Edgar Filing: ALTAIR NANOTECHNOLOGIES INC

altair_10q-093011.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

Non-accelerated filer	o	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 November 3, 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)

	September 30,			December 31,
	2011			2010
ASSETS
Current assets
Cash and cash equivalents	$	53,441		$	4,695
Accounts receivable, net		839			1,318
Product inventories		6,842			6,825
Prepaid expenses and other current assets		2,233			2,269
Total current assets		63,355			15,107

Property, plant and equipment, net		7,866			8,727

Patents, net		369			426

Total Assets	$	71,590		$	24,260

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable	$	6,196		$	2,873
Accrued salaries and benefits		1,437			743
Accrued warranty		279			211
Accrued liabilities		485			387
Deferred revenues		1,487			2,516
Warrant liabilities		1,582			-
Current portion of long-term debt		1,517			216
Total current liabilities		12,983			6,946

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

Total Liabilities		12,983			6,962


Stockholders' equity
Common stock, no par value, unlimited shares authorized; 69,452,487 and 27,015,680 shares issued and outstanding at September 30, 2011 and December 31, 2010		245,617			189,491
Additional paid in capital		12,289			12,297
Accumulated deficit		(199,299	)		(184,490	)
Total Stockholders' Equity		58,607			17,298

Total Liabilities and Stockholders' Equity	$	71,590		$	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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues
Product sales	$	795		$	1,102		$	3,335		$	1,234
License fees		60			-			180			-
Commercial collaborations		-			12			80			332
Contracts and grants		-			915			287			3,155
Total revenues		855			2,029			3,882			4,721

Cost of goods sold
Product		559			764			3,484			823
Commercial collaborations		(124	)		3			73			194
Contracts and grants		-			592			296			2,187
Warranty and inventory reserves		97			125			155			253
Total cost of goods sold		532			1,484			4,008			3,457

Gross profit (loss)		323			545			(126	)		1,264

Operating expenses
Research and development		1,594			2,664			4,933			6,818
Sales and marketing		834			943			2,798			3,274
General and administrative		2,730			1,722			6,107			6,102
Depreciation and amortization		259			518			1,013			1,450
Loss on disposal of assets		2			-			18			86
Total operating expenses		5,419			5,847			14,869			17,730
Loss from operations		(5,096	)		(5,302	)		(14,995	)		(16,466	)

Other (expense) income
Interest expense		(97	)		(3	)		(155	)		(13	)
Interest income		-			27			-			79
Change in market value of warrants		(676	)		-			346			-
Loss on foreign exchange		(4	)		(3	)		(5	)		(2	)
Total other (loss) income, net		(777	)		21			186			64
Loss from continuing operations		(5,873	)		(5,281	)		(14,809	)		(16,402	)
Gain from discontinued operations		-			-			-			124
Net loss		(5,873	)		(5,281	)		(14,809	)		(16,278	)
Less: Net loss attributable to non-controlling interest		-			-			-			5
Net loss attributable to Altair Nanotechnologies Inc.	$	(5,873	)	$	(5,281	)	$	(14,809	)	$	(16,273	)


Net loss attributable to Altair Nanotechnologies Inc. shareholders:
Loss from continuing operations	$	(5,873	)	$	(5,281	)	$	(14,809	)	$	(16,402	)
Gain from discontinued operations		-			-			-			129
Net loss	$	(5,873	)	$	(5,281	)	$	(14,809	)	$	(16,273	)


Earnings per share attributable to Altair Nanotechnologies Inc. shareholders:
Basic and diluted:
Loss from continuing operations	$	(0.10	)	$	(0.20	)	$	(0.38	)	$	(0.61	)
Gain from discontinued operations	$	-		$	-		$	-		$	-
Loss per common share - basic and diluted	$	(0.10	)	$	(0.20	)	$	(0.38	)	$	(0.61	)

Weighted average shares - basic and diluted		60,222,433			26,800,553			39,286,178			26,464,591

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
	Common Stock				Additional Paid In		Accumulated			Accumulated Other Compre- hensive						Interest In		Accumulated Other Compre- hensive
	Shares		Amount		Capital		Deficit			Loss			Subtotal			Subsidiary		Gain (Loss)		Subtotal		Total
Balance, July 1, 2010		26,993,363	$	189,225	$	11,526	$	(173,196	)	$	(1,648	)	$	25,907		$	-	$	-	$	-	$	25,907
Comprehensive loss:
Investment from non-controlling interest		-		-		-		-			-			-			-		-		-		-
Net loss		-		-		-		(5,281	)		-			(5,281	)		-		-		-		(5,281	)
Other comprehensive loss		-		-		-		-			(47	)		(47	)		-		-		-		(47	)
Comprehensive loss:														(5,328	)						-		(5,328	)
Share-based compensation		-		77		199		-			-			276			-		-		-		276
Issuance of restricted stock		-		-		-		-			-			-			-		-		-		-
At the Market Raise		22,317		128		-		-			-			128			-		-		-		128
Balance, September 30, 2010		27,015,680	$	189,430	$	11,725	$	(178,477	)	$	(1,695	)	$	20,983		$	-	$	-	$	-	$	20,983


