**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, 2006**





[  
                ]
            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





[X
      ]  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)





[X]  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 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. [  ]





i




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





Large
                accelerated filer [  ]
            Accelerated
                filer [X]
            Non-accelerated
                filer [  ]





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, 2006, based upon the closing stock price of the common
      shares on the NASDAQ Capital Market of $3.08 per share on June 30, 2006, was
      approximately $182,408,288 .
      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,
      2007, the Registrant had
      69,999,793 common shares outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the Registrant’s Proxy Statement on Schedule 14A for the Registrant’s 2007
      Annual Meeting of Shareholders  are
      incorporated by reference in Part III as specified .







ii


**INDEX
      TO FORM 10-K**






**PART
                  I**
              **1**Item
                  1: Business
              1Item
                  1A. Risk Factors
              21Item
                  1B. Unresolved Staff Comments
              30Item
                  2. Properties
              30Item
                  3. Legal Proceedings
              31Item
                  4. Submission of Matters to a Vote of Security Holders
              31**PART
                  II**
              **32**Item
                    5. Market for Registrant's Common Equity, Related Stockholder
                    Matters and
                    Issuer Purchases ofEquity Securities
              32Item
                  6. Selected Financial Data
              34Item
                  7. Management's Discussion and Analysis of Financial Condition
                  and Results
                  of Operations
              35Item
                  7A. Quantitative and Qualitative Disclosures About Market
                  Risk
              42Item
                  8. Financial Statements and Supplementary Data
              43Item
                  9. Changes in and Disagreements with Accountants on Accounting
                  and
                  Financial Disclosure
              43Item
                  9A. Controls and Procedures
              43Item
                  9B. Other Information
              45**PART
                  III**
              **45**Item
                  10. Directors and Executive Officers of the Registrant
              45Item
                  11. Executive Compensation
              45Item
                    12. Security Ownership of Certain Beneficial Owners and Management
                    and
                    Related StockholderMatters
              45Item
                  13. Certain Relationships and Related Transactions
              45Item
                  14. Principal Accountant Fees and Services
              45**PART
                  IV**
              **46**Item
                  15. Exhibits, Financial Statement Schedules and Reports on Form
                  8-K
              49




iii


**PART
      I**





*This
      Annual Report on Form 10-K for the year ended December 31, 2006 (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, no
      par
      value, (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 of the Company.*





Unless
      the context requires otherwise, all references to “Altair,” “we,” “Altair
      Nanotechnologies Inc.,” or the “Company” in this Report refer to Altair
      Nanotechnologies Inc. and all of its subsidiaries. Altair currently has one
      wholly owned subsidiary, Altair US Holdings, Inc., a Nevada corporation. Altair
      US Holdings, Inc. directly or indirectly wholly owns Altairnano, Inc., a Nevada
      corporation, Mineral Recovery Systems, Inc., a Nevada corporation (“MRS”), and
      Fine Gold Recovery Systems, Inc., a Nevada corporation (“Fine Gold”). We
      have
      registered or are in the process of registering the following trademarks: Altair
      Nanotechnologies®, Altair Nanomaterials®, AltairnanoTM, TiNano®, N anoSafeTM, **** Nanocheck ***©*** and
      RenaZorb®. 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 and commercializing nanomaterial and
      titanium dioxide pigment technologies. We are organized into four divisions,
      an
      Advanced Materials and Power Systems Division, or AMPS Division, a Life Sciences
      Division, an Altair Hydrochloride Pigment Process Division, or AHP Division,
      and
      a Performance Materials Division. Our research, development, production and
      marketing efforts are currently directed toward the following primary market
      applications that utilize our proprietary technologies:





·
            AMPS


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


o
            The
                design, development, and production of power our NanoSafe brand
                nanoTitanate battery cells, batteries, and battery packs as well
                as
                related design and test services.





·
            Life
                Sciences


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


o
            The
                co-development of Renalan, a test-stage active pharmaceutical ingredient,
                which is designed to be useful in the treatment of elevated serum
                phosphate levels in animals suffering from chronic renal
                disease.





·
            AHP


o
            The
                marketing and licensing of titanium dioxide pigment production
                technology.





1


·
            Performance
                Materials


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




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.
      In the near term, as we continue to develop and market our products and
      technology, contract services will continue to be a substantial component of
      our
      operating revenues. During the years ended December 31, 2006, 2005 and 2004,
      contract services revenues comprised 67%, 70%, and 99%, respectively, of our
      operating revenues. In the summary of our business below, we describe our
      various research products in connection with our description of the business
      segment to which each relates.




**Our
      Proprietary Nanomaterials and Pigment Process**





Most
      of
      our existing products, potential products and contract research services are
      built upon our proprietary nanomaterials and titanium dioxide pigment
      technology. We acquired the basis for this technology from BHP Minerals
      International, Inc. in 1999 and, over the past six years, have continued to
      expand and refine various applications of the technology. Today, we use the
      technology in order to produce various finely-sized powders that have current
      or
      potential applications in a wide range of industries, including pharmaceuticals,
      titanium dioxide pigment, and high performance rechargeable batteries Although
      the existing and potential applications are varied, each is directly or
      indirectly built upon the ingenuity of our management, research and development
      staff and engineering team and our proprietary nanomaterials and titanium
      dioxide pigment technology.





This
      nanomaterials and titanium dioxide pigment technology enables our production
      of
      conventional titanium dioxide pigment products that are finely sized powders
      consisting of titanium dioxide  crystals.
      These powders approximate 170-300 nanometers in size. This technology is also
      capable of producing titanium dioxide and other metal and mixed metal oxide
      nanomaterials. These are specialty products with a size range of 10 to 100
      nanometers (approximately one tenth the size of conventional titanium dioxide
      pigment). The primary products currently being produced in the processing plant
      are titanium dioxide, lithium titanate spinel, and lanthanum products





**** Using
      this technology, we are in various stages of research, development and marketing
      of numerous products and potential products. We also use this technology to
      provide contract research services on select projects where we can utilize
      our
      resources to develop intellectual property and/or new products and technology.




**Advanced
      Materials and Power Systems**




**Primary
      Products**




**“NanoSafe”
      brand nanoTitanate batteries and electrode materials**




We
      are
      developing, marketing, producing and selling our proprietary rechargeable
      lithium ion battery, which we have branded as our NanoSafe
      nanoTitanate batteries. We are also seeking to develop, license, manufacture
      and
      sell our proprietary lithium titanate spinel (“LTO”) electrode materials for use
      in batteries being developed by other companies.




2


As
      explained in greater detail below, principal features used to compare
      rechargeable batteries including power, rates discharge, energy density, cycle
      life, calendar life and recharge time. In laboratory and field tests, our
      NanoSafe nanoTitanate batteries have exhibited power, high rates of charge,
      wide
      operating temperature range, cycle life, and expected calendar life that far
      exceed those of rechargeable batteries currently being used for target
      applications. We believe that with these strengths our NanoSafe nanoTitanate
      batteries are superior alternatives for rechargeable battery uses that require
      power, durability and exposure to the elements. These include all types of
      electric automobiles, uninterruptible power
      supply, and various power tools.





Target
      Markets





According
      to information supplied by JMP Securities the
      market for power
      storage devices is
      approximately $55 billion ( $31
      billion lead acid, $9 billion alkaline, $8 billion lithium ion, and $7 billion
      all other). Lithium ion and advanced technology rechargeable batteries are
      expected to gradually increase their share of the world rechargeable battery
      market. New developments indicate that high power batteries of this type will
      ultimately be developed for application as replacements for lead acid batteries
      and Nickel Metal Hydride, or NiMH, batteries in automobiles, electric vehicles,
      and hybrid electric vehicles where direct electrical energy for starting and
      passing will assist the gasoline engines. Also, the development of power storage
      systems for stationary power, electric utility grid services and wind, fuel
      cell
      and solar generation systems will require enhanced battery
      capabilities.





Our
      technology provides a fundamental building block for a new generation of
      rechargeable batteries. Our
      primary market focus is currently the electric vehicle market. With Boshart
      Engineering and Phoenix Motorcars, Inc., we have developed a prototype
      all-electric sport utility vehicle, or SUV, and a prototype all-electric sport
      utility truck, or SUT. Phoenix intends to market these vehicles initially as
      fleet vehicle for utility companies. During 2006, we sold $825,000 in battery
      pack products to Phoenix for installation in the all-electric SUTs. We have
      received a binding order for 2007 for at least $1,040,000 in battery packs
      and
      projected orders for 2007 of between $16 and $42 million.





We
      have
      also provided electrode materials, cells, batteries and battery packs to, and
      had early stage discussions with, various established automobile companies
      which
      are in the early stage of evaluating our technology for use in hybrid electric
      vehicles and plug-in electric vehicles. These
      discussions could lead to commercial relationships that will be characterized
      by
      a revenue stream consisting of one or more of development funding, materials
      manufacturing and royalties. ****





We
      are
      focusing our marketing and development efforts on markets presently dominated
      by
      Nickel Cadmium, or NiCd, and Nickel Metal Hydride, or NiMH, batteries, such
      as
      automobiles, in which rapid charging, long cycle life and the additional power
      from the rapid discharge should prove advantageous; and in stationary power
      applications such as uninterruptible power supply, where long calendar life,
      low
      maintenance and tolerance to temperature extremes should prove advantageous.





Key
      Features and Developments





Rechargeable
      batteries are made from various materials, each of which has certain
      characteristics or tendencies, depending upon how the products are configured.
      Some of the key concepts used when comparing rechargeable batteries include
      the
      following:





·
            Power:
                A battery’s power rating is its ability to deliver current while
                maintaining its voltage.





3


·
            Discharge:
                Discharge refers to the dissipation of a battery’s stored energy as a
                result of intended transfer of that energy (either gradually or in
                one or
                more large bursts) or as a result of the unintended leakage of that
                energy. This latter type of leakage is referred to as “self discharge” and
                isa
                natural tendency of all batteries at a rate that is proportional
                to
                temperature.
                A
                “deep discharge” refers to the discharge of substantially all of the
                stored energy in a battery between recharges. In general, deep discharges
                reduce the cycle life of batteries.





·
            Energy
                density:A
                battery’s energy density relates to the total unit volume of materials
                comprising a battery that will deliver a watt-hour of energy. A battery
                with high energy density will deliver more energy per unit volume
                than a
                battery with lower energy density.





·
            Cycle
                life: The ability of a rechargeable battery to accept a charge tends
                to
                diminish as a result of repeat 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 ability to accept a charge.





·
            Calendar
                life: A battery’s calendar life relates to the period of time that a
                battery will preserve its capability to deliver a significant portion
                of
                its newly built energy storage
                capacity.





·
            Recharge
                time: Recharge time is the minimum amount of time it takes to replenish
                a
                battery’s energy.





Other
      important factors include the cost, safety, environmental friendliness and
      extreme temperature performance of a battery. Although being on the positive
      side of each of the characteristics is desirable in all rechargeable batteries,
      the importance of these various characteristics depends primarily upon the
      anticipated use of a battery. For example, high power, which is important in
      a hand-held
      cordless power tool is not very
      important in a battery designed to power a cell phone because a cell phone
      needs
      very little power; however, high specific energy may be important in a cell
      phone battery because consumers desire to be able to use a cell phone for a
      long
      time between recharge and want to carry as little weight and volume as possible.





The
      principal advance we have made is in the optimization of nano-structured lithium
      LTO electrode materials that replace graphite electrode materials used in the
      negative electrode of current lithium ion
      batteries. When used with a positive
      electrode from a
      common lithium ion battery, battery cells operate at very high charge and
      discharge rates. Our current non-optimized cells are capable of recharge times
      of 10 minutes to 90%, or more, of initial battery capacity and 10 minute
      discharges with 90%, or more, capacity utilizations.





Our
      nano-structured LTO is non-reactive with the electrolytes used in common lithium ion
      systems. This greatly reduces the negative electrode resistance, and thus,
      passage of lithium ions to the electrode surface. Since the material is
      nano-structured, the surface area available to lithium ions is greatly enhanced
      - by up to 100 times - over graphite based systems. The material allows for
      a
      greatly facilitated, thus rapid, access to the active sites necessary for
      battery function. In addition, the small size of the nanoparticles dramatically
      reduces the distance from the surface to inner active sites, further reducing
      resistance to high rate operation. These
      characteristics permit our battery cells to deliver more power, and recharge
      much faster than, other types of rechargeable batteries described in the
      subsection entitled “Competition” below.





4


Our
      nano-structured LTO 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 particle. Since most battery materials suffer from this mechanical
      stress and strain (this particle fracturing reduces the life of the battery),
      battery calendar
      life and cycle life
      is
      greatly enhanced using our nano-structure LTO. In
      January 2007, we completed 25,000 deep charge/discharge cycles of our innovative
      NanoSafe battery cells. Even after 25,000 cycles the cells still retained over
      80% of their original charge capacity. This represents a significant improvement
      over conventional, commercially available rechargeable battery technologies
      such
      as lithium ion, NiMH and NiCD. These other commercially available rechargeable
      batteries typically retain that level of charge capacity only through
      approximately 1,000 deep charge/discharge cycles . Nano-structured LTO
      offers a
      near-term promise of lithium nano-titanate batteries that exhibit rapid charge
      and discharge, longer cycle life and more inherently safe performance than
      either currently available NiMH or lithium ion batteries. These results support
      the feasibility of a power lithium nano-titanate battery pack half the size
      of
      those currently being tested for hybrid electric vehicle applications





Our
      nano-structured LTO also represents a breakthrough in low- and high-temperature
      performance. Nearly 90% of room temperature charge retention is realized at
      -30 **°** C
      from
      Altair’s nano-structured LTO cells. In contrast, common lithium ion
      technology possesses virtually no charging capabilities at this low temperature,
      and the rechargeable other battery types described
      in the subsection entitled “Competition” below take 10
      to 20 times longer to charge.





We
      are
      also testing the safety of batteries made using our nano-structured LTO.
      Graphite negative electrode materials used in typical lithium ion batteries
      are
      known to suffer from thermal runaway issues at temperatures above
      130 **°** C,
      while
      lithium titanium spinel oxides are known to be safe for an additional
      120 **°** C
      or up
      to temperatures of about 250 **°** C. In
      May
      2006, we completed a safety testing cycle for lithium ion battery products
      using
      our nano-structure LTO that replaces the graphite used in “standard” lithium ion
      batteries. In the safety testing cycle, we subjected our batteries to
      temperatures up to 240 o C, which
      is more than 100 o C above
      the temperature at which graphite-based batteries can exhibit thermal run away
      and explode. In addition, we performed high-rate overcharge, puncture, crush,
      drop and other comparative tests alongside a wide range of graphite-based
      battery cells with no malfunctions, explosions or safety concerns exhibited
      by
      our nano-structured LTO cells.  In comparison, the graphite cells, put to
      the same tests, routinely smoked, caught fire and exploded.





On
      the
      negative side, the current generation of batteries made with our nano-structured
      LTO exhibit lower energy density at room temperatures. If density is measured
      by
      weight, our batteries made with our nano-structured LTO have energy densities
      that are better than lead acid NiCd, and NiMH batteries and approximately 70%
      of
      those of conventional lithium ion batteries.




In
      June
      2006, we received a purchase order from Phoenix for 35 kilowatt hour (“KWh”)
      NanoSafe nanoTitanate battery packs to be used in electric vehicles produced
      by
      Phoenix and Boshart Engineering. The total value of the purchase order plus
      an
      additional add-on battery pack was $825,000. The order was successfully
      fulfilled by December 31, 2006, and the battery packs delivered met or exceeded
      all performance specifications.




On
      January 9, 2007, we entered into a multi-year purchase and supply agreement
      with
      Phoenix for lithium nanoTitanate battery packs to be used in electric vehicles
      produced by Phoenix. Contemporaneously, Phoenix placed firm purchase orders
      for
      35KWh battery pack systems valued at $1,040,000 to be delivered in March and
      April of 2007 and placed an indicative blanket purchase order for up to 500
      battery pack systems to be delivered during 2007 (projected value between $16
      and $42 million). The terms of the purchase and supply agreement include a
      three-year exclusivity agreement within the United States that provides Phoenix
      with limited, exclusive use of our NanoSafe battery packs in four wheeled,
      all-electric vehicles having a gross weight up to 6,000 pounds. Phoenix must
      meet minimum battery pack purchases annually to maintain the limited exclusivity
      agreement. The minimum commitment to maintain exclusivity for 2007 would provide
      $16 million in battery pack sales. Our NanoSafe battery packs manufactured
      for
      hybrid electric vehicles and plug-in hybrid electric vehicle are excluded from
      the exclusivity agreement. Phoenix
      issued 1,000,000 shares of its common stock to us in consideration for the
      three-year exclusivity agreement described above. The common stock shares
      received represented a 16.6% ownership interest in Phoenix at the time of
      purchase. Since these shares are not and may never be registered under the
      Securities Act or any other state securities laws, a number of factors must
      be
      considered in establishing a fair value associated with this investment. We
      do
      not expect to complete this assessment until the end of the first quarter of
      2007.





5


Research,
      Testing and Development





In
      March
      2006, we entered into a two-year joint development agreement with Boshart
      Engineering for the design and engineering of a full-speed electric vehicle
      to
      be powered by our NanoSafe
      nanoTitanate batteries. The results of this partnership include the all-electric
      SUV and SUT that was introduced at
      the
      California Air Resources Board Zero Emissions Vehicle Technology Symposium
      and
      is being
      marketed and produced by Phoenix Motorcars. In 2007, the Altair-Boshart
      electric vehicle program is expected to include long distance drives at
      conventional highway speeds, testing the electric vehicle’s endurance in high
      altitudes and extreme weather conditions.




In
      September 2006, we signed an agreement with Alcoa’s AFL Automotive business to
      jointly develop a battery pack system. This collaboration brings together our
      innovative NanoSafe nanoTitanate
      battery technology and AFL Automotive’s expertise in vehicle electrical
      distribution systems, power management electronics and its substantial presence
      as a world renowned supplier to the automotive market. AFL Automotive is also
      a
      major supplier of lightweight, high strength aluminum components to the
      automotive industry. The agreement provides for the delivery of an integrated
      battery pack system for the medium-duty hybrid truck market using our NanoSafe
      nanoTitanate battery technology and AFL Automotive’s electrical interconnect and
      application technology to integrate the battery pack system into the vehicle’s
      electrical architecture. The scope of the joint development agreement involves
      system design, development and prototyping, which are expected to be completed
      in 2007.




On
      September 9, 2006, approval was finalized on the $2.5 million grant received
      from the U.S. Department of Energy. Of the $2.5 million, $2.4 million will
      be
      available, after the deduction of administrative fees, to fund research for
      the
      following programs: Battery technology, Nanosensors, and Nanomaterials
      characterization. This is a prime grant under which Altair is directly
      responsible for the contract administration. The Nanosensors and Nanomaterials
      characterization programs are discussed subsequently under the related
      divisions. The battery technology program consists of two objectives, 1) Design,
      Synthesis, and Testing of Li-ion Hosts for Cathode Service and 2) Development,
      Testing, and Demonstration of High Rate Low Temperature Lithium Ion Battery,
      funded in the amounts of $508,000 and $606,000 respectively. Objective 1
      continues research on optimized anode and cathode materials for high power,
      safe, fast charge batteries. The agreement anticipates that this work will
      be
      accomplished over 24 months. This research will also extend the collaboration
      with Rutgers University for prototype cell testing. Objective 2 furthers the
      investigation of extreme temperature range battery performance and extends
      over
      12 months. Of this grant, $1,114,000 is allocated to the battery optimization
      program.




