefendant. ~~July~~The 21two cases, ~~2015.~~which ~~The~~were ~~lawsuit~~consolidated ~~alleged~~on May 15, 2015, allege violations of ~~Sections~~Section 1014(~~b) and 20(~~a) of the Securities Exchange Act of 1934, ~~based~~as ~~upon~~well ~~statements~~as ~~made~~breaches ~~between~~of ~~May~~fiduciary ~~15,~~duty ~~2013~~ and ~~September~~unjust 4,enrichment ~~2014,~~based ~~inclusive,~~on ~~regarding~~substantially the ~~Company’s~~same ~~financial~~facts ~~statements~~underlying ~~and~~the ~~internal~~putative ~~controls~~securities litigation. ~~Plaintiff~~ ~~sought~~In ~~unspecified~~July ~~monetary~~2016, ~~damages~~certain onparties ~~behalf~~executed ofa ~~the~~stipulation ~~alleged~~of ~~class~~settlement, aswithout ~~well~~defendants asadmitting ~~interest~~liability, whereby Altair agreed to adopt certain governance proposals and ~~attorney~~pay an amount not exceeding $150,000 in plaintiffs’s attorneys’ fees and ~~costs~~expenses. ofThis ~~litigation.~~initial Onstipulation ~~November~~and ~~30,~~settlement ~~2015,~~was modified following the ~~parties~~deregistration ~~executed~~of the Altair as a ~~Stipulation~~reporting ofissuer ~~Settlement,~~in ~~without~~November ~~defendants~~2016 ~~admitting~~because ~~liability. Pursuant~~certain toof the ~~Stipulation~~agreed ofto ~~Settlement,~~governance inproposals ~~exchange~~would ~~for~~not aapply ~~release~~to ~~from~~a ~~liability,~~corporation ~~defendants~~that ~~agreed~~was tonot ~~pay~~a $1reporting issuer.5 ~~million~~The tocourt beentered ~~distributed~~an ~~among~~order ~~the~~preliminarily ~~putative~~approving ~~class~~this ~~members~~modified instipulation aand ~~manner~~settlement ~~determined~~on byMarch ~~the~~8, ~~Court~~2017. . InA ~~December~~final ~~2015,~~settlement ~~the~~hearing ~~Company~~has ~~accrued~~been ~~$600,000~~scheduled for ~~the~~August ~~remainder~~10, of2017. If the ~~insurance~~settlement ~~policy~~receives ~~deductible~~final ~~and~~approval, ~~paid~~this ~~the~~action ~~liability~~will be dismissed in ~~April~~its ~~2016~~entirety. Notice ~~The~~of ~~Court approved~~ the proposed settlement ~~and~~is ~~dismissed~~available ~~the~~on ~~action~~Altair’s onwebsite. A ~~June~~summary ~~17,~~notice ~~2016.~~has also been published online.

3025

In rethe ~~Altair~~Matter ~~Nanotechnologies~~of ~~Shareholder~~Altair ~~Derivative Litigation~~Nanotechnologies, ~~1:14-cv-09418,~~Inc. ~~1:14-cv-09958~~ (~~S.D.N.Y.~~LA-4452): In ~~late~~or ~~2014,~~around ~~two~~January ~~shareholder~~2015, ~~derivative~~SEC ~~actions~~opened ~~were~~an ~~filed~~investigation ~~against~~into ~~certain~~the ~~current~~resignation ~~and~~of ~~former~~Crowe ~~officers~~Horwath ~~and~~LLP ~~directors~~(“Crowe”) ofas ~~the~~Altair’s ~~Company~~independent auditor in August 2014. As part of its investigation, the ~~United~~SEC ~~States~~issued ~~District~~several ~~Court~~subpoenas ~~for~~to the ~~Southern~~Company ~~District~~and ofits ~~New~~current ~~York. Altair~~and ~~was~~former ~~named~~officers asrelating ato ~~nominal~~Crowe’s ~~defendant.~~resignation ~~The~~and ~~two~~a ~~cases,~~Form ~~which~~8-K ~~were~~filed ~~consolidated~~by the Company on ~~May~~March 1513, 2015. On May 4, ~~allege~~2016, the SEC sent Altair a Wells Notice identifying possible violations of ~~Section~~Sections 1413(a) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 thereunder. On August 29, as2016, ~~well~~the asCompany ~~breaches~~made an offer of ~~fiduciary~~settlement ~~duty~~to ~~and~~the ~~unjust~~SEC ~~enrichment~~whereby ~~based~~it onconsented ~~substantially~~to the ~~same~~entry ~~facts~~of ~~underlying~~an order, without admitting or denying the ~~putative~~findings ~~securities~~therein ~~litigation.~~except Inas ~~July~~to ~~2016~~the SEC’s jurisdiction, ~~certain~~that ~~parties~~the ~~executed~~Company: (i) cease and desist from committing or causing violations of Sections 13(a) ~~stipulation~~and 13(b)(2)B) of ~~settlement,~~the ~~without~~Exchange ~~defendants~~Act ~~admitting~~and ~~liability,~~Rules ~~whereby~~13a-1 ~~Altair~~and ~~agreed~~13a-13 tothereunder; ~~adopt~~(ii) make certain ~~governance~~filings ~~proposals~~with the SEC by November 15, 2016 or have the registration of its securities under the Exchange Act revoked; and (iii) pay ana ~~amount~~civil ~~not~~money ~~exceeding~~penalty in the amount of $~~150~~250,000 inwithin ~~plaintiffs’~~10 ~~attorneys’~~days ~~fees~~of ~~and~~the ~~expenses.~~entry ~~The~~of ~~court~~the ~~entered~~order. Such anoffer ~~order~~of ~~preliminarily~~settlement ~~approving~~was accepted by the ~~settlement~~SEC onand ~~August~~resulted 22in a Release No. 78997 dated September 29, 2016 with respect to the same. As of the balance sheet date, ~~and~~the ~~has~~Company ~~scheduled~~did anot have reasonable estimation of settlement ~~hearing~~amount. ~~for~~In ~~January~~August 92016, ~~2017. If~~the Company paid $250,000 and deposited the ~~settlement~~funds ~~receives~~into ~~final~~escrow ~~approval,~~which ~~this~~was ~~action~~paid ~~will~~from beescrow ~~dismissed~~to the SEC in ~~its~~October ~~entirety~~2016. ~~Notice~~ ofHowever, on November 17, 2016, the ~~proposed~~SEC found that Altair had not fully complied with the settlement isagreement ~~available~~and onissued ~~Altair’s~~an ~~website. A~~Order ~~summary~~Making ~~notice~~Findings ~~has~~and ~~also~~Revoking ~~been~~Registration ~~published~~of ~~online~~Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934.

In the ~~Matter~~matter of ~~Altair~~James ~~Nanotechnologies~~Zhan v. Altairnano, Inc., ~~(LA-4452):~~Altair InNanotechnologies, orInc., ~~around~~Guohua ~~January 2015~~Sun, ~~SEC~~and ~~opened~~Andy anWei, ~~investigation~~Case ~~into~~No.: ~~the~~CV16-01674 ~~resignation~~(Second ofJudicial ~~Crowe~~District ~~Horwath~~Court ~~LLP~~for ~~(“Crowe”)~~the asState ~~Altair’s~~of ~~independent~~Nevada, ~~auditor~~Washoe ~~in August 2014~~County). As ~~part~~James ~~of its investigation~~Zhan, the ~~SEC~~former ~~issued~~CEO ~~several~~of ~~subpoenas to~~ the Company, ~~and~~has ~~its~~filed ~~current and former officers relating to Crowe’s resignation and~~ a ~~Form~~complaint ~~8-K~~against ~~filed~~Altair byNanotechnologies, ~~the Company on March 13~~Altairnano, ~~2015~~Inc. ~~On May 4~~, ~~2016,~~Andy ~~the~~Wei ~~SEC~~and ~~sent~~Guohua ~~Altair~~Sun ~~a Wells Notice identifying possible violations of Sections 13~~(a)two ~~and~~Board ~~13(b~~members)~~(2)(B)~~ ofasserting the ~~Securities~~following ~~Exchange~~claims ~~Act~~for ofrelief ~~1934~~in ~~and~~connection ~~Rules~~with ~~13a-1 and 13a-13 thereunder. On August 29, 2016,~~ the ~~Company~~termination ~~made an offer~~ of ~~settlement~~his toemployment ~~the~~in ~~SEC~~September ~~whereby~~2015: it(1) ~~consented~~breach ~~to the entry~~ of ~~an order~~contract, ~~without admitting or denying the findings therein except as to the SEC’s jurisdiction, that the Company:~~ (i2) ~~cease~~breach ~~and desist from committing or causing violations~~ of ~~Sections~~the ~~13(a)~~implied ~~and~~covenant ~~13(b)(2)B)~~ of ~~the~~good ~~Exchange~~faith ~~Act~~ and ~~Rules~~fair ~~13a-1~~dealing, and ~~13a-13 thereunder;~~ (ii3) ~~make~~fraud. ~~certain~~Because ~~filings~~Mr. ~~with~~Zhan’s ~~the~~employment ~~SEC~~agreement bycontains ~~November~~an ~~15,~~alternative ~~2016~~dispute orresolution ~~have~~clause, the ~~registration~~Company ofmoved ~~its~~to ~~securities~~compel ~~under~~alternative ~~the~~dispute ~~Exchange~~resolution. ~~Act~~On ~~revoked;~~April ~~and~~12, ~~(iii) pay a civil money penalty in the amount of $250~~2017,~~000~~ ~~within 10 days of~~ the ~~entry~~case ~~of the order. Such offer of settlement~~ was ~~accepted~~dismissed by(but ~~the~~remains ~~SEC~~subject ~~and~~to ~~resulted~~being refiled in ~~a Release No~~arbitration). ~~78997~~As ~~dated~~of ~~September 29, 2016 with respect to~~ the ~~same.~~balance Insheet ~~August 2016~~date, the Company has accrued $~~250~~100,000 ~~and~~for ~~deposited~~ the ~~funds~~insurance ~~into~~deductible ~~escrow~~with ~~which~~respect ~~was paid from escrow~~ to ~~the~~this ~~SEC in October 2016~~matter.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

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

Market Price

~~Our~~The ~~shares of~~ common stock ~~are~~of ~~currently traded on~~ the ~~OTCBB.~~Company Onis ~~September~~not ~~15,~~listed ~~2014,~~or wequoted ~~notified~~on ~~the~~any ~~Nasdaq~~market ~~Stock~~or ~~Market~~exchange ~~that~~of which the Company is ~~withdrawing~~aware. Following the ~~listing~~deregistration of ~~its~~the Company’s common stock, ~~$.001~~on ~~par~~November ~~value~~17, ~~from~~2016, which caused the ~~Nasdaq~~Company ~~Stock~~to ~~Market.~~cease ~~After~~to ~~this~~be ~~date,~~a ~~our~~reporting ~~stock~~issuer, ~~traded~~FINRA oncanceled the ~~OTCBB~~Company ~~under~~stock ~~the~~trading symbol, "which had been “ALTI”.~~" The~~ ~~following~~There ~~table~~is ~~sets~~currently ~~forth,~~no ~~during~~market for the ~~periods~~common ~~indicated,~~stock of the ~~high~~Company, ~~and~~the ~~low~~Company ~~sales~~has ~~prices~~no ~~for~~current ~~our~~plans ~~shares~~to offacilitate the common stock, astrading ~~reported~~ on ~~our~~an ~~principal~~exchange ~~trading~~or a market.

Fiscal Year Ended December 31, 2016	Low		High
1st Quarter	$	0.50	$	0.50
2nd Quarter	$	0.15	$	0.15
3rd Quarter	$	0.13	$	0.25

Fiscal Year Ended December 31, 2015	Low		High
1st Quarter	$	0.52	$	0.65
2nd Quarter	$	0.90	$	0.90
3rd Quarter	$	0.20	$	0.40
4th Quarter	$	0.03	$	0.03

Fiscal Year Ended December 31, 2014	Low		High
1st Quarter	$	4.36	$	4.47
2nd Quarter	$	3.35	$	3.66
3rd Quarter	$	0.60	$	0.74
4th Quarter	$	1.00	$	1.20

Fiscal Year Ended December 31, 2013	Low		High
1st Quarter	$	2.60	$	2.84
2nd Quarter	$	2.20	$	2.40
3rd Quarter	$	2.55	$	2.60
4th Quarter	$	3.88	$	4.09

Fiscal Year Ended December 31, 2012	Low		High
1st Quarter	$	3.61	$	3.81
2nd Quarter	$	3.00	$	3.24
3rd Quarter	$	4.20	$	4.74
4th Quarter	$	2.03	$	2.15

Outstanding Shares and Number of Shareholders

As of ~~November~~March 1531, ~~2016~~2017, the number of shares of common stock outstanding was 11,606,735 held by approximately ~~361~~191 registered holders of record.

Dividends

We do not anticipate paying dividends in the foreseeable future and currently intend to retain any future earnings to support the development and expansion of our business. The declaration and payment of dividends is subject to the discretion of our board of directors and to certain limitations imposed under Nevada statutes. The timing, amount and form of dividends, if any, will depend upon, among other things, our results of operation, financial condition, cash requirements, and other factors deemed relevant by our board of directors.26

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

Securities Authorized for Issuance under Equity Compensation Plans

We have stock option plans administered by the Compensation Committee of our Board of Directors that provide for the granting of options to employees, officers, directors and other service providers of the Company. Security holders have approved all option plans. See Note 1314 to our consolidated financial statements contained elsewhere herein this ~~Form 10-K~~Report. InWe ~~addition, as of the same date, we have~~ reserved ~~330~~1,~~555~~187,849 shares of common stock for issuance upon exercise of options that have been, or may be, granted under our employee stock option plans and ~~412,776~~there ~~shares~~are ofno ~~common~~outstanding ~~stock~~warrants ~~for~~as ~~issuance upon exercise~~ of ~~outstanding~~December ~~warrants~~31, 2016.

Recent Sales of Unregistered Securities

~~Except~~We ~~as previously reported, we~~ did not sell any securities in transactions that were not registered under the Securities Act during the years ended December 31, ~~2015,~~2016 ~~2014~~ and ~~2013~~2015.

Transfer Agent and Registrar

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

ITEM 6. Selected Financial Data.

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

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

Forward-Looking Statements

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this ~~Comprehensive~~ Report ~~on Form 10-K (this “Comprehensive Report”)~~.

This ~~Comprehensive~~ Report contains various forward-looking statements. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “likely,” “believe,” “intend,” “expect,” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations, or financial conditions, or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risk factors noted under “Risk Factors” above under Item 1A and other cautionary statements throughout this ~~Comprehensive~~ Report and our other filings with the SEC. You should also keep in mind that all forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If one or more risks identified in this ~~Comprehensive~~ Report or any other applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended.

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

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

Overview

We are a Delaware corporation that develops, manufactures and sells nano lithium titanate batteries and energy storage systems. Our nano lithium titanate battery systems offer higher power density, longer cycle life, rapid charge and discharge capabilities, a wider operating temperature range and higher levels of safety than conventional lithium-ion batteries. We target applications that effectively utilize the key attributes of our technology, and these applications can be found primarily in the electric grid, transportation (commercial vehicles), and industrial market segments.27

InWe ~~April~~are ~~2012,~~a weDelaware ~~formed~~corporation ~~Altair~~that ~~Nanotechnologies (China) Co.~~develops, ~~Ltd.~~manufactures ~~(“Altair China”)~~ and ~~Northern~~sells ~~Altair~~our ~~Nanotechnologies~~proprietary ~~Co.,~~nano ~~Ltd.~~lithium titanate (“~~Northern Altair~~nLTO”), inbattery ~~order~~modules toand ~~aggregate~~energy ~~key~~storage ~~elements~~systems. ofOur ~~our~~nLTO ~~supply~~battery ~~chain~~systems ~~and~~offer ~~expand~~higher ~~into~~power ~~the~~density, ~~Chinese~~longer ~~market.~~cycle ~~In January 2014~~life, ~~our~~rapid ~~Board~~charge ofand ~~Directors~~discharge ~~approved~~capabilities, ~~plans~~a towider ~~consolidate~~operating ~~all~~temperature ~~U.S.~~range ~~manufacturing~~and ~~operations~~higher ~~and~~levels ~~transition~~of ~~manufacturing~~safety tothan ~~Wu’an,~~conventional ~~China~~lithium-ion batteries. We ~~plan~~target toapplications ~~continue~~that toeffectively ~~retain~~utilize ~~engineering,~~the ~~research~~key ~~and~~attributes ~~development,~~of ~~sales~~our ~~and marketing~~technology, and ~~support~~these ~~capabilities~~applications incan ~~the~~be ~~U.S.~~found ~~Effective~~primarily in ~~early 2016,~~ the ~~majority~~electric ofgrid, ~~our~~transportation ~~principal~~(commercial ~~assets~~vehicles), and ~~operations~~industrial ~~are~~market ~~now located in China~~segments.

33Since 2012, we have focused on transitioning our operations from the United States to China. As of December 31, 2016, we have in place a phase three nLTO production lines for an annual production capacity of 6,650 metric tons. We do not currently manufacture our batteries, but our Original Equipment Manufacturer (“OEM”) cell producer’s capacity can reach 70,000 Altair format cells per year. Sometime in the future, we expect to validate another OEM cell producer to reduce dependency on one supplier, which we expect will provide competition between suppliers and reduce our costs. We also have in place two operational battery module production lines with a total capacity of approximately 6,000 modules per year. In the first quarter of 2016, we transferred the U.S. module production line to China which will become operational as demand increases. The three battery module production lines will be able to reach a total capacity of 9,000 modules per year. As of the date of this Report, we manufacture all of our products in China and sell all of our products from China.

InBy ~~2013,~~building wemanufacturing ~~transferred~~and ~~the~~assembly ~~production~~facilities ~~of our nLTO material to the New Energy Industrial Park~~ in Wu’an ~~city~~, ~~Hebei province,~~ China. Wefor ~~built, installed and further improved the manufacturing of~~ our nLTO. Inmaterial, ~~2013~~modules, ~~a 150 metric ton per year manufacturing line was completed~~ and ~~put~~soon ~~into production as~~ our ~~phase~~energy ~~one~~storage ~~nLTO production line. In the same year~~systems, ~~to meet the high demand of Lithium batteries in the China market,~~ we ~~completed~~have ~~the~~centered ~~business process of sourcing~~ the ~~equipment~~whole tosupply bechain ~~procured~~in ~~for the phase two nLTO production line, under the joint efforts of the Altair U.S. and Altair~~ China ~~teams~~. ~~This~~In ~~nLTO~~adopting ~~line~~this ~~was put into production in fourth quarter of 2015 and has reached an annual production capacity of 2~~strategy,~~250~~ ~~metric~~we ~~tons~~expect ~~during~~to ~~2016,~~achieve: with an expected annual capacity of 3,000 metric tons. We built a phase three nLTO production line and it was completed and installed in the fourth quarter of 2016 with an annual production capacity of 3,500 metric tons.

In■ ~~January~~Reduction ~~2014, our Board~~ of ~~Directors~~production approved plans to consolidate all U.S. manufacturing operations and transition manufacturing to Wu’an, China. We plan to continue to retain engineering, research and development, sales and marketing, and support capabilities in the U.S. The majority of our principal assets and operations are now located in China.costs

In■ ~~2014,~~Better inquality order to further cut the cost of our products, improve product chain management efficiencies, and effectively serve the large market in China, we built two battery module production lines with a total capacity of approximately 6,000 modules per year. In the first quarter of 2016, we transferred the U.S. module production line to China. We are expecting the three battery module production lines to reach a total capacity of 9,000 modules per year during the fourth quarter of 2016. control

We■ ~~have~~Decreased ~~completed~~shipping ~~the~~costs ~~technology~~due and production validation of our Gen 4 modules with China produced nLTO and China made module parts. The Gen 2 modules will still be available in 2016. Both Gen 2 and Gen 4 products have passed the United Nations (“UN”), International Standards Organization (“ISO”), SAE International (“SAE”) and International Electrochemical Commission (“IEC”) testing and reports are being generated by TÜV SÜD (“TUV”). TUV, a German based company, has a test facility in China and results are generally accepted by the UN and U.S. In December 2015, our battery module production line in the U.S. was discontinued. We were able to ~~maintain~~all ~~a very stable period of time overlapping~~ production ~~while~~facilities ~~transferring~~being ~~the~~located ~~battery module production from the U.S. to China, without any impact on customer order delivery. Our battery modules have been generally used~~ in EV Buses, trolley buses and hoisting equipment in the Europe and the U.S markets. Our OEM cell producer’s capacity can reach 70,000 Altair format cells per year. Sometime in the near future, we expect to validate another OEM cell producer to reduce dependency on one ~~supplier,~~central ~~which will provide competition between suppliers and reduce costs for Altair.~~ location

We■ ~~plan~~Centralized onmanagement ~~building~~control and ~~validating~~internal ~~ALTI-ESS production capabilities in China and export them to Europe~~communications, ~~the U.S.~~ and ~~to other countries of the world.~~

We■ ~~now~~Centralized ~~have~~sales ~~a battery~~ management system (“BMS”) distribution center in Europe to provide improved efficiency and timely delivery of our supply of the BMS units to our European customers. Our BMS supplier has a production base in China, which we believe will meet the demand of the China market.

Critical Accounting Policies

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

34Our significant accounting policies are discussed in Note 3, Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements included elsewhere in this Form10-K Report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors.

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

Foreign Currency Translation and Transactions

The consolidated financial statements are presented in U.S. Dollars. The functional currency for the subsidiaries in China is the Chinese Yuan or RMB. Assets and liabilities are translated to the reporting currency at exchange rates on the balance sheet dates, revenue and expenses are translated at average exchange rates during the period, and equity accounts are translated at historical exchange rates. ~~Any~~except ~~resulting~~for ~~translation~~the ~~adjustments~~change ~~are~~in ~~not~~retained ~~included~~earnings induring ~~determining~~the ~~net~~year which is the result of the income. ~~(loss)~~The ~~but~~cumulative translation adjustments are ~~included~~recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders' deficit. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign ~~exchange~~currency transaction gain or loss in the statements of operations.

Inventory

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

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

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

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

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

Long-Lived Assets and Impairment

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

~~Included~~During inthe ~~general~~year ~~and~~ended ~~administrative~~December ~~expenses~~31, ~~during~~2016, the Company recognized impairment loss of $0.13 million for the two EV buses delivered to Wu’an government as the application for their operating license was unsuccessful. During the year ended December 31, 2015, isthe Company incurred an impairment ~~charge~~loss of $0.65 million related to the write-down to fair market value for an asset that was leased to a customer under an operating lease. The ~~asset~~impairment was ~~sold~~to atreflect athe ~~lower~~anticipated ~~price~~loss ~~than~~on ~~net~~the ~~book~~sale ~~value~~of inthe ~~January~~leased ~~2016.~~asset Noincurred ~~impairment~~in ~~was recognized for~~ the ~~year~~subsequent ~~ended December 31, 2014, 2013, and 2012~~period.

Property, plant and equipment

Property, plant and equipment ~~held and used and held and not used~~ are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the following estimated useful lives:

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

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

Impairment

During the year ended December 31, 2015, the Company incurred an impairment of $0.65 million related to the write-down to fair market value for an asset that was leased to a customer under an operating lease. The asset was sold at a lower price than net book value in January 2016. No impairment was recognized upon estimations for the years ended December 31, 2014 and 2013.

Patents

~~Patents are related to the Company’s nanoparticle production technology and stated at cost less accumulated amortization. Amortization is recorded using the straight-line method.~~ 29

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

Land use rights

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

Revenue Recognition

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

Revenue from nLTO related product sales, ~~commercial collaborations and license fees~~ is recognized upon delivery of the product, unless specific contractual terms dictate otherwise.

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

36Revenue from ESS projects is recognized using the Completion Method under the long-term contract accounting. The Company recognizes the full amount of revenue from long-term contracts, defined as contracts longer than twelve months, upon completion, delivery and written acceptance received from the customer. All contract costs incurred are included in the balance sheet as deferred costs until the related revenue is recognized. At each reporting date, the Company reviews its long-term contracts to determine if revenue from contracts are expected to exceed the related estimated total costs. In the cases where estimated costs will exceed revenues, the Company recognizes as an expense in cost of goods sold the full amount of the estimated costs above the contract revenue value. Cash received in advance relating to the future performance of services, deliveries of products and/or long term contracts are deferred until the performance of the service is completed, the product is shipped, and/or the contract is completed and accepted by the customer.

Grant Incentives

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

Comprehensive ~~Income (~~Loss)

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

Net Loss per Common Share

Basic loss per share is computed ~~using~~by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed ~~using~~by dividing income available to common stockholders by the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental shares of common stock issuable upon the exercise of stock options and warrants. Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive. The Company had a net loss for all periods presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented were included in the computation of diluted loss per share as they were anti-dilutive. Stock options and warrants can exercise a total amount of common stock for ~~445~~20,~~820,~~484 ~~455,979, 459,423~~ and ~~667~~441,~~745~~864 shares as of December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015, respectively, were excluded from the calculations of diluted loss per share.

Income Taxes

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

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

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. ~~The Company is no longer subject to income tax examinations by tax authorities for years prior to 2009.~~

Segment reporting

Segment information is consistent with how chief operating decision maker reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Transfers and sales between reportable segments, if any, are recorded at cost.

The Company reported financial and operating information in the following two segments as of December 31, 2012:

(a) Power and Energy Group (PEG) segment — The PEG segment is the Company’s current and future focus for corporate development. The PEG segment develops, produces, and sells nLTO related battery systems & ESS systems.

(b) The All Others group consists of the remaining portions of the previous Life Sciences and Performance Materials groups.

As of September 30, 2013, Chief Operating Decision Maker decided to combine both segments into the PEG segment because resource allocation and performance assessment would be concentrated as one operating level.

