Edgar Filing: ALTAIR NANOTECHNOLOGIES INC

altair_10q-063011.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2011

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

ALTAIR NANOTECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

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

204 Edison Way

Reno, Nevada 89502

(Address of principal executive offices, including zip code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o .

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

Large accelerated filer [ ]

Non-accelerated filer [ ]

Accelerated filer [ ]

Smaller reporting company [ X ]

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

As of August 1, 2011 the registrant had 69,452,487 Common Shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars, except shares)
(Unaudited)

	June 30,			December 31,
	2011			2010
ASSETS
Current assets
Cash and cash equivalents	$	2,577		$	4,695
Accounts receivable, net		909			1,318
Product inventories		6,205			6,825
Prepaid expenses and other current assets		2,288			2,269
Total current assets		11,979			15,107

Property, plant and equipment, net		8,116			8,727

Patents, net		388			426

Total Assets	$	20,483		$	24,260

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable	$	1,889		$	2,873
Accrued salaries and benefits		1,285			743
Accrued warranty		239			211
Accrued liabilities		467			387
Deferred revenues		1,651			2,516
Warrant liabilities		906			-
Current portion of long-term debt		1,519			216
Total current liabilities		7,956			6,946

Long Term Liabilities
Long-term debt, less current portion		7			16
Total long term liabilities		7			16

Total Liabilities		7,963			6,962


Stockholders' equity
Common stock, no par value, unlimited shares authorized; 30,615,680 and 27,015,680 shares issued and outstanding at June 30, 2011 and December 31, 2010		193,436			189,491
Additional paid in capital		12,510			12,297
Accumulated deficit		(193,426	)		(184,490	)
Total Stockholders' Equity		12,520			17,298

Total Liabilities and Stockholders' Equity	$	20,483		$	24,260

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenues
Product sales	$	174		$	57		$	2,540		$	132
License fees		60			-			120			-
Commercial collaborations		78			26			80			320
Contracts and grants		164			1,417			287			2,240
Total revenues		476			1,500			3,027			2,692

Cost of goods sold
Product		314			7			2,925			60
Commercial collaborations		197			12			197			190
Contracts and grants		168			984			296			1,595
Warranty and inventory reserves		12			75			58			128
Total cost of goods sold		691			1,078			3,476			1,973

Gross (loss) profit		(215	)		422			(449	)		719

Operating expenses
Research and development		1,284			1,715			3,340			4,155
Sales and marketing		913			1,146			1,964			2,330
General and administrative		1,204			2,142			3,376			4,380
Depreciation and amortization		379			460			754			932
Loss on disposal of assets		-			39			16			86
Total operating expenses		3,780			5,502			9,450			11,883
Loss from operations		(3,995	)		(5,080	)		(9,899	)		(11,164	)

Other (expense) income
Interest expense		(52	)		(3	)		(58	)		(10	)
Interest income		-			27			-			52
Change in market value of warrants		1,022			-			1,022			-
Gain/(loss) on foreign exchange		-			2			(1	)		1
Total other income, net		970			26			963			43
Loss from continuing operations		(3,025	)		(5,054	)		(8,936	)		(11,121	)
Gain from discontinued operations		-			124			-			124
Net loss		(3,025	)		(4,930	)		(8,936	)		(10,997	)
Less: Net loss attributable to non-controlling interest		-			5			-			5
Net loss attributable to Altair Nanotechnologies Inc.	$	(3,025	)	$	(4,925	)	$	(8,936	)	$	(10,992	)

Net loss attributable to Altair Nanotechnologies Inc. shareholders:
Loss from continuing operations	$	(3,025	)	$	(5,054	)	$	(8,936	)	$	(11,121	)
Gain from discontinued operations		-			129			-			129
Net loss	$	(3,025	)	$	(4,925	)	$	(8,936	)	$	(10,992	)

Earnings per share attributable to Altair Nanotechnologies Inc. shareholders:
Basic and diluted:
Loss from continuing operations	$	(0.10	)	$	(0.19	)	$	(0.31	)	$	(0.42	)
Gain from discontinued operations	$	-		$	-		$	-		$	-
Loss per common share - basic and diluted	$	(0.10	)	$	(0.19	)	$	(0.31	)	$	(0.42	)