In
      December 2004, we completed work under Phase I of a National Science Foundation
      grant for development of electrode nanomaterials for next generation lithium
      ion
      power sources. The results of the research, announced on February 10, 2005,
      indicated that lithium ion batteries prepared with nano-structured LTO negative
      electrode materials exhibit rapid charge and discharge rates, improved cycle
      life performance and a decrease in specific energy density when compared to
      conventional lithium ion, NiCd and NiMH battery materials. In June 2005, we
      were
      awarded a grant of $476,850 from the NSF for Phase II. Phase I work was designed
      to optimize the negative electrode materials and Phase II is designed to develop
      positive electrode materials, thus resulting in matched negative
      electrode-positive electrode materials for optimum electrochemical performance.
      The research under this grant will continue through September 30, 2007. At
      December 31, 2006, we had approximately $132,157 of work
      remaining to be done on this project.





6


In
      addition to our work done under government grants and other development
      agreements, we have been conducting our own internal research and development
      work on advanced battery materials. In October 2005, we significantly expanded
      our battery initiative projects by adding thirteen highly qualified, advanced
      battery scientists, engineers, manufacturing and marketing specialists, several
      of whom are located at a new facility in central Indiana. At both this and
      our
      Reno facility, we are installing manufacturing and testing equipment for the
      production of prototype lithium nanoTitanate cells, batteries and battery packs
      in sufficient quantities to demonstrate end-user products in power tools,
      automobiles, trucks and buses. In January 2006, our battery research and
      development team successfully completed a testing program for lithium
      nanoTitanate battery cells containing our nano-structured LTO electrode
      materials. The test results demonstrated that the performance of the LTO lithium
      nanoTitanate battery cells exceeded the system-level power requirements set
      forth by the U.S. Council for Automotive Research FreedomCAR Energy Storage
      System Performance Goals for hybrid electric vehicles, as well as the
      system-level power requirements published by major U.S. automakers. The battery cells using our
      nano-structured LTO
      materials in
      battery cell tests developed for hybrid electric vehicle applications
      demonstrated a useable state-of-charge range twice that of conventional NiMH
      batteries presently used in hybrid electric vehicles.





In
      April
      2005, we signed a partnering agreement with Advanced Battery Technologies,
      Inc.,
      a U.S. and Chinese-owned company, for the development of lithium polymer
      batteries in China. The agreement covered the incorporation of our nano-structured
      LTO electrode materials into Advanced
      Battery 's
      existing polymer battery product lines on a testing and development basis.
      Advanced Battery Technologies, Inc. has informed us that they continue to make
      trial battery products from nano-structured LTO electrode materials and we
      remain in discussions regarding new orders for nano-structure LTO electrode
      materials. However, the 2005 partnering agreement has expired and Advanced
      Battery Technologies, Inc. re-ordered no additional materials during
      2006.




Proprietary
      Rights





We
      have
      been awarded four U.S. and several international patents protecting this
      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 in 2020, 2021 and
      2022.
      Two new patent applications have been filed recently.





Competition





Advanced
      Lithium Ion Batteries .
      We are
      not aware of any commercial products available with the same characteristics
      as
      our nano-structured LTO and our NanoSafe
      nanoTitanate batteries and battery packs .
      A
      competitor company has recently announced an advanced Li-Ion battery. This
      battery appears to have some advantages over other types of common Li-Ion
      batteries, but still lacks the life, extreme safety, and other features that
      distinguish NanoSafe batteries from the competition. In addition, we believe,
      many large companies, such as automobile manufacturers, are attempting to
      develop lithium ion batteries that are suitable for high-power applications
      such
      as hybrid electric vehicles and plug-in hybrid electric vehicles. Many of these
      companies have significant human and financial resources, a well-known brand
      name, existing distribution channels and other advantages over us. Were such
      companies to develop a product technology with features that are similar or
      superior to those of our NanoSafe
      nanoTitanate batteries ,
      that
      company would have a significant competitive advantage.





7


Existing
      Technologies .
      Lead
      acid, NiCd, and NiMH batteries presently dominate our target markets. Lead
      acid
      batteries are used everyday by anyone who drives an automobile or operates
      a
      wheel chair, electric scooter or golf cart. They are also the battery-of-choice
      for uninterruptible power supplies. Lead acid batteries are an inexpensive,
      relatively simple to manufacture, mature, reliable technology that possesses
      a
      relatively low self discharge rate, and the modern sealed versions need little
      or no maintenance. However, lead acid batteries are quite heavy, giving them
      very poor weight to energy and
      power ratios , which
      limit practical use to stationary and wheeled applications. They also suffer
      from long recharge times and relatively low energy capacities and cannot be
      stored for long periods in a discharge state without service-life failure.
      In
      addition, they possess a very limited deep discharge cycle
      life , and
      thermal runaway can occur with improper charging. The highly toxic metal, lead,
      and highly corrosive sulfuric acid in lead acid batteries render them
      environmentally unfriendly.





NiCd
      batteries are inexpensive and fairly rugged, have
      the
      longest cycle life of currently available rechargeable battery types, work
      best
      on deep discharge cycles and accept recharge at moderately fast rates; however,
      charging rates must be reduced by a factor of 5 to 10 at temperatures below
      0°C
      (32 °F)
      and
      above 30°C (86°F). On the other hand, NiCd
      batteries suffer
      from relatively low energy density and relatively high self-discharge rates
      necessitating re-charge after moderate periods of storage. More seriously, NiCd
      batteries are
      exceedingly environmentally unfriendly. The metal cadmium is toxic and can
      cause
      several acute and chronic health effects in humans, including cancer. As a
      result, NiCd usage is being severely restricted and/or phased-out altogether
      by
      some countries.





The
      metal
      hydride used in NiMH technology is a direct replacement for cadmium in NiCd
      batteries. Thus, NiMH batteries
      share and improve upon the
      attributes of NiCd batteries, yet introduce problems
      of their own. On
      the positive side, NiMH batteries improve
      upon the energy capacity and
      power
      capabilities of
      NiCd
      (for the same size cell) by 30% to 40%. Since they
      contain only
      mild toxins, NiMH batteries
      are more
      environmentally friendly than both lead acid and NiCd batteries .
      Like
      NiCd batteries ,
      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, possessing a recharge capability of the order of 200
      to
      300 cycles. While NiMH batteries are
      capable of high power discharge, dedicated usage in high current applications
      limits cycle life even further. Shelf life is poor, on the order of three years.
      As noted above, NiCd batteries possess high self-discharge rates, but this
      problem is exacerbated by up to 50% in NiMH systems. 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
      involves safety accompanying recharge. The temperature and internal pressure
      of
      a NiMH battery cell
      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. While NiMH technology is gaining
      prominence within the electric vehicle (EV) market and dominates
      the hybrid
      electric vehicle market, this gain is placing pressures on the limited supply
      of
      nickel, potentially rendering the technology economically infeasible for these
      applications as the demand continues to rise.





Of
      all of
      the available metals for use as a basis for practical batteries, lithium is
      the
      most reactive and least dense, allowing for batteries with high specific
      energy. Conventional lithium ion batteries exhibit
      voltages of about 3.6V as compared to about 1.2V for NiCd and NiMH and 2.0V
      for
      lead acid. There is a relationship between power P, voltage V and current I.
      This relationship is best summarized by this formula: P=IV. Power is also
      defined as the time rate of energy transfer; thus higher voltages typically
      lead
      to larger power and / or energy densities. Lithium ion batteries are
      stable, charge
      somewhat rapidly (in hours), exhibit low
      self-discharge, and require
      very little maintenance. Except as explained below, the safety, cycle life
      (about 300 to 400 cycles), calendar life (about 3 years), environmental impact
      and power of lithium ion batteries is comparable to those of NiMH and NiCd
      batteries.





8


Conventional,
      graphite-based, lithium ion batteries are the batteries of choice in small
      electronics, such as cell phones and portable computers, where high energy
      and
      light weight are important. These same attributes are desired for electric
      vehicle, hybrid electric vehicle, power tool and uninterruptible power supply
      markets. However, these applications are principally high power demand
      applications and/or pose other demands on usage, such as extremes of
      temperature, need for short recharge times, high proportional (to stored energy)
      current rates and even longer extended lifetimes. Because
      of safety concerns related principally to the presence of graphite, conventional
      graphite-based lithium ion batteries sufficiently large for such power uses
      are
      considered unsafe. In addition, current lithium ion
      technology is capable of about 300 to 400 cycles and has a life of about 3
      years, whereas the vehicles in which they are used have lifetimes as long as
      10
      to 15 years and require many hundreds, even thousands, of charge/discharge
      cycles. Conventional
      lithium ion batteries also do not function well at extremely hot or cold
      temperatures.




**Life
      Sciences**




**RenaZorb®
      Products** **





RenaZorb
      is a highly active, lanthanum-based nanomaterial with low intestinal solubility
      and excellent in-vitro phosphate binding. Animal testing of RenaZorb has been
      conducted in dogs, cats and rats; however, no human tests have yet been
      conducted. Based upon our initial laboratory and animal testing, we believe
      that
      RenaZorb may offer the following advantages over competing
      products:





·
            Lower
                dosage requirements because of better phosphate binding per gram
                of drug
                compared with existing or currently proposed
                drugs;


·
            Fewer
                and less severe side effects because of less gassing and lower dosage;
                and


·
            Better
                patient compliance because of fewer and smaller
                tablets.





In
      all
      animal testing conducted on RenaZorb, which to date included three separate
      testing protocols, no adverse side effects were reported. In all testing,
      RenaZorb was administered to the animals by mixing the drug with the food they
      eat. In no case was there any reduction in the amount of food the animals
      consumed when RenaZorb was mixed with the food. The drug appears to be
      tasteless.





Target
      Markets





Our
      pharmaceutical product RenaZorb was developed to treat elevated phosphate levels
      in human patients with chronic kidney disease, especially in patients with
      end
      stage renal disease. According to information published by AnorMED, the
      worldwide market for phosphate binders for chronic renal failure patients is
      approximately $400 million to $600 million annually.




Research,
      Testing and Development





In
      the
      second quarter of 2002, we initiated research and development efforts directed
      toward the utilization of nanomaterials in the pharmaceuticals industry. In
      July
      2002, we announced the development of a new active pharmaceutical ingredient,
      or
      API, for the treatment of hyperphosphatemia (elevated serum phosphate levels)
      in
      patients undergoing kidney dialysis, as well as a new drug delivery system
      using
      inorganic ceramic nanomaterials. This API, given the name RenaZorb, showed
      excellent capacity for phosphate removal in laboratory tests using standard
      in-vitro (laboratory) procedures.





9


In
      January 2005, we signed a license agreement with Spectrum Pharmaceuticals,
      Inc.,
      which grants Spectrum exclusive worldwide rights to develop, market and sell
      RenaZorb. Upon signing the license agreement, Spectrum issued to us 100,000
      restricted shares of their common stock, purchased 38,314 restricted shares
      of
      our common stock at the then current market value of $2.61 per share, and also
      paid us $100,000 in connection with the license agreement. In June 2006,
      Spectrum issued to us 100,000 restricted shares of their common stock at the
      then current market value of $3.88 per share in connection with the first
      milestone payment due upon
      demonstration of satisfactory lanthanum serum levels .
      An
      additional 40,000 shares were issued in payment of research and development
      services provided by us. Additional payments by Spectrum are contingent upon
      the
      achievement of various milestones in the testing, regulatory approval and sale
      of RenaZorb.





Additional,
      contingent consideration under the license agreement may include the following:





·  purchases
      of a specified dollar amount of common stock of the Company at a premium above
      market price upon the reaching of various milestones representing progress
      in
      the testing and obtaining of regulatory approval for RenaZorb;





·  milestone
      payments upon obtaining approval from the FDA and similar regulatory agencies
      in
      Europe and Japan to market RenaZorb;





·  milestone
      payments as certain annual net sales targets are reached;





·  royalty
      payments based upon a percentage of net revenue from sales of RenaZorb in each
      country (subject to adjustment for combined products and in other circumstances)
      as long as patents applicable to that country remain valid; and





·  technology
      usage payments thereafter until generic competition emerges.





Assuming
      the testing, development and regulatory approvals of RenaZorb proceed at the
      rate we expect, the aggregate value of all the first year payments and all
      potential stock premiums, milestone payments and other payments to us over
      the
      first 5-7 years of the license agreement could reasonably range between $9
      million and $14 million. Assuming a drug containing RenaZorb receives timely
      regulatory approval, the market for phosphate controlling drugs continues to
      grow at projected rates, and the product becomes a leader in the market place,
      the total revenues to the Company over the life of the license agreement could
      exceed $100 million.





RenaZorb
      must undergo animal and human testing and receive approval from the FDA in
      the
      U.S. and similar regulatory bodies in other parts of the world before it can
      be
      approved for marketing. Human testing typically takes 1 to 2 years and, if
      merited by the results of human testing, the process of seeking U.S. regulatory approval
      typically takes between
      3
      and 5 years; however, timing for FDA and other regulatory approval of drug
      candidates is unpredictable. Spectrum, with technical assistance from Altair,
      is
      responsible for the clinical testing and other activities necessary to obtain
      regulatory approval of RenaZorb. Spectrum has begun the process of information
      and data collection and presentation required to file an investigational new
      drug application with the FDA, which is the first stage of seeking regulatory
      approval and is expected to occur during 2007.





10




Proprietary
      Rights





We
      have
      applied for patent protection for the manufacture of RenaZorb and a wide range
      of similar compounds for the application as an orally administered phosphate
      binder for patients suffering from end stage renal disease. These patent
      applications are “Rare earth metal compounds, methods of making and methods of
      using the same,” “Devices for removing phosphate from biological fluids,”
“Processes for making rare earth metal oxycarbonates” and “Rare-earth metal
      composites for treating hyperphosphatemia and related methods.”




Competition





Existing
      phosphate binders include Tums antacid, which contains calcium carbonate, as
      well as aluminum hydroxide-based products such as Gaviscon manufactured by
      Glaxo
      Smith Kline, both of which are available over the counter. Renagel manufactured
      by Genzyme, is available only by prescription. In addition, Fosrenol, another
      lanthanum based active pharmaceutical agent developed by Shire Pharmaceuticals
      of the UK, is available only by prescription.





While
      over-the-counter phosphate binders are relatively inexpensive, they have several
      disadvantages. In high doses, calcium carbonate-containing phosphate binders
      such as Tums may cause increased blood pressure and increased risk of
      cardiovascular disease and are generally not recommended for long-term use
      by
      dialysis patients. With prolonged use, aluminum hydroxide-based phosphate
      binders, such as Gaviscon, may cause toxic neurological effects and are
      generally avoided by physicians. Aluminum dementia has been widely reported
      in
      kidney dialysis patients using these products.





The
      prescription phosphate binder Renagel is relatively expensive (approximately
      $2,800 per patient per year), has a high dosage requirement (2 x 800 mg or
      4 x
      400 mg capsules/tablets or more three times per day) and water intake is
      required. The most common side effects related to the use of Renagel include
      nausea (7% of patients), constipation (2% of patients), diarrhea (4% of
      patients), gas or bloating (4% of patients) and heartburn or indigestion (5%
      patients).





Fosrenol
      was introduced in the United States in January 2005 and, according to a Shire
      Pharmaceutical Group news release dated February 20, 2007, has increased its
      average share of the total US phosphate binding market to 9% during 2006 from
      7%
      in 2005. Worldwide sales of Fosrenol during 2006 reportedly totaled $44.8
      million, with US sales reportedly being $40.2 million. Fosrenol is marketed
      as
      large chewable tablets with a proposed dosage of 1.5 to 3.0 grams active drug
      per day **,** RenaZorb,
      which is nanotechnology based, is expected to be developed in a tablet dosage
      form with a projected dosage of 0.6 to 3.0 grams API per day. Although we have
      done no human testing on RenaZorb, we believe RenaZorb has the potential for
      fewer side effects, lower cost and better patient compliance. We base these
      possible advantages upon in vitro testing conducted by Altair in which RenaZorb
      was compared to lanthanum carbonate tetrahydrate, the API in Fosrenol Our in
      vitro testing showed that RenaZorb binds 30% more phosphate per gram of drug
      than LCTH, therefore requiring a lower dose. Lower dose often correlates well
      with a reduction of observed side effects in chemically related compounds.
      In
      all animal testing conducted on RenaZorb, which to date included three separate
      testing protocols; no adverse side effects were reported. In all testing,
      RenaZorb was administered to the animals by mixing the drug with the food they
      eat. In no case was there any reduction in the amount of food the animals
      consumed when RenaZorb was mixed with the food. The drug appears to be
      tasteless.








11




**Renalan** **




Renalan
      is a highly active, lanthanum-based nanomaterial with low intestinal solubility
      and excellent in-vitro phosphate binding. Animal testing of RenaZorb/Renalan
      has
      been conducted in dogs, cats and rats. Based upon our initial laboratory and
      animal testing, we believe that Renalan may offer the following
      benefits:





·
            Specifically
                targeted to address chronic kidney disease in companion
                animals


·
            Palatable
                with normal food intake regime


·
            Can
                be administered in powder form which can be mixed with the pet’s
                food




Target
      Markets





Renalan
      was developed to treat elevated phosphate levels in animals with chronic kidney
      disease. According to information published in the Textbook of Veterinary
      Internal Medicine by Stephen J. Ettinger, DVM and Edward C. Feldman, DVM, the
      dog chronic kidney disease population is variously estimated at between 0.5%
      and
      7% of population, resulting in a worldwide chronic kidney disease population
      of
      between 0.75 million and 10.5 million dogs. They go on to state that the cat
      chronic kidney disease population is estimated at between 1.6% and 20% of total
      population, resulting in a worldwide chronic kidney disease population of
      between 2.8 million and 35 million cats. Using the rest of the data in their
      textbook and average life expectancy curves yields a worldwide cat chronic
      kidney disease population of approximately 4.2 million and a dog chronic kidney
      disease population of about 1.2 million.





Research,
      Development and Licensing





In
      May
      2006, we entered into a collaborative research, license and commercialization
      agreement with the Elanco Animal Health Division of Eli Lilly and Company.
      Under
      the terms of the agreement, Elanco has exclusive rights to develop animal health
      products using our nanotechnology-based products. The agreement gives Altair
      specific rights with respect to the manufacture of these products for Elanco.
      Upon successful completion of proof of concept studies performed by Elanco
      for
      each nanotechnology-based product selected by the joint development committee,
      a
      $100,000 fee will be charged for the exclusive license rights to develop and
      commercialize each of these products. The proof of concept study relating to
      the
      first product, Renalan, was completed in December 2006 and the related license
      fee of $100,000 was received.





Other
      payments by Elanco under the contract are contingent upon the achievement of
      various milestones in the testing, regulatory approval and sale of each product
      selected for development and commercialization. Additional, contingent
      consideration under the license agreement may include the following:




·  milestone
      payments for each product that is submitted for regulatory acceptance in the
      United States, with additional fees due upon regulatory approval;




·  sublicense
      revenue based on a percentage of all payments and consideration received from
      third parties to whom Elanco has granted a sub-license;





·  royalty
      payments based upon a percentage of net sales on a product by product, country
      by country basis;





12


·  performance
      bonus based on cumulative net sales targets for each product: and




·  manufacturing
      royalties for each product that is manufactured by a 3 rd party to
      be paid for the first three years that the product is sold or
      distributed.





Renalan
      must undergo animal testing and receive approval from the FDA in the U.S. and
      similar regulatory bodies in other parts of the world before it can be approved
      for marketing as a drug. The FDA
      approval process for companion animal use is expected to take two to three
      years
      to complete; however timing for FDA and other regulatory approval of drug
      candidates is unpredictable. Elanco ,
      with
      technical assistance from Altair, is responsible for the clinical testing and
      other activities necessary to obtain regulatory approval of Renalan. Elanco
      has
      begun the process of information and data collection and presentation required
      to commence seeking regulatory approval, which is planned during
      2007.