Litigation Matters

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

Accrued Warranty Expense

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

Results of Operations

The following summarizes our revenue, operating expenses, and net loss for all periods presented below. ~~You should read the following in conjunction with our consolidated financial statements, including quarterly information, presented elsewhere in this Comprehensive Report.~~ The ~~Power~~Company ~~and Energy Group~~ develops, produces, sells battery systems and nLTO materials. The All Others group consists of the remaining portions of the previous Life Sciences and Performance Materials groups. At the end of 2012, Management completed a thorough review of operations and strategies and determined that it was in the best interests of the shareholders of the Company to focus primarily on the Power and Energy Group. As a result of this assessment resources devoted to the Performance Materials Group and Life Sciences Group were considerably reduced and no new development is being pursued in those areas by the Company.

38The table below sets forth line items from the Company’s audited consolidated Statements of Operations (In thousands of dollars):

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

	Years ended December 31,
	2016			2015			Increase, (Decrease)			Percentage Increase, (Decrease)

Revenues	$	54,687		$	14,278		$	40,409			283	%

Cost of goods sold		37,561			14,034			23,527			168	%

Gross profit		17,126			244			16,882			6,919	%

Operating expenses
Research and development		3,163			808			2,355			291	%
Sales and marketing		291			862			(571	)		(66	)%
General and administrative		15,655			11,709			3,946			34	%
Depreciation and amortization		1,093			1,560			(467	)		(30	)%
(Gain) loss on disposal of assets		(29	)		142			(171	)		(120	)%
Impairment expense		129			652			(523	)		(80	)%
Total operating expenses		20,302			15,733			4,569			29	%
Loss from operations		(3,176	)		(15,489	)		12,313			(79	)%

Other (expense) income
Interest (expense), net		(3,708	)		(2,533	)		(1,175	)		46	%
Gain on foreign exchange		-			1			(1	)		(100	)%
Other income-buses		21			11,419			(11,398	)		(100	)%
Other expenses-buses		-			(13,548	)		13,548			(100	)%
Other income		3,222			644			2,578			400	%
Total other (expense) income		(465	)		(4,017	)		3,552			(88	)%

Net loss	$	(3,641	)	$	(19,506	)	$	15,865			(81	)%

	Years Ended December 31,
	2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	14,278		$	6,744		$	7,534			112	%
Cost of goods sold		14,034			6,620			7,414			112	%
Gross profit		244			124			120			97	%
Operating expenses
Research and development		808			1,084			(276	)		-25	%
Sales and marketing		862			631			231			37	%
General and administrative		11,709			8,129			3,580			44	%
Depreciation and amortization		1,560			1,850			(290	)		-16	%
Loss on disposal of assets		142			92			50			54	%
Impairment expense		652			-			652			100	%
Total operating expenses		15,733			11,786			3,947			33	%
Loss from operations		(15,489	)		(11,662	)		(3,827	)		33	%
Other (expense) income
Interest (expense), net		(2,533	)		(6,142	)		3,609			-59	%
Change in fair value of warrants		5			344			(339	)		-99	%
Gain on foreign exchange		1			15			(14	)		-93	%
Other income-buses		11,419			28,275			(16,856	)		-60	%
Other expenses-buses		(13,548	)		(27,545	)		13,997			-51	%
Other income		639			764			(125	)		-16	%
Total other (expense) income		(4,017	)		(4,289	)		272			-6	%
Net loss	$	(19,506	)	$	(15,951	)	$	(3,555	)		22	%

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

~~Year~~Revenues: ~~Ended~~The consolidated revenues for the year ended December 31, ~~2015~~2016 ~~compared~~were ~~with~~$54.69 ~~Year~~million, ~~Ended~~an increase of $40.41 million or 283% from $14.28 million for the year ended December 31, ~~2014~~2015. The increase was primarily related to the China operations which is caused by a significant increase in sales of nLTO materials to related parties. The U.S. operations revenue increased minimally by $0.92 million due to recognition of two long term projects, offset by lower sales of nLTO modules and related product sales.

~~Revenues~~Cost of goods sold: The consolidated ~~revenues~~costs of goods sold for the year ended December 31, ~~2015~~2016 ~~were~~was $1437.2856 million, an increase of $723.5453 million or ~~112~~168% from $614.7403 million for the year ended December 31, ~~2014~~2015. The increase was primarily related to ~~China~~$22.93 ~~operations~~million ~~which~~significant isincrease ~~caused~~in byChina aoperations ~~significant~~due ~~increase~~to inthe increased sales of nLTO materials to related parties. The cost of goods sold in the U.S. ~~operation~~operations ~~revenue~~ increased ~~minimally~~ by $10.796 million mainly due to the recognition of adeferred costs associated with the completion of two long term ~~project~~projects, offset by lower ~~sales~~cost of goods sold for nLTO modules and related product sales, write-down of inventory sold at lower than cost and scrapped inventory.

~~Cost~~Gross ~~of goods sold~~Profit: The ~~consolidated~~gross ~~costs~~profit ~~of goods sold~~ for the year ended December 31, ~~2015~~2016 was $1417.0313 million, an increase of $716.4188 million or ~~112~~6,919% from $60.6224 million for the year ended December 31, ~~2014~~2015. The increase was primarily related to $614.2088 million significant increase in China operations due to the increased sales of nLTO. ~~The~~materials ~~cost of goods sold in the U.S. operations increased by $1.21million mainly due~~ to ~~the~~related ~~recognition~~parties ofand ~~deferred costs associated with~~ the ~~completion~~production of anLTO ~~long~~products ~~term~~reached ~~project~~economic ~~and offset by lower product costs as a result of lower product sales~~scale.

Research and development: The consolidated research and development costs decreased by $0.27 million, or 25%, to $0.81 million for the year ended December 31, 2015 from $1.08 million for the year ended December 31, 2014. The decrease was related mainly to lower salaries and benefits expense due to lower headcount at our U.S. facilities.32

39Research and development: The consolidated research and development costs increased by $2.36 million, or 291%, to $3.16 million for the year ended December 31, 2016 from $0.81 million for the year ended December 31, 2015. The substantial increase was due to $2.47 million increase in China for the research and development of storage energy vehicles. The increase was offset by slight decrease of $0.11 million due to lower salaries and benefits expense due to lower headcount at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses ~~increased~~decreased by $0.2357 million, or 3766%, to $0.8629 million for the year ended December 31, ~~2015~~2016 from $0.6386 million for the year ended December 31, ~~2014~~2015. The ~~increase~~decrease was mainly attributable to ~~the~~lower China operations ~~which~~ sales and marketing expenses ~~increased~~in ~~by $0.27 million. The increase was primarily caused by~~ advertising ~~expenses~~and ~~due to expansion in~~ marketing activities ~~during the year ended December 31, 2015~~. ~~The sales and marketing expense in the U.S. operations decreased by $0.04 million due to lower headcount in the sales team as we shifted our operation focus to China.~~

General and administrative: The consolidated general and administrative expenses increased $3.5895 million, or 4434%, to $1115.7166 million for the year ended December 31, ~~2015~~2016 from $811.1371 million for the year ended December 31, ~~2014~~2015. The increase was attributable to the China operations ~~which~~where general and administrative expenses increased ~~by $3.63 million~~ due to increased headcount in China and increased ~~legal~~professional fees ~~due~~ to ahandle the SEC investigation and ~~other~~to ~~litigations~~prepare the SEC required filings. The general and administrative expense in the U.S. operations decreased ~~by $0.05 million~~ due to the net effect of lower operating expenses as we shifted our operation focus to China.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.2947 million, or 1630%, to $1.5609 million infor ~~2015~~the year ended December 31, 2016 from $1.8556 million infor ~~2014~~the year ended December 31, 2015. The decrease was primarily related to the portion of fixed assets that were fully depreciated and ~~the~~selling ~~fixed assets scrapped during~~ the ~~year~~leased ~~ended~~fixed ~~December~~asset ~~31,~~in ~~2014~~January 2016.

(Gain) loss on disposal of fixed assets: The 2016 consolidated ~~loss~~$0.03 million gain on the disposal of fixed assets ~~increased~~was bydue ~~$0.05~~to ~~million,~~an orauction ~~54%~~held in the first half of 2016, compared to a loss on disposal of fixed assets of $0.14 million, inor ~~2015~~120% ~~from~~for ~~$0.09~~the ~~million~~year inended ~~2014~~December 31, 2015. This was primarily due to ~~less~~relatively more proceeds received on the fixed assets sold in the U.S. during the year ended December 31, ~~2015~~2016, compared to the ~~same~~year ~~period~~ended inDecember ~~2014~~31, 2015.

Impairment: The Company incurred an impairment expense of $0.6513 million ofduring the year ended December 31, 2016 for the two EV buses to be delivered to Wu’an Bus Company because the application for their operation licenses was unsuccessful. The Company incurred a $0.65 million impairment expense related to the write-down to fair market value for an asset during the year ended December 31, 2015 that was leased to a customer under an operating lease in January 2016. ~~No impairment incurred during the year ended December 31, 2014.~~

Interest (expense), net: The consolidated interest (expense), net ~~decreased~~increased to $23.5371 million for the year ended December 31, ~~2015~~2016 from $62.1453 million ~~for the year ended December 31~~, ~~2014,~~an aincrease ~~decrease~~ of $31.6117 million or 5946%, for the year ended December 31, 2015. The ~~decrease~~increase was mainly attributable to the China operations ~~which~~where interest expense ~~decreased~~increased ~~by $3.54 million~~ due to ~~the~~interest ~~aggregate~~charge ~~payoff~~on ofnew ~~$21.00~~long ~~million~~term ~~outstanding~~loans ~~loan~~obtained ~~and the capitalization of interest~~ during the ~~construction~~year ~~period~~ended ofDecember ~~new~~31, ~~fixed assets~~2016. The interest expense in the U.S. operations ~~also~~ decreased slightly by $0.071 million due to lower loan balances.

Change in fair value of warrants: The value of warrants that were previously issued were re-measured at the end of every reporting period with the change in fair value recognized as a gain or loss in our statement of operations. During the years ended December 31, ~~2015~~2016 and ~~2014~~2015, the Company recorded a gain of $51 thousand and $~~344~~5 thousand, respectively, due to the change in the fair value of the warrants. All the warrants expired in September 2016.

Gain (loss) on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were $~~1 thousand~~nil and $151 thousand during the years ended December 31, ~~2015~~2016 and ~~2014~~2015, respectively.

Other income - buses: Other income - buses decreased to $110.4202 million infor ~~2015~~the year ended December 31, 2016 from $2811.2842 million infor ~~2014~~the year ended December 31, 2015, a decrease of $1611.8640 million or 60100%. The decrease was mainly due to ~~the~~no ~~number~~bus ofsales ~~buses~~incurred ~~sold decreased to 75~~ during the year ended December 31, ~~2015~~2016, ~~from~~while ~~153~~75 buses were sold during the ~~same~~year ~~period~~ended inDecember ~~2014~~31, 2015.

Other expenses - buses: Other expenses - buses decreased to $~~13.55~~nil ~~million~~for inthe ~~2015~~year ended December 31, 2016 from $2713.55 million infor ~~2014~~the year ended December 31, 2015, a decrease of $1413.0055 million or 8100%. The decrease ~~was contributed~~is ~~by $9.20~~attributed ~~million~~to ~~decrease~~no inbuses ~~bus~~were ~~cost~~sold byin 752016 ~~buses~~as ~~sold~~compared ~~and~~to ~~$4.80~~the ~~million~~bus ~~decrease~~costs inand other expenses related to ~~buses during~~ the ~~year~~75 ~~ended~~buses ~~December~~sold ~~31, 2015 compared to same period~~ in ~~2014~~2015.

Other income: Other income ~~amounted~~increased to $03.6422 million ~~and~~for the year ended December 31, 2016 compared to $0.7664 million for the ~~years~~year ended December 31, 2015 ~~and 2014~~, respectively, aan ~~decrease~~increase of $02.1258 million or 16404%. The ~~decrease~~increase was mainly due to ~~the~~grant ~~derecognition~~incentives, ofwhich anamounting ~~accrued~~to ~~liability~~$2.80 ~~that~~million ~~resulted~~and inwas arecognized ~~gain~~as inother ~~2014.~~income ~~No similar event occurred~~ in ~~2015~~2016.

Net loss: Net loss increased by $3.56 million, or 22%, to $19.51 million in 2015 from $15.95 million in 2014. The increase in net loss was driven by an increase of $3.95 million in total operating expenses during the year ended December 31, 2015 compared to same period in 2014.33

40Net loss: Net loss decreased by $15.87 million, or 81%, to $3.64 million for the year ended December 31, 2016 from net loss of $19.51 million for the year ended December 31, 2015. The decrease in net loss was driven by an increase of $16.88 million in total gross profit and offset by an increase in total operating expenses of $4.57 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015.

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

	Three Months Ended September 30,												Nine Months Ended September 30,
	2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)			2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	1,708		$	1,462		$	246			17	%	$	5,387		$	5,125		$	262			5	%
Cost of goods sold		1,481			1,754			(273	)		-16	%		4,852			5,306			(454	)		-9	%
Gross profit (loss)		227			(292	)		519			-178	%		535			(181	)		716			-396	%
Operating expenses
Research and development		218			245			(27	)		-11	%		590			904			(314	)		-35	%
Sales and marketing		294			151			143			95	%		670			387			283			73	%
General and administrative		3,064			1,850			1,214			66	%		7,755			5,558			2,197			40	%
Depreciation and amortization		370			436			(66	)		-15	%		1,186			1,436			(250	)		-17	%
Loss (gain) on disposal of assets		-			(23	)		23			-100	%		-			82			(82	)		-100	%
Total operating expenses		3,946			2,659			1,287			48	%		10,201			8,367			1,834			22	%
Loss from operations		(3,719	)		(2,951	)		(768	)		26	%		(9,666	)		(8,548	)		(1,118	)		13	%
Other (expense) income
Interest (expense), net		(290	)		(2,031	)		1,741			-86	%		(1,886	)		(4,342	)		2,456			-57	%
Change in fair value of warrants		-			208			(208	)		-100	%		5			349			(344	)		-99	%
Gain on foreign exchange		1			-			1			100	%		-			15			(15	)		-100	%
Other income-buses		1,981			3,317			(1,336	)		-40	%		11,519			3,317			8,202			247	%
Other expenses-buses		(1,847	)		(4,852	)		3,005			-62	%		(13,666	)		(4,852	)		(8,814	)		182	%
Other income		131			146			(15	)		-10	%		495			511			(16	)		-3	%
Total other expense		(24	)		(3,212	)		3,188			-99	%		(3,533	)		(5,002	)		1,469			-29	%
Net loss	$	(3,743	)	$	(6,163	)	$	2,420			-39	%	$	(13,199	)	$	(13,550	)	$	351			-3	%

Three Months Ended September 30, 2015 compared with the Three Months Ended September 30, 2014

Revenues: The consolidated revenues for the three months ended September 30, 2015 were $1.71 million, an increase of $0.25 million, or 17% from $1.46 million for the three months ended September 30, 2014. The increase was primarily due to the operations in China which revenues increased by $0.18 million due to an increase in sales of nLTO materials to related parties. The revenues of the U.S. operations increased by $0.07 million due to increased license fees offset by lower sales of nLTO related product during the three months ended September 30, 2015.

Cost of goods sold: The consolidated costs of goods sold for the three months ended September 30, 2015 was $1.48 million, a decrease of $0.27 million or 16% from $1.75 million for the three months ended September 30, 2014. The decrease of $0.14 million in the China operations is due to the lower unit cost from increased production level. The cost of goods sold in the U.S. operations decreased by $0.13 million due to reduced module sales and no cost associated with the increased portion of revenues in license fees during the three months ended September 30, 2015 as compared to the same period in prior year.

Research and development: The consolidated research and development costs decreased by $0.03 million, or 11%, to $0.22 million for the three months ended September 30, 2015 from $0.25 million for the three months ended September 30, 2014. The decrease was related mainly due to lower salaries and benefits due to lower headcount at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses increased by $0.14 million, or 95%, to $0.29 million for the three months ended September 30, 2015 from $0.15 million for the three months ended September 30, 2014. The increase was mainly attributable to the China operations which sales and marketing expenses increased by $0.14 million. The increase was primarily caused by advertising expenses due to expansion in marketing activities during the three months ended September 30, 2015. The sales and marketing expense in the U.S. operations decreased insignificantly.

General and administrative: The consolidated general and administrative expenses increased by $1.21 million, or 66%, to $3.06 million for the three months ended September 30, 2015 from $1.85 million for the three months ended September 30, 2014. The increase was attributable to the China operations which general and administrative expenses increased by $1.33 million due to increased headcount in China. The general and administrative expense in the U.S. operations decreased by $0.12 million mainly due to scaled back operation activities as we shifted our operation focus to China.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.07 million, or 15%, to $0.37 million for the three months ended September 30, 2015, from $0.44 million for the three months ended September 30, 2014. The decrease was primarily related to the portion of fixed assets that were fully depreciated in 2014.

Gain on disposal of fixed assets: The consolidated gain on disposal of fixed assets decreased by $0.02 million, or 100%, to nil for the three months ended September 30, 2015 from $0.02 million for the three months ended September 30, 2014. The Company did not sell any fixed assets during the three months ended September 30, 2015 while during the same period in 2014, the Company received proceeds for the fixed assets sold.

Interest (expense), net: The consolidated Interest (expense), net decreased to $0.29 million for the three months ended September 30, 2015, from $2.03 million for the three months ended September 30, 2014, a decrease of $1.74 million or 86%. The decrease was mainly attributable to the China operations which interest expense decreased by $1.72 million due to most interest expenses were capitalized during the three months ended September 30, 2015 compared to same period in 2014. The interest expense in the U.S. operations also decreased by $0.02 million due to lower loan balances during the three months ended September 30, 2015 compared to same period in 2014.

Interest (expense), net: The consolidated Interest (expense), net decreased to $0.29 million for the three months ended September 30, 2015, from $2.03 million for the three months ended September 30, 2014, a decrease of $1.74 million or 86%. The decrease was mainly attributable to the China operations which interest expense decreased by $1.72 million due to the capitalization of most interest expense during the three months ended September 30, 2015 compared to same period in 2014. The interest expense in the U.S. operations also decreased by $0.02 million due to lower loan balances during the three months ended September 30, 2015 compared to same period in 2014.

Change in fair value of warrants: During the three months ended September 30, 2015, the Company did not experience a significant change in the value of warrants outstanding that were previously issued mainly due to the decrease in the stock price. During the three months ended September 30, 2014, the Company recorded a gain of $0.21 million due to the change in the fair value for warrants outstanding.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency was $1 thousand and nil for the three months ended September 30, 2015 and 2014.

Other income - buses: Other income - buses decreased to an income of $1.98 million for the three months ended September 30, 2015 from an income of $3.32 million for the three months ended September 30, 2014, a decrease of $1.34 million or 40%. The decrease was mainly due to the type of buses sold during the three months ended September 30, 2015, which had lower selling price as compared to the buses sold in same period in prior year.

Other expenses - buses: Other expenses - buses decreased to $1.85 million for the three months ended September 30, 2015 from $4.85 million for the three months ended September 30, 2014, a decrease of $3.00 million or 62%. The decrease was contributed by $2.19 million of decrease in cost of the buses sold and $0.81 million decrease in other expenses during the three months ended September 30, 2015 compared to same period in 2014.

Other income: Other income amounted to $0.13 million and $0.15 million for the three months ended September 30, 2015 and 2014, respectively, a decrease of $0.02 million or 11% due to the derecognition of an accrued liability that resulted in a gain in 2014. No similar event occurred for the three months ended September 30, 2015.

Net loss: Net loss decreased by $2.42 million, or 39%, to $3.74 million for the three months ended September 30, 2015, from $6.16 million for the three months ended September 30, 2014. The decrease in net loss was driven by a decrease in other expenses of $3.19 million, or 99%, offset by an increase in gross margin of $0.52 million for the three months ended September 30, 2015 versus the same period in the prior year, resulting mainly from our expansion in China, coupled with an increase in operating expenses of $1.29 million or 48%.

Nine Months Ended September 30, 2015 compared with the Nine Months Ended September 30, 2014

Revenues: The consolidated revenues for the nine months ended September 30, 2015 increased $0.26 million, or 5%, to $5.39 million for the nine months ended September 30, 2015 from $5.13 million for the nine months ended September 30, 2014. The increase was primarily due to the operations in China which revenues increased by $0.53 million due to an increase in sales of nLTO materials during the nine months ended September 30, 2015 as compared to the same period in the prior year. The revenues of the U.S. operations decreased by $0.27 million due to decrease in product sales during the nine months ended September 30, 2015.

Cost of goods sold: The consolidated costs of goods sold for the nine months ended September 30, 2015 was $4.85 million, a decrease of $0.46 million or 9% from $5.31 million for the nine months ended September 30, 2014. The cost of goods sold in the U.S. operations decreased by $1.05 million due to lower product sales, offset by an increase of $0.59 million in the China operations due to an increase in sales of nLTO materials during the nine months ended September 30, 2015 as compared to the same period in prior year.

Research and development: The consolidated research and development costs decreased by $0.31 million, or 35%, to $0.59 million for the nine months ended September 30, 2015 from $0.90 million for the nine months ended September 30, 2014. The decrease was related mainly to lower salaries and benefits driven by decreased headcount in the U.S.

Sales and marketing: The consolidated sales and marketing expenses increased by $0.28 million, or 73%, to $0.67 million for the nine months ended September 30, 2015 from $0.39 million for the nine months ended September 30, 2014. The increase was mainly attributable to the China operations by $0.33 million which is primarily due to the advertising expenses due to expansion in marketing activities during the nine months ended September 30, 2015. The sales and marketing expenses in the U.S. operation’s decreased by $0.05 million due to lower headcount of the sales team as we shifted our operation focus to China.

General and administrative: The consolidated general and administrative expenses increased by $2.20 million, or 40%, to $7.76 million for the nine months ended September 30, 2015 from $5.56 million for the nine months ended September 30, 2014. The increase was attributable to the China operations which general and administrative expenses increased by $2.13 million due to increased headcount and increase legal expenses related to SEC matters and other litigations. The general and administrative expense in the U.S. operations increased by $0.07 million mainly due to due to higher professional fees related to regulatory filings and offset by decrease in other general and administrative expenses due to scaled back operation activities as we shifted our operation focus to China.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.25 million, or 17%, to $1.19 million for the nine months ended September 30, 2015 from $1.44 million for the nine months ended September 30, 2014. The decrease was primarily related to the portion of fixed assets that were fully depreciated and the fixed assets sold in 2014.

Loss on disposal of fixed assets: The consolidated loss on disposal of fixed assets decreased by $0.08 million, or 100%, to nil from $0.08 million for the nine months ended September 30, 2015 and 2014, respectively. The Company did not sell any fixed assets sold during the nine months ended September 30, 2015 while incurring losses on the fixed assets sold during the nine months ended September 30, 2014.

Interest (expense), net: The consolidated interest (expense), net decreased to $1.89 million for the nine months ended September 30, 2015, from $4.34 million for the nine months ended September 30, 2014, a decrease of $2.45 million or 57%. The decrease was mainly attributable to the China operations which interest expense decreased by $2.42 million due to capitalization of most interest expenses as a result of construction being in progress during the nine months ended September 30, 2015. The interest expense in the U.S. operations also decreased by $0.03 million due to lower loan balances.

Change in fair value of warrants: During the nine months ended September 30, 2015 and 2014, the Company recorded a gain of $5 thousand and $349 thousand, respectively, due to the change in the fair value of warrants outstanding that were previously issued.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were nil for the nine months ended September 30, 2015 compared to a gain of $0.02 million for the nine months ended September 30, 2014.

Other income - buses: Other income - buses increased to $11.52 million from $3.32 million for the nine months ended September 30, 2015 and 2014, respectively, an increase of $8.20 million or 247%. This was due to 75 buses sold during the nine months ended September 30, 2015 compared to 20 buses sold in the same period in prior year.

Other expenses - buses: Other expenses - buses increased to $13.67 million from $4.85 million for the nine months ended September 30, 2015 and 2014, respectively, an increase of $8.82 million or 182%, which included an increase in cost of the buses as 55 more buses were sold and other expenses during the nine months ended September 30, 2015 compared to same period in 2014.

Other income: Other income amounted to $0.50 million and $0.51 million for the nine months ended September 30, 2015 and 2014, a decrease of $0.01 million or 3%. The consolidated other income mainly consisted of grant incentives received and recognized as other income during the nine months ended September 30, 2015. During the nine months ended September 31, 2014, the Company derecognized an accrued liability that resulted in gain, no similar event occurred in the same period of 2015.

Net loss: Net loss decreased by $0.35 million, or 3%, to $13.20 million for the nine months ended September 30, 2015, from $13.55 million for the nine months ended September 30, 2014. The decrease in net loss was driven by a decrease in other expenses of $1.47 million, or 29%, as well as by improvement in gross margin of $0.72 million during the nine months ended September 30, 2015 compared to same period in 2014. This was offset by an increase in operating expenses of $1.83 million, or 22%, for the nine months ended September 30, 2015 as compared to the same period in the prior year, resulting mainly from additional costs incurred due to our expansion in China.

