Edgar Filing: ALTAIR NANOTECHNOLOGIES INC

alti_10q-093012.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, 2012

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)

Delaware	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 November 8, 2012 the registrant had 69,537,911 shares of Common Stock 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)

	September 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	32,213		$	46,519
Restricted cash		293
Accounts receivable, net		949			333
Product inventories, net		8,648			7,220
Prepaid expenses and other assets		897			1,562
Deferred contract costs		3,330			678
Other assets, related party		1,700
Total current assets		48,030			56,312

Property, plant and equipment, net		6,117			6,870
Patents, net		293			350

Total Assets	$	54,440		$	63,532

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Trade accounts payable	$	5,667		$	5,870
Accrued salaries and benefits		852			1,132
Accrued warranty		397			354
Accrued liabilities		445			421
Deferred revenues		5,326			1,616
Warrant liabilities		742			654
Note payable, current		1,000
Capital lease obligation		16			12
Total current liabilities		14,445			10,059


Total Liabilities		14,445			10,059


Stockholders' equity
Common stock, no par value, unlimited shares authorized; 69,537,911 shares issued and outstanding at September 30, 2012 and December 31, 2011		246,667			245,617
Additional paid in capital		12,349			12,279
Accumulated deficit		(218,828	)		(204,423	)
Accumulated other comprehensive loss		(193	)
Total stockholders' equity		39,995			53,473

Total Liabilities and Stockholders' Equity	$	54,440		$	63,532

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,

	2012			2011			2012			2011
Revenues
Product sales	$	296		$	795		$	869		$	3,335
License fees		60			60			180			180
Commercial collaborations		4						22			80
Contracts and grants											287
Total revenues		360			855			1,071			3,882

Cost of goods sold
Product		773			559			1,792			3,484
Commercial collaborations					(124	)					73
Contracts and grants											296
Warranty and inventory reserves		15			97			490			155
Total cost of goods sold		788			532			2,282			4,008

Gross (loss) profit		(428	)		323			(1,211	)		(126	)

Operating expenses
Research and development		1,423			1,594			5,046			4,933
Sales and marketing		499			834			2,344			2,798
General and administrative		1,837			2,730			5,010			6,107
Depreciation and amortization		252			259			771			1,013
Loss on disposal of assets					2						18
Total operating expenses		4,011			5,419			13,171			14,869
Loss from operations		(4,439	)		(5,096	)		(14,382	)		(14,995	)

Other (expense) income
Interest income (expense), net		37			(97	)		67			(155	)
Change in market value of warrants		(267	)		(676	)		(88	)		346
Loss on foreign exchange		(2	)		(4	)		(2	)		(5	)
Total other (expense) income, net		(232	)		(777	)		(23	)		186

Net loss	$	(4,671	)	$	(5,873	)	$	(14,405	)	$	(14,809	)


Loss per common share - basic and diluted	$	(0.07	)	$	(0.10	)	$	(0.21	)	$	(0.38	)
Weighted average shares - basic and diluted		69,537,911			60,222,433			69,537,911			39,286,178

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in thousands of United States Dollars)

(Unaudited)

	Three Months Ended September 30,
	2012			2011

Net loss	$	(4,671	)	$	(5,873	)

Other comprehensive loss, net of tax:
Foreign currency translation adjustment		(61	)		-
Comprehensive loss	$	(4,732	)	$	(5,873	)

	Nine Months Ended September 30,
		2012			2011

Net loss	$	(14,405	)	$	(14,809	)

Other comprehensive loss, net of tax:
Foreign currency translation adjustment		(193	)		-
Comprehensive loss	$	(14,598	)	$	(14,809	)

See notes to the consolidated financial statements.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

(Unaudited)

	Common Stock				Additional Paid In			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital			Deficit			Loss		Total
Balance, July 1, 2011		30,701,104	$	193,436	$	12,510		$	(193,426	)		-	$	12,520

Net loss									(5,873	)				(5,873	)
Share-based compensation				78		309								387
Common stock issued		1,800,000

Common stock issued, net of issurance costs of $5.4M		37,036,807		52,103										52,103
Warrant redemption						(530	)							(530	)
Balance, September 30, 2011		69,537,911	$	245,617	$	12,289		$	(199,299	)			$	58,607

	Common Stock				Additional Paid In		Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital		Deficit			Loss			Total
Balance, July 1, 2012		69,537,911	$	245,617	$	12,276	$	(214,157	)	$	(132	)	$	43,604

Net loss								(4,671	)					(4,671	)
Other comprehensive loss											(61	)		(61	)
Reduction in issuance costs from legal claims settlement				1,050										1,050
Share-based compensation						73								73
Balance, September 30, 2012		69,537,911	$	246,667	$	12,349	$	(218,828	)	$	(193	)	$	39,995

	Common Stock				Additional Paid In			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital			Deficit			Loss		Total
Balance, January 1, 2011		27,101,104	$	189,491	$	12,297		$	(184,490	)		-	$	17,298

Net loss									(14,809	)				(14,809	)
Share-based compensation				228		522								750
Common stock issued, net of issurance costs of $698 and warrant liabilities		3,600,000		3,795										3,795
Common stock issued		1,800,000

Common stock issued, net of issurance costs of $5.4M		37,036,807		52,103										52,103
Warrant redemption						(530	)							(530	)
Balance, September 30, 2011		69,537,911	$	245,617	$	12,289		$	(199,299	)			$	58,607