Proprietary
      Rights




We
      have
      filed one U.S. patent application for this product entitled “Compositions and
      methods for treating hyperphosphatemia in domestic animals.” Additionally,
      Renalan is a compound very similar to RenaZorb and is protected by the patent
      applications discussed under “RenaZorb” above.




Competition





In
      late
      2005, Vetoquinol, a French animal health company, released Epakitin in the
      US.
      Vetoquinol positions Epakitin as a chitosan-based phosphate binder and uremic
      reducer for chronic kidney disease in dogs and cats. The product has not been
      on
      the market long enough to determine its market strength or
      effectiveness.




**Secondary
      Products and Projects in Life Sciences in Progress**




**TiNano®
      Spheres**





Our
      proposed chemical delivery system involves depositing active chemicals on or
      inside hollow spheres made of titanium dioxide and other metal oxide materials,
      including nanomaterials. Our hollow
      sphere structures may be able to deliver active chemicals or drugs in a
      sustained release fashion because the active component could be “mounted” on
      both the outside surface and inside the hollow ball structure. The dissolution
      and availability of the surface-mounted active component would likely be
      different than the active component inside the hollow spheres. Material inside
      the hollow structure would possibly be released more slowly compared to
      surface-mounted material **.** An
      additional potential feature of our nanomaterials-based hollow structures is
      that two different active substances could be mounted, one inside the hollow
      spheres and another on the surface. This allows the possibility for dual action
      pharmaceuticals to be developed using this technology.





Because
      of the early stage of development of this chemical delivery system, we are
      unable to state with any certainty how (or if) such a delivery system would
      be
      used and, if used, what the uses for such system would be and what the
      comparative advantages, side effects and other aspects of such a delivery system
      would be. Nevertheless, we believe that the following uses of a
      nanomaterials-based chemical delivery system are feasible:





·
            New
                delivery forms for existing drugs;


·
            Delivery
                methods for new drugs;


·
            Enhanced
                delivery of hard to dissolve drugs;


·
            Delivery
                of sustained release drugs; and


·
            Delivery
                of dual action drugs





13


We
      have
      filed two patent applications regarding this field including: (1)
“Pharmaceutical composition and structure containing rare earth porous
      particles” and (2) “Pharmaceutical composition with controlled surface
      area.”





**Other
      Nanomaterials Research**





In
      September 2006, the Nanomaterials characterization program was funded by
      $311,000 of the $2.5 million Department of Energy grant. This research will
      be
      conducted in collaboration with the University of California, Santa Barbara,
      or
      UCSB, to investigate the interaction of our nanomaterials with various
      non-aqueous environments. This research will focus on interaction mechanisms
      between cells and nanoparticles, with the goal of understanding how specific
      chemical, physical, and electrical properties of these nanoparticles influence
      that interaction. Our research with UCSB will examine a range of microbes that
      have environmental or societal importance. The results of this research are
      expected to provide the basis for both 1) predicting potential negative impacts
      of specific nanoparticle characteristics on the environment and human health
      and
      2) developing novel antimicrobial agents and surface treatments that could
      defeat antibiotic-resistant strains of harmful microbes.




**The
      AHP Division**





We
      have
      named the portion of the nanomaterials and titanium dioxide pigment technology
      that was developed to produce high quality titanium dioxide pigment the Altair
      Hydrochloride Pigment **** process,
      or AHP. This package of technologies includes four US patents, trade secrets
      and
      know-how developed over nine years of research and development. The technology
      represents a comprehensive process to extract heavy minerals such as titanium
      from raw materials, produce a high quality titanium dioxide pigment and minimize
      environmental impact.





We
      believe that AHP is the first new, comprehensive technology to produce titanium
      dioxide pigment in over fifty years and takes advantage of new technologies
      to
      enable high quality pigment production. Titanium dioxide pigment is produced
      in
      bulk and is used principally as a whitener and opacifier for paper, plastics
      and
      paint. AHP uses a
      dense-phase crystal growth technique that controls crystal formation using
      a
      combination of mechanical, fluid dynamics, chemical and thermal control. A
      third
      party engineering study suggests that costs associated with this process will
      be
      lower than costs associated with alternative processes. All hydrochloric acid
      waste streams can be recycled to recover acid, and the waste solids generated
      from the purification process are easily manageable iron oxides.




Target
      Markets and Marketing Plans/Efforts





We
      intend
      to benefit from the AHP through technology license agreements with large
      materials companies under which we would receive royalties and other payments
      and, in certain situations, partner in the manufacture of pigment for sale.
      We
      do not anticipate being a manufacturer of pigments or competing directly in
      the
      pigment market without a substantial partner. Our market approach has been
      to
      target chemical manufacturing and mining companies who are addressing the market
      for high-grade titanium dioxide pigment.




14


Research,
      Testing, Development and Licensing Status





The
      AHP
      is substantially developed and, in a test environment, we are able to extract
      titanium from raw materials in order to produce a high quality titanium dioxide
      pigment. The AHP is not, however, a one-size-fits-all technology and needs
      to be
      customized to the particular needs of any potential application. This
      customization will generally involve various stages of testing and development
      tailored to the application’s specific needs. Such contractual arrangements may
      involve incremental payments and development services along the way but will
      lead to significant revenue only if a full-scale commercial titanium pigment
      production facility is constructed.





In
      January 2004, we entered into a license agreement with Western Oil Sands, Inc.,
      or Western Oil, with respect to its possible use of the AHP for the production
      of titanium dioxide pigment and pigment-related products at the Athabasca Oil
      Sands Project in Alberta, Canada, and elsewhere. Upon execution of the
      agreement, we granted Western an exclusive, conditional license to use the
      AHP
      on heavy minerals derived from oil sands in Alberta, Canada. The agreement
      also
      contemplated a three-phase, five-year program pursuant to which the parties
      will
      work together to further evaluate, develop and commercialize the AHP. In the
      first phase of the program, which was extended through December 2006, we, along
      with Western Oil, evaluated the AHP to confirm that the AHP will produce pigment
      from oil sands and to complete a characterization study.





During
      December 2006, Western Oil requested an additional extension of phase one to
      allow them to perform additional characterization of the feedstock source prior
      to committing to phase two of the license agreement workscope. In light of
      the
      broad exclusive license granted to Western Oil in the initial agreement, we
      declined to extend the terms of the license in order to preserve our flexibility
      in other potential licensing arrangements that may not involve an exclusive
      license for Western Oil. Nonetheless, we continue to work with Western Oil,
      under a paid contract with approximately $830,000 of work remaining as of
      December 31, 2006, to assist them in various development activities associated
      with production of a pigment feedsource at a pilot plant located in our
      building. We also expect to discuss an alternative license with Western Oil
      and/or other partners commencing during the second or third quarter of 2007.




Proprietary
      Rights





We
      have
      been awarded four U.S. and 15 international patents protecting this technology
      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.




Competition





Existing
      pigment production technologies are owned and guarded by the top tier producers
      that developed the technologies. Such producers typically do not grant licenses
      to competitors. As a result, companies seeking to enter into the pigment
      production business generally are required to use alternative technologies.
      Companies assessing the viability of our process to manufacture pigment from
      their resource are also evaluating alternatives, including producing mineral
      concentrates for sale to pigment producers and producing a high value synthetic
      rutile to be sold to pigment producers as feed stock. They may elect to
      commercialize either of these alternatives instead of producing pigment by
      the
      AHP. We believe there are no competing new technologies to produce titanium
      dioxide pigment.





15




**The
      Performance Materials Division**





The
      products and projects in our Performance Materials Division are all projects
      with either limited revenue potential or which are at an early state of research
      or development, but which provide, and may continue to provide, supplemental
      income and the potential of future products to us.




**Air
      and Water Treatment**





Our
      proprietary high-photocatalytic nano titanium dioxide product, irradiated by
      ultraviolet light, accelerates eradication of most airborne bacteria, viruses,
      mold, spores and fungi. Ultraviolet light has long been used in hospitals and
      other critical environments to kill bacteria, viruses and other contaminants
      and
      its benefits are proven and well known. The oxidizing effect produced by
      ultraviolet light and Altair’s nano titanium dioxide converts many chemical and
      biological contaminants into benign elements - carbon dioxide, water vapor
      and
      other materials.





Sample
      nano titanium dioxide products have been sold to several potential users for
      testing in air and water purification systems. The largest of these testing
      programs is being undertaken by Genesis Air, Inc., with devices being tested
      in
      dozens of poor air quality environments including casinos, meat packing plants,
      military quarters, bowling alleys and the like. The Genesis Air device is
      designed to fit into existing heating, ventilation and air conditioning
      systems.





Nanocheck
      is a lanthanum-based compound that can be used to treat recreational and
      industrial water for the removal of phosphates to arrest the growth of algae.
      It
      has no reported human health hazards and works effectively in existing
      filtration units without the need of purchasing additional equipment. We are
      in
      the process of marketing Nanocheck products to companies that already sell
      products into the recreational water treatment market - swimming pools and
      spas,
      both private and public. Nanocheck’s ability to bind with the phosphate in water
      and effectively “starve” the algae makes it an ideal adjunct to algaecide-based
      water treatment. As such, it is seen as line extension for the pool chemical
      suppliers. Potential
      customers tested Nanocheck during 2005 and 2006; however, these customers
      determined not to license and market the product. Different potential pool
      chemical suppliers have begun testing and continue to test market Nanocheck.
      If
      they elect to license the technology or purchase the products after completing
      testing, we expect
      to generate revenue in the form of royalties and in connection with our supply
      of key ingredients.





We
      have
      filed two U.S. patent applications for the application of Nanocheck entitled
      “Rare Earth Compositions and Structures for Removing Phosphates from Water” and
“Ceramic structure for removing toxic elements from water.”




**Advanced
      Performance Coatings**




We
      have
      developed thermal spray grade nanomaterial powders that can be applied as a
      coating on the surface of metals by standard thermal “gunning” techniques. Our
      nanomaterials coatings possess enhanced toughness and increased hardness; these
      features contribute to superior abrasive wear resistance over the conventional
      coating of the same material. The nanomaterial coatings also demonstrate
      improved porosity over standard thermal spray powders making them more resistant
      to corrosive attack. We believe that improvements will enable longer periods
      between maintenance, repairs and examinations of these critical components,
      therefore improving the economics of the industrial application. Such thermal
      spray products could be used in a variety of harsh environment applications
      such
      as aerospace propulsion systems, blades and vanes, medical applications, textile
      and paper machinery, boilers for power plants, waste incinerators, oil and
      gas
      industry, etc.





16


In
      March
      2006, we entered into a supply and distribution agreement with Sulzer Metco,
      a
      publicly-traded Swiss company involved in the design, manufacture and supply
      of
      thermal spray materials, equipment and integrated system solutions for the
      industrial market. Under the terms of the agreement, the companies are jointly
      selecting and managing the commercialization of licensed products comprising
      or
      incorporating our nano-structured titanium dioxide and nano-structured yttria
      stabilized zirconium oxide. When an Altair nano-structured powder is designated
      to be supplied under the agreement, Sulzer Metco has the right to be the
      exclusive distributor of that product in the spray coating field assuming that
      certain purchase and other commitments are met. We believe the market for each
      such product may be 2-5 tons annually in the near term with possible growth
      to
      as much as 20-30 tons per product annually in the future. In light of the
      limited size of the potential market, we do not expect these performance
      coatings to be a material source of revenue in the long term.





Our
      thermal spray grade powders are protected by U.S. Patent titled, “Processing
      aqueous titanium chloride solutions to ultrafine titanium dioxide,” which
      expires in 2020. We have also been issued a U.S. Patent titled “Process for
      making nano-sized zirconia” which expires on November 2, 2021.




**Nanosensors
      Research Program**





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. We
      generated approximately $15,000 in revenue through December 2006 as part of
      this
      program. In August 2006, $981,000 of the $2.5 million Department of Energy
      research grant received by Altair and its partners was allocated to the
      continuation of this program. Of this amount, we expect to receive $481,000
      over
      the next twelve months, with the remaining $500,000 being earned by Western
      Michigan University under a subcontract. The workscope associated with this
      grant builds upon the accomplishments and progress made under the prior grants
      and will focus on increasing the signal strength and selectivity of the sensing
      devices developed. The ultimate goal is to develop a unique nanosensor-based
      platform for the error-free, “lab on a chip” detection of chemical, biological
      and radiological agents for hazard materials remediation and threat detection.
      During 2006, we developed a portable, hand held, sensing device and we are
      now
      developing a library of sensing molecules for identification of a multiplicity
      of agents.





In
      August
      2006, we signed a subcontract with the University of Reno, Nevada to act as
      a
      subcontractor under a $1,095,000 grant awarded to them by the Department of
      Energy to continue development of nanosensors for the detection of chemical,
      biological and radiological agents. This subcontract provides for total payments
      to Altair of $250,000 over a 12-month period. This project is an outgrowth
      of,
      and builds on the research initiated with, the Western Michigan University
      program. The overall workscope of this project will focus on homeland security
      applications relating to novel fluorescent and electroluminescent receptor
      molecules. Our role in the overall project is intended to be the synthesis
      and
      development of suitable lanthanum and other metal-based nanoparticles for
      initiating reactions between target chemical and radiological agents.




17


**Hydrogen
      Generation using Solar Energy and Water**




In
      November 2004, we entered into an agreement with the University of Nevada,
      Las
      Vegas Research Foundation to act as a subcontractor under a $3,000,000 grant
      awarded to them by the Department of Energy for joint research activities
      related to solar hydrogen production at a refilling station under development
      in
      Las Vegas. The agreement, which was effective through December 31, 2005,
      provided for payments to Altair of $400,000 for research and development work
      utilizing nanotechnology processes for the production and commercialization
      of
      solar-based hydrogen technologies. In November 2005, we were notified that
      we
      would receive $750,000 under a grant award from the Department of Energy for
      collaborative research and development work beginning October 1, 2005 and
      continuing through December 2006. This grant has been extended through March
      31,
      2007 to allow for completion of the research activities with no adjustment
      to
      the original amount awarded. As of December 31, 2006, there was $202,892 of
      work
      remaining to be completed under this grant.





The
      development work is expected to involve, among other tasks, enhancement of
      the
      solar cell to be used at the proposed refilling station. The solar cell device
      converts light and water directly into hydrogen fuel in a highly efficient,
      renewable and carbon-free process using photo-catalytic nano-crystalline thin
      films to gather photons of incident light and convert them into electrons to
      directly split water into its constituent elements. As a result of this funding
      support, we have acquired several state-of-the-art systems for deposition and
      evaluation of thin films used to construct hydrogen generating solar cells.
      We
      continue to study iron-based oxide materials for solar cell applications
      utilizing the afore-mentioned systems, concentrating on enhancing film
      performance through addition of doping elements to the iron oxide films and
      exploring deposition methods to obtain the best sunlight-to-hydrogen conversion
      efficiencies.





**Research
      and Development Expenses**





Total
      research and development expenses were $10,077,231, $5,073,478, and $2,189,150
      for the years ended December 31, 2006, 2005 and 2004, respectively, while
      research and development costs funded by customers were $2,897,859, $1,962,162,
      and $1,144,389 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





**Dependence
      on Significant Customers**





During
      the year ended December 31, 2006, we recorded revenues from five major
      customers, each of which accounted for 10% or more of revenues. Revenues from
      Western Oil Sands, Inc. in the AHP Division were $1,111,697; Phoenix Motorcar,
      Inc. revenues of $825,000 and Department of Energy revenues of $347,904 in
      the
      AMPS Division; Spectrum Pharmaceuticals, Inc. revenues of $514,840 in the Life
      Sciences Division; and revenues from the UNLV Research Foundation of $416,687
      in
      the Performance Materials Division.




**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 also subject
      to laws governing the packaging and shipment of some of our products, including
      our NanoSafe nanoTitanate 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, and reclaim processing sites and package potentially
      flammable materials in appropriate ways.





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.





18


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.





**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. In addition, our cleanup efforts on the Tennessee mineral
      property have been, and will continue to be, subject to such 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 performance materials, life sciences, AHP and AMPS segments
      is presented in Note 17, Business Segment Information, of Notes to Consolidated
      Financial Statements in Part IV.





Information
      with respect to foreign and domestic sales and related information is presented
      in Note 17, 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.





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,
      has
      been dissolved.





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.





19


Mineral
      Recovery Systems, Inc., or MRS, was incorporated by Altair 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 the remediation site in Tennessee, MRS does not
      continue to hold any properties or leases. The wholly-owned subsidiary of MRS,
      Tennessee Valley Titanium, which never held any assets or operations, was
      dissolved on July 7, 2006.





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.




**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 gives 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.





Since
      1996, we have leased 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 except for one and are
      limiting our expenditures on our centrifugal jig to patent maintenance expenses.





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 and titanium dioxide pigment 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.





We
      have
      experienced an operating loss in every year of operation. In the fiscal year
      ended December 31, 2006, we experienced a net loss of $17,200,283.




**Employees**





The
      business of Altair is currently managed by Dr. Alan J. Gotcher, President and
      Chief Executive Officer of the Company, Mr. Edward Dickinson, Chief Financial
      Officer and Dr. Bruce Sabacky, Chief Technology Officer. We have 77  additional
      regular employees. We have employment agreements with Messrs. Gotcher, Dickinson
      and Sabacky





During
      2007, we may hire between 30 - 38 additional employees, primarily in research
      and development and
      operations. Such additional hiring, if it occurs, will be dependent upon
      business conditions.





**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 and 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




20


We
      make
      available, free of charge on our Internet website located at www.altairnano.com ,
      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 its filings free of charge
      upon request.




**Enforceability
      of Civil Liabilities Against Foreign Persons**




We
      are a
      Canadian corporation, and three of our directors and our Canadian legal counsel
      are residents of Canada. 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 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.**




***Item
      1A. Risk Factors***




An
      investment in our common shares and warrants 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.*




21


***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 $17,681,415 in 2006 and $10,481,853 in 2005. Even if we do
      generate operating income in one or more quarters in the future, subsequent
      developments in 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 for the
      long-term, or even for any quarter.




***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:




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


•
            timing
                of delivery of our services and products;


•
            addition
                of new customers or loss of existing 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;


•
            acquisitions
                of businesses or customers;


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


•
            general
                economic trends, including changes in energy prices, or geopolitical
                events such as war or incidents of terrorism.




***Our
      revenues have historically been generated from low-margin contract research
      services; if we cannot expand revenues from other products and services, our
      business will fail.***




Historically,
      a significant portion of our revenues has come from contract research services
      for businesses and government agencies. During the years ended December 31,
      2006, 2005 and 2004, contract services revenues comprised 67%, 70%, and 99%,
      respectively, of our operating revenues. Contract services revenue is low margin
      and unlikely to grow at a rapid pace. Our business plan anticipates revenues
      from product sales and licensing, both of which are higher margin than contract
      services and have potential for rapid growth, increasing in coming years. If
      we
      are not successful in significantly expanding our revenues from higher margin
      products and services, our revenue growth will be slow, and it is unlikely
      that
      we will achieve profitability.




***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
      nanomaterials and titanium dioxide pigment technology, as critical to our
      success. We have received various patents, and filed other patent applications,
      for various applications and aspects of our nanomaterials and titanium dioxide
      pigment 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:




22


·
            Our
                pending patent applications may not be granted for various reasons,
                including the existence of conflicting patents or defects in our
                applications;


·
            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.




Because
      the value of our company and common shares is rooted primarily in our
      proprietary intellectual property rights, 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.