Weighted average shares - basic and diluted		30,424,730			26,313,871			28,644,546			26,293,826

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS

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

(Unaudited)


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
										Accumulated									Accumulated
										Other									Other
	Common Stock				Additional Paid In		Accumulated			Compre- hensive						Interest In			Compre- hensive
	Shares		Amount		Capital		Deficit			Loss			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total
Balance, April 1, 2010		26,350,282	$	188,577	$	11,325	$	(168,271	)	$	(1,682	)	$	29,949		$	537		$	-	$	537		$	30,486

Comprehensive loss:
Investment from non-controlling interest		-		-		-		-			-			-			(532	)		-		(532	)		(532	)
Net loss		-		-		-		(4,925	)		-			(4,925	)		(5	)		-		(5	)		(4,930	)
Other comprehensive loss		-		-		-		-			34			34			-			-		-			34
Comprehensive loss:														(4,891	)							(5	)		(4,896	)
Share-based compensation		-		67		201		-			-			268			-			-		-			268
Issuance of restricted stock		177,744		-		-		-			-			-			-			-		-			-
At the Market Raise		465,337		581		-		-			-			581			-			-		-			581
Balance, June 30, 2010		26,993,363	$	189,225	$	11,526	$	(173,196	)	$	(1,648	)	$	25,907		$	-		$	-	$	-		$	25,907


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
											Accumulated Other							Accumulated Other
	Common Stock					Additional Paid In		Accumulated			Compre- hensive					Interest In		Compre- hensive
	Shares		Amount			Capital		Deficit			Loss		Subtotal			Subsidiary		Gain (Loss)		Subtotal		Total
Balance, April 1, 2011		30,615,680	$	193,373		$	12,425	$	(190,401	)	$	-	$	15,397		$	-	$	-	$	-	$	15,397

Comprehensive loss:
Net loss		-		-			-		(3,025	)		-		(3,025	)		-		-		-		(3,025	)
Comprehensive loss:														(3,025	)								(3,025	)
Share-based compensation		-		73			85		-			-		158			-		-		-		158
Issuance costs adj of $10		-		(10	)		-		-			-		(10	)		-		-		-		(10	)
Balance, June 30, 2011		30,615,680	$	193,436		$	12,510	$	(193,426	)	$	-	$	12,520		$	-	$	-	$	-	$	12,520


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
										Accumulated Other									Accumulated Other
	Common Stock				Additional Paid In		Accumulated			Compre- hensive						Interest In			Compre- hensive
	Shares		Amount		Capital		Deficit			Loss			Subtotal			Subsidiary			Gain (Loss)		Subtotal			Total
Balance, January 1, 2010		26,350,282	$	188,515	$	10,933	$	(162,204	)	$	(1,560	)	$	35,684		$	541		$	-	$	541		$	36,225

Comprehensive loss:
Investment from non-controlling interest		-		-		-		-			-			-			(536	)		-		(536	)		(536	)
Net loss		-		-		-		(10,992	)		-			(10,992	)		(5	)		-		(5	)		(10,997	)
Other comprehensive loss		-		-		-		-			(88	)		(88	)		-			-		-			(88	)
Comprehensive loss:														(11,080	)							(5	)		(11,085	)
Share-based compensation		-		129		593		-			-			722			-			-		-			722
Issuance of restricted stock		177,744		-		-		-			-			-			-			-		-			-
At the Market Raise		465,337		581		-		-			-			581			-			-		-			581
Balance, June 30, 2010		26,993,363	$	189,225	$	11,526	$	(173,196	)	$	(1,648	)	$	25,907		$	-		$	-	$	-		$	25,907


	Altair Nanotechnologies Inc. Shareholders														Non-controlling Interest in Subsidiary
										Accumulated Other							Accumulated Other
	Common Stock				Additional Paid In		Accumulated			Compre- hensive					Interest In		Compre- hensive
	Shares		Amount		Capital		Deficit			Loss		Subtotal			Subsidiary		Gain (Loss)		Subtotal		Total
Balance, January 1, 2011		27,015,680	$	189,491	$	12,297	$	(184,490	)	$	-	$	17,298		$	-	$	-	$	-	$	17,298

