Summary of ALTAIR NANOTECHNOLOGIES INC

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 consolidated 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 ("MRS"), and Fine Gold Recovery Systems, Inc., a Nevada corporation ("Fine Gold") which was dissolved on December 30, 2008. AlSher Titania LLC, a Delaware limited liability company, is 70% owned by Altairnano, Inc. We have registered or are in the process of registering the following trademarks: Altair Nanotechnologies Inc.Ž, Altair Nanomaterials, Inc.Ž, AltairnanoŽ, ALTI-ESSTM, TiNanoŽ and NanocheckŽ. 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, 2008 and September 30, 2009 and the material changes in our results of operations and financial condition between the three-month and nine-month periods ended September 30, 2009 and September 30, 2008. This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2008.

We are a Canadian corporation, with principal assets and operations in the United States, whose primary business is developing and commercializing nanomaterial technologies. We are organized into two divisions, a Power and Energy Group, and all other operations, which consists of the remaining portions of the previous Life Sciences and Performance Materials groups combined with corporate support. Management completed a thorough review of operations and strategies during 2008 and determined 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 significantly reduced, and no new development is being pursued in those areas.

Our research, development, production and marketing efforts are currently directed toward one primary market, the Power and Energy Storage market, with efforts in other areas being directed at supporting existing initiatives rather than developing any new products. We are still, however, engaged in the following ongoing development and production efforts:

Power and Energy Group
ˇ The design, development, and production of our nano-lithium titanate battery cells, batteries, and battery packs as well as related design and test services.

ˇ 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.

All Other Operations
ˇ We are currently working with Sherwin-Williams and AlSher to identify and qualify an interested third party to purchase our interest in the AlSher joint venture.

ˇ Support on a consulting basis to Spectrum in their development of RenaZorbTM and RenalanTM, which are designed to be useful in the treatment of chronic kidney disease, hyperphosphatemia, and high phosphate levels in blood, associated with end stage renal disease.

Although contract research services, which are recorded in our Consolidated Statement of Operations under the Commercial Collaborations and the Contracts and Grants revenue lines, remain a high percentage of the revenue earned and revenue from product sales has been less than 20% of total year-to-date revenue, management is committed to broadening our product mix to include the sale of higher margin lithium ion batteries and packs, particularly in stationary power, transportation and military applications. Revenues associated with research and development performed under our contracts with commercial customers (Commercial Collaborations) and contracts/grants with our government funded customers (Contract and Grants) were historically recorded in all of our segments, Power and Energy Group, Performance Materials, and Life Sciences based on the product focus of the research. Historically, the business conducted in the Performance Materials segment relied heavily on commercial collaboration contracts and grants that did not generate meaningful profit margins. The path to commercialize Performance Materials overall and particularly in certain segments required significant amounts of upfront investment with no clear path to commercialization. The length of time to commercialize is also lengthy for the Life Sciences segment products. As a small company with limited resources, management performed an analysis to determine how to best focus those resources on generating revenue and achieving break-even within the shortest amount of time. In evaluating the prospects of products within each segment, management utilized the number of years to convert opportunities to revenue as a key indicator with one to two years representing an acceptable time frame. A one to two year time frame was considered a realistic objective given the length of the sales cycle in the various markets and how far along we are in each market area in our sales efforts. The analysis performed indicated that a shift to focusing primarily on the Power and Energy Group would be in the best interest of shareholders as the products within this segment had demonstrated performance and competitive advantages, as well as a shorter cycle to commercialization. This focus will also continue to include contract research services, as well as grants that are targeted to develop our battery technology and ultimately lead to commercialization. Compared to other battery technologies, our batteries provide rapid high power charge and discharge capability, significantly longer cycle and calendar life, a wide operating temperature range (-40oC to +55oC), increased operational safety and environmental cleanliness, and the industry's highest roundtrip efficiency. These are performance attributes highly sought after in the stationary power and transportation markets for rechargeable batteries. We are also progressing in the government testing process on several of our military energy related projects which must be successfully completed before commercial volumes can be sold into the military. We completed a very successful demonstration project of a large 2MW battery system with The AES Corporation in 2008 and this success has also provided impetus to our stationary power sales efforts. One of the 1MW batteries included in the 2MW system built for AES has subsequently been connected to the electric grid near Philadelphia and is currently providing commercial frequency regulation services to the regional transmission organization, PJM Interconnection, for AES.