***Because
      our products are generally components of end products, the viability of many
      or
      our products is tied to the success of third parties' existing and potential
      end
      products.***




Few
      of
      the existing or potential products being developed with our nanomaterials and
      titanium dioxide pigment technology are designed for direct use by the ultimate
      end user. Phrased differently, most of our products are components of other
      products. For example, our nano-structured LTO battery materials and NanoSafe
      batteries are designed for use in end-user products such as electric vehicles,
      hybrid electric vehicles and other potential products. Other potential products
      and processes we and our partners are developing using our technology, such
      as titanium dioxide pigments, life science materials, air and water treatment
      products, and coatings, are similarly expected to be components of third-party
      products. As a result, the market for our products is dependent upon third
      parties creating or expanding markets for their end-user products that utilize
      our products. If such end-user products are not developed, or the market for
      such end-user products contracts or fails to develop, the market for our
      component products would be expected to similarly contract or collapse. This
      would limit our ability to generate revenues and would harm our business and
      operations.




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




We
      do not
      have the expertise or resources to commercialize all potential applications
      of
      our nanomaterials and titanium dioxide pigment technology. For example, we
      do
      not have the resources necessary to complete the testing of, and obtain FDA
      approval for, RenaZorb and other potential life sciences products or to
      construct a commercial facility to use our titanium dioxide pigment production
      technology. Other potential applications of our technology, such as those
      related to our nano-structure LTO electrode materials, coating materials and
      dental materials, are likely to be developed in collaboration with third
      parties, if at all. With respect to these and substantially all other
      applications of our technology, the commercialization of a potential application
      of our technology is dependent, in part, upon the expertise, resources and
      efforts of our commercial partners. This presents certain risks, including
      the
      following:




23




•
            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 characteristic necessary
                for the success of the project, may dedicate only limited resources
                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 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. Our business is not dependent upon
      a
      single application of our technology; however, we will not become profitable
      and
      be able to sustain operations in the long run if we fail to commercialize
      several of our potential products.




***If
      we acquire or invest in other companies, assets or technologies and we are
      not
      able 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 making investments
      in
      companies, assets or technologies that we believe are strategic to our business.
      We do not have extensive experience in 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 acquired company or technology does not further
                our
                business strategy, that we overpaid for the company or technology
                or that
                the economic conditions underlying our acquisition decision have
                changed;




•
            we
                may have difficulty integrating the assets, technologies, operations
                or
                personnel of an acquired company, or retaining the key personnel
                of the
                acquired company;




24


•
            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 acquired
                business or technology, such as intellectual property or employment
                matters.




In
      addition, from time to time we may enter into negotiations for acquisitions
      or
      investments 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 investments 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 might be diluted. In
      addition, acquisitions and investments 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 year, we have significantly increased our research and development
      expenditures in an attempt to accelerate the commercialization of certain
      products, particularly our nano-structured LTO electrode materials and NanoSafe
      battery systems. Our business plan anticipates continued additional expenditure
      on development, manufacturing and other growth initiatives. We may not achieve
      significant growth. If achieved, significant growth would place increased
      demands on our management, accounting systems, network infrastructure and
      systems of financial 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, 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. Because
      of
      their size, resources, reputation, history and other factors, 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.




25


***We
      will not generate substantial revenues from our life science products unless
      proposed products receive FDA approval and achieve substantial market
      penetration.***




We
      have
      entered into development and license agreements with respect to RenaZorb, a
      potential drug candidate for humans with kidney disease, and other life science
      products, and expect to enter into additional licensing and/or supply agreements
      in the future. Most of the potential life sciences applications of our
      technologies are subject to regulation by the FDA and similar regulatory bodies.
      In general, license agreements in the life sciences area call for milestone
      payments as certain milestones related to the development of the products and
      the obtaining of regulatory approval are met; however, the receipt by the
      licensor of substantial recurring revenues is generally tied to the receipt
      of
      marketing approval from the FDA and the amount of revenue generated from the
      sale of end products. There are substantial risks associated with licensing
      arrangements, including the following:




•
            Further
                testing of potential life science products using our technology may
                indicate that such products are less effective than existing products,
                unsafe, have significant side effects or are otherwise not
                viable;




•
            The
                licensees may be unable to obtain FDA or other regulatory approval
                for
                technical, political or other reasons or, even if it obtains such
                approval, may not obtain such approval on a timely basis;
                and




•
            End
                products for which FDA approval is obtained, if any, may fail to
                obtain
                significant market share for various reasons, including questions
                about
                efficacy, need, safety and side effects or because of poor marketing
                by
                the licensee.




If
      any of
      the foregoing risks, or other risks associated with our life science products
      were to occur, we would not receive substantial, recurring revenue from our
      life
      science division, which would adversely affect our overall business, operations
      and financial condition.




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




We
      have
      not produced any pigments, nanoparticles or other products using our
      nanomaterials and titanium dioxide pigment technology and equipment on a
      sustained commercial basis. In-house or outsourced manufacturing is becoming
      an
      increasingly significant part of our business. If and as manufacturing becomes
      a
      larger part of our business, we will 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
                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;
                and




26


•
            We
                may have, 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 adversely
      affect our business, operations and financial condition.




***We
      have issued a $3,000,000 note to secure the purchase of the land and the
      building where our nanomaterials and titanium dioxide pigment assets are
      located.***




In
      August
      2002, we entered into a purchase and sale agreement with BHP Minerals
      International Inc. to purchase the land, building and fixtures in Reno, Nevada
      where our nanomaterials and titanium dioxide pigment assets are located. In
      connection with this transaction, we issued to BHP a note in the amount of
      $3,000,000, at an interest rate of 7%, secured by the property we acquired.
      The
      first two payments of $600,000 of principal plus accrued interest were due
      and
      paid on February 8, 2006 and February 8, 2007. Additional payments of $600,000
      plus accrued interest are due annually on February 8, 2008 through 2010. If
      we
      fail to make the required payments on the note, BHP has the right to foreclose
      and take the property. If this should occur, we would be required to relocate
      our primary operating assets and offices, causing a significant disruption
      in
      our business.




***We
      may not be able to raise sufficient capital to meet future obligations.***




As
      of
      December 31, 2006, we had approximately $27.2 million in cash, cash equivalents
      and short-term investments. As we take additional steps to enhance our
      commercialization and marketing efforts, or respond to acquisition opportunities
      or potential adverse events, our use of working capital may increase
      significantly. 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 unfinished testing and additional development
      work
      and, if certain of our products are commercialized, construct 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;




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




•
            our
                financial results, particularly the amount of revenue we are generating
                from operations;•
            the
                amount of our capital needs;




•
            the
                market's perception of companies in one or more of our lines 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.




27


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.




***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. In
      addition, we are in the process of reclaiming mineral property that we leased
      in
      Tennessee. Under applicable environmental 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 and may be able to avoid civil
      liability.***




We
      are a
      Canadian corporation, and three of our directors and our Canadian legal counsel
      are residents of Canada. 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 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 Dr.
      Alan J. Gotcher, our Chief Executive Officer and President, Edward Dickinson,
      our Chief Financial Officer, and Dr. Bruce Sabacky, our Chief Technology
      Officer. We have key man insurance on the lives of Dr. Gotcher and Dr Sabacky.
      We do not have agreements requiring any of our key personnel to remain with
      our
      company. The loss or unavailability of any or all of these individuals would
      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.




28


***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 may be 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 the nanomaterials and titanium dioxide pigment technology or any
      of
      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. In addition,
      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;•
            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 indicators or investor
                distrust.




***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.




For
      example, on March 30, 2005, we received a letter of inquiry from the SEC
      requesting information relating to a press release we issued on February 10,
      2005, in which we announced developments in a rechargeable battery technology
      that incorporates our lithium titanate battery materials. After providing the
      requested information, we received a follow up letter of inquiry dated August
      2,
      2005 requesting additional information related to our battery programs, emails
      of certain affiliates, certain transactions and recent earnings calls We
      provided the information to the SEC in a series of letters sent during September
      and October 2005. We have not been contacted by the SEC since providing all
      requested information in October 2005 or been notified of any ongoing activity
      or pending proceeding. The absence of any additional letters of inquiry related
      to the matter for an approximate 18 month period suggests to us that the inquiry
      may be completed; however, we have received no notice from the SEC with respect
      to the status of the inquiry and are uncertain as to its status. Based upon
      advice of counsel that the SEC frequently does not apprise a company whether
      an
      inquiry has been terminated or is ongoing, we expect to remain uncertain in
      the
      foreseeable future. Our response to the SEC inquiry diverted considerable
      financial and human resources, which harmed our ability to execute our business
      plan for a time, and leaves a level of uncertainty going forward, which may
      harm
      our ability to enter into business relationships, recruit qualified officers
      and
      employees and raise capital.




29




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.  Any charge, 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
      100,000 square feet of production, laboratory, testing and office space. We
      have
      pledged our corporate headquarters and associated land to secure a promissory
      note we issued to BHP Minerals International, Inc. in the amount of $3,000,000,
      at an interest rate of 7%. Payments of $600,000 plus accrued interest are due
      on
      February 8 of each of 2006 through 2010.





In
      addition, we lease an aggregate 8,199 square feet of office and laboratory
      space in the
      Flagship Enterprise Center Building located at 2701 Enterprise Drive in
      Anderson, Indiana under five separate leases. The
      space
      is used for the production of prototype batteries and battery cells. The initial
      lease was entered into in October 2005 for an initial term of three years with
      the option for subsequent one-year renewals. We have also entered into
      supplemental leases for additional office space on August 1, 2006 (an additional
      1200 square feet; expires July 31, 2009 with a single one-year renewal term),
      September 1, 2006 (an additional 440 square feet; expires August 31, 2009 with
      a
      single one-year renewal term) February 1, 2007 (an additional 1,375 square
      feet,
      expires January 31, 2009 with a single one-year renewal term), and February
      1,
      2007 (an additional 440 square feet; expires August 31, 2009 with a single
      one-year renewal term). Total
      rent for the combined leased premises, including normal utilities, real estate
      taxes and common area fees is approximately $12,409 per month and scheduled
      to
      increase between 4% - 5% annually. This rent is net of a 20% rent subsidy
      offered by local government entities. In exchange for that rent subsidy, we
      have
      agreed that operations conducted at the leased premises will remain in Madison
      County, Indiana for at least three years after the expiration of the three-year
      subsidy period.





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.





30


Based
      on
      the volume of orders received in early 2007, we plan to expand the current
      manufacturing facilities to meet the increased demand. In the event that
      alternative or additional office and manufacturing space is required, we believe
      we could obtain additional space on commercially acceptable terms.





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 spring
      2007. Future remediation costs are not expected to be significant.




***Item
      3.***  ***Legal
      Proceedings*** ******





We
      are
      not subject to any pending legal proceedings other than ordinary routine
      litigation incidental our business.




***Item
      4.***  ***Submission
      of Matters to a Vote of Security Holders***





We
      did
      not submit any matters to a vote of security holders during the fourth quarter
      of the 2006 fiscal year.






31


**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, for the periods indicated, the high and low
      sales prices for our common shares, as reported on our principal trading market
      at the time.





**Fiscal
                Year Ended December 31, 2005**
            **Low**
            
            **High**1st
                Quarter
            $1.93
            
            $6.522nd
                Quarter
            $2.53
            
            $4.383rd
                Quarter
            $2.40
            
            $3.404th
                Quarter
            $1.93
            
            $2.82**Fiscal
                Year Ended December 31, 2006**
            **Low**
            
            **High**1st
                Quarter
            $1.98
            
            $3.742nd
                Quarter
            $2.69
            
            $4.213rd
                Quarter
            $2.80
            
            $3.824th
                Quarter
            $2.52
            
            $3.83





The
      last
      sale price of our common shares, as reported on the NASDAQ Capital Market on
      March 5, 2007, was $ 3.76
      per
      share.




**Outstanding
      Shares and Number of Shareholders** ****





As
      of
      March 5, 2007, the number of common shares outstanding was 69,999,793 held
      by
      approximately 440 holders of record. In addition, as of the same date, we have
      reserved 411,836 common shares for issuance upon exercise of options that have
      been, or may be, granted under our employee stock option plans and 3,256,525
      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, 2006:





32


**Number
                of securities**
              **to
                be issued upon**
              **exercise
                of outstanding**
              **options,
                warrants**
              **and
                rights**
            **Weighted-average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuance under**
              **equity
                compensation**
              **plans
                (excluding securities**
              **reflected
                in column (a))****Plan
                Category**
            **(a)**
            **(b)**
            **(c)****Equity
                compensation plans approved**
              **by
                security holders**
            3,278,222
            $3.06
            1,641,029**Equity
                compensation plans not approved**
              **by
                security holders**
            None
            N/A
            None**Total**
            3,278,222
            $3.06
            1,641,029




**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,
      2006.




**Transfer
      Agent and Registrar**





The
      Transfer Agent and Registrar for our common shares is Equity Transfer Services,
      Inc., Suite 420, 120 Adelaide Street West, Toronto, Ontario, M5H
      4C3.




**Canadian
      Taxation Considerations**





Dividends
      paid on common shares owned by non-residents of Canada are subject to Canadian
      withholding tax. The rate of withholding tax on dividends under the Income
      Tax
      Act (Canada) (the “Act”) is 25%. However, Article X of the reciprocal tax treaty
      between Canada and the United States of America (the “Treaty”) generally limits
      the rate of withholding tax on dividends paid to United States residents to
      15%.
      The Treaty further generally limits the rate of withholding tax to 5% if the
      beneficial owner of the dividends is a U.S. corporation that owns at least
      10%
      of the voting shares of the Company.





If
      the
      beneficial owner of the dividend carries on business in Canada through a
      permanent establishment in Canada, or performs in Canada independent personal
      services from a fixed base in Canada, and the shares of stock with respect
      to
      which the dividends are paid is effectively connected with such permanent
      establishment or fixed base, the dividends are taxable in Canada as business
      profits at rates which may exceed the 5% or 15% rates applicable to dividends
      that are not so connected with a Canadian permanent establishment or fixed
      base.
      Under the provisions of the Treaty, Canada is permitted to apply its domestic
      law rules for differentiating dividends from interest and other
      disbursements.





A
      capital
      gain realized on the disposition of common shares by a person resident in the
      United States (“a non-resident”) will be subject to tax under the Act if the
      shares held by the non-resident are “taxable Canadian property.” In general,
      common shares will be taxable Canadian property if the particular non-resident
      used (or in the case of a non-resident insurer, used or held) the Common Stock
      in carrying on business in Canada or where at any time during the five-year
      period immediately preceding the realization of the gain, not less than 25%
      of
      the issued and outstanding shares of any class or series of shares of the
      Company, which were listed on a prescribed stock exchange, were owned by the
      particular non-resident, by persons with whom the particular non-resident did
      not deal at arms' length, or by any combination thereof. If common shares
      constitute taxable Canadian property, relief nevertheless may be available
      under
      the Treaty. Under the Treaty, gains from the alienation of common shares owned
      by a non-resident who has never been resident in Canada generally will be exempt
      from Canadian capital gains tax if the shares do not relate to a permanent
      establishment or fixed base which the non-resident has or had in Canada, and
      if
      not more than 50% of the value of the shares was derived from real property
      (which includes rights to explore for or to exploit mineral deposits) situated
      in Canada.





33




***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 U.S. dollars.





For
                the Year Ended December 31,
            
            2006
            
            2005
            
            2004
            
            2003
            
            2002STATEMENTS
                OF OPERATIONSRevenues
            
            $
            4,323,960
            
            $
            2,806,535
            
            $
            1,151,892
            
            $
            72,851
            
            $
            253,495Operating
                expenses
            
            $
            (22,005,375
            )
            $
            (13,288,388
            )
            $
            (8,056,847
            )
            $
            (5,858,061
            )
            $
            (8,110,206
            )Interest
                expense
            
            $
            (171,500
            )
            $
            (207,189
            )
            $
            (194,180
            )
            $
            (454,415
            )
            $
            (1,151,388
            )Interest
                income
            
            $
            654,182
            
            $
            750,306
            
            $
            96,229
            
            $
            1,879
            
            $
            2,105Gain
                (Loss) on foreign exchange
            
            $
            (1,550
            )
            $
            1,524
            
            $
            626
            
            $
            (193
            )
            $
            (835
            )Loss
                on extinguishment of debt
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            (914,667
            )Net
                Loss
            
            $
            (17,200,283
            )
            $
            (9,937,212
            )
            $
            (7,002,280
            )
            $
            (6,237,939
            )
            $
            (9,921,496
            )Basic
                and diluted net loss percommon
                share
            
            $
            (0.29
            )
            $
            (0.17
            )
            $
            (0.14
            )
            $
            (0.19
            )
            $
            (0.40
            )Cash
                dividends declared percommon
                share
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -BALANCE
                SHEET DATAWorking
                capital
            
            $
            25,928,376
            
            $
            21,482,766
            
            $
            7,663,264
            
            $
            3,565,039
            
            $
            (204,365
            )Total
                assets
            
            $
            43,120,573
            
            $
            33,464,016
            
            $
            15,547,021
            
            $
            11,659,754
            
            $
            8,914,405Current
                liabilities
            
            $
            (3,499,862
            )
            $
            (2,427,543
            )
            $
            (376,773
            )
            $
            (397,141
            )
            $
            (604,503
            )Long-term
                obligations
            
            $
            (1,800,000
            )
            $
            (2,400,000
            )
            $
            (2,880,311
            )
            $
            (2,686,130
            )
            $
            (3,905,040
            )Net
                shareholders' equity
            
            $
            (37,820,711
            )
            $
            (28,636,473
            )
            $
            (12,289,937
            )
            $
            (8,576,483
            )
            $
            (4,404,862
            )








34




***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 and commercializing nanomaterial and
      titanium dioxide pigment technologies. We are organized into four divisions,
      an
      Advanced Materials and Power Systems Division, or AMPS, a Life Sciences
      Division, an Altair Hydrochloride Pigment Process Division, or AHP, and a
      Performance Materials Division. Our research, development, production and
      marketing efforts are currently directed toward four primary market applications
      that utilize our proprietary technologies:





·
            AMPS


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


o
            The
                design, development, and production of power our NanoSafe brand
                nanoTitanate battery cells, batteries, and battery packs as well
                as
                related design and test services.





·
            Life
                Sciences


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


o
            The
                co-development of Renalan, a test-stage active pharmaceutical ingredient,
                which is designed to be useful in the treatment of elevated serum
                phosphate levels in animals suffering from chronic renal
                disease.





·
            AHP:
                The marketing and licensing of titanium dioxide pigment production
                technology.





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





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.
      In the near term, as we continue to develop and market our products and
      technology, contract services will continue to be a substantial component of
      our
      operating revenues. During the years ended December 31, 2006, 2005 and 2004,
      contract services revenues comprised 67%, 70%, and 99%, respectively, of our
      operating revenues. In the summary of our business below, we describe our
      various research products in connection with our description of the business
      segment to which each relates.





Our
      revenues have been, and we expect them to continue to be, generated by license
      fees, product sales, commercial collaborations and contracts and grants. We
      currently have agreements in place to (1) provide research involving a
      technology used in the detection of chemical, biological and radiological
      agents, (2) agreements under which we provide laboratory space, and provide
      services, in connection with testing and development related to the use of
      our
      AHP to produce titanium dioxidepigment and pigment-related
      products from titanium-bearing oil sands, (3) supply nano-sized anode and
      cathode materials for design and development of high capacity lithium ion
      battery and super capacitor applications, (4) provide research utilizing
      nanotechnology processes for the production and commercialization of solar-based
      hydrogen technologies, (5) produce battery packs, and (6) provide research
      to
      further develop battery electrode materials, nanosensors, and nanomaterials
      characterization. In addition, we have entered into a licensing agreement for
      RenaZorb, our pharmaceutical candidate for treatment of chronic renal failure
      in
      humans; we have licensed all potential pharmaceutical products for animal
      applications and we have made product sales consisting principally of battery
      packs and lithium titanate. Future revenues will depend on the success of our
      contracted projects, the results of our other research and development work,
      the
      success of the RenaZorb and animal applicationlicensees in
      obtaining regulatory approval for the drugs, or other products, and the success
      of our marketing efforts with respect to both product sales and technology
      licenses.