Comprehensive loss:
Net loss		-		-		-		(8,936	)		-		(8,936	)		-		-		-		(8,936	)
Comprehensive loss:													(8,936	)								(8,936	)
Share-based compensation		-		150		213		-			-		363			-		-		-		363
Common stock issued, net of issuance costs of $698 and warrant liabilities		3,600,000		3,795		-		-			-		3,795			-		-		-		3,795
Balance, June 30, 2011		30,615,680	$	193,436	$	12,510	$	(193,426	)	$	-	$	12,520		$	-	$	-	$	-	$	12,520

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States Dollars)
(Unaudited)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(8,936	)	$	(10,997	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		754			932
Gain on discontinued operations		-			(129	)
Securities received in payment of license fees		-			5
Share-based compensation		363			722
Change in market value of warrant		(1,022	)		-
Loss on disposal of fixed assets		16			41
Impairment of patents		-			47
Changes in operating assets and liabilities:
Accounts receivable, net		409			(1,948	)
Product inventories		810			(1,208	)
Prepaid expenses and other current assets		(19	)		304
Trade accounts payable		(1,000	)		1,207
Accrued salaries and benefits		542			739
Accrued warranty		28			-
Deferred revenues		(865	)		1,503
Accrued liabilities		80			(62	)
Net cash used in operating activities		(8,840	)		(8,844	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(300	)		(820	)
Proceeds from disposition of assets		5			7
Net cash used in investing activities		(295	)		(813	)

Cash flows from financing activities:
Issuance of common shares for cash, net of issuance costs		5,723			581
Proceeds from notes payable		1,500			-
Payment of notes payable		(197	)		(794	)
Repayment of long-term debt		(9	)		(8	)
Net cash provided by (used in) financing activities		7,017			(221	)

Net decrease in cash and cash equivalents		(2,118	)		(9,878	)

Cash and cash equivalents, beginning of period		4,695			18,122

Cash and cash equivalents, end of period	$	2,577		$	8,244

Supplemental disclosures:
Cash paid for interest	$	32		$	44

Cash paid for income taxes	None			None

NON-CASH TRANSACTIONS:
Acquisition of assets included in accounts payable	$	16		$	60
Issuance of 710,976 shares of restricted stock to directors	$	-		$	320
Unrealized gain on available for sale securities	$	-		$	88

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and Going Concern

These unaudited interim consolidated financial statements of Altair Nanotechnologies Inc. and its subsidiaries (collectively, “Altair” “we” or the “Company”) have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “Commission”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, so long as the statements are not misleading. In the opinion of Company management, these consolidated financial statements and accompanying notes contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position and results of operations for the periods shown. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Commission on February 28, 2011.

The results of operations for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.

The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses from operations resulting in an accumulated deficit of $193 million. Additionally, the Company experienced $8.8 million in negative cash flows from operations during the six months ended June 30, 2011, offset by $5.7 million (net of issuance costs) received from a capital raise on March 30, 2011, resulting in a cash balance of $2.6 million at June 30, 2011. This raises substantial doubt about the Company’s ability to continue as a going concern; however, refer to Note 13 describing the subsequent closing of our transaction with Canon Investment Holdings Limited and the second-tier subsidiary designated to hold shares in the Company, Energy Storage Technology (China) Group Limited (except as otherwise specified, collectively “Canon”).

In September of 2010 the Company entered into a Share Subscription Agreement (as subsequently amended, the “Share Subscription Agreement”) with Canon under which it agreed, subject to conditions to closing and the risk of termination, to purchase a number of common shares such that, following closing, Canon would own 51% of the outstanding common shares of the Company on a fully diluted basis. Based upon the number of common shares and the rights to acquire common shares outstanding as of June 30, 2011, the Share Subscription Agreement called for Canon to purchase 37,036,807 shares at an aggregate purchase price of $57,510,753, which purchase was accomplished on July 22, 2011. As a result of initial delays in closing the Canon transaction, management began taking steps in the fourth quarter of 2010 to reduce its cash burn rate and extend its runway until the Canon transaction closed. Those steps included:

	■	a freeze on all hiring,
	■	a deferral of all inventory purchases not tied to a specific customer contract,

	■	a delay in all development efforts not needed in the immediate timeframe,
	■	a cancellation of a number of non-critical consulting contracts,

	■	sale of the auction rate securities that the Company was holding,
	■	sale of the remaining Spectrum Pharmaceutical common stock, and
	■	a lengthening of the AP payment cycle.

