Altairnano will ship 47 new NanoSafe battery packs purchased by Phoenix Motorcars in 2007 to Phoenix for use exclusively in demonstration vehicles. In addition, Altair entered into a letter of agreement with Phoenix formally terminating the existing supply agreement and mutually releasing each other from any claims under such agreement.

Basically, Altair has delivered replacement packs for the initial terms of the agreement, and now anything else Phoenix wants comes under a new contract. That means Altair is out from under this obligation, and any further deals with Phoenix will result in revenue.

In the first quarter of 2008, Altair offered a warranty replacement of the 47 battery packs to Phoenix because exhaustive computer modeling studies conducted by Altair suggested a remote chance of pack failure under certain conditions based on the configuration of the modules that comprised the packs. Altair fixed the problem by using the NanoSafe production line that was building packs for its AES Corp project. In essence, the company rationalized production from two lines to one line.

Also, the fact that Phoenix has inked the Principles of Agreement Letter means that Phoenix still thinks the NanoSafe battery is the bee’s knees in this sector. Phoenix has been cooling its heels on this project for more than six months and could have easily walked away from this deal and found another battery provider.

Here’s why the stock has been a relative outperformer since this announcement last week: Based upon the Principles of Agreement Letter, in the second quarter of 2008 Altair reversed the $2.8 million warranty liability associated with this transaction and wrote off a $1.7 million note payable due to Altair from Phoenix. The result of the transaction, which is outlined in the Principles of Agreement Letter filed July 24, 2008, with a Form 8K, is a credit to cost of goods sold of $2.8 million and a debit to operating expense of $1.7 million for a net positive impact of $1.1 million to net income in the second quarter 2008 financial results.

Now we have a successful result in the AES stationary program and acceptable delivery and ongoing interest with Phoenix Motorcars in a motive application with the promise of increasing revenue from both programs. That sounds pretty good to me.