The table below sets forth line items from the Company’s unaudited consolidated statements of operations (in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)			2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	1,832		$	1,874		$	(42	)		-2	%	$	3,679		$	3,663		$	16			0	%
Cost of goods sold		1,263			1,545			(282	)		-18	%		3,371			3,552			(181	)		-5	%
Gross profit		569			329			240			73	%		308			111			197			177	%
Operating expenses
Research and development		161			233			(72	)		-31	%		372			659			(287	)		-44	%
Sales and marketing		242			116			126			109	%		376			236			140			59	%
General and administrative		2,273			1,569			704			45	%		4,691			3,708			983			27	%
Depreciation and amortization		410			506			(96	)		-19	%		816			1,000			(184	)		-18	%
Gain on disposal of assets		-			(5	)		5			-100	%		-			105			(105	)		-100	%
Total operating expenses		3,086			2,419			667			28	%		6,255			5,708			547			10	%
Loss from operations		(2,517	)		(2,090	)		(427	)		20	%		(5,947	)		(5,597	)		(350	)		6	%
Other (expense) income
Interest (expense), net		(560	)		(1,291	)		731			-57	%		(1,596	)		(2,311	)		715			-31	%
Change in fair value of warrants		(1	)		183			(184	)		-101	%		5			141			(136	)		-96	%
Gain (loss) on foreign exchange		-			-			-			0	%		(1	)		15			(16	)		-107	%
Other income-buses		9,538			-			9,538			100	%		9,538			-			9,538			100	%
Other expenses-buses		(11,819	)		-			(11,819	)		100	%		(11,819	)		-			(11,819	)		100	%
Other income		131			162			(31	)		-19	%		364			365			(1	)		0	%
Total other expense		(2,711	)		(946	)		(1,765	)		187	%		(3,509	)		(1,790	)		(1,719	)		96	%
Net loss	$	(5,228	)	$	(3,036	)	$	(2,192	)		72	%	$	(9,456	)	$	(7,387	)	$	(2,069	)		28	%

Three Months Ended June 30, 2015 compared with the Three Months Ended June 30, 2014

Revenues: The consolidated revenues for the three months ended June 30, 2015 decreased $0.04 million, or 2%, to $1.83 million from $1.87 million for the three months ended June 30, 2014. The decrease was primarily due to a decrease in revenue in the U.S. operations by $0.07 million which was caused by the decrease in product sales, offset by $0.03 million of increase in revenue of the China operations which was primarily due to increased sales in nLTO materials during the three months ended June 30, 2015 compared to the same period in prior year.

Cost of goods sold: The consolidated costs of goods sold for the three months ended June 30, 2015 was $1.26 million, a decrease of $0.29 million or 18% from $1.55 million for the three months ended June 30, 2014. The decrease was primarily due to the U.S. operations decreased by $0.45 million due to lower product sales, offset by $0.23 million of increase in the China operations which is caused by increased sales in nLTO materials during the three months ended June 30, 2015 as compared to the same period in prior year.

Research and development: The consolidated research and development costs decreased by $0.07 million, or 31%, to $0.16 million for the three months ended June 30, 2015 from $0.23 million for the three months ended June 30, 2014. The decrease was mainly attributable to lower salaries and benefits expense due to lower headcount in the U.S.

Sales and marketing: The consolidated sales and marketing expenses increased by $0.12 million, or 109%, to $0.24 million for the three months ended June 30, 2015 from $0.12 million for the three months ended June 30, 2014. The increase was mainly attributable to the increase of $0.14 million in China operations due to expansion in selling and marketing activities during the three months ended June 30, 2015, offset by the sales and marketing expense in the U.S. operations decreased by $0.02 million due to lower headcount of the sales team as we shifted our operation focus to China.

General and administrative: The consolidated general and administrative expenses increased by $0.70 million, or 45%, to $2.27 million for the three months ended June 30, 2015 from $1.57 million for the three months ended June 30, 2014. The increase was attributable to the China operations which general and administrative expenses increased by $0.52 million due to increased headcount in China. The general and administrative expenses in the U.S. operations increased by $0.18 million mainly due to higher professional fees related to regulatory filings, offset by decrease in other general and administrative expenses due to scaled back operation activities as we shifted our operation focus to China.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.10 million, or 19%, to $0.41 million during the three months ended June 30, 2015 from $0.51 million for the three months ended June 30, 2014. The decrease was primarily related to the portion of fixed assets that were fully depreciated in 2014.

(Gain) loss on disposal of fixed assets: The consolidated gain on disposal of fixed decreased by $5 thousand, or 100%, to nil during the three months ended June 30, 2015 from $5 thousand for the three months ended June 30, 2014. The Company did not sell any fixed assets during the three months ended June 30, 2015 and received proceeds on the fixed assets sold during the three months ended June 30, 2014.

Interest (expense), net: The consolidated Interest (expense), net decreased to $0.56 million for the three months ended June 30, 2015, from $1.29 million for the three months ended June 30, 2014, a decrease of $0.73 million or 57%. The decrease was mainly attributable to the China operations which interest expense decreased by $0.72 million due to the capitalization of most interest expense during the construction period of new fixed assets during the three months ended June 30, 2015. The interest expense in the U.S. operations also decreased by $0.01 million due to lower loan balances.

Change in fair value of warrants: During the three months ended June 30, 2015, the Company did not experience a significant change in the value of warrants outstanding that were previously issued mainly due to the decrease in the stock price. During the three months ended June 30, 2015 and 2014, the Company recorded a loss of $1 thousand and a gain of $183 thousand due to the change in the fair value for warrants outstanding, respectively.

Gain (loss) on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency were nil for both periods of the three months ended June 30, 2015 and 2014.

Other income - buses: Other income - buses amounted to $9.54 million and nil for the three months ended June 30, 2015 and 2014. The increase was mainly due to 47 buses sold during the three months ended June 30, 2015 and the fact that Company did not start bus sales until the third quarter of 2014.

Other expenses - buses: Other expenses - buses amounted to $11.82 million and nil during the three months ended June 30, 2015 and 2014. This was due to the cost of the 47 buses sold and other expenses during the three months ended June 30, 2015. The Company did not have bus sales until the third quarter of 2014.

Other income: Other income amounted to $1.31 million and $1.62 million for the three months ended June 30, 2015 and 2014, a decrease of $0.31 million or 19%. The consolidated other income mainly consisted of grant incentives received and recognized as other income during the three months ended June 30, 2015. During the same period in 2014, the Company derecognized an accrued liability that resulted in a gain. No similar event occurred during the three months ended June 30, 2015.

Net loss: Net loss increased by $2.19 million, or 72%, to $5.23 million for the three months ended June 30, 2015, from $3.04 million for the three months ended June 30, 2014. The increase in net loss was caused mainly by $2.28 million net other expenses related to buses in the three months ended June 30, 2015.

Six Months Ended June 30, 2015 compared with the Six Months Ended June 30, 2014

Revenues: Total consolidated revenues for the six months ended June 30, 2015 increased $0.02 million, or 1%, to $3.68 million for the six months ended June 30, 2015 from $3.66 million for the six months ended June 30, 2014. The increase was primarily driven by the operations in China with an increase in sales of nLTO materials to related parties during the six months ended June 30, 2015 as compared to the same period in the prior year. The revenues of the U.S. operations decreased by $0.34 million due decrease in product sales during the six months ended June 30, 2015.

Cost of goods sold: Total consolidated costs of goods sold for the six months ended June 30, 2015 was $3.37 million, a decrease of $0.18 million or 5% from $3.55 million for the six months ended June 30, 2014. The decrease was primarily due to $0.91 million decrease in US operations due to lower product sales, offset by the increase of $0.73 million in China operations due to the increased sales of nLTO materials during the six months ended June 30, 2015.

Research and development: The consolidated research and development costs decreased by $0.29 million, or 44%, to $0.37 million for the six months ended June 30, 2015 from $0.66 million for the six months ended June 30, 2014. The decrease was related mainly to lower salaries and benefits driven by decreased headcount in the U.S.

Sales and marketing: The consolidated sales and marketing expenses increased by $0.14 million, or 59%, to $0.38 million for the six months ended June 30, 2015 from $0.24 million for the six months ended June 30, 2014. The increase was mainly attributable to the China operations which sales and marketing expenses increased by $0.19 million. The increase was primarily due to increased traveling expenses in six months ended June 30, 2014. The sales and marketing expenses in the U.S. operation’s decreased by $0.05 million due to lower headcount of the sales team as we shifted our operation focus to China.

General and administrative: The consolidated general and administrative expenses increased by $0.98 million, or 27%, to $4.69 million for the six months ended June 30, 2015 from $3.71 million for the six months ended June 30, 2014. The increase was attributable to the China operations which general and administrative expenses increased by $0.79 million due to increased headcount in China. The general and administrative expenses in the U.S. operations increased by $0.19 million mainly due to higher professional fees related to regulatory filings and offset by a decrease in other general and administrative expenses due to less activity.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.18 million, or 18%, to $0.82 million for the six months ended June 30, 2015, from $1.00 million for the six months ended June 30, 2014. The decrease was primarily related to the portion of fixed assets that were fully depreciated and the fixed assets sold in 2014.

(Gain) loss on disposal of fixed assets: The consolidated loss on disposal of fixed assets decreased by $0.11 million, or 100%, to nil for the six months ended June 30, 2015 from $0.11 million for the six months ended June 30, 2014. The Company did not sell any fixed assets during the three months ended June 30, 2015 and incurred losses for the fixed assets sold during the six months ended June 30, 2014.

Interest expense, net: The consolidated interest expense, net decreased to $1.60 million for the six months ended June 30, 2015, from $2.31 million for the six months ended June 30, 2014, a decrease of $0.71 million or 31%. The decrease mainly resulted from China operations leading interest expense to decrease by $0.70 million as most interest expenses were capitalized during the construction period of new fixed assets during the six months ended June 30, 2015. The interest expense in the U.S. operations also decreased by $0.01 million due to lower loan balances.

Change in fair value of warrants: During the six months ended June 30, 2015 and 2014, the Company recorded a gain of $0.01 million and $0.14 million, respectively, due to the change in the fair value of warrants outstanding that were previously issued.

Gain (loss) on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency represented a loss of $0.00 million for the six months ended June 30, 2015 compared to a gain of $0.02 million for the six months ended June 30, 2014.

Other income - buses: Other income - buses amounted to $9.54 million and nil for the six months ended June 30, 2015 and 2014. The increase was mainly due to 47 buses being sold during the six months ended June 30, 2015 as the bus sales did not start until the third quarter of 2014.

Other expenses - buses: Other expenses - buses consisted of $11.82 million for the six months ended June 30, 2015 which included cost of the buses and other expenses during the three months ended June 30, 2015. The Company did not have any bus sale until the third quarter of 2014.

Other income: Other income amounted to $0.36 million and $0.37 million for the six months ended June 30, 2015 and 2014. The consolidated other income mainly consisted of grant incentives received and recognized as other income during the six months ended June 30, 2015. During the six months ended September 31, 2014, the Company derecognized an accrued liability that resulted in gain. No similar event occurred in the same period of 2015.

Net loss: Net loss increased by $2.07 million, or 28%, to $9.46 million for the six months ended June 30, 2015 from $7.39 million for the six months ended June 30, 2014. The increase in net loss was driven by an increase in other expenses of $1.72 million for the six months ended June 30, 2015 compared to 2014, as well as an increase in loss from operations of $0.35 million primarily due to increased operating expenses.

The table below sets forth line items from the Company’s unaudited consolidated statements of operations (in thousands):

	Three Months Ended March 31,
	2015			2014			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	1,847		$	1,789		$	58			3	%
Cost of goods sold		2,108			2,007			101			5	%
Gross loss		(261	)		(218	)		(43	)		-20	%
Operating expenses
Research and development		211			426			(215	)		-50	%
Sales and marketing		134			120			14			12	%
General and administrative		2,418			2,139			279			13	%
Depreciation and amortization		406			494			(88	)		-18	%
Loss on disposal of assets		-			110			(110	)		-100	%
Total operating expenses		3,169			3,289			(120	)		-4	%
Loss from operations		(3,430	)		(3,507	)		77			-2	%
Other (expense) income
Interest (expense), net		(1,036	)		(1,020	)		(16	)		2	%
Change in fair value of warrants		6			(42	)		48			-114	%
(Loss) gain on foreign exchange		(1	)		15			(16	)		-107	%
Other income		233			203			30			15	%
Total other expense		(728	)		(844	)		46			-5	%
Net loss	$	(4,228	)	$	(4,351	)	$	123			-3	%

Three Months Ended March 31, 2015 compared with the Three Months Ended March 31, 2014

Revenues: The consolidated revenues for the three months ended March 31, 2015 increased $0.06 million, or 3%, to $1.85 million from $1.79 million for the three months ended March 31, 2014. The increase was primarily due to $0.33 of revenues increased in sales of nLTO materials in China and offset by $0.27 million decrease in product sales in U.S. during the three months ended March 31, 2015 as compared to the same period in the prior year.

Cost of goods sold: The consolidated costs of goods sold for the three months ended March 31, 2015 was $2.11 million, an increase of $0.10 million or 5% from $2.01 million for the three months ended March 31, 2014. The increase was primarily due to the operations in China which costs of goods sold increased by $0.50 million due to increased sales in nLTO materials to related parties during the three months ended March 31, 2015 as compared to the same period in 2014. The cost of goods sold in the U.S. operations decreased by $0.40 million due to lower product sales during the three months ended March 31, 2015 as compared to the same period in prior year.

Research and development: Total consolidated research and development costs decreased by $0.22 million, or 50%, to $0.21 million for the three months ended March 31, 2015 from $0.43 million for the three months ended March 31, 2014. The decrease was mainly attributable to lower salaries and benefits from lower headcount in the U.S.

Sales and marketing: The consolidated sales and marketing expenses increased by $0.01 million, or 12%, to $0.13 million for the three months ended March 31, 2015 from $0.12 million for the three months ended March 31, 2014. The increase was mainly attributable to the China operations which sales and marketing expenses increased by $0.04 million. The increase was attributable to the increase of insurance expenses related to higher headcount of sales team in China. The sales and marketing expense in the U.S. operations decreased by $0.03 million due to lower headcount of the sales team as we shifted our operation focus to China.

General and administrative: The consolidated general and administrative expenses increased by $0.28 million, or 13%, to $2.42 million for the three months ended March 31, 2015 from $2.14 million for the three months ended March 31, 2014. The increase was attributable to the China operations which general and administrative expenses increased by $0.28 million due to increased headcount in China.

Depreciation and amortization: The consolidated depreciation and amortization decreased by $0.09 million, or 18%, to $0.41 million for the three months ended March 31, 2015, from $0.50 million for the three months ended March 31, 2014. The decrease was primarily related to the portion of fixed assets were fully depreciated in 2014.

Loss on disposal of fixed assets: The consolidated loss on disposal of fixed assets decreased by $0.11 million, or 100%, to nil for the three months ended March 31, 2015 from $0.11 million for the three months ended March 31, 2014. The Company did not sell any fixed assets sold during the three months ended June 30, 2015 and incurred losses on the fixed assets sold during the three months ended March 31, 2014.

Interest (expense), net: The consolidated interest (expense), net increased to $1.04 million for the three months ended March 31, 2015, from $1.02 million for the three months ended March 31, 2014, an increase of $0.02 million or 2%. The increase was mainly attributable to the China operations which interest expense increased by $0.02 million due to higher debt balances during the three months ended March 31, 2015 as compared to the same period in the prior year.

Change in fair value of warrants: During the three months ended March 31, 2015 and 2014, the Company recorded a gain of $0.01 million and a loss of $0.04 million, respectively, an increase of $0.05 million or 114%, due to the change in the fair value of warrants outstanding that were previously issued.

(Loss) Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency represented a loss of $0.001 million and a gain of $0.02 million for the three months ended March 31, 2015 and 2014, respectively.

Other income: Other income amounted to $0.23 million and $0.20 million for the three months ended March 31, 2015 and 2014, an increase of $0.03 million or 15%. The increase of other income is primarily due to clearing of certain purchase orders that resulted in gain during the three months ended March 31, 2015.

Net loss: Net loss decreased by $0.12 million, or 3%, to $4.23 million for the three months ended March 31, 2015, from $4.35 million for the three months ended March 31, 2014. The decrease in net loss was driven by a $0.03 million increase in other income, and also by a decrease in depreciation and amortization expenses of $0.09 million, or 18%, for the three months ended March 31, 2015 as compared to the same period in the prior year.

The table below sets forth line items from the Company’s audited consolidated statements of operations (in thousands):

	Years Ended December 31,
	2014			2013			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	6,744		$	8,168		$	(1,424	)		-17	%
Cost of goods sold		6,620			8,745			(2,125	)		-24	%
Gross profit (loss)		124			(577	)		701			-121	%
Operating expenses
Research and development		1,084			3,965			(2,881	)		-73	%
Sales and marketing		631			1,179			(548	)		-46	%
General and administrative		8,129			7,772			357			5	%
Depreciation and amortization		1,850			1,459			391			27	%
Loss on disposal of assets		92			32			60			188	%
Total operating expenses		11,786			14,407			(2,621	)		-18	%
Loss from operations		(11,662	)		(14,984	)		3,322			-22	%
Other (expense) income
Interest (expense) income, net		(6,142	)		255			(6,397	)		-2509	%
Change in fair value of warrants		344			(260	)		604			-232	%
(Loss) gain on foreign exchange		15			(1	)		16			-1600	%
Other income-buses		28,275			-			28,275			100	%
Other expenses-buses		(27,545	)		-			(27,545	)		100	%
Other income		764			361			403			112	%
Total other income (expense)		(4,289	)		355			(4,644	)		-1,308	%
Net loss	$	(15,951	)	$	(14,629	)	$	(1,322	)		9	%

Year Ended December 31, 2014 compared with the Year Ended December 31, 2013

Revenues: The consolidated revenues for the year ended December 31, 2014 decreased $1.43 million, or 17%, to $6.74 million from $8.17 million for the year ended December 31, 2013. The decrease was primarily due to U.S. operations decreasing by $3.24 million caused by decrease in product sales, offset by increased revenue by $1.81 million in China operations due to an increase in sales of nLTO materials during the year ended December 31, 2014 as compared to the prior year.

Cost of goods sold: The consolidated costs of goods sold for the year ended December 31, 2014 was $6.62 million a decrease of $2.13 million or 24% from $8.75 million for the year ended December 31, 2013. The decrease was primarily due to the decreased cost in U.S. operations of $4.46 million caused by lower product sales operations, offset by the increase in China operations of $2.33 million due to increased sales in nLTO materials during the year ended December 31, 2014 as compared to the same period in prior year.

Research and development: The consolidated research and development costs decreased by $2.89 million, or 73%, to $1.08 million for the year ended December 31, 2014 from $3.97 million for the year ended December 31, 2013. The decrease was related mainly to lower salaries and benefits driven by lower headcount mainly at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses decreased by $0.55 million, or 46%, to $0.63 million for the year ended December 31, 2014 from $1.18 million for the year ended December 31, 2013. The decrease was mainly attributable to the decrease in U.S. operations of $0.85 million due to lower headcount of the sales team as we shifted our operation focus to China, offset by the increase in China operations of $0.30 million due to increased headcount at China operations during the year ended December 31, 2014 compared to the same period in prior year.

General and administrative: The consolidated general and administrative expenses increased by $0.36 million, or 5%, to $8.13 million for the year ended December 31, 2014 from $7.77 million for the year ended December 31, 2013. The increase was mainly due to severance expenses. The general and administrative expenses of the China operations remained steady as of December 31, 2014 and 2013.

Depreciation and amortization: The consolidated depreciation and amortization increased by $0.39 million, or 27%, to $1.85 million from $1.46 million for the year ended December 31, 2014 and 2013, respectively. Higher depreciation and amortization was mainly related to new purchases of equipment at our China facility along with additional land use rights obtained.

Loss on disposal of fixed assets: Loss on disposal of fixed assets increased by $0.06 million, or 188%, to $0.09 million in 2014 from $0.03 million in 2013, respectively. This was primarily due to more proceeds received on the fixed assets sold during the year ended December 31, 2014 compared to the same period in 2013.

Interest (expense) income, net: The consolidated interest (expense) income, showed to a net interest expense of $6.14 million in 2014 from a net interest income of $0.26 million in 2013, respectively, a change of $6.40 million or 2,509%. The change in interest expense was mainly attributable to the China operations, which interest expense increased by $6.32 million because loans obtained in 2014 was mostly for working capital and not for construction. Most of the interest expenses were capitalized in China operations in 2013 as they were related to construction. The interest expense in the U.S. operations also increased by $0.08 million due to higher debt balances during the year ended December 31, 2014 as compared to the same period in the prior year.

Change in fair value of warrants: During the years ended December 31, 2014 and 2013, we recorded a gain of $0.34 million and a loss of $0.26 million, respectively, due to the change in the fair value of warrants outstanding that we had previously issued.

Gain (loss) on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency represented a gain of $0.02 million and nil for the years ended December 31, 2014 and 2013, respectively.

Other income - buses: Other income - buses consisted of $28.28 million for the year ended December 31, 2014. The Company sold 153 buses in 2014.

Other expense - buses: Other expense - buses consisted of $27.55 million in 2014, which included cost of the buses and other expenses.

Other income: Other income amounted to $0.76 million and $0.36 million for the years ended December 31, 2014 and 2013, respectively, representing an increase of $0.40 million or 112%. This was mainly due to additional grant incentives received and recognized as other income in the year 2014.

Net loss: Net loss increased by $1.32 million, or 9%, to $15.95 million in 2014 from $14.63 million in 2013, respectively. The increase in net loss was mainly caused by a $6.40 million decrease in interest expense, net from $0.26 million interest income in 2013 to $6.14 million interest expenses in 2014. The major decrease in interest income was offset by an increase in gross margin of $0.70 million or 121%, and $2.62 million of lower operating expenses primarily driven by less research and development expenses due to reduced headcount at our U.S. facilities.

The table below sets forth line items from the Company’s unaudited consolidated statements of operations (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2014
Revenues	$	1,462		$	5,125
Cost of goods sold		1,754			5,306
Gross loss		(292	)		(181	)
Operating expenses
Research and development		245			904
Sales and marketing		151			387
General and administrative		1,850			5,558
Depreciation and amortization		436			1,436
Gain (loss) on disposal of assets		(23	)		82
Total operating expenses		2,659			8,367
Loss from operations		(2,951	)		(8,548	)
Other (expense) income
Interest (expense) income, net		(2,031	)		(4,342	)
Change in fair value of warrants		208			349
(Loss) Gain on foreign exchange		-			15
Other income-buses		3,317			3,317
Other expenses-buses		(4,852	)		(4,852	)
Other income		146			511
Total other (expense) income		(3,212	)		(5,002	)
Net loss	$	(6,163	)	$	(13,550	)

Three Months Ended September 30, 2014

Revenues: The consolidated revenues for the three months ended September 30, 2014 was $1.46 million, which was composed of $0.94 million in the U.S. operations and $0.52 million in the China operations. The revenue in the U.S. was primarily contributed by product sales and license fees during the three months ended September 30, 2014. The revenue in China was primarily from the nLTO sales to related party during the three months ended September 30, 2014.

Cost of goods sold: The consolidated costs of goods sold was $1.75 million for the three months ended September 30, 2014, which was composed of $0.97 million in the U.S operations and $0.78 million in the China operations. The cost of goods sold in the U.S. was primarily due to the costs of product sales during the three months ended September 30, 2014. The cost of goods sold in China was primarily due to the cost recognized from sales of nLTO materials to related party during the three months ended September 30, 2014.

Research and development: The consolidated research and development costs was $0.25 million for the three months ended September 30, 2014 which is from U.S. operations only. The Company did not have research and development personnel in China operations.

Sales and marketing: The consolidated sales and marketing expenses was $0.15 million for the three months ended September 30, 2014 which composed of $0.04 million in the U.S. operations and $0.11 million in the China operations. The Company shifted our operation focus to China, which caused the China operations had higher sales and marketing expenses than the U.S. operations during the three months ended September 30, 2014.

General and administrative: The consolidated general and administrative expenses was $1.85 million for the three months ended September 30, 2014 which composed of $1.17 million in the U.S. operations and $0.68 million in the China operations.

Depreciation and amortization: Depreciation and amortization was $0.44 million for the three months ended September 30, 2014, which composed of $0.21 million in the U.S. operations and $0.23 million in the China operations.

(Gain) loss on disposal of fixed assets: (Gain) loss on disposal of fixed assets was a gain of $0.02 million for the three months ended September 30, 2014 which is from the U.S. operations. The Company did not had any fixed assets sold in the China operations during the three months ended September 30, 2014.

Interest (expense) income, net: Interest (expense) income, net showed a net interest expenses of $2.03 million for the three months ended September 30, 2014, which composed of $0.10 million in the U.S. operations and $1.93 million in the China operations. The interest expenses in the China operations was primarily from loans for the purchase of materials during the three months ended September 30, 2014.

Change in fair value of warrants: During the three months ended September 30, 2014, we recorded a gain of $0.21 million for the change in the fair value of warrants outstanding that we had previously issued.

Other income - buses: Other income - buses consisted of $3.32 million for the three months ended September 30, 2014. The Company sold 20 buses during the three months ended September 30, 2014.

Other expense - buses: Other expense - buses consisted of $4.85 million for the three months ended September 30, 2014, which included cost of the buses and other expenses.

Other income: Other income amounted to $0.15 million for the three months ended September 30, 2014, which composed of $0.02 million in the U.S. operations and $0.13 million in the China operations. The other income in China is primarily due to the additional grant incentives received and recognized as other income during the three months ended September 30, 2014.

Net loss: Net loss was $6.16 million for the three months ended September 30, 2014, which composed of $1.56 million in the U.S. operations and $4.61 million in the China operations. The net loss was driven by $2.66 million in total operating expenses and $3.21 million in total other expenses during the three months ended September 30, 2014.

Nine Months Ended September 30, 2014

Revenues: The consolidated revenues were $5.13 million from for the nine months ended September 30, 2014, which composed of $3.65 million in the U.S. operations and $1.48 million in the China operations. The revenue in U.S. was primarily contributed by product sales and license fees during the nine months ended September 30, 2014. The revenue in China was primarily from the nLTO sales to related party during the three months ended September 30, 2014.