The Company initially anticipated closing the Share Subscription Agreement with Canon in early February 2011; however, Canon indicated that it was not in a position to close at that time. The rights of Zhuhai Yingtong Energy Company (“YTE”), a Canon subsidiary, under the Conditional Supply and Licensing Agreement to purchase the Company’s nano-lithium titanate powder and to manufacture batteries using the Company’s design principles were significant motivations for Canon to enter into the share purchase transaction, and Canon indicated that its operating subsidiary was having difficulty implementing the battery manufacturing technology called for in the Conditional Supply and Licensing Agreement. Canon also stated that certain credit facilities required for it to close the Share Subscription Agreement transactions expired near January 31, 2011, the original end date of the Share Subscription Agreement and that Canon needed time to re-establish these credit facilities.

On February 16, 2011, the Company and Canon signed the First Amendment to the Share Subscription Agreement (the “SSA Amendment”) which, among other things, extended the end date under the Share Subscription Agreement to May 17, 2011. The SSA Amendment also authorized the Company, subject to certain limitations, to sell equity securities in order to raise interim capital. The Company engaged JMP Securities and completed a capital raise on March 30, 2011 which resulted in additional capital of $5.7 million, net of issuance costs of $689,000. A total of 3,600,000 units were sold at a price of $1.784 per unit with each unit consisting of (i) one common share of Altair and (ii) one Series A warrant to purchase one half of a common share at an exercise price of $2.56 per share. The warrants will be exercisable beginning six months after the closing for a period of five years. In addition, the Purchase Agreement with investors provided for a purchase price adjustment, and the issuance of additional common shares (“Adjustment Shares”) following such adjustment, if the Share Subscription Agreement with Canon was terminated or adversely amended, or if the transaction contemplated thereby was not closed by July 17, 2011. The number of Adjustment Shares were to be determined by subtracting the number of common shares issued at the closing from the number of common shares that would have been issued at the closing if the purchase price had been equal to 85% of volume weighted average price of the common shares during a 10 trading day period following the announcement of the triggering event, subject to a maximum number of 1,800,000 Adjustment Shares. On July 17, 2011, the Share Subscription with Canon was not closed, therefore in accordance with the formula specified in the financing documents we issued 1,800,000 Adjustment Shares to the investors on July 18, 2011.

On July 22, 2011, the Company and Canon completed the sale by the Company, and the purchase by an affiliate of Canon, of 37,036,807 common shares of the Company, no par value, (the “Shares”) at a purchase price of $1.5528 per share, or approximately $57.5 million in the aggregate, pursuant to the Share Subscription Agreement. Pursuant to the Share Subscription Agreement, Canon has designated its affiliate, Energy Storage Technology (China) Group Limited, a company organized under the laws of Hong Kong (“Energy Storage”), as the purchaser of the Shares. Immediately following the closing, Energy Storage holds 53.3% of the 69,452,487 common shares outstanding (49.8% on a fully diluted basis).

Note 2. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, 2011, Altair adopted changes issued by the Financial Accounting Standards Board (FASB) to revenue recognition for multiple-deliverable arrangements. These changes (a) require separation of consideration received in such arrangements by establishing a selling price hierarchy (not the same as fair value) for determining the selling price of a deliverable, which will be based on available information in the following order: vendor-specific objective evidence, third-party evidence, or estimated selling price; (b) eliminate the residual method of allocation and require that the consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the arrangement to each deliverable on the basis of each deliverable’s selling price; (c) require that a vendor determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; and (d) expand the disclosures related to multiple-deliverable revenue arrangements. The adoption of these changes had no impact on the Consolidated Financial Statements, as Altair does not currently have any such arrangements with its customers.

