UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
      2009





[_]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM _________ TO
    ___________


ALTAIR
      NANOTECHNOLOGIES INC.(Exact
      name of registrant as specified in its charter)  Canada
              
              1-12497
              
              33-1084375(State
      or other jurisdiction
                of
      incorporation)
              
              (Commission
      File No.)
              
              (IRS
      Employer
                Identification
      No.)
  204
      Edison Way
                Reno,
      Nevada 89502-2306(Address
      of principal executive offices, including zip code)





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





Securities
registered pursuant to Section 12(b) of the Act:





Common Shares, no par
      value
              (Title
      of Class)
            NASDAQ Capital
      Market
              (Name
      of each exchange on which
registered)





Securities
registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.   YES [_] NO [X ]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   YES [_] NO [X
]





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 [_]





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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). YES
[_]   NO [_]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Report or any amendment to this
Report.  [_]





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





[_]
      Large Accelerated Filer
            [X]
      Accelerated Filer[_]
      Non-accelerated Filer
              (Do
      not check if a smaller reporting company)
            [_]
      Smaller reporting Company





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





The
aggregate market value of the common shares held by non-affiliates of the
Registrant on June 30, 2009, based upon the closing stock price of the common
shares on the NASDAQ Capital Market of $.95 per share on June 30, 2009, was
approximately $79.4 million.  Common Shares held by each officer and
director and by each other person who may be deemed to be an affiliate of the
Registrant have been excluded.





As of
March 5, 2010, the Registrant had 105,400,728 common shares
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Registrant’s Proxy Statement on Schedule 14A for the Registrant’s 2010
Annual Meeting of Shareholders are incorporated by reference in Part III as
specified.










INDEX TO FORM
10-K




PART
      I
              1Item
      1.
              Business
              1Item
      1A.
              Risk
      Factors
              14Item
      1B.
              Unresolved
      Staff Comments
              23Item
      2.
              Properties
              23Item
      3.
              Legal
      Proceedings
              23Item
      4.
              Reserved
              23PART
      II
              24Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              24Item
      6.
              Selected
      Financial Data
              25Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              26Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              39Item
      8.
              Financial
      Statements and Supplementary Data.
              39Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              40Item
      9A.
              Controls
      and Procedures
              40Item
      9B.
              Other
      Information
              41PART
      III
              42Item
      10.
              Directors
      and Executive Officers of the Registrant
              42Item
      11.
              Executive
      Compensation
              42Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              42Item
      13.
              Certain
      Relationships and Related Transactions
              42Item
      14.
              Principal
      Accountant Fees and Services
              42PART
      IV
              43Item
      15.
              Exhibits
      and Financial Statement Schedules
              43












PART
I





This
Annual Report on Form 10-K for the year ended December 31, 2009 (this “Report”)
contains “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that
involve risks and uncertainties.  Purchasers of any of the common
shares (the “common shares”) of Altair Nanotechnologies Inc. are cautioned that
our actual results will differ (and may differ significantly) from the results
discussed in the forward-looking statements.  Factors that could cause
or contribute to such differences include those factors discussed herein under
“Item 1A. Risk Factors” and elsewhere in this Report generally.  The
reader is also encouraged to review other filings made by us with the Securities
and Exchange Commission (the “SEC”) describing other factors that may affect
future results.





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 and Fine Gold Recovery
Systems, Inc., a Nevada corporation 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®,
Altair Nanomaterials, Inc.®,
Altairnano®,
TiNano® and
Nanocheck®.  Any
other trademarks and service marks used in this Report are the property of their
respective holders.




Item
1.  Business





We are a
Canadian corporation, with principal assets and operations in the United States,
whose primary business is developing, manufacturing and selling our nano lithium
titanate battery products and providing related design, installation and test
services.  Our primary focus is marketing our large-scale energy
storage solutions to power companies and electric grid operators throughout the
world.  In addition, we market our battery products to the electric
and hybrid-electric mass-transit markets.





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.  Although contract services revenue comprised a
significant portion of our total revenues in recent years accounting for 65%,
87%, and 55%, respectively in 2009, 2008 and 2007, we expect this percentage to
decline as our battery sales increase.




Our
Power and Energy Group




Primary
Products




We are
developing, marketing, producing and selling our proprietary rechargeable
lithium ion batteries, which we refer to as our nano lithium titanate
batteries.  As explained in greater detail below, the principal
features used to compare rechargeable batteries include charge and discharge
rates, power and energy density, cycle and calendar life, operational safety and
cleanliness, operating temperature range, and round trip
efficiency.  In laboratory and field tests, our nano lithium titanate
batteries have performed extremely well in nearly all of these
categories.  In particular, our nano lithium titanate batteries show
remarkable power, charge and discharge rates and cycle life, together with high
functionality at both high and low temperatures.  In some categories
our batteries perform as much as an order of magnitude (a factor of 10) better
than those of rechargeable batteries currently being used for our targeted
applications.  Battery uses requiring these strengths include electric
utility services for frequency regulation, the integration of renewable energy
generation sources into the grid, uninterruptible power supplies, hybrid
electric and full electric vehicles particularly in the mass-transit
market.






1




Our Target
Markets





Power and Grid
Operators.  Power companies and grid operators are seeking cost
effective ways to ensure that electric power supply matches electric power
demand.  There is essentially no inventory of
electricity.  Power and grid operators are constantly trying to match
the electricity generated with the load demanded.  They are very good
at forecasting from hour to hour the load expected, but they cannot project from
minute to minute the exact load anticipated.  To maintain proper
frequency of the grid (60Hz in the U.S.), the generation and load must be
balanced within very tight tolerances.  Maintaining these tolerances
is typically achieved through the use of auxiliary generators.  If the
load is either higher or lower than the power being generated, an auxiliary
generator is either started or stopped.  However, it takes these
generators from generally seven to 15 minutes to ramp up to full efficient
operation or to shut down.  During that period the load may change
directions and the grid operator then must direct another auxiliary generator to
shut down or ramp up.  This is a very inefficient process with the
grid operators constantly chasing a variable load.  The process of
managing these very short-term changes in energy demand is referred to as
“frequency regulation.”  The chart below depicts what a typical
workday in the PJM Regional Transmission Organization that manages the electric
grid in the Mid-Atlantic states region looks like and how our battery can help
smooth out the fluctuations.










Electricity
demand on a typical workday in the PJM electric grid covering the Mid-Atlantic
states and District of Columbia








Utilities
can address frequency regulation issues by maintaining on-line generating
capacity at a level that is always higher than expected peak
demand.  However this is an expensive solution.  Most U.S.
utilities are required to maintain between 1% - 1.5% of their peak load capacity
to provide frequency regulation.  As an example, for the PJM Regional
Transmission Organization, this requirement translates into a 900 megawatt daily
requirement.  In many foreign countries where the electric grid is not
as well developed as it is in the U.S., utilities need to reserve up to 5% or
more of their capacity strictly to provide frequency regulation.  GTM
Research estimated in an August 2009 report that the current market for
ancillary services, including frequency regulation, is 7 Gigawatts in the U.S.
and 38 Gigawatts globally.  At the cost of $1 million per megawatt,
this translates into a $38 billion global market.  To reduce the costs
of providing frequency regulation, utilities and grid operators are seeking
“fast energy” storage systems.  When supply exceeds demand for a short
period, these systems accept a charge from the grid until operators reduce
output; then when demand exceeds supply for a short period, these fast energy
storage systems deliver electric energy back to the grid for a short period to
give operators time to reroute energy from another power generator or power-up a
new power source.  Our large-scale nano lithium titanate battery
systems are a fast storage energy system designed to respond in milliseconds and
meet this need.







2





The need
for a fast energy storage technology like our large-scale nano lithium titanate
battery is enhanced by the increasing use of renewable energy
sources.  Photo Voltaic (PV) solar and wind power generation by nature
are intermittent and unpredictable sources of energy that can fluctuate widely
in a very short period of time.  For example, it is not uncommon for a
PV array to fluctuate +/- 50% in less than 90 seconds.  With a small
rooftop array, it isn’t an issue, because the size of the generator is too small
to matter.  However, with a 50+ MW array, problems arise as the
electric grid isn’t currently built to handle this kind of a
fluctuation.   According to the
Federal Energy Regulatory Commission, 29 states and the District of Columbia
currently require the integration of renewables into the grid through legislated
renewable portfolio standards.  Many of these states have established
targets requiring the integration of renewable generation sources equal to or
exceeding 25% of total generation within the next decade.  These
levels are substantially higher than what is available today.The mandated adoption of these renewable
energy generation systems is likely to increase the need for effective,
efficient, clean energy storage technologies to provide frequency regulation
services and maintain the reliability and stability of the associated electric
grid systems.





Electric and Hybrid Electric
Buses.  Large cities, counties and transit authorities are
increasingly turning to electric and hybrid electric buses to reduce pollution
and reliance diesel fuel for their transportation systems.  At this
stage of the market development, electric and hybrid electric vehicles generally
cost more than their conventional counterparts, although the upfront cost is
partially offset by lower operating costs and a potentially longer operating
life.  Proterra LLC recently had one of its all electric buses using
our batteries tested at the Altoona Test Track by Penn State University and
demonstrated a 17.5 to 29.5 miles per gallon (mpg) fuel equivalent vs. a normal
diesel bus that gets under 4 mpg.  This difference translates into a
fuel savings of about $350,000 over the life of the bus.  This is in
addition to the savings in maintenance costs over the life of the bus as a
result of fewer mechanical systems and moving parts to maintain.  We
believe that cities, counties and mass transit operators are willing to accept
the higher upfront costs in order to benefit from the expected savings in
long-term operating costs and potentially longer operating life, as well as the
environmental benefits.





Electric
and hybrid electric buses require a significant amount of power, operate
throughout the day, have a long expected life and run in all
temperatures.  The relative strengths of our nano lithium titanate
batteries, including the high levels of power, rapid charge and discharge rates,
long cycle life and ability to function at temperature extremes, are
particularly well suited for electric and hybrid electric buses, giving us what
we believe is a compelling competitive advantage in this market.





According
to the Center of Globalization, Governance & Competitiveness, associated
with Duke University, the global market for transit buses is currently a $3
billion market, and projected to grow by 59% by 2017.  With the
growing concern regarding the release of pollutants associated with burning
fossil fuels, the attractiveness of all electric and hybrid electric buses is
rapidly growing.  Working with Proterra and other potential partners,
we are attempting to establish our nano lithium titanate batteries as the power
source of choice in this emerging market.





Military
Uses.   In the military market, we have focused on
opportunities that allowed us to leverage our research efforts.  For
example, the M119 program we completed for the U.S. Army during 2009 has served
us well in the advancement of our product safety testing and commercial
development.  In the near term, it has resulted in the development of
a battery module that is an excellent fit for the Army’s M119 Howitzer
Program.  If the current Army testing demonstrates our battery can
safely power an artillery piece in a battlefield situation surrounded by high
explosives and flying bullets, it will provide a strong endorsement for its use
in much less stressful civilian environments.  Our work with the
Office of Naval Research to develop a 2.5 MW battery to serve as back-up on navy
warships is also progressing well.  We completed Phase I of a four
phase program during 2009 and should complete Phase II in mid 2010 with Phase
III anticipated to begin shortly after completion of Phase II.







3





Key Features of Our
Nano Lithium
Titanate Batteries





One of
the principal advantages of our nano lithium titanate battery is its rapid
charge and discharge rate.  The charge rate is the rate at which a
battery’s energy is replenished, and a discharge rate at which the energy stored
in a battery is transferred (or, in the case of self-discharge,
leaked).  Through the optimization of materials used in the negative
electrode of our nano lithium titanate battery cells, our current cells are
capable of recharge times of 10 minutes to 95% or more of initial battery
capacity.   The rapid recharge ability is important in our target
markets of frequency regulation and mass-transit buses.





Our nano
lithium titanate batteries also discharge rapidly, symmetrical with their
charging ability.  This balanced charge and discharge capability can
be important in frequency regulation.  If a battery cannot be charged
at the same rate at which it discharges, then over time, with random high rate
up and down regulation, a less capable battery system may ultimately be fully
discharged and therefore incapable of further regulation.





Our nano
lithium titanate batteries have both a longer cycle life and calendar life than
commercially available rechargeable battery technologies such as conventional
lithium ion, nickel-metal hydride (NiMH) batteries and nickel cadmium (NiCd)
batteries.  The ability of any
rechargeable battery to store energy will diminish as a result of repeated
charge/discharge cycles.  A battery’s “cycle life” is the number of
times it can be charged and discharged without a significant reduction in its
energy storage capacity.Our nano lithium titanate is termed a
zero strain material, meaning that the material essentially does not change
shape upon the entry and exit of a lithium ion into and from the
material.  Graphite, the most common material in conventional lithium
ion batteries, will expand and contract as much as 8% with each charge/discharge
cycle.  This constant change in volume
leads to significantly shorter calendar and cycle life than with ournano
lithium titanate anodes.In a January 2007
test, we completed 25,000 deep charge/discharge cycles of our innovative
cells.  Even after 25,000 cycles, the cells still retained over 80% of
their original charge capacity. This represents a significant improvement over
conventional batteries, which typically retain that level of charge capacity
only through approximately 1,000 to 3,000 deep charge/discharge cycles.




Our nano
lithium titanate also represents a breakthrough in low and high-temperature
performance.  Nearly 90% of room temperature charge retention is
realized at -30°C from
our nano lithium titanate battery cells.  In contrast, common lithium ion technology possesses virtually no
charging capabilities at this low temperature, and the other rechargeable
battery types such as lead acid, NiMH and
NiCd take 10 to 20 times longer to charge at this low
temperature.  This breakthrough performance at extreme temperatures is
important in our target markets, in which large vehicles, large-scale fast
storage batteries and military batteries are expected to function in a wide
range of temperature conditions. Transit buses, for example, need to function
equally well in the cold New England winters and the hot summers of the
Southwest.




We also
believe that relative safety is one of the strengths of our nano lithium
titanate batteries. Any battery cell or large battery unit with lithium ion cell
technology must take into account safety considerations, the most important of
which is thermal runaway.  Thermal runaway is the temperature at which the
battery chemistry will break down causing the battery to overheat and
potentially explode or catch fire.  This temperature is often referred
to as the critical temperature.  Critical temperature for lithium ion
battery cells using conventional graphite anodes is around 130° C, a direct result of
chemical reaction between the graphite and the electrolyte.  With our
current nano lithium titanate anode in place of graphite and an appropriate
cathode material, that critical temperature is near 180° C, an increase in safety
margin of approximately 50° C.   Materials we
are working on in our lab are approaching 250oC
before the critical temperature is reached.  The batteries we and our
partners are developing for high power applications often consist of dozens or
even thousands of battery cells working together as part of a single modular
battery unit.  When a large number of cells are aggregated into a single
battery unit, the likelihood of, and risks associated with, thermal runaway
increase.  In this context, we believe that the additional temperature
margin our individual battery cells experience before reaching the critical
temperature makes our battery cells better suited than competing lithium ion
batteries for the high-power applications we are targeting.






4





The current generation of batteries made with ournano lithium titanate exhibit lower energy
density at room temperatures than conventional lithium ion
systems.  Energy density isnormally described as watt-hours
per kilogram or watt-hours per liter and refers to the available energy per unit
weight or per unit volume.  A battery with high energy density will
deliver more energy per unit weight or volume than a battery with lower energy
density.  Our batteries made with ournano lithium titanate have energy
densities, watt-hours per kilogram, that are better than lead acid, NiCd and
NiMH batteries and approximately 50-70% of conventional lithium ion
batteries.  This energy density disadvantage is significantly less
compared to conventional lithium ion batteries as the operating temperature
moves away from room temperature, particularly to colder environments, and less
significant in environments such as large vehicles and utilities in which
battery volume is not a significant issue.  When the end use of the
battery requires constant performance across a wide range of temperatures, such
as the need for a hybrid bus to function comparably in both winter and summer,
ournano lithium titanate cells may be the
preferred solution.  Also, conventional lithium ion batteries prefer
to cycle between approximately 30% and 80% state of charge to achieve optimum
cycle life.  As a result, they only use about 50% of their nominal
available energy.





Sources of Supply and Raw
Materials





An important consideration as we begin
to grow our revenue stream is to ensure that we have access to the various
components and raw material we need to manufacture and assemble our various
products.  With a small product volume having multiple suppliers for
each component is not practical.  As we anticipate larger orders,
establishing multiple sources for key components is becoming much more important
to us.





We currently have a single contract
manufacturer for our nano lithium titanate cells.  We have experienced
a product quality issue with this critical cell manufacturing supplier that has
limited our supply of new cells.  We are in active discussions with
this supplier to identify the root cause of the quality problem and rectify
it.  The cells in question are under warranty, and although we do not
expect a material financial impact, the delay in rectifying this problem, if it
continues for an extended period, may have an adverse impact on the delivery of
product sales during the first half of 2010.  We are actively working
with a second manufacturer and anticipate having them qualified and providing an
additional source of cells by the end of 2010.





Two raw materials are key components
in the manufacture of our nano lithium titanate powder that is the basic
building block of our battery products, namely compounds of lithium and
titanium.  We currently source our lithium compound from two of the
largest producers in the world and do not foresee any problems in scaling up our
purchases as our volume of business increases.    We source
our titanium compound from a single provider who is a global leader in the
field, and we are in the process of identifying and qualifying a second supplier
for this key material.  At this point we are not anticipating any
problems or disruptions to our supply of these raw material
compounds.




All of the other components and
materials used in the manufacture of our nano lithium titanate battery products
are readily available from multiple suppliers.





Key Business Developments in
Power and Energy





Frequency
Regulation.   As part of a multi-year development program
with AES Energy Storage, LLC (“AES”), a subsidiary of global power leader The
AES Corporation, we delivered a 2 megawatt battery system, consisting of two
53-foot container-sized 1MW units, to AES in late 2007.  AES
successfully completed testing of this 2 megawatt battery system in May
2008.  The test consisted of AES connecting the battery to the
electrical grid at a substation in Indiana and then performing a number of
stringent tests to determine if it was capable of providing the services
required.  These tests were designed and overseen by KEMA, Inc., an
independent outside engineering company, and demonstrated that the battery
performed well in every respect, meeting or exceeding all
expectations.  Since then, one of the 1MW units has been put into
commercial operation in Pennsylvania and performed flawlessly. We understand
from AES that they are in the process of moving the second 1MW unit to a
location in Texas to provide the same kind of service in that
location.






5





Since May
2008, we have been refining our energy storage solution for the electrical power
industry and meeting with potential customers.  Because of the
significant cost and customization involved in the purchase and sale of a
multi-megawatt battery storage system, lead times are long in this industry.
However, we are in active negotiations with a number of potential purchasers and
have begun building and storing inventory in anticipation of early 2010
orders.





Hybrid Electric and All
Electric Buses.After extensive testing of numerous
battery technologies over a two-year period, Proterra, LLC, a Golden,
Colorado-based leading designer and manufacturer of heavy-duty drive systems,
energy storage systems, vehicle control systems and transit buses,selected our nano lithium titanate
battery to power its electric and hybrid electric buses.  In August
2009, we signed a $900,000 contract with Proterra to deliver battery modules to
them.  Of this amount, $616,000 was recognized in 2009 with the
balance of $284,000 to be delivered in 2010.The modules
will be used by Proterra for building several electric and hybrid electric buses
for municipalities and transportation authorities within the United States. The
buses are predominately all-electric, 35-foot Proterra FCBE 35 transit
buses.  Proterra’s initial product, its 35’ all-electric transit bus,
has been designed from the ground up to enable transit agencies to replace
conventional diesel buses on a one-for-one basis with the world’s first
all-electric buses. This is accomplished by combining Proterra’s light-weight
composite body, highly efficient ProDriveTM,
advanced TerraVoltTM
energy storage system (powered by our batteries) and on-route rooftop
FastChargingTM
station to charge the batteries in 6-10 minutes. The vehicle achieves upwards of
17 miles per gallon diesel fuel equivalent fully loaded with 68 passengers –
400+% better than a comparable diesel bus.  Currently, 23 public
transit agencies in 11 states (California, Colorado, Florida, Illinois, Nevada,
New Jersey, New York, North Carolina, South Carolina, Texas, Washington) and the
District of Columbia have submitted grant requests to obtain funds to purchase
Proterra buses and charging stations.  Additionally, Proterra is
negotiating agreements to supply its buses to several international
customers.  As Proterra continues to ramp up its business, we
anticipate the development of a longer-term mutually beneficial relationship
with them.





Military
Relationships. In January 2008, we entered into a development
agreement with the Office of Naval Research for $2,490,000.  This is a
cost reimbursement agreement whereby we developed a proof of concept battery
system consisting of two 50-80 kilowatt hour batteries.  Successful
completion of this development work is required to qualify for further military
grants with the Office of Naval Research (“ONR”).  All testing
associated with ONR Phase I was successfully completed in November
2008.  We entered into Phase II in May of 2009 and expect to
successfully complete all work in this phase in the second quarter of 2010. The
U.S. Congress appropriated funds for Phase III in the fall of 2008 and for Phase
IV in December, 2009.  We anticipate entering into a contract for
Phase III with ONR in mid 2010 and beginning work shortly after completion of
Phase II.    During 2008 we also entered into development
agreements with the U.S. Army and the United Kingdom’s Ministry of Defense for
different battery systems to be used in field artillery units and other naval
applications respectively.  Both of these contracts were completed
during 2009 and as of December 31, 2009 we are awaiting notification on the
anticipated next steps for both programs.  All development and testing
results to date have met or exceeded customer expectations and we anticipate a
continuation of these programs into 2010.




Proprietary
Rights





We have
been awarded 12 U.S. and 32 international patents protecting portions of our
nano lithium titanate technology including: 1) Method for producing catalyst
structures, 2) Method for producing mixed metal oxides and metal oxide
compounds, 3) Processing for making lithium titanate, and 4) Method for making
nano-sized and sub-micron-sized lithium-transition metal oxides.  The
U.S. patents expire beginning in 2020.






6





We have
filed 13 U.S. patent applications directed to a variety of inventions related to
aspects of our electrochemical cells including:  “Nano-Materials – New
Opportunities for Lithium Ion Batteries”; “Methods for Improving Lithium-Ion
Battery Safety”; “Method for Preparing a Lithium-Ion Cell”; “Method for
Preparing a Lithium-Ion Battery”; and, “Method for Synthesizing Nano-Sized
Lithium Titanate Spinel.”





Competition





Frequency Regulation and
Fast Energy Storage.   A number of battery producers have
stated an intent to compete in the frequency regulation and fast energy storage
markets; however, to date there are only two that we have directly competed
against in customer frequency regulation opportunities and renewable energy
integration projects.  They are A123 Systems, Inc. (“A123”) and Beacon
Power Corporation (“Beacon”). As we or others begin to demonstrate traction in
this market we expect to see increasing levels of competition from other
credible suppliers.  A123 has installed a 2 MW battery system in
Southern California working with The AES Corporation to demonstrate its ability
to provide a frequency regulation service.  Unlike the independently
conducted stress and performance tests that our 2 MW battery system was
subjected to in Indianapolis in 2008 where the conclusions of the tests were
made publicly available, we have not seen any publicly available conclusions
resulting from this A123 installation.  We are not aware of any direct
sales of Beacon’s frequency regulation product to end customers, but do believe
that Beacon is intending to construct several 20 MW installations to provide
frequency regulation services on its own as a system operator.  Unlike
A123 or Altair, Beacon employs a flywheel technology rather than a battery
technology to provide frequency regulation.





We
usually find that our products are competing against existing or alternative
technologies for providing frequency regulation and renewables integration
rather than a competitor battery manufacturer.  However, we expect
this situation to change as the market accepts this storage technology to a
greater degree.  Today most utilities and regional transmission
organizations use existing coal, gas and diesel generating sources to provide
frequency regulation.  Although these sources are inefficient and
highly polluting compared to our solution, they are known quantities and
accepted by the various regulators and utilities.  In many instances,
particularly in the U.S., we are attempting to displace this accepted way of
doing things.  Consequently, there is a longer education and
justification period required to help the customer understand the true costs of
their current approach and the benefits, both financial and environmental, of
switching to our solution.  Once this new energy storage capability
starts to get market traction, we expect the rate of acceptance to
accelerate.  Until then, however, we are experiencing a long sales
cycle and don’t expect that to materially change in the near
future.  We believe that once we demonstrate revenue traction and
establish the fact that the market does exist and is very large, other larger
suppliers may also target this market.





Electric and Hybrid Electric
Bus and Military Applications.  In the automotive area there
are a large number of battery manufacturers and systems integrators currently
serving the market.  Many of them are larger companies with
substantially stronger financial resources than we have.  We believe
this market will be driven by low margins and volume.  As a result we
believe that only larger, well-capitalized companies will ultimately be
successful in this market.  The mass-transit market, on the other
hand, presents a different set of dynamics.  The characteristics of
our batteries are an excellent fit to satisfy the requirements of this market,
and the needs here are different than in the general consumer automotive
market.  We believe that we can be a successful competitor in this
segment of the overall automotive market.





With
respect to the electric and hybrid electric mass-transit market, we are not
aware of any commercially available products that have similar performance
attributes as our nano lithium titanate batteries.  Nonetheless,
competitors have announced advanced lithium ion batteries and battery products
aimed at these markets.  Some may have advantages over our nano
lithium titanate batteries with respect to features such as energy density.
However, we believe that these batteries do not match the cycle life, rapid
charge and discharge rates and performance at temperature extremes of our nano
lithium titanate batteries.






7





Currently, NiMH batteries dominate the hybrid
electric vehicle market, including the mass-transitmarket.
NiMH batteriesimprove
upon the energy capacity and
power capabilitiesof older alternatives, such as NiCd (for the same size
cell) by 30% to 40%.  Since they contain fewer toxins than NiCd
batteries,NiMH batteries are more
environmentally friendly than NiCdbatteries, although they are not as
environmentally friendly as our nano lithium titanate
battery.  Like NiCdbatteries, NiMH batteries can be charged in
about 3 hours.  Charging rates must be reduced by a factor of 5 to 10
at temperatures below 0°C (32°F) and above 40°C (104°F).  NiMH batteries suffer from poor
deep cycle ability (i.e. the ability to be discharged to 10% or less of their
capacity), possessing a recharge capability following deep discharge on the
order of 200 to 300 cycles.  While NiMH batteries are capable of high
power discharge, dedicated usage in high power applications limits cycle life
even further.  NiMH batteries also possess high self-discharge rates,
which is unintentional leaking of a battery’s charge. NiMH batteries are intolerant to
elevated temperature and, as a result, performance and capacity degrade sharply
above room temperature.  The most serious issue with NiMH, though,
involves safety accompanying recharge.  The temperature and internal
pressure of a NiMH batterycell rises sharply as the cell nears 100% state of charge, necessitating
the inclusion of complex cell monitoring electronics and sophisticated charging
algorithms in order to prevent thermal runaway.  A potential limiting
factor for the widespread use of NiMH batteries may be the supply of nickel,
potentially rendering the technology economically infeasible for these
applications as demand continues to rise.




Producers of
electric and hybrid electric vehicles are seeking to replace NiMH batteries with
lithium ion batteries for several reasons.  The demand for these
vehicles is placing pressures on the limited supply of nickel, potentially
rendering the technology economically infeasible for these applications as the
demand continues to rise.  Compared to NiMH batteries, conventional
lithium ion batteries
are stable, charge more
rapidly (in hours), exhibit low self-discharge, and require very little
maintenance.  Except as explained below, the safety, cycle life,
calendar life, environmental impact and power of lithium ion batteries is
comparable to those of NiMH and NiCd
batteries.