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
	Common Stock				Additional Paid In			Accumulated			Accumulated Other Compre- hensive					Interest In		Accumulated Other Compre- hensive
	Shares		Amount		Capital			Deficit			Loss		Subtotal			Subsidiary		Gain (Loss)		Subtotal		Total
Balance, July 1, 2011		30,615,680	$	193,436	$	12,510		$	(193,426	)	$	-	$	12,520		$	-	$	-	$	-	$	12,520
Comprehensive loss:
Net loss		-		-		-			(5,873	)		-		(5,873	)		-		-		-		(5,873	)
Comprehensive loss:														(5,873	)								(5,873	)
Share-based compensation		-		78		309			-			-		387			-		-		-		387
Common stock issued		1,800,000		-		-			-			-		-			-		-		-		-
Common stock issued, net of issuance costs of $5.4M		37,036,807		52,103		-			-			-		52,103			-		-		-		52,103
Warrant redemption		-		-		(530	)		-			-		(530	)		-		-		-		(530	)

Balance, September 30, 2011		69,452,487	$	245,617	$	12,289		$	(199,299	)	$	-	$	58,607		$	-	$	-	$	-	$	58,607


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
	Common Stock				Additional Paid In		Accumulated			Accumulated Other Compre- hensive						Interest In			Accumulated Other 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		-		-		-		(16,273	)		-			(16,273	)		(5	)		-		(5	)		(16,278	)
Other comprehensive loss		-		-		-		-			(135	)		(135	)		-			-		-			(135	)
Comprehensive loss:														(16,408	)							(5	)		(16,413	)
Share-based compensation		-		206		792		-			-			998			-			-		-			998
Issuance of restricted stock		177,744		-		-		-			-			-			-			-		-			-
At the Market Raise		487,654		709		-		-			-			709			-			-		-			709
Balance, September 30, 2010		27,015,680	$	189,430	$	11,725	$	(178,477	)	$	(1,695	)	$	20,983		$	-		$	-	$	-		$	20,983


	Altair Nanotechnologies Inc. Shareholders															Non-controlling Interest in Subsidiary
	Common Stock				Additional Paid In			Accumulated			Accumulated Other Compre- hensive					Interest In		Accumulated Other 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		-		-		-			(14,809	)		-		(14,809	)		-		-		-		(14,809	)
Comprehensive loss:														(14,809	)								(14,809	)
Share-based compensation		-		228		522			-			-		750			-		-		-		750
Common stock issued, net of issuance costs of $698 and warrant liabilities		3,600,000		3,795		-			-			-		3,795			-		-		-		3,795
Common stock issued		1,800,000		-		-			-			-		-			-		-		-		-
Common stock issued, net of issuance costs of $5.4M		37,036,807		52,103		-			-			-		52,103			-		-		-		52,103
Warrant redemption		-		-		(530	)		-			-		(530	)		-		-		-		(530	)
Balance, September 30, 2011		69,452,487	$	245,617	$	12,289		$	(199,299	)	$	-	$	58,607		$	-	$	-	$	-	$	58,607

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)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(14,809	)	$	(16,278	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,013			1,450
Gain on discontinued operations		-			(129	)
Securities received in payment of license fees		-			5
Share-based compensation		750			998
Change in market value of warrants		(346	)		-
Loss on disposal of fixed assets		18			39
Impairment of patents		-			47
Changes in operating assets and liabilities:
Accounts receivable, net		479			(195	)
Product inventories		246			(1,400	)
Prepaid expenses and other current assets		36			(477	)
Other assets		-			125
Trade accounts payable		(740	)		1,835
Accrued salaries and benefits		694			939
Accrued warranty		68			52
Deferred revenues		(1,029	)		3,153
Accrued liabilities		98			(14	)
Net cash used in operating activities		(13,522	)		(9,850	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(343	)		(955	)
Proceeds from disposition of assets		5			8
Net cash used in investing activities		(338	)		(947	)

Cash flows from financing activities:
Issuance of common shares for cash, net of issuance costs paid		61,851			709
Payment of warrant redemptions		(530	)		-
Proceeds from notes payable		1,500			122
Payment of notes payable		(198	)		(600	)
Repayment of long-term debt		(17	)		(14	)
Net cash provided by financing activities		62,606			217

Net increase (decrease) in cash and cash equivalents		48,746			(10,580	)

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

Cash and cash equivalents, end of period	$	53,441		$	7,542

Supplemental disclosures:
Cash paid for interest	$	153		$	45

Cash paid for income taxes	None			None

NON-CASH TRANSACTIONS:
Acquisition of assets included in accounts payable	$	38		$	7
Issuance of 710,976 shares of restricted stock to directors	$	-		$	320
Unrealized loss on available for sale securities	$	-		$	(133	)

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 nine-month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

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.