On January 1, 2011, Altair adopted changes issued by the FASB to disclosure requirements for fair value measurements. Specifically, the changes require a reporting entity to disclose, in the reconciliation of fair value measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). These changes were applied to the disclosures in Note 3 to the Consolidated Financial Statements.

On January 1, 2011, Altair adopted changes issued by the FASB to the testing of goodwill for impairment. These changes require an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on qualitative factors. This will result in the elimination of an entity’s ability to assert that such a reporting unit’s goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. The adoption of these changes had no impact on the Consolidated Financial Statements.

On January 1, 2011, Altair adopted changes issued by the FASB to the disclosure of pro forma information for business combinations. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The adoption of these changes had no impact on the Consolidated Financial Statements.

Issued

In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. These changes become effective for Altair on January 1, 2012. Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, management has determined these changes will not have an impact on the Consolidated Financial Statements.

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

Note 3. Fair Value Measurements

The following are the methods and assumptions we use to estimate the fair value of our financial instruments.

Cash and cash equivalents

Due to their short term nature, carrying amount approximates fair value.

Accounts receivable

Due to their short term nature, carrying amount approximates fair value.

Investment in available for sale securities

For investment in available for sale securities, fair values are based on quoted market prices, quoted market prices for similar securities and indications of value provided by brokers.

Trade accounts payable

Due to their short term nature, carrying amount approximates fair value.

Warrant liabilities

Fair values are determined using the Black-Scholes-Merton option-pricing model, a Level 3 input.

Long-term debt

Due to the short term nature of the current portion of long-term debt, the carrying amount approximates fair value. The non-current portion of long-term debt is not material and the carrying amount approximates fair value.

Our financial instruments are accounted for at fair value on a recurring basis. We have no financial instruments accounted for on a non-recurring basis as of June 30, 2011 or 2010. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. A market or observable input is the preferred source of value, followed by assumptions based on hypothetical transactions in the absence of market inputs.

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

Level 1 -

Quoted prices for identical instruments in active markets.

Level 2 -

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

Level 3 -

Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.

The following table summarizes the valuation of our liabilities by the fair value hierarchy at June 30, 2011:

Liabilities at fair value:	Total		Level 1		Level 2		Level 3
Warrant liabilities	$	906	$	-	$	-	$	906
Total	$	906	$	-	$	-	$	906

No assets or liabilities were recorded at fair value on a recurring basis at December 31, 2010.

The following table summarizes current and non-current marketable securities, accounted for as "available for sale" securities at June 30, 2011 and 2010:

In thousands of dollars

	2011								2010
							Unrealized								Unrealized
			Fair		Carrying		(loss)/gain				Fair		Carrying		loss
	Cost		Value		Value		accumulated		Cost		Value		Value		accumulated
Current marketable securities:
Spectrum Pharmaceuticals, Inc.		-		-		-		-		755		446		446		(309	)
Total current	$	-	$	-	$	-	$	-	$	755	$	446	$	446	$	(309	)
Non-current marketable securities:
Auction rate corporate notes		-		-		-		-		3,902		2,558		2,558		(1,344	)
Total non-current	$	-	$	-	$	-	$	-	$	3,902	$	2,558	$	2,558	$	(1,344	)

The Spectrum Pharmaceuticals shares listed above at June 30, 2010 were acquired from Spectrum on August 4, 2009 when we entered into an amended agreement with Spectrum in which we transferred them the rights to RenalanTM in addition to RenaZorbTM. A component of this agreement was the payment to us of an additional 113,809 shares of Spectrum common stock. On December 10, 2010, Altair sold 113,809 shares of Spectrum stock at $5.752 per share for a gross amount of $655,000. After charges and fees, net proceeds were $649,000. Altair realized a loss on sale of investment of $95,000.