Cost of goods sold: The consolidated costs of goods sold was $5.31 million for the nine months ended September 30, 2014, which composed of $3.34 million in the U.S. operations and $1.97 million in the China operations. The cost of goods sold in the U.S. was primarily due to the costs of product sales during the nine months ended September 30, 2014. The cost of goods sold in China was primarily due to the cost recognized from sales of nLTO materials to related party during the nine months ended September 30, 2014.

Research and development: The consolidated research and development costs was $0.90 million for the nine months ended September 30, 2014 which is from U.S. operations only. The Company did not have research and development personnel in China operations.

Sales and marketing: The consolidated sales and marketing expenses was $0.39 million for the nine months ended September 30, 2014, which composed of $0.17 million in the U.S. operations and $0.22 million in the China operations. The Company shifted our operation focus to China, which caused the China operations had higher sales and marketing expenses than the U.S. operations during the nine months ended September 30, 2014.

General and administrative: The consolidated general and administrative expenses was $5.56 million for the nine months ended September 30, 2014, which composed of $3.46 million in the U.S. operations and $2.10 million in the China operations.

Depreciation and amortization: Depreciation and amortization was 1.44 million for the nine months ended September 30, 2014, which composed of $0.64 million in the U.S operations and $0.80 million in the China operations.

(Gain) loss on disposal of fixed assets: Loss on disposal of fixed assets was $0.08 million for the nine months ended September 30, 2014, which is from the U.S. operations. The Company did not had any fixed assets sold in the China operations during the nine months ended September 30, 2014.

Interest (expense) income, net: Interest (expense) income, net showed a net interest expense of $4.34 million for the nine months ended September 30, 2014, which composed of $0.23 million in the U.S. operations and $4.11 million in the China operations. The interest expenses in the China operations was primarily from loans for the purchase of materials during the nine months ended September 30, 2014.

Change in fair value of warrants: During the nine months ended September 30, 2014, we recorded a gain of $0.35 million for the change in the fair value of warrants outstanding that we had previously issued.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than our functional currency represented a gain of $0.02 million for the nine months ended September 30, 2014.

Other income - buses: Other income - buses consisted of an income of $3.32 million for the nine months ended September 30, 2014. The Company sold 20 buses during the nine months ended September 30, 2014.

Other expenses - buses: Other expense - buses consisted of $4.85 million for the nine months ended September 30, 2014, which included cost of the buses and other expenses.

Other income: Other income amounted to $0.51 million for the nine months ended September 30, 2014, which composed of $0.07 million in the U.S. operations and $0.44 million in the China operations. The other income in the China operations was mainly related to additional grant incentives received and recognized as other income during the nine months ended September 30, 2014.

Net loss: Net loss was $13.55 million for the nine months ended September 30, 2014, which composed of $4.75 million in the U.S. operations and $8.80 million in the China operations. The net loss was driven by $8.37 million in total operating expenses and $5.02 million in total other expenses during the nine months ended September 30, 2014.

The table below sets forth line items from the Company’s unaudited consolidated statements of operations (in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2014			2013			Inc. (Dec.)			Percentage Inc. (Dec.)			2014			2013			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	1,874		$	3,152		$	(1,278	)		-41	%	$	3,663		$	5,006		$	(1,343	)		-27	%
Cost of goods sold		1,545			3,213			(1,668	)		-52	%		3,552			5,380			(1,828	)		-34	%
Gross profit (loss)		329			(61	)		390			-639	%		111			(374	)		485			-130	%
Operating expenses
Research and development		233			757			(524	)		-69	%		659			2,045			(1,386	)		-68	%
Sales and marketing		116			247			(131	)		-53	%		236			682			(446	)		-65	%
General and administrative		1,569			1,736			(167	)		-10	%		3,708			2,935			773			26	%
Depreciation and amortization		506			325			181			56	%		1,000			619			381			62	%
Loss (gain) on disposal of assets		(5	)		(19	)		14			-74	%		105			(19	)		124			-653	%
Total operating expenses		2,419			3,046			(627	)		-21	%		5,708			6,262			(554	)		-9	%
Loss from operations		(2,090	)		(3,107	)		1,017			-33	%		(5,597	)		(6,636	)		1,039			-16	%
Other (expense) income
Interest (expense) income, net		(1,291	)		(32	)		(1,259	)		3934	%		(2,311	)		209			(2,520	)		-1206	%
Change in fair value of warrants		183			120			63			53	%		141			(10	)		151			-1510	%
Gain on foreign exchange		-			-			-			0	%		15			3			12			400	%
Other income		162			28			134			479	%		365			28			337			1204	%
Total other (expense) income		(946	)		116			(1,062	)		-916	%		(1,790	)		230			(2,020	)		-878	%
Net loss	$	(3,036	)	$	(2,991	)	$	(45	)		2	%	$	(7,387	)	$	(6,406	)	$	(981	)		15	%

Three Months Ended June 30, 2014 compared with the Three Months Ended June 30, 2013

Revenues: The consolidated revenues for the three months ended June 30, 2014 decreased $1.28 million, or 41%, to $1.87 million from $3.15 million for the three months ended June 30, 2013. The decrease was primarily due to the operations in the U.S. which revenues decreased by $1.91 million due to that two long-term contracts related to ALTI ESS AdvantageTM systems were recognized during the three months ended June 30, 2013 whereas the Company did not incur similar revenues in the same period in 2014. The revenues from China operations increased by $0.63 million due to the increased sales in nLTO materials during the three months ended June 30, 2014, the Company did not have such revenues in the same period of prior year.

Cost of goods sold: The consolidated costs of goods sold for the three months ended June 30, 2014 was $1.55 million, a decrease of $1.66 million or 52% from $3.21 million for the three months ended June 30, 2013. The decrease was primarily due to the operations in the U.S. which costs of goods sold decreased by $2.28 million due to lower product sales during the three months ended June 30, 2014 as compared to the same period in prior year. The costs of goods sold in China operations increased by $0.62 million due to higher cost of nLTO manufacturing during the three months ended June 30, 2013.

Research and development: The consolidated research and development costs decreased by $0.53 million, or 69%, to $0.23 million for the three months ended June 30, 2014 from $0.76 million for the three months ended June 30, 2013. The decrease was related mainly to lower headcount mainly at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses decreased by $0.13 million, or 53%, to $0.12 million for the three months ended June 30, 2014 from $0.25 million for the three months ended June 30, 2013. The decrease was mainly attributable to the U.S. operations which sales and marketing expenses decreased by $0.18 million due to lower headcount of the sales team as we shifted our operation focus to China. The sales and marketing expenses of the China operation’s increased by $0.05 million as we expanded our sales efforts in China.

General and administrative: The consolidated general and administrative expenses decreased by $0.17 million, or 10%, to $1.57 million for the three months ended June 30, 2014 from $1.74 million for the three months ended June 30, 2013. The decrease was mainly attributable to lower headcount at our U.S. facilities which decreased the general and administrative expenses by $0.29 million. The general and administrative expenses of the China operations increased by $0.14 million during the three months ended June 30, 2014 as compared to the same period in prior year.

Depreciation and amortization: Depreciation and amortization increased by $0.18 million, or 56%, to $0.51 million for the three months ended June 30, 2014, from $0.33 million for the three months ended June 30, 2013. Higher depreciation and amortization was mainly related to purchases of equipment at our China facilities.

(Gain) loss on disposal of fixed assets: Gain on disposal of fixed assets increased by $0.01 million, or 100%, to $0.01 million from $0.02 million for the three months ended June 30, 2014 and 2013, respectively. This was primarily due to higher proceeds received on the fixed assets sold during the three months ended June 30, 2014 compared to the same period in 2013.

Interest (expense) income, net: Interest expense, net showed $1.29 million for the three months ended June 30, 2014, from $0.03 million for the three months ended June 30, 2013, an increase of $1.26 million or 3,934%. The change in interest expense was mainly attributable to the China operations which interest expense increased by $1.25 million due to higher short term loans balances during the three months ended June 30, 2014. The interest expense in the U.S. operations also increased by $0.01 million due to higher debt balances during the three months ended June 30, 2014 as compared to the same period in the prior year.

Change in fair value of warrants: During the three months ended June 30, 2014 and 2013, we recorded a gain of $0.18 million and a gain of $0.12 million, respectively, due to the change in the fair value of warrants outstanding that we had previously issued.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than our functional currency of nil for the three months ended June 30, 2014 and nil for the three months ended June 30, 2013, respectively.

Other income: Other income amounted to $0.16 million and $0.03 million for the three months ended June 30, 2014 and 2013, an increase of $0.13 million or 479%. The increase to income was mainly related to additional grant incentives received and recognized as other income during the current period as compared to the same period in the prior year.

Net loss: Net loss increased by $0.05 million, or 2%, to $3.04 million for the three months ended June 30, 2014, from $2.99 million for the three months ended June 30, 2013. The increase in net loss was driven by an increase of $1.26 million or 3,934% in interest expenses from higher loan balances, offset by decrease of $1.02 in loss of operations caused by lower operating expenses of $0.63 million or 21% for the current period versus the same period in the prior year.

Six Months Ended June 30, 2014 compared with the Six Months Ended June 30, 2013

Revenues: The consolidated revenues for the six months ended June 30, 2014 decreased $1.35 million, or 27%, to $3.66 million from $5.01 million for the six months ended June 30, 2013. The decrease was primarily due to the operations in the U.S. which revenues decreased by $2.31 million due to that two long-term contracts related to ALTI ESS AdvantageTM systems were recognized during the six months ended June 30, 2013 whereas we did not incur similar revenues in the same period in 2014. The revenues from China operations increased by $0.96 million as the production sales to a related party during the six months ended June 30, 2013.

Cost of goods sold: The consolidated costs of goods sold for the six months ended June 30, 2014 was $3.55 million, a decrease of $1.83 million or 34% from $5.38 million for the six months ended June 30, 2013. The decrease was primarily due to the operations in the U.S. which costs of goods sold decreased by $3.02 million due to lower product sales during the six months ended June 30, 2014 as compared to the same period in prior year. The costs of goods sold in China operations increased by $1.19 million due to increased sales during the six months ended June 30, 2014 compared to same period in 2013.

Research and development: The consolidated research and development costs decreased by $1.39 million, or 68%, to $0.66 million for the six months ended June 30, 2014 from $2.05 million for the six months ended June 30, 2013. The decrease was related mainly to lower headcount mainly at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses decreased by $0.44 million, or 65%, to $0.24 million for the six months ended June 30, 2014 from $0.68 million for the six months ended June 30, 2013. The decrease was mainly attributable to the U.S. operations which sales and marketing expenses decreased by $0.51 million due to lower headcount of the sales team as we shifted our operation focus to China. The sales and marketing expenses of the China operations increased by $0.07 million as we were expanding our sales efforts in China.

General and administrative: The consolidated general and administrative expenses increased by $0.77 million, or 26%, to $3.71 million for the six months ended June 30, 2014 from $2.94 million for the six months ended June 30, 2013. The increase was mainly attributable to the China operations which general and administrative expenses increased by $0.82 million during the six months ended June 30, 2014 as compared to the same period in prior year. The increase was due to a greater headcount in China, offset by the decrease in operating costs in our U.S. operations which resulted in an overall increase.

Depreciation and amortization: Depreciation and amortization increased by $0.38 million, or 62%, to $1.00 million for the six months ended June 30, 2014, from $0.62 million for the six months ended June 30, 2013. Higher depreciation and amortization was mainly related to new purchases of equipment at our China facilities.

(Gain) loss on disposal of fixed assets: (Gain) loss on disposal of fixed assets changed by $0.13 million, or 653%, to loss of $0.11 million from gain of $0.02 million for the six months ended June 30, 2014 and 2013, respectively. This was primarily due to lower proceeds received on the fixed assets sold during the six months ended June 30, 2014 compared to the same period of 2013.

Interest (expense) income, net: Interest (expense) income, net changed to an expense of $2.31 million for the six months ended June 30, 2014, from an income of $0.21 million for the six months ended June 30, 2013, a decrease of $2.52 million or 1,206%. The change in interest (expense) income, net was mainly attributable to the China operations which interest (expense) income changed by $2.49 million due to higher short term loan balances during the six months ended June 30, 2014. The interest expense in the U.S. operations increased by $0.03 million due to higher debt balances during the six months ended June 30 2014 as compared to the same period in the prior year.

Change in fair value of warrants: During the six months ended June 30, 2014 and 2013, we recorded a gain of $0.14 million and a loss of $0.01 million, respectively, due to the change in the fair value of warrants outstanding that we had previously issued.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than our functional currency represented a gain of $15 thousand and $3 thousand for the six months ended June 30, 2014 and 2013, respectively.

Other income: Other income amounted to $0.37 million and $0.03 million for the six months ended June 30, 2014 and 2013, an increase of $0.34 million or 1,204%. The increase was primarily attributable to additional grant incentives received and recognized as other income during the six months ended June 30, 2014 as compared to same period in 2013.

Net loss: Net loss increased by $0.98 million, or 15%, to $7.39 million for the six months ended June 30, 2014, from $6.41 million for the six months ended June 30, 2013. The increase in net loss was driven by an increase in interest expense of $2.52 million or 1,206% from higher loan balances, offset by $0.55 million or 9% lower operating expenses experienced mainly at our U.S. facilities during the six month ended June 30, 2014 compared to same period in 2013.

The table below sets forth line items from the Company’s unaudited consolidated statements of operations (in thousands):

	Three Months Ended March 31,
	2014			2013			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	1,789		$	1,854		$	(65	)		-4	%
Cost of goods sold		2,007			2,167			(160	)		-7	%
Gross loss		(218	)		(313	)		95			-30	%
Operating expenses
Research and development		426			1,288			(862	)		-67	%
Sales and marketing		120			435			(315	)		-72	%
General and administrative		2,139			1,199			940			78	%
Depreciation and amortization		494			294			200			68	%
Gain on disposal of assets		110			-			110			100	%
Total operating expenses		3,289			3,216			73			2	%
Loss from operations		(3,507	)		(3,529	)		22			-1	%
Other (expense) income
Interest (expense) income, net		(1,020	)		241			(1,261	)		-523	%
Change in fair value of warrants		(42	)		(130	)		88			-68	%
Gain on foreign exchange		15			3			12			400	%
Other income		203			-			203			100	%
Total other (expense) income		(844	)		114			(958	)		-840	%
Net loss	$	(4,351	)	$	(3,415	)	$	(936	)		27	%

Three Months Ended March 31, 2014 compared with the Three Months Ended March 31, 2013

Revenues: The consolidated revenues for the three months ended March 31, 2014 decreased slightly by $0.06 million, or 4%, to $1.79 million from $1.85 million for the three months ended March 31, 2013. The decrease was primarily due to the operations in the U.S. which revenues decreased by $0.39 million due to two long-term contracts related to ALTI ESS AdvantageTM systems during the three months ended March 31, 2013 as the Company did not incur similar revenues in the same period in 2014. The revenues from China operations increased by $0.33 million due to increased production sales to a related party during the three months ended March 31, 2014 compared to same period in 2013.

Cost of goods sold: The consolidated costs of goods sold for the three months ended March 31, 2014 was $2.01 million, a decrease of $0.16 million or 7% from $2.17 million for the three months ended March 31, 2013. The decrease was primarily due to the operations in the U.S. which costs of goods sold decreased by $0.73 million due to lower product sales, offset by an increase of $0.57 million in China operation due to increased product sales during the three months ended March 31, 2014 as compared to the same period in prior year.

Research and development: The consolidated research and development costs decreased by $0.86 million, or 67%, to $0.43 million for the three months ended March 31, 2014 from $1.29 million for the three months ended March 31, 2013. The decrease was related mainly to lower headcount mainly at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses decreased by $0.32 million, or 72%, to $0.12 million for the three months ended March 31, 2014 from $0.4 million for the three months ended March 31, 2013. The decrease was mainly attributable to the U.S. operations which sales and marketing expenses decreased by $0.34 million due to lower headcount of the sales team as we shifted our operation focus to China. The sales and marketing expenses of the China operations increased by $0.02 million as we were expanding our sales efforts in China.

General and administrative: The consolidated general and administrative expenses increased by $0.94 million, or 78%, to $2.14 million for the three months ended March 31, 2014 from $1.20 million for the three months ended March 31, 2013. The increase was mainly attributable to the China operations which general and administrative expenses increased by $0.68 million during the three months ended March 31, 2014 as compared to the same period in prior year. The increase was due to a greater headcount and business expansion in China and increased facility overhead in US operations during the three months ended March 31, 2014 as compared to the same period in 2013.

Depreciation and amortization: Depreciation and amortization increased by $0.20 million, or 68%, to $0.49 million for the three months ended March 31, 2014, from $0.29 million for the three months ended March 31, 2013. Higher depreciation and amortization was mainly related to new purchases of equipment and land use rights at our China facilities.

(Gain) loss on disposal of fixed assets: (Gain) Loss on disposal of fixed assets changed by $0.11 million, or 100%, to gain of $0.11 million from $nil for the three months ended March 31, 2014 and 2013, respectively. This was primarily due to the facility clearing on obsolete fixed assets during the three months ended March 31, 2014 as compared to the proceeds received on the fixed assets sold in the same period of 2013.

Interest expense, net: Interest expense, net decreased to an expense of $1.02 million for the three months ended March 31, 2014, from an income of $0.24 million for the three months ended March 31, 2013, a decrease of $1.26 million or 523%. The increase in interest expense was mainly attributable to the China operations which interest expense increased by $1.24 million due to higher short term loan balances during the three months ended March 31, 2014. The interest expense in the U.S. operations also increased by $0.02 million due to higher debt balances during the three months ended March 31 2014 as compared to the same period in the prior year.

Change in fair value of warrants: During the three months ended March 31, 2014 and 2013, we recorded a loss of $0.04 million and $0.13 million, respectively, due to the change in the fair value of warrants outstanding that we had previously issued.

Gain on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than our functional currency represented a gain of $0.01 million and $0.00 million for the three months ended March 31, 2014 and 2013, respectively.

Other income: Other income amounted to an income of $0.20 and nil for the three months ended March 31, 2014 and 2013. The increase was mainly related to additional grant incentives received and recognized as other income during the current period as compared to the same period in the prior year.

Net loss: Net loss increased by $0.93 million to $4.35 million for the three months ended March 31, 2014, from $3.42 million for the three months ended March 31, 2013. The increase in net loss was driven by a decrease in interest expense of $1.26 million or 523% from higher loan balances, offset by gross margin increase of $0.10 million or 30% for the current period versus the same period in the prior year.

The table below sets forth line items from the Company’s audited consolidated statements of operations (in thousands):

	Years Ended December 31,
	2013			2012			Inc. (Dec.)			Percentage Inc. (Dec.)
Revenues	$	8,168		$	1,547		$	6,621			428	%
Cost of goods sold		8,745			2,872			5,873			204	%
Gross loss		(577	)		(1,325	)		748			-56	%
Operating expenses
Research and development		3,965			6,423			(2,458	)		-38	%
Sales and marketing		1,179			2,864			(1,685	)		-59	%
General and administrative		7,772			6,908			864			13	%
Depreciation and amortization		1,459			1,071			388			36	%
Gain on disposal of assets		32			-			32			100	%
Total operating expenses		14,407			17,266			(2,859	)		-17	%
Loss from operations		(14,984	)		(18,591	)		3,607			-19	%
Other (expense) income
Interest income, net		255			48			207			431	%
Change in fair value of warrants		(260	)		564			(824	)		-146	%
Loss on foreign exchange		(1	)		(7	)		6			-86	%
Other income		361			-			361			100	%
Total other income		355			605			(250	)		-41	%
Net loss	$	(14,629	)	$	(17,986	)	$	3,357			-19	%

Year Ended December 31, 2013 compared with the Year Ended December 31, 2012

Revenues: The consolidated revenues for the year ended December 31, 2013 increased $6.62 million, or 428%, to $8.17 million from $1.55 million for the year ended December 31, 2012. The increase was primarily due to U.S. operations, which revenues increased by $6.25 million due to increase in product sales and ESS projects during the year ended December 31, 2013 as compared to the same period in prior year. The revenues from China operations increased by $0.37 million due to sales of nLTO materials by expansion of China facilities which started in the last quarter of 2013.

Cost of goods sold: The consolidated costs of goods sold for the year ended December 31, 2013 was $8.75 million, an increase of $5.88 million or 204% from $2.87 million for the year ended December 31, 2012. The increase was primarily due to US operations which costs of goods sold increased by $5.53 million due to higher product sales and recognition of deferred costs associated with the ESS projects during the year ended December 31, 2013 as compared to the same period in prior year. The costs of goods sold in China operations increased by $0.35 million due to increased product sales during the year ended December 31, 2013 compared to the same year of 2012.

Research and development: The consolidated research and development costs decreased by $2.45 million, or 38%, to $3.97 million for the year ended December 31, 2013 from $6.42 million for the year ended December 31, 2012. The decrease was related mainly to lower salaries and benefits driven by lower headcount mainly at our U.S. facilities.

Sales and marketing: The consolidated sales and marketing expenses decreased by $1.68 million, or 59%, to $1.18 million for the year ended December 31, 2013 from $2.86 million for the year ended December 31, 2012. The decrease was attributable to U.S. operations, which sales and marketing decreased $1.70 million due to lower headcount and most sales and marketing activities shifted to China for the year ended December 31, 2013 compared to the prior year. The sales and marketing in our China operations increased by $0.02 million due to expansion of sales and marketing team in China.

General and administrative: The consolidated general and administrative expenses increased by $0.86 million, or 13%, to $7.77 million for the year ended December 31, 2013 from $6.91 million for the year ended December 31, 2012. The increase was mainly attributable to our China operations of an increase of $2.21 million as we added additional employees to our China facilities, offset by the decrease in our U.S. operations of $1.35 million primarily due to reduction in expenses such as legal, consultants, business development and travel during the year ended December 31, 2013 compared to the prior year.

Depreciation and amortization: Depreciation and amortization increased by $0.39 million, or 36%, to $1.46 million from $1.07 million for the year ended December 31, 2013 and 2012, respectively. Higher depreciation and amortization was mainly related to new purchases of equipment at our China facilities along with additional land use rights obtained.

Loss on disposal of fixed assets: Loss on disposal of fixed assets amounted to loss of $0.03 million and nil for the years ended December 31, 2013 and 2012, respectively. This was primarily due to the loss incurred on the fixed assets sold during the year ended December 31, 2013 and the Company did not sell any fixed assets during the year ended December 31, 2012.

Interest income, net: Interest income, net amounted to an income of $0.26 million and $0.05 million for the years ended December 31, 2013 and 2012, respectively, an increase of $0.21 million or 431%. The increase was driven by higher interest income earned during the year ended December 31, 2013 as compared to the same period in the prior year.

Change in fair value of warrants: During the years ended December 31, 2013 and 2012, we recorded a loss of $0.26 million and a gain of $0.56 million, respectively, due to the change in the fair value of warrants outstanding that were had previously issued.

Loss on foreign exchange: Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than our functional currency represented a loss of $0.003 million and a loss of $0.01 million for the years ended December 31, 2013 and 2012, respectively.

Other income: Other income of $0.36 million for the year ended December 31, 2013 represented amortization of grant incentives income received during the year ended December 31, 2013.

Net loss: Net loss decreased by $3.36 million or 19%, to $14.63 million for the year ended December 31, 2013, from $17.99 million for the year ended December 31, 2012. The decrease in net loss was mainly driven by a decrease of $3.61 million or 19% in loss from operations, offset by decrease of other income of $0.25 million during the year ended December 31, 2013 as compared to the same period in 2012.

Liquidity and Capital Resources

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

	As of December 31, 2015			As of December 31, 2014			As of December 31, 2013			As of December 31, 2012
	As of December 31, 2016			As of December 31, 2015
Current Assets	$	6360,~~102~~383		$	7463,~~726~~102		$	~~33,453~~		$	~~34,754~~
Current Liabilities		(~~110~~113,~~948~~805	)		(67110,~~492~~948	)		~~(49,375~~	)		~~(18,026~~	)
Net Working (Deficit) Capital	$	(47,846	)	$	7,234		$	(15,922	)	$	16,728
Net Working Deficit	$	(53,422	)	$	(47,846	)

On December 31, ~~2015~~2016, we had a working capital deficit of ($47 (53.8542) million compared to a working capital deficit of ($747.2385) million on December 31, ~~2014~~2015. The ~~decrease~~increase was primarily related to a ~~decline~~decrease in current assets of $112.6272 million ~~attributable~~and ~~mainly~~an toincrease of $192.2286 million ~~decrease~~ in ~~prepaid~~current ~~expenses~~liabilities ~~and~~on ~~other~~December 31, 2016 compared to 2015. The decrease in current assets ~~which~~is ~~related~~attributable mainly to ~~other~~an increase of $2.13 million in related party receivable, an increase of EV$17.62 ~~Buses~~million in inventory, and a $188.4815 million ~~decrease~~increase in ~~amount~~prepaid ~~due~~expenses ~~from~~and ~~related~~other ~~parties~~current assets, offset by a $25.41 million ~~increase~~decrease in short-term investment, $1.29 million decrease in cash and cash equivalents and a decrease of $3.45 million in deferred contract costs. The increase in current liabilities of $432.4686 million ~~attributable~~was ~~mainly~~primarily related to $2356.78 million increase in ~~current~~amounts ~~portion~~due ofto ~~long~~related ~~term~~parties ~~note~~and ~~payable~~$9.62 million increase in trade payables offset by $44.22 million and $1918.1159 million ~~increase~~decrease in short term ~~note~~notes ~~payable~~payables and current portion of long term notes payables respectively and further $3.33 million decrease in deferred revenues.

On December 31, 2014, we had a working capital of $7.23 million compared to a working deficit of $15.92 million on December 31, 2013. The increase in working capital was primarily related to an increase of $25.48 million, of which $4.09 million was due to the decrease in EV Buses for resale and $29.57 million was receivable resulted from the sale of EV Buses that occurred during the year ended December 31, 2014 for which we collected during the year ended December 31, 2015.

