Forward-Looking Statements

This Quarterly Report on Form 10-Q (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 in Part II - Other Information, "Item 1A. Risk Factors" and other cautionary statements throughout this Report and our other filings with the Securities and Exchange Commission. 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.

Unless the context requires otherwise, all references to "Altair," "we," "Altair Nanotechnologies Inc.," or the "Company" in this Report refer to Altair Nanotechnologies Inc. and all of its subsidiaries. Altair currently has one wholly owned subsidiary, Altair US Holdings, Inc., a Nevada corporation. Altair US Holdings, Inc. directly or indirectly wholly owns Altairnano, Inc., a Nevada corporation, Mineral Recovery Systems, Inc., a Nevada corporation, Fine Gold Recovery Systems, Inc., a Nevada corporation and a controlling interest in AlSher Titania LLC ("AlSher Titania"), a joint venture with The Sherwin-Williams Company ("Sherwin-Williams"). We have registered or are in the process of registering the following trademarks: Altair Nanotechnologies®, Altair Nanomaterials®, Altairnano™, TiNano®, Nanocheck© and RenaZorb®. Any other trademarks and service marks used in this Report are the property of their respective holders.

Overview

The following discussion summarizes the material changes in our financial condition between December 31, 2007 and June 30, 2008 and the material changes in our results of operations and financial condition between the three-month and six-month periods ended June 30, 2008 and June 30, 2007. This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

We are a Canadian corporation, with principal assets and operations in the United States, whose primary business is developing and commercializing nanomaterial and titanium dioxide pigment technologies. We are organized into three divisions, a Power and Energy Group, a Performance Materials Division and a Life Sciences Division. Our research, development, production and marketing efforts are currently directed toward three primary market applications that utilize our proprietary technologies:

? Power and Energy Systems

o The design, development, and production of our nano-lithium Titanate battery cells, batteries, and battery packs as well as related design and test services.

o The development, production and sale for testing purposes of electrode materials for use in a new class of high performance lithium ion batteries called nano-lithium Titanate batteries.

? Performance Materials Division

o Through AlSher Titania, the development and production of high quality titanium dioxide pigment for use in paint and coatings, and nano titanium dioxide materials for use in a variety of applications including those related to removing contaminants from air and water.

o The testing, development, marketing and/or licensing of nano-structured ceramic powders for use in various applications, such as advanced performance coatings, air and water purification systems, and nano-sensor applications.

? Life Sciences

o The co-development of RenaZorb, a test-stage active pharmaceutical ingredient, which is designed to be useful in the treatment of elevated serum phosphate levels in human patients undergoing kidney dialysis.

o The development of a manufacturing process related to a test-stage active pharmaceutical ingredient, which is designed to be useful in the treatment of companion animals.

We also provide contract research services on select projects where we can utilize our resources to develop intellectual property and/or new products and technology.

Our revenues have been, and we expect them to continue to be, generated by license fees, product sales, commercial collaborations and contracts and grants. We currently have agreements in place to (1) provide research to further develop battery electrode materials, nano-sensors, and nano-materials characterization, (2) to participate in a joint venture combining the technologies of the partners in order to develop and produce titanium dioxide pigment for use in paint and coatings and nano-titanium dioxide materials for use in a variety of advanced materials applications, (3) to develop a suite of energy storage solutions for the stationary power market, (4) to develop battery backup power systems for Naval applications and (5) to develop battery power systems for Army artillery units. In addition, we have entered into a licensing agreement for RenaZorb, our pharmaceutical candidate for treatment of chronic renal failure in humans; we have licensed all potential pharmaceutical products for animal applications; and we have made product sales consisting principally of alumina, battery cells and battery modules. Future revenues will depend on the success of our contracted projects, the results of our other research and development work, the success of the RenaZorb and animal application licensees in obtaining regulatory approval for the drugs, or other products, the successful completion of engineering studies relating to the 100 ton per year plant designed for titanium pigment production, the successful commercialization of our completed large scale stationary power tests in connection with energy storage devices, and the success of our marketing efforts with respect to both product sales and technology licenses.

General Outlook

We have generated net losses in each fiscal year since incorporation. In fiscal 2007, revenues from product sales, commercial collaborations and contracts and grants began to increase significantly, but operating expenses also increased significantly as we added employees and committed additional funds to our customer contracts, battery initiative, and pigment process technology. Our gross profit margins on customer contracts for research and development work are very low, and in order that we may be profitable in the long run, our business plan focuses on the development of products and technologies that we expect will eventually bring a substantial amount of higher-margin revenues from licensing, manufacturing, product sales and other sources. We expect our nano-lithium Titanate battery cells, packs and energy storage devices to be a source of such higher-margin revenues in the long term. In 2007, we increased spending for the battery initiative, manufacturing of the potential drug candidates, and pigment process development.