35


**General
      Outlook**





We
      have
      generated net losses in each fiscal year since incorporation. Revenues from
      product sales, commercial collaborations and contracts and grants increased
      significantly in 2006 but operating expenses also increased as we added
      employees and committed additional funds to our customer contracts, battery
      initiative, pigment process technology and sales and marketing efforts. Our
      gross
      profit margins on customer contracts for research and development work are
      very
      low, and in order that we may be profitable in the long run, our business plan
      focuses on the development of products and technologies that we expect will
      eventually bring a substantial amount of higher-margin revenues from licensing,
      manufacturing, product sales and other sources. We expect our NanoSafe
      nanoTitanate battery materials to be a source of such higher-margin revenues.
      Consequently, during 2006, we continued to expand the scope of our AMPS Division
      by (1) hiring additional staff and increasing temporary personnel to handle
      production demand (2) leasing additional laboratory and production space in
      Indiana, and (3) 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:





·
            We
                must continue the development work on our nano-structured LTO electrode
                materials, produce sufficient quantities of batteries and battery
                cells
                for test purposes, obtain satisfactory test results and successfully
                market the materials. Toward that end, we have hired additional employees,
                have constructed test and production facilities and are purchasing
                equipment. Our intent is to initially market our nano-structured
                LTO
                electrode materials to the automotive industry where we must be able
                to
                demonstrate to prospective customers that our nano-structured LTO
                electrode materials offer significant advantages over existing
                technologies.





·
            On
                January 9, 2007, we entered into a multi-year purchase and supply
                agreement with Phoenix Motorcars, Inc. for NanoSafe nanoTitanate
                battery
                packs to be used in electric vehicles produced by Phoenix.
                Contemporaneously, Phoenix placed a firm purchase order for $1,040,000
                in
                NanoSafe nanoTitanate battery packs and projected orders for 2007
                of
                between $16 and $42 million for the remainder of 2007. The agreement
                provides Phoenix with limited exclusivity in the all electric vehicle
                market during a three-year period. In order to maintain exclusivity,
                Phoenix must purchase at least $16 million in battery packs during
                2007.
                Phoenix must be successful in their business strategy and we must
                build
                and deliver battery packs on a scale we have never before achieved,
                in
                order to fully benefit from this purchase
                agreement.





·
            Spectrumand
                Elancomust
                begin the testing and application processes necessary to receive
                FDAapproval
                of our RenaZorband
                Renalan products, respectively. Toward that end, we must manufacture
                RenaZorb and Renalan under pharmaceutical industry guidelines to
                augment
                such testing.





·
            We
                have commenced and are continuing discussions with Western Oil Sands
                and
                other potential partners with regard to licensing our AHP pigment
                process.
                Successful completion of such discussions is integral to continuing
                development of AHP.





36


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




**Liquidity
      and Capital Resources**





**Current
      and Expected Liquidity**





Our
      cash
      and short-term investments increased from $23,054,074 at December 31, 2005
      to
      $27,220,357 at December 31, 2006. On December 18, 2006, we sold 9,259,259 of
      our
      common shares for net proceeds to us of approximately $22.9 million. This
      increase was offset by cash used to fund operations and purchase fixed assets
      of
      approximately $18.9 million during 2006.





We
      intend
      to use these funds for working capital, capital expenditures, research and
      development activities and the acquisition of other technologies. Net cash
      used
      in operations was $14,437,783 in 2006, and we expect to
      remain
      at the same level in 2007
      based upon budgeted revenues, expenditures, and cashflows. We currently have
      contracts in place that are expected to generate approximately $3,273,000 of
      revenues in 2007, and we expect to substantially add to this amount by entering
      into new contracts and increasing product sales. However, this increase in
      revenues will be dependent on our ability to secure customer contracts and
      successfully market our NanoSafe nanoTitanate batteries, nano-structured LTO, Nanocheck,
      thermal spray, and other products. During
      2006, we continued making significant expenditures for our battery initiative,
      added staff and equipment for the manufacture of nanoparticle products,
      increased the capital investment in plant equipment relating to pigment process
      development and increased our sales and marketing efforts. In 2007, we intend
      to
      increase spending for the battery initiative, manufacturing of the potential
      drug candidates, and pigment process development. We estim ate
      that
      our current cash and short-term investments balance is sufficient to support
      our
      operations for approximately two years
      based on 2007 budgeted cashflow projections.





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. In
      light
      of our recent public offering and strategic private placement of securities,
      we
      do not presently have any plans to pursue additional debt or equity financing
      during 2007 but reserve the right to do so if deemed necessary in connection
      with an unexpected business opportunity or need. We do not have any commitments
      with respect to future financing and may, or may not, be able to obtain such
      financing on reasonable terms, or at all. We have a single note payable in
      the
      original principal amount of $3,000,000 that does not contain any restrictive
      covenants with respect to the issuance of additional debt or equity securities
      by Altair. The first two payments of $600,000 of principal plus accrued interest
      were due and paid on February 8, 2006 and February 8, 2007. Future payments
      of
      principal and interest are due annually on February 8, 2008 through
      2010.




37


**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,
      2006:





**Less
                Than**
            
            
            
            
            
            **After****Contractual
                Obligations**
            
            **Total**
            
            **1
                Year**
            
            **1-3
                Years**
            
            **4-5
                Years**
            
            **5
                Years**Notes
                Payable
            
            $
            2,400,000
            
            $
            600,000
            
            $
            1,200,000
            
            $
            600,000
            
            $
            -Interest
                on notes payable
            
            
            420,000
            
            
            168,000
            
            
            210,000
            
            
            42,000
            
            
            -Contractual
                Service Agreements
            
            
            1,195,014
            
            
            1,189,614
            
            
            5,400
            
            
            -
            
            
            -Facilities
                and Property Leases
            
            
            408,868
            
            
            221,321
            
            
            187,547
            
            
            -
            
            
            -Unfulfilled
                Purchase Orders
            
            
            461,295
            
            
            461,295
            
            
            -
            
            
            -
            
            
            -Total
                Contractual Obligations
            
            $
            4,885,176
            
            $
            2,640,229
            
            $
            1,602,947
            
            $
            642,000
            
            $
            -





The
      major
      capital expenditures during 2006 were $1,705,000 for construction of dry rooms
      and purchase of equipment for the battery initiative, $1,721,000 for production
      equipment, $845,000 for pilot plant equipment associated with pigment
      development, $163,000 for equipment for the UNLV solar hydrogen project, and
      $109,000 of improvements and other capital expenditures at corporate
      headquarters. At December 31, 2006, we had $392,971 of outstanding commitments
      for capital additions, of which approximately 55% are for production equipment,
      and 34% are for equipment being purchased under the University of Las Vegas
      grant.





In
      2007,
      we plan to spend approximately $5.5 million on equipment and leasehold
      improvements primarily in the Life Sciences and AHP Divisions.





**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, stock-based compensation, revenue recognition,
      overhead allocation, allowance for doubtful accounts 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.  These assets are initially evaluated for
                capitalization based on Statement of Financial Accounting Standards
                (“SFAS”) No. 2,*Accounting
                for Research and Development Costs*. 
                If the assets have alternative future uses (in research and development
                projects or otherwise), they are capitalized when acquired or constructed;
                if they do not have alternative future uses, they are expensed as
                incurred.At
                December 31, 2006, the carrying value of these assets was $11,701,867,
                or
                27% of total assets. We evaluate the carrying value of long-lived
                assets
                when events or circumstances indicate that an impairment may exist.
                In our
                evaluation, we estimate the net undiscounted cash flows expected
                to be
                generated by the assets, and recognize impairment when such cash
                flows
                will be less than the carrying values. Events or circumstances that
                could
                indicate the existence of a possible impairment include obsolescence
                of
                the technology, an absence of market demand for the product, and/or
                the
                partial or complete lapse of technology rights protection.





38


·
            Share-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 under SFAS
                123R
                using a Black-Scholes option pricing model. In so doing, we estimate
                certain key assumptions used in the model. We believe the estimates
                we
                use, which are presented in Note9of
                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 collectibility is probable, in accordance with
                the
                Securities and Exchange Commission*“Staff
                Accounting Bulletin No. 104 - Revenue Recognition in Financial
                Statements”*. 
                During 2006, our revenues were derived from four sources: license
                fees,
                commercial collaborations, contract research and development and
                product
                sales.  License fees are recognized when the agreement is signed, we
                have performed all material obligations related to the particular
                milestone payment or other revenue component and the earnings process
                is
                complete. Revenue for product sales is recognized upon delivery of
                the
                product, unless specific contractual terms dictate otherwise. Based
                on the
                specific terms and conditions of each contract/grant, revenues are
                recognized on a time and materials basis, a percentage of completion
                basis
                and/or a completed contract basis. Revenue under contracts based
                on time
                and materials is recognized at contractually billable rates as labor
                hours
                and expenses are incurred. Revenue under contracts based on a fixed
                fee
                arrangement is recognized based on various performance measures,
                such as
                stipulated milestones.  As these milestones are achieved, revenue is
                recognized.  From time to time, facts develop that may require us to
                revise our estimated total costs or revenues expected.  The
                cumulative effect of revised estimates is recorded in the period
                in which
                the facts requiring revisions become known.  The full amount of
                anticipated losses on any type of contract is recognized in the period
                in
                which it becomes known.





·
            Overhead
                Allocation. Facilities overhead, which is comprised primarily of
                occupancy
                and related expenses, is initially recorded in general and administrative
                expenses and then allocated monthly to research and development expense
                based on labor costs. Facilities overheads 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 collectibility 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.





39


·
            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
                carryforwards.  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, 2006.  Management has, therefore, established a full
                valuation allowance against its net deferred income tax assets as
                of
                December 31, 2006. Due to the significant increase in common shares
                issued
                and outstanding from 2004 through 2006, Section 382 of the Internal
                Revenue Code may provide significant limitations on the utilization
                of our
                net operating loss carryforwards. As a result of these limitations,
                a
                portion of these loss and credit carryovers may expire without being
                utilized.





**Results
      of Operations**




**Fiscal
      Year 2006 vs. 200** **5**





Revenues
      increased by $1,517,425 from $2,806,535 in 2005 to $4,323,960 in 2006, while
      operating expenses increased by $8,716,987, from $13,288,388 in 2005 to
      $22,005,375 in 2006. As a result, our loss from operations increased by
      $7,199,562, from $10,481,853 in 2005 to $17,681,415 in 2006.





Product
      sales increased from $149,373 in 2005 to $961,380 in 2006 due to our first
      sales
      of battery packs to Phoenix Motorcars, Inc. Of the 11 battery packs ordered,
      four were shipped and seven were billed and held by us based upon the written
      request of Phoenix, which complied with the revenue recognition criteria
      described in the Securities and Exhange Commission “Staff Accounting Bulletin
      No. 104 - Revenue Recognition in Financial Statements”.





Commercial
      collaborations revenues increased from $825,723 in 2005 to $1,420,151 in 2006
      primarily due to $495,182 of increased billings to Western Oil Sands resulting
      from an amendment to their license and development agreement signed in October
      2005 and an increase of $115,848 in RenaZorb development revenues paid by
      Spectrum Pharmaceuticals.





Contract
      and grant revenues increased from $1,136,439 in 2005 to $1,477,709 in 2006,
      principally as a result of billings of $746,438 under the $2.5 million
      Department of Energy Earmark that was effective in September 2006 and $66,266
      under the $250,000 Indiana Advanced Energy Technologies Program grant awarded
      in
      November 2005. This increase was partially offset by a reduction in the revenues
      of $466,200 for the August 2004 subcontract with Western Michigan University
      that was fully expended in February 2006.





40


Research
      and development, or R&D, expense
      increased by $5,003,753, from $5,073,478 in 2005 to $10,077,231 in 2006. During
      2006, the battery initiative, which was initially staffed in the fourth quarter
      of 2005, was expanded over the year to include three new employees and
      performance of the research to develop and improve our nano-structured LTO
      and
      cell design utilized in the NanoSafe nanoTitanate batteries. As a result,
      expenditures for the battery initiative increased by $2,707,214 in 2006. In
      addition, pre-production and commercialization costs relating to LTO increased
      by $992,038. We also increased our commitment to pigment process technology
      in
      2006 by hiring a full time General Manager and developing a pilot plant, with
      a
      resulting increase in expenditures of $830,398. Expenditures for contract and
      grant work increased by $588,329 primarily as a result of the new $2.5 million
      Department of Energy earmark effective in September 2006. These increases were
      partially offset by decreases in other research and development
      activities.





Sales
      and
      marketing expenses increased by $339,018 from $1,539,765 in 2005 to $1,878,783
      in 2006. Excluding the payment of a $500,000 fee in 2005 to RBC Capital Markets
      in connection with the RenaZorb licensing agreement, sales and marketing
      expenses increased by $839,018 in 2006. This
      increase reflects the addition of two positions on the sales team to focus
      on
      the Life Sciences and AMPS Divisions of
      $218,247, and expenses incurred of $620,771 to promote our
“NanoSafe”nanoTitanate batteries installed in our prototype all electric vehicle
      and the expansion of general corporate marketing activities.





General
      and administrative expenses increased by $1,923,726, from $5,571,454 in 2005
      to
      $7,495,180 in 2006. Stock based compensation expense, a non-cash item, increased
      by $1,539,788 as a result of implementing FAS 123 (R); we
      incurred approximately $401,484 of expenses associated with a flood at our
      headquarters in Reno, Nevada in January 2006; legal
      fees associated with patent work increased by $328,807; and payroll expense
      increased by approximately $140,700 due mainly to staff additions. These
      increases were partially offset by a decrease of $509,082 in Sarbanes Oxley
      compliance costs from 2005, the first year of implementation.





Interest
      income decreased by $96,124, from $750,306 in 2005 to $654,182 in 2006. On
      average a higher level of cash was available for investment in
      2005.





**Fiscal
      Year 2005 vs. 200** **4**





Revenues
      increased by $1,654,643 in 2005, from $1,151,892 in 2004 to $2,806,535 in 2005,
      while operating expenses increased by $5,231,541. As a result, our loss from
      operations increased by $3,576,898, from $6,904,955 in 2004 to $10,481,853
      in
      2005.





In
      January 2005, we licensed RenaZorb to Spectrum and received $695,000 of license
      revenues, the first license revenues received by Altair.





Contract
      and grant revenues increased from $591,890 in 2004 to $1,136,439 in 2005,
      principally as a result of billings under an agreement with the University
      of
      Nevada, Las Vegas Research Foundation that was entered into in November 2004.
      Revenues in connection with this agreement increased by approximately $460,000
      from 2004 to 2005.





Commercial
      collaborations revenues increased from $552,499 in 2004 to $825,723 in 2005
      due
      to increased billings to Western Oil Sands for design and construction of a
      pilot plant and increased staff time spent on the project.





41


Product
      sales increased from $7,503 in 2004 to $149,373 in 2005 as a result of sales
      of
      battery materials and thermal spray materials.





R&D
      expense increased by $2,884,328, from $2,189,150 in 2004 to $5,073,478 in 2005.
      We made a significant resource commitment to the battery initiative project
      beginning in early 2005. During the fourth quarter of 2005, we hired thirteen
      employees with extensive scientific, engineering, manufacturing and marketing
      experience in the battery industry. As a result, expenditures for the battery
      initiative increased by $1,298,660 in 2005. We also increased our commitment
      to
      pigment process technology development with a resulting increase in expenditures
      of $256,914. Expenditures for contract and grant work increased primarily as
      a
      result of new grants received in late 2004 and in 2005. Expenditures under
      the
      National Science Foundation grant for development of advanced battery materials
      increased by $121,388 in 2005, expenditures under the UNLV Research Foundation
      grant for development of solar hydrogen generation cells increased by $170,412
      and expenditures under the Western Michigan University grant for development
      of
      nanosensors increased by $59,690 in 2005. The scope of work under phase 1 of
      the
      Western Oil Sands contract was expanded in 2005 and we also constructed a pilot
      plant for the project. As a result, charges under the contract increased by
      $256,050 in 2005. In April 2005, we entered into a joint venture with Bateman
      Engineering NV to promote the development of the pigment process technology
      and
      we incurred $136,403 of expenses during the year in connection with the venture.
      The remaining increase in R&D expenditures of approximately $584,000 was
      incurred for management, facilities, equipment and other support functions
      for
      R&D.





Sales
      and
      marketing expenses increased by $ 1,204,544,
      from $335,221 in 2004 to $1,539,765 in 2005. The increase is due to payment
      of a
      $500,000 fee to RBC Capital Markets in connection with the RenaZorb licensing
      agreement, increased payroll expense resulting from the addition of five new
      employees and increased business development activities.





General
      and administrative expenses increased by $944,892, from $4,626,562 in 2004
      to
      $5,571,454 in 2005. Consulting costs incurred to comply with the Sarbanes-Oxley
      Act increased by $632,010 in 2005; legal fees associated with patent work and
      general corporate matters increased by $454,485; stock option compensation
      expense and deferred compensation expense associated with restricted stock
      issuances, both non-cash items, increased by $390,566; rents paid for additional
      laboratory space increased by $156,000; utilities increased by $68,106 due
      primarily to increased production and R&D activity; payroll expense
      increased by approximately $100,000 due mainly to staff additions and increased
      labor overhead costs and recruiting, and relocation expense increased by $96,902
      as a result of staff additions. These increases were partially offset by a
      decrease in investor relations expense of $687,709 resulting from a
      cutback
      in our investor relations programs, and a decrease in general consulting of
      $260,587.





Interest
      income increased by $654,077, from $96,229 in 2004 to $750,306 in 2005 due
      to
      the significant increase in cash available for investment that was generated
      through the sale of common shares and the exercise of warrants and options
      in
      early 2005.




***Item
      7A.***  ***Quantitative
      and Qualitative Disclosures About Market Risk***





Not
      Applicable.




42


***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 2006 and
      2005 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).





**Supplementary
                Financial Information by Quarter, 2006 and
                2005****(Unaudited)**




**Quarter
                Ended**
            
            **Quarter
                Ended**
            
            **Quarter
                Ended**
            
            **Quarter
                Ended****March
                31**
            
            **June
                30**
            
            **September
                30**
            
            **December
                31****Year
                Ended December 31, 2006:**Revenues
            
            $
            545,296
            
            $
            1,056,828
            
            $
            749,898
            
            $
            1,971,938Operating
                Expenses
            
            $
            5,270,989
            
            $
            4,985,237
            
            $
            4,908,681
            
            $
            6,840,468Net
                Loss
            
            $
            (4,560,064
            )
            $
            (3,789,018
            )
            $
            (4,054,686
            )
            $
            (4,796,515
            )Loss
                per Common Share: (1)Basic
                and Diluted
            
            $
            (0.08
            )
            $
            (0.06
            )
            $
            (0.07
            )
            $
            (0.08
            )**Year
                Ended December 31, 2005:**Revenues
            
            $
            1,027,580
            
            $
            502,881
            
            $
            585,405
            
            $
            690,669Operating
                Expenses
            
            $
            3,325,584
            
            $
            2,554,426
            
            $
            2,939,565
            
            $
            4,468,813Net
                Loss
            
            $
            (2,245,959
            )
            $
            (1,919,078
            )
            $
            (2,176,826
            )
            $
            (3,595,349
            )Loss
                per Common Share: (1)Basic
                and Diluted
            
            $
            (0.04
            )
            $
            (0.03
            )
            $
            (0.04
            )
            $
            (0.06
            )




(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-5 through F-27
      of
      this Report.