In September 2011, the FASB issued changes to the testing of goodwill for impairment. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test. These changes become effective for Altair for any goodwill impairment test performed on January 1, 2012 or later, although early adoption is permitted. Management has determined these changes will not have an impact on the Consolidated Financial Statements, as Altair has not recognized any goodwill on its 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 September 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 September 30, 2011:

In thousands of dollars

Liabilities at fair value:	Total		Level 1		Level 2		Level 3
Warrant liabilities	$	1,582	$	-	$	-	$	1,582
Total	$	1,582	$	-	$	-	$	1,582

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

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

	Warrant		Auction rate
	liabilities		corporate notes
	2011		2010
Beginning Balance, July 1	$	906	$	2,558
Issuances		-		-
Realized (gains)		676		-
Unrealized gains		-		(76	)
Ending Balance, September 30	$	1,582	$	2,482

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

	Warrant liabilities 2011			Auction rate corporate notes 2010
Beginning Balance, January 1	$	-		$	2,587
Issuances		1,928			-
Realized (gains)		(346	)		-
Unrealized (losses)		-			(105	)
Ending Balance, September 30	$	1,582		$	2,482

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.

The following table summarizes current and non-current marketable securities, accounted for as "available for sale" securities at September 30, 2011 and December 31, 2010:

In thousands of dollars
	September 30, 2011								December 31, 2010
			Fair		Carrying		Unrealized (loss)/gain				Fair		Carrying		Unrealized loss
	Cost		Value		Value		accumulated		Cost		Value		Value		accumulated
Current marketable securities:
Spectrum Pharmaceuticals, Inc.		-		-		-		-		755		480		480		(275	)
Total current	$	-	$	-	$	-	$	-	$	755	$	480	$	480	$	(275	)
Non-current marketable securities:
Auction rate corporate notes		-		-		-		-		3,902		2,482		2,482		(1,420	)
Total non-current	$	-	$	-	$	-	$	-	$	3,902	$	2,482	$	2,482	$	(1,420	)

The Spectrum Pharmaceuticals shares listed above at September 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.

Note 5. Product Inventories

Product inventories consist of the following:

In thousands of dollars
	September 30, 2011		December 31, 2010
Raw materials	$	3,009	$	2,979
Work in process		1,844		920
Finished goods		1,989		2,926
Total product inventories	$	6,842	$	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 September 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 September 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
	September 30, 2011		December 31, 2010

Prepaid inventory purchases	$	1,015	$	568
Prepaid insurance		370		269
Deposits		341		340
Prepaid financing costs		-		831
Deferred contract costs		341		87
Other prepaid expenses and current assets		167		174
Total prepaid expenses and other current assets	$	2,233	$	2,269

Prepaid financing costs relate to the Canon transaction which closed July 22, 2011. The financing costs were 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 September 30, 2011 and December 31, 2010 were:

In thousands of dollars
	September 30, 2011			December 31, 2010
Patents and patent applications	$	1,366		$	1,366
Less accumulated amortization		(997	)		(940	)
Total patents and patent applications	$	369		$	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 nine months ended September 30, 2011 and September 30, 2010, was $57,000 and $59,000, respectively. For each of the next four years, amortization expense relating to patents is expected to be approximately $76,000 per year, with $65,000 expected in the fifth year.

Note 8. Notes Payable and Long-Term Debt

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

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

Note payable to Imperial Credit Corporation	$	-		$	196
Note payable - building mortgage		1,500			-
Capital leases		17			36
Subtotal		1,517			232
Less current portion		(1,517	)		(216	)
Long-term portion	$	-		$	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 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. We were obligated to pay a minimum of five months’ interest. Proceeds of the Loan were used for general working capital requirements. On October 3, 2011, we paid off the balance of the loan.