On December 31, 2013, we had a working deficit of ($15.92) million compared to working capital of $16.73 million on December 31, 2012. The decrease in working capital was primarily related to a decrease in cash and cash equivalents of $11.08 million and increase of $29.56 million in short term note payable.

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

	For the Years Ended December 31,
	2015			2014			2013			2012
	2016			2015
Net cash provided by (used in) Operating Activities	$	15,111		$	(26,217	)	$	(32,439	)	$	(20,590	)
Net cash provided by Operating Activities	$	4,279		$	15,111
Net cash used in Investing Activities		(3216,~~840~~587	)		(2332,~~273~~840	)		~~(11,079~~	)		~~(31,926~~	)
Net cash provided by Financing Activities		2111,~~501~~325			4921,~~388~~501			~~31,432~~			~~18,481~~
Effect of exchange rate changes on cash and cash equivalents		(~~2,685~~304	)		(~~186~~2,685	)		~~1,003~~			~~(112~~	)
Increase (Decrease) in Cash during the period		(1,~~087~~287	)		~~(288~~1,087	)		~~(11,083~~	)		~~(34,147~~	)
Cash, Beginning of Period		12,~~001~~088			1,~~289~~001			~~12,372~~			~~46,519~~
Cash, End of Period	$	~~2,088~~801		$	12,~~001~~088		$	~~1,289~~		$	~~12,372~~

Year Ended December 31, ~~2015~~2016 as Compared to Year Ended December 31, ~~2014~~2015

Net cash provided by operating activities was $154.1128 million for the year ended December 31, ~~2015~~2016 as compared to a net ~~use of~~ cash provided of $2615.2211 million for the year ended December 31, ~~2014~~2015. The net ~~increase~~decrease in cash from operations resulted primarily from ~~$17.74~~purchases ~~million~~of ~~cash~~inventory ~~received~~and ~~from~~prepaid ~~related~~expenses ~~parties~~ and ~~$25.51 million cash received due to collection of~~ other ~~receivables~~current ~~for~~assets ~~the buses sales~~ offset by ~~$19.51~~amount ~~million~~due into ~~net~~related ~~loss~~party.

64Net cash used in investing was ($16.59) million for the year ended December 31, 2016 as compared to ($32.84) million for the year ended December 31, 2015. Cash used in investing activities was driven by our purchases of production equipment and loan to related party offset by the maturing of the term deposit in China.

Net cash ~~used~~provided inby ~~investing~~financing activities was $3211.8433 million for the year ended December 31, ~~2015~~2016 as compared to net cash provided by financing activities of $2321.2750 million for the year ~~ended~~ending December 31, ~~2014~~2015. ~~Cash~~The ~~used~~decrease in ~~investing~~cash ~~activities~~from ~~was~~financing ~~driven~~activities byprimarily ~~our~~related ~~purchases~~to ofhigher ~~production~~payments ~~equipment and placement~~ of ~~term~~outstanding ~~deposit~~notes inpayable ~~China,~~ offset by higher loan ~~repayment~~from to related party.

Net cash provided by financing activities was $21.50 million for the year ended December 31, 2015 as compared to $49.39 million for the year ending December 31, 2014. The decrease in cash from financing activities primarily related to lower proceeds from notes payable and payments to outstanding notes payable.34

Year Ended December 31, 2014 as Compared to Year Ended December 31, 2013

Net cash used in operating activities was $26.22 million for the year ended December 31, 2014 as compared to a net use of cash of $32.44 million for the year ended December 31, 2013. The net decrease in cash used in operations resulted primarily from an increase of $30.57 million in prepaid expense-noncurrent and bus reserves during the year ended December 31, 2014.

Net cash used in investing was $23.27 million for the year ended December 31, 2014 as compared to $11.08 million for the year ended December 31, 2013. Increase in cash used in investing activities was driven by $5.68 million of long term investment and $14.31 million loan to related party during the year ended December 31, 2014.

Net cash provided by financing activities was $49.39 for the year ended December 31, 2014 as compared to $31.43 for the year ending December 31, 2013. The net increase in cash provided in financing activities was driven by $24.29 million of proceeds from related party notes during the year ended December 31, 2014.

Year Ended December 31, 2013 as Compared to Year Ended December 31, 2012

Net cash used in operating activities was $32.44 million for the year ended December 31, 2013 as compared to a net use of cash of $20.59 million for the year ended December 31, 2012. The net increase in cash used in operations resulted primarily from $15.28 million cash payment in prepaid expenses, non-current and $8.89 million in receivables from related party as of December 31, 2013 as compared to 2012.

Net cash used in investing was $11.08 million for the year ended December 31, 2013 as compared to $31.93 million for the year ended December 31, 2012. Cash used in investing activities during the year ended December 31, 2013 was driven by our purchases of production equipment and construction of production facilities and also the purchases of land use rights in China offset partially by a decrease in restricted cash. This compares to use of cash for investing activities during the year ended December 31, 2012 related to an increase in restricted cash and purchase of land use rights.

Net cash provided by financing activities was $31.43 million for the year ended December 31, 2013 as compared to $18.48 million for the year ending December 31, 2012. During the year ended December 31, 2013, we received proceeds from notes payable of $35.18 million, offset by payments against notes payable of $5.73 million. This compares to proceeds from notes payable of $6.68 million and grants received from the Wu’an government of $11.80 million during the year ended December 31, 2012.

Going Concern

~~For~~As ~~the~~of ~~year ended~~ December 31, ~~2015~~2016, the Company ~~incurred~~had a ~~net~~working ~~loss~~capital deficiency of $1953.514 million and ~~had~~a anstockholders’ ~~accumulated~~deficiency ~~deficit~~of ~~and~~$16.4 ~~working~~million. ~~capital~~During ~~deficit~~the ofyears ~~$272.49~~ended ~~million~~December ~~and~~31, 2016, the Company incurred a net loss of $473.8564 million~~, respectively~~. In addition, the Company has $708.5406 million of debt coming due in the next 12 months. ~~and~~The ~~the~~ Company had ~~anticipates~~capital ~~continuing~~commitments toof ~~have~~$25.47 ~~negative~~million ~~cash flows from operations~~ as itof ~~ramps~~December up31, ~~production~~2016, atof ~~their~~which ~~new manufacturing facilities~~$22.93 Ifmillion ~~the Company~~ is within ~~not~~one ~~able~~year. toThese ~~refinance~~conditions ~~its~~indicate ~~debt~~that orthere ~~obtain~~is ~~additional~~substantial ~~capital,~~doubt about the Company’s ~~will~~ability ~~not be able~~ to ~~pay~~continue ~~off~~as ~~its~~a ~~current~~going ~~debt~~concern ~~obligations.~~within ~~The accompanying financial statements do not include any adjustments relating to~~ the ~~recoverability~~next ~~and~~twelve ~~classification~~months offrom ~~asset amounts or~~ the ~~classification~~filing of ~~liabilities~~this ~~that might be necessary should the Company be unable to continue as a going concern~~report.

65The Company’s primary source of operating funds has been debt financing and cash flow from operations. The Company anticipates continuing to have positive cash flows from operations as it ramps up production at their new manufacturing facilities. The management is taking actions to pay off loans when due, refinance existing loans if needed, obtain additional loans collateralized by the land use rights and Machinery and equipment, related party guarantees, third party guarantees and other assets. However, there is no assurance that additional grant funds to cover our capital needs will be available to us and that we will be able to refinance existing loans, obtain additional loans, or raise additional funds through other sources such as through an equity offering. Even if we are able to obtain additional financing, it may contain undue restrictions, be on terms that are not satisfactory to us, or contain covenants on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of convertible debt and equity financing. We may not be able to raise sufficient equity capital to finance our operations due to our operating results, the lack of a market for our common stock and similar factors.

The ~~Company’s~~accompanying ~~ability~~consolidated tofinancial ~~continue~~statements ashave abeen ~~going~~prepared ~~concern~~in isconformity ~~dependent~~with ~~upon~~accounting ~~our~~principles ~~ability~~generally toaccepted ~~raise additional capital and to ultimately generate revenues at a level that will result~~ in ~~profitability~~the ~~and~~United ~~positive~~States ~~cash~~of ~~flows~~America ~~from operations~~(“U.S. ~~To address these matters~~GAAP”), ~~management~~which iscontemplate ~~taking~~continuation ~~actions~~of tothe ~~pay~~Company ~~off~~as ~~loans~~a going ~~when~~concern and ~~due, refinance existing loans if needed, obtain capital leases, obtain additional loans collateralized by~~ the ~~land~~realization ~~use~~of ~~rights, third party guarantees and other~~ assets, and ~~obtain~~satisfaction ~~approval~~of ~~for~~liabilities ~~additional~~in ~~grant incentives from~~ the ~~government~~normal course of ~~Wu’an, China~~business. ~~However,~~The ~~there~~carrying ~~can~~amounts beof noassets ~~assurance~~and ~~that~~liabilities ~~additional~~presented ~~grant~~in ~~funds~~the tofinancial ~~support~~statements ~~our~~do ~~capital~~not ~~needs~~necessarily ~~will~~purport ~~be available~~ to usrepresent ~~and~~realizable ~~that we will be able to refinance existing loans, obtain additional loans,~~ or ~~raise~~settlement ~~additional funds through other sources such as through an equity offering~~values. ~~Even~~The ifconsolidated wefinancial ~~are~~statements ~~able~~do tonot ~~obtain~~include ~~additional~~any ~~financing,~~adjustment ~~it may contain undue restrictions, be on terms~~ that ~~are~~might ~~not~~result ~~satisfactory~~from ~~to us, or contain covenants on our operations, in~~ the ~~case~~outcome of ~~debt~~this ~~financing, or cause substantial dilution for our stockholders, in the case of convertible debt and equity financing~~uncertainty.

Off-Balance Sheet Arrangements

As of December 31, ~~2015~~2016, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

Capital Commitments Equipment

The Company has contractual obligations related to future capital expenditures for equipment as of December 31, ~~2015~~2016. The Company's commitment for minimum payment under these contractual obligations as of December 31, ~~2015~~2016 is $225.9647 million.

Capital Commitment - Construction

As discussed further in Note 9, in conjunction with the Land Use Rights obtained by Northern Altair, the Company agreed to make fixed asset investments on the land of approximately $314.85 million, subject to loan guarantees and other incentives from Wu’an, China, over an unspecified period of time up to the 50-year life of the land use rights, with initial construction occurring in 2013.

Debt

As of December 31, ~~2015~~2016, we ~~are~~were required to pay principal amounts of $708.5406 million payable in ~~2016~~ 2017.with the remainder of $637.6095 million payable in ~~2017~~and after 2018.

Lease

WeOn ~~leased~~January 27, 2015, we entered into a Client NNN Lease (the “Lease”) with Flagship Enterprise Center, Inc. Under the Lease, the Company will continue to lease the 70,000 square feet ~~facility~~of inspace ~~Flagship~~it ~~Business~~currently ~~Accelerator~~occupies ~~Building~~in ~~located~~Anderson, atIndiana. ~~3019~~The ~~Enterprise~~lease ~~Drive~~amended on January 27, ~~Anderson~~2015 will expire on June 30, ~~Indiana~~2017. ~~under~~Any alease ~~triple~~renewal ~~net~~options will be negotiated no less than six (6) months prior to the expiration of this lease. ~~with~~Annual ~~Flagship~~rent ~~Enterprise~~under ~~Center~~the lease is $0.26 million plus IT fees, ~~Inc~~utilities and maintenance. The ~~facility~~majority of the space was used for the production of prototype batteries and battery systems until December 31, 2015. The ~~lease,~~rest asof ~~amended~~the ~~recently~~space onis ~~January~~used ~~27,~~for ~~2015,~~office ~~expires~~space onto ~~June~~provide 30technical engineering and support services, ~~2017.~~primarily to our China entities. Effective May 1, 2016, we agreed to pay $~~140,000~~0.14 million as a payment to terminate ~~the~~this lease effective by the end of May 2016. We have been granted use of the office space from the termination date, at no additional charge, until the landlord finds a new tenant. The landlord will give the Company thirty days’ notice at their discretion to vacate the premises. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

6636

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATMEMENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	6838
Consolidated Balance Sheets as of December 31, 2015, 2014, 2013 and 2012	70
Consolidated Balance Sheets as of December 31, 2016 and 2015	40
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, 2013 and 2012	71
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016 and 2015	41
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015, 2014, 2013 and 2012	72
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015	42
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, 2013 and 2012	73
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	43
Notes to Consolidated Financial Statements	44-74
Quarterly Financial Statements and Notes to Financial Statements	106

6737

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Stockholders

of Altair Nanotechnologies, Inc.

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

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

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

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

/s/ Marcum Bernstein & Pinchuk LLP

Marcum Bernstein & Pinchuk LLP

Guangzhou, China

May 1, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders

of Altair Nanotechnologies, Inc.

We have audited the accompanying consolidated balance ~~sheets~~sheet of Altair Nanotechnologies, Inc. and its Subsidiaries (the “Company”) as of December 31, 2015, ~~2014~~ and ~~2013, and~~ the related consolidated statements of operations and comprehensive loss, changes in stockholders’ (deficit~~) equity~~ and cash ~~flows~~flow for the ~~years~~year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audits~~audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Altair Nanotechnologies, Inc. and its Subsidiaries, as of December 31, 2015, ~~2014~~ and ~~2013, and~~ the consolidated results of its operations and its cash flows for the ~~years~~year then ended in conformity with accounting principles generally accepted in the United States of America.

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

/s/Marcum llp

Marcum llp

New York, NY
November 15, 2016

6839

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Altair Nanotechnologies Inc.

Reno, Nevada

We have audited the accompanying consolidated balance sheet of Altair Nanotechnologies Inc. and subsidiaries (the “Company”) as of December 31, 2012, and the related consolidated statements of operations and comprehensive loss, stockholders' (deficit) equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Altair Nanotechnologies Inc. and subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Sacramento, California

April 1, 2013

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	As of December 31,
	2015			2014			2013			2012
	2016			2015
ASSETS
Current assets
Current assets:
Cash and cash equivalents	$	~~2,088~~801		$	12,~~001~~088		$	~~1,289~~		$	~~12,372~~
Restricted cash		~~231~~216			~~4,661~~231			~~4,419~~			~~6,245~~
Short-term investment		~~25,410~~-			-25,410			~~2,932~~			-
Accounts receivable, net		~~523~~137			~~650~~523			~~1,174~~			~~1,498~~
Amounts due from related parties		1518,~~923~~062			3415,~~405~~923			~~8,923~~			-
Notes receivable		74-			-74			-			-
Product inventories, net		7,671			6,914			5,144			7,416
Inventories		25,290			7,671
Prepaid expenses and other current assets		715,~~728~~877			267,~~952~~728			~~9,373~~			~~937~~
Deferred contract costs		~~3,454~~-			~~143~~3,454			~~199~~			~~4,532~~
Other assets, related parties		-			-			-			1,754
Total current assets		60,383			63,102
Total current assets		63,102			74,726			33,453			34,754
Prepaid expenses, non-current		855			3,792
Restricted cash		-			243			-			11,803
Property, plant and equipment, net		74,143			36,395
Deferred contract costs, non-current		-			2,289			1,747			-
Land use right, net		24,422			26,685
Prepaid expenses, non-current		3,792			6,787			15,882			-
Patents, net		-			47
Property, plant and equipment, net		36,395			19,893			19,147			5,933
Long term receivable, net of current portion		3,136			4,138
Patents, net		47			122			198			274
Total assets	$	162,939		$	134,159
Long-term investment		-			5,684			-			-
LIABILITIES AND EQUITYLIABILITIES AND STOCKHOLDERS’DEFICIT
Other non-current asset		4,138			390			-			-
Current Liabilities
Land use right, net		26,685			25,733			22,387			13,625
Trade accounts payable	$	16,723		$	7,107
Total Assets	$	134,159		$	135,867		$	92,814		$	66,389
Amounts due to related parties		82,239			25,459
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Deferred revenues and customer deposit		443			3,776
Current Liabilities
Deferred income - grant incentives, current		536			551
Trade accounts payable	$	7,107		$	6,253		$	7,902		$	2,599
Current portion of long term notes payable		6,974			25,564
Amounts due to related parties included note payable of $nil and $5,684 as of December 31, 2015 and 2014, respectively		25,459			26,283			-			-
Accrued expenses and current liabilities		5,801			3,518
Accrued salaries and benefits		1,914			1,263			925			632
Notes payable		750			44,973
Accrued warranty		168			173			432			418
Capital lease obligation, current portion		339			-
Accrued liabilities		1,169			888			854			384
Total current liabilities		113,805			110,948
Deferred revenues and customer deposit		3,776			4,425			2,308			7,218
Long term notes payable, net of current portion		29,148			6,622
Deferred income - Grant Incentives		551			529			357			-
Other non-current liabilities		3,062			3,565
Warrant liabilities		1			6			350			90
Deferred income - grant incentives, non-current		24,536			26,192
Current portion of long term notes payable		25,564			1,786			-			-
Capital lease obligation, less current portion		8,804			-
Other current liabilities		266			24			-			-
Total liabilities		179,355			147,327
Notes payable		44,973			25,862			36,241			6,680
Commitments and contingencies		-			-
Capital lease obligation		-			-			6			5
Stockholders' deficit:
Total current liabilities		110,948			67,492			49,375			18,026
Common stock, $0.001 par value, 200,000,000 shares authorized; 11,606,735 shares issued and outstanding at December 31, 2016 and 2015		12			12
Long term notes payable, net of current portion		6,622			33,942			-			-
Additional paid in capital		259,912			259,102
Other non-current liabilities		3,565			335			-			-
Accumulated deficit		(276,136	)		(272,495	)
Deferred revenue and customer deposit, non-current		-			2,303			3,419			-
Accumulated other comprehensive (loss) income		(204	)		213
Deferred income - Grant Incentives, non-current		26,192			24,976			17,072			11,803
Total stockholders’ deficit		(16,416	)		(13,168	)
Capital lease obligation, less current portion		-			-			-			4
Total liabilities and stockholders’ deficit	$	162,939		$	134,159
Total Liabilities		147,327			129,048			69,866			29,833
Commitments and contingencies (Note 18)
Stockholders' (deficit) equity
Common stock, $0.001 par value, 200,000,000 shares authorized; 11,606,735, 11,606,735, 11,606,735, and 11,590,067 shares issued and outstanding at December 31, 2015, 2014, 2013, 2012, respectively		12			12			12			12
Additional paid in capital		259,102			259,091			259,083			259,065
Accumulated deficit		(272,495	)		(252,989	)		(237,038	)		(222,409	)
Accumulated other comprehensive (income) loss		213			705			891			(112	)
Total stockholders' (deficit) equity		(13,168	)		6,819			22,948			36,556
Total Liabilities and Stockholders' (Deficit) Equity	$	134,159		$	135,867		$	92,814		$	66,389

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

7040

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

	Years Ended December 31,
	2015			2014			2013			2012
	2016			2015
Revenues
Revenue:
Product sales	$	58,~~883~~348		$	45,~~028~~883		$	~~7,481~~		$	~~1,284~~
Product sales –Related Parties		7,919			2,184			367			-
Product sales – related parties		45,856			7,919
License fees		~~332~~400			~~264~~332			~~246~~			~~240~~
Commercial collaborations		~~144~~83			~~268~~144			74			23
Total revenues		1454,~~278~~687			614,~~744~~278			~~8,168~~			~~1,547~~
Cost of goods sold
Cost of goods sold:
Product costs		56,~~159~~981			35,~~950~~159			~~8,400~~			~~2,872~~
Cost to related party sales		730,~~523~~580			27,~~670~~523			~~345~~			-
Inventory write down		~~1,352~~-			-1,352			-			-
Total cost of goods sold		1437,~~034~~561			614,~~620~~034			~~8,745~~			~~2,872~~
Gross profit (loss)		244			124			(577	)		(1,325	)
Gross profit		17,126			244
Operating expenses
Operating expenses:
Research and development		~~808~~3,163			~~1,084~~808			~~3,965~~			~~6,423~~
Sales and marketing		~~862~~291			~~631~~862			~~1,179~~			~~2,864~~
General and administrative		1115,~~709~~655			811,~~129~~709			~~7,772~~			~~6,908~~
Impairment expense		652			-			-			-
Impairment loss		129			652
Depreciation and amortization		1,~~560~~093			1,~~850~~560			~~1,459~~			~~1,071~~
Loss on disposal of assets		142			92			32			-
(Gain) loss on disposal of assets		(29	)		142
Total operating expenses		1520,~~733~~302			1115,~~786~~733			~~14,407~~			~~17,266~~
Loss from operations		(153,~~489~~176	)		(1115,~~662~~489	)		~~(14,984~~	)		~~(18,591~~	)
Other income (expense)
Other income (expense):
Interest income (expense) net		(2,533	)		(6,142	)		255			48
Interest expense, net		(3,708	)		(2,533	)
Change in fair value of warrants		5			344			(260	)		564
Gain on foreign currency transactions		-			1
Gain (loss) on foreign exchange		1			15			(1	)		(7	)
Other income - electric bus sales		21			11,419
Other income - electric bus sales		11,419			28,275			-			-
Other expense – electric bus sales		-			(13,548	)
Other expenses – electric bus sales		(13,548	)		(27,545	)		-			-
Other income		3,222			644
Other income		639			764			361			-
Total other expense		(465	)		(4,017	)
Total other income (expense)		(4,017	)		(4,289	)		355			605
Net loss	$	(3,641	)	$	(19,506	)
Net loss	$	(19,506	)	$	(15,951	)	$	(14,629	)	$	(17,986	)
Other comprehensive loss:
Other Comprehensive Income
Foreign currency translation adjustments		(417	)		(492	)
Foreign Currency Translation Adjustments		(492	)		(186	)		1,003			(112	)
Comprehensive loss	$	(4,058	)	$	(19,998	)
Comprehensive Loss	$	(19,998	)	$	(16,137	)	$	(13,626	)	$	(18,098	)
Loss per common share - basic and diluted	$	(0.31	)	$	(1.68	)
Loss per common share - basic and diluted	$	(1.68	)	$	(1.37	)	$	(1.26	)	$	(1.55	)
Weighted average shares - basic and diluted		11,606,735			11,606,735
Weighted average shares - basic and diluted		11,606,735			11,606,735			11,591,939			11,590,067

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

7141

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) ~~EQUITY~~

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

											Accumulated
					Additional						Other
											Other
	Common Stock				~~Paid~~Additional InPaid			Accumulated			Comprehensive
	Shares		Amount		In Capital			Deficit			Income (Loss)			Total
Balance, December 31, 2011		11,590,067	$	12	$	257,884		$	(204,423	)	$	-		$	53,473
Balance, December 31, 2014		11,606,735	$	12	$	259,091		$	(252,989	)	$	705		$	6,819
Net loss									(17,986	)					(17,986	)
Foreign currency translation adjustment												(112	)		(112	)
Reduction in issuance costs from legal claims settlement						1,050									1,050
Share-based compensation						131									131
Balance, December 31, 2012		11,590,067		12		259,065			(222,409	)		(112	)		36,556
Net loss		-		-		-			(14,629	)		-			(14,629	)
Common stock issued on exercised option		16,668		-		48			-			-			48
Unrealized gain/loss on foreign exchange		-		-		-			-			1,003			1,003
Forfeiture of options		-		-		(30	)		-			-			(30	)
Balance, December 31, 2013		11,606,735		12		259,083			(237,038	)		891			22,948
Net loss		-		-		-			(15,951	)		-			(15,951	)
Unrealized gain/loss on foreign exchange		-		-		-			-			(186	)		(186	)
Stock-based compensation		-		-		8			-			-			8
Balance, December 31, 2014		11,606,735		12		259,091			(252,989	)		705			6,819
Net loss		-		-		-			(19,506	)		-			(19,506	)
Unrealized gain/loss on foreign exchange		-		-		-			-			(492	)		(492	)
Currency translation adjustment		-		-		-			-			(492	)		(492	)
Stock-based compensation		-		-		11			-			-			11
Balance, December 31, 2015		11,606,735	$	12	$	259,102		$	(272,495	)	$	213		$	(13,168	)
Waiver of payable by a related party		-		-		810			-			-			810
Net loss		-		-		-			(3,641	)		-			(3,641	)
Currency translation adjustment		-		-		-			-			(417	)		(417	)
Balance, December 31, 2016		11,606,735	$	12	$	259,912		$	(276,136	)	$	(204	)	$	(16,416	)