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





The
      information called for by this item was previously reported on a Current Report
      on Form 8-K filed with the SEC on August 24, 2005, which discloses the
      termination of our engagement of Deloitte & Touche LLP, and on a Current
      Report on Form 8-K filed with the SEC on September 30, 2005, which discloses
      the
      engagement of Perry-Smith LLP as the Company’s accountants.




***Item
      9A.***  ***Controls
      and Procedures***





Disclosure
      Controls and Procedures .
      Under
      the supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), as of December 31, 2006. Based upon this
      evaluation, our chief executive officer and our chief financial officer have
      concluded that, as of December 31, 2006, our disclosure controls and procedures
      were effective in ensuring that information required to be disclosed by the
      Company in reports that it files under the Exchange Act is recorded, processed,
      summarized and reported within the time periods required by governing rules
      and
      forms.





43


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:





·
            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 our internal control over financial
      reporting as of December 31, 2006. 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, 2006, we maintained effective internal
      control over financial reporting.





Perry-Smith
      LLP, independent registered public accounting firm, who audited and reported
      on
      our consolidated financial statements included in this report, has issued an
      attestation report on management’s assessment of internal control over financial
      reporting. This attestation report appears on pages F-2 and F-3 of this
      report.





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 2006
      that
      has materially affected, or is reasonably likely to materially affect, our
      internal control over financial reporting.







44


***Item
      9B.***  ***Other
      Information***





None.





**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.




45


**PART
      IV**







***Item
      15.***  ***Exhibits,
      Financial Statement Schedules and Reports on Form 8-K***





(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





·
            Report
                of Former Independent Registered Public Accounting
                Firm





·
            Consolidated
                Balance Sheets, December 31, 2006 and
                2005





·
            Consolidated
                Statements of Operations for Each of the Three Years in
                the Period Ended December 31,
                2006





·
            Consolidated
                Statements of Shareholders’ Equity and Comprehensive Loss for Each of the
                Three Years in the Period Ended December 31,
                2006





·
            Consolidated
                Statements of Cash Flows for Each of the Three Years in the Period
                Ended
                December 31, 2006





·
            Notes
                to Consolidated Financial
                Statements




2.
            *Financial
                Statement Schedule*.
                Not applicable.





*Exhibit
      List* .





See
      the
      Exhibit Index following the signature page hereof.





46


**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, on March 13, 2007.


ALTAIR
              NANOTECHNOLOGIES INC.By:
            /s/ Alan
              J.
              GotcherAlan
                J. Gotcher,
              President
                and Chief Executive Officer
              
              Date:
                March 13, 2007







**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 Alan J. Gotcher and Edward Dickinson, 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 and post-effective
      amendments to this Report, and any and all instruments or documents filed as
      part of or in connection with this Form 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/
                Alan J. Gotcher
              Alan
                J. Gotcher
            President,
                Chief Executive Officer and Director (Principal Executive
                Officer)
            
            March
                13, 2007/s/
                Edward Dickinson
              Edward
                Dickinson
            Chief
                Financial Officer and Secretary (Principal Financial and Accounting
                Officer)
            
            March
                13, 2007/s/
                Michel Bazinet
              Michel
                Bazinet
            Director
            
            March
                13, 2007/s/
                Jon N. Bengtson
              Jon
                N. Bengtson
            Director
            
            March
                13, 2007/s/
                James I. Golla
              James
                I. Golla
            Director
            
            March
                13, 2007






47


/s/
                George Hartman
              George
                Hartman
            Director
            
            March
                13, 2007/s/
                Christopher E. Jones
              Christopher
                E. Jones
            Director
            
            March
                13, 2007/s/
                Pierre Lortie
              Pierre
                Lortie
            Director
            
            March
                13, 2007










48





**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
            
            Incorporated
                by reference to Registration Statement on Form 10-SB filed with the
                SEC on
                November 25, 1996.**4.2
            
            Amended
                and Restated Shareholder Rights Plan dated October 15, 1999, between
                the
                Company and 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.**10.1
            
            Altair
                International Inc. Stock Option Plan adopted byshareholders
                on May 10, 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, 1997.10.2
            
            1998
                Altair International Inc. Stock Option Planadoptedby
                Shareholders on June 11, 1998
            
            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
            
            Incorporated
                by reference to the Company’s Registration Statement on Form S-8, File No.
                333-125863, filed with the SEC on June 16, 2005.10.4
            
            Installment
                Note dated August 8, 2002 (re Edison Way property)
            
            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,
                2003.10.5
            
            Trust
                Deed dated August 8, 2002 (re Edison Way property)
            
            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,
                2003.10.6
            
            Employment
                Agreement of Edward Dickinson
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                SEC on February 21, 2006. **




49
 
 **Exhibit
                  No.**
              
              **Description**
              
              **Incorporated
                  by Reference/**
                **Filed
                  Herewith (and Sequential Page
                  #)**


10.7
            
            Employment
                Agreement of Alan J. Gotcher, Ph.D.
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                SEC on February 21, 2006.**10.8
            
            Employment
                Agreement of Bruce J. Sabacky
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                SEC on June 6, 2006**10.9
            
            License
                Agreement dated January 28, 2005 with Spectrum Pharmaceuticals, Inc.*
            
            Incorporated
                by reference from the Company’s Current Report on Form 8-K filed with the
                SEC on February 4, 2005.**10.10
            
            Letter
                Agreement dated February 11, 2005 between the Company and Maxim Group
                LLC
            
            Incorporated
                by reference from the Current Report on Form 8-K filed by the Company
                on
                February 15, 2005.**10.11
            
            Subcontract
                between the UNLV Research Foundation and Altair Nanomaterials,
                Inc.
            
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q filed with the
                SEC August 15, 2005.**10.12
            
            Lease
                dated October 1, 2005 (Main Indiana Office) with Flagship Enterprise
                Center
            
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q filed with the
                SEC November 14, 2005.**10.13
            
            Lease
                dated August 1, 2006 (Indiana Office Additional Space) with Flagship
                Enterprise Center
            
            Filed
                herewith.**10.14
            
            Lease
                dated September 1, 2007 (Indiana Office Additional Space) with Flagship
                Enterprise Center
            
            Filed
                herewith.**10.15
            
            Addendum
                dated February 1, 2007 (re Indiana Office Additonal 440 sq ft. Space)
                with
                Flagship Enterprise Center
            
            Filed
                herewith.**10.16
            
            Addendum
                dated February 1, 2007 (re Indiana Office Additonal 1,375 sq ft.
                Space)
                with Flagship Enterprise Center
            
            Filed
                herewith.**10.17
            
            Placement
                Agent Agreement with Cowen and Company, LLC
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                SEC on December 13, 2006.**10.18
            
            Purchase
                and Supply Agreement with Phoenix Motorcars, Inc.*
            
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                SEC on January 12, 2007.**10.19
            
            Department
                of Energy Grant Agreement
            
            Filed
                herewith.**




50
 
 **Exhibit
                  No.**
              
              **Description**
              
              **Incorporated
                  by Reference/**
                **Filed
                  Herewith (and Sequential Page
                  #)**


10.20
            
            2007
                Annual Executive Incentive Bonus Plan*
            
            Filed
                herewith.21
            
            List
                of Subsidiaries
            
            Incorporated
                by reference from Item 1 of this report.23.1
            
            Consent
                of Perry-Smith LLP
            
            Filed
                herewith.23.2
            
            Consent
                of Deloitte & Touche 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
                herewith.31.2
            
            Rule
                13-14(a)/15d-15a Certification of Chief Financial Officer
            
            Filed
                herewith.32.1
            
            Section
                1350 Certification of Chief Executive Officer
            
            Filed
                herewith.32.2
            
            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.








51







***Altair
                Nanotechnologies Inc.***
              ***and
                Subsidiaries***
              
              *Consolidated
                Financial Statements as of December 31, 2006 and 2005 and for Each of
                the Three Years in the Period Ended December 31, 2006 and Reports
                of
                Independent Registered Public Accounting Firms*













**ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIES**




**TABLE
      OF CONTENTS**




**Page**REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              F-1REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL
                  OVER
                  FINANCIAL REPORTING
              F-2-F-3REPORT
                  OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              F-4FINANCIAL
                  STATEMENTS:Consolidated
                  Balance Sheets, December 31, 2006 and 2005
              F-5Consolidated
                    Statements of Operations for Each of the Three Yearsin the Period
                    Ended December 31, 2006
              F-6Consolidated
                    Statements of Stockholders’ Equity and Comprehensive Lossfor Each
                    of the Three Years in the Period Ended December 31, 2006
              F-7-F-8Consolidated
                    Statements of Cash Flows for Each of the Three Years inthe Period
                    Ended December 31, 2006
              F-9-F-10Notes
                  to Consolidated Financial Statements
              F-11-F-31












**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**







The
      Shareholders and Board of Directors


Altair
      Nanotechnologies, Inc. and Subsidiaries





We
      have
      audited the consolidated balance sheets of Altair
      Nanotechnologies, Inc. and subsidiaries (the
      "Company") as of December 31, 2006 and 2005 and the related consolidated
      statements of operations, changes in stockholders' equity and comprehensive
      gain
      (loss) and cash flows for the years then ended. 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 audit 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, 2006 and 2005 and the consolidated results of their operations
      and their cash flows for the years then ended, 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 effectiveness of the Company's internal
      control over financial reporting as of December 31, 2006, 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 7, 2007 expressed an unqualified opinion on management's
      assessment of the effectiveness of the Company's internal control over financial
      reporting and an unqualified opinion on the effectiveness of the Company's
      internal control over financial reporting.







/s/
      Perry-Smith LLP





Sacramento,
      California


March
      7,
      2007





F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


**ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING**








The
      Shareholders and Board of Directors


Altair
      Nanotechnologies, Inc. and Subsidiaries





We
      have
      audited management's assessment, included in the accompanying Management Report
      on Internal Control Over Financial Reporting, that Altair Nanotechnologies,
      Inc.
      and subsidiaries (the "Company") maintained effective internal control over
      financial reporting as of December 31, 2006, based on criteria established
      in *Internal
      Control—Integrated Framework* issued
      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. Our responsibility
      is to express an opinion on management's assessment and an opinion on the
      effectiveness of 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, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and 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.





In
      our
      opinion, management's assessment that the Company maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on the COSO criteria. Also in our opinion, the
      Company maintained, in all material respects, effective internal control over
      financial reporting as of December 31, 2006, based on the COSO
      criteria.




F-2


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


**ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING**


(Continued)







We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheet of the Company
      as of December 31, 2006, and the related consolidated statements of operations,
      changes in shareholders' equity and comprehensive gain (loss), and cash flows
      for the year then ended and our report dated March 7, 2007 expressed an
      unqualified opinion.








/s/
      Perry-Smith LLP








Sacramento,
      California


March
      7,
      2007








F-3




**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
   To
        the
        Board of Directors and Stockholders of
 Altair
        Nanotechnologies Inc.
 Reno,
        Nevada
 
 We
        have
        audited the accompanying consolidated statements of operations, stockholders’
equity, and cash flows of Altair Nanotechnologies Inc. and subsidiaries (the
        "Company") for the year ended December 31, 2004. These financial statements
        are
        the responsibility of the Company's management. Our responsibility is to
        express
        an opinion on these financial statements 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 the financial
        statements are free of material misstatement. An audit includes consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audit provides
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the results of operations and cash flows of Altair Nanotechnologies
        Inc. and subsidiaries for the year ended December 31, 2004, in conformity
        with
        accounting principles generally accepted in the United States of
        America.
 
 
 
 /s/
        DELOITTE & TOUCHE LLP
 Salt
        Lake
        City, Utah
 March
        7,
        2005


F-4


**PART
                I - FINANCIAL INFORMATION****Item
                1. Financial Statements****ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEETS****(Expressed
                in United States Dollars)**




**December
                31,**
            
            **December
                31,****2006**
            
            **2005****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            12,679,254
            
            $
            2,264,418Investment
                in available for sale securities
            
            
            14,541,103
            
            
            20,789,656Accounts
                receivable
            
            
            1,624,825
            
            
            602,168Product
                Inventories
            
            
            169,666
            
            
            -Prepaid
                expenses and other current assets
            
            
            413,390
            
            
            254,067Total
                current assets
            
            
            29,428,238
            
            
            23,910,309**Investment
                in Available for Sale Securities**
            
            
            1,306,420
            
            
            423,000**Property,
                Plant and Equipment, net**
            
            
            11,229,406
            
            
            8,169,445**Patents,
                net**
            
            
            805,248
            
            
            890,062**Notes
                Receivable**
            
            
            330,000
            
            
            -**Other
                Assets**
            
            
            21,261
            
            
            71,200**Total
                Assets**
            
            $
            43,120,573
            
            $
            33,464,016**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Trade
                accounts payable
            
            $
            1,533,047
            
            $
            808,905Accrued
                salaries and benefits
            
            
            840,219
            
            
            709,349Accrued
                liabilities
            
            
            526,596
            
            
            309,289Note
                payable, current portion
            
            
            600,000
            
            
            600,000Total
                current liabilities
            
            
            3,499,862
            
            
            2,427,543**Note
                Payable, Long-Term Portion**
            
            
            1,800,000
            
            
            2,400,000**Total
                Liabilities**
            
            
            5,299,862
            
            
            4,827,543**Commitments
                and Contingencies (Notes 9, 13 and 15)****Stockholders'
                Equity**Common
                stock, no par value, unlimited shares authorized;69,079,270
                and 59,316,519 shares issued andoutstanding
                at December 31, 2006 and December 31, 2005
            
            
            115,989,879
            
            
            92,126,714Additional
                paid in capital
            
            
            2,002,220Accumulated
                deficit
            
            
            (80,353,188
            )
            
            (63,152,905
            )Deferred
                compensation expense
            
            
            -
            
            
            (165,336
            )Accumulated
                other comprehensive gain/(loss)
            
            
            181,800
            
            
            (172,000
            )**Total
                Stockholders' Equity**
            
            
            37,820,711
            
            
            28,636,473**Total
                Liabilities and Stockholders' Equity**
            
            $
            43,120,573
            
            $
            33,464,016




See
                notes to the consolidated financial
                statements.


F-5




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF OPERATIONS****(Expressed
                in United States Dollars)**




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Revenues**License
                fees
            
            $
            464,720
            
            $
            695,000
            
            $
            -Product
                sales
            
            
            961,380
            
            
            149,373
            
            
            7,503Commercial
                collaborations
            
            
            1,420,151
            
            
            825,723
            
            
            552,499Contracts
                and grants
            
            
            1,477,709
            
            
            1,136,439
            
            
            591,890Total
                revenues
            
            
            4,323,960
            
            
            2,806,535
            
            
            1,151,892**Operating
                Expenses**Cost
                of product sales
            
            
            1,034,431
            
            
            69,489
            
            
            1,361Research
                and development
            
            
            10,077,231
            
            
            5,073,478
            
            
            2,189,150Sales
                and marketing
            
            
            1,878,783
            
            
            1,539,765
            
            
            335,221General
                and administrative
            
            
            7,495,180
            
            
            5,571,454
            
            
            4,626,562Depreciation
                and amortization
            
            
            1,519,750
            
            
            1,034,202
            
            
            904,553Total
                operating expenses
            
            
            22,005,375
            
            
            13,288,388
            
            
            8,056,847**Loss
                from Operations**
            
            
            (17,681,415
            )
            
            (10,481,853
            )
            
            (6,904,955
            )**Other
                Income (Expense)**Interest
                expense
            
            
            (171,500
            )
            
            (207,189
            )
            
            (194,180
            )Interest
                income
            
            
            654,182
            
            
            750,306
            
            
            96,229(Loss)/gain
                on foreign exchange
            
            
            (1,550
            )
            
            1,524
            
            
            626Total
                other income (expense), net
            
            
            481,132
            
            
            544,641
            
            
            (97,325
            )**Net
                Loss**
            
            $
            (17,200,283
            )
            $
            (9,937,212
            )
            $
            (7,002,280
            )**Loss
                per common share - Basic and diluted**
            
            $
            (0.29
            )
            $
            (0.17
            )
            $
            (0.14
            )**Weighted
                average shares - Basic and diluted**
            
            
            59,709,487
            
            
            57,766,557
            
            
            48,677,283




See
                notes to the consolidated financial statements.





F-6




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                LOSS****(Expressed
                in United States Dollars)**




**Accumulated****Deferred**
            
            **Other****Additional**
            
            
            
            **Compen-**
            
            **Compre-****Common
                Stock**
            
            **Paid
                In**
            
            **Accumulated**
            
            **sation**
            
            **hensive****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Expense**
            
            **Gain
                (Loss)**
            
            **Total**BALANCE,
                JANUARY 1, 2004
            
            
            43,188,362
            
            $
            54,789,896
            
            $
            -
            
            $
            (46,213,413
            )
            $
            -
            
            $
            -
            
            $
            8,576,483Stock
                options issued to non- employees
            
            
            -
            
            
            270,560
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            270,560Modification
                of stock optionsissued
                to employee
            
            
            -
            
            
            39,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            39,000Variable
                accounting on stock options
            
            
            -
            
            
            136,212
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            136,212Shares
                issued for services
            
            
            200,000
            
            
            413,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            413,000Exercise
                of stock options
            
            
            561,900
            
            
            902,109
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            902,109Exercise
                of warrants
            
            
            5,825,432
            
            
            8,954,853
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,954,853Net
                Loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,002,280
            )
            
            -
            
            
            -
            
            
            (7,002,280
            )BALANCE,
                DECEMBER 31, 2004
            
            
            49,775,694
            
            $
            65,505,630
            
            
            -
            
            $
            (53,215,693
            )
            
            -
            
            
            -
            
            $
            12,289,937Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,937,212
            )
            
            -
            
            
            -
            
            
            (9,937,212
            )Other
                comprehensive loss,net
                of taxes of $0
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (172,000
            )
            
            (172,000
            )Comprehensive
                loss:
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10,109,212
            )Modification
                of stock optionsissued
                to employees
            
            
            -
            
            
            56,060
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            56,060Variable
                accounting on stockoptions
            
            
            -
            
            
            297,138
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            297,138Exercise
                of stock options
            
            
            1,204,500
            
            
            1,828,900
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,828,900Exercise
                of warrants
            
            
            3,201,511
            
            
            4,828,567
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,828,567Issuance
                of restricted stock
            
            
            96,500
            
            
            272,155
            
            
            -
            
            
            -
            
            
            (272,155
            )
            
            -
            
            
            -Amortization
                of deferred
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -compensation
                expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            106,819
            
            
            -
            
            
            106,819Common
                stock issued, net ofissuance
                costs of $2,081,989
            
            
            5,038,314
            
            
            19,338,264
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            19,338,264BALANCE,
                DECEMBER 31, 2005
            
            
            59,316,519
            
            $
            92,126,714
            
            $
            -
            
            $
            (63,152,905
            )
            $
            (165,336
            )
            $
            (172,000
            )
            $
            28,636,473




*(continued)*




F-7




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                LOSS****(Expressed
                in United States Dollars)****(Unaudited)**




**Accumulated****Deferred**
            
            **Other****Additional**
            
            
            
            **Compen-**
            
            **Compre-****Common
                Stock**
            
            **Paid
                In**
            
            **Accumulated**
            
            **sation**
            
            **hensive****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Expense**
            
            **Gain
                (Loss)**
            
            **Total**BALANCE,
                DECEMBER 31, 2005
            
            
            59,316,519
            
            $
            92,126,714
            
            $
            -
            
            $
            (63,152,905
            )
            $
            (165,336
            )
            $
            (172,000
            )
            $
            28,636,473Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (17,200,283
            )
            
            -
            
            
            -
            
            
            (17,200,283
            )Other
                comprehensive income,net
                of taxes of $0
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            353,800
            
            
            353,800Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (16,846,483
            )Share-based
                compensation
            
            
            -
            
            
            281,514
            
            
            2,002,220
            
            
            -
            
            
            -
            
            
            -
            
            
            2,283,734Exercise
                of stock options
            
            
            189,449
            
            
            347,653
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            347,653Exercise
                of warrants
            
            
            236,168
            
            
            455,670
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            455,670Issuance
                of restricted stock
            
            
            77,875
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Elimination
                of deferredcompensation
                expense (uponadoption
                of new accountingstandard)
            
            
            -
            
            
            (165,336
            )
            
            -
            
            
            -
            
            
            165,336
            
            
            -
            
            
            -Common
                stock issued, net ofissuance
                costs of $2,056,336
            
            
            9,259,259
            
            
            22,943,664
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            22,943,664BALANCE,
                DECEMBER 31, 2006
            
            
            69,079,270
            
            $
            115,989,879
            
            $
            2,002,220
            
            $
            (80,353,188
            )
            $
            -
            
            $
            181,800
            
            $
            37,820,711




*(concluded)*See
                notes to the consolidated financial statements.