The activity relating to financial instruments valued on a recurring basis utilizing Level 3 inputs for the three months ended June 30, 2011 and June 30, 2010 is summarized below:

	Warrant			Auction rate
	liabilities			corporate notes
	2011			2010
Beginning Balance, April 1	$	-		$	2,448
Issuances		1,928			-
Realized (gains)		(1,022	)		-
Unrealized gains		-			112
Other adjustments		-			(2	)
Ending Balance, June 30	$	906		$	2,558

The activity relating to financial instruments valued on a recurring basis utilizing Level 3 inputs for the six months ended June 30, 2011 and June 30, 2010 is summarized below:

	Warrant			Auction rate
	liabilities			corporate notes
	2011			2010
Beginning Balance, January 1	$	-		$	2,587
Issuances		1,928			-
Realized (gains)		(1,022	)		-
Unrealized (losses)		-			(29	)
Ending Balance, June 30	$	906		$	2,558

Financial instruments that trade in less liquid markets with limited pricing information generally include both observable and unobservable inputs. In instances where observable data is unavailable, we consider the assumptions that market participants would use in valuing the asset. Such instruments are categorized in Level 3 as the inputs generally are not observable. Our evaluation included consultation with our investment advisors, assessment of the strength of the financial institution paying the interest on these investments, ratings of the underlying collateral, and a probability-weighted discounted cash flow analysis.

Note 4. Investment in Available for Sale Securities

We sold all auction rate corporate notes and all shares of Spectrum Pharmaceuticals, Inc. in the fourth quarter of 2010. The sales resulted in $2.61 million in cash received and a $2.05 million realized loss on investments.

Note 5. Product Inventories

Product inventories consist of the following:

In thousands of dollars
	June 30, 2011		December 31, 2010
Raw materials	$	2,624	$	2,979
Work in process		948		920
Finished goods		2,633		2,926
Total product inventories	$	6,205	$	6,825

Once products reach the commercialization stage, the related inventory is recorded. The costs associated with products undergoing research and development are expensed as incurred. As of June 30, 2011 and December 31, 2010, inventory relates to the production of batteries targeted at the electric grid, commercial vehicle, and Industrial OEM markets.

We recorded an inventory valuation allowance on raw materials of $630,000 and $623,000 at June 30, 2011 and December 31, 2010, respectively.

Note 6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

In thousands of dollars

	June 30, 2011		December 31, 2010

Prepaid inventory purchases	$	597	$	568
Prepaid insurance		45		269
Deposits		340		340
Prepaid financing costs		915		831
Deferred contract costs		162		87
Other prepaid expenses and current assets		229		174
Total prepaid expenses and other current assets	$	2,288	$	2,269

Prepaid financing costs relate to the financing deal with Canon which closed July 22, 2011. The financing costs will be moved from prepaid to equity in the third quarter of 2011. Other prepaid expenses and current assets consist primarily of prepaid property taxes, service contracts, marketing expenses and rent.

Note 7. Patents

Our patents are associated with the nanomaterials and titanium dioxide pigment technology. We are amortizing these assets on a straight-line basis over their useful lives. The amortized patents’ balances as of June 30, 2011 and December 31, 2010 were:

In thousands of dollars
	June 30, 2011			December 31, 2010
Patents and patent applications	$	1,366		$	1,366
Less accumulated amortization		(978	)		(940	)
Total patents and patent applications	$	388		$	426

The weighted average amortization period for patents is approximately 16.7 years. Amortization expense, which represents the amortization relating to the identified amortizable patents, for the six months ended June 30, 2011 and June 30, 2010, was $38,000 and $40,000, respectively. For each of the next five years, amortization expense relating to patents is expected to be approximately $76,000 per year.

Note 8. Notes Payable and Long-Term Debt

The current and long-term amounts of the notes payable and capital leases as of June 30, 2011 and December 31, 2010 are as follows:

In thousands of dollars
	June 30, 2011			December 31, 2010

Note payable to Imperial Credit Corporation	$	-		$	196
Note payable - building mortgage		1,500			-
Capital leases		26			36
Subtotal		1,526			232
Less current portion		(1,519	)		(216	)
Long-term portion	$	7		$	16

On April 27, 2011, we entered into a Note Secured by a Deed of Trust, Guaranty and a Hazardous Materials Indemnity Agreement (collectively, the “Loan Documents”) for the provision of a $1,500,000 loan (the “Loan”) secured by the Company’s headquarters located in Reno, Nevada. Under the terms of the Loan Documents, interest accrues on the outstanding principal balance at the rate of 11% per annum. We are obligated to make interest-only payments on a monthly basis during the term of the Loan and to repay all principal and any outstanding interest on or before May 1, 2012. Although we may prepay the Loan, we are obligated to pay a minimum of five months’ interest. Proceeds of the Loan will be used for general working capital requirements.