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

7242

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

	Year Ended December 31,
	Years Ended December 31
	2015			2014			2013			2012
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(253,~~694~~641	)	$	(919,~~656~~506	)	$	~~(14,629~~	)	$	~~(17,986~~	)
Adjustment to Reconcile Net loss to Net Cash Provided by (Used in) Operating Activities
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		13,~~560~~626			1,~~850~~560			~~1,459~~			~~1,071~~
Accretion		(169	)		(10	)		-			-
Inventory reserve		281			1,352
Share-based compensation		11			8			(30	)		131
Accretion of other non-current liabilities		317			255
Change in other receivable reserves		(6,287	)		6,287						-
Accretion of long term receivables		(155	)		(424	)
Change in fair value of warrants		(5	)		(344	)		260			(564	)
Accretion of long term notes payable		431			-
Impairment expense		2,004			-			-			-
Accretion of capital lease obligation		175			-
Changes in Operating Assets and Liabilities
Share-based compensation		-			11
Accounts receivable, net		52			(5,666	)		324			(1,165	)
Bad debt expense		-			(6,287	)
Product inventories, net		(2,109	)		(1,770	)		2,272			(2	)
Impairment loss		129			652
Prepaid expenses and other current assets		25,511			(23,866	)		(6,682	)		(1,129	)
Changes in operating assets and liabilities:
Deferred contract costs		(1,022	)		(486	)		2,586			(3,854	)
Accounts receivable		385			52
Trade accounts payable		(1,885	)		(1,301	)		1,263			(2,221	)
Note receivables		73			-
Accrued salaries and benefits		651			338			293			(500	)
Inventories		(19,170	)		(2,109	)
Accrued warranty		(5	)		(259	)		14			64
Prepaid expenses and other current assets		(9,159	)		25,511
Accrued liabilities		281			34			470			(37	)
Deferred contract costs		3,454			(1,022	)
Deferred revenue and customer deposit		(2,952	)		1,001			(1,491	)		5,602
Trade accounts payable		1,803			(1,885	)
Deferred income - Grant Incentives		1,238			8,076			5,626			-
Long term receivable		1,808			(3,324	)
Other liabilities		3,217			343			-			-
Accrued expenses and current liabilities		2,574			922
Amounts due from related parties		17,740			(11,175	)		(8,890	)		-
Deferred revenue and customer deposit		(3,308	)		(2,952	)
Amounts due to related parties		110			1,996			-			-
Deferred income - grant incentives		70			1,238
Prepaid expenses, non-current		-			15,284			(15,284	)		-
Other non-current liabilities		(594	)		3,217
Other non-current asset		(3,324	)		(363	)		-			-
Amounts due from related parties		(617	)		17,740
Restricted cash		-			(243	)		-			-
Amounts due to related parties		25,797			110
Net Cash Provided by (Used in) Operating Activities		15,111			(26,209	)		(32,439	)		(20,590	)
Net cash provided by operating activities		4,279			15,111
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash		-			-			11,803			(18,048	)
Maturity (placement) of term deposit		24,834			(19,726	)
Placement of term deposit		(19,726	)		(5,684	)		(2,932	)		-
Purchase of property, plant and equipment		(25,961	)		(12,421	)
Maturity of term deposit		-			2,932			-			-
Sale of property, plant and equipment		565			-
Purchase of property, plant and equipment		(12,421	)		(2,363	)		(10,754	)		(253	)
Purchase of land use right		-			(1,435	)
Proceeds from asset disposal		-			11			56
Payment from (loan to) related parties		(16,025	)		742
Purchase of land use right		(1,435	)		(3,851	)		(9,163	)		(13,625	)
Net cash used in investing activities		(16,587	)		(32,840	)
Repayment from (loan to) related parties		742			(14,307	)		(33	)		-
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Used in Investing Activities		(32,840	)		(23,273	)		(11,079	)		(31,926	)
Change in restricted cash		-			4,673
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from trade acceptance		678			10,236
Change in restricted cash		4,673			(242	)		1,826			-
Repayment of trade acceptance		(5,022	)		(5,610	)
Proceeds from trade acceptance		10,236			-			115			-
Proceeds from notes payable		36,416			39,538
Repayment of trade acceptance		(5,610	)		(116	)		-			-
Repayment of notes payable		(70,179	)		(26,402	)
Proceeds from notes payable		39,538			56,632			35,176			6,680
Loan from (repayment to) related party		49,432			(934	)
Repayment of notes payable		(26,402	)		(31,167	)		(5,730	)		-
Net cash provided by financing activities		11,325			21,501
Proceeds (payment) of related party notes		(934	)		24,287			-			-
Effect of exchange rate changes on cash and cash equivalents		(304	)		(2,685	)
Deferred income		-			-			-			11,803
Net change in cash and cash equivalents		(1,287	)		1,087
Cash received for stock option exercise		-			-			48			-
Cash and cash equivalents at beginning of year		2,088			1,001
Repayment of capital lease obligation		-			(6	)		(3	)		(2	)
Cash and cash equivalents at end of year	$	801		$	2,088
Net Cash Provided by Financing Activities		21,501			49,388			31,432			18,481
SUPPLEMENTAL CASH FLOW INFORMATION
Effect of exchange rate changes on cash and cash equivalents		(2,783	)		(194	)		1,003			(112	)
Cash paid during the years for:
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS		1,087			(288	)		(11,083	)		(34,147	)
Income taxes	$	-		$	-
CASH AND CASH EQUIVALENTS, beginning of year		1,001			1,289			12,372			46,519
Interest expense	$	4,328		$	5,467
CASH AND CASH EQUIVALENTS, end of year	$	2,088		$	1,001		$	1,289		$	12,372
NONCASH INVESTING AND FINANCING ACTIVITIES
SUPPLEMENTAL CASH FLOW INFORMATION
Equipment acquired through capital lease	$	9,382		$	-
Cash paid during the years for:
Related parties debt settlement	$	13,323		$	-
Income taxes		-			-			-			-
Interest expense		5,467		$	5,540		$	709		$	73

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

7343

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 – NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Company and Business

Altair Nanotechnologies Inc., (the “Company”) is a Delaware corporation that develops, manufactures and sells nano lithium titanate batteries and energy storage systems. The Company’s nano lithium titanate battery systems offer higher power density, longer cycle life, rapid charge and discharge capabilities, a wider operating temperature range and higher levels of safety than conventional lithium-ion batteries. The Company targets applications that utilize the key attributes of its technology with product applications mainly found in the electric grid, transportation (commercial vehicles), and industrial market segments. ~~The Company has also added to our business strategy in recent years the purchase and sale of EV Buses.~~

In ~~July~~January ~~2011~~2014, the Company ~~initiated~~approved ~~activities~~plans to ~~enter~~consolidate all manufacturing operations in the United States of America (“U.S.A.”) and to move them to Wu’an, China. The ~~market~~Company ~~including~~will ~~the~~continue to retain engineering, research and development, sales ofand ~~batteries~~marketing, and ~~systems~~support capabilities in the U.S.A. Starting in early 2016, the Company’s principal assets and operations were located in China. Management believed that moving manufacturing operations to ~~develop~~China represented a ~~manufacturing~~strategic ~~and~~shift ~~supply~~such ~~chain~~that ~~strategy~~the tochange ~~reduce~~had ~~costs~~a major effect on the Company’s operations.

~~Effective~~NOTE ~~May~~2 ~~15,~~– ~~2012,~~GOING ~~Altair~~CONCERN ~~Nanotechnologies,~~AND ~~Inc.~~MANAGEMENT’S ~~changed~~PLANS its jurisdiction of incorporation from Canada to the State of Delaware by means of a domestication (the “Domestication”) under Section 188 of the Canada Business Corporations Act and Section 388 of the Delaware General Corporation Law.

InAs ~~April~~of ~~2012~~December 31, 2016, the Company ~~formed~~had ~~Altair~~a ~~Nanotechnologies~~working ~~(China)~~capital Codeficiency of $53.,4 ~~Ltd~~million and a stockholders’ deficiency of $16.4 ~~(“Altair~~million. ~~China”)~~During ~~and~~the ~~Northern~~years ~~Altair~~ended ~~Nanotechnologies~~December Co31, 2016, the Company incurred a net loss of $3.64 million. In addition, ~~Ltd~~the Company has $8.06 ~~(“Northern~~million ~~Altair”)~~of debt coming due in ~~order~~the tonext ~~aggregate~~12 months. ~~key~~The ~~elements~~Company has capital commitments of ~~its~~$25.47 ~~supply~~million ~~chain~~as ~~and~~of ~~expand~~December ~~into~~31, 2016, of which $22.93 million is within one year. These conditions raise substantial doubt about the ~~Chinese~~ability ~~market~~of the Company to continue as a going concern within one year from the date of this report.

OnThe ~~April~~Company’s ~~19,~~primary ~~2012~~source of operating funds has been debt financing and cash flow from operations. The Company anticipates continuing to have positive cash flows from operations as it ramps up production at their new manufacturing facilities. The management is taking actions to pay off loans when due, ~~Altair~~refinance ~~China~~existing ~~entered~~loans ~~into~~if anneeded, ~~agreement~~obtain (additional loans collateralized by the ~~“Agreement")~~land ~~with~~use ~~Wu’an~~rights ~~Municipal~~and ~~People's~~Machinery ~~Government~~and ~~("Wu'an")~~equipment, related party guarantees, third party guarantees and ~~Handan~~other ~~Municipal~~assets. ~~People's~~However, ~~Government~~there ~~("Handan")~~is ~~regarding~~no ~~the~~assurance ~~establishment~~that byadditional ~~Altair~~grant ~~China~~funds ofto acover ~~manufacturing~~our ~~facility~~capital needs will be available to us and that we will be able to refinance existing loans, obtain additional loans, or raise additional funds through other sources such as through an equity offering. Even if we are able to obtain additional financing, it may contain undue restrictions, be on terms that are not satisfactory to us, or contain covenants on our operations, in the ~~City~~case of ~~Wu'an~~debt financing, ~~Hebei~~or ~~Province~~cause substantial dilution for our stockholders, in ~~China~~the case of convertible debt and equity financing. We may not be able to raise sufficient equity capital to finance our operations due to our operating results, the lack of a market for our common stock and similar factors.

The ~~Agreement~~accompanying ~~provides~~consolidated ~~the~~financial ~~framework~~statements ~~for~~have ~~Altair~~been ~~China's~~prepared ~~location~~in ofconformity awith ~~nano~~accounting ~~lithium~~principles ~~titanate~~generally ~~oxide~~accepted ~~(nLTO) manufacturing facility~~ in athe ~~newly~~United ~~formed~~States ~~technology~~of ~~park~~America in(“U.S. ~~Wu'an~~GAAP”), which ~~has~~contemplate ~~capacity~~continuation of ~~producing~~the upCompany toas ~~3,000~~a ~~tons~~going ~~per~~concern and ~~annum.~~the ~~The~~realization ~~Company~~of ~~anticipates~~assets and satisfaction of liabilities in the ~~future~~normal ~~expansion~~course of ~~such~~business. ~~facility~~The ~~based~~carrying onamounts ~~market~~of ~~demand~~assets and liabilities presented in the ~~establishment~~financial ofstatements ando ~~energy~~not ~~storage~~necessarily ~~system~~purport ~~production~~to ~~line.~~represent ~~This~~realizable ~~future~~or ~~expansion~~settlement isvalues. inThe ~~process~~consolidated ~~and~~financial ~~the~~statements ~~Company~~do ~~expects~~not toinclude beany ~~able~~adjustment tothat ~~reach~~might ~~this~~result ~~capacity~~from inthe ~~early~~outcome ~~2017~~of this uncertainty.

To provide incentives for Altair China to locate in Wu'an, the government of Wu'an had agreed, subject to tender, auction and listing procedures that may be required by law, to make approximately 330 acres of commercial land available to Altair China free of rent or land transfer fees for a 50-year commercial term and, subject to certain limitations and procedures, to provide additional tax incentives to Altair China. The Agreement stipulated that Altair China would establish a presence in Wu'an immediately, the first piece of Land Use Rights with 66 acres was granted in November 2012 and the first phase of Altair China's construction of the facility was completed in late 2013. The Agreement designates the purchase by Wu'an and Handan of EV Buses beginning in late 2012 and continuing for five years, and includes the future purchase of electric taxis and energy storage systems. 44

InALTAIR ~~January~~NANOTECHNOLOGIES ~~2014, the Company approved plans to consolidate all manufacturing operations in the United States of America (“U~~INC.~~S.A.”)~~ ~~and~~AND to move them to Wu’an, China. The Company will continue to retain engineering, research and development, sales and marketing, and support capabilities in the U.S.A. Starting in early 2016, the Company’s principal assets and operations were located in China. Management does not expect that moving manufacturing operations to China will represent a strategic shift such that the change will have a major effect on the Company’s operations. SUBSIDIARIES

~~NOTE~~NOTES 2TO –CONSOLIDATED ~~GOING~~FINANCIAL ~~CONCERN~~STATEMENTS

~~For~~(Expressed ~~the~~in ~~year~~thousands ~~ended December 31, 2015, the Company incurred a net loss~~ of ~~$19.51~~United ~~million~~States ~~and had an accumulated deficit and working capital deficit of $272.49 million and $47.85 million~~Dollars, ~~respectively.~~except In addition, the Company has $70.54 million of debt coming due in the next 12 months and the Company anticipates continuing to have negative cash flows from operations as it ramps up production at their new manufacturing facilities. If the Company is not able to refinance its debt or obtain additional capital, the Company will not be able to pay off its current debt obligations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.shares)

The Company’s ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately generate revenues at a level that will result in profitability and positive cash flows from operations. To address these matters, management is taking actions to pay off loans when due, refinance existing loans if needed, obtain capital leases, obtain additional loans collateralized by the land use rights, third party guarantees and other assets, and obtain approval for additional grant incentives from the government of Wu’an, China. However, there can be no assurance that additional grant funds to support our capital needs will be available to us and that we will be able to refinance existing loans, obtain additional loans, or raise additional funds through other sources such as through an equity offering. Even if we are able to obtain additional financing, it may contain undue restrictions, be on terms that are not satisfactory to us, or contain covenants on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of convertible debt and equity financing.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Principles of Consolidation

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

Reclassification ~~of Prior Period Presentation~~

~~Certain~~The ~~prior~~Company ~~year~~has ~~amounts have been~~ reclassified ~~for~~certain ~~consistency~~comparative ~~with~~balances in the ~~current~~consolidated ~~period~~balance ~~presentation.~~sheet ~~These~~for ~~reclassifications~~December ~~had~~31, no2015 ~~effect~~to onconform to the ~~reported~~current ~~results~~period’s ~~of operations~~presentation. InThe ~~the~~reclassification ~~third~~is ~~quarter~~related ofto ~~fiscal~~the ~~year~~aggregation ~~2013,~~of the ~~Company~~balances ~~concluded~~of ~~that~~certain itaccruals ~~was~~and ~~appropriate~~other toliability ~~classify~~accounts; ~~its~~accrued ~~deferred~~salaries ~~revenue~~ and ~~deferred~~benefits, ~~contract~~accrued ~~cost~~warranty, ~~based~~accrued onliabilities, ~~the~~warrant ~~short-term~~liabilities, ~~and~~into ~~long-term~~the ~~nature.~~other ~~Previously,~~payables ~~deferred cost~~ and ~~deferred~~current ~~contract~~liabilities ~~cost were reported as short term~~account. ~~This~~ ~~change~~The inreclassification ~~classification~~did ~~does~~ not ~~materially~~have ~~affect~~an ~~previously~~impact ~~reported Consolidated Statements of Cash Flows, and had no effect~~ on the ~~previously~~ reported ~~Consolidated~~total ~~Statements~~assets, ofliabilities ~~Operations~~and ~~for~~stockholders’ ~~any period~~equity.

Foreign Currency Translation and Transactions

The consolidated financial statements are presented in thousands of U.S. Dollars. The functional currency for the subsidiaries in China is the Chinese Yuan or RMB. Assets and liabilities are translated to the reporting currency at exchange rates on the balance sheet dates, revenue and expenses are translated at average exchange rates during the period, and equity accounts are translated at historical exchange rates. ~~Any~~except ~~resulting~~for ~~translation~~the ~~adjustments~~change ~~are~~in ~~not~~retained ~~included~~earnings induring ~~determining~~the ~~net~~year which is the result of the income. ~~(loss)~~The ~~but~~cumulative translation adjustments are ~~included~~recorded in accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders' deficit. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign ~~exchange~~currency transaction gain or loss in the statements of operations.

Use of Estimates

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

Cash and Cash Equivalents

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

Restricted Cash

The Company’s restricted cash represents cash ~~required~~restricted toas beperformance ~~deposited~~guarantee ~~related to various letter of credits and also cash designated~~ for ~~use in~~ China ~~operations.~~State ~~Restricted~~Grid ~~cash comprised the following (In thousands of dollars):~~Project.

	December 31,
Short Term	2015		2014		2013		2012
Restricted cash related to trade acceptance (Note 12)	$	-	$	-	$	117	$	-
Standby letter of credit related to bank loan (Note 12)		-		4,661		4,302		6,245
Other		231		-		-		-
Total	$	231	$	4,661	$	4,419	$	6,245

Long Term		2015				2014				2013				2012
Other		$	-			$	243			$	-			$	11,803

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

AsNOTES ofTO ~~December~~CONSOLIDATED ~~31,~~FINANCIAL ~~2015, cash of $0.23 million is restricted as performance guarantee for China State Grid Project.~~STATEMENTS

As(Expressed ofin ~~December~~thousands ~~31, 2014, cash~~ of ~~$0.52~~United ~~million~~States isDollars, ~~restricted~~except by Bank of China for a letter of international credit; cash of $4.14 million is set aside to secure the financing from Bank of China; cash of $0.24 million is restricted as performance guarantee for China State Grid Project.shares)

AsNOTE of3 ~~December~~– ~~31,~~SUMMARY ~~2013,~~OF ~~cash~~SIGNIFICANT ofACCOUNTING ~~$0.21~~POLICIES million is restricted by Bank of China for a letter of international credit; cash of $4.09 million is set aside to secure the financing from Bank of China; cash of $0.12 million is restricted by Handan Bank for issuance of a trade acceptance.(CONTINUED)

As of December 31, 2012, cash amount of $0.29 million is restricted by the Bank of China for letter of international credit; cash amount of $2.06 million and $3.89 million set aside to secure the financing from Bank of China and the Industrial and Commercial Bank of China respectively; Northern Altair also received cash grant incentives of $11.8 million from the Wu’an government in year 2012 and recorded it as restricted cash, which can be used subject to meeting certain guidelines agreed upon by the Wu’an government and the Company.

Short-term investment

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

Long-term investment

Long-term investments consist primarily of investments in certificate of deposit with more than one year.

Accounts Receivable

Accounts receivable consists of amounts due from customers for services and product sales, net of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts by reviewing each customer account and specifically identifying any potential for loss. As of December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015, ~~the~~an ~~Company’s~~allowance ~~reserve~~ for ~~uncollectible~~doubtful accounts ~~was~~amounted ~~$0.03~~to ~~million,~~ $~~0.04 million, $~~nil, and $~~0.05 million~~30,000, respectively., ~~Reserve~~was ~~for allowances for uncollectible accounts and bad debts recognized are recorded as general and administrative expenses~~provided.

Inventory

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

Prepaid expenses

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

Research and Development Expenditures

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

Stock-Based Compensation

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Defined contribution plan

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

The total contributions paid were $02.3202 million, ~~$0.63~~and ~~million,~~ $0.8732 million ~~and $nil~~ for the years ended December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015, respectively.

Long-Lived Assets

~~Included~~During inthe ~~general~~year ~~and~~ended ~~administrative~~December ~~expenses~~31, ~~during~~2016, the Company recognized impairment loss of $0.13 million for the two EV buses delivered to Wu’an government as the application for their operating licenses was unsuccessful. During the year ended December 31, 2015, isthe Company incurred an impairment ~~charge~~loss of $0.65 million related to the write-down to fair market value for an asset that was leased to a customer under an operating lease. The ~~asset~~impairment was ~~sold~~to atreflect athe ~~lower~~anticipated ~~price~~loss ~~than~~on ~~net~~the ~~book~~sale ~~value~~of inthe ~~January~~leased ~~2016.~~assets Noincurred ~~impairment~~in ~~was recognized for~~ the ~~year~~subsequent ~~ended December 31, 2014, 2013, and 2012~~period.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the following estimated useful lives:

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

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Patents

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

Land use rights

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

Revenue Recognition

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

Revenue from nLTO related product sales, ~~commercial collaborations and license fees~~ is recognized upon delivery of the product, unless specific contractual terms dictate otherwise.

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

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

Grant Incentive

Accrued Warranty

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Overhead Allocation

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

Comprehensive ~~Income (~~Loss)

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

Net Loss per Common Share

Advertising, Sales and Marketing Costs

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses in the Company’s consolidated statement of operations. Advertising, sales and marketing costs were approximately $0.8729 ~~million,~~and $0.6387 million, ~~$1.18 million, and $2.86 million,~~ respectively, for the years ending December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015.

Income Taxes

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. The Company is no longer subject to income tax examinations by tax authorities for years prior to 2007.49

~~Segment~~ALTAIR ~~reporting~~NANOTECHNOLOGIES INC. AND SUBSIDIARIES

~~Segment~~NOTES ~~information~~TO isCONSOLIDATED ~~consistent~~FINANCIAL with how the Chief Executive Officer and Interim Chief Financial Officer reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Transfers and sales between reportable segments, if any, are recorded at cost.STATEMENTS

~~The~~(Expressed ~~Company reported financial and operating information~~ in ~~the~~thousands ~~following two segments as~~ of ~~December~~United 31States Dollars, ~~2012:~~except shares)

~~(a)~~ NOTE ~~Power~~3 ~~and~~– ~~Energy~~SUMMARY ~~Group~~OF ~~(PEG)~~SIGNIFICANT ~~segment~~ACCOUNTING —POLICIES ~~The PEG segment is the Company’s current and future focus for corporate development. The PEG segment develops, produces, and sells nLTO related battery systems & ESS systems.~~(CONTINUED)

Income Taxes (bcontinued) ~~The All Others group consists of the remaining portions of the previous Life Sciences and Performance Materials groups.~~

AsTax ofbenefits ~~September~~related 30to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, ~~2013~~these tax benefits are recorded when a tax position has been effectively settled, ~~Chief~~which ~~Operating~~means ~~Decision~~that ~~Maker~~the ~~decided~~statute toof ~~combine~~limitation ~~both~~has ~~segments~~expired ~~into~~or the ~~PEG~~appropriate ~~segment~~taxing ~~because~~authority ~~resource~~has ~~allocation~~completed their examination even though the statute of limitations remains open. Interest and ~~performance~~penalties ~~assessment~~related ~~would~~to beuncertain ~~concentrated~~tax positions are recognized as ~~one~~part ~~operating~~of ~~level~~the provision for income taxes and are accrued beginning in the ~~Company~~period ~~started~~that tosuch ~~manage~~interest ~~its~~and ~~business~~penalties ~~primarily~~would onbe aapplicable ~~geographic~~under ~~basis~~relevant tax law until such time that the related tax benefits are recognized.

80 Geographic Information and Concentration

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

Derivative Financial Instruments

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

AsRecently ofIssued ~~December~~Accounting 31, 2015, 2014, 2013 and 2012, the Company’s consolidated balance sheet included the fair value of a warrant liability of $nil, $nil, $0.35 million, and $0.09 million, respectively (see Note 5 and Note 14).Guidance

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

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.50

In ALTAIR ~~April~~NANOTECHNOLOGIES ~~2014, the FASB issued ASU No~~INC. ~~2014-08,~~AND "Presentation of Financial Statements and Property, Plant and Equipment; Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 modifies the requirements for reporting discontinued operations. Under the amendments in ASU 2014-08, the definition of discontinued operation has been modified to only include those disposals of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. ASU 2014-08 also expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2014 (January 1, 2015 for the Company). The Company’s adoption of ASU 2014-08 did not have an impact on the Company’s Consolidated Financial Statements.SUBSIDIARIES

InNOTES ~~May~~TO ~~2014,~~CONSOLIDATED ~~the~~FINANCIAL FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The amendments in ASU 2014-09 require a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2017 (January 1, 2018 for the Company) and early adoption is permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 and ASU 2015-14 on its consolidated financial statements.STATEMENTS

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Guidance (continued)

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

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

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

81In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard by one year. As a result, the ASU No. 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company plans to adopt this standard on January 1, 2018. As of December 31, 2016, the majority of the Company’s revenue is generated from product sales. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and disclosures. .The Company is still evaluating the impact on its results of operations or cash flows. The Company expects to complete its assessment of the effect of adopting ASU No. 2014-09 by the end of 2017, as well as the selection of a transition approach.

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

In August 2014, the FASB issued ASU No. 2014-15 (ASU 2014-15), “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

In November 2014, the FASB issued ASU No. 2014-16 (ASU 2014-16), “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 4 – ELECTRIC BUS SALES

On April 19, 2012, the Company entered into an Agreement (the “Agreement") with Wu’an Municipal People's Government ("Wu'an") and Handan Municipal People's Government ("Handan Government") regarding the establishment by Altair China of a manufacturing facility in the City of Wu'an, in Hebei Province in China. The Agreement also indicates the purchase by Wu'an and Handan of EV Buses beginning in late 2012 and continuing over five years, and the future purchase of electric taxis and energy storage systems. ~~(Note 1)~~

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4 – ELECTRIC BUS SALES (CONTINUED)

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

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

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

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

82During the year ended December 31, 2016, the Company did not deliver any buses to Wu’an.

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

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

In thousands except for bus delivered quantities
	Year ended December 31,
	2015			2014
Buses delivered		75			153
Other income- buses, gross	$	11,473		$	28,448
Financial guarantee premium		(54	)		(173	)
Other income- buses, net		11,419			28,275
Other cost of buses purchased from related parties (Note 17)		11,409			20,607
Security deposit expense		727			2,359
Rebates expense		1,412			4,579
Other expenses- buses	$	13,548		$	27,545

In thousands except for bus delivered quantities:

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

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

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – FAIR VALUE MEASUREMENTS AND OTHER FINANCIAL MEASUREMENTS

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

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

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

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

InThe ~~arriving~~Company’s atfinancial ~~fair-value~~instruments ~~estimates~~consist principally of cash, ~~the~~accounts ~~Company~~receivable, ~~engaged~~accounts apayable ~~third~~and ~~party~~short-term ~~valuation~~notes ~~expert~~receivable. ~~who~~The ~~utilizes~~carrying ~~the~~amounts ~~most~~of ~~observable~~such ~~inputs~~financial ~~available~~instruments ~~for~~in the ~~valuation~~accompanying ~~technique~~balance ~~employed.~~sheets Ifapproximate atheir fair~~-value~~ ~~measurement~~values ~~reflects~~due ~~inputs~~to attheir ~~multiple~~relatively ~~levels~~short-term ~~within~~nature. ~~the~~The ~~hierarchy,~~estimated fair values of the ~~fair-value~~Company's ~~measurement~~debt ~~characterized~~approximately ~~based~~carrying ~~upon~~values as the ~~lowest~~interest ~~level~~rates ofunder ~~input~~the ~~that~~loan isagreements either approximately current market rates or there were not significant isfluctuations ~~applied~~in current market rates to change the fair~~-value~~ ~~measurement~~values of the underlying instruments. ~~For~~It is management’s opinion that the Company, ~~recurring~~is ~~fair-value~~not ~~measurements~~exposed ~~are~~to ~~performed~~any ~~for~~significant ~~warrant~~currency ~~liabilities~~or credit risks arising from these financial instruments.