Conventional lithium ion batteries
are the batteries of choice in small electronics, such as cell phones and
portable computers, where high energy density and light weight are
important.  These same attributes are desired for electric vehicle,
hybrid electric vehicle, fast energy storage and other markets. However, these
applications are principally high power demand applications and/or pose other
demands on usage, such as extremes of temperature, need for extremely short
recharge times, and even longer extended lifetimes.  Because of safety concerns related
principally to the presence of graphite in conventional lithium ion batteries,
conventional graphite-based lithium ion batteries sufficiently large for such
power uses may raise safety concerns.  In addition, current
lithium ion technology is capable of about 1,000 to 3,000 cycles and has
a life of about 3 years, whereas the vehicles in which they are used may have
lifetimes  as long as 10 to 15 years and require much larger cycle
life.  Conventional
lithium ion batteries also do not function well at extremely hot or cold
temperatures.  Our batteries --which are safer, have a longer cycle
life, rapid charge and discharge rates and function well at extreme temperatures
-- are designed to address the power market by providing the key benefits of
lithium ion batteries without the shortcomings relative to the power
market.




Our
All Other Division





Background





During
2008, we operated as three separate divisions – A Power and Energy Group, a
Performance Materials Division and a Life Sciences Division.  For
nearly all of 2009, we were organized into two divisions; a Power and Energy
Group and an All Other division.  Our All Other division includes the
remnants of our Performance Materials and Life Sciences divisions.




8


Based on the results of a comprehensive
review of all our activities, strengths, weaknesses, competitive opportunities
and the overall market that was conducted during 2008, we determined to focus
our future efforts exclusively in the Power and Energy arena.  As a
result, we began in late 2008 and early 2009 to eliminate or sell our assets and
efforts in the Life Sciences and Performance Materials divisions.  As
of December 31, 2009, all new efforts in the Life Sciences area have been
stopped and the intellectual property rights associated with that division were
assigned to Spectrum Pharmaceuticals, Inc. pursuant to an amendment to our
existing license agreement.  There is still a small amount of residual
work being done in the Performance Materials market to fulfill commitments with
existing customers, but these efforts require a minimal level of
resources.




AlSher Titania
LLC





Our All
Other division consists primarily of our interest in the AlSher Titania joint
venture with Sherwin Williams.  AlSher Titania LLC was formed in April
2007.   This joint venture was formed for 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.  Construction of a 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 were positive, we suspended full operations in
late 2008 after generating and compiling considerable data into an engineering
data package.  Based on review of this package, its impact on
financial projections, and input from our partner, we decided in 2009 not to
undertake a more detailed engineering cost study relating to the potential scale
up to a significantly larger demonstration plant.  Neither Altair nor
Sherwin-Williams has expressed a willingness to finance the construction of the
development scale plant that would be required as the next major
milestone.  Throughout 2009, AlSher Titania, Altair and
Sherwin-Williams have been actively seeking a partner or partners to participate
in this next phase and to buy our interests in AlSher.  In May 2009,
the services of 5iTech were engaged to assist in this effort.  An
interested party has been identified and as of December 31, 2009 discussions
were underway with this party to try and structure an agreement that satisfies
the needs of all parties involved.  Because of the length of time that
the AlSher Titania assets have been idle and the unwillingness of either party
to finance the next phase of development, these assets have been deemed to be
impaired and written down to their fair market value as of December 31,
2009.





We are in negotiations with
Sherwin-Williams with respect to their potential acquisition of our interest in
AlSher Titania LLC.





We have
been awarded four U.S. and 15 international patents protecting this technology,
all of which have been licensed to AlSher Titania, including: 1) Processing
titaniferous ore to titanium dioxide pigment, 2) Processing aqueous titanium
chloride solutions to ultrafine titanium dioxide, 3) Processing aqueous titanium
solutions to titanium dioxide pigment and 4) Method For Producing Mixed Metal
Oxides and Metal Oxide Compounds.  The U.S. patents expire in 2020 and
2021.  Two new patent applications have also been filed
recently.





Nanosensor
Initiative





Our All
Other division also includes our nanosensors initiative.  Since
September 2003, pursuant to a teaming/research agreement with Western Michigan
University funded by the Department of Energy, we have been engaged in the
development of a technology used in the detection of chemical, biological and
radiological agents.  Late in 2008, we were awarded a $1.8 million
Army Research Office (“ARO”) grant to continue the nanosensor program. The ARO
formalized the contract with us to continue this work in September
2009.  Under the terms of this grant and contract, Western Michigan
University will receive about half of the grant funds as a subcontractor to
Altair.  We completed $139,000 of this contract during 2009 and will
complete the $1.6 million balance through September 2010.  The scope
of work associated with this grant further builds upon the accomplishments and
progress made under the prior grants and will focus on a second-generation
hand-held device currently being developed using a new as well as a previously
developed library of sensing molecules for identification of a multiplicity of
agents.






9





Life
Sciences




Our Life
Sciences division was focused on the development and marketing of RenazorbTM
products, which were designed to support phosphate control in patients with
Chronic Kidney Disease, hyperphosphatemia, and high phosphate levels in blood,
associated with End Stage Renal Disease.  Based on a comprehensive
review of the Life Sciences division, its existing and potential products, the
resources available, market opportunity and competition, among other
considerations, a decision was made in late 2008 to exit the life sciences
arena.  Consistent with this decision, in August 2009 we announced an
agreement in which we assigned ownership of all patent rights associated with
RenazorbTM and RenalanTM to Spectrum Pharmaceuticals, Inc. (Nasdaq: SPPI). The
patent assignment amends and restates an existing, limited licensing agreement
for RenazorbTM and RenalanTM compounds to Spectrum Pharmaceuticals, which was
announced in January 2005. Spectrum Pharmaceuticals now has exclusive worldwide
rights to RenazorbTM, RenalanTM, and any related compounds in any field of
use.




Under
terms of the agreement, Altairnano received $750,000 in Spectrum Pharmaceuticals
common stock, restricted until February 2010. In addition to the royalty and
other payments we were to receive under the prior license agreement, we will now
receive 10% of any fees Spectrum Pharmaceuticals may receive from the
sublicensing of RenazorbTM, RenalanTM, and any related compounds.  With
the execution of this contract with Spectrum Pharmaceuticals, we have completed
our efforts to exit the life sciences market and there are no further Company
resources devoted to this area.





Other Nanomaterials
Research





In August
2008 we entered into a contract with the Environmental Protection Agency to
collaborate in researching the safety and potential health hazards of inhalation
of lithium titanate nanoparticles in the worker environment.  This is
a new area of development with very little specific data upon which to establish
recommendations for product handling and design of effective engineering
controls in the manufacturing environment.  We are committed to
producing products that are both safe for their ultimate consumers, and also for
the people involved in their manufacture.   The study involved
the instillation of lithium titanate, as well as control materials, into the
respiratory tract of laboratory rats followed by microscopic examination of lung
and trachea tissues at various exposure times.  As of December 31,
2009 the study was completed and identified no potential health
hazards.   A final report will be completed in the first half of
2010.





Research
and Development Expenses





Total
research and development expenses were $10.3 million, $16.9 million and $15.4
million for the years ended December 31, 2009, 2008 and 2007, respectively,
while research and development costs funded by customers were $2.9 million, $5.0
million and $5.0 million, for the years ended December 31, 2009, 2008 and 2007,
respectively.





Dependence
on Significant Customers





During
the year ended December 31, 2009, we recorded revenues from three major
customers in the Power and Energy Group who accounted for 27%, 15% and 11% of
revenues as follows:  Office of Naval Research revenues of $1.2
million, Proterra, LLC revenues of $635,000 and BAE Systems of
$482,000.  Our largest customer in the All Other Division, Spectrum
Pharmaceuticals, had revenues of $751,000, or 17% of total
revenues.




Government
Regulation





Most of
our current and proposed activities are subject to a number of federal, state,
and local laws and regulations concerning machine and chemical safety and
environmental protection.  Such laws include, without limitation, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
and the Comprehensive Environmental Response Compensation Liability
Act.  We are also subject to laws governing the packaging and shipment
of some of our products, including our nano lithium titanate
batteries.  Such laws require that we take steps to, among other
things, maintain air and water quality standards, protect threatened, endangered
and other species of wildlife and vegetation, preserve certain cultural
resources, reclaim processing sites and package potentially flammable materials
in appropriate ways and pass stringent government mandated testing standards
before shipping our battery products.






10





Compliance with federal, state, or
local laws or regulations represents a small part of our present
budget.  If we fail to comply with any such laws or regulations,
however, a government entity may levy a fine on us or require us to take costly
measures to ensure compliance.  Any such fine or expenditure may
adversely affect our development.





We are committed to complying with and,
to our knowledge, are in compliance with, all governmental
regulations.  We cannot predict the extent to which future legislation
and regulation could cause us to incur additional operating expenses, capital
expenditures, and/or restrictions and delays in the development of our products
and properties.





Government
Contracts




A
substantial portion of our current revenue is derived from government grants and
contracts.  The government grants and contracts we enter into are subject
to termination or delay of funding at the election of the
government.  As a result, any termination of such agreements would
significantly reduce revenue and the capital to sustain operations and
research.





Environmental
Regulation and Liability





Any
proposed processing operation at our main operating facility in Reno, Nevada or
any other property we use will be subject to federal, state, and local
environmental laws.  Under such laws, we may be jointly and severally
liable with prior property owners for the treatment, cleanup, remediation,
and/or removal of substances discovered at any other property used by us; to the
extent the substances are deemed by the federal and/or state government to be
toxic or hazardous.  Courts or government agencies may impose
liability for, among other things, the improper release, discharge, storage,
use, disposal, or transportation of hazardous substances.  We use
hazardous substances in our testing and operations and, although we employ
reasonable practicable safeguards to prevent any liability under applicable laws
relating to hazardous substances, companies engaged in materials production are
inherently subject to substantial risk that environmental remediation will be
required.





Financial
Information about Segments and Foreign Sales





Information
with respect to assets, net sales, loss from operations and depreciation and
amortization for the Power and Energy Group, and All Other Division is presented
in Note 18, Business Segment Information, of Notes to Consolidated Financial
Statements in Part IV.





Information
with respect to foreign and domestic sales and related information is also
presented in Note 18, Business Segment Information, of Notes to Consolidated
Financial Statements in Part IV.




Subsidiaries





Altair
Nanotechnologies Inc. was incorporated under the laws of the province of
Ontario, Canada in April 1973 under the name Diversified Mines Limited, which
was subsequently changed to Tex-U.S. Oil & Gas Inc. in February 1981, then
to Orex Resources Ltd. in November 1986, then to Carlin Gold Company Inc. in
July 1988, then to Altair International Gold Inc. in March 1994, then to Altair
International Inc. in November 1996 and then to Altair Nanotechnologies Inc. in
July 2002.  In July 2002, Altair Nanotechnologies Inc. redomesticated
from the Ontario Business Corporations Act to Canada’s federal corporate
statute, the Canada Business Corporations Act.






11





Altair US
Holdings, Inc. was incorporated by Altair in December 2003 for the purpose of
facilitating a corporate restructuring and consolidation of all U.S.
subsidiaries under a U.S. holding company.  At the completion of the
corporate restructuring, Fine Gold, MRS, and Altairnano, Inc. (f/k/a Altair
Nanomaterials, Inc.) were direct wholly-owned subsidiaries of Altair US
Holdings, Inc., while Tennessee Valley Titanium, Inc. previously a wholly-owned
subsidiary of MRS, was dissolved on July 7, 2006.





Altair
acquired Fine Gold in April 1994.  Fine Gold has earned no operating
revenues to date. Fine Gold acquired the intellectual property associated with
the now defunct Altair jig, a fine particle separation device for use in
minerals processing, in 1996.  Fine Gold was formally dissolved on
December 30, 2008.





Mineral Recovery Systems, Inc., or MRS,
was incorporated in April, 1987 and was formerly known as Carlin Gold
Company.  MRS previously has been involved in the exploration for
minerals on unpatented mining claims in Nevada, Oregon and California and the
holding of mineral leases in Tennessee.  Other than a single mineral
lease related to a remediation site in Tennessee, MRS does not continue to hold
any properties or other significant leases.





Altair
Nanomaterials, Inc. was incorporated in 1998 as a wholly-owned subsidiary of MRS
and holds all of our interest in our nanomaterials and titanium dioxide pigment
technology and related assets.  Altair Nanomaterials Inc. was
subsequently renamed Altairnano, Inc. on July 6, 2006.





AlSher
Titania LLC was incorporated in April 2007 as a joint venture company which is
70% owned by Altairnano, Inc.  This company was formed to combine
certain technologies of Altairnano, Inc. with the Sherwin-Williams Company in
order to develop, market, and produce titanium dioxide pigment for use in a
variety of applications.




Corporate
History







Altair Nanotechnologies Inc. was
incorporated under the laws of the Province of Ontario, Canada in April 1973 for
the purpose of acquiring and exploring mineral properties.  It was
redomesticated in July 2002 from the Business Corporations Act (Ontario) to the
Canada Business Corporations Act, a change that causes Altair to be governed by
Canada's federal corporate statute.  The change reduced the
requirement for resident Canadian directors from 50% to 25% of the board of
directors, which gave us greater flexibility in selecting qualified nominees to
our board.





During
the period from inception through 1994, we acquired and explored multiple
mineral properties.  In each case, sub-economic mineralization was
encountered and the exploration was abandoned.





Beginning
in 1996, we entered into leases for mineral property near Camden, Tennessee and
owned the rights to the Altair jig.  However, we have terminated our
leases on all of the Tennessee mineral properties and during 2009 disposed of
the remaining centrifugal jigs and abandoned the applicable patents since we
were unable to identify an interested party to purchase them.





In
November 1999, we acquired all the rights of BHP Minerals International, Inc.,
or BHP, in the nanomaterials and titanium dioxide pigment technologies and the
nanomaterials and titanium dioxide pigment assets from BHP. We are employing the
nanomaterials technology as a platform for the sale of contract services,
intellectual property licenses and for the production and sale of metal oxide
nanoparticles in various applications including our nano lithium titanate
batteries.





We have
experienced an operating loss in every year of operation.  In the
fiscal year ended December 31, 2009, we experienced a net loss of $21.3
million.




Employees





Our
business is currently managed by Dr. Terry Copeland, President and Chief
Executive Officer, Mr. John Fallini, Chief Financial Officer, Dr. Bruce Sabacky,
Chief Technology Officer, Mr. Steven Balogh, Vice President Human Resources, Mr.
Dan Voelker, Vice President Operations, and Mr. C. Robert Pedraza, Vice
President Corporate Strategy and Business Development.  We have 99
additional regular employees.  As of December 31, 2009, we have
employment agreements with Messrs. Copeland, Fallini, Balogh, Pedraza, Sabacky
and Voelker.






12





During
2010, we may hire additional employees, primarily in operations, sales and
engineering.  Such additional hiring, if it occurs, will be dependent
upon business volume growth.





Available
Information





We file
annual, quarterly and current reports and other information with the SEC. These
materials can be inspected and copied at the SEC’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549.  Copies of these materials may
also be obtained by mail at prescribed rates from the SEC’s Public Reference
Room at the above address. Information about the Public Reference Room can be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet site that contains reports, proxy information statements, and other
information regarding issuers that file electronically with the SEC. The address
of the SEC’s Internet site is www.sec.gov.





We make
available, free of charge on our Internet website located at www.altairnano.com
behind the “Investors” tab under “SEC Filings,” our most recent Annual Report on
Form 10-K, our most recent Quarterly Report on Form 10-Q, any current reports on
Form 8-K filed since our most recent Annual Report on Form 10-K and any
amendments to such reports as soon as reasonably practicable following the
electronic filing of such report with the SEC.  In addition, we
provide electronic or paper copies of our filings free of charge upon
request.





Enforceability
of Civil Liabilities against Foreign Persons





We are a
Canadian corporation, and two of our directors and our Canadian legal counsel
are residents of Canada. Two directors are residents of Dubai.  As a
result, investors may be unable to effect service of process upon such persons
within the United States and may be unable to enforce court judgments against
such persons predicated upon civil liability provisions of the U.S. securities
laws. It is uncertain whether Canadian or Dubai courts would enforce judgments
of U.S. courts obtained against us or such directors, officers or experts
predicated upon the civil liability provisions of U.S. securities laws or impose
liability in original actions against us or our directors, officers or experts
predicated upon U.S. securities laws.





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 in
Item 1A 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.








13







Item
1A.  Risk Factors





An
investment in our common shares and related derivative securities involves
significant risks. You should carefully consider the risks described in this
Report before making an investment decision. Any of these risks could materially
and adversely affect our business, financial condition or results of operations.
In such case, you may lose all or part of your investment. Some factors in this
section are forward-looking statements.




We
may not be able to raise sufficient capital to expand our operations and meet
future obligations.




As of
December 31, 2009, we had approximately $18.1 million in cash and cash
equivalents.  As we take additional steps to enhance our
commercialization and marketing efforts, or respond to acquisition and joint
venture opportunities, large product orders or potential adverse events, our use
of working capital will increase. In any such event, absent a comparatively
significant increase in revenue, we will need to raise additional capital in
order to sustain our ongoing operations, continue testing and additional
development work and, if the trigger is a large product order or similar event,
acquire inventory and/or expand and operate facilities for the production of
those products.




We may
not be able to obtain the amount of additional capital needed or may be forced
to pay an extremely high price for capital. Factors affecting the availability
and price of capital may include the following:




·
            market
      factors affecting the availability and cost of capital generally,
      including recent increases or decreases in major stock market indexes, the
      stability of the banking and investment banking systems and general
      economic stability or instability;




·
            the
      price, volatility and trading volume of our common
  shares;




·
            our
      financial results, particularly the amount of revenue we are generating
      from product sales;




·
            the
      amount of our capital needs;




·
            the
      market's perception of companies in our line of
  business;




·
            the
      economics of projects being pursued;
and




·
            the
      market's perception of our ability to execute our business plan and any
      specific projects identified as uses of
  proceeds.






If we are
unable to obtain sufficient capital or are forced to pay a high price for
capital, we may be unable to meet future obligations or adequately exploit
existing or future opportunities.  If we are unable to obtain
sufficient capital in the long run, we may be forced to curtail or discontinue
operations.




We
may continue to experience significant losses from operations.




We have
experienced a net loss in every fiscal year since our inception. Our losses from
operations were $22.9 million in 2009, $30.1 million in 2008 and $33.1 million
in 2007. Even if we do generate operating income in one or more quarters in the
future, subsequent developments in the economy, our industry, customer base,
business or cost structure, or an event such as significant litigation or a
significant transaction, may cause us to again experience operating losses. We
may never become profitable.




Our
quarterly operating results have fluctuated significantly in the past and will
continue to fluctuate in the future, which could cause our stock price to
decline.




Our
quarterly operating results have fluctuated significantly in the past, and we
believe that they will continue to fluctuate in the future, due to a number of
factors, many of which are beyond our control. If in future periods our
operating results do not meet the expectations of investors or analysts who
choose to follow our company, our stock price may fall. Factors that may affect
our quarterly operating results include the following:




14




·
            fluctuations
      in the size and timing of customer orders from one quarter to the
      next;




·
            timing
      of delivery of our services and
products;




·
            additions
      of new customers or losses of existing
  customers;




·
            positive
      or negative business or financial developments announced by us or our key
      customers;




·
            our
      ability to commercialize and obtain orders for products we are
      developing;




·
            costs
      associated with developing our manufacturing
  capabilities;




·
            new
      product announcements or introductions by our competitors or potential
      competitors;




·
            the
      effect of variations in the market price of our common shares on our
      equity-based compensation expenses;




·
            disruptions
      in the supply of raw materials or components used in the manufacture of
      our products;




·
            technology
      and intellectual property issues associated with our products;
      and




·
            general
      political, social, geopolitical and economic trends and
      events.




A
majority of our revenue has historically been generated from low-margin contract
research and development services; if we cannot expand revenues from other
products and services, our business will fail.




Historically,
a majority of our revenue has come from contract research and development
services for businesses and government agencies. During the years ended December
31, 2009, 2008 and 2007, contract service revenues comprised 65%, 87% and 55%
respectively, of our operating revenues. Contract services revenue is low
margin, or has negative margins, and is unlikely to grow at a rapid pace. Our
business plan anticipates revenues from product sales and licensing, both of
which have potential for higher margins than contract services and have
potential for rapid growth, increasing in coming years. If we are not successful
in significantly expanding our revenues, or if we are forced to accept low or
negative margins in order to achieve revenue growth, we may fail to reach
profitability in the future.




We
need to secure orders in the stationary power market in order to establish the
viability of our large-scale stationary battery.




To date,
substantially all of our orders have been made as part of testing and
development arrangements with key customers.  In order to establish the
market viability of our stationary power battery products, we need to procure
additional orders of market scale stationary power batteries in the near future
and demonstrate the viability of such batteries.  If we are unable to
generate one or more significant orders for stationary batteries in the near
future, our ability to establish a foothold in this emerging market could be
compromised.  Any failure to grow our stationary power battery
business will significantly harm our ability to increase revenues and become
profitable.




We
depend upon several sole-source third-party suppliers.




We rely
on certain suppliers as the sole-source of certain services, raw materials and
other components of our products, including our battery cells.  We do
not have long-term supply or service agreements with any such
suppliers.  As a result, the providers of such services and components
could terminate or alter the terms of service or supply with little or no
advance notice.  If our arrangements with any sole-source supplier
were terminated, or if such a supplier failed to provide essential services or
deliver essential components on a timely basis, failed to meet our product
specifications and/or quality standards, or introduced unacceptable price
increases, our production schedule would be delayed, possibly by as long as six
months.  Any such delay in our production schedule would result in
delayed product delivery and may also result in additional production costs,
customer losses and litigation.






15




The most critical sole-source
relationship we currently have is for the manufacture of our battery
cells.  We currently have one supplier that produces all of our
battery cells.  These cells include our proprietary nano lithium
titanate material produced in Reno, Nevada.  Our supplier delivers
battery cells to our Anderson, Indiana manufacturing facility.  We
then manufacture battery modules or packs used in electric buses and also
manufacture complete multi-megawatt energy storage solutions for the electric
grid renewables integration markets.  This battery cell supplier is
critical to our manufacturing process.  We are currently seeking to
establish supply agreements with other sources of battery cell
manufacturing.  Unless and until an agreement with a second supplier
is reached, we will remain dependent upon this single supplier.





We are
currently experiencing a quality issue with our existing battery cell supplier
which has impacted our near-term capacity to build battery
products.  We are in active discussions with this supplier to identify
the root cause of the problem and rectify it.  The items in question
are under warranty and although we do not expect a material financial impact,
the delay in this problem rectification, if it continues for an extended period,
may have an adverse impact on the delivery of our products during the first half
of 2010.  We anticipate having a qualified second source of cell
supply in place by the end of 2010.




Continuing
adverse economic conditions could reduce, or delay demand for our
products.




The financial markets and general
economic conditions are still very weak.  Our products are targeted
primarily at large power producers worldwide, the U.S. and British military,
military contractors and bus manufacturers.  Due to declining revenues
and concerns about liquidity, companies and branches of the military in our
target markets have reduced, delayed or eliminated many research and development
initiatives, including those related to energy storage.  This
reduction or delay in development spending by key customers is hindering our
development and production efforts and will continue to do so until development
spending increases from current depressed levels.





Our
patents and other protective measures may not adequately protect our proprietary
intellectual property, and we may be infringing on the rights of
others.




We regard
our intellectual property, particularly our proprietary rights in our nano
lithium titanate technology, as critical to our success. We have received
various patents, and filed other patent applications, for various applications
and aspects of our nano lithium titanate technology and other intellectual
property. In addition, we generally enter into confidentiality and invention
agreements with our employees and consultants. Such patents and agreements and
various other measures we take to protect our intellectual property from use by
others may not be effective for various reasons, including the
following:




·
            Our
      pending patent applications may not be granted for various reasons,
      including the existence of conflicting patents or defects in our
      applications, if there was in existence relevant prior art or the
      invention was deemed by the examiner to be obvious to a person skilled in
      the art whether or not there were other existing
  patents;




·
            The
      patents we have been granted may be challenged, invalidated or
      circumvented because of the pre-existence of similar patented or
      unpatented intellectual property rights or for other
    reasons;




·
            Parties
      to the confidentiality and invention agreements may have such agreements
      declared unenforceable or, even if the agreements are enforceable, may
      breach such agreements;




·
            The
      costs associated with enforcing patents, confidentiality and invention
      agreements or other intellectual property rights may make aggressive
      enforcement cost prohibitive;




·
            Even
      if we enforce our rights aggressively, injunctions, fines and other
      penalties may be insufficient to deter violations of our intellectual
      property rights; and




·
            Other
      persons may independently develop proprietary information and techniques
      that, although functionally equivalent or superior to our intellectual
      proprietary information and techniques, do not breach our patented or
      unpatented proprietary rights.







16




Our
inability to protect our proprietary intellectual property rights or gain a
competitive advantage from such rights could harm our ability to generate
revenues and, as a result, our business and operations.




In
addition, we may inadvertently be infringing on the proprietary rights of other
persons and may be required to obtain licenses to certain intellectual property
or other proprietary rights from third parties. Such licenses or proprietary
rights may not be made available under acceptable terms, if at all. If we do not
obtain required licenses or proprietary rights, we could encounter delays in
product development or find that the development or sale of products requiring
such licenses is foreclosed.




The
commercialization of many of our products is dependent upon the efforts of
commercial partners and other third parties over which we have no or little
control.




The
commercialization of our principal products requires the cooperation and efforts
of commercial partners and customers.  For example, because completion
and testing of our large-scale stationary battery packs for power suppliers
requires input from utilities and connection to a power network,
commercialization of such battery packs can only be done in conjunction with a
power or utility company.  The commercialization of military,
transportation and other applications of our technology is also dependent, in
part, upon the expertise, resources and efforts of our commercial partners. This
presents certain risks, including the following:




·
            we
      may not be able to enter into development, licensing, supply and other
      agreements with commercial partners with appropriate resources, technology
      and expertise on reasonable terms or at
all;




·
            our
      commercial partners may not place the same priority on a project as we do,
      may fail to honor contractual commitments, may not have the level of
      resources, expertise, market strength or other characteristics necessary
      for the success of the project, may dedicate only limited resources to,
      and/or may abandon, a development project for reasons, including reasons
      such as a shift in corporate focus, unrelated to its
    merits;




·
            our
      commercial partners may be in the early stages of development and may not
      have sufficient liquidity to invest in joint development projects, expand
      their businesses and purchase our products as expected or honor
      contractual commitments;




·
            our
      commercial partners may terminate joint testing, development or marketing
      projects on the merits of the projects for various reasons, including
      determinations that a project is not feasible, cost-effective or likely to
      lead to a marketable end product;




·
            at
      various stages in the testing, development, marketing or production
      process, we may have disputes with our commercial partners, which may
      inhibit development, lead to an abandonment of the project or have other
      negative consequences; and




·
            even
      if the commercialization and marketing of jointly developed products is
      successful, our revenue share may be limited and may not exceed our
      associated development and operating
costs.




As a
result of the actions or omissions of our commercial partners, or our inability
to identify and enter into suitable arrangements with qualified commercial
partners, we may be unable to commercialize apparently viable products on a
timely and cost-effective basis, or at all.




Interest
in our nano lithium titanate batteries is affected by energy supply and pricing,
political events, popular consciousness and other factors over which we have no
control.