Note 9. Stock-Based Compensation

As of June 30, 2011, we have the Altair Nanotechnologies Inc. 2005 Stock Incentive Plan (the “Plan”), administered by the Board of Directors, which provides for the granting of options and restricted shares to employees, officers, directors and other service providers of ours. This Plan is described in more detail below. The compensation cost that has been charged against income for this Plan was $158,000 and $268,000, for the three months ended June 30, 2011, and 2010, respectively, and $363,000 and $722,000 for the six months ended June 30, 2011 and 2010, respectively. Of this amount, $73,000 and $67,000 was recognized in connection with restricted stock and options granted to non-employees for the three months ended June 30, 2011 and 2010, respectively and $150,000 and $129,000 for the six months ended June 30, 2011 and 2010, respectively.

The total number of shares authorized to be granted under the Plan was increased from 750,000 to an aggregate of 2,250,000 based on the proposal approved at the annual and special meeting of shareholders on May 30, 2007. On June 23, 2011, we held an annual and special meeting of shareholders. The proposal to increase the number of authorized shares under the Plan from 2,250,000 to 7,250,000 shares if the Common Share Issuance with Canon closes or to 4,750,000 if the Common Share Issuance with Canon does not close was approved. Prior stock option plans, under which we may not make future grants, authorized a total of 1,650,000 shares, of which options for 1,047,475 common shares were granted (net of expirations) and options for 34,125 common shares are outstanding and unexercised at June 30, 2011. Options granted under the plans generally are granted with an exercise price equal to the market 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.

For the three and six months ended June 30, 2011, there were no awards granted under the Plan. In calculating compensation related to stock option grants for the six months ended June 30, 2010, the fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions:

	2011		2010
Dividend yield		N/A	None
Expected volatility		N/A		78%
Risk-free interest rate		N/A		2.18%
Expected life (years)		N/A		4.20

The computation of expected volatility used in the Black-Scholes Merton option-pricing model is based on the historical volatility of our share price. The expected term is estimated based on a review of historical and future expectations of employee exercise behavior.

A summary of option activity under our equity-based compensation plans as of June 30, 2011 and 2010 and changes during the six months then ended is presented below:

	2011									2010
						Weighted									Weighted
				Weighted		Average							Weighted		Average
				Average		Remaining		Aggregate					Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic					Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value		Shares			Price		Term		Value
Outstanding at January 1,		1,514,025		$	7.93		7.5	$	-		1,230,034		$	9.60		7.8	$	-
Granted		-			-						392,063		$	4.08
Exercised		-			-						-			-
Forfeited/expired		(102,437	)	$	7.65						(67,751	)	$	10.09

Outstanding at June 30,		1,411,588		$	7.95		7.1	$	-		1,554,346		$	8.17		7.9	$	-

Exercisable at June 30,		846,815		$	9.85		6.4	$	-		691,703		$	11.13		6.7	$	-

Vested or expected to vest at June 30,		1,338,168		$	7.95		7.1	$	-		1,475,776		$	8.17		7.9	$	-

Shares issued to non-employees reflected in the table above include 93,416 shares outstanding at January 1, 2011, with no shares granted, no shares exercised, and 25,000 shares forfeited or expired during the six months ended June 30, 2011, resulting in 68,416 shares outstanding to non-employees of which 65,292 shares were exercisable as of June 30, 2011. Shares issued to non-employees reflected in the table above include 133,417 shares outstanding at January 1, 2010, with no shares granted, no shares exercised, and no shares forfeited or expired during the six months ended June 30, 2010, resulting in 133,417 shares outstanding to non-employees, of which 116,229 shares were exercisable as of June 30, 2010.

The weighted-average grant-date fair value of options granted during the three and six months ended June 30, 2011 was $0.00 as no options were granted and was $1.11 and $2.37 for the three and six months ended June 30, 2010, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2011 and 2010 was $0.