	Common Stock				Additional Paid In		Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital		Deficit			Loss			Total
Balance, January 1, 2012		69,537,911	$	245,617	$	12,279	$	(204,423	)				$	53,473

Net loss								(14,405	)					(14,405	)
Other comprehensive loss											(193	)		(193	)
Reduction in issuance costs from legal claims settlement				1,050										1,050
Share-based compensation						70								70
Balance, September 30, 2012		69,537,911	$	246,667	$	12,349	$	(218,828	)	$	(193	)	$	39,995

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,
	2012			2011
Cash flows from operating activities:
Net loss	$	(14,405	)	$	(14,809	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		771			1,013
Share-based compensation		70			750
Loss on disposal of assets					18
Change in fair value of warrants		88			(346	)
Changes in operating assets and liabilities:
Accounts receivable, net		(616	)		479
Product inventories		(1,211	)		246
Prepaid expenses and other current assets		(3,687	)		36
Trade accounts payable		(203	)		(740	)
Accrued salaries and benefits		(280	)		694
Accrued warranty		43			68
Deferred revenues		3,710			(1,029	)
Accrued liabilities		24			98
Net cash used in operating activities		(15,696	)		(13,522	)

Cash flows from investing activities:
Increase in restricted cash		(293	)
Purchase of property, plant and equipment		(170	)		(343	)
Proceeds from disposition of assets					5
Net cash used in investing activities		(463	)		(338	)

Cash flows from financing activities:
Issuance of common shares for cash, net of issuance costs		1,050			61,851
Payment on warrant redemption					(530	)
Proceeds from notes payable		1,000			1,500
Payment of note payable					(198	)
Repayment of capital lease obligation		(4	)		(17	)
Net cash provided by (used in) financing activities		2,046			62,606

Effect of exchange rate changes on cash and cash equivalents		(193	)

Net (decrease) increase in cash and cash equivalents		(14,306	)		48,746

Cash and cash equivalents, beginning of period		46,519			4,695

Cash and cash equivalents, end of period	$	32,213		$	53,441

Supplemental disclosures:
Cash paid for interest	$	28		$	153

Cash paid for income taxes	None			None

Non-cash transactions:
Acquisition of assets included in accounts payable	$			$	38

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

The interim consolidated financial statements of Altair Nanotechnologies Inc. and its subsidiaries (the “Company”) are unaudited. These consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. The 2011 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). This Form 10-Q (this “Report”) should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, which includes all disclosures required by GAAP.

The interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to obtain additional financing or refinancing as may be required, including our expansion into China, to develop commercially viable products and processes, and ultimately to establish profitable operations. The Company expects to rely on debt, the issuance of equity securities and incentives and concessions from the Wu’an China Government sufficient to fund consolidated operations including the planned expansion to China. However, no assurances can be given that the Company will be able to meet these financing objectives.

The interim consolidated financial statements include Altair Nanotechnologies (China) Co., Ltd. (“Altair China”), established in the first quarter of 2012.

The interim consolidated financial statements include a new Wu’an China subsidiary of Altair China, called Northern Altair Nanotechnologies Co., Ltd., established in the second quarter of 2012.

On May 15, 2012, Altair Nanotechnologies Inc., domesticated from Canada to the United States of America and is now a Delaware Corporation.

Note 2. Recently Adopted and Recently Issued Accounting Guidance

Adopted

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Other than the additional disclosure requirements (see Note 3.) the adoption of this guidance had no impact on the financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. Management elected to present the two-statement option. Other than the change in presentation, the adoption of these changes had no impact on the financial statements.

Foreign Currency

The consolidated financial statements are presented in our reporting currency, U.S. Dollars. The functional currency for the subsidiaries in China is the Chinese Yuan or RMB. Accordingly, the balance sheet of the Chinese subsidiaries is translated into U.S. Dollars using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded in accumulated other comprehensive income (loss) as foreign currency translation. 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 gain or loss in the statements of operations.

Note 3. Fair Value Measurements and Other Financial Measurements

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, 2012 or December 31, 2011. 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 fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). 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.

There were no assets recorded at fair value on a recurring basis at September 30, 2012 or December 31, 2011.

In arriving at fair-value estimates, we utilize the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement characterized based upon the lowest level of input that is significant is applied to the fair-value measurement. For us, recurring fair-value measurements are performed for warrant liabilities.

All warrant liability financial instruments are recognized in the balance sheet at their fair value. Changes in the fair values of warrant liability financial instruments are reported in earnings. We do not hold any derivative liability financial instruments that reduce risk associated with hedging exposure and we have not designated any of our warrant liability financial instruments as hedge instruments.

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 as follows:

		Level				September 30, 2012				December 31, 2011
Warrant liabilities:			3			$	742			$	654

The following table presents quantitative information for Level 3 measurements:

	Fair value at September 30, 2012		Valuation technique	Unobservable input
Liabilities:
Warrant liabilities	$	742	Black-Scholes- Merton option pricing model	Prevailing interest rates, Company’s stock price volatility, expected warrant term

There have been no transfers between Level 1, Level 2, or Level 3 categories.

The following table summarizes current warrant liabilities recorded at fair value at September 30, 2012:

	Fair Value		Carrying Value
Warrant liabilities:	$	742	$	742
Total	$	742	$	742

Financial instruments classified as Level 3 in the fair value hierarchy represent warrant liabilities in which management has used at least one significant unobservable input in the valuation model. The following table represents a reconciliation of activity for such warrant liabilities:

Warrant liabilities
Opening balance – December 31, 2011	$	654
Purchases, sales, issuances, and settlements		—
Transfers into and (or) out of Level 3		—
Change in fair value		88
Unrealized gains / (losses)		—
Other adjustments		—
Closing balance – September 30, 2012	$	742

There were no purchases, sales, transfers, issuances or settlements of Level 3 financial instruments. There were no assets or liabilities measured on a non-recurring basis as of September 30, 2012 and December 31, 2011.