Currently,
our marketing and development efforts for our batteries and battery materials
are focused primarily on stationary power, transportation and military
applications.  In the transportation and military markets, batteries
containing our nano lithium titanate materials are designed to replace or
supplement gasoline and diesel engines.  In the stationary power
applications, our batteries are designed to conserve and regulate the stable
supply of electricity, including from renewable sources.  The interest
of our potential customers and business partners in our products and services is
affected by a number of factors beyond our control, including:





17




·
            economic
      conditions and capital financing and liquidity
  constraints;




·
            short-term
      and long-term trends in the supply and price of gasoline, diesel, coal and
      other fuels;




·
            the
      anticipated or actual granting or elimination by governments of tax and
      other financial incentives favoring electric or hybrid electric vehicles
      and renewable energy production;




·
            the
      ability of the various regulatory bodies to define the rules and
      procedures under which this new technology can be deployed into the
      electric grid;




·
            the
      anticipated or actual funding, or elimination of funding, for programs
      that support renewable energy programs, electric grid improvements,
      certain military electric vehicle initiatives and related
      programs;




·
            changes
      in public and investor interest for financial and/or environmental
      reasons, in supporting or adopting alternatives to gasoline and diesel for
      transportation and other purposes;




·
            the
      overall economic environment and the availability of credit to assist
      customers in purchasing our large battery
  systems;




·
            the
      expansion or contraction of private and public research and development
      budgets as a result of global and U.S. economic trends;
  and




·
            the
      speed of incorporation of renewable energy generating sources into the
      electric grid.




Adverse
trends in one or more of these factors may inhibit our ability to commercialize
our products and expand revenues from our battery materials and
batteries.




Our
nano lithium titanate battery materials and battery business is currently
dependent upon a few customers and potential customers, which presents various
risks.




Our nano
lithium titanate battery materials and battery business is dependent upon a few
current or potential customers, including the U.S. government, a small number of
power producers and smaller companies developing electric or hybrid electric
buses.  In addition, most of these customers are, or are expected to
be development partners who are subsidizing the research and development of
products for which they may be the sole, or one of a few, potential
purchasers.  As a result of the small number of potential customers
and partners, our existing or potential customers and partners may have
significant leverage on pricing terms, exclusivity terms and other economic and
noneconomic terms.  This may harm our attempts to sell products at
prices that reflect desired gross margins.  In addition, the decision
by a single customer to abandon use or development of a product, or budget
cutbacks and other events harming the ability of a single customer to continue
to purchase products or continue development may significantly harm both our
financial results and the development track of one or more
products.




If
we acquire or merge with other companies and we are unable to integrate them
with our business, or we do not realize the anticipated financial and strategic
goals for any of these transactions, our financial performance may be
impaired.




As part
of our growth strategy, we routinely consider acquiring or merging with other
companies that we believe are strategic to our business. We do not have
extensive experience in conducting diligence on, evaluating, purchasing or
integrating new businesses or technologies, and if we do succeed in acquiring or
investing in a company or technology, we will be exposed to a number of risks,
including:




·
            we
      may find that the transaction does not further our business strategy, that
      we overpaid for the company or its technology or that the economic
      conditions underlying our transaction decision have
    changed;






18




·
            we
      may have difficulty integrating the assets, technologies, operations or
      personnel of a company we have acquired or merged with, or retaining and
      integrating key personnel;




·
            our
      ongoing business and management's attention may be disrupted or diverted
      by transition or integration issues and the complexity of managing
      geographically or culturally diverse
  enterprises;




·
            we
      may encounter difficulty entering and competing in new product or
      geographic markets or increased competition, including price competition
      or intellectual property litigation;
and




·
            we
      may experience significant problems or liabilities associated with product
      quality, technology and legal contingencies relating to the integrated
      business or technology, such as intellectual property or employment
      matters.




In
addition, from time to time we may enter into negotiations for acquisitions,
mergers or other transactions that are not ultimately consummated. These
negotiations could result in significant diversion of management time, as well
as substantial out-of-pocket costs. If we were to proceed with one or more
significant acquisitions or other transactions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash. To the extent we issue shares of capital stock or other rights
to purchase capital stock, including options and warrants, existing stockholders
would be diluted. In addition, acquisitions or other transactions may result in
the incurrence of debt, large one-time write-offs, such as acquired in-process
research and development costs, and restructuring charges.




We
intend to expand our operations and increase our expenditures in an effort to
grow our business. If we are unable to achieve or manage significant growth and
expansion, or if our business does not grow as we expect, our operating results
may suffer.




During
the past several years, we have increased our research and development
expenditures in an attempt to accelerate the commercialization of certain
products, particularly our nano lithium titanate batteries. Our business plan
anticipates continued expenditure on development, manufacturing and other growth
initiatives. We may fail to achieve significant growth despite such
expenditures. If achieved, significant growth would place increased demands on
our management, accounting systems, quality control and internal controls. We
may be unable to expand associated resources and refine associated systems fast
enough to keep pace with expansion, especially as we expand into multiple
facilities at distant locations. If we fail to ensure that our management,
control and other systems keep pace with growth, we may experience a decline in
the effectiveness and focus of our management team, problems with timely or
accurate reporting, issues with costs and quality controls and other problems
associated with a failure to manage rapid growth, all of which would harm our
results of operations.




Our
competitors have more resources than we do, and may be supported by more
prominent partners, which may give them a competitive advantage.




We have
limited financial, personnel and other resources and, because of our early stage
of development, have limited access to capital. We compete or may compete
against entities that are much larger than we are, have more extensive resources
than we do and have an established reputation and operating history. In
addition, certain of our early stage competitors, including A123 Systems, are
partnered with, associated with or supported by larger business or financial
partners.  This may increase their ability to raise capital, attract
media attention, develop products and attract customers despite their short
operating history and small size.  Because of their size, resources,
reputation and history (or that of their business and financial partners)
certain of our competitors may be able to exploit acquisition, development and
joint venture opportunities more rapidly, easily or thoroughly than we can. In
addition, potential customers may choose to do business with our more
established competitors, without regard to the comparative quality of our
products, because of their perception that our competitors are more stable, are
more likely to complete various projects, are more likely to continue as a going
concern and lend greater credibility to any joint venture.






19




Our
government grants and contracts are subject to termination or delays by the
government.




A
substantial portion of our current revenue is derived from government grants and
contracts.  These government grants and contracts are subject to
termination or delay of funding at the election of the government. 
Termination or delayed funding of such agreements by the government would
significantly reduce our revenue and inhibit our ability to sustain our
operations and research.




Sherwin-Williams
may be unable to find a new investor to participate in AlSher Titania LLC, and
we may consequently terminate the joint venture disposing of its remaining
assets.




We are
currently working with Sherwin-Williams to identify an interested third party to
invest in AlSher Titania LLC and undertake the next phase in the proposed
development of our titanium dioxide pigment manufacturing process, which is the
construction of an approximately 3,000 ton per year demonstration plant. 
Neither we nor Sherwin-Williams have indicated a willingness to fund this next
phase of development.  We are in negotiations with Sherwin-Williams with
respect to their potential acquisition of our interest in AlSher Titania
LLC.  If the operation of AlSher Titania LLC is terminated, it is
unlikely that we will realize any material revenue from its titanium dioxide
pigment production process.




As
manufacturing becomes a larger part of our operations, we will become exposed to
accompanying risks and liabilities.




We have
not produced any products on a sustained commercial basis. In-house or
outsourced manufacturing is expected to become an increasingly significant part
of our business over the next few years. As a result, we expect to become
increasingly subject to various risks associated with the manufacturing and
supply of products, including the following:




·
            If
      we fail to supply products in accordance with contractual terms, including
      terms related to time of delivery and performance specifications, we may
      be required to repair or replace defective products and may become liable
      for direct, special, consequential and other damages, even if
      manufacturing or delivery was
outsourced;




·
            Raw
      materials used in the manufacturing process, labor and other key inputs
      may become scarce and expensive, causing our costs to exceed cost
      projections and associated
revenues;




·
            Manufacturing
      processes typically involve large machinery, fuels and chemicals, any or
      all of which may lead to accidents involving bodily harm, destruction of
      facilities and environmental contamination and associated
      liabilities;




·
            As
      our manufacturing operations expand, we expect that a significant portion
      of our manufacturing will be done overseas, either by third-party
      contractors or in a plant owned by the company.  Any
      manufacturing done overseas presents risks associated with quality
      control, currency exchange rates, foreign laws and customs, timing and
      loss risks associated with overseas transportation and potential adverse
      changes in the political, legal and social environment in the host county;
      and




·
            We
      may have made, and may be required to make, representations as to our
      right to supply and/or license intellectual property and to our compliance
      with laws. Such representations are usually supported by indemnification
      provisions requiring us to defend our customers and otherwise make them
      whole if we license or supply products that infringe on third-party
      technologies or violate government
regulations.




Any
failure to adequately manage risks associated with the manufacture and supply of
materials and products could lead to losses (or small gross profits) from that
segment of our business and/or significant liabilities, which would harm our
business, operations and financial condition.


20


Our
past and future operations may lead to substantial environmental
liability.




Virtually
any prior or future use of our nanomaterials and titanium dioxide pigment
technology is subject to federal, state and local environmental laws. Under such
laws, we may be jointly and severally liable with prior property owners for the
treatment, cleanup, remediation and/or removal of any hazardous substances
discovered at any property we use. In addition, courts or government agencies
may impose liability for, among other things, the improper release, discharge,
storage, use, disposal or transportation of hazardous substances. If we incur
any significant environmental liabilities, our ability to execute our business
plan and our financial condition would be harmed.




Certain
of our experts and directors reside in Canada or Dubai and may be able to avoid
civil liability.




We are a
Canadian corporation, and two of our directors and our Canadian legal counsel
are residents of Canada. Two directors are residents of Dubai.  As a
result, investors may be unable to effect service of process upon such persons
within the United States and may be unable to enforce court judgments against
such persons predicated upon civil liability provisions of the U.S. securities
laws. It is uncertain whether Canadian or Dubai courts would enforce judgments
of U.S. courts obtained against us or such directors, officers or experts
predicated upon the civil liability provisions of U.S. securities laws or impose
liability in original actions against us or our directors, officers or experts
predicated upon U.S. securities laws.





We
are dependent on key personnel.




Our
continued success will depend, to a significant extent, on the services of our
executive management team and certain key scientists and engineers. We do not
have key man insurance on any of these individuals. Nor do we have agreements
requiring any of our key personnel to remain with our company.  The
loss or unavailability of any or all of these individuals could harm our ability
to execute our business plan, maintain important business relationships and
complete certain product development initiatives, which would harm our
business.




We
may issue substantial amounts of additional shares without stockholder
approval.




Our
articles of incorporation authorize the issuance of an unlimited number of
common shares that may be issued without any action or approval by our
stockholders. In addition, we have various stock option plans that have
potential for diluting the ownership interests of our stockholders. The issuance
of any additional common shares would further dilute the percentage ownership of
our company held by existing stockholders.




The
market price of our common shares is highly volatile and may increase or
decrease dramatically at any time.




The
market price of our common shares is highly volatile. Our stock price may change
dramatically as the result of announcements of product developments, new
products or innovations by us or our competitors, uncertainty regarding the
viability of our technology or our product initiatives, significant customer
contracts, significant litigation or other factors or events that would be
expected to affect our business, financial condition, results of operations and
future prospects.




The
market price for our common shares may be affected by various factors not
directly related to our business or future prospects, including the
following:




·
            intentional
      manipulation of our stock price by existing or future shareholders or a
      reaction by investors to trends in our stock rather than the fundamentals
      of our business;




·
            a
      single acquisition or disposition, or several related acquisitions or
      dispositions, of a large number of our shares, including by short sellers
      covering their position;




·
            the
      interest of the market in our business sector, without regard to our
      financial condition, results of operations or business
      prospects;






21




·
            positive
      or negative statements or projections about our company or our industry,
      by analysts, stock gurus and other
persons;




·
            the
      adoption of governmental regulations or government grant programs and
      similar developments in the United States or abroad that may enhance or
      detract from our ability to offer our products and services or affect our
      cost structure; and




·
            economic
      and other external market factors, such as a general decline in market
      prices due to poor economic conditions, investor distrust or a financial
      crisis.




We
may be delisted from the NASDAQ Capital Market if the price of our common shares
does not remain above $1.00 per share.




Under
NASDAQ rules, a stock listed on NASDAQ Capital Market must maintain a minimum
bid price of at least $1.00 per share.    On December 22,
2009, we received a letter from NASDAQ indicating that the bid price of our
common shares had closed below the minimum $1.00 per share required for
continued listing under NASDAQ Marketplace Rule
5550(a)(2).   NASDAQ stated in its letter that, in accordance
with Marketplace Rule 5810(c)(3)(A), we have been provided an initial period of
180 calendar days, or until June 21, 2010, to regain compliance with the minimum
bid requirement. The letter also states that if at any time before June 21,
2010, the bid price of our common shares closes at $1.00 per share or more for a
minimum of 10 consecutive business days, the NASDAQ staff will provide us with
written notification that we have achieved compliance with the minimum bid
requirement. At the close of the grace period, if we have not regained
compliance, we may be eligible for an additional grace period of 180 days, if we
meet the initial listing standards, with the exception of bid price, for the
NASDAQ Capital Market. If we are not eligible for an additional grace period, we
will be delisted.




Following
any such delisting, our common shares would likely be eligible for quotation on
the OTC Bulletin Board or other quotation service. Nonetheless, even if our
common shares are quoted on an alternative quotation service, the fact of being
delisted from the NASDAQ Capital Market will likely harm the price and trading
volume for our common shares, as many institutional shareholders and advisors
will not trade in shares listed on the OTC Bulletin Board. Once delisted, our
common shares would not be eligible for relisting on the NASDAQ Capital Market
until, among other things, our common shares traded at or above $4.00 per
share.




We
have never declared a cash dividend and do not intend to declare a cash dividend
in the foreseeable future.




We have
never declared or paid cash dividends on our common shares. We currently intend
to retain any future earnings, if any, for use in our business and, therefore,
do not anticipate paying dividends on our common shares in the foreseeable
future.




We
are subject to various regulatory regimes, and may be adversely affected by
inquiries, investigations and allegations that we have not complied with
governing rules and laws.




In light
of our status as a public company and our lines of business, we are subject to a
variety of laws and regulatory regimes in addition to those applicable to all
businesses generally.  For example, we are subject to the reporting
requirements applicable to Canadian and United States reporting issuers, such as
the Sarbanes-Oxley Act of 2002, the rules of the NASDAQ Capital Market and
certain state and provincial securities laws. We are also subject to state and
federal environmental, health and safety laws, and rules governing department of
defense contracts. Such laws and rules change frequently and are often
complex.  In connection with such laws, we are subject to periodic audits,
inquiries and investigations.  Any such audits, inquiries and
investigations may divert considerable financial and human resources and
adversely affect the execution of our business plan.







22




Through
such audits, inquiries and investigations, we or a regulator may determine that
we are out of compliance with one or more governing rules or laws. 
Remedying such non-compliance diverts additional financial and human
resources.  In addition, in the future, we may be subject to a formal
charge or determination that we have materially violated a governing law, rule
or regulation.  We may also be subject to lawsuits as a result of
alleged violation of the securities laws or governing corporate laws.  Any
charge or allegation, and particularly any determination, that we had materially
violated a governing law would harm our ability to enter into business
relationships, recruit qualified officers and employees and raise
capital.




Item
1B.  Unresolved Staff Comments




None.




Item
2.  Properties




Our corporate headquarters is located
at 204 Edison Way, Reno, Nevada 89502 in a building we purchased in August
2002.  Our nanomaterials and titanium dioxide pigment assets are
located in this building, which contains approximately 85,000 square feet of
production, laboratory, testing and office space.  We had pledged our
corporate headquarters and associated land to secure a promissory note we issued
to BHP Minerals International, Inc. in the amount of $3.0 million, at an
interest rate of 7%.  This note was paid in full in January 2010 and
the assignment has been released.





We are
party to a lease agreement effective as of July 1, 2007, for 30,000 square feet
of space in the Flagship Business Accelerator Building located at 3019
Enterprise Drive, Anderson, Indiana.  The space is used for the
production of prototype batteries and battery systems.  The lease is
for an initial term of five years with a single one-year renewal
term.  On March 1, 2008, we signed an addendum to this lease that
increased the space leased by 40,000 square feet and set forth corresponding
adjustments in our rent.  Total rent to be paid over the five year
term including real estate taxes is $1.3 million.  In addition to the
Flagship lease, we rent another 2,210 square feet of space at 1305 W. 29th
Street, Anderson, Indiana, on a month to month basis.





We also
maintain a registered office at 360 Bay Street, Suite 500, Toronto, Ontario M5H
2V6.  We do not lease any space for, or conduct any operations out of,
the Toronto, Ontario registered office.





We have
terminated the mineral leases on all but the primary lease for our Tennessee
mineral property that is subject to remediation.  Remediation work on
the properties has been completed and reviewed by the applicable regulatory
authorities.  Final inspections and full release is expected to occur
in the first half of 2010.  Future remediation costs are not expected
to be significant.




Item
3.  Legal Proceedings





In 2009
we filed a collection action against Designline International Holdings, LLC in
the Wake County District Court of North Carolina under Case Number 09-CVD-17792
for collection of $354,000 for payment of product and services previously
provided by us. The matter was subsequently transferred to the State of North
Carolina, County of Mecklenburg, General Court of Justice, Superior Court
Division, under Case Number 09 CvS 30107. On January 15, 2010, Designline
International Holdings, LLC filed its answer denying our allegations and filing
counterclaims alleging breach of contract, breach of implied warranty of
merchantability and breach of implied warranty of fitness for a particular
purpose in response to our complaint. We have not yet filed our answer to their
counterclaims. The matter remains pending.  As of December 31, 2009,
we believe we will prevail in this collection action.


Beside
the matter stated above we are not a party to any pending or threatened
litigation, the outcome of which could be expected to have a material adverse
effect upon our financial condition, our results of operations or cash
flows.


Item
4.  Reserved.






23





PART
II







Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities




Market
Price





Our
common shares are traded on the NASDAQ Capital Market under the symbol
"ALTI."  The following table sets forth, during the periods indicated,
the high and low sales prices for our common shares, as reported on our
principal trading market.





Fiscal
      Year Ended December 31, 2009
            
            Low
            
            
            High1st
      Quarter
            
            $
            0.60
            
            
            $
            1.282nd
      Quarter
            
            $
            0.86
            
            
            $
            1.553rd
      Quarter
            
            $
            0.79
            
            
            $
            1.454th
      Quarter
            
            $
            0.80
            
            
            $
            1.18Fiscal
      Year Ended December 31, 2008
            
            Low
            
            
            High1st
      Quarter
            
            $
            1.97
            
            
            $
            4.812nd
      Quarter
            
            $
            1.63
            
            
            $
            2.733rd
      Quarter
            
            $
            1.45
            
            
            $
            2.944th
      Quarter
            
            $
            0.75
            
            
            $
            2.40





The last
sale price of our common shares, as reported on the NASDAQ Capital Market on
March 5, 2010, was $0.765 per share.




Outstanding
Shares and Number of Shareholders





As of
March 5, 2010, the number of common shares outstanding was 105,400,728 held by
approximately 427 holders of record.  In addition, as of the same
date, we have reserved 6,287,495 common shares for issuance upon exercise of
options that have been, or may be, granted under our employee stock option plans
and 7,028,440 common shares for issuance upon exercise of outstanding
warrants.




Dividends





We have never declared or paid cash
dividends on our common shares.  Moreover, we currently intend to
retain any future earnings for use in our business and, therefore, do not
anticipate paying any dividends on our common shares in the foreseeable
future.




Securities
Authorized for Issuance under Equity Compensation Plans





We have
stock option plans administered by the Compensation Committee of our Board of
Directors that provide for the granting of options to employees, officers,
directors and other service providers of the Company.  Security
holders have approved all option plans.  The following table sets
forth certain information with respect to compensation plans under which equity
securities are authorized for issuance at December 31, 2009:







24




Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              (a)
            Weighted-average
      exercise price of outstanding options, warrants and rights
              (b)
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)
              (c)Equity
      compensation plans approved by security holders
            4,920,209
            $2.396
            4,107,317Equity
      compensation plans not approved by security holders
            None
            N/A
            NoneTotal
            4,920,209
            $2.396
            4,107,317




Recent
Sales of Unregistered Securities





Except as
previously reported, we did not sell any securities in transactions that were
not registered under the Securities Act in the quarter ended December 31,
2009.




Transfer
Agent and Registrar





The Transfer Agent and Registrar for
our common shares is Equity Transfer Services, Inc., 200 University Ave, Suite
400, Toronto, Ontario, M5H 4H2.




Certain Canadian Federal Income Tax
Considerations





Dividends paid on our common shares
which are owned by non-residents of Canada (for purposes of the Income Tax Act (Canada)(the
“Tax Act”)(a “Non-Resident”) will be subject to Canadian withholding tax
generally at the rate of 25%.  However, Article X of the Canada
-United States Income Tax Convention (1980), as amended, (the “Treaty”)
generally limits the rate of withholding tax on dividends paid to United States
residents to 15%.  The Treaty further limits the rate of withholding
tax to 5% if the beneficial owner of the dividends is a U.S. company that owns
at least 10% of the voting shares of the Company.





A capital gain realized on the
disposition of our common shares by a Non-Resident will generally not be subject
to tax under the Tax Act provided the shares are not “taxable Canadian property”
of the Non-Resident.  In general, our common shares will not be
taxable Canadian property of a Non-Resident at a particular time provided that:
(i) such shares are listed on a “designated stock exchange” (which currently
includes NASDAQ) for the purposes of the Tax Act at the time of disposition; and
(ii) at no time during the 60 month period immediately preceding the disposition
of such shares were 25% or more of the issued shares of any class or series of
the our capital stock owned by the Non-Resident, by persons with whom the
Non-Resident did not deal at arm’s length, or by the Non-Resident together with
such persons.





This summary is of a general nature
only and is not intended to be, nor shall be construed to be, legal or tax
advice to any particular Non-Resident.  Accordingly, Non-Resident
holders of our common shares are urged to consult their own tax advisors for
advice with regard to their particular circumstances.




Item
6.  Selected Financial Data





The following table sets forth selected
consolidated financial information with respect to the Company and its
subsidiaries for the periods indicated.  The data is derived from
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).  The selected
financial data should be read in conjunction with the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the consolidated financial statements and accompanying notes
included herein.  All amounts are stated in thousands of U.S.
dollars.





25





For
      the Year Ended December 31,
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005STATEMENTS OF
      OPERATIONSRevenues
            
            $
            4,371
            
            
            $
            5,726
            
            
            $
            9,108
            
            
            $
            4,324
            
            
            $
            2,806Operating
      expenses
            
            $
            (27,232
            )
            
            $
            (35,852
            )
            
            $
            (42,176
            )
            
            $
            (22,005
            )
            
            $
            (13,288
            )Interest
      expense
            
            $
            (107
            )
            
            $
            (97
            )
            
            $
            (134
            )
            
            $
            (172
            )
            
            $
            (207
            )Interest
      income
            
            $
            188
            
            
            $
            982
            
            
            $
            1,101
            
            
            $
            655
            
            
            $
            750(Loss)
      / gain on foreign exchange
            
            $
            (2
            )
            
            $
            (10
            )
            
            $
            (1
            )
            
            $
            (2
            )
            
            $
            2Realized
      gain (loss) on investment
            
            $
            851
            
            
            $
            (89
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            -Loss
      from continuing operations beforenon-controlling interest’s
      share
            
            $
            (21,931
            )
            
            $
            (29,340
            )
            
            $
            (32,102
            )
            
            $
            (17,200
            )
            
            $
            (9,937
            )Non-controlling
      interest’s share
            
            $
            619
            
            
            $
            272
            
            
            $
            631
            
            
            $
            -
            
            
            $
            -Net
      loss
            
            $
            (21,312
            )
            
            $
            (29,068
            )
            
            $
            (31,471
            )
            
            $
            (17,200
            )
            
            $
            (9,937
            )Basic
      and diluted net loss percommon share
            
            $
            (0.21
            )
            
            $
            (0.34
            )
            
            $
            (0.45
            )
            
            $
            (0.29
            )
            
            $
            (0.17
            )Cash
      dividends declared percommon share
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -BALANCE SHEET
      DATAWorking
      capital
            
            $
            22,118
            
            
            $
            26,067
            
            
            $
            39,573
            
            
            $
            25,928
            
            
            $
            21,483Total
      assets
            
            $
            40,317
            
            
            $
            48,071
            
            
            $
            73,859
            
            
            $
            43,121
            
            
            $
            33,464Current
      liabilities
            
            $
            (
      4,055
            )
            
            $
            (
      3,647
            )
            
            $
            (14,329
            )
            
            $
            (3,500
            )
            
            $
            (2,428
            )Long-term
      obligations
            
            $
            (37
            )
            
            $
            (608
            )
            
            $
            (1,200
            )
            
            $
            (1,800
            )
            
            $
            (2,400
            )Non-controlling
      interest in subsidiary
            
            $
            (541
            )
            
            $
            (1,098
            )
            
            $
            (1,369
            )
            
            $
            -
            
            
            $
            -Net
      shareholders' equity
            
            $
            (35,684
            )
            
            $
            (42,718
            )
            
            $
            (56,961
            )
            
            $
            (37,821
            )
            
            $
            (28,636
            )




Item 7.  Management's Discussion and Analysis of
Financial Condition and Results of Operations.





The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.




Overview





We are a
Canadian corporation, with principal assets and operations in the United States,
whose primary business is developing, manufacturing and selling our nano-lithium
titanate battery cells, batteries and battery packs and providing related
design, installation and test services.  Our primary focus is
marketing our large-scale energy storage solutions to power companies and
electric grid operators throughout the world.  In addition, we market
our batteries to electric and hybrid-electric bus manufacturers.





In our
2008 strategic review we determined that the specific strategic efforts we
should focus on going forward are: the provision of frequency regulation and
renewables integration in the electric grid, the electrification of the
mass-transit portion of the automotive market, and similar opportunities in the
military market where we can leverage the specific application to support our
overall technology development efforts.  We believe that these are
multi-billion dollar emerging markets with room for a number of successful
suppliers.  At the present time, we perceive no dominant provider and
we believe that as a result of our significant differentiated product
attributes, the overall strength of our management team, and the recognition we
are receiving in the marketplace, that we have a very good chance of becoming
one of the successful suppliers.  Our proprietary technology platform
gives our products a number of unique, highly sought after attributes that
clearly differentiate our products from their alternatives.  Included
in these attributes are substantially longer cycle and calendar lives, a rapid
recharge time, the ability to provide instantaneous high power, a wide operating
temperature range and increased operational safety.






26





2009 has
been a transition year as we have discontinued the pursuit of grants and
contracts in the life sciences and performance materials markets to focus on the
power and energy systems market.  We expect that the first half of
2010 will continue in this transition mode until we start to gain traction in
the sale of our various battery products.  Although we had excellent
research and a number of prototype battery products in early 2009, there is
still considerable work required on our part to turn these promising prototypes
into commercially available products.  That work continued in earnest
throughout 2009, and we are now in a position to actively sell our
products.  Future revenues will depend on the success of these
efforts, the results of our other research and development work, and the success
of Spectrum Pharmaceuticals in the further development and market introduction
of products based on RenazorbTM and
RenalanTM for
which we will receive future milestone and royalty payments.





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.  Although contract services revenue comprised a
significant portion of our total revenues in recent years accounting for 65%,
87%, and 55%, respectively in 2009, 2008 and 2007, we expect this percentage to
diminish as our battery sales expand.