The current financial markets and general economic environment, although still weak, appear to be improving from the lows of 2008 and early 2009. New credit availability is still severely constrained, and companies that would be candidates to purchase our products are only now beginning to cautiously consider new purchases. We are currently seeing an increase in the volume of requests for quotes.

General Outlook

We have generated net losses in each fiscal year since incorporation, and the third quarter of 2009 was no different. Revenues from product sales, commercial collaborations and contracts and grants decreased significantly in the first nine months of 2009 to $2.6 million compared to $4.8 million in the same period in 2008. Operating expenses also declined significantly, though, from $28.8 million for the nine months ended September 30, 2008, to $19.8 million for the same period of 2009, continuing this trend as well. The revenue decrease was due almost entirely to the lower dollar value of government grants being worked in 2009 compared to 2008. We also experienced delays in customer commitments in the stationary power frequency regulation market. The operating expense decline was primarily the result of decreases in Research and Development expenses due to the completion of a number of grants as well as the shift in Company focus away from Life Sciences and Performance Materials. Our gross profit margins on customer contracts for research and development work are very low, leading us to shift our focus away from these opportunities. Our current focus is on the development of products and technologies in energy storage that we anticipate will eventually bring a substantial amount of higher-margin revenues from licensing, manufacturing, product sales and other sources. We expect our nano lithium titanate batteries and battery materials to be a source of such higher-margin revenues. Consequently, during the first nine months of 2009, we continued to expand the scope of our Power and Energy Group by (1) hiring additional staff and increasing temporary personnel to handle the conversion from a prototype to a commercial product, (2) adding additional sales and marketing personnel to focus on this market, and (3) acquiring additional test and production equipment.

Recent Business Developments and Status Updates

Power and Energy Group

As a result of the American Recovery and Reinvestment Act of 2009, the Federal Government has earmarked $2 billion for near-term alternate energy projects to construct the manufacturing capability in the U.S. for producing advanced batteries for the automotive market. Another $4.5 billion has been earmarked for electric grid modernization projects. Although our primary focus is not on the automotive market we do provide battery cells and systems to several EV bus manufacturers, and so we submitted a request for a $37.8 million grant to expand our nano-structured lithium titanate spinel manufacturing capability in Reno, NV and our battery assembly operations in Anderson, IN. We were not one of the companies selected by the Department of Energy to receive one of these grants. Grant recipients for the $4.5 billion were announced in late October 2009, and these grants were awarded to system integrators that provide a full service solution to electric grid modernization. While we were not eligible to directly receive any grants, we have been working with a number of companies that did submit grant applications. We are hopeful that one or more of the companies that were awarded a grant will use our batteries as a portion of their solution.

In August 2009 we entered into a contract with Proterra LLC to provide them with battery modules for their manufacture of six buses for a number of different end customers. These batteries will be delivered between September 2009 and early first quarter 2010. We continue to work closely with Proterra and anticipate that as their business grows we will remain one of their important suppliers. We generated $121,000 of revenue from Proterra in the quarter ending September 30, 2009 and anticipate additional revenues in the future.

In September 2008, we accepted a purchase order from DesignLine International USA (DLI) for the delivery of four complete battery module sets. These hybrid electric vehicle (HEV) battery packs were to be used in demonstration buses for three city transit customers, and one for a modular testing program. The DLI HEV bus operates in an electric-only mode for as much as 30 percent of its range and provides a 100 percent improvement in fuel economy over a diesel bus, with fuel savings of up to 6,000 gallons per year. Due to a number of problems related to components outside of the battery cells and a disagreement on payment terms, this program is currently on hold and no additional work is being done with this customer until the open issues are resolved.

In September 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. These batteries were delivered and accepted by the customer on March 31, 2009. We expect these batteries to successfully pass the remaining portion of the Army's test program and be ready for deployment by the end of 2009. At that point sales will depend on congressional budgeting for the Army. We are also in advanced negotiations with BAE Systems Marine Limited and the UK Ministry of Defense (MoD) to develop a battery system for use in a British naval application. We have successfully completed phase 1a of the project and are awaiting finalization of the contract for phase 1b which we anticipate starting during the first quarter of 2010. Successful completion of this initial work is necessary before potential production orders from the MoD might be considered. We generated no revenue from BAE Systems in the quarter ending September 30, 2009 and anticipate revenue with them beginning sometime in 2010.