Other Financial Instruments

The carrying values and fair values of the Company’s other financial instruments were as follows:

		September 30, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value
Accounts receivable, net	2	$	949	$	949	$	333	$	333
Trade accounts payable	2	$	5,667	$	5,667	$	5,870	$	5,870
Capital lease obligation	2	$	16	$	16	$	12	$	12
Note payable	2	$	1,000	$	1,000	$	-	$	-

The following methods were used to estimate the fair values of other financial instruments:

Accounts receivable, Trade accounts payable, Capital lease obligation and Note payable. The carrying amounts approximate fair value due to their short term nature.

Note 4. Product Inventories

Product inventories consist of the following:

In thousands of dollars

	September 30, 2012		December 31, 2011
Raw materials	$	3,254	$	4,193
Work in process		5,349		2,982
Finished goods		45		45
Total product inventories	$	8,648	$	7,220

As of September 30, 2012 and December 31, 2011, inventory relates to the production of battery systems targeted at the electric grid, transportation, and industrial markets.

Inventory valuation allowances, as a result of quality issues related to product inventories totaled $663,000 and $264,000 at September 30, 2012 and December 31, 2011, respectively.

Note 5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

In thousands of dollars

	September 30, 2012		December 31, 2011

Deferred contract costs	$	3,330	$	678

Other assets, related party	$	1,700	$	-

Prepaid inventory purchases	$	12	$	801
Prepaid insurance		369		259
Deposits		341		341
Other prepaid expenses and current assets		175		161
Total prepaid expenses and other current assets	$	897	$	1,562

Other prepaid expenses and current assets consist primarily of prepaid property taxes, service contracts, marketing expenses and rent. Other assets, related party, relates to a payment made to Yintong Energy (YTE) (an affiliate of Canon) as the Company will be working with YTE to supply the initial order of fifty electric buses by Wu’an China.

Note 6. Property, Plant and Equipment

Property, plant and equipment consists of the following:

In thousands of dollars

	September 30, 2012			December 31, 2011
Machinery and equipment	$	10,919		$	11,117
Building and improvements		4,323			4,447
Furniture, office equipment & other		1,798			1,826
Furniture, office equipment & other - China		108			-
		17,148			17,390

Total		17,148			17,390
Less accumulated depreciation		(11,031	)		(10,520	)
Total property, plant and equipment	$	6,117		$	6,870

Depreciation expense for the nine months ended September 30, 2012 and 2011, totaled $714,000 and $948,000, respectively.

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, 2012 and December 31, 2011 were:

In thousands of dollars

	September 30, 2012			December 31, 2011
Patents and patent applications	$	1,366		$	1,366
Less accumulated amortization		(1,073	)		(1,016	)
Total patents and patent applications	$	293		$	350

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, 2012 and 2011, was $57,000. For each of the next three years, amortization expense relating to patents is expected to be approximately $76,000 per year. Amortization expense for the fourth year is expected to be approximately $65,000.

Note 8. Stock-Based Compensation

As of September 30, 2012, 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 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. The additional 5,000,000 shares approved by the stockholders are 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. Prior stock option plans, under which we may not make future grants, authorized a total of 1,650,000 shares, of which options for 1,069,692 shares of common stock were granted (net of expirations) and options for 7,500 shares of common stock are outstanding and unexercised at September 30, 2012. 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.

Note 9. Warrants

Warrants Issued to Investors

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, 2012			September 30, 2011
Stock Price	$	0.74		$	1.34
Exercise Price	$	2.56		$	2.56
Expected Volatility		112	%		101	%
Expected Dividend Yield	None			None
Expected Term (in years)		4.0			5.0
Risk-free Interest Rate		0.37	%		0.38	%

As of September 30, 2012, the value of the warrant liability was $742,000 and the change in fair value during the nine months ended September 30, 2012 was a loss of $88,000. The loss was recorded as other expense in the statement of operations.

Warrant activity for the nine months ended September 30, 2012 and 2011 is summarized as follows:

	2012				2011
	Warrants		Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding at January 1,		2,476,654	$	2.49		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,		2,476,654	$	2.49		2,534,525		$	2.74
Currently exercisable		2,476,654	$	2.49		2,534,525		$	2.74

The following table summarizes information about warrants outstanding at September 30, 2012:

			Warrants Outstanding and Exercisable
Range of Exercise Prices			Warrants		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$1.00	to	$2.30		676,654		3.5	$	2.30
$2.31	to	$4.00		1,800,000		4.0		2.56
				2,476,654		4.1	$	2.49

Note 10. Note Payable

On August 8, 2012, we entered into a Note payable secured by, a Deed of Trust, corporate guaranty and hazardous materials indemnity agreement (collectively, the “Loan Documents”) for the provision of a $1 million loan (the “Loan”) secured by the Company’s Reno, Nevada Facility. 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 pay five months of prepaid interest to the lender upon closing and make interest-only payments on a monthly basis during the remaining term of the loan and to repay all principal and any outstanding interest on or before August 1, 2013. Although we may prepay the loan, we are obligated to pay a minimum of five months’ interest. Proceeds of the Loan have been used for general working capital requirements.