Our
revenues have been, and we expect them to continue to be, generated by license
fees, product sales, commercial collaborations, and government contracts and
grants.  We currently have agreements in place to (1) provide research
to further develop battery electrode materials and nanosensors, (2) participate
in a joint venture combining the technologies of the partners in order to
develop and produce titanium dioxide pigment for use in a variety of
applications, although we are actively working with Sherwin-Williams to sell our
interests in this joint venture, (3) develop a suite of energy storage solutions
for the stationary power market, (4) develop battery backup power systems for
naval applications, and (5) provide battery modules to a U.S. based bus
manufacturer.  We have made product sales consisting principally of
battery packs and nano lithium titanate cells.





General
Outlook





We have
generated net losses in each fiscal year since
incorporation.  Revenues from commercial collaborations and contracts
and grants decreased $2.1 million from $5 million in 2008 to $2.9 million in
2009.  We completed most of our customer collaboration and grant
related projects during 2008 and did not seek to renew them, with the major
exception being the U.S. Office of Naval Research work.  Revenue from
product sales increased modestly from $757,000 in 2008 to $761,000 in 2009 as we
began to shift our focus out of the low margin grants and customer
collaborations opportunities into product sales.





Our
current focus is on the development of products in energy storage that we
anticipate will eventually bring a substantial amount of higher-margin revenues
from product sales. We expect our nano lithium titanate batteries to be the
source of such higher-margin revenues.  Consequently, during 2009, we
continued to expand the scope of our Power and Energy Group by hiring additional
staff and increasing temporary personnel to handle the conversion from a
prototype to a commercial product, adding additional sales and marketing
personnel to focus on this market, and acquiring test and production
equipment.





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:




·
            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 the product from other entities and are
      in active sales development discussions with a number of
    them.






27






·
            In
      August, 2009, we signed a contract with Proterra, LLC, a Golden, Colorado
      based leading designer and manufacturer of heavy-duty drive systems,
      energy storage systems, vehicle control systems and transit buses to sell
      them battery modules for their all electric and hybrid electric buses.
      Proterra’s systems are scalable to all forms of commercial buses and Class
      6-8 trucks.  As they continue to scale their business we
      anticipate developing a mutually beneficial long-term relationship with
      them.




·
            Based
      on the demonstrated success of our battery in the Proterra bus
      application, we have also entered into discussions with a number of other
      bus manufacturers or systems integrators regarding the purchase of our
      battery products for their respective
  applications.




·
            Our
      efforts with the U.S. military and the British Ministry of Defense
      continue to move forward on several different projects.  Initial
      testing phases on each project with the U.S. Army, U.S. Navy and the
      British Ministry of Defense have all completed and ongoing government
      funding for 2010 for the U.S. Navy is already in place. Although the
      results of the work done in the other areas were equally well received,
      ongoing work is dependent on government funding in each
      country.  With the overall state of the economy still being very
      weak, this funding is uncertain at the current
  time.




·
            Spectrum
      is continuing its product development work and pre-clinical testing with
      the intention of filing an Investigational New Drug application with the
      U.S. Food and Drug Administration in 2010.  During 2009, Altairnano
      assisted Spectrum in selection of a third-party manufacturer of the
      RenazorbTM
      and RenalanTM active
      pharmaceutical ingredient.  Spectrum continues to enlist Altairnano
      analytical resources for development work. Pre-clinical trial work still
      lies ahead for the RenazorbTM-based
      drugs.




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 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.





An
important consideration as we begin to grow our revenue stream is to ensure that
we have access to the various components and raw material we need to manufacture
and then assemble our various products.  With a small product volume,
having multiple suppliers for each component is not practical, but is now
becoming much more important to us. During 2009, we began to identify and
qualify additional suppliers or manufacturers for our critical
components.  While those efforts have progressed, the most critical
sole-source relationship we currently have is for the manufacture of our battery
cells.  We currently have one supplier that produces all of our
battery cells.  These cells include our proprietary nano lithium
titanate material produced in Reno, Nevada.  Our supplier delivers
battery cells to our Anderson, Indiana manufacturing facility.  We
then manufacture battery packs used in electric buses and also manufacture
complete megawatt scale energy storage solutions for the electric grid
markets.  This battery cell supplier is critical to our manufacturing
process.  We are currently seeking to establish supply agreements with
other sources of battery cell manufacturing.  We expect to have an
agreement with a second battery cell supplier by the end of 2010.





We are
currently experiencing a quality issue with the critical cell manufacturing
supplier described above that has impacted our immediate ability to supply
product to our customers.  We are in active discussions with this
supplier to identify the root cause of the problem and rectify
it.  The items in question are under warranty and although we do not
expect a material financial impact, the delay in the problem rectification, if
it continues for an extended period, may have an adverse impact on the delivery
of our products during the first half of 2010.





Our
Operating Divisions





For
nearly all of 2009, we were organized into two divisions: a Power and Energy
Group and an All Other division. During 2008, we operated as three separate
divisions, including a Performance Materials Division and a Life Sciences
Division in addition to the Power and Energy Group. Based on the results of a
comprehensive review of all the Company’s activities, strengths, weaknesses,
competitive opportunities and the overall market that was conducted during 2008,
a decision was made to focus the Company’s future efforts primarily in the Power
and Energy arena. As a result, efforts began in late 2008 and early 2009 to
eliminate or sell the Company’s assets and efforts in the Life Sciences and
Performance Materials divisions.  As of December 31, 2009, we have
ceased all operations in the Life Sciences area and the assets formerly
dedicated to that market either redeployed into the Power and Energy Group or
are planned to be disposed of. There is still a small amount of residual work
being done in the Performance Materials market to fulfill commitments with
existing customers, but these efforts require a minimal level of resources. We
are also taking steps to dispose of our interest in the AlSher Titania joint
venture, including seeking a new partner to fund the next stage of development
and we are in negotiations with Sherwin-Williams with respect to their potential
acquisition of our interest in AlSher Titania LLC.  While we continue
to service existing customers and agreements relating to other types of our
previously developed products, our research and development, production and
marketing efforts are now focused solely on the Power and Energy
Group.






28




Liquidity
and Capital Resources





Current
and Expected Liquidity





As of
December 31, 2009, we had cash and short-term investments totaling $18.1
million.  Net cash used in operating activities for the year ended
December 31, 2009 totaled $23.6 million compared to $30.1 million for the year
ended December 31, 2008.  The decrease in cash used in operating
activities for 2009 compared to 2008 primarily reflects payments of
approximately $5.5 million relating to certain significant payments we 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 $2 million in the
first quarter 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 2010, as the bonus targets for 2009 were not
achieved.


In May
2009, we completed a sale of 11,994,469 common shares of the Company for net
proceeds to the Company of $12.8 million.  In July 2009, we sold our
240,000 shares of Spectrum Pharmaceutical common stock for cash proceeds of $2.0
million.  These items plus other smaller cash inflows related to notes
payable, interest, long-term debt and other items increased cash by a total of
$14.7 million.





Over
the long term, we anticipate substantially increasing revenues by entering into
new contracts and increasing product sales in the stationary power and electric
bus markets.  However, this increase in revenues will be dependent on
our ability to transition our stationary power products from prototypes into
commercial grade products.  During 2009, we continued making
significant expenditures for our battery initiative, added staff and equipment
for the manufacture of nano lithium titanate products and increased our sales
and marketing efforts.  In 2010, we intend to increase spending on our
battery initiatives continuing the enhancement of our products and their
conversion into commercial grade products.  We estimate that our
current cash and short-term investments balance is sufficient to support our
operations well into 2010 based on budgeted cash flow projections. However, it
will not be sufficient to carry the Company to our projected cash flow breakeven
point expected in 2011.  Considering this fact we will most likely
attempt to raise additional cash during 2010.  Depending upon the size
and timing of future orders, we believe that this additional capital would
enable the Company to reach its cash flow breakeven point and become cash
self-sustaining.


Investing
activities for the year ended December 31, 2009 reflect the purchase of property
and equipment of $768,000 compared to property and equipment purchases of $3.0
million made for the year ended December 31, 2008.   Capital
expenditures of approximately $4.9 million are anticipated through December 2010
based on the anticipated increased sales and production volumes.





Our cash
and short-term investments decreased by $10.0 million, from $28.1 million at
December 31, 2008 to $18.1 million at December 31, 2009, due primarily to net
proceeds from our May common stock sale and other financing activities of $12.4
million plus the sale of our Spectrum Pharmaceuticals stock for $2.0 million
offset by net cash used in operations of $24.0 million and purchases of property
and equipment of $0.8 million





29





The use
of cash for financing activities of $434,000 (excluding the May financing) for
the year ended December 31, 2009 primarily reflects the payment of the note
payable on our building of $600,000.  The final payment of $600,000 on
this note was due, and paid, in January 2010.





During
the second half of 2009 we built up our inventory in anticipation of sales
expected in late 2009 and early 2010.  However, we experienced fewer
orders than expected due to various economic and political factors, including
decisions by many companies to defer battery technology projects while waiting
for responses on government grant applications related to the American Recovery
and Reinvestment Act of 2009.  Based on the increased level of sales
quote activity we have seen of late, however, it appears that companies are
returning to a more normal mode of business in which projects are evaluated on
their own merits.  As we move into 2010, we do not expect to build up
our inventory much more than its current level until we begin to close
sales.  With regard to inventory decisions, we also consider the
lengthy manufacturing cycle of four to six months required to produce our large
battery systems.  Depending on the time lag between the initial
inventory buildup and the actual sales, our cash balance will be negatively
impacted.  Since actual sales and production volumes for the full year
of 2010 are unknown at this time, we are not able to currently estimate our
anticipated inventory purchases through December 31, 2010.  We expect
that we will end 2010, however, with an overall inventory level in the same
range as we ended 2009.  Liquidity will be a consideration in our
final determination of production volumes.





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.  Our 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.





Historically, we have financed
operations primarily through the issuance of equity securities (common shares,
convertible debentures, stock options and warrants) and by the issuance of
debt.  Depending upon the growth rate of our battery revenues, we will
most likely need to raise additional capital to fund this growth during
2010.  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.





Consistent
with past practice, we expect that this type of financing will continue to
provide us with the working capital required until anticipated order volume
increases allow us to reach cash flow breakeven.  If order volume
fails to increase as currently anticipated, we estimate that at our 2009 average
net cash burn rate of $1.9 million per month, capital for approximately 10
months is available excluding any new business.  Under this scenario,
if no customer orders are received by mid 2010, purchases of raw materials would
be discontinued and other measures to conserve cash would be implemented as
necessary to extend cash availability.  Included in our 2009 cash
expenditures was an increase in our inventory levels of $5.0
million.  Other measures to preserve cash on hand until order volume
begins to increase would include the following:




§
            reducing
      production levels and purchases of raw
  materials;


§
            deferring
      discretionary expenditures such as capital purchases, internal research
      costs, training, and routine equipment and building
      maintenance;




30




§
            eliminating
      or deferring filling non-critical positions through attrition;
      and


§
            reductions
      in workforce.





As
we project forward for the next 24 months, if sales volume growth is slow and
steady and we continue our existing model of shipping our nano lithium titanate
to our current contract manufacturer who manufactures our battery cells and then
ships them to our Anderson, Indiana facility for assembly into our final
products, we will need to raise additional capital during 2010 to carry us to
cash flow breakeven anticipated in 2011.  On the other hand, if volume
growth is relatively fast as the global economy starts to improve, we will need
also to raise additional capacity expansion capital earlier in order to fulfill
the higher demand.  If we change our existing model with respect to
the manufacture of our battery cells, we may need a larger capital investment to
fund the building of that capability in house.  Since we are in the
process of commercializing our products in newly emerging markets and our growth
estimates may vary based on the economic recovery, our historical cash flows are
not a good indicator of our future requirements.





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.  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.  Consistent with past
practice we expect to raise additional capital through the sale of common
shares, convertible notes, stock options, and warrants.  We do not
expect the current difficult economic environment to preclude our ability to
raise capital, but the overall cost to the Company of doing so will most likely
be higher.





We had a
single note payable in the original principal amount of $3 million secured by a
first lien on our building.  The final payment of principal and
interest was due on February 8, 2010 and paid on January 29, 2010.





Capital
Commitments and Expenditures





The
following table discloses aggregate information about our contractual
obligations and the periods in which payments are due as of December 31,
2009:





In
      thousands of dollars
            
            
            
            
            Less
      Than
            
            
            
            
            
            
            
            
            AfterContractual
      Obligations
            
            Total
            
            
            1
      Year
            
            
            1-3
      Years
            
            
            4-5
      Years
            
            
            5
      YearsNotes
      Payable
            
            $
            794
            
            
            $
            794
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Interest
      on Notes Payable
            
            
            42
            
            
            
            42
            
            
            
            -
            
            
            
            -
            
            
            
            -Contractual
      Service Agreements
            
            
            454
            
            
            
            454
            
            
            
            -
            
            
            
            -
            
            
            
            -Property
      and Capital Leases
            
            
            862
            
            
            
            380
            
            
            
            482
            
            
            
            -
            
            
            
            -Unfulfilled
      Purchase Orders
            
            
            4,068
            
            
            
            4,068
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      Contractual Obligations
            
            $
            6,220
            
            
            $
            5,738
            
            
            $
            482
            
            
            $
            -
            
            
            $
            -





In 2008
and 2009, we upgraded our enterprise resource planning and accounting systems to
support our anticipated growth and to give our operating personnel the timely
information they need to make business decisions.  We spent $250,000
in 2008 and $1,200,000 in 2009 on these systems.  Implementation was
completed in July 2009.





In July
2007, we signed a new lease agreement for 30,000 square feet of space in the
Flagship Business Accelerator Building located at 3019 Enterprise Drive,
Anderson, Indiana.  On March 1, 2008, we signed an addendum to this
lease that increased the space leased by 40,000 square feet.  The move
from the former office and laboratory space leased in the Flagship Enterprise
Center Building to the Accelerator Building was completed by late February
2008.  We have spent approximately $343,000 on build-out and leasehold
improvements during 2008 and an additional $72,000 in 2009.






31





We
purchased equipment for our Reno, Nevada and Anderson, Indiana facilities for
use in the development and expansion of our current advanced battery materials
production capabilities.  Through December 31, 2009, approximately
$0.5 million was expended on lab and production equipment.  An
additional $0.2 million was spent on upgrading office equipment and software to
support these efforts.





Depending
upon the speed of our revenue growth in 2010, we plan to spend approximately
$4.9 million on production and tooling equipment associated with our Power and
Energy Group capacity expansion.  This level of expenditures assumes
that we will continue to rely on a contract manufacturer to manufacture our
cells.  Should we change this model and decide to manufacture the
cells ourselves, a much higher level of capital investment would be required to
build a cell manufacturing capability here in the U.S.  The size of
this investment would be dependent upon the size of the facility required and to
what extent we could use existing available space in our current
locations.





Off-Balance
Sheet Arrangements





The company did not have any
off-balance sheet transactions during 2009.





Critical
Accounting Policies and Estimates





Management
based the following discussion and analysis of our financial condition and
results of operations on our 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 long-lived assets, share-based compensation, revenue
recognition, overhead allocation, allowance for doubtful accounts, inventory,
and deferred income tax.  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 the Company’s future results of operations and cash flows.





§
            Long-Lived
      Assets.  Our long-lived assets consist principally of the
      nanomaterials 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.  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
      December 31, 2009, the carrying value of these assets was $11.4 million,
      or 28% of total assets.   We evaluate the carrying value of
      long-lived assets whenever events or changes in business circumstances
      indicate that the carrying value of the assets may not be
      recoverable.  The carrying value of a long-lived asset is
      considered impaired when the total projected undiscounted cash flows
      expected to be generated by the asset are less than the carrying
      value.  Our estimate of the cash flows is based on the
      information available at the time including the
      following:  internal budgets; sales forecasts; customer trends;
      anticipated production volumes; and market conditions over an estimate of
      the remaining useful life of the asset which may range from 3 to 10 years
      for most equipment and up to 23 years for our building and related
      building improvements.  If an impairment is indicated, the asset
      value is written to its fair value based upon market prices, or if not
      available, upon discounted cash flow value, at an appropriate discount
      determined by us to be commensurate with the risk inherent in the business
      model.  The determination of both undiscounted and discounted
      cash flows requires us to make significant estimates and consider the
      expected course of action at the balance sheet date.  Our
      assumptions about future sales and production volumes require significant
      judgment because actual sales prices and volumes have fluctuated
      significantly in the past and are expected to continue to do
      so.  Until our products reach commercialization, the demand for
      our products is difficult to estimate.  Subsequent changes in
      estimated undiscounted and discounted cash flows arising from changes in
      anticipated actions could impact the determination of whether an
      impairment exists, the amount of the impairment charge recorded and
      whether the effects could materially impact our consolidated financial
      statements.  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 or the assets used to produce
      it, a history of operating or cash flow losses and/or the partial or
      complete lapse of technology rights
protection.






32




As
      a result of management’s determination to focus on the Power and Energy
      segment of the business and reduce resources committed to Performance
      Materials and Life Sciences, in combination with the delays experienced in
      commercializing our products, the following qualitative reviews were
      performed regarding our patents and fixed assets in addition to an
      undiscounted cash flow analysis to determine if our long-lived assets are
      impaired:




o
            Our
      Chief Technology Officer reviewed and confirmed that the capitalized
      patents of $551,000 relating to processing titanium dioxide and pigment
      have not been impaired.  These patents are also the underlying
      basis for production of our nano lithium titanate, which is utilized as
      the anode material in our battery products in the Power and Energy
      segment.  Nano lithium titanate is a fundamental building block
      of our batteries; we do not see these patents’ value being impaired unless
      we are unable to commercialize our battery products.  We believe
      this outcome is unlikely.




o
            Detailed
      review of the remaining Performance Materials fixed assets of $609,000 was
      performed with operations management to understand the purpose, use, and
      potential disposition of these fixed assets.  Based on this
      detailed review, it was determined that the assets which consist primarily
      of production assets such as mills, furnaces and laboratory equipment
      suited for general use in our business would be re-purposed to the Power
      and Energy segment to support the anticipated growth in  sales
      volume within the next two years.  These assets are expected to
      have in-service lives at least equal to their depreciation lives and with
      reasonable ongoing maintenance are expected to continue functioning
      throughout that period.  If we are unable to commercialize our
      battery products, the value of these assets could be impaired, but we
      believe this outcome is unlikely.




o
            Detailed
      review of the Life Sciences fixed assets with a net book value of $1.2
      million was performed with operations management to understand the
      purpose, use, and potential disposition of these fixed
      assets.  The assets relating to this segment are primarily
      building improvements that expand production and lab areas.  It
      was determined that these improvements do add to the value of the building
      and the space and will be required for the expansion of  Power
      and Energy operations based on anticipated growth in sales volume within
      the next two years.  Failure to commercialize our battery
      products and a significant drop in real estate values could lead to
      impairment of these assets.  We believe that the occurrence of
      such events is unlikely.




o
            Fixed
      assets held by our joint venture with Sherwin-Williams, AlSher Titania
      LLC, of $1.7 million, previously included in the Performance Materials
      segment, were also evaluated.  Although we are currently
      continuing to work with Sherwin-Williams to identify and qualify an
      interested third party to purchase our interest in the AlSher Titania
      joint venture these assets have been idled for most of 2009.  In
      assessing potential outcomes, it is our judgment that the most likely one
      is for the AlSher assets to be unwanted by a potential buyer, if one is
      found.  We would be able to use some of these assets in its
      Power and Energy Group, and the rest would be sold for
      scrap.  Accordingly we determined that these assets were
      impaired, and a $1.3 million valuation reserve has been reflected in our
      December 2009 financials to bring the AlSher Titania assets net book value
      down to market value of $418,000.






33


§
              As
      of December 31, 2009, we estimate that our future cash flows, on an
      undiscounted basis, are greater than our $11.4 million in long-lived
      assets.  Our estimated future cash flows include anticipated
      product sales, commercial collaborations, and contracts and grant revenue,
      since our long-lived asset base, which is primarily composed of
      production, laboratory and testing equipment and our Reno facility, is
      utilized to fulfill contracts in all revenue categories.  Based
      on our assessment, which represents no change from the prior year in our
      approach to valuing long-lived assets, and after writing down the AlSher
      assets mentioned above, we believe that our long-lived assets are not
      impaired.
 §
                  Stock-Based
      Compensation.  We have a stock incentive plan that provides for
      the issuance of stock options, restricted stock and other awards to
      employees and service providers.  We calculate compensation
      expense using a Black-Scholes Merton option pricing model.  In
      so doing, we estimate certain key assumptions used in the
      model.  We believe the estimates we use, which are presented in
      Note 11 of Notes to the Consolidated Financial Statements, are appropriate
      and reasonable.
 §
                      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.  During 2009, our revenues were derived from three sources:
      product sales, commercial collaborations, and contract research and
      development.  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 future performance of services or delivery of products, are deferred
      until the customer accepts the service or the product title transfers to
      our customer.  Upfront payments received in connection with
      certain rights granted in contractual arrangements are deferred and
      amortized over the related time period over which the benefits are
      received.  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.
 §
                                Overhead
      Allocation.  Facilities overheads, which are comprised primarily
      of occupancy and related expenses, and fringe benefit expenses, are
      initially recorded in general and administrative expenses and then
      allocated monthly to research and development expense based on labor
      costs.  Facilities overheads and fringe benefits allocated to
      research and development projects may be chargeable when invoicing
      customers under certain research and development
      contracts.
 §
                                        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.


34


§
              Inventory.  We
      value our inventories generally at the lower of cost (first-in, first-out
      method) or market.  We employ a full absorption procedure using
      standard cost techniques.  The standards are customarily
      reviewed and adjusted annually.  Overhead rates are recorded to
      inventory based on normal capacity.  Any idle facility costs or
      excessive spoilage are recorded as current period
      charges.


§
              Deferred
      Income Tax.  Income taxes are accounted for using the asset and
      liability method.  Deferred income tax assets and liabilities are
      recognized for the future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases and operating loss and tax
      credit carry forwards.  Deferred income tax assets and liabilities
      are measured using enacted tax rates expected to apply to taxable income
      in the years in which those temporary differences are expected to be
      recovered or settled.  The effect on deferred income tax assets and
      liabilities of a change in tax rates is recognized in income in the period
      that includes the enactment date.  Future tax benefits are subject to
      a valuation allowance when management is unable to conclude that its
      deferred income tax assets will more likely than not be realized from the
      results of operations.  We have recorded a valuation allowance to
      reflect the estimated amount of deferred income tax assets that may not be
      realized. The ultimate realization of deferred income tax assets is
      dependent upon generation of future taxable income during the periods in
      which those temporary differences become deductible. Management considers
      projected future taxable income and tax planning strategies in making this
      assessment. Based on the historical taxable income and projections for
      future taxable income over the periods in which the deferred income tax
      assets become deductible, management believes it more likely than not that
      the Company will not realize benefits of these deductible differences as
      of December 31, 2009.  Management has, therefore, established a full
      valuation allowance against its net deferred income tax assets as of
      December 31, 2009.  Due to the significant increase in common
      shares issued and outstanding from 2005 through 2009, Section 382 of the
      Internal Revenue Code may provide significant limitations on the
      utilization of our net operating loss carry forwards.  As a
      result of these limitations, a portion of these loss and credit carryovers
      may expire without being
      utilized.


35




Results of
Operations





The
following table sets forth certain selected, unaudited, condensed consolidated
financial data for the periods indicated.





ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS(Expressed
      in thousands of United States Dollars)(Unaudited)Power
      and Energy Group
            
            
            All
      Other
            
            
            Corporate
            
            
            ConsolidatedYear
      Ended
            
            
            Year
      Ended
            
            
            Year
      Ended
            
            
            Year
      EndedDecember
      31,
            
            
            December
      31,
            
            
            December
      31,
            
            
            December
      31,2009
            
            
            2008
            
            
            2007
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2009
            
            
            2008
            
            
            2007RevenuesProduct
      sales
            
            $
            636
            
            
            $
            428
            
            
            $
            3,938
            
            
            $
            309
            
            
            $
            329
            
            
            $
            120
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            945
            
            
            $
            757
            
            
            $
            4,058Less:
      sales returns
            
            
            (113
            )
            
            
            -
            
            
            
            -
            
            
            
            (71
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (184
            )
            
            
            -
            
            
            
            -License
      fees
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            750
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            750
            
            
            
            -
            
            
            
            -Commercialcollaborations
            
            
            1,405
            
            
            
            917
            
            
            
            536
            
            
            
            5
            
            
            
            1,090
            
            
            
            2,374
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,410
            
            
            
            2,007
            
            
            
            2,910Contracts
      and grants
            
            
            1,321
            
            
            
            2,730
            
            
            
            808
            
            
            
            129
            
            
            
            232
            
            
            
            1,332
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,450
            
            
            
            2,962
            
            
            
            2,140Total
      revenues
            
            
            3,249
            
            
            
            4,075
            
            
            
            5,282
            
            
            
            1,122
            
            
            
            1,651
            
            
            
            3,826
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,371
            
            
            
            5,726
            
            
            
            8,108Operating
      ExpensesCost
      of sales - product
            
            
            915
            
            
            
            105
            
            
            
            5,126
            
            
            
            39
            
            
            
            78
            
            
            
            38
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            954
            
            
            
            183
            
            
            
            5,164Cost
      of sales - warrantyand
      inventory reserves
            
            
            198
            
            
            
            (2,865
            )
            
            
            6,843
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            198
            
            
            
            (2,865
            )
            
            
            6,843Research
      anddevelopment
            
            
            8,030
            
            
            
            11,282
            
            
            
            8,765
            
            
            
            175
            
            
            
            3,603
            
            
            
            1,778
            
            
            
            2,118
            
            
            
            2,023
            
            
            
            4,901
            
            
            
            10,323
            
            
            
            16,908
            
            
            
            15,444Sales
      and marketing
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,819
            
            
            
            2,950
            
            
            
            2,001
            
            
            
            2,819
            
            
            
            2,950
            
            
            
            2,001Notes
      Receivableextinguishment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,722
            
            
            
            -
            
            
            
            -
            
            
            
            1,722
            
            
            
            -Settlement
      and release
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,605
            
            
            
            -
            
            
            
            -
            
            
            
            3,605
            
            
            
            -Asset
      impairment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,308
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,308
            
            
            
            -
            
            
            
            -General
      andadministrative
            
            
            168
            
            
            
            230
            
            
            
            269
            
            
            
            107
            
            
            
            368
            
            
            
            -
            
            
            
            8,668
            
            
            
            9,992
            
            
            
            10,501
            
            
            
            8,943
            
            
            
            10,590
            
            
            
            10,770Depreciation
      andamortization
            
            
            1,320
            
            
            
            1,281
            
            
            
            857
            
            
            
            1,183
            
            
            
            1,311
            
            
            
            324
            
            
            
            184
            
            
            
            167
            
            
            
            772
            
            
            
            2,687
            
            
            
            2,759
            
            
            
            1,954Total
      operatingexpenses
            
            
            10,631
            
            
            
            10,033
            
            
            
            21,860
            
            
            
            2,812
            
            
            
            5,360
            
            
            
            2,140
            
            
            
            13,789
            
            
            
            20,459
            
            
            
            18,175
            
            
            
            27,232
            
            
            
            35,852
            
            
            
            42,176Loss
      from Operations
            
            
            (7,382
            )
            
            
            (5
      ,958
            )
            
            
            (16,578
            )
            
            
            (1,690
            )
            
            
            (3,709
            )
            
            
            1,686
            
            
            
            (13,789
            )
            
            
            (20,459
            )
            
            
            (18,175
            )
            
            
            (22,861
            )
            
            
            (30,126
            )
            
            
            (33,068
            )Other
      Income (Expense)Interest
      expense
            
            
            (5
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (102
            )
            
            
            (97
            )
            
            
            (134
            )
            
            
            (107
            )
            
            
            (97
            )
            
            
            (134
            )Interest
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            188
            
            
            
            982
            
            
            
            1,101
            
            
            
            188
            
            
            
            982
            
            
            
            1,101Realized
      gain (loss) oninvestment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            869
            
            
            
            -
            
            
            
            -
            
            
            
            (18
            )
            
            
            (89
            )
            
            
            -
            
            
            
            851
            
            
            
            (89
            )
            
            
            -Loss
      on foreign exchange
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2
            )
            
            
            (10
            )
            
            
            (1
            )
            
            
            (2
            )
            
            
            (10
            )
            
            
            (1
            )Total
      other (expense)income,
      net
            
            
            (5
            )
            
            
            -
            
            
            
            -
            
            
            
            869
            
            
            
            -
            
            
            
            -
            
            
            
            66
            
            
            
            786
            
            
            
            966
            
            
            
            930
            
            
            
            786
            
            
            
            966Net
      loss
            
            
            (7,387
            )
            
            
            (5,958
            )
            
            
            (16,578
            )
            
            
            (821
            )
            
            
            (3,709
            )
            
            
            1,686
            
            
            
            (13,723
            )
            
            
            (19,673
            )
            
            
            (17,209
            )
            
            
            (21,931
            )
            
            
            (29,340
            )
            
            
            (32,102
            )Less:
      Net loss attributable to non-controlling interest
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            619
            
            
            
            272
            
            
            
            631
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            619
            
            
            
            272
            
            
            
            631Net
      loss attributable to Altair Nanotechnologies Inc.
            