F-8




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(Expressed
                in United States Dollars)**




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Cash
                flows from operating activities:**Net
                loss
            
            $
            (17,200,283
            )
            $
            (9,937,212
            )
            $
            (7,002,280
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            1,519,750
            
            
            1,034,202
            
            
            904,553Variable
                accounting on stock options
            
            
            -
            
            
            297,138
            
            
            136,212Securities
                received in payment of license fees
            
            
            (529,620
            )
            
            (595,000
            )
            
            -Amortization
                of discount on note payable
            
            
            -
            
            
            119,689
            
            
            194,182Share-based
                compensation
            
            
            2,283,734
            
            
            162,880
            
            
            309,560Shares
                issued for services
            
            
            -
            
            
            -
            
            
            413,000Loss
                on disposal of fixed assets
            
            
            107,276
            
            
            81,203
            
            
            34,716Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (1,022,657
            )
            
            (102,569
            )
            
            (486,275
            )Product
                inventories
            
            
            (169,666
            )
            
            -
            
            
            -Prepaid
                expenses and other current assets
            
            
            (159,323
            )
            
            (71,472
            )
            
            (103,408
            )Notes
                receivable
            
            
            (330,000
            )
            
            -
            
            
            -Other
                assets
            
            
            49,939
            
            
            (53,000
            )
            
            -Trade
                accounts payable
            
            
            664,890
            
            
            507,978
            
            
            (4,225
            )Accrued
                salaries and benefits
            
            
            130,870
            
            
            554,791
            
            
            56,371Accrued
                liabilities
            
            
            217,307
            
            
            168,104
            
            
            (72,514
            )**Net
                cash used in operating activities**
            
            
            (14,437,783
            )
            
            (7,833,268
            )
            
            (5,620,108
            )**Cash
                flows from investing activities:**Sale
                of available for sale securities
            
            
            30,150,000
            
            
            6,300,000
            
            
            -Purchase
                of available for sale securities
            
            
            (23,901,446
            )
            
            (27,089,656
            )
            
            -Purchase
                of property and equipment
            
            
            (4,542,921
            )
            
            (2,466,230
            )
            
            (748,680
            )**Net
                cash provided by (used in) investing activities**
            
            
            1,705,633
            
            
            (23,255,886
            )
            
            (748,680
            )




*(continued)*





F-9




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(Expressed
                in United States Dollars)**




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Cash
                flows from financing activities:**Issuance
                of common shares for cash, net ofissuance
                costs
            
            $
            22,943,663
            
            $
            19,338,262
            
            $
            -Proceeds
                from exercise of stock options
            
            
            347,653
            
            
            1,828,900
            
            
            902,109Proceeds
                from exercise of warrants
            
            
            455,670
            
            
            4,828,567
            
            
            8,954,853Payment
                of notes payable
            
            
            (600,000
            )
            
            -
            
            
            -**Net
                cash provided by financing activities**
            
            
            23,146,986
            
            
            25,995,729
            
            
            9,856,962**Net
                increase (decrease) in cash and cash equivalents**
            
            
            10,414,836
            
            
            (5,093,425
            )
            
            3,488,174**Cash
                and cash equivalents, beginning of period**
            
            
            2,264,418
            
            
            7,357,843
            
            
            3,869,669**Cash
                and cash equivalents, end of period**
            
            $
            12,679,254
            
            $
            2,264,418
            
            $
            7,357,843**Supplemental
                disclosures:**Cash
                paid for interest
            
            $
            105,000
            
            
            None
            
            
            NoneCash
                paid for income taxes
            
            
            None
            
            
            None
            
            
            None




**Supplemental
                schedule of non-cash investing and financing
                activities:****For
                the year ended December 31, 2006:**-
                We issued 77,875 shares of restricted stock to employees and directors
                having a fair value of approximately $281,000
                for which no cash will be received.-
                We made property and equipment purchases of $59,252 which are included
                in
                trade accounts payable at December 31, 2006.-
                We had unrealized gains on available for sale securities of
                $353,800.**For
                the year ended December 31, 2005:**-
                We made property and equipment purchases of $219,897 which are included
                in
                trade accounts payable at December 31, 2006.-
                We issued 96,500 shares of restricted stock to employees and directors
                having a fair value of $272,155 for which no cash will
                be received.-
                We had an unrealized loss on available for sale securities of
                $172,000.**For
                the year ended December 31, 2004:**-
                None*(concluded)*See
                notes to the consolidated financial
                statements.





F-10


**ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIES**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**


**(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 nanomaterial
      and titanium dioxide pigment technologies. 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 100,000 square feet, and in
      Anderson, Indiana, of approximately 8,000 square feet.





***Principles
      of Consolidation —*** The
      consolidated financial statements include the accounts of Altair
      Nanotechnologies Inc. and its subsidiaries which include (1) Altair US Holdings,
      Inc., (2) Mineral Recovery Systems, Inc. (“MRS”), (3) Fine Gold Recovery
      Systems, Inc. (“FGRS”), and (4) Altairnano, Inc. (“ANI”), (collectively referred
      to as the “Company”), all of which are 100% owned. All of the subsidiaries are
      incorporated in the United States of America. Intercompany 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, 2006, 2005 and 2004,
      we
      incurred net losses of $17,200,283, $9,937,212 and $7,002,280, respectively.
      At
      December 31, 2006 and 2005, we had stockholders’ equity of $37,820,711 and
      $28,636,473, 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 stock,
      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 anticipated option
      and
      warrant exercises will be sufficient to enable us to continue as a going concern
      through mid-2008.








**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.




F-11


***Cash,
      Cash Equivalents and Investment in Available for Sale Securities
      (short-term)*** **** ***—*** **** Cash,
      cash equivalents and **** investment
      in available for sale securities (short-term) consist principally of bank
      deposits, institutional money market funds and corporate notes. 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”) up to a maximum of $100,000. At December 31, 2006
      and 2005, we had cash deposits of approximately $3.0 million and $1.9 million,
      respectively, in excess of FDIC insurance limits.





***Investment
      in Available for Sale Securities (long-term)*** **** ***—*** **** Investments
      acquired with the intent to hold for more than one year are classified as
      long-term investments. 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, 2006
      is
      $62,185. As of December 31, 2005 and December 31, 2004, Management determined
      that all amounts due were fully collectible accordingly; no allowance was booked
      in those years. Actual losses related to collection of accounts receivable
      for
      the years ended December 31, 2006, 2005 and 2004 were
      insignificant.





***Inventory
      -*** **** The
      Company values its 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.





***Property,
      Plant and Equipment —*** Property,
      plant and equipment 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




***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.





***Notes
      Receivable (long-term) -*** Notes
      receivable consists of amounts due from customers for services and product
      sales, net of an allowance on notes receivable. We determine an allowance on
      notes receivable based on a review of the customer’s financial status performed
      on a bi-annual basis. Notes receivable are also reviewed to determine if
      discounts are required to be booked for notes that are not issued at prevailing
      market rates. At December 31, 2006, no allowance or discounts were required
      to
      be recorded. Interest income is calculated and recognized according to the
      contractual terms of the notes receivable. In the event an allowance on notes
      receivable is required or the note is in default, the accrual of interest income
      will be discontinued. The accrual of interest income resumes if the customer’s
      financial status indicates that collection is likely or the default is
      cured.





F-12


***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 behalf of the company 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 —*** As
      of
      January 1, 2006, we adopted the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 123 (R), *Accounting
      for Stock-Based Compensation* .
      Under
      the provisions of SFAS 123 (R), we are required to 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). Prior to January 1, 2006, the Company
      accounted for those plans under the recognition and measurement provisions
      of
      APB “Opinion” No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations, as permitted by FASB Statement No 123, *Accounting
      for Stock-Based Compensation* .





We
      have
      made the transition to SFAS 123 (R) using the modified prospective method.
      Under
      the modified prospective method, SFAS 123 (R) is applied to new awards and
      to
      awards modified, repurchased, or cancelled after January 1, 2006. 
Additionally, compensation cost for the portion of awards for which the
      requisite service has not been rendered (such as unvested options) that are
      outstanding as of January 1, 2006 are being recognized over the period that
      the
      remaining requisite services are rendered.  The compensation cost relating
      to unvested awards at January 1, 2006 is based on the grant-date fair value
      of
      those awards. Under this method of implementation, no restatement of prior
      periods has been made.





As
      a
      result of adopting Statement 123 (R) on January 1, 2006, the Company’s net loss
      for the year ended December 31, 2006 is $1,907,711 higher than if it had
      continued to account for share-based compensation under Opinion 25. Basic and
      diluted loss per share for the year ended December 31, 2006 would have been
      $(0.26), if the Company had not adopted Statement 123 (R), compared to reported
      basic and diluted earnings per share of $(0.29). We have not recorded income
      tax
      benefits related to equity-based compensation expense as deferred tax assets
      are
      fully offset by a valuation allowance. As a result, the implementation of SFAS
      123 (R) did not impact the Statement of Cash Flows for the year ended December
      31, 2006.





F-13


The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of Statement 123
      to
      options granted under the company’s stock option plans for the years ended
      December 31, 2005 and 2004. For purposes of this pro forma disclosure, the
      value
      of the options is estimated using a Black-Scholes option-pricing model and
      amortized to expense over the options’ vesting periods.





**Year
                Ended December 31,****2005**
            
            **2004**Net
                loss, as reported
            
            $
            (9,937,212
            )
            $
            (7,002,280
            )Deduct:
                stock-based employee compensationexpense
                included in reported net loss, netof
                $0 related tax effects
            
            
            353,198
            
            
            445,772(Add):
                total stock-based employee compensationexpense
                determined under fair value basedmethod
                for all awards, net of $0 related tax effects
            
            
            (1,502,731
            )
            
            (1,536,945
            )Pro
                forma net loss
            
            $
            (11,086,745
            )
            $
            (8,093,453
            )Loss
                per common share (basic and diluted):As
                reported
            
            $
            (0.17
            )
            $
            (0.14
            )Pro
                forma
            
            $
            (0.19
            )
            $
            (0.17
            )





***Long-Lived
      Assets —*** We
      evaluate the carrying value of long-term assets, including intangibles, 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.





***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 collectibility is probable in accordance with the Securities and Exchange
      Commission “Staff Bulletin no. 104”.  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.





F-14


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





***Net
      Loss per Common Share —*** Basic
      earnings per share is computed using the weighted average number of common
      shares outstanding during the period.  Diluted earnings 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 antidilutive.  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 9 and 10, were included
      in
      the computation of diluted loss per share as they were antidilutive.  Stock
      options and warrants to purchase a total of 6,534,747, 4,097,756, and 7,865,431
      shares of common stock were excluded from the calculations of diluted loss
      per
      share for the years ended December 31, 2006, 2005 and 2004,
      respectively.





***Accumulated
      Other Comprehensive Gain/(Loss)*** **** ***—*** **** Accumulated
      other comprehensive gain/(loss) consists entirely of unrealized gain/(loss)
      on
      the investment in available for sale securities. The components of comprehensive
      loss for the years
      ended December 31, 2006, 2005 and 2004 are as
      follows:





Year
                Ended December 31,2006
            
            2005
            
            2004Net
                loss
            
            $
            (17,200,283
            )
            $
            (9,937,212
            )
            $
            (7,002,280
            )Unrealized
                gain (loss) on investmentin
                available for sale securities,net
                of taxes of $0
            
            
            353,800
            
            
            (172,000
            )
            
            -Comprehensive
                loss
            
            $
            (16,846,483
            )
            $
            (10,109,212
            )
            $
            (7,002,280
            )





***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
      in
      the bases of assets and liabilities as reported for financial statement purposes
      and income tax purposes. We have recorded a valuation allowance against all
      net
      deferred income tax assets. The
      valuation allowance reduces deferred income tax assets to an amount that
      represents management’s best estimate of the amount of such deferred income 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.




***Recent
      Accounting Pronouncements*** **—** On
      November 10, 2005, the Financial Accounting Standards Board ("FASB") issued
      FASB
      Staff Position No. FAS 123R-3, *Transition
      Election Related to Accounting for Tax Effects of Share-Based Payment
      Awards* ("FSP
      123R-3"). The alternative transition method includes simplified methods to
      establish the beginning balance of the additional paid-in capital pool ("APIC
      pool") related to the tax effects of employee stock-based compensation, and
      to
      determine the subsequent impact on the APIC pool and consolidated statements
      of
      cash flows of the tax effects of employee stock-based compensation awards that
      are outstanding upon adoption of Statement of Financial Accounting Standards
      No.
      123 (revised 2004), *Share
      Based Payment,* (“SFAS
      123R”). This Staff Position is not applicable since the Company historically has
      never generated a profit and tax deductions were never taken relating to
      stock-based compensation. The APIC pool balance will be established at such
      a
      time that the Company becomes profitable and all net operating loss
      carryforwards are either utilized or expired. We also have not recorded income
      tax benefits related to equity-based compensation expense as deferred tax assets
      are fully offset by a valuation allowance. The impact of income tax benefits
      related to equity-based compensation expense on the deferred tax assets,
      valuation allowance, and net operating losses will however, be disclosed in
      Note
      13 - Income Taxes.




F-15


In
      June
      2006, the FASB issued FASB interpretation No. 48 (FIN48), *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
      109* . FIN
      48
      clarifies the accounting for uncertainty in income taxes recognized in a
      company’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* .
      FIN 48
      also prescribes a recognition threshold and measurement standard for the
      financial statement recognition and measurement of an income tax position taken
      or expected to be taken in a tax return. In addition, FIN 48 provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition.




The
      provisions of FIN 48 will be effective for the Company on January 1, 2007 and
      are to be applied to all tax positions upon initial application of this
      standard. Only tax positions that meet the more-likely-than-not recognition
      threshold at the effective date may be recognized or continue to be recognized
      upon adoption. The cumulative effect of applying the provisions of FIN 48 will
      be reported as an adjustment to the opening balance of retained earnings for
      the
      fiscal year of adoption. The Company is currently evaluating the impact of
      its
      adoption of FIN 48 and has not yet determined the effect on its earnings or
      financial position.




In
      September 2006, the Securities and Exchange Commission published Staff
      Accounting Bulleting No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* .
      The
      interpretations in this Staff Accounting Bulleting are being issued to address
      diversity in practice in quantifying financial statement misstatements and
      the
      potential under current practice to build up improper amounts on the balance
      sheet. This guidance will apply to the first fiscal year ending after November
      15, 2006. The adoption of SAB 108 did not have a material impact on our
      financial position, results of operations or cash flows.





In
      December 2006, the Financial Accounting Standards Board (“FASB”) released
      Statement of Financial Accounting Standards No. 157 - *Fair
      Value Measurements* .
      This
      statement defines fair value in generally accepted accounting principles
      (“GAAP”), and expands disclosures about fair value measurements. This standard
      applies under other accounting pronouncements that require or permit fair value
      measurements and is intended to increase consistency and comparability. This
      statement shall be effective for financial statements issued for fiscal years
      beginning after November 15, 2007. The adoption of FASB 157 is not expected
      to
      have a material impact on our financial position, results of operations or
      cash
      flows.





***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 (short-term) consist of auction rate corporate
      notes. The notes are long-term instruments with expiration dates through 2043.
      Interest is settled and the rate is reset every 7 to 28 days.





F-16


Investment
      in available for sale securities (long-term) consists of 100,000 shares of
      Spectrum Pharmaceuticals, Inc. (“Spectrum”) common stock received in January
      2005 and 140,000 shares received in June 2006. The 100,000 shares are eligible
      for resale under Rule 144. The 140,000 shares acquired in June 2006 are subject
      to a contractual provision preventing sale prior to June 2007. The Company
      currently intends to hold these investments indefinitely. The shares were
      received as payment of licensing and product improvement fees in connection
      with
      a license agreement for RenaZorb. 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 $1,138,200. At December 31, 2006,
      their
      fair value was approximately $1,320,000, representing an unrealized holding
      gain
      of approximately $181,800.





**4.**
            **INVENTORY**




Inventory
      consisted of the following at December 31, 2006 and 2005:





2006
            
            2005Work
                in Process
            
            $
            112,500
            
            $
            -Demonstration
                Units
            
            
            57,165
            
            
            -Total
                Product Inventories
            
            $
            169,666
            
            $
            -





As
      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, 2006 work in process consisted
      primarily of battery cells and modules in various stages of the manufacturing
      process.





**5.**
            **PROPERTY,
                PLANT AND EQUIPMENT**




Property,
      plant and equipment consisted of the following as of December 31, 2006 and
      2005:





2006
            
            2005Machinery
                and equipment
            
            $
            13,198,410
            
            $
            9,977,474Building
                & improvements
            
            
            3,319,806
            
            
            2,430,952Furniture,
                office equipment & other
            
            
            548,368
            
            
            377,716Total
            
            
            17,066,584
            
            
            12,786,142Less
                accumulated depreciation
            
            
            (5,837,178
            )
            
            (4,616,697
            )Total
                property and equipment
            
            $
            11,229,406
            
            $
            8,169,445




Depreciation
      expense for the years ended December 31, 2006, 2005, and 2004 totaled
      $1,434,935, $949,387, and $818,861, respectively.





F-17




**6.**
            **PATENTS**




Patents
      consisted of the following at December 31, 2006 and 2005:





2006
            
            2005Patents
                and patent applications
            
            $
            1,517,736
            
            $
            1,517,736Less
                accumulated amortization
            
            
            (712,488
            )
            
            (627,674
            )Total
                patents and patent applications
            
            $
            805,248
            
            $
            890,062





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 $84,814, $84,815 and $85,692 for the years ended December 31, 2006, 2005
      and
      2004, respectively. For each of the next five years, amortization expense
      relating to intangibles is expected to be approximately $85,000 per year.




**7.**
            **NOTES
                RECEIVABLE**




On
      December 31, 2006, we received a $330,000 unsecured notes receivable from
      Phoenix Motorcars, Inc. (see Note 16) in connection with the sale of battery
      packs, which bears interest at 10.5%. The principal and interest are due by
      December 30, 2008 with no pre-payment penalty.