Note 11. Business Segment Information

Management views the Company as operating in two major business segments: Power and Energy Group, and All Other operations.

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. 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. For both quarters presented, the activity relating to the Performance Materials and Life Sciences divisions have been reclassified into All Other operations.

During the nine months ended September 30, 2012, the Company and its affiliates received a total of $3.2 million in payments for its various Power and Energy Group projects. The bulk of these cash payments were associated with contractual milestone payments for our larger utility-scale energy storage system projects. However, the total amount of these cash payments has not been recognized in our reportable segment data for the quarter, as the related contracts are recognized under the completed contract method.

Reportable segment data reconciled to the consolidated financial statements as of the three-month and nine-month periods ended September 30, 2012 and September 30, 2011 is as follows:

In thousands of dollars

Three Months	Net Sales		Loss (Income) From Operations			Depreciation and Amortization		Assets
September 30, 2012
Power & Energy Group	$	296	$	4,483		$	233	$	54,087
All Other		64		(44	)		19		353
Consolidated Total	$	360	$	4,439		$	252	$	54,440


September 30, 2011
Power & Energy Group	$	795	$	5,136		$	240	$	71,166
All Other		60		(40	)		19		424
Consolidated Total	$	855	$	5,096		$	259	$	71,590

Nine Months	Net Sales		Loss (Income) From Operations			Depreciation and Amortization		Assets
September 30, 2012
Power & Energy Group	$	886	$	14,507		$	714	$	54,087
All Other		185		(125	)		57		353
Consolidated Total	$	1,071	$	14,382		$	771	$	54,440


September 30, 2011
Power & Energy Group	$	3,219	$	15,028		$	956	$	71,166
All Other		663		(33	)		57		424
Consolidated Total	$	3,882	$	14,995		$	1,013	$	71,590

In the table above, the Loss from Operations column includes such expenses as business consulting, general legal expense, accounting and audit, general insurance expense, stock-based compensation expense, shareholder information expense, investor relations, and general office expense. As noted in the prior section, $3.2 million in contractual milestone and other payments associated with our utility-scale energy storage system projects were not deemed as recognizable revenue for the quarter, and thus were not included in the table.

For the nine months ended September 30, 2012, long-lived assets decreased by $180,401 for the Power and Energy Group. For the nine months ended September 30, 2011, long-lived asset increased by $572,746.

For the nine months ended September 30, 2012, we had sales to four major customers, each of which accounted for 10% or more of recognizable revenues. The company had no sales to related parties during the nine months ended September 30, 2012. Total sales to these customers for the nine months ended September 30, 2012 and the balance of their accounts receivable at September 30, 2012 were as follows:

In thousands of dollars

Customer	Sales Nine Months Ended September 30, 2012		Accounts Receivable Balance at September 30, 2012
Power and Energy Group:
Emrol	$	139
Hybricon		131
Proterra		121	$	121
ABB Secheron		111		2

For the nine months ended September 30, 2011, we had sales to two major customers, each of which accounted for 10% or more of revenues. Total sales to these customers for the nine months ended September 30, 2011 and the balance of their accounts receivable at September 30, 2011 were as follows:

In thousands of dollars

Customer	Sales Nine Months Ended September 30, 2011		Accounts Receivable Balance at September 30, 2011
Power and Energy Group:
Yintong Energy (YTE)*	$	1,779	$	-
Proterra, LLC		1,045	$	6

*YTE (an affiliate of Canon) became a related party, as of July 21, 2011.

Revenues for the nine-month periods ended September 30, 2012, and 2011 by geographic area were as follows:

In thousands of dollars

Geographic information (a):	Sales Nine Months Ended September 30, 2012		Sales Nine Months Ended September 30, 2011

United States	$	251	$	1,861
Germany		145
Belgium		139
Sweden		131
Switzerland		111
Other foreign countries		294		242
China				1,779
Total	$	1,071	$	3,882

Note 12. Commitments and Contingencies

Commitments — In March 2012, the Company was requested to obtain a stand by letter of credit in the amount of $293,000 in connection with the execution of a customer contract. The Company obtained the $293,000 stand by letter of credit and was required to transfer $293,000 to a restricted bank account.

On October 25, 2012, Northern Altair successfully completed a bidding process for a 66 acre parcel of land in Wu’an China, which will be used for the Company’s nLTO and energy storage system (“ESS”) manufacturing operations in China. On October 31, 2012, Northern Altair entered into a Contract on Assignment of State-owned Construction Land Use Right (the "Land-Use Agreement"), pursuant to which Northern Altair will acquire the right to use the 66 acres of commercial land north of Dongzhuchang Village in Wu'an City, China for a period of 50 years subject to the terms and conditions of the Land-Use Agreement. As consideration for the land use right, Northern Altair paid a land use fee of approximately $12 million and land transfer taxes and fees of approximately $1.9 million and agreed to make fixed asset investments on the land of approximately $167 million over an unspecified period of time, with initial construction to begin by March 31, 2013. The total fixed asset investments shall include the cost of buildings, structures, auxiliary facilities, and equipment, as well as the land-use fee. Northern Altair may transfer and sublease portions of the granted land once it has invested 25% of the total fixed asset investments amount and completed 25% of the project. Closing occurred on November 9, 2012. Separate from the Land-Use Agreement, Northern Altair is in the midst of negotiating with Wu’an City regarding a package of incentives to facilitate Northern Altair’s establishment of operations and construction efforts. The actual scope of Northern Altair’s construction project and manufacturing operations will be based on the anticipated market demand for the Company’s products and on the level of negotiated incentives.