            $
            (7,387
            )
            
            $
            (5,958
            )
            
            $
            (16,578
            )
            
            $
            (202
            )
            
            $
            (3,437
            )
            
            $
            2,317
            
            
            $
            (13,723
            )
            
            $
            (19,673
            )
            
            $
            (17,209
            )
            
            $
            (21,312
            )
            
            $
            (29,068
            )
            
            $
            (31,471
            )











36




Fiscal
Year 2009 vs. 2008





Revenues





Total
revenues for the year ended December 31, 2009 were $4.4 million compared to $5.7
million for 2008.





Power and
Energy Group revenue for the year ended December 31, 2009 was $3.2 million
compared to $4.1 million for 2008.  This decrease is attributable to
our shift from lower margin contracts and grants revenues partially offset by
higher product sales and commercial collaboration revenues, primarily with
electric bus manufacturer Proterra, LLC.  Contracts and grants revenue
was down $1.4 million from 2008 to 2009.  This was due primarily to
the completion of the ONR I contract in November 2008 and the ramp up of the ONR
II contract in starting in June 2009.





All Other
revenues for the year ended December 31, 2009 were down $529,000 from $1.7
million in 2008.  This net decrease was primarily from $1.1 million in
reduced commercial collaboration revenue from several customers, netted with a
$750,000 one-time license fee revenue from Spectrum Pharmaceuticals in
2009.





Operating
Expenses





Power and
Energy Group cost of sales – product increased $810,000 in the Power and Energy
Group.  These costs were associated with the production ramp up of our
nano lithium titanate raw material production in Reno, Nevada and battery module
production in Anderson, Indiana.





Power and
Energy Group cost of sales – warranty and inventory reserves increased from a
credit of $2.9 million in 2008 to $198,000 in expense in 2009.  The
$2,9 million credit in 2008 resulted from an agreement effective July 2008 with
Phoenix Motor Cars, whereby the 2007 purchase and supply agreement was
terminated and the parties resolved all outstanding issues with respect to the
warranty associated with the 47 battery packs sold in 2007  The
$198,000 2009 expense includes a $71,000 inventory valuation allowance primarily
associated with the cell manufacture issue previously described.





Total
research and development expense decreased by $6.6 million, or 39%, from $16.9
million in 2008 to $10.3 million 2009.  Power and Energy Group costs
decreased $3.3 million associated with the completion of grant work in
2008.  Research and development costs for All Other operations
decreased by $3.4 million attributable to a shift in focus and realignment of
resources from Life Sciences and Performance Materials to the battery production
arena.  The Corporate segment research and development expenses
primarily reflect the personnel and operating costs associated with our science
and technology group which supports the Company’s overall research and
development efforts.





Notes
receivable extinguishment expense of $1.7 million in 2008 relates to an
agreement effective July 2008 with Phoenix Motorcars, whereby all accounts
receivable and notes receivable relating to the 2007 Purchase and Supply
Agreement were cancelled.





Settlement
and release expense of $3.6 million in 2008 resulted from a settlement agreement
with Al Yousuf LLC related to claims associated with their November 2007
investment in the Company.





Asset
impairment of $1.3 million in 2009 is a result of an impairment charge to adjust
AlSher assets to their fair market value as of December 31,
2009.  Sherwin-Williams is seeking outside financing to continue this
business.  We evaluated the different possibilities of outcome for
AlSher as of December 31, 2009, determined that these assets were
impaired.





Total
general and administrative expenses decreased by $1.6 million, from $10.6
million in 2008 to $8.9 million in 2009.  This decrease is related to
the separation expenses related to our former President and Chief Executive
Officer that were incurred in February 2008, and due to strict cost containment
in this area of the business during 2009.






37





Other
Income and Expense





Interest
income decreased by $794,000, or 81%, from 2008 to 2009.  On average,
a higher average level of cash during 2008 than in 2009 and lower interest rates
in 2009 drove this reduction.





Realized
gain (loss) on investments swung from an $89,000 loss in 2008 to an $851,000
gain in 2009.  This $851,000 gain in 2009 arose primarily from the
sale of 240,000 shares of Spectrum common stock at a higher market price than
recorded on our books when the stock was originally received as payment from
Spectrum for the achievement of certain contract milestones.





Net
Loss





The net
loss for the year ended December 31, 2009 totaled $21.3 million compared to a
net loss of $29.1 million for the year ended December 31, 2008.





Power and
Energy Group net loss for the year ended December 31, 2009 was $7.4 million
compared to a net loss of $6.0 million in 2008.  This increased loss
was due to a shift away from low margin contracts and grants revenue in 2009 and
only partially offset by increased product sales and commercial collaborations
revenues, and the $2.9 million product warranty credit in 2008.





The net
loss of Corporate for the year ended December 31, 2009 was $13.7 million
compared to a net loss of $19.7 million in 2008.  This decrease is
primarily related to a number of one-time expenses reflected in the 2008 results
including the costs associated with the Al Yousuf LLC settlement, the Phoenix
notes receivable extinguishment and the separation expenses related to our
former President and Chief Executive Officer, netted with the 2009 AlSher
Titania asset impairment as described above.





Fiscal
Year 2008 vs. 2007





Revenues
decreased by $3.4 million, from $9.1 million in 2007 to $5.7 million in 2008,
while operating expenses decreased by $6.3 million, from $42.2 million in 2007
to $35.9 million in 2008.  As a result, our loss from operations
decreased by $2.9 million, from $33.1 million in 2007 to $30.1 million in
2008.





Power and
Energy Group product sales decreased from $3.9 million in 2007 to $428,000 in
2008.  The primary reason for this decrease was due to the volume of
battery packs sold to Phoenix Motorcars dropped from 50 in 2007 to zero in 2008
resulting in a $3.0 million decrease in product sales.  The sales
cycle, associated with sales of our stationary power batteries for use in
providing ancillary services over power grids, has turned out to be longer than
originally anticipated resulting in the slower ramp-up of revenue from that
revenue channel.





Commercial
collaborations revenues in our All Other Division decreased $1.3 million, from
$2.4 million in 2007 to $1.1 million in 2008.  This decrease is
primarily due to the discontinuance of the Western Oil Sands project in May
2008.





Total
contract and grant revenues increased from $2.1 million in 2007 to $3.0 million
in 2008, principally in connection with a new grant received in January 2008
from the Office of Naval Research, included in our Power and Energy
Group.  This increase was offset by decreased revenues in our All
Other Division from several other grants as the grants concluded during the
second and third quarters of 2008.






38





Power and
Energy Group cost of sales - product decreased by $5.0 million, from $5.1
million in 2007 to $105,000 in 2008.  This decrease is driven by the
decrease in battery pack sales and other changes in product sales discussed
above.  Positive margins have not yet been achieved associated with
the sale of battery packs due to scaling issues, and we expect that situation to
continue well into 2010.  As higher production volumes and cost
reduction efforts are achieved, the margin on battery pack sales is expected to
become positive.





Power and
Energy Group cost of sales – warranty and inventory reserves decreased by $9.7
million in 2008, from $6.8 million in 2007 to a credit of $2.9 million in
2008.   2007 costs were high due to several one-time events
including $3.9 million for the write-off of all inventory balances on hand at
December 31, 2007, $2.5 million relating to battery cells and modules, and $1.4
million for cells ordered in 2007 for delivery in 2008.  An additional
decrease in reserves by $2.9 million resulted from a letter of agreement
effective July 2008 with Phoenix Motorcars, whereby the 2007 purchase and supply
agreement was terminated and the parties resolved all outstanding issues with
respect to the warranty associated with the 47 battery packs sold in
2007.





Total
research and development expense increased by $1.5 million from $15.4 million in
2007 to $16.9 million in 2008.  Research and development employee
costs in the Power and Energy Group and All Other Division increased by $1.5
million due to an increase in headcount of 27 from the start of 2007 through
April of 2008.  However, headcount decreased by 21 from April 2008
through December 2008 in the Corporate Division to align personnel with required
resources.  Excluding labor, research and development expenses in the
Power and Energy Group increased by $1.4 million primarily due to materials
relating to 2008 customer purchase orders and development agreements, and
engineering and other research and development activities.  Excluding
labor, research and development expenses decreased by $962,000 in the All Other
Division primarily due to $304,000 as the Department of Energy Grant concluded
in December 2007, $330,000 due to the relocation of Western Oil Sands to another
facility in May 2008, and $390,000 from 2007 construction and testing of the
pigment pilot plant.  The remaining increase relates to other internal
research and development.




Item
7A.  Quantitative and Qualitative Disclosures about Market
Risk





None.




Item
8.  Financial Statements and Supplementary Data.





Supplementary
Data





The
following Supplementary Financial Information for the fiscal quarters ended
March 31, June 30, September 30 and December 31 in each of the years 2009 and
2008 was derived from our unaudited quarterly consolidated financial statements
filed by us with the SEC in our Quarterly Reports on Form  10-Q with
respect to such periods (except for 4th quarter data).








39





Supplementary
      Financial Information by Quarter, 2009 and 2008(Unaudited
      – in 000s)Quarter
      Ended
              
              
              Quarter
      Ended
              
              
              Quarter
      Ended
              
              
              Quarter
      EndedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      31Year
      Ended December 31, 2009:Revenues
              
              $
              902
              
              
              $
              -
              
              
              $
              1,667
              
              
              $
              1,805Operating
      expenses
              
              $
              7,374
              
              
              $
              6,482
              
              
              $
              5,906
              
              
              $
              7,469Net
      loss
              
              $
              (6,385
              )
              
              $
              (6,393
              )
              
              $
              (3,316
              )
              
              $
              (5,217
              )Loss
      per common share: (1)Basic
      and diluted
              
              $
              (0.07
              )
              
              $
              (0.07
              )
              
              $
              (0.03
              )
              
              $
              (0.05
              )Year
      Ended December 31, 2008:Revenues
              
              $
              1,069
              
              
              $
              1,903
              
              
              $
              1,802
              
              
              $
              953Operating
      expenses
              
              $
              9,819
              
              
              $
              7,839
              
              
              $
              11,124
              
              
              $
              7,070Net
      loss
              
              $
              (8,288
              )
              
              $
              (5,660
              )
              
              $
              (9,111
              )
              
              $
              (6,008
              )Loss
      per common share: (1)Basic
      and diluted
              
              $
              (0.10
              )
              
              $
              (0.07
              )
              
              $
              (0.11
              )
              
              $
              (0.08
              )


(1) Loss
per common share is computed independently for each of the quarters presented.
Therefore, the sum of the quarterly loss per common share amounts does not
necessarily equal the total for the year.





Financial
Statements





The
financial statements required by this Item appear on pages F-4 through F-34 of
this Report.




Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.





None.




Item
9A.  Controls and Procedures





Disclosure Controls and
Procedures.  Based on an evaluation required by paragraph (b)
of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as
amended, as of December 31, 2009, which is the end of the period covered by this
annual report on Form 10-K, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended)
are effective.





Internal Control Over
Financial Reporting. Our management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) under the Securities Exchange Act of 1934, as
amended.  Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America.  Internal control over financial reporting includes those
written policies and procedures that:







40




·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;


·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of
    America;


·
            provide
      reasonable assurance that our receipts and expenditures are being made
      only in accordance with authorization of our management;
    and


·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of assets that could have a
      material effect on our consolidated financial
  statements.





Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.





Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009.  Our management’s assessment was
based on criteria for effective internal control over financial reporting
described in “Internal Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission.  Our
management’s assessment included an evaluation of the design of our internal
control over financial reporting and testing of the operational effectiveness of
our internal control over financial reporting.  Our management
reviewed the results of its assessment with the Audit Committee of our Board of
Directors.  Based on this assessment, our management determined that,
as of December 31, 2009, we maintained effective internal control over financial
reporting.





The
effectiveness of Altair Nanotechnologies Inc.’s internal control over financial
reporting as of December 31, 2009 has been audited by Perry-Smith LLP,
independent registered public accounting firm, as stated in their report, which
is included in Part II, Item 8 of this Form 10-K on pages F-2 and
F-3.





Changes in Internal Control
Over Financial Reporting.  There were no significant changes
(including corrective actions with regard to significant deficiencies or
material weaknesses) in our internal controls over financial reporting that
occurred during the fourth quarter of fiscal 2009 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.







Item
9B.  Other Information





None.








41





PART
III




Item
10.  Directors and Executive Officers of the Registrant





The
information required by this Item is incorporated by reference to the section
entitled “Election of Directors” in the Company’s definitive proxy statement to
be filed with the SEC.




Item
11.  Executive Compensation





The
information required by this Item is incorporated by reference to the section
entitled “Executive Compensation” in the Company’s definitive proxy statement to
be filed with the SEC.




Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters





The
information required by this Item is incorporated by reference to the section
entitled “Security Ownership of Certain Beneficial Owners and Management” in the
Company’s definitive proxy statement to be filed with the SEC.




Item
13.  Certain Relationships and Related Transactions





The
information required by this Item is incorporated by reference to the section
entitled “Certain Relationships and Related Transactions” in the Company’s
definitive proxy statement to be filed with the SEC.





Item
14.  Principal Accountant Fees and Services





The
information required by this Item is incorporated by reference to the section
entitled “Principal Accounting Fees and Services” in the Company’s definitive
proxy statement to be filed with the SEC.







42





PART
IV







Item
15.  Exhibits and Financial Statement Schedules





(a)  Documents
Filed





1.
            Financial
      Statements.  The following Consolidated Financial
      Statements of the Company and Auditors’ Report are filed as part of this
      Annual Report on Form 10-K:





·
            Report
      of Independent Registered Public Accounting
Firm





·
            Report
      of Independent Registered Public Accounting Firm on Internal Control over
      Financial Reporting





·
            Consolidated
      Balance Sheets, December 31, 2009 and
2008





·
            Consolidated
      Statements of Operations for Each of the Three Years in the Period Ended
      December 31, 2009





·
            Consolidated
      Statements of Shareholders’ Equity and Comprehensive Loss for Each of the
      Three Years in the Period Ended December 31,
  2009





·
            Consolidated
      Statements of Cash Flows for Each of the Three Years in the Period Ended
      December 31, 2009





·
            Notes
      to Consolidated Financial
Statements




2.
            Financial Statement
      Schedule.  Not
applicable.





3.
            Exhibits.  The
      information required by this item is set forth on the exhibit index that
      follows the signature page of this
report.







43





SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




ALTAIR
      NANOTECHNOLOGIES INC.By:
            /s/ Terry
      CopelandTerry CopelandPresident and Chief Executive OfficerDate:
      March 12, 2010









POWER
OF ATTORNEY AND ADDITIONAL SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the following
persons in the capacities and on the dates indicated have signed this
Report.  Each person whose signature to this Report appears below
hereby constitutes and appoints Terry Copeland and John Fallini, and each of
them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments to this Report, and any and all instruments or documents filed as
part of or in connection with this Report or the amendments thereto and each of
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or his substitutes, shall do or cause to be done by virtue
hereof.





Signature
            
            Title
            
            Date/s/ Terry
      Copeland
              Terry
      Copeland
            
            President,
      Chief Executive Officer (Principal Executive Officer) and
      Director
            
            March
      12, 2010/s/ JohnFallini
              John
      Fallini
            
            Chief
      Financial Officer and Corporate Secretary (Principal Financial and
      Accounting Officer)
            
            March
      12, 2010/s/ Jon N.
      Bengtson
              Jon
      N. Bengtson
            
            Director
            
            March
      12, 2010/s/ George E.
      Hartman
              George
      E. Hartman
            
            Director
            
            March
      12, 2010/s/ Hossein Asrar
      Haghighi
              Hossein
      Asrar Haghighi
            
            Director
            
            March
      12, 2010/s/ Pierre
      Lortie
              Pierre
      Lortie
            
            Director
            
            March
      12, 2010/s/ Robert G. van
      Schoonenberg
              Robert
      G. van Schoonenberg
            
            Director
            
            March
      12, 2010/s/ Alexander
      Lee
              Alexander
      Lee
            
            Director
            
            March
      12, 2010







44








Exhibit
Index





Exhibit
                No.
              
              Description
              
              Incorporated
      by Reference/
                Filed
      Herewith (and Sequential Page #)3.1
              
              Articles
      of Continuance
              
              Incorporated
      by reference to the Current Report on Form 8-K filed with the SEC on July
      18, 2002.**3.2
              
              Bylaws
              
              Incorporated
      by reference to the Amendment No. 1 to Annual Report on Form 10-K/A filed
      with the SEC on March 10, 2005. **4.1
              
              Form
      of Common Stock Certificate
              
              Filed
      herewith4.2
              
              Amended
      and Restated Shareholder Rights Plan dated
      October  15,  1999,  with Equity Transfer
      Services, Inc.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on November 19, 1999. **4.3
              
              Amendment
      No. 1 to Shareholders Rights Plan Agreement dated October 5, 2008, with
      Equity Transfer Services, Inc.
              
              Incorporated
      by reference to the Company's Current Report on Form 8-K filed with the
      SEC on October 6, 2008.4.4
              
              Form
      of Common Share Purchase Warrant re May 2009 Offering
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on May 22, 2009**10.1
              
              Altair
      International Inc. Stock Option Plan (1996)***
              
              Incorporated
      by reference to the Company’s Registration Statement on Form S-8, File No.
      333-33481 filed with the SEC on July 11, 199710.2
              
              1998
      Altair International Inc. Stock Option Plan***
              
              Incorporated
      by reference to the Company’s Definitive Proxy Statement on Form 14A filed
      with the SEC on May 12, 1998. **10.3
              
              Altair
      Nanotechnologies Inc. 2005 Stock Incentive Plan (Amended and
      Restated)***
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-K filed with the
      SEC on March 13, 2007.**10.4
              
              Standard
      Form of Stock Option Agreement under 2005 Stock Incentive
      Plan***
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-K filed with the
      SEC on March 13, 2007.**10.5
              
              Standard
      Form of Stock Option Agreement for Executives under 2005 Stock incentive
      Plan *
              
              Incorporated
      by reference to the Quarterly Report on Form 10-Q filed with the SEC on
      May 8, 2008. **10.6
              
              Standard
      Form of Restricted Stock Agreement under 2005 Stock Incentive
      Plan***
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-K filed with the
      SEC on March 13, 2007.**10.7
              
              Installment
      Note dated August 8, 2002 (re Edison Way property) in favor of BHP
      Minerals International, Inc.
              
              Incorporated
      by reference to the Company’s Amendment No. 1 to Registration Statement on
      Form S-2, File No. 333-102592, filed with the SEC on February 7,
      2003.
   45
  Exhibit
                No.
              
              Description
              
              Incorporated
      by Reference/
                Filed
      Herewith (and Sequential Page #)10.8
              
              Trust
      Deed dated August 8, 2002 (re Edison Way property) with BHP Minerals
      International, Inc.
              
              Incorporated
      by reference to the Company’s Amendment No. 1 to Registration Statement on
      Form S-2, File No. 333-102592, filed with the SEC on February 7,
      2003.10.9
              
              Flagship
      Business Accelerator Tenant Lease dated July 1, 2007 with the Flagship
      Enterprise Center, Inc.
              
              Incorporated
      by reference to the Company’s  Quarterly Report on Form 10-Q
      filed with the SEC August 9, 2007. **10.9.1
              
              Amendment
      to the Flagship Business Accelerator Tenant Lease dated March 1, 2008 with
      the Flagship Enterprise Center, Inc.
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q filed with the
      SEC on May 8, 2008.**10.10
              
              Letter
      agreement dated July 20, 2008 with Phoenix Motorcars, Inc.
              
              Incorporated
      by reference to the Company’s  Current Report on Form 8-K filed
      with the SEC on July 24, 2008. **10.11
              
              Contribution
      Agreement dated April 24, 2007 with the Sherwin-Williams Company and
      AlSher Titania LLC*
              
              Incorporated
      by reference to the Current Report on Form 8-K filed with the SEC on April
      30, 2007. **10.12
              
              License
      Agreement dated April 24, 2007 with the Sherwin-Williams Company and
      AlSher Titania LLC
              
              Incorporated
      by reference to the Current Report on Form 8-K filed with the SEC on April
      30, 2007. **10.13
              
              Contract
      dated January 29, 20008 with the office of Naval Research
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-K filed with the
      SEC on March 14, 2008**10.14
              
              Service
      Agreement dated February 11, 2008 with Melpar BVBP
              
              Incorporated
      by reference to the Company’s  Annual Report on Form 10-K filed
      with the SEC on  March 14, 2008.**10.15
              
              Mandate
      & Contractor ship Agreement dated February 11, 2008 with Rik
      Dobbelaere***
              
              Incorporated
      by reference to the Company’s  Annual Report on Form 10-K filed
      with the SEC on  March 14, 2008.**10.16
              
              Separation
      Agreement and Release of All Claims dated April 18, 2008 with Alan
      Gotcher***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on April 23, 2008.**10.17
              
              Employment
      Agreement dated June 26, 2008 with Terry Copeland***
              
              Incorporated
      by reference to the Company’s  Current Report on Form 8-K filed
      with the SEC on July 1, 2008.**10.18
              
              Employment
      Agreement dated March 10, 2008 with Jeffrey A. McKinney***
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-K filed with the
      SEC on March 14, 2008.**10.19
              
              Separation
      Agreement and Release of All Claims dated September 5, 2008 with Jeffrey
      McKinney***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on September 5, 2008.**
   46
  Exhibit
                No.
              
              Description
              
              Incorporated
      by Reference/
                Filed
      Herewith (and Sequential Page #)10.20
              
              Employment
      Agreement dated April 7, 2008 with John Fallini***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on April 9, 2008.**10.21
              
              Employment
      Agreement dated June 16, 2008 with C. Robert Pedraza***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on June 20, 2008.**10.22
              
              Employment
      Agreement dated November 24, 2008 with Dan Voelker***
              
              Incorporated
      by reference to the Current Report on Form 8-K filed with the SEC on
      November 28, 2008, File No. 001-12497**10.23
              
              2008
      Annual Incentive Bonus Plan***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on July 2, 2008.**10.24
              
              Registration
      Rights Agreement dated November 29, 2007 with Al Yousuf
LLC
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on November 30, 2007.**10.25.1
              
              Amendment
      No. 1 to Registration Rights Agreement with Al Yousuf, LLC dated as of
      September 30, 2008
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on October 6, 2008.**10.25.2
              
              Amendment
      No. 2 to Registration Rights Agreement with Al Yousuf, LLC dated August
      14, 2009
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on September 4, 2009.**10.26
              
              Stock
      Purchase and Settlement Agreement with Al Yousuf, LLC dated as of
      September 30, 2008
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on October 6, 2008.**10.27
              
              2009
      Annual Incentive Bonus Plan*  ***
              
              Incorporated
      by reference to the Quarterly Report on Form 10-Q filed with the SEC on
      May 8, 2008. **10.28
              
              Amended
      and Restated Agreement dated August 4, 2009 with Spectrum Pharmaceuticals,
      Inc. *
              
              Incorporated
      by reference to the Quarterly Report on Form 10-Q filed with the SEC on
      August 7, 2009. **10.29
              
              Product
      Purchase Agreement dated August 4, 2009 with Proterra LLC*
              
              Incorporated
      by reference to the Quarterly Report on Form 10-Q filed with the SEC on
      August 7, 2009. **10.30
              
              Employment
      Agreement dated December 9, 2009 with Stephen Balogh***
              
              Incorporated
      by reference to the Company’s  Current Report on Form 8-K filed
      with the SEC on December 14, 2009.**10.31
              
              Contract
      with the U.S. Army RDECOM Acquisition Center dated September 3,
      2009.
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on October 13, 2009.**10.32
              
              Employment
      Agreement dated September 4, 2009 with Bruce Sabacky***
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on September 10, 2009.**
    47
  Exhibit
                No.
              
              Description
              
              Incorporated
      by Reference/
                Filed
      Herewith (and Sequential Page #)10.33
              
              Placement
      Agent Agreement with Lazard Capital Markets, LLC dated May 22,
      2009
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed with the
      SEC on May 22, 2009.**10.34
              
              Form
      of Subscription Agreement re May 2009 Offering
              
              Incorporated
      by reference to the Company's Current Report on Form 8-K filed with the
      SEC on May 22, 2009. **10.35
              
              Contract
      dated May 22, 2009 with the Office of Naval Research
              
              Incorporated
      by reference to the Company's Current Report on Form 8-K filed with the
      SEC on May 29, 2009.**21
              
              List
      of Subsidiaries
              
              Incorporated
      by reference from Item 1 of this report.23.1
              
              Consent
      of Perry-Smith LLP
              
              Filed
      herewith.24
              
              Powers
      of Attorney
              
              Included
      in the Signature Page hereof.31.1
              
              Rule
      13-14(a)/15d-14a Certification of Chief Executive Officer
              
              Filed
      herewith31.2
              
              Rule
      13-14(a)/15d-15a Certification of Chief Financial Officer
              
              Filed
      herewith32.1
              
              Section
      1350 Certification of Chief Executive Officer
              
              Filed
      herewith32.2
              
              Section
      1350 Certification of Chief Financial Officer
              
              Filed
      herewith





*Portions
of this Exhibit have been omitted pursuant to Rule 24b-2, are filed
separately with the SEC and are subject to a confidential treatment
request.