A summary of the status of non-vested shares at June 30, 2011, and 2010 and changes during the six months then ended, is presented below:

	2011					2010
				Weighted					Weighted
				Average					Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Non-vested shares at January 1,		844,153		$	5.17		675,180		$	7.52
Granted		-			-		392,063			4.08
Vested		(238,242	)		6.54		(168,265	)		8.48
Forfeited/Expired		(41,138	)		5.51		(36,335	)		6.55

Non-vested shares at June 30,		564,773		$	5.10		862,643		$	5.36

Non-vested shares relating to non-employees reflected in the table above include 17,187 shares outstanding at January 1, 2011, no shares granted, no shares exercised, and 7,813 shares vested, and 6,250 shares expired during the six months ended June 30, 2011, resulting in 3,124 non-vested shares outstanding to non-employees at June 30, 2011. Non-vested shares relating to non-employees reflected in the table above include 29,583 shares outstanding at January 1, 2010, no shares granted, no shares exercised, and 12,396 shares vested during the six months ended June 30, 2010, resulting in 17,187 non-vested shares outstanding to non-employees at June 30, 2010.

As of June 30, 2011 and 2010, there was $493,000 and $1.2 million respectively, of total unrecognized compensation cost related to non-vested options granted under the plans. That cost is expected to be recognized over a weighted average period of 10 months and one year, respectively, for the six months ended June 30, 2011 and 2010. The total fair value of options that vested during the six months ended June 30, 2011 and 2010, was $961,000 and $888,000, respectively. There was no cash received from stock option exercises for the six months ended June 30, 2011 and 2010.

Restricted Stock

Our stock incentive plan provides for the granting of other incentive awards in addition to stock options. During the six months ended June 30, 2011 the Board of Directors did not approve the grant of any new restricted stock under the plan. During the six months ended June 30, 2010 the Board of Directors approved the grant of 177,744 shares of restricted stock under the plan. Restricted shares have the same voting and dividend rights as our unrestricted common shares, vest over a two-year period and are subject to the employee’s or director’s continued service. Compensation cost for restricted stock is recognized in the financial statements on a pro rata basis over the vesting period.

A summary of the changes in restricted stock outstanding during the six months ended June 30, 2011 and 2010:

	2011					2010
				Weighted					Weighted
				Average					Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Non-vested shares at January 1,		210,996		$	2.16		76,624		$	4.64
Granted		-			-		177,744			1.80
Vested		(122,124	)		2.42		(43,372	)		5.10
Forfeited/Expired		-			-		-			-

Non-vested shares at June 30,		88,872		$	1.80		210,996		$	2.16

As of June 30, 2011 and 2010, we had total unrecognized compensation expense of $78,000 and $382,000, respectively, net of estimated forfeitures, related to restricted stock which will be recognized over the weighted average period for June 30, 2011, and 2010 of 1.0 year and 1.4 years, respectively.

Note 10. Warrants

Warrants Issued to Investors

The warrants issued in the March 30, 2011 offering are considered financial liabilities due primarily to their anti-dilution protection provisions that allow for the automatic reset of the exercise price upon any future sale of common stock instruments at or below the current exercise price of the warrants. As such the warrants are required to be adjusted to fair value each reporting period and the change in fair value of the warrant liabilities is classified in other (expense)/income in the statement of operations. The warrants are classified as short-term warrant liabilities in the balance sheet.

The fair value of the warrants was determined using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions were used:

	June 30, 2011			March 31, 2011
Stock Price	$	0.86		$	1.58
Exercise Price	$	2.56		$	2.56
Expected Volatility		96	%		94	%
Expected Dividend Yield	None			None
Expected Term (in years)		5.3			5.5
Risk-free Interest Rate		1.84	%		2.26	%

As of June 30, 2011, the value of the warrant liability was $906,000 and the change in fair value during the three months ended June 30, 2011 was $1,022,000 and was recorded as other (expense) income in the statement of operations.

Warrant activity for the six months ended June 30, 2011 and 2010 is summarized as follows:

In thousands of dollars
	2011		2010
		Weighted