Note 9. Stock-Based Compensation

As of September 30, 2011, the Altair Nanotechnologies Inc. 2005 Stock Incentive Plan (the “Plan”), administered by the Board of Directors, 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 $387,000 and $276,000, for the three months ended September 30, 2011, and 2010, respectively, and $750,000 and $998,000 for the nine months ended September 30, 2011 and 2010, respectively. Of this amount, $78,000 and $77,000 was recognized in connection with restricted stock and options granted to non-employees for the three months ended September 30, 2011 and 2010, respectively and $228,000 and $206,000 for the nine months ended September 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 was approved at this meeting. 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 September 30, 2011. Options granted under the plans 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 nine months ended September 30, 2011 and 2010, there were 600,000 and 15,500 shares granted, respectively, under the Plan. In calculating compensation related to stock option grants for the nine months ended September 30, 2011 and 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	None		None
Expected volatility		94%		82%
Risk-free interest rate		1.02%		1.47%
Expected life (years)		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 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 September 30, 2011 and 2010 and changes during the nine 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		600,000		$	1.34						407,562		$	4.07
Exercised		-			-						-			-
Forfeited/expired		(145,496	)	$	7.39						(147,198	)	$	9.82

Outstanding at Sept 30,		1,968,529		$	5.96		7.8	$	-		1,490,398		$	8.05		7.7	$	-

Exercisable at Sept 30,		1,181,970		$	8.48		6.6	$	-		658,102		$	10.91		6.5	$	-

Vested or expected to vest at Sept 30,		1,870,103		$	5.96		7.8	$	-		1,415,878		$	8.05		7.7	$	-

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 nine months ended September 30, 2011, resulting in 68,416 shares outstanding to non-employees of which 65,292 shares were exercisable as of September 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 40,001 forfeited or expired during the nine months ended September 30, 2010, resulting in 93,416 shares outstanding to non-employees, of which 76,229 shares were exercisable as of September 30, 2010.

The weighted-average grant-date fair value of options granted during the three and nine months ended September 30, 2011 was $1.07 and was $1.59 and $2.34 for the three and nine months ended September 30, 2010, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 and 2010 was $0.

A summary of the status of non-vested shares at September 30, 2011, and 2010 and changes during the nine 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		600,000			1.07		407,562			4.07
Vested		(602,860	)		3.58		(185,360	)		8.22
Forfeited/Expired		(54,734	)		5.23		(65,098	)		5.88

Non-vested shares at September 30,		786,559		$	3.92		832,284		$	5.25

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 nine months ended September 30, 2011, resulting in 3,124 non-vested shares outstanding to non-employees at September 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 nine months ended September 30, 2010, resulting in 17,187 non-vested shares outstanding to non-employees at September 30, 2010.

As of September 30, 2011 and 2010, there was $641,000 and $1.1 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 3.9 years and 1.2 years, respectively, for the nine months ended September 30, 2011 and 2010. The total fair value of options that vested during the nine months ended September 30, 2011 and 2010, was $2.2 million and $949,000, respectively. There was no cash received from stock option exercises for the nine months ended September 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 nine months ended September 30, 2011 the Board of Directors did not approve the grant of any new restricted stock under the plan. However, due to the completion of the Share Subscription Agreement with Canon and the change in control, the vesting for the remaining 88,872 shares was accelerated. During the nine months ended September 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 nine months ended September 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		(210,996	)		2.16		(43,372	)		5.10
Forfeited/Expired		-			-		-			-

Non-vested shares at September 30,		-		$	-		210,996		$	2.16

As of September 30, 2011, the remaining total unrecognized compensation expense was $0 because of the acceleration of vesting for the restricted stock. This was due to the change in control resulting from the completion of the Share Subscription Agreement with Canon. As of September 30, 2010, the remaining total unrecognized compensation expense was $304,827, net of estimated forfeitures, related to restricted stock which will be recognized over the weighted average period for September 30, 2010 of 1.2 years.

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:

	September 30, 2011			June 30, 2011			March 31, 2011
Stock Price	$	1.34		$	0.86		$	1.58
Exercise Price	$	2.56		$	2.56		$	2.56
Expected Volatility		101	%		96	%		94	%
Expected Dividend Yield	None			None			None
Expected Term (in years)		5.0			5.3			5.5
Risk-free Interest Rate		0.38	%		1.84	%		2.26	%

As of September 30, 2011, the value of the warrant liability was $1.6 million and the change in fair value during the three and nine months ended September 30, 2011 was a loss of $676,000 and a gain of $346,000, respectively. The gain/(loss) was recorded as other (expense) income in the statement of operations.

The completion of the Share Subscription Agreement with Canon on July 22, 2011 resulted in a change in control. As such, the company was obligated to pay warrant holders who requested redemption a total of $530,000 for warrants containing the change in control provision.

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

In thousands of dollars
	2011					2010
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Warrants			Price		Warrants		Price
Outstanding at January 1,		1,757,115		$	4.61		1,757,115	$	4.61
Issued		1,800,000			2.56		-		-
Expired		(50,000	)		14.56		-		-
Warrant Redemption		(972,590	)		3.28		-		-
Exercised		-			-		-		-
Outstanding at September 30,		2,534,525		$	2.74		1,757,115	$	4.61
Currently exercisable		2,534,525		$	2.74		1,757,115