**
SEC File No.
1-12497.





***
Indicates management contract or compensatory plan or arrangement.





48




Altair Nanotechnologies
      Inc.
              and
      Subsidiaries
              
              Consolidated
      Financial Statements as of December 31, 2009 and 2008 and for Each of the
      Three Years in the Period Ended December 31, 2009 and Reports of the
      Independent Registered Public Accounting Firm











ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES







TABLE
OF CONTENTS


PageREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
              F-1REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
      FINANCIAL REPORTING
              
              F-2FINANCIAL
      STATEMENTS:Consolidated
      Balance Sheets, December 31, 2009 and 2008
              
              F-4Consolidated
      Statements of Operations for Each of the Three Years in the Period Ended
      December 31, 2009
              
              F-5Consolidated
      Statements of Stockholders’ Equity and Comprehensive Loss for Each of the
      Three Years  in the Period Ended December 31,
    2009
              
              F-6Consolidated
      Statements of Cash Flows for Each of the Three Years in the Period Ended
      December 31, 2009
              
              F-8Notes
      to Consolidated Financial Statements
              
              F-10











REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 The
Shareholders and Board of Directors
 Altair
Nanotechnologies, Inc.
  We
have audited the accompanying consolidated balance sheets of Altair
Nanotechnologies, Inc. and subsidiaries (the "Company") as of December 31, 2009
and 2008, and the related consolidated statements of operations, stockholders'
equity and comprehensive loss and cash flows for each of the three years in the
period ended December 31, 2009.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2009 and 2008, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
  We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company's internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 12,
2010 expressed an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
      Sacramento,
California
 March
12, 2010


F-1




REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING


The
Shareholders and Board of Directors
 Altair
Nanotechnologies, Inc.
 
 We have
audited Altair Nanotechnologies, Inc. and subsidiaries' (the "Company") internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal
Control—Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (the "COSO criteria").  The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management Report
on Internal Control Over Financial Reporting.  Our responsibility is
to express an opinion on the Company's internal control over financial reporting
based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.  Our
audit also included performing such other procedures as we considered necessary
in the circumstances.  We believe that our audit provides a reasonable
basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America.  A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.


F-2


REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                    ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING(Continued)


In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the COSO
criteria.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders' equity and comprehensive loss and cash
flows for each of the three years in the period ended December 31, 2009 of
the Company and our report dated March 12, 2010 expressed an unqualified
opinion.
 
 
 
 
 
 Sacramento,
California
 March 12,
2010


F-3







PART
      I - FINANCIAL INFORMATIONItem
      1. Financial StatementsALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)December
      31,
            
            
            December
      31,2009
            
            
            2008ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            18,122
            
            
            $
            28,088Investment
      in available for sale securities
            
            
            505
            
            
            
            -Accounts
      receivable, net
            
            
            683
            
            
            
            955Product
      inventories, net
            
            
            5,043
            
            
            
            98Prepaid
      expenses and other current assets
            
            
            1,820
            
            
            
            572Total
      current assets
            
            
            26,173
            
            
            
            29,713Investment
      in available for sale securities
            
            
            2,587
            
            
            
            3,174Property,
      plant and equipment, net held and used
            
            
            8,670
            
            
            
            11,637Property,
      plant and equipment, net held and not used
            
            
            2,211
            
            
            
            2,377Patents,
      net
            
            
            551
            
            
            
            636Other
      assets
            
            
            125
            
            
            
            534Total
      Assets
            
            $
            40,317
            
            
            $
            48,071LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesTrade
      accounts payable
            
            $
            1,783
            
            
            $
            749Accrued
      salaries and benefits
            
            
            625
            
            
            
            1,361Accrued
      warranty
            
            
            79
            
            
            
            36Accrued
      liabilities
            
            
            758
            
            
            
            765Note
      payable, current portion
            
            
            794
            
            
            
            732Capital
      lease obligation – current portion
            
            
            16
            
            
            
            4Total
      current liabilities
            
            
            4,055
            
            
            
            3,647Capital
      lease obligation, less current portion
            
            
            37
            
            
            
            608Total
      Liabilities
            
            
            4,092
            
            
            
            4,255Stockholders'
      EquityCommon
      stock, no par value, unlimited shares authorized;105,400,728
      and 93,143,271 shares issued andoutstanding
      at December 31, 2009 and December 31, 2008
            
            
            188,515
            
            
            
            180,105Additional
      paid in capital
            
            
            10,933
            
            
            
            5,378Accumulated
      deficit
            
            
            (162,204
            )
            
            
            (140,892
            )Accumulated
      other comprehensive loss
            
            
            (1,560
            )
            
            
            (1,873
            )Total
      Altair Nanotechnologies Inc.’s Stockholders' equity
            
            
            35,684
            
            
            
            42,718Noncontrolling
      Interest in Subsidiary
            
            
            541
            
            
            
            1,098Total
      Liabilities and Stockholders' Equity
            
            $
            40,317
            
            
            $
            48,071See
      notes to the consolidated financial statements.







F-4




ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)  Year
      Ended December 31,2009
              
              
              2008
              
              
              2007RevenuesProduct
      sales
              
              $
              945
              
              
              $
              757
              
              
              $
              4,058Less:
      Sales returns
              
              
              (184
              )
              
              
              -
              
              
              
              -License
      fees
              
              
              750
              
              
              
              -
              
              
              
              -Commercial
      collaborations
              
              
              1,410
              
              
              
              2,007
              
              
              
              2,910Contracts
      and grants
              
              
              1,450
              
              
              
              2,962
              
              
              
              2,140Total
      revenues
              
              
              4,371
              
              
              
              5,726
              
              
              
              9,108Operating
      ExpensesCost
      of sales – product
              
              
              954
              
              
              
              183
              
              
              
              5,164Cost
      of sales – warranty and inventory reserves
              
              
              198
              
              
              
              (2,865
              )
              
              
              6,843Research
      and development
              
              
              10,323
              
              
              
              16,908
              
              
              
              15,444Sales
      and marketing
              
              
              2,819
              
              
              
              2,950
              
              
              
              2,001Notes
      receivable extinguishment
              
              
              -
              
              
              
              1,722
              
              
              
              -Settlement
      and release
              
              
              -
              
              
              
              3,605
              
              
              
              -Asset
      impairment
              
              
              1,308
              
              
              
              -
              
              
              
              -General
      and administrative
              
              
              8,943
              
              
              
              10,590
              
              
              
              10,770Depreciation
      and amortization
              
              
              2,687
              
              
              
              2,759
              
              
              
              1,954Total
      operating expenses
              
              
              27,232
              
              
              
              35,852
              
              
              
              42,176Loss
      from Operations
              
              
              (22,861
              )
              
              
              (30,126
              )
              
              
              (33,068
              )Other
      Income (Expense)Interest
      expense
              
              
              (107
              )
              
              
              (97
              )
              
              
              (134
              )Interest
      income
              
              
              188
              
              
              
              982
              
              
              
              1,101Realized
      gain/(loss) on investment
              
              
              851
              
              
              
              (89
              )
              
              
              -Loss
      on foreign exchange
              
              
              (2
              )
              
              
              (10
              )
              
              
              (1
              )Total
      other income, net
              
              
              930
              
              
              
              786
              
              
              
              966Net
      Loss
              
              
              (21,931
              )
              
              
              (29,340
              )
              
              
              (32,102
              )Less:  Net
      loss attributable to non-controlling interest
              
              
              619
              
              
              
              272
              
              
              
              631Net
      Loss Attributable to Altair Nanotechnologies Inc.
              
              $
              (21,312
              )
              
              $
              (29,068
              )
              
              $
              (31,471
              )Loss
      per common share - Basic and diluted
              
              $
              (0.21
              )
              
              $
              (0.34
              )
              
              $
              (0.45
              )Weighted
      average shares - Basic and diluted
              
              
              100,177,727
              
              
              
              85,903,712
              
              
              
              71,008,505See
      notes to the consolidated financial statements.








F-5








ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
      LOSS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)




Altairnano, Inc.
      Shareholders
              
              
              Noncontrolling Interest in
      SubsidiaryAccumulated
              
              
              
              
              
              
              
              
              AccumulatedAdditional
              
              
              
              
              
              Other
              
              
              
              
              
              Interest
              
              
              OtherCommon Stock
              
              
              Paid
      In
              
              
              Accumulated
              
              
              Comprehensive
              
              
              
              
              
              In
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Gain (Loss)
              
              
              Subtotal
              
              
              Subsidiary
              
              
              Gain
      (Loss)
              
              
              Subtotal
              
              
              TotalBalance,
      December 31, 2006
              
              
              69,079,270
              
              
              $
              115,990
              
              
              $
              2,002
              
              
              $
              (80,353
              )
              
              $
              182
              
              
              $
              37,821
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              37,821Contributions
      from non-controlling interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,000
              
              
              
              
              
              
              
              2,000
              
              
              
              2,000Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (31,471
              )
              
              
              -
              
              
              
              (31,471
              )
              
              
              (631
              )
              
              
              -
              
              
              
              (631
              )
              
              
              (32,102
              )Other
      comprehensive loss net of taxes of $0
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (667
              )
              
              
              (667
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (667
              )Comprehensive
      loss:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (32,138
              )
              
              
              
              
              
              
              
              
              
              
              (631
              )
              
              
              (32,769
              )Share-based
      compensation
              
              
              -
              
              
              
              396
              
              
              
              3,488
              
              
              
              -
              
              
              
              -
              
              
              
              3,884
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,884Exercise
      of stock options
              
              
              280,914
              
              
              
              626
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              626
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              626Exercise
      of warrants
              
              
              2,314,189
              
              
              
              6,249
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,249
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,249Issuance
      of restricted stock
              
              
              69,909
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Common
      stock issued, net ofissuance costs of $2,505
              
              
              12,324,095
              
              
              
              40,519
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,519
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              40,519Balance,
      December 31, 2007
              
              
              84,068,377
              
              
              $
              163,780
              
              
              $
              5,490
              
              
              $
              (111,824
              )
              
              $
              (485
              )
              
              $
              56,961
              
              
              $
              1,369
              
              
              $
              -
              
              
              $
              1,369
              
              
              $
              58,330Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (29,068
              )
              
              
              -
              
              
              
              (29,068
              )
              
              
              (271
              )
              
              
              -
              
              
              
              (271
              )
              
              
              (29,339
              )Other
      comprehensive loss net of taxes of $0
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,388
              )
              
              
              (1,388
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,388
              )Comprehensive
      loss:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (30,456
              )
              
              
              
              
              
              
              
              
              
              
              (271
              )
              
              
              (30,727
              )Share-based
      compensation
              
              
              -
              
              
              
              1,263
              
              
              
              (112
              )
              
              
              -
              
              
              
              -
              
              
              
              1,151
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,151Exercise
      of stock options
              
              
              339,211
              
              
              
              528
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              528
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              528Exercise
      of warrants
              
              
              400,224
              
              
              
              752
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              752
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              752Issuance
      of restricted stock
              
              
              141,746
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Recovery
      of short swing profits
              
              
              
              
              
              
              177
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              177
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              177Common
      stock issued
              
              
              8,193,713
              
              
              
              13,605
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,605
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,605Balance,
      December 31, 2008
              
              
              93,143,271
              
              
              $
              180,105
              
              
              $
              5,378
              
              
              $
              (140,892
              )
              
              $
              (1,873
              )
              
              $
              42,718
              
              
              $
              1,098
              
              
              $
              -
              
              
              $
              1,098
              
              
              $
              43,816


(continued)




F-6





ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
      LOSS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)(Continued)




Altairnano,
      Inc. Shareholders
            
            
            Noncontrolling
      Interest in SubsidiaryAccumulated
            
            
            
            
            
            
            
            
            AccumulatedAdditional
            
            
            
            
            
            Other
            
            
            
            
            
            Interest
            
            
            OtherCommon
      Stock
            
            
            Paid
      In
            
            
            Accumulated
            
            
            Comprehensive
            
            
            
            
            
            In
            
            
            ComprehensiveShares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            Gain
      (Loss)
            
            
            Subtotal
            
            
            Subsidiary
            
            
            Gain
      (Loss)
            
            
            Subtotal
            
            
            TotalBalance,
      December 31, 2008
            
            
            93,143,271
            
            
            $
            180,105
            
            
            $
            5,378
            
            
            $
            (140,892
            )
            
            $
            (1,873
            )
            
            $
            42,718
            
            
            $
            1,098
            
            
            $
            -
            
            
            $
            1,098
            
            
            $
            43,816Contributions
      from non-controlling interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            62
            
            
            
            
            
            
            
            62
            
            
            
            62Comprehensive
      loss:Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (21,312
            )
            
            
            -
            
            
            
            (21,312
            )
            
            
            (619
            )
            
            
            -
            
            
            
            (619
            )
            
            
            (21,931
            )Other
      comprehensiveloss net of taxes of $0
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            313
            
            
            
            313
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            313Comprehensive
      loss:
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (20,999
            )
            
            
            
            
            
            
            
            
            
            
            (619
            )
            
            
            (21,618
            )Share-based
      compensation
            
            
            
            
            
            
            221
            
            
            
            931
            
            
            
            -
            
            
            
            -
            
            
            
            1,152
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,152Issuance
      of restricted stock
            
            
            262,988Issuance
      of common stock, netof
      $1,220,735 issuance costs
            
            
            11,994,469
            
            
            
            8,189
            
            
            
            4,624
            
            
            
            -
            
            
            
            -
            
            
            
            12,813
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,813Balance,
      December 31, 2009
            
            
            105,400,728
            
            
            $
            188,515
            
            
            $
            10,933
            
            
            $
            (162,204
            )
            
            $
            (1,560
            )
            
            $
            35,684
            
            
            $
            541
            
            
            $
            -
            
            
            $
            541
            
            
            $
            36,225





See notes
to the consolidated financial statements.







F-7




ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)  Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (21,931
              )
              
              $
              (29,340
              )
              
              $
              (32,102
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
              
              
              2,687
              
              
              
              2,759
              
              
              
              1,954Securities
      received in payment of license fees
              
              
              (750
              )
              
              
              -
              
              
              
              (13
              )Share-based
      compensation
              
              
              1,152
              
              
              
              1,151
              
              
              
              3,885Loss
      on disposal of fixed assets
              
              
              17
              
              
              
              382
              
              
              
              -Gain
      on sale of securities
              
              
              (868
              )
              
              
              -
              
              
              
              -Settlement
      and release
              
              
              -
              
              
              
              3,605
              
              
              
              -Impairment
      of investment
              
              
              -
              
              
              
              89
              
              
              
              -Asset
      impairment
              
              
              1,308
              
              
              
              -
              
              
              
              -Asset
      deposit
              
              
              375
              
              
              
              -
              
              
              
              -Accrued
      interest on notes receivable
              
              
              -
              
              
              
              (83
              )
              
              
              (89
              )Changes
      in operating assets and liabilities:Accounts
      receivable, net
              
              
              276
              
              
              
              363
              
              
              
              (188
              )Accounts
      receivable from related party, net
              
              
              (4
              )
              
              
              -
              
              
              
              495Notes
      receivable from related party, net
              
              
              -
              
              
              
              1,722
              
              
              
              (1,219
              )Product
      inventories
              
              
              (4,896
              )
              
              
              (98
              )
              
              
              231Prepaid
      expenses and other current assets
              
              
              (1,247
              )
              
              
              226
              
              
              
              (387
              )Other
      assets
              
              
              33
              
              
              
              -
              
              
              
              (102
              )Trade
      accounts payable
              
              
              958
              
              
              
              (7,075
              )
              
              
              5,098Accrued
      salaries and benefits
              
              
              (736
              )
              
              
              (878
              )
              
              
              1,399Accrued
      warranty
              
              
              43
              
              
              
              (2,880
              )
              
              
              2,916Accrued
      liabilities
              
              
              (6
              )
              
              
              5
              
              
              
              233Net
      cash used in operating activities
              
              
              (23,589
              )
              
              
              (30,052
              )
              
              
              (17,889
              )Cash
      flows from investing activities:Sale
      of available for sale securities
              
              
              2,006
              
              
              
              -
              
              
              
              33,675Purchase
      of available for sale securities
              
              
              -
              
              
              
              -
              
              
              
              (23,050
              )Interest
      on available for sale securities
              
              
              6
              
              
              
              4
              
              
              
              4Purchase
      of property and equipment
              
              
              (768
              )
              
              
              (3,046
              )
              
              
              (4,066
              )Proceeds
      from sale of assets
              
              
              -
              
              
              
              35
              
              
              
              -Net
      cash provided by (used in) investing activities
              
              
              1,244
              
              
              
              (3,007
              )
              
              
              6,563


(continued)





F-8




ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Expressed
      in thousands of United States Dollars, except shares and per share
      amounts)Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Cash
      flows from financing activities:Issuance
      of common shares for cash, net ofissuance costs
              
              $
              12,813
              
              
              $
              10,000
              
              
              $
              40,519Proceeds
      from exercise of stock options
              
              
              -
              
              
              
              528
              
              
              
              626Proceeds
      from exercise of warrants
              
              
              -
              
              
              
              752
              
              
              
              6,248Proceeds
      from recovery of short swing profits
              
              
              -
              
              
              
              177
              
              
              
              -Proceeds
      from notes payable
              
              
              387
              
              
              
              345
              
              
              
              -Payment
      of notes payable
              
              
              (926
              )
              
              
              (813
              )
              
              
              (600
              )Proceeds
      from long-term debt
              
              
              58
              
              
              
              12
              
              
              
              -Repayment
      of long-term debt
              
              
              (15
              )
              
              
              -
              
              
              
              -Contributions
      from non-controlling interest
              
              
              62
              
              
              
              -
              
              
              
              2,000Net
      cash provided by financing activities
              
              
              12,379
              
              
              
              11,001
              
              
              
              48,793Net
      (decrease) increase in cash and cash equivalents
              
              
              (9,966
              )
              
              
              (22,058
              )
              
              
              37,467Cash
      and cash equivalents, beginning of period
              
              
              28,088
              
              
              
              50,146
              
              
              
              12,679Cash
      and cash equivalents, end of period
              
              $
              18,122
              
              
              $
              28,088
              
              
              $
              50,146Supplemental
      disclosures:Cash
      paid for interest
              
              $
              97
              
              
              $
              133
              
              
              $
              168Cash
      paid for income taxes
              
              None
              
              
              None
              
              
              None
  Supplemental
      schedule of non-cash activities (in 000s):For
      the year ended December 31, 2009:-
      We recognized an impairment on AlSher Titania LLC fixed assets of
      $1,308.-
      We recognized a realized gain of $868 on the sale of the Spectrum
      Pharmaceuticals stock.-
      We received stock valued at $750 in payment of license from Spectrum
      Pharmaceuticals.-
      We issued 382,115 shares of restricted stock to directors with a fair
      value of $397 for which no cash will be received.-
      We had an unrealized loss on available for sale securities of
      $468.-
      We made equipment purchases of $75 which are included in trade accounts
      payable at December 31, 2009.For
      the year ended December 31, 2008:-
      We issued 2,117,647 shares of stock as a settlement and release of all
      known claims to Al Yousuf, LLC having a fair value of $3,605 for which no
      cash will be received.-
      We had an unrealized loss on available for sale securities of $1,387.-
      We issued 141,746 shares of restricted stock to employees and directors
      having a fair value of approximately $303 for which
      no cash will be received.-
      We made equipment purchases of $10 which are included in trade accounts
      payable at December 31, 2008.For
      the year ended December 31, 2007:- We
      made equipment purchases of $1,183 which are included in trade accounts
      payable at December 31, 2007.- We
      had an unrealized loss on available for sale securities of
      $667.-
      We issued 69,909 shares of restricted stock to employees and directors
      having a fair value of approximately $237 for which no cash will be
      received.-
      We received 1,000,000 shares of common stock valued at $107 in connection
      with the Phoenix Motorcar, Inc. January 2007 purchase agreement. The
      investment was recorded with an offset to deferred
  revenue.See
      notes to the consolidated financial
statements.








F-9





ALTAIR
NANOTECHNOLOGIES INC. AND SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
 (Expressed
in United States Dollars)


1.
            DESCRIPTION
      OF BUSINESS AND BASIS OF
PRESENTATION




Description of Business — We
are a Canadian company, with principal assets and operations in the United
States of America, whose primary business is developing and commercializing nano
lithium titanate batteries.  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 primary
facilities are located in Reno, Nevada, of approximately 85,000 square feet, and
in Anderson, Indiana, of approximately 70,000 square feet.





Principles of Consolidation —The consolidated financial statements include the accounts of Altair
Nanotechnologies Inc. and our subsidiaries which include (1) Altair US Holdings,
Inc., (2) Mineral Recovery Systems, Inc. (“MRS”), (3) Fine Gold Recovery
Systems, Inc. (“FGRS”) dissolved on December 30, 2008, and (4) Altairnano, Inc.
(“ANI”), (collectively referred to as the “Company”), all of which are 100%
owned and (5) AlSher Titania LLC, which is 70% owned by ANI. All of the
subsidiaries are incorporated in the United States of America. Inter-company
transactions and balances have been eliminated in consolidation.





Basis of Presentation —The
accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements for the years ended December 31, 2009, 2008 and 2007, we
incurred net losses of $21.3 million, $29.1 million, and $31.5 million,
respectively.  At December 31, 2009 and 2008, we had stockholders’
equity of $35.7 million and $42.7 million, respectively.





The
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,
to develop commercially viable products and processes, and ultimately to
establish profitable operations.  We have financed operations through
operating revenues and through the issuance of equity securities (common shares,
convertible debentures, stock options and warrants), and debt (term notes).
Until we are able to generate positive operating cash flows, additional funds
will be required to support operations. We believe that current working capital,
cash receipts from anticipated sales and funding through additional sales of
common stock will be sufficient to enable us to continue as a going concern
through 2010.






F-10





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Use of Estimates —The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires that we make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.


Cash and Cash Equivalents—Cash and cash
equivalents consist principally of bank deposits and institutional money market
funds.  Short-term investments that are highly liquid and have
insignificant interest rate risk and maturities of 90 days or less are
classified as cash and cash equivalents.  Investments that do not meet
the definition of cash equivalents are classified as held-to-maturity or
available-for-sale.





Our cash
balances are maintained in bank accounts that are insured by the Federal Deposit
Insurance Corporation (“FDIC”) and Canada Deposit Insurance Corporation (“CDIC”)
up to a maximum of US $250,000 and CN $100,000, respectively, per
depositor.  At December 31, 2008 and 2009 we had $969,000 and
$1,192,000, respectively in excess of insurance limits in bank accounts insured
by the FDIC or CDIC.





Investment in Available for Sale
Securities  —Available for sale securities (long-term)includes publicly-traded
equity investments which are classified as available for sale and recorded at
market value using the specific identification method.  Unrealized
gains and losses (except for other than temporary impairments) are recorded in
other comprehensive income (loss), which is reported as a component of
stockholders’ equity.  We evaluate our investments on a quarterly
basis to determine if a potential other than temporary impairment
exists.  Our evaluation considers the investees’ specific business
conditions as well as general industry and market conditions.





Accounts Receivable —Accounts
receivable consists of amounts due from customers for services and product
sales, net of an allowance for losses.  We determine the allowance for
doubtful accounts by reviewing each customer account and specifically
identifying any potential for loss.  The allowance for doubtful
accounts at December 31, 2009 was $161,000 and as of December 31, 2008 the
allowance was $84,000.  Actual losses related to collection of
accounts receivable for the years ended December 31, 2009 and 2008 were
insignificant.





Inventory –We value our
inventories generally at the lower of cost (first-in, first-out method) or
market.  We employ a full absorption procedure using standard cost
techniques.  The standards are customarily reviewed and adjusted every
three months.  Overhead rates are recorded to inventory based on
normal capacity.  Any idle facility costs or excessive spoilage are
recorded as current period charges.  As of December 31, 2009 we
recorded a $71,000 inventory valuation allowance, $45,000 of this amount was for
a quality issue we experienced with our cell supplier.  We recorded a
2% inventory impairment reserve on certain cells that were not manufactured to
our exact specifications.  As a result, approximately .5% of these
cells are non-functional to date.  As of December 31, 2008 we had
$98,000 of total inventory and zero inventory allowance recorded.





Property, Plant and Equipment —Property, plant and equipment held and used are stated at cost less
accumulated depreciation. Depreciation is recorded using the straight-line
method over the following useful lives:





Furniture
      and office equipment
            
            3–7
      yearsVehicles
            
            5
      yearsNanoparticle
      production equipment
            
            5–10
      yearsBuilding
      and improvements
            
            30
      years





We have
property, plant and equipment that is held and not used stated at cost less
accumulated depreciation.  Depreciation is recorded using the
straight-line method over the useful lives established for property, plant and
equipment held and used.





Patents —Patents related to
the nanoparticle production technology are carried at cost and amortized on a
straight-line basis over their estimated useful lives, which range from 14 to 17
years.






F-11





Research and Development Expenditures
— The costs of materials, equipment, or facilities that are acquired or
constructed for a particular research and development project and that have no
alternative future uses (in other research and development projects or
otherwise) are expensed as research and development costs at the time the costs
are incurred.  Research and development expenditures related to
materials and equipment or facilities that are acquired or constructed for
research and development activities and that have alternative future uses (in
research and development projects or otherwise) are capitalized when acquired or
constructed.  Research and development expenditures, which include the cost
of materials consumed in research and development activities, salaries, wages
and other costs of personnel engaged in research and development, costs of
services performed by others for research and development on our behalf and
indirect costs are expensed as research and development costs when
incurred.





Foreign Currency Translation —Asset and liability accounts, which are originally recorded in the
appropriate local currencies, are translated into U.S. dollars at year-end
exchange rates. Revenue and expense accounts are translated at the average
exchange rates for the period. Transaction gains and losses are included in the
accompanying consolidated statements of operations. Substantially all of our
assets are located in the United States of America.





Stock-Based Compensation —We
measure the cost of services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.  That
cost is recognized over the period during which services are provided in
exchange for the award, known as the requisite service period (usually the
vesting period).





Long-Lived Assets —We
evaluate the carrying value of long-term assets, including patents, when events
or circumstance indicate the existence of a possible impairment, based on
projected undiscounted cash flows, and recognize impairment when such cash flows
will be less than the carrying values. Measurement of the amounts of
impairments, if any, is based upon the difference between carrying value and
fair value. 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 continuing technology rights
protection.  An asset impairment of $1.3 million in 2009 was recorded
for AlSher Titania LLC assets, as management determined the carrying value of
these assets to be greater than their projected future undiscounted cash
flows.  Sherwin-Williams is seeking outside financing to continue this
business.  We evaluated the different possibilities of outcome for
AlSher Titania LLC as of December 31, 2009, and then determined their estimated
fair value based on the most likely scenario of this business moving
forward.





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.  Our revenues are derived from license
fees, product sales, commercial collaborations and contracts and grants. 
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 delivery of products is deferred until the
performance of the service is complete or the product is
shipped.  Upfront payments received in connection with certain rights
granted in contractual arrangements are deferred and amortized over the related
time period over which the benefits are received.  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.






F-12





Accrued Warranty— We
provide a limited warranty for battery packs and energy storage systems,
generally for three years from purchase date.  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.





Non-controlling Interest—In
April 2007, The Sherwin-Williams Company (“Sherwin”) entered into an agreement
with us to form AlSher Titania LLC (“AlSher”), a Delaware limited liability
company.  AlSher is a joint venture combining certain technologies of
ours and Sherwin 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 Sherwin, AlSher, and us, we contributed to AlSher an exclusive
license to use our technology (including our hydrochloride pigment process) for
the production of titanium dioxide pigment and other titanium containing
materials (other than battery or nanoelectrode materials) and certain pilot
plant assets with a net book value of $3,110,000.  We received no
consideration for the license granted to AlSher other than our ownership
interest in AlSher.  Sherwin agreed to contribute to AlSher cash and a
license agreement related to a technology for the manufacture of titanium
dioxide using the digestion of ilmenite in hydrochloric acid.  As a
condition to enter into the second phase of the joint venture, we agreed to
complete the pigment pilot processing plant and related development activities
by January 2008.  The 100 ton pigment pilot processing plant was
commissioned in February 2008 and the costs associated with this effort were
partially reimbursed by AlSher.  We contribute any work in process and
fixed assets associated with completion of the pigment pilot processing plant to
the AlSher joint venture.  For each reporting period, AlSher is
consolidated with our subsidiaries because we have a controlling interest in
AlSher and any inter-company transactions are eliminated (refer to Note 1 –
Basis of Preparation of Consolidated Financial Statements).  The
non-controlling shareholder’s interest in the net assets and net income or loss
of AlSher are reported as non-controlling interest in subsidiary on the
condensed consolidated balance sheet and as non-controlling interest share in
the condensed consolidated statement of operations, respectively.