In August 2007, we received an initial $1.0 million 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. Of these two one-megawatt battery packs, one has been relocated to Pennsylvania and hooked into the commercial electric grid managed by PJM providing ongoing ancillary services. We understand that the second unit is targeted for the New York ISO (Independent System Operator) market and similarly connected to the electric grid in that area. As a result of the impartial successful test results reported by KEMA and the commercial demonstration of the unit connected to the PJM grid, we have made inroads into other potential customers with opportunities that we expect to develop by mid 2010.

All Other Areas

In August 2008, the September 2007 Development Services Agreement which existed between us and Elanco Animal Health, a division of Eli Lilly and Company ("Elanco"), and related license agreements, were terminated. Because all rights granted to Elanco under the original agreements reverted to us with the termination of those agreements, we explored licensing this technology and product to other interested parties. On August 5, 2009 we assigned all patent rights related to animal and human products, including RenazorbTM and RenalanTM compounds, to Spectrum Pharmaceuticals Inc. In return we received Spectrum restricted common stock, with a fair value of $750,000 which we recognized as royalty revenue during the quarter ended September 30, 2009 and a right to future royalties and milestone payments upon completion of certain specified events.

In April 2007, a new company, 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 pilot program commenced, and although results have been positive, we have curtailed full operations at this time. AlSher is working to identify and qualify an interested third party to purchase our interest in the AlSher joint venture and have engaged 5iTech to assist us in that effort. The next phase of the development effort will include the construction of a 5,000 ton annual capacity processing plant. During this third quarter an interested party was identified and advanced discussions on the sale of our interests in AlSher are progressing.

Some time ago we were notified by the Department of Defense of a $1.75 million grant award to pursue development of a nano-sensor project with Western Michigan University. The contract for this award was finalized on September 3, 2009 and work commenced in the third quarter. This project and similar activities will continue into the foreseeable future as long as they are able to make a positive contribution to our financial position; however, they are not the focus area of the Company.

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 May 2009 we closed a $14 million common stock financing. We believe that this additional funding will provide us the working capital needed until order volume picks up. If order volume fails to increase as anticipated, based on forecasted revenues for current contracts and those in the final negotiation stages, at our 2009 average net cash burn rate of $1.9 million per month, capital for approximately 12 months is available excluding any new business as of September 30, 2009. Since most of our inventory build-up purchases were paid for in the third quarter, our anticipated cash burn rate is expected to return to, or fall below the average of $1.9 million per month. Under this scenario, if no customer orders are received by late 2009, other measures to preserve cash on hand until order volume begins to increase would include: 1) reducing production levels and purchases of raw materials; 2) deferring discretionary expenditures such as capital purchases, internal research costs, training, and routine equipment and building maintenance; 3) defer filling or eliminating non-critical positions through attrition; and 4) as a final resort, reductions in workforce. As we project forward for the next 24 months, if sales volume growth is slow and steady we would need to raise capital for capacity expansion in mid to late 2010. On the other hand, if volume growth is relatively fast as the global economy starts to improve, we will need to raise additional capacity expansion capital earlier in order to fund the purchase of raw materials for the orders.

We evaluate our capital needs and the availability of capital on an ongoing basis and, consistent with past practice, expect to seek to raise 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 and generally do not include bank financing. We do not have any commitments from any party to provide required capital and may, or may not, be able to obtain such capital on reasonable terms. To raise capital in the future, we expect to issue equity securities and/or convertible debt securities. In support of this belief we filed a new shelf registrations statement with the SEC for $150 million on September 18, 2009 which was declared effective on October 26, 2009.

We have a single note payable in the original principal amount of $3 million that does not contain any restrictive covenants with respect to the issuance of additional debt or equity securities by Altair. The note is secured by a first lien on our building and does not contain or require compliance with any financial debt covenants. The first four payments of $600,000 of principal plus accrued interest were due and paid on February 8, 2006, 2007, 2008 and 2009. The total outstanding note payable balance is $600,000. The final payment of principal and interest is due on February 8, 2010.

On August 6, 2009, we entered into a financing arrangement with AICCO, Inc, our insurance provider, where we finance the annual cost of our insurance over ten months. We issued to AICCO a note in the amount of $387,000, at an interest rate of 5.2%.