Contingencies — We are subject to claims in the normal course of business. Except for the items noted below, management, after consultation with legal counsel, believes that liabilities, if any, resulting from such claims will not materially affect our financial position or results of operations.

JMP Dispute. On or about September 9, 2011, JMP Securities LLC ("JMP") filed a complaint against the Company in the United States District Court in the Northern District of California. JMP alleges breach of contract, promissory estoppel, fraud and negligence misrepresentation and seeks damages and punitive damages in an unspecified amount. This dispute arises from JMP's engagement as the Company's financial advisor in July 2010, and the key issue in this dispute is the amount of the fee JMP is entitled to receive as a result of the closing of the common share issuance to an affiliate of Canon. Under governing agreements, the amount of JMP's fee differs depending upon whether the common share issuance is a "Sale or Merger" (defined to include an acquisition of a majority of voting securities of the Company) or whether it is a "Strategic Investment", and whether certain gross up provisions apply. The Company asserts that the correct fee amount is approximately $0.8 million, while JMP asserts that the correct fee amount is approximately $2.3 million. The Company filed an answer to JMP's complaint. The Company filed motion to dismiss certain claims on the pleadings, which was denied. A second motion related to interpretation of the indemnity provisions of the underlying agreement was decided in favor of the Company. In October 2012, the Company entered into a settlement agreement with JMP, pursuant to which, in exchange for a full release, the Company is obligated to pay an aggregate of $1.65 million to JMP, $962,500 payable upon signing and $137,500 on each of December 15, 2012, January 15, 2013, February 15, 2013, March 15, 2013 and April 15, 2013. The obligations of the Company are guaranteed by Canon Investment Holdings, Ltd.

Charles Cheng Fee Dispute. On or about October 12, 2011, Altairnano, an indirect subsidiary of the Company, filed a complaint against Zhiyuan (Charles) Cheng in the United States District Court in the Northern District of Nevada. Altairnano seeks a declaratory judgment that it owes Mr. Cheng no fee and seeks damages for breach of contract in an unspecified amount. The dispute arises from Mr. Cheng's engagement as a consultant to seek customers and strategic partners for Altairnano in China. Mr. Cheng has asserted in various communications that his efforts were significant in the arranging of the common share issuance with Canon and that, as a result, he is entitled to a $1.7 million fee in consideration of the closing of such transaction. Altairnano claims that Mr. Cheng is entitled to no fee, and that Altairnano is entitled to damages, as a result of Mr. Cheng's numerous breaches of material provisions of the agreement. Altairnano has filed the complaint, and Mr. Cheng has filed an answer denying key allegations of the complaint and a counterclaim seeking payment of the fee, and damages, under various theories. Mr. Cheng has joined Zhuhai Yintong Energy Company Ltd. (“YTE”) and Wei Yincang into the action by means of a complaint against them alleging a breach of an agreement between them and Mr. Cheng. In October 2012, Altairnano entered into a settlement agreement with Mr. Cheng pursuant to which, in exchange for a fully release, a subsidiary of Altairnano will pay Mr. Cheng $1.3 million.

An accounts payable accrual of $4.0 million and $2.95 million was accrued in the Company’s balance sheet as of December 31, 2011 and September 30, 2012, respectively (See Note 13).

Supplier Concentration — 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, which are subject to claims in the normal course of business.

Note 13. Subsequent Events

In October 2012, the Company entered into a contract with TSK Solar, a leading energy EPC contractor and engineering firm, to provide an ALTI ESS Advantage system for a renewable integration project at the San Fermin 26 MW photovoltaic solar farm in Loiza, Puerto Rico. The system shall be delivered and commissioned by the end of December 2012. The Company received an initial down payment of $343,000 in October for the system. In November 2012, the 2 MW ALTI ESS Advantage system successfully shipped to Puerto Rico.

In October 2012, the Company and Northern Altair entered into a series of transactions, wherein, Northern Altair set aside, as restricted cash, $2 million with the Bank of China. In return, the Bank of China loaned the Company $2 million for use as operating capital. The proceeds of the loan were $1.98 million after prepaid fees were deducted.

In October 2012, the Company settled the JMP matter and made an initial settlement payment on October 31, 2012. The remainder of the five settlement payments shall be paid over the next six months. Our affiliate, Canon Investment Holdings Co., Ltd. guaranteed the Company’s settlement payments, which facilitated the payment plan. The Company also settled the Charles Cheng matter and made a single lump sum payment to Mr. Cheng on November 1, 2012 through its China-based affiliate, Northern Altair Nanotechnologies Co., Ltd. (“Northern Altair”). The total agreed upon settlement amount for both matters was $2.95 million. The Company reduced the total accrual to $2.95 million, as of September 30, 2012 and stock issuance cost included within common stock, as the settlement is directly related to the Canon Stock Subscription agreement completed in 2011.

On November 1, 2012, Altair Nanotechnologies Inc. (the "Company") entered into a Commercial/Investment Property Purchase Agreement with Wayne Rankin, Lee Rankin and Randy Rankin related to the sale of the Company’s Reno, Nevada Facility for a purchase price of $2,200,000. Under the Agreement, Altair has agreed to lease the facility for 10 months following closing at a rate of $21,000 per month. Closing is conditioned upon the buyers’ approval of a Phase 2 Environmental Survey and soil report and, assuming satisfaction of such conditions, is expected to occur within 30 days.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This 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” below and other cautionary statements throughout this 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 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.