~~Liabilities~~NOTE ~~Measured~~6 ~~at Fair Value on a Recurring Basis~~–INVENTORIES

~~The~~Inventory ~~warrant~~relates ~~liability~~to ~~is recognized in~~ the ~~balance~~production ~~sheet~~of atbattery ~~their~~systems ~~fair~~and ~~value~~nLTO ~~(level~~related ~~3).~~products ~~Changes~~targeted inat the ~~fair~~electric ~~values~~grid, oftransportation, ~~the~~and ~~warrant~~industrial ~~liability~~markets, ~~are~~which ~~reported~~consisted inof ~~earnings. The Company does not hold any derivative liability financial instruments that reduce risk associated with hedging exposure nor has~~ the ~~Company~~following: ~~designated~~(In ~~any~~thousands of ~~its warrant liability as hedge instruments.~~dollars):

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

The Company has no items valued using Level 1 and Level 2 inputs. The fair values and corresponding classifications under the appropriate level of the fair value hierarchy of outstanding warrants recorded as recurring liabilities in the consolidated balance sheet were recorded using level 3 inputs based on a Monte Carlo option simulation model, which uses prevailing interest rates, Company’s stock price volatility and expected warrant term.53

~~Liabilities~~ ALTAIR ~~Measured~~NANOTECHNOLOGIES atINC. ~~Fair~~AND ~~Value on a Nonrecurring Basis~~SUBSIDIARIES

~~During~~NOTES ~~the~~TO ~~years~~CONSOLIDATED ~~ended~~FINANCIAL December 31, 2015 and 2014, the Company has entered into several agreements to provide financial guarantees in relation to the EV Bus sales (See Note 4). The Company engaged a third party valuation expert to determine the fair value of the financial guarantees. Fair value (level 3) of the financial guarantee at December 31, 2015 and 2014 amounted to $0.21 million and $0.02 million, respectively.STATEMENTS

~~The~~(Expressed ~~Company’s~~in ~~remaining~~thousands ~~financial instruments consist principally~~ of ~~cash,~~United ~~accounts~~States ~~receivable~~Dollars, ~~accounts~~except payable, accrued liabilities and short-term notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.shares)

NOTE 6 – PRODUCT INVENTORIES

Inventory relates to the production of battery systems targeted at the electric grid, transportation, and industrial markets, which consisted of the following at December 31 (In thousands of dollars):

	December 31,
	2015		2014		2013		2012
Raw materials	$	2,800	$	1,925	$	3,003	$	2,337
Work in process		1,041		2,024		1,006		3,666
Finished goods		3,830		2,965		1,135		1,413
Total product inventories	$	7,671	$	6,914	$	5,144	$	7,416

As of December 31, 2015, 2014, 2013 and 2012, reserve for inventories, totaled $0.13 million, $0.13 million, $0.10 million and $0.33 million, respectively.

NOTE 7 – PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the following ~~at December 31~~ (In thousands of dollars):

	December 31,
	2015		2014			2013		2012
	2016		2015
Prepaid inventory purchases -related party	$	-	$	-		$	-	$	1,754
Prepaid inventory purchases	$	3,243	$	623
Prepaid inventory purchases		623		281			108		159
Prepaid Service Fee		1,597		1,016
Prepaid Service Fee		1,016		465			244		-
Prepaid VAT		8,508		3,207
Prepaid VAT		3,207		280			2,329		-
Current portion of long term receivable		1,501		1,603
Current portion of long term receivable		1,603		144			-		-
Electric bus for resale (Note 4)		-		132
Electric bus for resale (Note 4)		132		1,925			6,019		-
Other receivables – electric bus (Note 4)		409		437
Other receivables – electric bus (Note 4)		437		29,346			-		-
Deposits		118		97
Other receivable reserve (Note 4)		-		(6,287	)		-		-
Prepaid insurance		126		221
Deposits		97		117			323		342
Others		375		392
Prepaid insurance		221		221			272		258
Total prepaid expenses and other current assets	$	15,877	$	7,728
Others		392		460			78		178
Deferred contract costs	$	-	$	3,454
Total prepaid expenses and other current assets	$	7,728	$	26,952		$	9,373	$	937
Prepaid equipment purchases, non-current	$	855	$	3,792
Prepaid equipment purchases, non-current	$	3,792	$	6,787		$	15,882		-
Patents, net	$	-	$	47
Other assets, non-current	$	4,138	$	390		$	-	$	-
Long term receivable	$	3,136	$	4,138

84Other receivable consists of amount due from the third-party companies, which was incurred when the Company agreed to resell the EV Bus to the third-party companies. For the year ended December 31, 2016, the Company recorded an impairment loss of $0.13 million for electric bus for resale, as the application for their operating license was unsuccessful.

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

Other receivable consist of due from the third party companies, which were incurred when the Company agreed to resell the EV Bus to the third party companies.

Other assets, non-current consists of due from a third party leasing company, which were incurred when the Company agreed to provide to a third party leasing company a security deposit equals to 20% of the contract price and is refundable over a ten-year period upon Handan’s completion of its obligations to the third-party leasing entity (Note 4).

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

	December 31,
	2015			2014
	2016			2015
Gross long term receivable	$	86,~~243~~827		$	~~780~~8,243
Less: unearned interest income		(2,~~502~~190	)		(~~246~~2,502	)
Net present value of long term receivable		54,~~741~~637			~~534~~5,741
Less: Current portion of long term receivable		(1,~~603~~501	)		(~~144~~1,603	)
Net present value of long term receivable, net of current portion	$	43,~~138~~136		$	~~390~~4,138

As of December 31, 2015 ~~and 2014~~, the ~~aggregate~~ effective interest rate on amortized unearned interest income of long term receivable isfrom refundable security deposit was approximately 10.00% per annum.

~~As of December 31, 2015, future minimum collections are as follows:~~54

	2016			2017			2018			2019			2020			Thereafter 2020			Total
Gross long term receivable	$	2,107		$	1,922		$	-		$	148		$	1,538		$	2,528		$	8,243
Less: unearned interest income		(504	)		(342	)		(266	)		(289	)		(238	)		(863	)		(2,502	)
Net present value of long term receivable	$	1,603		$	1,580		$	(266	)	$	(141	)	$	1,300		$	1,665		$	5,741

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

~~Deferred~~NOTES ~~contract~~TO ~~costs~~CONSOLIDATED ~~consist~~FINANCIAL ~~of the following (In thousands of dollars):~~STATEMENTS

	December 31,
	2015		2014		2013		2012
Deferred contract costs	$	3,454	$	2,432	$	1,946	$	4,532

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

~~Deferred~~NOTE ~~contract~~7 ~~costs~~– ~~were~~PREPAID ~~costs~~EXPENSES ~~deferred~~AND ~~for~~OTHER ~~multiple~~ASSETS ~~large scale projects for which revenue was received but not recognized in accordance with completed contract method.~~ (CONTINUED)

85As of December 31, 2016, the effective interest rate on amortized unearned interest income of long term receivable from guarantee deposit for sale-leaseback was approximately 7.13% per annum and the effective interest rate on amortized unearned interest income of long term receivable from guarantee deposit for capital lease transaction ranged from 9.29% to 9.45%.

~~Patents~~As ~~are~~of ~~associated~~December ~~with~~31, ~~the nanomaterials and titanium dioxide pigment technology~~2016, ~~which~~future ~~the~~minimum ~~Company~~collections isare ~~amortizing on a straight-line basis over their useful lives and is summarized~~ as follows ~~at December 31~~(In thousands of dollars):

	2015			2014			2013			2012
Years ended December 31,	Future minimum collections
Patents	$	1,366		$	1,366		$	1,366		$	1,366
2017	$	1,797
Less accumulated amortization		(1,319	)		(1,244	)		(1,168	)		(1,092	)
2018		-
Total patents	$	47		$	122		$	198		$	274
2019		138
2020		1,438
2021		1,090
Later years		2,364
Total	$	6,827

~~Amortization~~Deferred ~~expense,~~contract ~~for~~costs ~~the~~were ~~years~~costs ~~ended~~deferred ~~December~~for ~~31,~~multiple ~~2015,~~large ~~2014,~~scale ~~2013~~projects ~~and 2012, was $0.08 million~~ for ~~each~~which ~~year.~~revenue ~~Annual~~was ~~amortization~~received ~~expense~~and ~~relating~~was torecognized ~~patents~~in ~~will~~accordance bewith ~~approximately~~the ~~$0.05~~completed ~~million~~contract ~~starting~~method in August 2016.

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

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

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following ~~at December 31~~ (In thousands of dollars):

	2015			2014			2013			2012
	December 31,
Machinery and equipment	$	11,049		$	11,479		$	11,860		$	10,892
	2016			2015
Building and improvements		13,498			13,724			13,740			4,324
Machinery and equipment	$	41,904		$	11,049
Furniture, office equipment & others		1,844			1,789			1,369			1,930
Building and improvements		22,762			13,498
Leased assets		1,682			1,682			1,682			-
Furniture, office equipment & others		1,731			1,844
		28,073			28,674			28,651			17,146
Leased assets		15,824			1,682
Less: accumulated depreciation		(12,864	)		(10,860	)		(9,957	)		(11,213	)
		82,221			28,073
Subtotal		15,209			17,814			18,694			5,933
Less: accumulated depreciation		(12,452	)		(12,864	)
Add: construction in process		21,186			2,079			453			-
		69,769			15,209
Total property, plant and equipment, net	$	36,395		$	19,893		$	19,147		$	5,933
Add: construction in process		4,374			21,186
Total property, plant and equipment, net	$	74,143		$	36,395

~~Depreciation~~The ~~expense~~leased ~~for~~assets were pledged against the ~~years~~lease ~~ended~~payments associated with the capital lease transactions as of December 31, ~~2015,~~2016 ~~2014,~~(Note ~~2013~~13). Machinery and ~~2012~~equipment ~~totaled~~amounting ~~approximately~~to $013.9326 million, ~~$1.27~~was ~~million,~~pledged ~~$0.99~~against ~~million,~~the ~~and~~lease ~~$0.95~~payments ~~million~~associated with the sale-leaseback transaction as of December 31, ~~respectively~~2016 (Note 12).

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 9 – LAND USE RIGHTS

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

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

The following summarizes Land Use Rights ~~as of December 31~~ (In thousands of dollars):

	2015			2014			2013			2012
	December 31,
Land use rights	$	28,119		$	26,684		$	22,833		$	13,670
	2016			2015
Less: accumulated amortization		(1,434	)		(951	)		(446	)		(45	)
Land use rights	$	26,292		$	28,119
Total land use rights, net	$	26,685		$	25,733		$	22,387		$	13,625
Less: accumulated amortization		(1,870	)		(1,434	)
Total land use rights, net	$	24,422		$	26,685

86The carrying amount pledged (In thousands of dollars):

The carrying amount pledged as of December 31 (In thousands of dollars):

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

	2015		2014		2013		2012
Pledged for bank loan (Note 12)	$	20,222	$	21,792	$	22,387	$	-
Pledged for guarantee provided to related party (Note 17)		3,671		-		-		-
Total	$	23,893	$	21,792	$	22,387	$	-

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

The Land Use Rights were recorded at cost and are being amortized on a straight-line basis over its 50-year useful life. The amortization expense was approximately $0.55 million, $0.51 million, $0.39 million and $0.05 million for the years ended December 31, 2015, 2014, 2013 and 2012, respectively. The Company expects to record amortization expense of approximately $0.59 million starting in 2016.56

~~NOTE~~ ALTAIR 10NANOTECHNOLOGIES –INC. ~~ACCRUED~~AND ~~WARRANTY~~SUBSIDIARIES

~~Accrued~~NOTES ~~warranty~~TO ~~consisted~~CONSOLIDATED ofFINANCIAL ~~the following at December 31 (In thousands of dollars):~~STATEMENTS

	2015			2014			2013			2012
Beginning Balance – January 1,	$	173		$	432		$	418		$	354
Charges for accruals in the current period		265			244			394			64
Reductions for warranty services provided		(270	)		(503	)		(380	)		-
Ending Balance – December 31,	$	168		$	173		$	432		$	418

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

NOTE 10 – ACCRUED EXPENSES AND OTHER LIABILITIES

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

	December 31,
	2016		2015

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

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

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

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

NOTE 11 – GRANT INCENTIVES

In conjunction with the Land Use Rights ~~obtain~~obtained by Northern Altair (Note 9), Northern Altair applied for and received various incentives and grants from the Wu’an China Government. Such grants and incentives are required to be used to support the construction of planned facilities in Wu’an China and the purchase of related manufacturing equipment. During the years ended December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015, the Company received grant incentives of $20.5867 million, ~~$8.81 million, $5.51 million~~ and $112.8758 million, respectively.

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

Grant amounts received are included in the balance sheet as deferred income and are recognized as income over the useful life of the related assets upon placing such assets into service. The following summarizes grant incentives for the years ended December 31 (in thousands of dollars):57

	2015			2014			2013			2012
Beginning balance, January 1,	$	25,505		$	17,429		$	11,803		$	-
Grants received in the current period		3,216			8,811			5,505			11,874
Foreign currency translation adjustment		(1,429	)		(163	)		492			(71	)
Grants recognized in other income		(549	)		(572	)		(371	)		-
Ending balance December 31	$	26,743		$	25,505		$	17,429		$	11,803
Less: current portion of deferred income – grant incentive	$	(551	)	$	(529	)	$	(357	)	$	-
Deferred income – grant incentive - non current	$	26,192			24,976			17,072			11,803

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

87NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 11 – GRANT INCENTIVES (CONTINUED)

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

NOTE 12 – NOTES PAYABLE

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

	December 31,
	2015			2014			2013		2012
	2016			2015
Trade acceptances	$	~~4,445~~-		$	-4,445		$	~~117~~	$	-
Short-term bank loans		~~40,528~~750			2540,~~862~~528			~~36,124~~		~~6,680~~
Notes payable - short-term	$	~~44,973~~750		$	2544,~~862~~973			~~36,241~~		~~6,680~~
Long-term bank loans	$	3221,~~186~~599		$	3532,~~728~~186			-		-
Less: current maturities of long-term bank loans	$	(256,~~564~~480	)	$	(125,~~786~~564	)	$	-	$	-
Long-term bank loans, net	$	6,622		$	33,942		$	-	$	-
Long-term bank loans, net of current portion	$	15,119		$	6,622
Failed sale-leaseback financing obligation	$	14,523		$	-
Less: current portion of failed sale-leaseback financing obligation		(494	)		-
Failed sale-leaseback financing obligation, net of current portion	$	14,029		$	-
Long-term notes payable	$	36,122		$	32,186
Less: current maturities of long-term notes payable		(6,974	)		(25,564	)
Long-term notes payable, net of current portion	$	29,148		$	6,622

Trade Acceptances

The Company issued trade acceptances to suppliers. Trade acceptances are presented to certain suppliers as a payment against the outstanding trade payable. These trade acceptances are non-interest bearing and mature within six months. Trade acceptances ~~were~~are secured by ~~restricted~~certificate ~~cash~~of ~~deposited~~deposit in the bank ~~with~~for the amount of $~~0.23~~nil ~~million as of December 31, 2013 (See Note 3)~~ and ~~were secured by pledge of certificate of deposit with amount of~~ $5.39 million as of December 31, 2016 and 2015, respectively.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 12 – NOTES PAYABLE (CONTINUED)

Bank Loans

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

	2015		2014
	2016			2015
Short-term bank loan
Weighted-average interest rate		7.06%		10.00%
Weighted-average interest rate as of December 31		18.00%			7.06%
Maturities	~~May 2016 to September 2016~~	June 2017	~~April 2015 to October 2015~~	May 2016	to	September 2016
Weighted average balance (in thousands of dollars)		$20,502		$42,394
Weighted average balance during the year ended December 31 (in thousands of dollars)		$29,302			$20,502

	2013			2012
	2016				2015
Short-term bank loan
Long-term bank loan
Weighted-average interest rate		6.75%			4.39%
Weighted-average interest rate of the loans outstanding as of December 31		11.62%				11.03%
Maturities	~~August~~September ~~2014 to December 2014~~2017	to	June 2018	~~August 2013 to November 2013~~	September 2016	to	September 2017
Weighted average balance (in thousands of dollars)		$11,970			$1,494
Weighted average balance during the year ended December 31 (in thousands of dollars)		$20,729				$33,015

	2015		2014
Long-term bank loan
Weighted-average interest rate		11.03%		10.99%
Maturities	September 2016 to September 2017		September 2016 to September 2017
Weighted average balance (in thousands of dollars)		$33,015		$8,685

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

88The total carrying amount of certificate of deposits that have been pledged as collateral to secure financing from commercial banks is $nil and $20.02 million, as of December 31, 2016 and 2015, respectively.

The total carrying amount of ~~Land~~note ~~Use~~receivable ~~Rights~~from related parties that have been pledged as collateral to secure financing from commercial banks is $~~20.22~~nil ~~million,~~and $211.7954 million, ~~$22.39 million, and $nil~~ as of December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012~~2015, respectively (See Note 18).

~~The~~As ~~total~~of ~~carrying~~December ~~amount~~31, of2016 ~~certificate~~and of2015, ~~deposits~~a ~~that~~short ~~have~~term ~~been~~bank ~~pledged~~loan aswith ~~collateral~~amounting to ~~secure~~$nil ~~financing~~and ~~from commercial banks is~~ $20.02 million, ~~$nil~~was secured of guarantee from a related party, $2Zhuhai Yinlong New Energy Co.93, ~~million~~Ltd, ~~and~~personal ~~$nil~~guarantees asexecuted by certain directors of ~~December~~the ~~31,~~Company ~~2015,~~(See ~~2014~~Note 18), ~~2013~~and guarantee from a third party; long term bank loans with amounting to $6.48 and ~~2012,~~$6.93 ~~respectively~~million was secured of guarantee from a third party.

~~The~~Interest ~~total~~expense ~~carrying~~for ~~amount~~the ofyears ~~restricted~~ended ~~cash~~December ~~set~~31, ~~aside~~2016 toand ~~secure~~2015 ~~financing~~was ~~from commercial banks is~~ $~~nil, $~~4.1469 million, and $42.0995 million, ~~and $5~~respectively.95 ~~million~~Capitalized asinterest ofexpense for the years ended December 31, 2016 and 2015, ~~2014,~~was ~~2013~~$1.31 million and ~~2012~~$2.79 million, respectively.

~~The~~In ~~total~~addition ~~carrying~~to ~~amount~~guarantee ofprovided ~~note~~by ~~receivable from~~ related parties ~~that~~discussed ~~have~~above, ~~been~~some ~~pledged~~third asparties ~~collateral~~have toalso ~~secure~~pledge ~~financing~~on ~~from~~same ~~commercial~~guarantee ~~banks~~for istotal ~~$1.54~~amount ~~million,~~of $nil, ~~$nil,~~ and $~~nil~~20.02 million, as of December 31, ~~2015,~~2016 ~~2014, 2013~~ and ~~2012,~~2015 respectively ~~(See Note 17)~~.

As of December 31, ~~2015~~2016, athe ~~short~~Company ~~term~~is ~~bank~~required ~~loan~~to ~~with~~pay ~~amounting~~principal toamounts of $207.0223 million ~~was~~payable ~~secured~~in of2017 ~~guarantee from a related party, Zhuhai Yinlong Energy, personal guarantees executed by certain directors of the Company, and guarantee from a third party (See Note 17); long term bank loans~~ with ~~amounting to~~ $615.9312 million ~~was~~payable ~~secured~~in ~~of guarantee from a third party~~2018.

As of December 31, 2014, a short term bank loan with amounting to $21.11 million was secured of guarantee from a third party; long term bank loans with amounting to $7.31 million was secured of guarantee from a third party.59

As of December 31, 2013, a short term bank loan with amounting to $3.27 million was secured of guarantee from a third party.

Interest expense for the years ended December 31, 2015, 2014, 2013 and 2012 was $2.95 million, $5.56 million, $0.23 million and $0.14 million, respectively. Capitalized interest expense for the years ended December 31, 2015, 2014, 2013 and 2012 was $2.79 million, $nil, $0.57 million and $nil, respectively

In addition to guarantee provided by related parties discussed above, some third parties have also pledge on same guarantee for total amount of $20.02 million, $nil, $nil, $nil as of December 31, 2015, 2014, 2013, and 2012 respectively.

As of December 31, 2015, the Company is required to pay principal amounts of $70.5 million in 2016 with the remainder of $6.6 million payable in 2017.

NOTE 13 – STOCK BASED COMPENSATION

As of December 31, 2015, the Company has a 2005 Stock Incentive Plan (the “Plan”), which is administered by the Board of Directors and provides for the granting of options and restricted shares to employees, officers, directors and other service providers. The total number of shares authorized to be granted under the Plan, as amended, is 1,208,333. Shares approved by the stockholders are 833,333 and not available for stock option issuance at this time, as the Board of Directors has not authorized the filing of the related Registration Statement on Form S-8. As of December 31, 2015, options for 19,696 shares of common stock are outstanding.

Prior stock option plans, under which the Company may not make future grants, authorized a total of 275,000 shares, of which options for 38,105 shares of common stock were granted (net of expirations) and options for 13,345 shares of common stock are outstanding and unexercised at December 31, 2015.

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

In calculating compensation recorded related to stock option grants for the years ended December 31, 2014, 2013 and 2012, the fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions (there were no grants during the year ended December 31, 2015):

	2015	2014			2013			2012
Weighted average fair value per option	No Awards	$	2.88		$	2.11		$	2.89
Dividend yield	Issued		None			None			None
Expected volatility	In 2015		121	%		110	%		90	%
Risk-free interest rate			1.70	%		1.44	%		0.83	%
Expected life (years)			7.11			7.10			7.10

The computation of expected volatility used in the Black-Scholes Merton option-pricing model is based on the historical volatility of the Company’s share price. The expected term is estimated based on a review of historical and future expectations of employee exercise behavior. The risk-free interest rates are based on a yield curve of interest rates at the time of the grant based on the contractual life of the option.

A summary of option activity under the Plans as of December 31, 2015, 2014, 2013 and 2012, and changes during the year then ended is presented below:

	2015							2014
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1,		110,350		$	23.05		6.8		148,892		$	18.68		7.7
Granted		-			-		-		66,666			3.21		-
Exercised		-			-		-		-			-		-
Forfeited / expired		(77,309	)		8.96		-		(105,208	)		4.31		-
Outstanding at December 31,		33,041			53.67		1.4		110,350			23.05		6.8
Exercisable at December 31,		33,041		$	37.10		2.2		43,200		$	34.72		2.5

	2013							2012
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at January 1,		254,966		$	20.69		7.8		260,730		$	33.49		7.7
Granted		99,999			2.44		-		133,332			2.88		-
Exercised		(16,668	)		2.88		-		-			-		-
Forfeited / expired		(189,405	)		13.88		-		(139,096	)		27.61		-
Outstanding at December 31,		148,892			18.68		7.7		254,966			20.69		7.8
Exercisable at December 31,		46,644		$	34.51		3.6		89,254		$	50.81		5.6

As of December 31, 2015, 2014 and 2012, the aggregate intrinsic value was $nil and as of December 31, 2013, the aggregate intrinsic value was $0.15 million. As of December 31, 2015, there was no unrecognized compensation cost related to non-vested options granted under the plans. Further, the intrinsic value of these options was $nil as of December 31, 2015.

A summary of the status of non-vested options at December 31, 2015, 2014, 2013 and 2012 and changes during the year then ended, is presented below:

	2015					2014
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested shares at January 1,		67,150		$	2.88		101,760		$	2.26
Granted		-			-		66,666			2.88
Vested		(16,668	)		2.88		(1,484	)		11.41
Forfeited/Expired		(50,482	)		2.88		(117,702	)		2.13
Non-vested options at December 31,		-		$	-		67,150		$	2.88

	2013					2012
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested shares at January 1,		165,712		$	4.48		126,194		$	12.24
Granted		99,999			2.11		133,332			2.88
Vested		(45,761	)		4.56		(18,235	)		24.94
Forfeited/Expired		(117,702	)		3.46		(75,579	)		9.67
Non-vested shares at December 31,		102,248		$	2.26		165,712		$	4.48

NOTE 14 – WARRANTS

The fair value of the warrants was determined using the Monte Carlo simulation model and the following weighted average assumptions were used:

2009 Warrant	December 31,
	2015			2014			2013			2012
Stock Price	$	0.08		$	1.11		$	3.92		$	2.15
Exercise Price	$	13.80		$	13.80		$	13.80		$	13.80
Expected Volatility		88	%		88	%		88	%		135	%
Expected Dividend Yield		None			None			None			None
Expected Term (in years)		0.4			1.4			2.4			3.4
Risk-free Interest Rate		0.49	%		0.50	%		0.60	%		0.36	%

2011 Warrant	December 31,
	2015			2014			2013			2012
Stock Price	$	0.08		$	1.11		$	3.92		$	2.15
Exercise Price	$	15.36		$	15.36		$	15.36		$	15.36
Expected Volatility		88	%		88	%		88	%		135	%
Expected Dividend Yield		None			None			None			None
Expected Term (in years)		0.8			1.8			2.8			3.8
Risk-free Interest Rate		0.57	%		0.73	%		0.60	%		0.36	%

As of December 31, 2015, 2014, 2013 and 2012, the value of the warrant liabilities was approximately $nil, $nil, $0.35 million and $0.09 million, respectively, and the change in fair value during the years ended December 31, 2015, 2014 and 2012 was a gain of approximately $nil, $0.34 million and $0.56 million, respectively, and during the year ended December 31, 2013 was a loss of $0.26 million. Warrants outstanding were exercisable from prices ranging from $13.80 to $15.36 and for each of the years ended December 31, 2015, 2014, 2013 and 2012 with weighted average exercise prices of $14.93 for each of the years ended December 31, 2015, 2014, 2013, and 2012. Warrants outstanding were 412,779 as of December 31, 2015, 2014, 2013 and 2012 and there were no warrants issued, expired, redeemed or exercised during each of the years ended December 31, 2015, 2014, 2013 and 2012. The warrants expire on various dates through September 2016.