Our cash and short-term investments decreased by $4.2 million, from $28.1 million at December 31, 2008 to $23.9 million at September 30, 2009. Net cash used in operating activities for the nine months ended September 30, 2009 totaled $18.1 million compared to $25.1 million for the nine months ended September 30, 2008. The significant decrease in cash used in operating activities for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily reflects reduction of accounts payable of approximately $5.5 million relating to significant one-time or annual payments made in the first quarter of 2008, which included: $2.4 million of commission and expenses paid to the placement agent in connection with our sale of common shares in November 2007; $1.8 million paid in connection with the 2007 bonus plan; and $1.3 million of raw materials purchases made in 2007 in anticipation of receipt of the next sales order from Phoenix under the 2007 purchase agreement were paid in the first quarter of 2008. Cash expended on research and development activities decreased by approximately $6.2 million in the first nine months of 2009 primarily attributable to the completion of customer contracts and grants in 2008 (AES Energy Storage LLC, Elanco Animal Health, and The Department of Energy) and the realignment of resources relating to the shift in focus from the Performance Materials and Life Sciences segments to the Power and Energy Group. Additionally, no bonus payments were made in the first quarter of 2009, as the bonus targets for 2008 were not achieved.

Investing activities for the nine months ended September 30, 2009 reflect the purchase of property and equipment of $612,000 compared to property and equipment purchases of $2.1 million made for the nine months ended September 30, 2008. No significant capital expenditures are anticipated through December 2009 based on current production volumes. Additionally, 240,000 shares of Spectrum common stock held by the Company were sold for $2.0 million in 2009 compared to no sales in 2008.

The cash provided by financing activities of $12.5 million for the nine months ended September 30, 2009 primarily reflects the $12.8 million common stock financing in May, net of issuance costs, and a payment of the note payable on our building. In 2008, the cash provided by financing activities of $839,000 included proceeds from the exercise of stock options, warrants and recovery of short swing profits totaling $1.4 million offset by a $600,000 payment of notes payable on our building.

As we moved into the second half of 2009 we started building up our inventory in anticipation of sales later in the year and early 2010. Depending on the time lag between the initial inventory buildup and the actual sales our cash balance will be negatively impacted. As of September 30, 2009, we have unfulfilled inventory purchase orders of $3.5 million and do not anticipate placing substantial additional orders unless order volume increases. Liquidity will be a consideration in our final determination of production volumes.

During 2008 we went through a rigorous process of re-evaluating our overall Company strategy and determining what approach would most likely result in the creation of the greatest shareholder value. During the course of that reassessment, we examined the anticipated overall size of the different markets that we were engaged in, our level of expertise, the existing competitors, opportunities and resources required in order for Altairnano to be a competitive participant in each market. We determined that in the Life Sciences arena our products would require another two to six years of testing before any of them could get through the regulatory approval process and become commercially viable products that could generate revenue for us. In the Performance Materials arena, we concluded that there were no clear paths to commercialization for the various products we were developing, nor was the size of those potential markets known. In the power and energy storage market, we determined that there were potential large market opportunities in the stationary power and renewables integration market segments and that customers in those market segments were facing real problems today that our batteries could solve. Consequently, from a liquidity and capital resources perspective we determined that continuing to pursue the Life Sciences and Performance Materials markets would consume a substantial amount of capital over the next four plus years with a very uncertain expectation of revenues that could be generated from this activity. This situation would have a negative impact on shareholder value and as a result, we curtailed our efforts in these areas. In the Power and Energy Group arena, however, we believe that the revenue opportunity for the resources consumed is much greater and nearer in term. We recognize that use of rechargeable batteries in stationary power and renewables integration is an emerging market and that the market is competitive with a limited number of potential customers whose cash flow and research budgets may significantly affect our near term business prospects. Nevertheless, given the competitive strength of our batteries relative to the needs of the market, we believe that we have an opportunity to become an early leader in a potentially large market.

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. The shift in focus to the Power and Energy Group and reduction in resources committed to our other business units has allowed us to re-direct funding to our battery development and commercialization activities, which are anticipated to be higher margin with a shorter cycle to commercialization than our performance materials and pharmaceutical candidates. We do not believe that this shift in focus will have a material effect on our sources of cash. Our cash outflow in the Life Sciences and Performance Materials markets was considerably greater than our cash inflow. We expect the focus on the Power and Energy Group to allow us to present a more consistent story to the market in future fund-raising efforts. Delay in commercialization of our product sales efforts beyond 2009 would, however, likely have a negative effect on our ability to raise capital and lead to an increase in the cost of capital.

At November 3, 2009, we had 105,519,855 common shares issued and outstanding. As of that same date, there were outstanding warrants to purchase up to 7,028,440 . . .