Overview

Our primary focus is marketing advanced energy storage solutions for the electric grid, transportation, and industrial markets. In 2010, we expanded our sales focus to include original equipment manufacturers in the commercial vehicle and industrial markets targeting applications that leveraged the key attributes of our technology. These markets include medium and heavy-duty trucks, rail, stationary industrial applications and micro-grid systems. We believe that in the aggregate, our target markets are multi-billion dollar emerging markets with room for a number of successful suppliers. We believe the markets for advanced energy storage are maturing and as a result of our differentiated product attributes and the growing recognition we are receiving in the marketplace, that we will be successful in expanding orders. Customers are now telling us that unique attributes of our nano lithium titanate chemistry create real value for their businesses by allowing them to use energy storage in ways previously unachievable. Customers are most interested in the safety of our batteries, the long calendar and cycle life and the very fast charging capabilities over the widest temperature operating range in the industry.

Our historical revenues have been generated by license fees, product sales, commercial collaborations, and government contracts and grants. We expect future revenues to consist primarily of product sales and turnkey projects. Our current customer backlog includes purchase orders to (1) supply a 1 MW ALTI-ESS energy storage system for a test of wind energy integration in Hawaii, (2) supply a 1 MW ALTI-ESS energy storage system for a test of solar energy integration in Hawaii, (3) supply a 1.8 MW ALTI-ESS energy storage system to an electric utility in New Jersey, (4) supply a 1.2 MW ALTI-ESS energy storage system to a wind turbine manufacturer for integration into their wind energy systems for testing in Europe, (5) supply a 2 MW ALTI-ESS energy storage system for integration with a solar energy system in Puerto Rico, (7) supply battery modules to an electric bus manufacturer, (8) supply Altair Power Rack systems to numerous integration firms, and (9) supply application kits to various OEMs for testing.

During the three months ending March 31, 2012 we formed Altair China. Our intention is to launch manufacturing and sales operations in China with the goal of supplying the Chinese government with advanced energy solutions for the electric grid, transportation and industrial market segments. Initially, the operation will focus on powering electric buses, taxis, and assembling energy storage systems for large residential complexes as well as for the electric grid. Consistent with this goal, in April 2012, Altair Northern signed an Agreement (the “Wu’an Agreement") with Wu'an Municipal People's Government ("Wu'an") and Handan Municipal People's Government ("Handan"). On October 25, 2012, Northern Altair successfully completed a bidding process for a 66 acre parcel of land in Wu’an China, which will be used for the Company’s nLTO and energy storage system (“ESS”) manufacturing operations in China. On October 31, 2012, Northern Altair entered into a Contract on Assignment of State-owned Construction Land Use Right (the "Land-Use Agreement"), pursuant to which Northern Altair will acquire the right to use the 66 acres of commercial land north of Dongzhuchang Village in Wu'an City, China for a period of 50 years subject to the terms and conditions of the Land-Use Agreement. As consideration for the land use right, Northern Altair paid a land use fee of approximately $12 million and land transfer taxes and fees of approximately $1.9 million and agreed to make fixed asset investments on the land of approximately $167 million over an unspecified period of time, with initial construction to begin by March 31, 2013. The total fixed asset investments shall include the cost of buildings, structures, auxiliary facilities, and equipment, as well as the land-use fee. Northern Altair may transfer and sublease portions of the granted land once it has invested 25% of the total fixed asset investments amount and completed 25% of the project. Closing occurred on November 9, 2012. Separate from the Land-Use Agreement, Northern Altair is in the midst of negotiating with Wu’an City regarding a package of incentives to facilitate Northern Altair’s establishment of operations and construction efforts. The actual scope of Northern Altair’s construction project and manufacturing operations will be based on the anticipated market demand for the Company’s products and on the level of negotiated incentives.

During the quarter ended September 30, 2012, we made significant progress on our contract deliverables. Two energy storage systems totaling 2 MW were built for HNEI, and one of those systems was shipped to the end user, the Hawaii Electric Company (“HELCO”) on September 5, 2012. We finished its installation work on October 4, 2012, and the HELCO energy storage system should be commissioned in mid- to late-November. Work on the second HNEI energy storage system has been completed and we anticipate that we will ship the system to the end user in the first quarter of 2013. A third ESS system was installed on October 12, 2012, for a renewable energy company based in Europe, who will use the system within a wind farm application. We recently completed production of a fourth energy storage system for another utility customer, but construction at the proposed installation site has not been completed by the end user. We also worked on a fifth ESS system during the third quarter, which was sold to TSK Solar, a leading energy EPC contractor and engineering firm, in September 2012. We have has received contractual milestone payments during the third quarter for most of these systems, but not all of these payments have been recognized as revenue for the third quarter due to GAAP-related considerations.

General Outlook

Our current focus is on the development of battery systems that we anticipate will eventually bring a substantial amount of revenue volume and gross profit from product sales into the electric grid, transportation, and industrial markets. As we attempt to significantly expand our revenues from licensing, manufacturing and other sources, some of the key near-term events that will affect our long-term success prospects include the following:

Based on the success of the 2008 AES 2 MW frequency regulation trial, as validated in the KEMA, Inc. analysis and report, we have experienced a substantial amount of interest in our large scale battery systems from other entities and are in active sales development discussions with a number of them. In 2011, we accepted purchase orders to supply the University of Hawaii - Hawaii Natural Energy Institute (“HNEI”) with two 1 MW energy storage systems, one of which is for a test of wind energy integration and the other of which is for a test of solar energy integration. We shipped the wind system in the third quarter of 2012, and are in the final stages of the installation. We are currently scheduled to install the solar system in the first quarter of 2013.