As we attempt to significantly expand our revenues from licensing, manufacturing, sales and other sources, some of the key near-term events that will affect our long-term success prospects include the following:

? In July 2007, we entered into a multi-year development and equipment purchase agreement with AES Energy Storage, LLC, a subsidiary of global power leader, The AES Corporation. Under the terms of the deal, we are working jointly with AES to develop a suite of energy storage solutions specifically for AES. The first two one-megawatt prototype stationary battery packs were manufactured at our Indiana facility and were completed according to the delivery schedule in December 2007. These packs have been connected to the electric grid in Indiana and full testing has been completed and validated by an external, independent agency. The testing showed the battery system successfully met the program's milestones, which was conducted to demonstrate the applicability of Altair's large platform technology to frequency regulation, a key service currently provided by power plants to the electric grid. This demonstration also suggests that the technology could be used for a number of other utility applications. We expect our development relationship with AES to continue through 2008 and beyond.

? Spectrum must begin the testing and application processes necessary to receive FDA approval of RenaZorb and related products. Spectrum has begun the process of information and data collection and presentation required to file an investigational new drug application with the FDA, which is a condition precedent to commencing human testing and the first stage of seeking regulatory approval. We do not expect the application to be filed until 2009. In order for RenaZorb to be successful in the foreseeable future, it is important that Spectrum, with our assistance, submit its investigation new drug application by early 2009 and continue with testing.

? We have formed the AlSher Titania joint venture with The Sherwin-Williams Company to develop and produce titanium dioxide pigment for use in paint and coatings. We have generated considerable data from our 100 ton per year pilot plant, commissioned in February 2008 and are currently compiling that information for an engineering data package analysis and recommendation on next steps. Based on review of this package, its impact on financial projections, and input from our partner, we will consider whether to undertake a more detailed engineering cost study aimed at a scale up to a 5000 ton per year demonstration plant. The success of this joint venture and initial pilot plant trials is integral to continuing development and the ultimate commercialization of AHP technology.

? In January 2008, we entered into a development agreement with the Office of Naval Research for $2,490,000. This is is a cost reimbursement agreement whereby we will develop a proof of concept battery system consisting of two 50-80 killowatt hour batteries. Successful completion of this development work is required to qualify for further military grants with the Office of Naval Research.

Although it is not essential that all of these projects be successful in order to permit substantial long-term revenue growth, we believe that full commercialization of several of our technologies will be necessary in order to expand our revenues enough to create a likelihood of our becoming profitable in the long term. We are 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 overcome.

Recent Business Developments

Power and Energy Group

Pursuant to letter agreements effective July 2008 with Phoenix, the January 2007 purchase and supply agreement was cancelled, and both parties agreed to resolve outstanding issues with respect to the warranty associated with the 47 battery packs and the amounts owed by both parties. That agreement resulted in our shipping of 47 Generation 1 prototype batteries back to Phoenix for exclusive use in Phoenix demonstration vehicles. The batteries are provided to Phoenix "as is" without explicit or implied warranties. In turn Phoenix committed to provide Altair with ten percent of the monetized value of any California Air Resources Board ZEV credits for each vehicle for which it receives them.

In June 2008, we received an order from BAE Systems for $349,000 to develop 32 batteries in support of the US Army's artillery upgrade program. We plan to deliver the batteries in October 2008. Revenue will be recognized upon acceptance by BAE Systems.

In August 2007, we received an initial $1,000,000 order in connection with the AES Joint Development and Equipment Purchase Agreement for a 500 kilowatt-hour energy storage product. In accordance with this purchase order, two one-megawatt stationary battery packs (energy equivalent for each pack based on anticipated operational time is 250 kilowatt-hours of energy) were completed according to the delivery schedule in December 2007. A testing program was developed and validated by KEMA, Inc., an independent agency and executed by AES personnel and subcontractors. KEMA's testing completed during the second quarter of 2008 showed the battery system successfully met the program's specifications. The demonstration also suggests that the technology could be used for several other utility applications. There were no inherent design limitations identified in its application within the designed one-megawatt power handling range. Fast-responding, high-efficiency energy storage systems such as these are anticipated to create a more resilient grid and allow for increased use of variable generating sources such as wind and solar by power providers. We expect our development relationship with AES to continue through 2008 and beyond. We also expect to commercialize this prototype as a standard product offering by the end of 2008.