Although
we are currently continuing to work with Sherwin to identify and qualify an
interested third party to purchase our interest in AlSher, these assets have
been idled for all of 2009.  In assessing potential outcomes it is our
judgment that the most likely outcome is for the AlSher fixed assets to be of
limited value to a potential buyer, if one is found.  We would be able
to use some of these assets in its Power and Energy Group, and the rest would be
sold for scrap.  Accordingly, we determined that these assets were
impaired, and a $1.3 million impairment loss is reflected in our December 31,
2009 financial statements to reduce the AlSher assets net book value to
$417,574.






F-13





Overhead Allocation—
Facilities overhead, which is comprised primarily of occupancy and related
expenses, and fringe benefit expenses are initially recorded in general and
administrative expenses and then allocated to research and development and
product inventories based on relative labor costs.





Net Loss per Common Share —
Basic loss per share is computed using the weighted average number of common
shares outstanding during the period.  Diluted loss per share is computed
using the weighted average number of common and potentially dilutive shares
outstanding during the period.  Potentially dilutive shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants.  Potentially dilutive shares are excluded from the computation if
their effect is anti-dilutive.  We had a net loss for all periods presented
herein; therefore, none of the stock options and warrants outstanding during
each of the periods presented, as discussed in Notes 11 and 12, were included in
the computation of diluted loss per share as they were anti-dilutive. 
Stock options and warrants to purchase a total of 11,948,649 shares as of
December 31, 2009, 4,637,989 shares as of December 31, 2008 and 5,307,319 shares
as of December 31, 2007 were excluded from the calculations of diluted loss per
share for the years ended December 31, 2009, 2008 and 2007,
respectively.





Accumulated Other Comprehensive Loss
—Accumulated other comprehensive loss consists entirely of unrealized
loss on the investment in available for sale securities.  The
components of comprehensive loss for the years ended December 31, 2009, 2008 and
2007 are as follows:





In thousands of
      dollarsYear
      Ended December 31,2009
            
            
            2008
            
            
            2007Net
      loss
            
            $
            (21,931
            )
            
            $
            (29,340
            )
            
            $
            (32,102
            )Unrealized
      gain/(loss) on investment in available for sale
      securities, net of taxes of $0
            
            
            313
            
            
            
            (1,387
            )
            
            
            (667
            )Comprehensive
      loss
            
            
            (21,618
            )
            
            
            (30,727
            )
            
            
            (32,769
            )Comprehensive
      loss attributable to the non-controlling interest
            
            
            619
            
            
            
            271
            
            
            
            631Comprehensive
      loss attributable toAltair
      Nanotechnologies Inc.
            
            $
            (20,999
            )
            
            $
            (30,456
            )
            
            $
            (32,138
            )





Deferred Income Taxes—We use
the asset and liability approach for financial accounting and reporting for
income taxes.  Deferred income taxes are provided for temporary
differences on the basis of assets and liabilities as reported for financial
statement purposes and income tax purposes. We have recorded a valuation
allowance against all net deferred tax assets.  The valuation
allowance reduces deferred tax assets to an amount that represents management’s
best estimate of the amount of such deferred tax assets that more likely than
not will be realized.





Fair Value of Financial Instruments —Our financial instruments such as cash and cash equivalents and long-term
debt, when valued using market interest rates, would not be materially different
from the amounts presented in the consolidated financial
statements.








F-14




Recent
Accounting Pronouncements —





Adopted:





Codification





On
September 30, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These
changes establish the FASB Accounting Standards Codification TM(Codification) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead the FASB will issue Accounting Standards Updates. Accounting Standards
Updates will not be authoritative in their own right as they will only serve to
update the Codification. These changes and the Codification itself do not change
GAAP. Other than the manner in which new accounting guidance is referenced, the
adoption of these changes had no impact on the Financial
Statements.





Fair
Value Accounting





On
October 1, 2009, the Company adopted changes issued by the FASB to fair
value accounting for liabilities. These changes clarify existing guidance that
in circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using
either a valuation technique that uses a quoted price of either a similar
liability or a quoted price of an identical or similar liability when traded as
an asset, or another valuation technique that is consistent with the principles
of fair value measurements, such as an income approach (e.g., present value
technique). This guidance also states that both a quoted price in an active
market for the identical liability and a quoted price for the identical
liability when traded as an asset in an active market when no adjustments to the
quoted price of the asset are required are Level 1 fair value
measurements.





On
June 30, 2009, the Company adopted changes issued by the FASB to fair value
disclosures of financial instruments. These changes require a publicly traded
company to include disclosures about the fair value of its financial instruments
whenever it issues summarized financial information for interim reporting
periods. Such disclosures include the fair value of all financial instruments,
for which it is practicable to estimate that value, whether recognized or not
recognized in the statement of financial position; the related carrying amount
of these financial instruments; and the method(s) and significant assumptions
used to estimate the fair value. Other than the required disclosures, the
adoption of these changes had no impact on the Financial
Statements.





On
June 30, 2009, the Company adopted changes issued by the FASB to fair value
accounting. These changes provide additional guidance for estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased and includes guidance for identifying circumstances that
indicate a transaction is not orderly. This guidance is necessary to maintain
the overall objective of fair value measurements, which is that fair value is
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 under current market conditions. The adoption of these changes
had no impact on the Financial Statements.





On
June 30, 2009, the Company adopted changes issued by the FASB to the
recognition and presentation of other-than-temporary impairments. These changes
amend existing other-than-temporary impairment guidance for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities.
The adoption of these changes had no impact on the Financial
Statements.






F-15





On
January 1, 2009, the Company adopted changes issued by the FASB to fair
value accounting and reporting as it relates to nonfinancial assets and
nonfinancial liabilities that are not recognized or disclosed at fair value in
the financial statements on at least an annual basis. These changes define fair
value, establish a framework for measuring fair value in GAAP, and expand
disclosures about fair value measurements. This guidance applies to other GAAP
that require or permit fair value measurements and is to be applied
prospectively with limited exceptions. The adoption of these changes, as it
relates to nonfinancial assets and nonfinancial liabilities, had no impact on
the Financial Statements. These provisions will be applied at such time a fair
value measurement of a nonfinancial asset or nonfinancial liability is required,
which may result in a fair value that is materially different than would have
been calculated prior to the adoption of these changes.





Business
Combinations and Consolidation Accounting





On
January 1, 2009, the Company adopted changes issued by the FASB on
April 1, 2009 to accounting for business combinations. These changes apply
to all assets acquired and liabilities assumed in a business combination that
arise from certain contingencies and requires (i) an acquirer to recognize
at fair value, at the acquisition date, an asset acquired or liability assumed
in a business combination that arises from a contingency if the acquisition-date
fair value of that asset or liability can be determined during the measurement
period otherwise the asset or liability should be recognized at the acquisition
date if certain defined criteria are met; (ii) contingent consideration
arrangements of an acquiree assumed by the acquirer in a business combination be
recognized initially at fair value; (iii) subsequent measurements of assets
and liabilities arising from contingencies be based on a systematic and rational
method depending on their nature and contingent consideration arrangements be
measured subsequently; and (iv) disclosures of the amounts and measurement
basis of such assets and liabilities and the nature of the contingencies. The
adoption of these changes had no impact on the financial
statements.





On
January 1, 2009, the Company adopted changes issued by the FASB to
consolidation accounting and reporting. These changes establish accounting and
reporting for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance defines a non-controlling
interest, previously called a minority interest, as the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. These changes
require, among other items, that a non-controlling interest be included in the
consolidated statement of financial position within equity separate from the
parent’s equity; consolidated net income to be reported at amounts inclusive of
both the parent’s and non-controlling interest’s shares and, separately, the
amounts of consolidated net income attributable to the parent and
non-controlling interest all on the consolidated statement of operations; and if
a subsidiary is deconsolidated, any retained non-controlling equity investment
in the former subsidiary be measured at fair value and a gain or loss be
recognized in net income based on such fair value. Other than the change in
presentation of non-controlling interests, the adoption of these changes had no
impact on the Financial Statements. The presentation and disclosure requirements
of these changes were applied retrospectively.





On
January 1, 2009, the Company adopted changes issued by the FASB to
accounting for business combinations. While retaining the fundamental
requirements of accounting for business combinations, including that the
purchase method be used for all business combinations and for an acquirer to be
identified for each business combination, these changes define the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control instead of the date that the consideration is transferred.
These changes require an acquirer in a business combination, including business
combinations achieved in stages (step acquisition), to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquiree
at the acquisition date, measured at their fair values as of that date, with
limited exceptions. This guidance also requires the recognition of assets
acquired and liabilities assumed arising from certain contractual contingencies
as of the acquisition date, measured at their acquisition-date fair values.
Additionally, these changes require acquisition-related costs to be expensed in
the period in which the costs are incurred and the services are received instead
of including such costs as part of the acquisition price. The adoption of these
changes had no impact on the financial statements.






F-16





Other





On
June 30, 2009, the Company adopted changes issued by the FASB to accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued, otherwise known
as “subsequent events.” Specifically, these changes set forth the period after
the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements, and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. These
changes did not result in significant changes in the accounting and disclosure
for subsequent events.





On
January 1, 2009, the Company adopted changes issued by the FASB to
disclosures about derivative instruments and hedging activities. These changes
require enhanced disclosures about an entity’s derivative and hedging
activities, including (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for, and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. Other than the required disclosures, the adoption of these changes had no
impact on the Financial Statements.





On
January 1, 2009, the Company adopted changes issued by the FASB to
accounting for intangible assets. These changes amend the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset in order to improve the consistency
between the useful life of a recognized intangible asset outside of a business
combination and the period of expected cash flows used to measure the fair value
of an intangible asset in a business combination. The adoption of these changes
had no impact on the Financial Statements.





On
January 1, 2009, the Company adopted changes issued by the FASB to the
calculation of earnings per share. These changes state that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class
method for all periods presented. The adoption of these changes had no impact on
the financial statements.





Issued





In June
2009, the FASB issued changes to the accounting for variable interest entities.
These changes require an enterprise to perform an analysis to determine whether
the enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity;
to eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur such that holders of
the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that
most significantly impact the entity’s economic performance; and to require
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. These changes become effective for the Company on January 1, 2010.
Management has determined that the adoption of these changes will not have an
impact on the Financial Statements.






F-17





In June
2009, the FASB issued changes to the accounting for transfers of financial
assets. These changes remove the concept of a qualifying special-purpose entity
and remove the exception from the application of variable interest accounting to
variable interest entities that are qualifying special-purpose entities; limits
the circumstances in which a transferor derecognizes a portion or component of a
financial asset; defines a participating interest; requires a transferor to
recognize and initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosure; among others. These changes become effective for
the Company on January 1, 2010. Management has determined that the adoption
of these changes will not have an impact on the Financial
Statements.





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





3.
            INVESTMENT
      IN AVAILABLE FOR SALE SECURITIES





Investments
in available for sale securities (long-term) consists of auction rate corporate
notes and investments in common stock as discussed below.





The
auction rate corporate notes are long-term instruments with expiration dates
through 2017.  Through the third quarter of 2007, the interest was
settled and the rate reset every 7 to 28 days and historically these investments
were classified as short-term investments.  However, in the fourth
quarter of 2007 due to the reduction of liquidity in the auction rate market,
sell orders exceeded bid orders in that market, and the interest relating to
these investments was reset to a contractual rate of London Interbank Offering
Rate plus 50 basis points, which is not a market rate.  Based on this
change in the liquidity, these investments were evaluated to determine if there
was impairment at December 31, 2009.  Our evaluation included
consultation with our investment advisors, assessment of the strength of the
financial institution paying the interest on these investments, ratings of the
underlying collateral, and a probability-weighted discounted cash flow
analysis.  Based on this analysis, we estimate that at December 31,
2009 their fair value was $2.6 million, representing a cumulative unrealized
holding loss of approximately $1.3 million.  Based on our evaluation
of the credit ratings of the bonds underlying these auction rate corporate
notes, and our ability and intent to hold the investment for a reasonable period
of time sufficient for an expected recovery of fair value or until they mature
in 2017, we do not consider this investment to be other than temporarily
impaired at December 31, 2009.






F-18





Investment
in available for sale securities (short-term) consists of 113,809 shares of
Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock.  The shares
were received as partial compensation for the assignment of all rights and title
to RenaZorbTM and
RenalanTM.  Upon
receipt, the shares were recorded at their market value as measured by their
closing price on the NASDAQ Capital Market, resulting in a recorded basis of
$750,000.  At December 31, 2009, their fair value was $505,000
representing an unrealized holding loss of $245,000.  We evaluated
this investment to determine if there is an other-than-temporary impairment at
December 31, 2009.  Our evaluation took into consideration published
investment analysis, status of drug candidates in development, analysts’
recommendations, insider trading activity, and other factors.  Based
on our evaluation and our ability and intent to hold the investment for a
reasonable period of time sufficient for an expected recovery of fair value, we
do not consider this investment to be other than temporarily impaired at
December 31, 2009.





4.
            FAIR
      VALUE MEASUREMENTS




Our
financial instruments are accounted for at fair value on a recurring
basis.  Fair value is determined based on the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants.  A market or
observable inputs is the preferred source of values, followed by assumptions
based on hypothetical transactions in the absence of market inputs.





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





Level 1 
      -
            Quoted
      prices for identical instruments in active
  markets.





Level 2 
      -
            Quoted
      prices for similar instruments in active markets; quoted prices for
      identical or similar instruments in markets that are not active; and
      model-derived valuations whose inputs are observable or whose significant
      value drivers are observable.





Level 3 
      -
            Significant
      inputs to the valuation model are
unobservable.





The
following table summarizes the valuation of our assets by the fair value
hierarchy at December
31, 2009:





In thousands of
      dollarsAssets
      at fair value:
            
            Total
            
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3Auction
      rate corporate notes
            
            $
            2,587
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,587Spectrum
      Pharmaceuticals, Inc.
            
            
            505
            
            
            
            505
            
            
            
            -
            
            
            
            -Investment
      in available for sale securities
            
            $
            3,092
            
            
            $
            505
            
            
            $
            -
            
            
            $
            2,587





The
following table summarizes the valuation of our assets by the fair value
hierarchy at


December
31, 2008:





In thousands of
      dollarsAssets
      at fair value:
            
            Total
            
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3Auction
      rate corporate notes
            
            $
            2,816
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,816Spectrum
      Pharmaceuticals, Inc.
            
            
            358
            
            
            
            358
            
            
            
            -
            
            
            
            -Investment
      in available for sale securities
            
            $
            3,174
            
            
            $
            358
            
            
            $
            -
            
            
            $
            2,816





The
Spectrum Pharmaceuticals shares listed above at December 31, 2009 were acquired
from Spectrum on August 4, 2009 when we entered into an amended agreement with
Spectrum in which we transferred them the rights to RenalanTM in addition to RenaZorbTM.  A component of
this agreement was the payment to us of an additional 113,809 shares of Spectrum
common stock.






F-19





The
Spectrum Pharmaceuticals shares listed above at December 31, 2008 were received
as partial payment of licensing fees when Spectrum entered into a license
agreement with us for RenaZorbTM in January 2005 and in
payment of the first milestone achieved in June 2006.  The shares were
sold during the quarter ended September 30, 2009.





The
activity relating to assets valued on a recurring basis utilizing Level 3 inputs
for the twelve months ended December 31, 2009 and December 31, 2008 is
summarized below:





In thousands of
      dollarsFair
      Value Measurements Using Significant Unobservable Inputs (Level
      3)
            
            Auction
      rate
              corporate
      notes
              2009
            
            
            Auction
      rate
              corporate
      notes
              2008Beginning
      Balance, January 1
            
            $
            2,816
            
            
            $
            3,912Total
      gains or (losses) (realized/unrealized):Included
      in other comprehensive income
            
            
            (223
            )
            
            
            (1,092
            )Other
      adjustments
            
            
            (6
            )
            
            
            (4
            )Ending
      Balance, December 31
            
            $
            2,587
            
            
            $
            2,816





The
amount of total gains or losses for the twelve months ended December 31, 2009
and December 31, 2008 included in other comprehensive income in Stockholder’s
Equity attributable to the change in unrealized gain (loss) relating to assets
still held at the reporting date was $313,000 and $(1.4) million,
respectively.  A realized gain of $868,000 was recorded in 2009
associated with the sale of 240,000 shares of the Spectrum common stock that we
held.





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





5.
            PRODUCT
      INVENTORIES




Product
Inventories consisted of the following at December 31, 2009 and
2008:





In
      thousands of dollars2009
            
            
            2008Raw
      materials
            
            $
            3,933
            
            
            $
            98Work
      in process
            
            
            908
            
            
            
            -Finished
      goods
            
            
            202
            
            
            
            -Total
      product inventories
            
            $
            5,043
            
            
            $
            98





Once
products reach the commercialization stage, the related inventory is
recorded.  The costs associated with products undergoing research and
development are expensed as incurred.  As of December 31, 2008, raw
materials inventory relates to lithium titanate spinel (LTO).  As of
December 31, 2009 inventory relates to the production of batteries targeted at
the stationary power and electric bus markets.




As of
December 31, 2009 we recorded a $71,000 inventory valuation
allowance.






F-20





6.
            PROPERTY,
      PLANT AND EQUIPMENT




Property,
plant and equipment used in operations consisted of the following as of December
31, 2009 and 2008:





In thousands of
      dollars2009
            
            
            2008Machinery
      and equipment
            
            $
            9,116
            
            
            $
            11,062Building
      and improvements
            
            
            4,288
            
            
            
            5,084Furniture,
      office equipment & other
            
            
            1,251
            
            
            
            838Total
            
            
            14,655
            
            
            
            16,984Less
      accumulated depreciation
            
            
            (5,985
            )
            
            
            (5,347
            )Total
      property, plant and equipment
            
            $
            8,670
            
            
            $
            11,637





Property,
plant and equipment not used in operations consisted of the following as of
December 31, 2009 and 2008:





In thousands of
      dollars2009
            
            
            2008Machinery
      and equipment
            
            $
            5,642
            
            
            $
            3,385Building
      and improvements
            
            
            849
            
            
            
            -Furniture,
      office equipment & other
            
            
            49
            
            
            
            -Asset
      impairment
            
            
            (1,308
            )
            
            
            -Total
            
            
            5,232
            
            
            
            3,385Less
      accumulated depreciation
            
            
            (3,021
            )
            
            
            (1,008
            )Total
      property, plant and equipment
            
            $
            2,211
            
            
            $
            2,377





Depreciation
expense for the years ended December 31, 2009, 2008, and 2007 totaled $2.6
million, $2.7 million and $1.4 million, respectively.





Asset
impairment of $1.3 million in 2009 relates to the expense of adjusting AlSher
Titania, LLC assets to fair market value as of December 31,
2009.  These assets have been temporarily idled throughout 2009 as we
searched for an interested party to acquire our interests in AlSher Titania. We
are in negotiations with Sherwin-Williams with respect to their potential
acquisition of our interest in AlSher Titania LLC.  Regardless of the
closing of the sale of our interest in AlSher Titania, LLC to Sherwin-Williams,
should Sherwin-Williams be unable to find an acceptable third party investor,
AlSher Titania, LLC will in all likelihood be dissolved.  Certain of
its assets would be integrated into our Power and Energy Group and the balance
of the assets would be sold or scrapped.





The
remaining Performance Materials fixed assets of $609,000 at December 31, 2009
consist primarily of production assets such as mills, furnaces and laboratory
equipment suited for general use in our business.  These assets will
be re-purposed to the Power and Energy segment to support the anticipated growth
in sales volume within the next two years.  These assets are expected
to have in-service lives at least equal to their depreciation lives and with
reasonable ongoing maintenance are expected to continue functioning throughout
that period.  If we are unable to commercialize our battery products,
the value of these assets could be impaired, but we believe this outcome is
unlikely.  These assets were classified as held and used as of
December 31, 2008 and were classified as held and not used as of December 31,
2009.






F-21




Life
Sciences fixed assets with a net book value of $1.2 million as of December 31,
2009 are primarily building improvements that expand production and lab
areas.  It was determined that these improvements do add to the value
of our Reno, Nevada building and the space and will be required for the
expansion of  Power and Energy operations based on anticipated growth
in sales volume within the next two years.  Failure to commercialize
our battery products and a significant drop in real estate values could lead to
impairment of these assets.  We believe that the occurrence of such
events is unlikely.







7.
            PATENTS




Patents
consisted of the following at December 31, 2009 and 2008:





In thousands of
      dollars2009
            
            
            2008Patents
      and patent applications
            
            $
            1,518
            
            
            $
            1,518Less
      accumulated amortization
            
            
            (967
            )
            
            
            (882
            )Total
      patents and patent applications
            
            $
            551
            
            
            $
            636





All
patents are being amortized on a straight-line basis over their useful lives
with a weighted average amortization period of approximately 16.5 years.
Amortization expense was $84,000, for each of the years ended December 31, 2009,
2008 and 2007.  For each of the next five years, amortization expense
relating to intangibles is expected to be approximately $84,000 per
year.   We expense all costs, as incurred, associated with
renewing or extending our patents.




8.
            ACCRUED
      WARRANTY




Accrued
warranty consisted of the following at December 31, 2009 and 2008:





In thousands of
      dollars2009
            
            
            2008Beginning
      Balance – January 1,
            
            $
            36
            
            
            $
            2,916Additions
            
            
            43
            
            
            
            -Release
      of obligation
            
            
            -
            
            
            
            (2,880
            )Ending
      Balance – December 31,
            
            $
            79
            
            
            $
            36





We
provided a limited warranty for battery products sold under the January 2007
purchase and supply agreement with Phoenix and the July 2007 AES development
agreement.  The balance of $2.9 million as of January 1, 2008 reflects
a one-time adjustment of $2.9 million to record the provision for warranty
claims resulting from our decision to replace 47 of the Phoenix battery packs
manufactured in 2007 due to a potential module configuration problem that could
result in overheating.  The remaining balance of $36,000 reflects the
warranty recorded in connection with the AES prototype battery pack purchase in
2007.  Based on an agreement reached between Phoenix and Altair in
July 2008 (refer to Note 17. Related Party Transactions), the Phoenix warranty
liability was reversed.  The $43,000 added to the warranty reserve
during 2009 is associated with battery packs sold during 2009.








F-22





9.
            ACCRUED
      LIABILITIES




Accrued
liabilities consisted of the following at December 31, 2009 and
2008:





In thousands of
      dollars2009
            
            
            2008Accrued
      interest
            
            $
            38
            
            
            $
            77Accrued
      use tax
            
            
            6
            
            
            
            11Accrued
      property tax
            
            
            -
            
            
            
            44Accrued
      mineral lease payments
            
            
            67
            
            
            
            67Accrued
      reclamation costs
            
            
            6
            
            
            
            8Accrued
      straight line rent
            
            
            54
            
            
            
            72Deferred
      revenue
            
            
            311
            
            
            
            365Accrued
      fees to vendors
            
            
            276
            
            
            
            121$
            758
            
            
            $
            765




10.
            NOTES
      PAYABLE




Notes
payable consisted of the following at December 31, 2009 and 2008:





In thousands of
      dollars2009
            
            
            2008Note
      payable to BHP MineralsInternational, Inc.
            
            $
            600
            
            
            $
            1,200Note
      payable to AICCO, Inc.
            
            
            194
            
            
            
            132Capital
      leases
            
            
            53
            
            
            
            12Less
      current portion
            
            
            (810
            )
            
            
            (736
            )Long-term
      portion of capital leases
            
            $
            37
            
            
            $
            608





On August
8, 2002, we entered into a purchase and sale agreement with BHP Minerals
International, Inc. (“BHP”), wherein we purchased the land, building and
fixtures in Reno, Nevada where our titanium processing assets are located. In
connection with this transaction, BHP also agreed to terminate our obligation to
pay royalties associated with the sale or use of the titanium processing
technology. In return, we issued to BHP a note in the amount of $3.0 million, at
an interest rate of 7%, secured by the property we acquired. Interest did not
begin to accrue until August 8, 2005. As a result, we imputed interest and
reduced the face amount of the note payable by $567,000, which was then
amortized to interest expense from inception of the note through August 8, 2005.
Payments are due in February of each year beginning in 2006.  The note
and all accrued interest was paid in full in January 2010.





11.
            STOCK
      BASED COMPENSATION




At
December 31, 2009, we have a stock incentive plan, administered by the Board of
Directors, which provides for the granting of options and restricted shares to
employees, officers, directors and other service providers of
ours.  This Plan is described in more detail below.  The
compensation cost that has been charged against income for this Plan was $1.1
million, $1.2 million, and $3.9 million for the years ended 2009, 2008 and 2007,
respectively.  Of this amount, $221,000, $168,000 and $822,000 was
recognized in connection with restricted stock and options granted to
non-employees for the years ended 2009, 2008 and 2007,
respectively.





F-23





Stock
Options





The total
number of shares authorized to be granted under the 2005 stock plan was
increased from 3,000,000 to an aggregate of 9,000,000 based on the proposal
approved at the annual and special meeting of shareholders on May 30,
2007.  Prior stock option plans, under which we may not make future
grants, authorized a total of 6,600,000 shares, of which options for 5,745,500
were granted and options for 241,500 are outstanding and unexercised at December
31, 2009. Options granted under the plans generally are granted with an exercise
price equal to the market value of a common share at the date of grant, have
five- or ten-year terms and typically vest over periods ranging from immediately
to three 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.





In
calculating compensation recorded related to stock option grants for the years
ended December 31, 2009 and 2008, the fair value of each stock option is
estimated on the date of grant using the Black-Scholes-Merton option-pricing
model and the following weighted average assumptions:





2009
            
            2008
            
            2007Dividend
      yield
            None
            
            None
            
            NoneExpected
      volatility
            82%
            
            76%
            
            85%Risk-free
      interest rate
            1.50%
            
            3.00%
            
            4.60%Expected
      life (years)
            5.72
            
            4.92
            
            4.85





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





A summary
of option activity under our equity-based compensation plans as of December 31,
2009, and changes during the year then ended is presented below:





WeightedWeighted
            
            
            AverageAverage
            
            
            Remaining
            
            
            AggregateExercise
            
            
            Contractual
            
            
            IntrinsicShares
            
            
            Price
            
            
            Term
            
            
            ValueOutstanding
      at January 1, 2009
            
            
            3,956,507
            
            
            $
            3.03
            
            
            
            7.4
            
            
            $
            11,000Granted
            
            
            1,604,750
            
            
            1.16Exercised
            
            
            -
            
            
            -Forfeited/expired
            
            
            (641,048
            )
            
            
            3.20Outstanding
      at December 31, 2009
            
            
            4,920,209
            
            
            $
            2.40
            
            
            
            7.8
            
            
            $
            2,000Exercisable
      at December 31, 2009
            
            
            2,219,414
            
            
            $
            3.03
            
            
            
            6.6
            
            
            $
            -





Shares
issued to non-employees reflected in the table above include 707,667 shares
outstanding at January 1, 2009, 25,000 shares granted, no shares exercised, and
199,000 shares forfeited or expired  during the year ended December
31, 2009, resulting in 533,667 shares outstanding of which 415,333 shares were
exercisable as of December 31, 2009.