NOTE 15 – BUSINESS SEGMENT INFORMATION

As of December 31, 2012, the Company reported its business in two reportable segments (a) Power and Energy Group segment (“PEG”) and (b) All Other operations which are presented below (in thousands of dollars):

Year Ended December 31	Net Sales		Income (Loss) From Operations			Depreciation and Amortization		Assets
2012
Power & Energy Group	$	1,302	$	18,756		$	995	$	66,055
All Other		245		(165	)		76		334
Consolidated Total	$	1,547	$	18,591		$	1,071	$	66,389

(a) Power and Energy Group (PEG) segment — The PEG segment is the Company’s current and future focus for corporate development. The PEG segment develops, produces, and sells battery systems and larger utility-scale energy storage system projects.

(b) The All Others group consists of the remaining portions of the previous Life Sciences and Performance Materials groups.

The Power and Energy Group develops, produces, and sells battery systems. The All Others group consists of the remaining portions of the previous Life Sciences and Performance Materials groups. As of December 31, 2012, Management completed a thorough review of operations and strategies and determined that it was in the best interests of the shareholders of the Company to focus primarily on the Power and Energy Group. As a result of this, assessment resources devoted to the Performance Materials Group and Life Sciences Group were considerably reduced and no new development is being pursued in those areas by the Company.

Beginning September 30, 2013, Chief Operating Decision Maker decided to combine both segments into the PEG segment because resource allocation and performance assessment would be concentrated as one operating level and the Company started to manage its business primarily on a geographic basis.

Listed customers which accounted for more than 10% of Revenues:

Customers	Customers with Sales for Year Exceeding 10% of Total
List of Customers Year Ended 31 December 2015:
Hebei Yinlong New Energy Co., Ltd. – a related party		49%
TSK.		12%
List of Customers Year Ended 31 December 2014:
Hebei Yinlong New Energy Co., Ltd – a related party		30%
Proterra LLC		19%
Nano power a.s		16%
List of Customers Year Ended 31 December 2013:
Proterra LLC		32%
Hawaiian Electric Light Company		25%
Vestas		16%
List of Customers Year Ended 31 December 2012:
Alsher Titania LLC		16%
Gen-X		14%
Emrol		13%

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

Customers	Customers with Trade Accounts Receivable at Year End Exceeding 10% of Total Accounts Receivable
December 31, 2015:
Maui Electric Company, Ltd.		47%
Hybricon		33%
December 31, 2014:
Nano power a.s		34%
EMROL		15%
December 31, 2013:
Proterra LLC		51%
December 31, 2012:
TSK Solar		46%
HNEI		24%
Alsher Titania LLC		4%

Revenues for the years ended December 31, 2015, 2014, 2013, and 2012 by geographic area based on location of customers were as follows (In thousands of dollars):

	2015		2014			2013		2012
United States	$	812	$	2,266		$	6,160	$	841
China		7,919		2,184			393		-
Belgium		403		120			75		200
Germany		-		(4	)		-		141
UK		117		92			-		-
Finland		936		217			-		-
Sweden		989		576			-		124
Switzerland		-		-			-		111
Czech Republic		829		1,273			-		-
Other foreign countries		2,273		20			1,540		130
Total	$	14,278	$	6,744		$	8,168	$	1,547

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

	December 31,
	2015		2014		2013		2012
United States	$	1,867	$	5,852	$	6,613	$	6,207
China		69,190		55,289		52,748		13,625
Total	$	71,057	$	61,141	$	59,361	$	19,832

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

	2015		2014		2013		2012
United States	$	6,359	$	4,560	$	7,801	$	1,546
China		7,919		2,184		367		-
Total	$	14,278	$	6,744	$	8,168	$	1,546

NOTE 16 –TAXATION

Income Tax

The domestic and foreign component of loss before income taxes for the years ended December 31, 2015, 2014, 2013, and 2012 are as follows (In thousands of dollars):

	2015			2014			2013			2012
Domestic	$	(6,503	)	$	(6,516	)	$	(11,923	)	$	(17,498	)
Foreign		(13,003	)		(9,435	)		(2,706	)		(488	)
Loss before provision for income taxes	$	(19,506	)	$	(15,951	)	$	(14,629	)	$	(17,986	)

The Company’s net loss before provision for income taxes during the years ended December 31, 2015, 2014, 2013 and 2012 is as follows (In thousands of dollars):

	2015			2014			2013			2012
Loss before income taxes:	$	(19,506	)	$	(15,951	)	$	(14,629	)	$	(17,986	)
Provision for income taxes:
Current:
Federal		-			-			-
State		1			1			1			1
Foreign		-			-			-			-
Amount Reported as G&A		(1	)		(1	)		(1	)		(1	)
Subtotal		-			-			-			-
Deferred:
Federal		(2,189	)		(2,122	)		(3,383	)		(2,906	)
State		(1	)		(1	)		91			(53	)
Foreign		(2,893	)		(1,957	)		(541	)		(188	)
Valuation allowance		5,083			4,080			3,833			3,147
Subtotal		-			-			-			-
Provision for income taxes	$	-		$	-		$	-		$	-

Because of the net operating losses and a valuation allowance on deferred tax assets, there was no provision for income taxes recorded in the accompanying consolidated financial statements for each of the four years ended December 31, 2015, 2014, 2013 and 2012.

The components of the deferred tax assets consisted of the following as of December 31, 2015, 2014, 2013 and 2012 (In thousands of dollars):

	December 31,
	2015			2014			2013			2012
Deferred tax inventory
NOL carryforwards	$	24,844		$	22,315		$	18,171		$	14,166
Tax credit carryforwards		276			276			275			276
Intangibles		(16	)		42			149			287
Basis Differential in Intangible Assets					-			-
Accruals & Reserves		3,233			959			1,088			1,451
Other		33			34			34			174
PP&E		328			(11	)		(182	)		(652	)
Valuation allowance		(28,698	)		(23,615	)		(19,535	)		(15,702	)
Deferred tax asset	$	-		$	-		$	-		$	-

Reconciliation
	Fiscal Years
	2015			2014			2013			2012
Book Income (Loss)	$	(6,827	)	$	(5,583	)	$	(5,120	)	$	(6,295	)
Expiration of NOLs		-			-			180			3,083
Stock options		4			(13	)		12			197
Other		363			570			701			(79	)
Valuation allowance		5,083			4,080			3,833			3,147
Accrued social benefits		221			164			97			-
Foreign tax rate differential		1,157			783			206			-
State taxes		(1	)		(1	)		91			(53	)
Provision for income taxes	$	-		$	-		$	-		$	-

Based on the historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets become deductible, management believes it is more likely than not that the Company will not realize benefits of these deductible differences as of December 31, 2015. Management has, therefore, established a full valuation allowance against its net deferred income tax assets as of December 31, 2015, 2014, 2013, and 2012.

As of December 31, 2015, the Company had federal and state net operating loss carry-forwards of $60.4 million d $1.9 million, respectively. The Company’s federal and state net operating loss carry-forwards begin to expire in 2018 and 2016, respectively. At December 31, 2015, the Company had net operating loss carry-forwards in China of $14.3 million that begin to expire in 2020.

Due to the significant increase in common stock issued and outstanding from 2005 through 2012, Section 382 of the Internal Revenue Code may provide significant limitations on the utilization of net operating loss carry-forwards. The Company performed section 382 analysis and as a result of these limitations, it is estimated that as of December 31, 2012, approximately $135.6 million operating loss carry-forwards have or will expire without being utilized.

The Company is subject to taxation in the U.S., and China. Management records liabilities for income tax contingencies based on its best estimate of the underlying exposures. The Company has not been audited by any jurisdiction since its inception in 1998. The Company is open for audit by the U.S. Internal Revenue Service, the Canada Revenue Agency, and the Chinese Ministry of Finance and U.S. state tax jurisdictions from 2012 to 2015.

There were no material uncertain tax positions as of December 31, 2015, 2014, 2013 and 2012. Interest or penalties related to unrecognized tax benefits are not material. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense.

NOTE 17 – RELATED PARTY BALANCES AND TRANSACTIONS

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

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

a. Balance

		For the years ended December 31,
	Note	2015		2014		2013		2012
1. Accounts receivable
Hebei Yinlong New Energy Co., Ltd	b	$	-	$	12	$	435	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		203		164		-		-
Subtotal		$	203	$	176	$	435	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
2. Prepayment
Zhuhai Yinlong New Energy Co., Ltd	a	$	-	$	2,328	$	8,449	$	-
Zhuhai Guangtong Auto Co., Ltd	c		-		8,102		-		-
Yintong Energy	i		-		-		-		-
Subtotal		$	-	$	10,430	$	8,449	$	-

During the periods presented, the Company made prepayments to related parties (listed above), mainly engaged in purchasing of electric buses from Zhuhai Yinlong New Energy and Zhuhai Guangtong Auto.

		For the years ended December 31,
	Note	2015		2014		2013		2012
3. Other receivable
Hebei Yinlong New Energy Co., Ltd	b	$	-	$	8,774	$	-	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		308		325		5		-
Zhuhai Guangtong Auto Co., Ltd (Handan Branch)	c		274		228		1		-
Mr. Sun Guohua	f		-		72		-		-
Subtotal		$	582	$	9,399	$	6	$	-

During the periods presented, government grants were funded to Heibei Yinglong New Energy and the Company received the government grant from Heibei Yinlong New Energy.

During the periods presented, the Company received a refund from Zhuhai Yinlong due to prior prepayment of purchase orders which have been canceled.

During the periods presented, the Company paid operation expenses on behalf of Zhuhai Guangtong Auto.

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
4. Note receivable
Hebei Yinlong New Energy Co., Ltd	b	$	1,540	$	-	$	-	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
5. Loans receivable (Note 20)
Hebei Yinlong New Energy Co., Ltd	b	$	-	$	-	$	33	$	-
Guangdong Yintong Investment Holdings Group Co., Ltd	e		2,772		2,923		-		-
Zhuhai Guangtong Auto Co., Ltd (Handan)	c		10,826		11,417		-		-
Subtotal		$	13,598	$	14,340	$	33	$	-

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

Total Amount due from related parties $ 15,923 $ 34,405 $ 8,923 $ -

		For the years ended December 31,
	Note	2015		2014		2013		2012
1. Trade accounts payable and other payable
Hebei Yinlong New Energy Co., Ltd	b	$	3	$	1	$	-	$	-
Zhuhai Guangtong Auto Co., Ltd	c		676		-		-		-
Subtotal		$	679	$	1	$	-	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
2. Sales deposit received in advance
Hebei Yinlong New Energy Co., Ltd	b	$	1,426	$	1,996	$	-	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
3. Borrowing payable (Note 20)
Hebei Yinlong New Energy Co., Ltd	b	$	14,033	$	12,189	$	-	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		1,529		404		-		-
Zhuhai Guangtong Auto Co., Ltd	c		5,698		6,009		-		-
Shijiazhuang Zhongbo Auto Co., Ltd	d		2,094		-		-		-
Subtotal		$	23,354	$	18,602	$	-	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
4. Note payable
Zhuhai Guangtong Auto Co., Ltd (Handan)	c	$	-	$	5,684	$	-	$	-

During the periods presented, the Company issued trade acceptances to related party (listed above). Trade acceptances are presented to related parties as a payment against the outstanding trade payable. These trade acceptances are non-interest bearing and mature within six months.

Total Amount due to related parties $ 25,459 $ 26,283 $ - $ -

b. Transaction

		For the years ended December 31,
	Note	2015		2014		2013		2012
1. Sales
Hebei Yinlong New Energy Co., Ltd	b	$	6,981	$	2,044	$	367	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		938		140		-		-
Subtotal		$	7,919	$	2,184	$	367	$	-

		For the years ended December 31,
	Note	2015		2014		2013		2012
2. Purchase
Hebei Yinlong New Energy Co., Ltd	b	$	3	$	-	$	-	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		154		-		5,937		-
Zhuhai Guangtong Auto Co., Ltd	c		7,193		16,553		-		-
Subtotal		$	7,350	$	16,553	$	5,937	$	-

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
3. Other Receivables
Zhuhai Guangtong Auto Co., Ltd (Handan Branch)	c	$	-	$	125	$	-	$	-
Mr. Sun Guohua	f		56		145		-		-
Subtotal		$	56	$	270	$	-	$	-

During the periods presented, the Company paid operation expenses on behalf of Zhuhai Guangtong Auto.

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
4. Borrowing from related parties
Hebei Yinlong New Energy Co., Ltd	b	$	32,948	$	13,884	$	-	$	-
Zhuhai Yinlong New Energy Co., Ltd	a		29,039		405		-		-
Zhuhai Guangtong Auto Co., Ltd	c		-		6,016		-		-
Shijiazhuang Zhongbo Auto Co., Ltd	d		5,386		-		-		-
Subtotal		$	67,373	$	20,305	$	-	$	-

100

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

		For the years ended December 31,
	Note	2015		2014		2013		2012
5. Loan to related parties
Guangdong Yintong Investment Holdings Group Co., Ltd	e	$	-	$	2,927	$	-	$	-
Zhuhai Guangtong Auto Co., Ltd (Handan Branch)	c		-		11,431		-		-
Subtotal		$	-	$	14,358	$	-	$	-

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

During the periods presented, the Company used the Land Use Right as pledge and provided guarantee for amount of $3.67 million to Shijiazhuang Zhongbo Auto Co., Ltd to secure financing from commercial banks. (Note 9)

During the periods presented, Mr. Wei Yincang, Mr. Wei Guohua, and Mr. Sun Guohua have jointly provided guarantee the Company to secure financing from commercial banks for total amount of $20.02 million. (Note 12)

Tick marks

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

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

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

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

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

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

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

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

i. Yintong Energy (“YTE”) is an affiliate of Hui Neng Investment Holding Limited (“Hui Neng”) formerly known as Canon Investment Holding, Ltd, (“Canon”)

101

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Capital Commitment - Construction

Capital Commitment – Equipment

The Company has contractual obligations related to future capital expenditures to purchase equipment as of December 31, 2015. The Company's commitment for minimum payment under these contractual obligations as of December 31, 2015 is $2.96 million. The Company's commitment for minimum payment under these contractual obligations as of December 31, 2015 is as follows:

Minimum future commitments under capital agreements payable:

(In thousands of dollars)	Capital commitments
Year ending December 31, 2016	$	2,746
Year ending December 31, 2017		216
Year ending December 31, 2018		-
Year ending December 31, 2019		-
Year ending December 31, 2020		-
Total	$	2,962

Lease

The Company leases a 70,000 square feet facility in Flagship Business Accelerator Building located at 3019 Enterprise Drive, Anderson, Indiana under a triple net lease with Flagship Enterprise Center, Inc. The facility was used for the production of prototype batteries and battery systems. The lease amended on January 27, 2015 will expire on June 30, 2017. Any lease renewal options will be negotiated no less than six (6) months prior to the expiration of this lease. Annual rent under this lease is $0.26 million plus IT fees, utilities and maintenance. As such, the Company will incur minimum rent payments of $0.26 million, $0.26 million, and $0.13 million during the years ended December 31, 2015, 2016 and 2017, respectively. Effective May 1, 2016, the Company agreed to pay $0.14 million as a payment to terminate the lease effective by the end of May 2016. Use of the facility has been agreed upon until a new tenant is found. The landlord will give the Company thirty days notice at their discretion. The Company expects to find new office space for the current employees in the general Anderson, Indiana area at a reduced rate and space requirement by the end of the second quarter of 2017.

Litigation

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

In re Altair Nanotechnologies Securities Litigation, 1:14-cv-07828 (S.D.N.Y.): On September 26, 2014, a shareholder of the Company filed a putative class action against the Company and certain of its current and former officers and directors in the United States District Court for the Southern District of New York. An amended complaint was filed on July 21, 2015. The lawsuit alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based upon statements made between May 15, 2013 and September 4, 2014, inclusive, regarding the Company’s financial statements and internal controls. Plaintiff sought unspecified monetary damages on behalf of the alleged class, as well as interest, and attorney’s fees and costs of litigation. On November 30, 2015, the parties executed a Stipulation of Settlement, without defendants admitting liability. Pursuant to the Stipulation of Settlement, in exchange for a release from liability, defendants agreed to pay $1.5 million to be distributed among the putative class members in a manner determined by the Court. In December 2015, the Company accrued $600,000 for the remainder of the insurance policy deductible and paid the liability in April 2016. The Court approved the settlement and dismissed the action on June 17, 2016.

102

In re Altair Nanotechnologies Shareholder Derivative Litigation, 1:14-cv-09418, 1:14-cv-09958 (S.D.N.Y.): In late 2014, two shareholder derivative actions were filed against certain current and former officers and directors of the Company in the United States District Court for the Southern District of New York. Altair was named as a nominal defendant. The two cases, which were consolidated on May 15, 2015, allege violations of Section 14(a) of the Securities Exchange Act of 1934, as well as breaches of fiduciary duty and unjust enrichment based on substantially the same facts underlying the putative securities litigation. In July 2016, certain parties executed a stipulation of settlement, without defendants admitting liability, whereby Altair agreed to adopt certain governance proposals and pay an amount not exceeding $150,000 in plaintiffs’ attorneys’ fees and expenses. The court entered an order preliminarily approving the settlement on August 22, 2016, and has scheduled a settlement hearing for January 9, 2017. If the settlement receives final approval, this action will be dismissed in its entirety. Notice of the proposed settlement is available on Altair’s website. A summary notice has also been published online. As of the balance sheet reporting date, the Company do not have reasonable estimation of settlement amount.

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

NOTE 19 – STOCKHOLDERS’ EQUITY

On December 6, 2012, the Board of Directors of the Company authorized a reverse stock split of the Company’s common stock at a ratio of one-for-six, effective close of business on December 17, 2012. The Company’s stockholders previously approved the reverse split in November 2012. As a result of the reverse split, every six shares of common stock outstanding were combined into one share of common stock. The reverse stock split did not affect the amount of equity the Company has nor did it affect the Company’s market capitalization. All previously reported share and per share amounts have been restated in the accompanying consolidated financial statements to reflect the reverse stock split.

On November 20, 2013, the Company issued 16,668 shares of its common stock for 16,668 options exercised at $2.88 per share. The Company received cash of $0.05 million.

NOTE 20 – SUBSEQUENT EVENTS

Loan from CITIC Bank

On March 4, 2016, Northern Altair entered into mortgage contract with CITIC Bank. Pursuant to the mortgage contract, Northern Altair used a land use right with land size of approximately 13.7 acres pledged and provided guarantee to Shijiazhuang Zhongbo Auto Co., Ltd to secure financing from CITIC Bank. The loan obtained by Shijiazhuang Zhongbo" Auto Co., Ltd from CITIC Bank was with amounting to $16.9 million and term from March 15, 2016 to March 15, 2017.

103

Loan from Commercial Bank

On May 6, 2016, Northern Altair entered into a loan agreement with a commercial bank. Northern Altair obtained loan approximately $5.3 million from the commercial bank with term May 6, 2016 to September 16, 2016. Certificate of deposit amounting to $5.3 million was pledged as collateral to secure this loan.

Related Parties Debt Netting Off

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

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

	May 2016
1. Loans receivable
Guangdong Yintong Investment Holdings Group Co., Ltd (Note 17)	$	2,755
Zhuhai Guangtong Auto Co., Ltd (Handan) (Note 17)		10,568
Subtotal	$	13,323

	May 2016
2. Borrowing payable
Hebei Yinlong New Energy Co., Ltd (Note 17)	$	7,662
Zhuhai Guangtong Auto Co., Ltd (Note 17)		5,661
Subtotal	$	13,323

Loans Paid

On July 19, 2016, Northern Altair paid off a two year loan (term dates were from November 6, 2014 to November 5, 2016) with WRCC for approximately $15.9 million.

104

Failed Sale- Leaseback

On July 26, 2016, the Company entered into a contract with Golden Investment to sell 55 pieces of equipment currently in use and simultaneously leased it back. The Company regains the ownership of the assets at the end of the lease term and the Company also assumes all risks of damages to the assets and continued to manage, control, administrate, and operate the assets. These rights and obligations constitute continuing involvement, which result in a failed sale-leaseback (financing) accounting. Under failed sale-leaseback accounting, the Company is deemed owner of the assets and the transaction is treated as a financing arrangement. The lease term is for 60 months commencing on July 28, 2016. The first lease payment was made on July 27, 2016 and the subsequent payment is due every six months starting from the first payment date.

In connection with the financing arrangement, the Company pledged the 55 pieces of equipment as collateral to the lessor and the following related parties individually entered into a guaranty contract with the lessor to provide joint liability guarantee for the payments under the financing arrangement: 1) Zhuhai Yinlong New Energy Co., Ltd, 2) Zhuhai Guangtong Auto Co., Ltd, 3) Shijiazhuang Zhongbo Auto Co., Ltd, and 4) Hebei Yinlong New Energy Co.

Capital Leases

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

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

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

The first payment of rent was made on September 19 2016, and subsequent payment is due every six months. starting from the first payment date. According to the lease contract, the Company has a purchase option, renewal option or can just return the equipment at the end of lease term provided that the Company is not in default..

105

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

~~TABLE~~NOTES OFTO ~~CONTENTS~~CONSOLIDATED FINANCIAL STATEMENTS

QUARTERLY FINANCIAL STATEMENTS:	Page
Consolidated Balance Sheet as of September 30, 2015 (unaudited) and December 31, 2014	107
Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2015 and 2014	108
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	109
Consolidated Balance Sheet as of June 30, 2015 (unaudited) and December 31, 2014	110
Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2015 and 2014	111
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	112
Consolidated Balance Sheet as of March 31, 2015 (unaudited) and December 31, 2014	113
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014	114
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	115
Consolidated Balance Sheet as of September 30, 2014 (unaudited) and December 31, 2013	116
Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2014	117
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2014	118
Consolidated Balance Sheet as of June 30, 2014 (unaudited) and December 31, 2013	119
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013	120
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	121
Consolidated Balance Sheet as of March 31, 2014 (unaudited) and December 31, 2013	122
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	123
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	124
Notes to the Unaudited Consolidated Financial Statements	125

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

~~106~~NOTE 12 – NOTES PAYABLE (CONTINUED)

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

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

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

Zhuhai Yinlong New Energy Co., Ltd.

Zhuhai Guangtong Auto Co., Ltd.

Shijiazhuang Zhongbo Auto Co., Ltd.

Hebei Yinlong New Energy Co..

The arrangement also contained two special provisions:

(1)

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

(2)

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

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

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

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

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

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED ~~BALANCE~~FINANCIAL ~~SHEETS~~STATEMENTS

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

	September 30,			December 31,
	2015			2014
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	11,074		$	1,001
Restricted cash		4,557			4,661
Short-term investment		25,922			-
Accounts receivable, net		789			650
Amounts due from related parties		14,198			34,405
Product inventories, net		9,973			6,914
Prepaid expenses and other current assets		6,430			26,952
Deferred contract costs		3,309			143
Total current assets		76,252			74,726
Restricted cash		-			243
Deferred contract costs, non-current		-			2,289
Prepaid expenses, non-current		10,021			6,787
Property, plant and equipment, net		28,763			19,893
Patents, net		65			122
Long-term investment		-			5,684
Other non-current asset		4,307			390
Land use right, net		27,366			25,733
Total Assets	$	146,774		$	135,867
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities
Trade accounts payable	$	5,647		$	6,253
Amounts due to related parties included note payable of $nil and $5,684 as of September 30, 2015 and December 31, 2014, respectively		28,966			26,283
Accrued salaries and benefits		1,607			1,263
Accrued warranty		248			173
Accrued liabilities		950			888
Deferred revenue and customer deposit		5,612			4,425
Deferred income - Grant Incentives		570			529
Warrant liabilities		1			6
Current portion of long term notes payable		9,740			1,786
Other current liabilities		166			24
Short term Notes payable		48,696			25,862
Total current liabilities		102,203			67,492
Long term notes payable, net of current portion		23,094			33,942
Other non-current liabilities		3,806			335
Deferred revenue and customer deposit, non-current		-			2,303
Deferred income - Grant Incentives, non-current		24,346			24,976
Total Liabilities		153,449			129,048
Commitments and contingencies (Note 18)
Stockholders' (deficit) equity
Common stock, $0.001 par value, 200,000,000 shares authorized; 11,606,735 shares issued and outstanding at September 30, 2015 and December 31,2014		12			12
Additional paid in capital		259,160			259,091
Accumulated deficit		(266,189	)		(252,989	)
Accumulated other comprehensive income		342			705
Total stockholders' (deficit) equity		(6,675	)		6,819
Total Liabilities and Stockholders' (Deficit) Equity	$	146,774		$	135,867

NOTE 12 – NOTES PAYABLE (CONTINUED)

~~See~~The ~~notes~~present tovalue ~~unaudited~~of ~~consolidated~~the ~~financial~~net ~~statements.~~minimum payments on the failed sale-leaseback financing obligation as of December 31, 2016 is as follows (In thousands of dollars):

107

2017

2018

2019

2020

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