In addition, as noted above, we have recently delivered, or expect to deliver in the next few months, five 1-2 MW energy storage systems. We anticipate that these smaller-scale energy storage systems will help establish the value of our products and facilitate future sales of similarly sized, or larger, systems.

On February 9, 2011, we signed an $18 million contract with Inversiones Energéticas, S.A. de C.V. (“INE”) for the supply and installation of a 10 MW ALTI-ESS advanced battery system in El Salvador. Total revenue under the Contract is expected to be recognized over an expected 14-month period following Altair’s receipt of the notice to proceed. This project has been delayed as a result of obtaining necessary regulatory approvals to enable battery-based energy storage on the El Salvador electric grid. We believe the necessary regulatory approvals will eventually be received.

We have supplied battery modules to Proterra, LLC, a Greenville, South Carolina based leading designer and manufacturer of heavy-duty drive systems, energy storage systems, vehicle control systems and transit buses for their all-electric and hybrid-electric buses. In 2011, we sold $2.1 million of battery modules to Proterra. In May 2012, we signed a contract to supply battery modules to Proterra. On June 19, 2012, Proterra released its first purchase order under the agreement for deliveries in the first quarter of 2013.

Based on the demonstrated success of our battery modules in the Proterra bus application, we have also entered into discussions with a number of other bus rail and systems integrators regarding joint development products or purchases of our battery products for transportation applications in the U.S., Europe and China. These customers are now testing and prototyping our products.

We are in discussions with a number of industrial manufacturers of forklifts, elevators, mining, rail and other electric equipment whose use requires the long-life, rapid recharge, extreme operating temperature range or other differentiating attributes of our battery technology. We have supplied application kits to several of these companies for testing and evaluation.

We are targeting China as a primary source of revenue for our battery systems targeted at the electric bus and electric grid markets. We recently formed Altair China in Zhuhai China, which signed the Wu’an Agreement related to a number of transactions between Altair China and Wu'an or Handan. Consistent with the Wu’an Agreement, we recently acquired rights to use approximately 66 acres of commercial land in Wu’an under an arrangement in which benefits received will directly offset the purchase price. This is to facilitate Altair China's construction of a manufacturing facility in an industrial park being promoted by Wu'an. We are still in the process of documenting the transfer. Under the Wu’an agreement, the city also agreed to place orders for electrical buses and energy storage systems for large residential complexes. Wu’an placed an initial deposit in August 2012 in the amount of $1.9 million for its initial order of fifty electric buses.

In August 2012, we entered into a memorandum of understanding with a leading coal company in China, which also operates utilities and railroads. We are currently in discussions about a possible pilot project that would test and demonstrate the Company’s systems when integrated with a wind farm.

In September 2012, we signed a memorandum of understanding with EnerDel, a manufacturer of lithium-ion batteries and systems, to collaborate on the joint marketing and sales of each other’s products.

Although it is not essential that all of these markets become successful for our battery technology in order to permit substantial long-term revenue growth, we believe that full commercialization of several of our battery applications will be necessary in order to expand our revenues enough to create a likelihood of our becoming profitable in the long-term. We remain optimistic with respect to our current key projects, as well as others we are pursuing, but recognize that, with respect to each, there are development, marketing, partnering and other risks to be overcome.

Liquidity and Capital Resources

Current and Expected Liquidity

Altair’s cash and cash equivalents decreased by $14.3 million, from $46.5 million at December 31, 2011 to $32.2 million at September 30, 2012. The decrease in cash was primarily due to the $15.7 million of cash used in operating activities during the nine months ending September 30, 2012. The bulk of the cash used in operations went to cover our net loss of $14.4 million offset by $1M in proceeds from a short-term note payable used towards the $4.7 million build-up of work in process inventory related to the fulfillment of customer sales backlog, of which $1.2 million is included in deferred contract costs.

During the nine months ending September 30, 2011 we issued shares of common stock and warrants to purchase shares of common stock for net proceeds of $61.8 million. We recorded a $1.9 million warrant liability related to this capital raise. We also paid off $206,000 of debt and $530,000 in warrant redemptions. On July 22, 2011 we issued 37,036,807 shares at $1.55 each to Canon for gross proceeds of $57.5 million. As of September 30, 2011, we had paid $1.4 million in related expenses.

As of September 30, 2012, we had cash totaling $32.2 million. In April 2012, $32.0 million was transferred to Altair China in to be used towards our China operations. The Board of Directors has developed a funding process for both our U. S. operations and our China operations moving forward. For China, assuming our completion of the land transfer, development of suitable manufacturing plans and finalization of orders, we believe that project financing or indebtedness may be available to facilitate operations. In the U.S., our operations may be supported in the near term by selling inventory, equipment and services to Altair China, and receiving fees associated with intellectual property licensing; however, in the longer term, we may need to raise equity capital for the U.S. and China operation, particularly to build out inventory if orders from China, Central America or other areas increase.

We evaluate our capital needs and the availability of capital on an ongoing basis and, consistent with past practice, expect to seek capital when and on such terms as we deem appropriate based upon our assessment of our current liquidity, capital needs and the availability of capital. Given that we are not yet in a positive cash flow or earnings position, the options available to us are fewer than to a positive cash flow company. Specifically, we would not generally qualify for long-term institutional debt financing. Consistent with past practice, we expect to raise additional capital through loans, the sale of shares of common stock, convertible notes, stock options, and warrants. We do not expect the current economic environment to preclude our ability to raise capital, but the overall cost of doing so may be high.