The
weighted-average grant-date fair value of options granted during 2009, 2008 and
2007 was $0.74, $1.89 and $2.05, respectively.  The total intrinsic
value of options exercised during the years ended December 31, 2009, 2008 and
2007 was $0, $408,000 and $511,000 respectively.






F-24





A summary
of the status of non-vested shares at December 31, 2009 and changes during the
year then ended, is presented below:





WeightedAverageGrant
      DateShares
            
            
            Fair
      ValueNon-vested
      shares at January 1, 2009
            
            
            2,050,902
            
            
            $
            2.92Granted
            
            
            1,604,750
            
            
            
            1.16Vested
            
            
            (798,148
            )
            
            
            2.96Forfeited/Expired
            
            
            (156,709
            )
            
            
            2.65Non-vested
      shares at December 31, 2009
            
            
            2,700,795
            
            
            $
            1.88





Non-vested
shares relating to non-employees reflected in the table above include 199,501
shares outstanding at January 1, 2009, 25,000 shares granted, no shares
exercised, and 106,167 shares vested  during the year ended December
31, 2009, resulting in 118,334 non-vested shares outstanding at December 31,
2009.





As of
December 31, 2009, there was $902,000 of total unrecognized compensation cost
related to non-vested options granted under the plans.  That cost is
expected to be recognized over a weighted average period of one
year.  The total fair value of options vested during the year ended
December 31, 2009 was $1.5 million.





Cash
received from warrant and stock option exercises for the years ended December
31, 2009, 2008, and 2007 was $0, $1.3 million, and $6.9 million,
respectively.





Warrants
Issued





For the
year ending December 31, 2009, 6,596,958 warrants were issued in connection with
the May 28, 2009 common stock offering at a strike price of $1.00 per common
share.  As a result, no intrinsic value existed at the issuance
date.  The following assumptions were used to value the warrant cost
of $4.6 million, recorded as common stock issuance cost:  expected
life of 7 years, volatility of 89.8%, annual rate of quarterly dividends of $0
and risk free interest rate of 1.86%.  All of these warrants are
outstanding at December 31, 2009.





Restricted
Stock





Our stock
incentive plan provides for the granting of other incentive awards in addition
to stock options.  During the year ended December 31, 2009, the Board
of Directors approved grants of 382,115 shares of restricted stock under the
plan with a weighted average fair value of $1.04 per
share.    Restricted shares have the same voting and
dividend rights as our unrestricted common shares, vest over a two-year period
and are subject to the employee’s or director’s continued
service.  Compensation cost for restricted stock is recognized in the
financial statements on a pro rata basis over the vesting period.








F-25




A summary
of the changes in restricted stock outstanding during the year ended December
31, 2009 is presented below:





WeightedAverageGrant
      DateShares
            
            
            Fair
      ValueNon-vested
      shares at January 1, 2009
            
            
            164,307
            
            
            $
            2.27Granted
            
            
            382,115
            
            
            
            1.04Vested
            
            
            (120,801
            )
            
            
            2.30Forfeited/Expired
            
            
            (119,127
            )
            
            
            1.00Non-vested
      shares at December 31, 2009
            
            
            306,494
            
            
            $
            1.16





As of
December 31, 2009, we had $225,000 of total unrecognized compensation expense,
net of estimated forfeitures, related to restricted stock which will be
recognized over the weighted average period of 1.6 years.





12.
            WARRANTS




Warrants —Warrant activity
for the years ended December 31, 2009, 2008, and 2007 is summarized as
follows:





In thousands of
      dollars2009
            
            
            2008
            
            
            2007Weighted
            
            
            
            
            
            Weighted
            
            
            
            
            
            WeightedAverage
            
            
            
            
            
            Average
            
            
            
            
            
            AverageExercise
            
            
            
            
            
            Exercise
            
            
            
            
            
            ExerciseWarrants
            
            
            Price
            
            
            Warrants
            
            
            Price
            
            
            Warrants
            
            
            PriceOutstanding
      at beginning of year
            
            
            681,482
            
            
            $
            4.15
            
            
            
            1,141,706
            
            
            $
            3.26
            
            
            
            3,256,525
            
            
            $
            2.84Issued
            
            
            6,597,958
            
            
            
            1.00
            
            
            
            -
            
            
            
            -
            
            
            
            296,407
            
            
            
            3.29Expired
            
            
            (250,000
            )
            
            
            5.27
            
            
            
            (60,000
            )
            
            
            2.50
            
            
            
            (97,037
            )
            
            
            2.58Exercised
            
            
            -
            
            
            
            -
            
            
            
            (400,224
            )
            
            
            1.88
            
            
            
            (2,314,189
            )
            
            
            2.70Outstanding
      at end of year
            
            
            7,029,440
            
            
            $
            1.15
            
            
            
            681,482
            
            
            $
            4.15
            
            
            
            1,142,706
            
            
            $
            3.26Currently
      exercisable
            
            
            7,029,440
            
            
            $
            1.15
            
            
            
            681,482
            
            
            $
            4.15
            
            
            
            1,142,706
            
            
            $
            3.26








The
following table summarizes information about warrants outstanding at December
31, 2009:





Warrants
      Outstanding and ExercisableWeightedAverage
            
            
            WeightedRemaining
            
            
            AverageRange
      of
            
            
            
            
            
            Contractual
            
            
            ExerciseExercise Prices
            
            
            Warrants
            
            
            Life (Years)
            
            
            Price$1.00
      to $2.49
            
            
            
            6,596,958
            
            
            
            6.4
            
            
            $
            1.00$2.50
      to $3.49
            
            
            
            231,482
            
            
            
            2.0
            
            
            
            3.38$3.50
      to $5.265
            
            
            
            200,000
            
            
            
            1.6
            
            
            
            3.647,028,440
            
            
            
            6.1
            
            
            $
            1.15






F-26





Except as
noted below, the warrants were issued in conjunction with debt and equity
offerings.  The warrants expire on various dates ranging to May
2016.





Warrants Issued in Payment
of Services





The cost
associated with warrants issued as payment for outside services is estimated on
the date of issuance using the Black-Scholes-Merton option-pricing
model.





For the
year ending December 31, 2007, 200,000 warrants were issued in connection with
the Joint Development and Equipment Purchase Agreement with AES Energy Storage,
LLC and the related Warrant Issuance Agreement signed on July 20,
2007.  Pursuant to this agreement, an initial warrant to purchase
200,000 common shares of ours at $3.64 per share was issued.  Since
the Initial Warrant did not become exercisable until December 31, 2007, the fair
value of the warrants was estimated at the issuance date and adjusted using
variable accounting until the final vesting date
occurred.   Based on the following assumptions at the vesting
date of expected life of 1.83 years, volatility of 43.7 %, annual rate of
quarterly dividends of $0 and the risk free interest rate of 3.5%, a total of
$261,000 was recorded in stock compensation expense.  All of these
warrants are outstanding at December 31, 2009.





13.
            OTHER
      TRANSACTIONS




For the
year ending December 31, 2009, 6,596,958 warrants were issued in connection with
the May 28, 2009 common stock offering at a strike price of $1.00 per common
share.  As a result, no intrinsic value existed at the issuance
date.  The following assumptions were used to value the warrant cost
of $4.6 million, recorded as common stock issuance cost:  expected
life of 7 years, volatility of 89.8%, annual rate of quarterly dividends of $0
and risk free interest rate of 1.86%.  All of these warrants are
outstanding at December 31, 2009.





On
December 15, 2009, the Company received a letter from Iqbal Al Yousuf resigning
as a director of the Company.  In connection with his service as a
director of the Company, Mr. Al Yousuf was a member of the Company’s
Compensation, Corporate Governance and Nominations Committee.  Mr. Al
Yousuf’s resignation was effective as of the appointment, at the request of Al
Yousuf, LLC, of Alexander Lee as his successor, which occurred on December 17,
2009.  Mr. Al Yousuf had been a director since October 14,
2008.





On August
14, 2009, we entered into a Demand Registration Agreement (“Revised Agreement”)
with Al Yousuf, LLC, a United Arab Emirates limited liability
company.  This Revised Agreement delays registration of Al Yousuf
LLC’s shares until after May 29, 2011 and retains this right of registration
through November 29, 2015.  Al Yousuf LLC may request a single
registration under the 1933 Act of the resale of all or any portion of its
Registrable Securities.  The November 29, 2007 Agreement described
below allowed Al Yousuf LLC the right of registration effective November 29,
2009.





On June
4, 2009, the Company expanded its Board of Directors to an aggregate of eight
directors and appointed Hossein Asrar Haghighi, Chief Financial Officer of Al
Yousuf Group, to fill the vacancy.





On
October 14, 2008, we expanded our Board of Directors to an aggregate of eight
directors and appointed Iqbal Al Yousuf to fill the vacancy.  Mr. Al
Yousuf was also appointed to the Board’s Compensation Nominating and Governance
Committee.





On
October 6, 2008, we entered into a Stock Purchase and Settlement Agreement with
Al Yousuf, LLC.  2,117,647 shares of common stock were issued at a
fair value of $1.70 that were agreed upon as part of arms length negotiations,
and were recorded as settlement expense in Operating Expense for the twelve
months ended December 31, 2008.  Additionally, 5,882,353 shares were
acquired by Al Yousuf, LLC at a purchase price of $1.70 per share for an
aggregate purchase price of $10.0 million (refer to Note 17).






F-27





On
November 29, 2007 we entered into a Purchase Agreement with Al Yousuf, LLC
relating to the purchase by Al Yousuf, LLC of 11,428,572 common shares of ours
at a purchase price of $3.50 per share, for an aggregate purchase price of $40.0
million.  The purchase closed in two stages, with a closing of
10,000,000 in shares on November 29, 2007 and a closing for the remaining shares
on December 10, 2007.  Total commission and expenses of $2.4 million
were paid to the placement agent in connection with this
transaction.  We also executed a Registration Rights Agreement
pursuant to which we are required to cause a registration statement registering
the re-sale of the Shares to be effective on the two-year anniversary of
closing, to the extent the Shares are not at such time eligible for resale
without restriction under Rule 144 under the Securities Act.  Al
Yousuf LLC also has the right to demand a one-time underwritten registration of
the Shares at any time during a six-year period beginning at the expiration of
the initial two-year lockup period.  The Registration Rights Agreement
includes customary provisions related to indemnification of Investor and
continued effectiveness of the registration statement.





In March
2007, The AES Corporation privately purchased 895,523 unregistered common shares
of ours at a price of $3.35 per share.  Total proceeds received
relating to the purchase were $3.0 million.  No underwriting
commission was paid in connection with this transaction.  We agreed to
prepare and file a registration statement to register the shares within 30 days
of the closing date of the transaction, which was effective on March 5,
2007.  Due to additional time required by AES to review the
registration statement and prepare related documents, the registration statement
was not filed until April 10, 2007 and became effective on May 30,
2007.








14.
            LEASES




Operating Leases —We lease
certain premises for office space and other corporate
purposes.  Operating lease commitments at December 31, 2009
were:





Year
ending December 31:





In thousands of
      dollars:2010
            
            $
            3132011
            
            
            3172012
            
            
            165Thereafter
            
            
            -Total
            
            $
            795





Lease
expense for the years ended December 31, 2009, 2008 and 2007 totaled $263,000,
$263,000 and $167,000, respectively.








F-28







Future
minimum payments on capitalized leases are as follows:





In thousands of
      dollars:Year
      ending December 31:2010
            
            $
            222011
            
            
            222012
            
            
            1761Less
      amount representing interest
            
            
            (8
            )Present
      value of net minimum lease payments
            
            
            53Less
      current maturity
            
            
            (16
            )Present
      value of net minimum leases included in long-term debt
            
            $
            37





15.
            INCOME
      TAXES




Losses
before income taxes include (losses) profits relating to non-U.S. operations of
$(361,000), $(3.1) million and $6.3 million in the years ended December 31,
2009, 2008 and 2007, respectively.





Because
of the net operating losses and a valuation allowance on deferred tax assets,
there was no provision for income taxes recorded in the accompanying
consolidated financial statements for each of the three years ended December 31,
2009, 2008, and 2007.






F-29




A
reconciliation of the federal statutory income tax rate (35%) and our effective
income tax rates is as follows:





In thousands of
      dollars:Year
      Ended December 31,2009
            
            
            2008
            
            
            2007Federal
      statutory income tax benefit
            
            $
            (7,459
            )
            
            $
            (10,174
            )
            
            $
            (10,959
            )Expiration
      of net operating loss carryforwards
            
            
            1,509
            
            
            
            517
            
            
            
            368Other,
      net
            
            
            (17
            )
            
            
            29
            
            
            
            (95
            )True
      up to prior tax returns
            
            
            (682
            )
            
            
            (3,481
            )
            
            
            1,558Exercise
      of incentive stock options
            
            
            318
            
            
            
            390
            
            
            
            1,098Valuation
      allowance
            
            
            6,331
            
            
            
            12,719
            
            
            
            8,030Total
            
            $
            -
            
            
            $
            -
            
            
            $
            -





The
components of the deferred tax assets consisted of the following as of December
31, 2009 and 2008:





In thousands of
      dollars:2009
            
            
            2008Deferred
      tax assets:Net
      operating loss carry forwards
            
            $
            46,938
            
            
            $
            40,730Basis
      difference in intangible assets
            
            
            709
            
            
            
            999Accruals
            
            
            395
            
            
            
            619Tax
      credits
            
            
            465
            
            
            
            465Other,
      net
            
            
            724
            
            
            
            585Total
      deferred tax assets
            
            
            49,231
            
            
            
            43,398Deferred
      tax liabilities:Basis
      difference in property, plant, and equipment
            
            
            (896
            )
            
            
            (909
            )Total
      deferred tax liabilities
            
            
            (896
            )
            
            
            (909
            )Valuation
      allowance
            
            
            (48,335
            )
            
            
            (42,489
            )Net
      deferred tax assets
            
            $
            -
            
            
            $
            -





As a
result of certain realization requirements, the table of deferred tax assets
shown above does not include certain deferred tax assets at December 31, 2009
and 2008 that arose directly from tax deductions related to equity compensation
in excess of compensation recognized for financial reporting.   Equity will
be increased by approximately $27,000 if and when such deferred tax assets are
ultimately realized.  We use tax law ordering for purposes of determining
when excess tax benefits have been realized.








F-30







A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:







In
      thousands of dollars:
            
            2009
            
            
            2008Balance at January
      1
            
            $
            27
            
            
            $
            75Reductions based on
      tax positions related to the current year
            
            
            -
            
            
            
            (48
            )Balance at December
      31
            
            $
            27
            
            
            $
            27




The
Company does not recognize interest or penalties related to unrecognized tax
benefits.





The
Company has no material uncertain tax positions.





Our
operating loss carry-forwards include losses generated in the United States and
in Canada. The net operating loss carry-forwards total approximately $133.1
million as of December 31, 2009 and will expire at various dates as
follows:





2010
      - 2013
            
            
            $
            2,267,0002014
      - 2018
            
            
            
            874,0002019
      - 2023
            
            
            
            20,328,0002024
      - 2029
            
            
            
            109,680,000





Due to
the significant increase in common stock issued and outstanding from 2005
through 2009, Section 382 of the Internal Revenue Code may provide significant
limitations on the utilization of net operating loss
carry-forwards.  As a result of these limitations, a portion of these
loss and credit carryovers may expire without being utilized.





We are
subject to taxation in the U.S., Canada and various states. We record
liabilities for income tax contingencies based on our best estimate of the
underlying exposures. We have not been audited by any jurisdiction since
our inception in 1998. We are open for audit by the U.S. Internal Revenue
Service, the Canada Revenue Agency and U.S. state tax jurisdictions from our
inception in 1998 to 2009.





16.
            COMMITMENTS
      AND CONTINGENCIES




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





Litigation —We are currently
not aware of any investigations, claims, or lawsuits that we believe could have
a material adverse effect on our consolidated financial position or on our
consolidated results of operations.





17.
            RELATED
      PARTY TRANSACTIONS




On August
14, 2009, the Company entered into a Demand Registration Agreement (“Revised
Agreement”) with Al Yousuf, LLC, a United Arab Emirates limited liability
company (the "Investor").  This Revised Agreement delays registration
of Investor’s shares until after May 29, 2011 and Investor has this right of
registration through November 29, 2015.  The Investor may request a
single registration under the 1933 Act of the resale of all or any portion of
its Registrable Securities.  The November 29, 2007 Agreement described
below allowed investor the right of registration effective November 29,
2009.






F-31





On
October 6, 2008, we entered into a Stock Purchase and Settlement Agreement dated
as of September 30, 2008 with Al Yousuf, LLC. Pursuant to the agreement, we
agreed to issue an aggregate of 8,000,000 common shares to Al Yousuf LLC. Of
such shares, 5,882,353 shares were acquired on October 14, 2008 by Al Yousuf LLC
at a purchase price of $1.70 per share, for an aggregate purchase price of $10.0
million. The remaining 2,117,647 shares were issued upon execution of the
agreement in exchange for a release by Al Yousuf LLC of all potential claims
arising from design concerns related to battery packs delivered to Phoenix
Motorcars, Inc. in 2007, our related offer of a warranty replacement and
inventory write-off, and any other known claims existing as of the date of the
agreement. Under the Purchase Agreement dated November 29, 2007 between us and
Al Yousuf LLC, pursuant to which Al Yousuf LLC purchased $40.0 million in common
shares, we made certain representations and warranties related to our inventory,
warranty reserve and similar matters that were affected by the write-off of
battery inventories and warranty offer announced in March 2008.  (Also
refer to Note 13).


On April
20, 2008, we executed an Amended and Restated Agreement to recover Short-Swing
Profits with Al Yousuf LLC.  Section 16 of the Securities and Exchange
Act of 1934 requires directors, officers and 10% beneficial owners of ours to
disgorge any short-swing profits realized on a non-exempt purchase and sale of
our securities within any six-month period.  Consistent with the terms
of the Recovery Agreement, we received payment in the amount of
$177,000.





In March
2008, Phoenix Motorcars, Inc. completed a merger, wherein the surviving
corporation, Phoenix MC, Inc. became a wholly owned subsidiary of All Electric,
LLC (“AELLC”).  On March 19, 2008, Phoenix MC, Inc. announced receipt
of their next round of funding provided by Al Yousuf, LLC and The AES
Corporation.  These changes resulted in conversion of our 1,000,000
common share investment in Phoenix Motorcars, Inc. to ownership of 2,000 units
in AELLC and diluted our ownership percentage in Phoenix to 1.56%.  At
December 31, 2008, there was no deferred revenue relating to the unamortized
investment.  We have concluded the investment is
other-than-temporarily-impaired.  A realized loss of the investment of
$88,701 was recognized in December 2008.  The remaining investment of
$17,817 was recognized as a loss in March, 2009.





On
November 29, 2007, we entered into a Purchase Agreement with Al Yousuf,
LLC, a United Arab Emirates limited liability company (“Investor”) relating to
the purchase by the Investor of 11,428,572 common shares (the “Shares”) of the
Company at a purchase price of $3.50 per share, for an aggregate purchase price
of U.S. $40 million. The purchase is set to close in two stages, with a closing
for $10 million in shares having occurred at the time of signing and a closing
for the remaining shares scheduled to occur on or before December 10,
2007.





On July
20, 2007, we entered into a multi-year Joint Development and Equipment Purchase
Agreement with AES Energy Storage, LLC (“AES”), a subsidiary of global power
leader The AES Corporation.  A member of the executive management team
of AES also served on our board of directors for most of
2009.  However, as a result of the Company’s desire to develop its
commercial relationship with AES, this executive elected to resign his position
as a director of Altairnano in November of 2009.  Under the terms of
the agreement we worked jointly with AES to develop a suite of energy storage
solutions for purchase by AES and potentially third parties.  On
August 3, 2007, we received an initial $1.0 million order, of which $500,000 was
prepaid, in connection with the AES Joint Development and Equipment Purchase
Agreement for a 500 kilowatt-hour energy storage product.  This
product was designed and manufactured at our Indiana facilities, and was
completed in December 2007.  The final installment of $500,000 was
billed in June 2008 upon substantial completion of the testing of the prototype
packs, of which payment was received in July 2008.






F-32





In
January 2007, we entered into a multi-year purchase and supply agreement with
Phoenix Motorcars, Inc., succeeded by Phoenix MC, Inc. (“Phoenix”) for lithium
titanate battery pack systems.  Pursuant to two letter agreements with
Phoenix effective in July 2008, the 2007 purchase and supply agreement was
cancelled. Both parties also agreed that all representations, warranties,
covenants and obligations arising under the 2007 agreement were terminated and
further that each party holds the other party harmless from any and all claims,
liabilities, charges, demands, grievances, and causes of action of any kind or
nature.  These new agreements resulted in:





·
            Altair
      agreement to ship 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.


·
            A
      commitment on the part of Phoenix 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.


·
            The
      forgiveness of the Phoenix notes payable associated accrued interest and
      remaining accounts receivable
balance.


·
            The
      reversal of the warranty accrual associated with the 47 recalled
      batteries.





Additionally
in January 2007, Phoenix issued 1,000,000 shares of its common stock in
consideration for the three-year exclusivity agreement within the United States
of America included in the contract.  Phoenix did not make the minimum
battery pack purchases required to retain their exclusivity in
2007.  The common stock received represented a 16.6% ownership
interest in Phoenix.  The investment was recorded at $107,000 with the
offset to deferred revenue, which was recognized on a straight-line basis until
our agreement was terminated in July 2008.





18.
            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 nano-structured lithium titanate
spinel, battery cells, battery packs, and provides related design and test
services.  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
for 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 significant
development is being pursued in those areas by the Company.  For all
years presented, the activity relating to the Performance Materials and Life
Sciences divisions have been reclassified into All Other.





Corporate
assets consist primarily of cash, short term investments, and long-lived
assets.  Since none of the business units has reached cash flow
break-even, cash funding is provided at the corporate level to the business
units.  The long-lived assets primarily consist of the corporate
headquarters building, building improvements, and land.  As such,
these assets are reported at the corporate level and are not allocated to the
business segments.





Corporate
expenses include overall company support costs as follows:  research
and development expenses; sales and marketing expense; general and
administrative expenses; and depreciation & amortization of the Reno
headquarters building improvements.








F-33








The
accounting policies of these business segments are the same as described in Note
2 to the consolidated financial statements.  Reportable segment data
reconciled to the consolidated financial statements as of and for the fiscal
years ended December 31, 2009, 2008, and 2007 is as follows:




In
      thousands of dollars:
              
              
              
              
              Loss/(Gain)
              
              
              DepreciationFrom
              
              
              andNet
      Sales
              
              
              Operations
              
              
              Amortization
              
              
              Assets2009:Power
      and Energy Group
              
              $
              3,249
              
              
              $
              7,382
              
              
              $
              1,320
              
              
              $
              11,574All
      Other
              
              
              1,122
              
              
              
              1,690
              
              
              
              1,183
              
              
              
              3,269Corporate
              
              
              -
              
              
              
              13,789
              
              
              
              184
              
              
              
              25,474Consolidated
      Total
              
              $
              4,371
              
              
              $
              22,861
              
              
              $
              2,687
              
              
              $
              40,3172008:Power
      and Energy Group
              
              $
              4,075
              
              
              $
              5,958
              
              
              $
              1,281
              
              
              $
              4,207All
      Other
              
              
              1,651
              
              
              
              3,709
              
              
              
              1,311
              
              
              
              9,728Corporate
              
              
              -
              
              
              
              20,459
              
              
              
              167
              
              
              
              34,136Consolidated
      Total
              
              $
              5,726
              
              
              $
              30,126
              
              
              $
              2,759
              
              
              $
              48,0712007:Power
      and Energy Group
              
              $
              5,282
              
              
              $
              16,578
              
              
              $
              857
              
              
              $
              6,055All
      Other
              
              
              3,826
              
              
              
              (1,686
              )
              
              
              324
              
              
              
              10,148Corporate
              
              
              -
              
              
              
              18,174
              
              
              
              772
              
              
              
              57,656Consolidated
      Total
              
              $
              9,108
              
              
              $
              33,068
              
              
              $
              1,954
              
              
              $
              73,859




In the
table above, corporate expense in 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.





Additions
to long-lived assets in 2009 consisted of $211,000 for Corporate and $579,000
for the Power and Energy Group. In 2008, long-lived asset additions consisted of
$1.6 million for the Power and Energy Group, $1.4 million for All Other
Divisions, and $262,000 for Corporate.





For the
year ended December 31, 2009, we had sales to 4 major customers, each of which
accounted for 10% or more of revenues.  Total sales to these customers
for the year ended December 31, 2009 and the balance of their accounts
receivable at December 31, 2009 were as follows:





In
      thousands of dollars:
            
            
            
            
            Accounts
      ReceivableSales
      – Year Ended
            
            
            atCustomer
            
            December
      31, 2009
            
            
            December
      31, 2009Power and Energy
      Group:Office
      of Naval Research
            
            $
            1,198
            
            
            $
            382Proterra,
      LLC
            
            $
            635
            
            
            $
            117BAE
      Systems
            
            $
            482
            
            
            
            -All Other
      Division:Spectrum
      Pharmaceuticals
            
            $
            751
            
            
            
            -








F-34





For the
year ended December 31, 2008, we had sales to two major customers, each of which
accounted for 10% or more of revenues. Total sales to these customers for the
year ended December 31, 2008 and the balance of their accounts receivable at
December 31, 2008 were as follows:





In
      thousands of dollars:
            
            
            
            
            Accounts
      Receivable andSales
      – Year Ended
            
            
            Notes
      Receivable atCustomer
            
            December
      31, 2008
            
            
            December
      31, 2008Power and Energy
      Group:Office
      of Naval Research
            
            $
            2,493
            
            
            $
            301All Other
      Division:Elanco
      Animal Health/Eli Lilly
            
            $
            623
            
            
            $
            -





For the
year ended December 31, 2007, we had sales to four major customers, each of
which accounted for 10% or more of revenues. Total sales to these customers for
the year ended December 31, 2007 and the balance of their accounts receivable at
December 31, 2007 were as follows:





In
      thousands of dollars:
            
            
            
            
            Accounts
      Receivable andSales
      – Year Ended
            
            
            Notes
      Receivable atCustomer
            
            December
      31, 2007
            
            
            December
      31, 2007Power and Energy
      Group:Phoenix
      Motorcars, Inc.
            
            $
            3,048
            
            
            $
            1,639Department
      of Energy
            
            $
            707
            
            
            $
            19All Other
      Division:Western
      Oil Sands
            
            $
            1,199
            
            
            $
            204Elanco
      Animal Health/Eli Lilly
            
            $
            1,089
            
            
            $
            361Department
      of Energy
            
            $
            705
            
            
            $
            36




Revenues
for the years ended December 31, 2009, 2008 and 2007 by geographic area were as
follows:





In thousands of
      dollars:Geographic
      information (a):
            
            2009
            
            
            2008
            
            
            2007United
      States
            
            $
            3,843
            
            
            $
            5,261
            
            
            $
            7,275Canada
            
            
            2
            
            
            
            245
            
            
            
            1,241Other
      foreign countries
            
            
            526
            
            
            
            220
            
            
            
            592Total
            
            $
            4,371
            
            
            $
            5,726
            
            
            $
            9,108(a) 
      Revenues are attributed to countries based on location of
      customer.




All
assets are held within the United States with the exception of a Canadian cash
account having a balance of $11,999 and $146,375 in raw material inventory
located in South Korea at our cell contract manufacturer.






F-35