Life Sciences

In September 2007, we entered into a development services agreement with Elanco Animal Health, a division of Eli Lilly and Company ("Elanco"). Pursuant to the agreement, over a multi-year period, we will develop a manufacturing process related to a test-stage active pharmaceutical ingredient. This development work will include making certain regulatory filings, installing related equipment, and providing related services. Based on a previous agreement, Elanco has the exclusive right to develop and market this pharmaceutical ingredient. Elanco has agreed to fund substantially all of the development process, at a cost of approximately $2,500,000. Through the end of the second quarter of 2008, $1,206,940 has been billed under this agreement on a cumulative contract to date basis and approximately $1,293,060 remains to be completed.

Performance Materials

In April 2007, a new company, called AlSher Titania LLC was formed. AlSher Titania represents a joint venture with Sherwin-Williams, one of the world's leading manufacturers of paint and durable coatings. Construction of the 100 ton pigment processing pilot plant in connection with the joint venture agreement was completed and the plant was commissioned in February 2008. Testing under the piloting program has commenced and results to date have been positive. Considerable data has been generated and is being compiled for an engineering data package analysis and recommendation on next steps. Based on review of this package, its impact on financial projections, and input from our partner, we will consider whether to undertake a more detailed engineering cost study by early 2009 relating to the potential scale up to a 5000 ton per year demonstration plant.

Liquidity and Capital Resources

Current and Expected Liquidity

Historically, we have financed operations primarily through the issuance of equity securities (common shares, convertible notes, stock options and warrants) and by the issuance of debt. In order to finance our existing operations and development plans, as well as to respond to any new business or acquisition opportunity, we will be required to raise capital in the future. We do not have any commitments with respect to future financing and may, or may not, be able to obtain such financing on reasonable terms, or at all. We have a single note payable in the original principal amount of $3,000,000 that does not contain any restrictive covenants with respect to the issuance of additional debt or equity securities by Altair. The first three payments of $600,000 of principal plus accrued interest were due and paid on February 8, 2006, 2007, and 2008. The total outstanding note payable balance is $1,200,000. Future payments of principal and interest are due annually on February 8, 2009 and 2010.

Our cash and short-term investments decreased by $22,373,380, from $50,146,117 at December 31, 2007 to $27,772,737 at June 30, 2008, due primarily to net cash used in operations (approximately $20,900,000) purchases of property and equipment (approximately $1,591,000) and payment of notes payable ($600,000). This decrease was partially offset by the receipt of proceeds resulting from the exercise of stock options and warrants and recovery of short swing profits (totaling approximately $700,000).

Our objective is to manage cash expenditures in a manner consistent with rapid product development that leads to the generation of revenues in the shortest possible time. We believe we have adequate cash resources, and availability of additional capital if needed, to continue product development until higher-margin revenues and positive cash flow can be generated.

At August 1, 2008, we had 84,744,322 common shares issued and outstanding. As of that same date, there were outstanding warrants to purchase up to 1,115,431 common shares and options to purchase up to 4,448,371 common shares.

Capital Commitments

The following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of June 30, 2008:

                                            Less Than                                          After
Contractual Obligations       Total          1 Year         1-3 Years       4-5 Years         5 Years
Notes Payable              $ 1,200,000     $   600,000     $   600,000     $         -     $           -
Interest on notes
payable                        126,000          84,000          42,000               -                 -
Contractual Service
Agreements                   3,209,099       3,209,099               -               -                 -
Facilities and Property
Leases                       1,211,036         336,032         577,500         297,504                 -
Unfulfilled Purchase
Orders                       2,107,400       2,107,400               -               -                 -
Total Contractual
Obligations                $ 7,853,535     $ 6,336,531     $ 1,219,500     $   297,504     $           -

In 2007, we anticipated that a total of approximately $4.8 million would be spent on labor, equipment and building improvements and other implementation expenses related to preparations to manufacture our pharmaceutical products. Based on updated forecasts in 2008, total anticipated expenditures have been revised to $2.4 million. Of this amount, approximately $328,000 was spent in the second quarter of 2008 for a cumulative total of $2,002,000 incurred project to date through June 30, 2008.

Beginning in the second quarter of 2008, we have revised our capital acquisition policy to lease capital purchases that meet our business case criteria. As a result no significant capital expenditures are anticipated through the end of 2008.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements at June 30, 2008.

Critical Accounting Policies and Estimates

Management based the following discussion and analysis of our financial condition and results of operations on our unaudited condensed consolidated financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including those related to inventory, long-lived assets, share-based compensation, revenue recognition, accrued warranty, overhead allocation, minority interest, allowance for doubtful accounts and deferred income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. These judgments and estimates affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting periods. Changes to these judgments and estimates could adversely affect our future results of operations and cash flows.

? Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been performed, the fee is fixed and determinable, and collectability is probable, in accordance with the Securities and Exchange Commission "Staff Accounting Bulletin No.
104 - Revenue Recognition in Financial Statements". Historically, our revenues have been derived from four sources: license fees, commercial collaborations, contract research and development and product sales. License fees are recognized when the agreement is signed, we have performed all material obligations related to the particular milestone payment or other revenue component and the earnings process is complete. Revenue for product sales is recognized upon delivery of the product, unless specific contractual terms dictate otherwise. Based on the specific terms and conditions of each contract/grant, revenues are recognized on a time and materials basis, a percentage of completion basis and/or a completed contract basis. Revenue under contracts based on time and materials is recognized at contractually billable rates as labor hours and expenses are incurred. Revenue under contracts based on a fixed fee arrangement is recognized based on various performance measures, such as stipulated milestones. As these milestones are achieved, revenue is recognized. From time to time, facts develop that may require us to revise our estimated total costs or revenues expected. The cumulative effect of revised estimates is recorded in the period in which the facts requiring revisions become known. The full amount of anticipated losses on any type of contract is recognized in the period in which it becomes known. Payments received in advance relating to the future performance of services or deliveries of products are deferred until the performance of the service is complete or the product is shipped. Based on specific customer bill and hold agreements, revenue is recognized when the inventory is shipped to a third party storage warehouse, the inventory is segregated and marked as sold, the customer takes the full rights of ownership and title to the inventory upon shipment to the warehouse per the bill and hold agreement. When contract terms include multiple components that are considered separate units of accounting, the revenue is attributed to each component and revenue recognition may occur at different points in time for product shipment, installation, and service contracts based on substantial completion of the earnings process.

? Accrued Warranty. We provide a limited warranty for battery packs and energy storage systems. A liability is recorded for estimated warranty obligations at the date products are sold. Since these are new products, the estimated cost of warranty coverage is based on cell and module life cycle testing and compared for reasonableness to warranty rates on competing battery products. As sufficient actual historical data is collected on the new product, the estimated cost of warranty coverage will be adjusted accordingly. The liability for estimated warranty obligations may also be adjusted based on specific warranty issues identified.

? Share-Based Compensation. We have a stock incentive plan that provides for the issuance of common stock options to employees and service providers. We calculate compensation expense under SFAS 123R using a Black-Scholes option pricing model. In so doing, we estimate certain key assumptions used in the model. We believe the estimates we use are appropriate and reasonable.

? Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts and the aging of accounts receivable. We analyze historical bad debts, the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts. From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of our bad debt expenses.

? Long-Lived Assets. Our long-lived assets consist principally of the nano-materials and titanium dioxide pigment assets, the intellectual property (patents and patent applications) associated with them, and a building. Included in these long-lived assets are those that relate to our research and development process. These assets are initially evaluated for capitalization based on Statement of Financial Accounting Standards No. 2, Accounting for Research and Development Costs. If the assets have alternative future uses (in research and development projects or otherwise), they are capitalized when acquired or constructed; if they do not have alternative future uses, they are expensed as incurred. At June 30, 2008, the carrying value of these assets was $14,123,615, or 29% of total assets. We evaluate the carrying value of long-lived assets when events or circumstances indicate that impairment may exist. In our evaluation, we estimate the net undiscounted cash flows expected to be generated by the assets, and recognize impairment when such cash flows will be less than the carrying values. Events or circumstances that could indicate the existence of a possible impairment include obsolescence of the technology, an absence of market demand for the product, and/or the partial or complete lapse of technology rights protection.

? Minority Interest - In April 2007, the Company and Sherwin-Williams entered into an agreement to form AlSher Titania LLC, a Delaware limited liability company. AlSher Titania is a joint venture combining certain technologies of the Company and Sherwin-Williams in order to develop and produce titanium dioxide pigment for use in paint and coatings and nano-titanium dioxide materials for use in a variety of applications, including those related to removing contaminants from air and water. Pursuant to a Contribution Agreement dated April 24, 2007 among Altairnano, Inc, Sherwin-Williams and AlSher Titania, Altairnano contributed to AlSher Titania an exclusive license to use Altairnano's technology (including its hydrochloride pigment process) for the production of titanium dioxide pigment and other titanium containing materials (other than battery or nano-electrode materials) and certain pilot plant assets with a net book value of $3,110,000. Altairnano received no consideration for the license granted to AlSher

Titania other than its ownership interest in AlSher Titania. Sherwin-Williams agreed to contribute to AlSher Titania cash and a license agreement related to a technology for the manufacture of titanium . . .