Over the long-term, we anticipate substantially increasing revenues by entering into new contracts and increasing product sales in the stationary power, electric bus and selected other industrial markets.

Capital Commitments and Expenditures

The following table discloses aggregate information about our contractual obligations and the periods in which payments are due as of September 30, 2012:

In thousands of dollars

Contractual Obligations	Total		< 1 yr		1-3 yrs		3-5 yrs		> 5 yrs
Note payable	$	1,000	$	1,000	$	-	$	-	$	-
Contractual service agreements		846		846		-		-		-
Capital leases		16		10		6		-		-
Purchase obligations		635		635		-		-		-
Total	$	2,497	$	2,491	$	6	$	-	$	-

Off-Balance Sheet Arrangements

The company did not have any off-balance sheet transactions during the nine months ending September 30, 2012.

Recently Adopted and Recently Issued Accounting Guidance

See Note 2 to the interim consolidated financial statements in Part I Item 1 of this form 10-Q.

Results of Operations

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011

In thousands of dollars

	Power and Energy Group						All Other				Consolidated
	Three Months Ended September 30						Three Months Ended September 30				Three Months Ended September 30
	2012			2011			2012		2011		2012			2011
Revenues
Product sales	$	296		$	795						$	296		$	795
License fees							$	60	$	60		60			60
Commercial collaborations								4				4
Contracts and grants
Total revenues		296			795			64		60		360			855

Cost of goods sold
Product		773			559							773			559
Commercial collaborations					(124	)									(124	)
Contracts and grants															-
Warranty and inventory reserves		15			97							15			97
Total cost of goods sold		788			532							788			532

Gross (loss) profit		(492	)		263			64		60		(428	)		323

Operating expenses
Research and development		1,422			1,593			1		1		1,423			1,594
Sales and marketing		499			834							499			834
General and administrative		1,837			2,730							1,837			2,730
Depreciation and amortization		233			240			19		19		252			259
Loss on disposal of assets					2										2
Total operating expenses		3,991			5,399			20		20		4,011			5,419
(Loss) income from operations		(4,483	)		(5,136	)		44		40		(4,439	)		(5,096	)

Other income (expense)
Interest income (expense), net		37			(97	)						37			(97	)
Change in market value of warrants		(267	)		(676	)						(267	)		(676	)
Loss on foreign exchange		(2	)		(4	)						(2	)		(4	)
Total other (expense) income, net		(232	)		(777	)						(232	)		(777	)

Net (loss) income	$	(4,715	)	$	(5,913	)	$	44	$	40	$	(4,671	)	$	(5,873	)

Revenues

Power and Energy Group revenue for the three months ending September 30, 2012 was $296,000. This amount included revenue from battery modules sold to five customers. Revenues were lower by $499,000, in the three months ending September 2012 compared to $795,000 in the three months ending September 30, 2011. This was primarily as a result of decreased revenue recognition for product sales; however deferred revenues for six customers increased $2.8 million to $5.3 million as of September 30, 2012.

Cost of Goods Sold

In the Power and Energy Group the cost of goods sold for product sales was $788,000 for the three months ended September 30, 2012. Cost of goods sold (COGS) exceeded product sales by $492,000. This was due to fixed manufacturing costs expensed during the period in light of low inventory production levels and due to cost increases associated with the launch of new electric grid products of $337,000. This compared to $532,000 of total COGS for the same period in 2011, which was less than total sales by $263,000.

It is important to note that our gross margins in any quarter are not indicative of future gross margins. At this early stage of development, our product mix, volume, per-unit pricing and cost structure may change significantly from quarter to quarter, and our margins may expand or contract depending upon the mix and timing of orders in future quarters. In general, we expect our margins to increase as our volume of business increases and we completely transition from product prototypes to commercial, scalable manufacturing processes.

Operating Expenses

Operating expenses overall decreased by $1.4 million, from approximately $5.4 million during the three months ending September 30, 2011 to approximately $4.0 million during the three months ending September 30, 2012. The decrease during the three months ending September 30, 2012 compared to the three months ending September 30, 2011, was mainly in the general and administrative area by $0.9 million which directly related to severance expensed in 2011. Average U.S. employee headcount decreased by 14%, from 91 employees during the three months ending September 30, 2011 to 78 employees for the corresponding 2012 period. Average employee headcount in China increased from zero employees during the three months ending September 30, 2011 to 14 employees for the corresponding 2012 period. Research and development expenses decreased $0.2 million, from $1.6 million during the three months ending September 30, 2011 to $1.4 million during the three months ending September 30, 2012, while sales and marketing expenses also decreased by $0.3 million, from approximately $0.8 million during the three months ending September 30, 2011 to approximately $0.5 million during the three months ending September 30, 2012. We are focusing on reducing our cost structure in areas that will not adversely affect growing our product revenues.

Net Loss

Net loss generated during the three months ended September 30, 2012 totaled $4.7 million ($0.07 per share) compared to a net loss of $5.9 million ($0.10 per share) in the same three months of 2011.

ALTAIR NANOTECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in thousands of United States Dollars)

(Unaudited)

	Power and Energy Group					All Other				Consolidated
	Nine Months Ended September 30					Nine Months Ended September 30				Nine Months Ended September 30
	2012		2011			2012		2011		2012		2011
Revenues
Product sales	$	869	$	3,258				$	77	$	869	$	3,335

License fees							180		180		180		180
Commercial collaborations		17		77			5		3		22		80
Contracts and grants				(116	)				403				287
Total revenues