**8.**
            **ACCRUED
                LIABILITIES**




Accrued
      liabilities consisted of the following at December 31, 2006 and
      2005:





2006
            
            2005Accrued
                interest
            
            $
            154,000
            
            $
            87,500Accrued
                use tax
            
            
            13,209
            
            
            50,866Accrued
                property tax
            
            
            36,057
            
            
            27,600Accrued
                mineral lease payments
            
            
            62,372
            
            
            77,936Accrued
                reclamation costs
            
            
            14,410
            
            
            20,500Accrued
                straight line rent
            
            
            42,143
            
            
            13,279Deferred
                revenue
            
            
            194,391
            
            
            10,150Other
            
            
            10,014
            
            
            21,458$
            526,596
            
            $
            309,289








**9.**
            **NOTES
                PAYABLE**




Notes
      payable consisted of the following at December 31, 2006 and 2005:





2006
            
            2005Note
                payable to BHP MineralsInternational,
                Inc.
            
            $
            2,400,000
            
            $
            3,000,000Less
                current portion
            
            
            (600,000
            )
            
            (600,000
            )Long-term
                portion of notes payable
            
            $
            1,800,000
            
            $
            2,400,000





F-18


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 $3,000,000,
      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 $566,763, which was then
      amortized to interest expense from inception of the note through August 8,
      2005.
      The first two payments of $600,000 of principal plus accrued interest were
      due
      and paid on February 8, 2006 and February 8, 2007. Additional payments of
      $600,000 plus accrued interest are due annually on February 8, 2008 through
      2010.





**10.**
            **STOCK
                BASED COMPENSATION**




At
      December 31, 2006, 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 the Company.
      This
      plan is described in more detail below. The compensation cost that has been
      charged against income for this plan was $2,008,271 for the year ended 2006.
      Of
      this amount, $433,763 was recognized in connection with restricted stock and
      options granted to non-employees.





In
      2005
      and 2004, we followed the measurement provisions of SFAS 123 for stock options
      issued to non-employees utilizing a Black-Scholes option-pricing model. We
      recorded compensation expense of $0, and $270,560, for stock options granted
      to
      non-employees for the years ended December 31, 2005 and 2004, respectively.
      The
      amount of expense related to restricted stock, included in the consolidated
      statements of operations under the provisions of APB Opinion No. 25, at December
      31, 2005 and 2004 was $106,819 and $0, respectively. During the years ended
      2005
      and 2004, the variable accounting method to record expense associated with
      modifications of stock options was utilized in accordance with APB 25 Variable
      accounting requires that changes in the intrinsic value of such modifications
      be
      recorded as periodic income or expense. We recorded compensation expense of
      $353,198 and $175,212 related to modified stock options for the year ended
      December 31, 2005 and 2004, respectively.





***Stock
      Options —*** The
      total number of shares authorized to be granted under the 2005 stock incentive
      plan is 3,000,000. 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 1,945,600 are outstanding and unexercised at
      December 31, 2006. 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 year
      ended December 31, 2006, the fair value of each stock option is estimated on
      the
      date of grant using the Black-Scholes option-pricing model and the following
      weighted average assumptions: dividend yield none; expected volatility of 94%,
      risk-free interest rate of 4.8%, and expected term (years) of 4.61. The
      computation of expected volatility used in the Black-Scholes 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.




F-19


In
      the
      years ended December 31, 2005 and 2004, the fair value of compensation expense
      relating to non-employee stock option grants was estimated on the date of the
      grant in accordance with FAS123 using the Black-Scholes option-pricing model
      and
      the following weighted average assumptions:





**2005**
            
            **2004**Dividend
                yield
            None
            
            NoneExpected
                volatility
            107%
            
            61%Risk-free
                interest rate
            3.70%
            
            3.17%Expected
                life (years)
            1.72
            
            5.40





A
      summary
      of option activity under our equity-based compensation plans as of December
      31,
      2006, and changes during the year then ended is presented below:





**Weighted****Weighted**
            
            **Average****Average**
            
            **Remaining**
            
            **Aggregate****Exercise**
            
            **Contractual**
            
            **Intrinsic****Shares**
            
            **Price**
            
            **Term
                (Years)**
            
            **Value**Outstanding
                at January 1, 2006
            
            
            2,533,200
            
            $
            2.69
            
            
            4.8
            
            $
            810,650Granted
            
            
            1,312,131
            
            
            3.33Exercised
            
            
            (189,449
            )
            
            1.83Forfeited/Expired
            
            
            (377,660
            )
            
            3.16Outstanding
                at December 31, 2006
            
            
            3,278,222
            
            $
            3.06
            
            
            5.9
            
            $
            1
                ,366,105Exercisable
                at December 31, 2006
            
            
            2,400,680
            
            $
            3.09
            
            
            4.7
            
            $
            1,177,713





Shares
      issued to non-employees reflected in the table above include 470,000 shares
      outstanding at January 1, 2006, 150,000 shares granted, and 15,000 shares
      exercised during the year ended December 31, 2006, resulting in 605,000 shares
      outstanding and 507,500 exercisable at December 31, 2006.





The
      weighted-average grant-date fair value of options granted during 2006 was $2.29.
      The weighted-average grant-date fair value of options calculated in accordance
      with FAS 123 granted during 2005 and 2004 was $2.11 and $1.15, respectively.
      The
      total intrinsic value of options exercised during the years ended December
      31,
      2006, 2005, and 2004 was $314,010, $3,103,587, and $658,722,
      respectively.





A
      summary
      of the status of nonvested shares at December 31, 2006 and changes during the
      year then ended, is presented below:




**Weighted****Average****Grant
                Date****Shares**
            
            **Fair
                Value**Non-vested
                shares at January 1, 2006
            
            
            793,875
            
            $
            1.87Granted
            
            
            1,312,131
            
            
            3.33Vested
            
            
            (995,714
            )
            
            3.37Forfeited/Expired
            
            
            (232,750
            )
            
            2.99Non-vested
                shares at December 31, 2006
            
            
            877,542
            
            $
            2.97





F-20


Non-vested
      shares relating to non-employees reflected in the table above include 125,000
      shares outstanding at January 1, 1006, 150,000 shares granted and 177,500 shares
      exercised during the year ended December 31, 2006, resulting in 97,500
      non-vested shares outstanding at December 31, 2006.





As
      of
      December 31, 2006, there was $719,973 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, 2006 was $2,226,825.





Cash
      received from warrant and stock option exercises for the years ended December
      31, 2006, 2005, and 2004 was $803,323, $6,657,467, and $9,856,962, respectively.





**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, 2006, the Board of
      Directors approved grants of 56,875 shares of restricted stock under the plan
      with a weighted average fair value of $3.17 per share. Restricted shares have
      the same voting and dividend rights as the Company’s unrestricted common shares,
      vest over a two-year period and are subject to the employee’s continued service
      to the Company. Prior to the implementation of FAS 123 (R), we recorded the
      issuance of restricted stock with an offsetting entry to a contra-equity account
      and amortized the balance over the vesting period. Effective January 1, 2006,
      we
      changed our accounting method to comply with FAS 123 (R) and eliminated the
      contra-equity account. Compensation cost for restricted stock is now recognized
      in the financial statements on a pro rata basis over the vesting period.





A
      summary
      of the changes in restricted stock outstanding during the year ended December
      31, 2006 is presented below:





**Weighted****Average****Grant
                Date****Shares**
            
            **Fair
                Value**Non-vested
                shares at January 1, 2006
            
            
            96,500
            
            $
            2.82Granted
            
            
            92,875
            
            
            3.17Vested
            
            
            (54,168
            )
            
            2.76Forfeited/Expired
            
            
            (15,000
            )
            
            2.88Non-vested
                shares at December 31, 2006
            
            
            120,207
            
            $
            2.96





Non-vested
      shares relating to non-employees reflected in the table above include 60,000
      shares outstanding at January 1, 2006, 56,875 shares granted and 35,000 shares
      vested during the year ended December 31, 2006, resulting in 81,875 non-vested
      shares outstanding at December 31, 2006.





As
      of
      December 31, 2006, we had
      $356,017 of total
      unrecognized compensation expense, net of estimated forfeitures, related to
      restricted stock which will be recognized over the weighted average period of
      1.9
      years.





F-21


**11.**
            **WARRANTS**




***Warrants
      —*** Warrant
      activity for the years ended December 31, 2006, 2005, and 2004 is summarized
      as
      follows:





2006
            
            2005
            
            2004Weighted
            
            
            
            Weighted
            
            
            
            WeightedAverage
            
            
            
            Average
            
            
            
            AverageExercise
            
            
            
            Exercise
            
            
            
            ExerciseWarrants
            
            Price
            
            Warrants
            
            Price
            
            Warrants
            
            PriceOutstanding
                at beginning of year
            
            
            1,518,556
            
            $
            3.17
            
            
            4,571,731
            
            $
            1.90
            
            
            10,453,831
            
            $
            1.71Issued
            
            
            2,546,301
            
            
            2.76
            
            
            250,000
            
            
            5.27
            
            
            60,000
            
            
            2.50Expired
            
            
            (572,164
            )
            
            3.63
            
            
            (101,667
            )
            
            3.41
            
            
            (116,668
            )
            
            3.14Exercised
            
            
            (236,168
            )
            
            1.93
            
            
            (3,201,508
            )
            
            1.51
            
            
            (5,825,432
            )
            
            1.54Outstanding
                at end of year
            
            
            3,256,525
            
            $
            2.84
            
            
            1,518,556
            
            $
            3.17
            
            
            4,571,731
            
            $
            1.90Currently
                exercisable
            
            
            3,256,525
            
            $
            2.84
            
            
            1,518,556
            
            $
            3.17
            
            
            4,571,731
            
            $
            1.90




The
      following table summarizes information about warrants outstanding at December
      31, 2006:





Warrants
                Outstanding and ExercisableWeightedAverage
            
            WeightedRemaining
            
            AverageRange
                of
            
            
            
            Contractual
            
            ExerciseExercise
                Prices
            
            Warrants
            
            Life
                (Years)
            
            Price$1.00
                to $2.49
            
            
            400,224
            
            
            1.7
            
            $
            1.88$2.50
                to $3.49
            
            
            2,374,819
            
            
            1.0
            
            
            2.69$3.50
                to $5.265
            
            
            481,482
            
            
            3.5
            
            
            4.363,256,525
            
            
            1.4
            
            $
            2.84





Except
      as
      noted below, the warrants were issued in conjunction with debt and equity
      offerings. The warrants expire on various dates ranging from December 2007
      to
      December 2011.





**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 option-pricing model.





For
      the
      year ending December 31, 2006, 231,482 warrants were issued in connection with
      the December 18, 2006 common stock offering at a strike price of 125% of the
      stock price on the issuance date, as a result, no intrinsic value existed at
      the
      issuance date. The following assumptions were used to value the warrant cost
      of
      $275,464, recorded as common stock issuance cost: expected life of 2.57 years,
      volatility of 79%, annual rate of quarterly dividends of $0 and risk free
      interest rate of 5.01% . All of
      these warrants are outstanding at December 31, 2006.





For
      the
      year ending December 31, 2005, 250,000 warrants were issued in connection with
      the February 14, 2005 common stock offering at a strike price of approximately
      106% of the stock price on the issuance date, as a result, no intrinsic value
      existed at the issuance date. The following assumptions were used to value
      the
      warrant cost of $639,459, recorded as common stock issuance cost: expected
      life
      of 1.72 years, volatility of 107%, annual rate of quarterly dividends of $0
      and
      risk free interest rate of 3.07% . All of
      these warrants are outstanding at December 31, 2006.





F-22


**12.**
            **OTHER
                TRANSACTIONS**




On
      December 18, 2006, we sold 9,259,259 common shares to institutional investors.
      The sales were made at $2.70 per share with net proceeds to the Company, after
      expenses, of $22,943,664. Warrants with a one year expiration were also issued
      as a component of this offering to purchase 2,314,819 shares of stock at a
      price
      of $2.70 per share. The placement agent also received a warrant to purchase
      231,482 shares of our common stock at $3.38 per share. The warrant has a
      five-year term. Using a Black-Scholes pricing model, we estimated that the
      warrant has a value of $275,464; this amount was recorded as common stock
      issuance costs.





On
      February 14, 2005, we sold 5,000,000 common shares to institutional investors.
      The sales were made at $4.05 per share with net proceeds to the Company, after
      expenses, of approximately $19.3 million. The placement agent also received
      a
      warrant to purchase 250,000 shares of our common stock at $5.27 per share.
      The
      warrant has a four-year term. Using a Black-Scholes pricing model, we estimated
      that the warrant has a value of $639,459; this amount was recorded as common
      stock issuance costs.





**13.**
            **LEASES**




***Operating
      Leases —*** We
      lease
      certain premises for office space and other corporate purposes. Operating lease
      commitments at December 31, 2006 were:





Year
                ending December 31:2007
            
            $
            155,2992008
            
            
            152,3732009
            
            
            33,365Total
            
            $
            341,037




Lease
      expense for the years ended December 31, 2006, 2005, and 2004 totaled $116,146,
      $181,549, and $28,207, respectively.





**14.**
            **INCOME
                TAXES**




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 in the period
      ended December 31, 2006.





F-23





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





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Federal
                statutory income taxes (benefit)
            
            $
            (6,020,099
            )
            $
            (3,478,025
            )
            $
            (2,450,798
            )Expiration
                of net operating loss carryforwards
            
            
            96,350
            
            
            (61,123
            )
            
            -Other,
                net
            
            
            259,940
            
            
            91,109
            
            
            3,875True
                up to 2005 tax return
            
            
            (1,771,202
            )
            
            -
            
            
            -Exercise
                of incentive stock options
            
            
            483,092
            
            
            -
            
            
            -Valuation
                allowance
            
            
            6,951,919
            
            
            3,448,039
            
            
            2,446,923Total
            
            $
            -
            
            $
            -
            
            $
            -





The
      components of the deferred tax assets consisted of the following as of December
      31, 2006 and 2005:





**2006**
            
            **2005**Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            20,631,046
            
            $
            13,645,639Basis
                difference in intangible assets
            
            
            1,207,112
            
            
            1,250,727Other,
                net
            
            
            246,453
            
            
            158,271Total
                deferred tax assets
            
            
            22,084,611
            
            
            15,054,637Deferred
                tax liabilities:Basis
                difference in property, plant,and
                equipment
            
            
            (790,361
            )
            
            (836,136
            )Total
                deferred tax liabilities
            
            
            (790,361
            )
            
            (836,136
            )Valuation
                allowance
            
            
            (21,294,250
            )
            
            (14,218,501
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





Our
      operating loss carryforwards include losses generated in the United States
      of
      America and in Canada. The net operating loss carryforwards total $58,945,846
      as
      of December 31, 2006 and will expire at various dates as follows:





2007-2011
            
            $
            5,144,7792012-2016
            
            
            5,764,9302017-2021
            
            
            8,836,4312022-2026
            
            
            39,199,706





Due
      to
      the significant increase in common stock issued and outstanding from 2004
      through 2006, Section 382 of the Internal Revenue Code may provide significant
      limitations on the utilization of net operating loss carryforwards of the
      Company. As a result of these limitations, a portion of these loss and credit
      carryovers may expire without being utilized.








F-24


**15.**
            **COMMITMENTS
                AND CONTINGENCIES**




***Contingencies*** ** ***—*** The
      Company is 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 the Company’s 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.





***Significant
      Contracts —*** In
      September 2003, we entered into an agreement with Western Michigan University
      to
      provide research services and materials to support research involving a
      technology used in the detection of chemical, biological and radiological
      agents. In
      September 2004, the Department of Energy awarded a stage 2 contract for the
      project under which we are continuing joint development work for the design,
      synthesis and characterization of nanosensors for chemical, biological and
      radiological agents. Revenues of $15,276 and $481,519 were recorded in 2006
      and
      2005, respectively, under this contract as a component of contracts and grants
      revenues in the consolidated statements of operations.





In
      January 2004, we entered into a license agreement with Western Oil Sands, Inc.,
      or Western Oil, with respect to its possible use of the AHP for the production
      of titanium dioxide pigment and pigment-related products at the Athabasca Oil
      Sands Project in Alberta, Canada, and elsewhere. Upon execution of the
      agreement, we granted Western Oil an exclusive, conditional license to use
      the
      AHP on heavy minerals derived from oil sands in Alberta, Canada. The agreement
      also contemplated a three-phase, five-year program pursuant to which the parties
      will work together to further evaluate, develop and commercialize the AHP.
      In
      the first phase of the program, which was extended through December 2006, along
      with Western Oil, we evaluated the AHP to confirm that the AHP will produce
      pigment from oil sands and to complete a characterization study.





During
      December 2006, Western Oil requested an additional extension of phase one to
      allow them to perform additional characterization of the feedstock source prior
      to committing to phase two of the license agreement workscope. In light of
      the
      broad exclusive license granted to Western Oil in the initial agreement, we
      declined to extend the terms of the license in order to preserve our flexibility
      on other potential licensing arrangements that may not involve an exclusive
      license for Western Oil. Nonetheless, we continue to work with Western Oil,
      under a paid contract with approximately $200,000 of work remaining as of
      December 31, 2006, to assist them in various development activities associated
      with production of a pigment feedsource at a pilot plant located in our
      building. Revenues of $1,111,697 and $616,515 were recorded in 2006 and 2005,
      respectively, under this contract as a component of commercial collaborations
      revenues in the consolidated statement of operations.





In
      June
      2004, we were awarded a National Science Foundation grant of $100,000 to fund
      joint development work on next generation lithium ion power sources with
      Hosokawa Micron’s Nanoparticle Technology Center and Rutgers University’s Energy
      Storage Research Group. The grant was effective July 1, 2004 and we
      completed work under Phase I in December 2004. The results of the research
      indicated that lithium ion batteries prepared with nano-structured lithium
      titanate spinel anode materials exhibit rapid charge and discharge rates,
      improved cycle life performance and a decrease in specific energy density when
      compared to conventional lithium ion, nickel cadmium and nickel metal hydride
      battery materials. In June 2005, we were awarded a grant of $476,850 from the
      NSF for Phase II. Phase I work was designed to optimize the anode electrode
      materials and Phase II is designed to develop cathode electrode materials,
      thus
      resulting in matched anode-cathode electrode materials for optimum
      electrochemical performance. Revenues of $215,924 and $162,102 were recorded
      in
      2006 and 2005, respectively, under this contract as a component of contracts
      and
      grants revenues in the consolidated statements of operations.





F-25


In
      November 2004, we entered into an agreement with the University of Nevada,
      Las
      Vegas Research Foundation (“UNLVRF”) to act as a subcontractor under a
      $3,000,000 grant awarded to them by the Department of Energy for joint research
      activities related to solar hydrogen production at a refilling station under
      development in Las Vegas. The agreement provides for payments to Altair of
      $400,000 for research and development work utilizing nanotechnology processes
      for the production and commercialization of solar-based hydrogen technologies.
      In November 2005, we entered into an agreement with UNLVRF for collaborative
      research and development work under a Phase III grant award from the Department
      of Energy that provides for payments to Altair of $750,000 for work beginning
      October 1, 2005 and continuing through December 2006.  This
      grant has been extended through March 31, 2007 to allow for completion of the
      research activities with no adjustment to the original amount awarded Revenues
      of $416,687 and $492,818 were recorded in 2006 and 2005, respectively, under
      this contract as a component of contracts and grants revenues in the
      consolidated statements of operations.





In
      January 2005, we executed a licensing agreement with Spectrum Pharmaceuticals,
      Inc. (“Spectrum”) that grants Spectrum exclusive worldwide rights to develop,
      market and sell RenaZorbTM. Under the agreement, Spectrum issued to us 100,000
      restricted shares of their common stock at the then market value of $5.95 per
      share, purchased 38,314 restricted shares of our common stock at the then
      current market value of $2.61 per share, and also paid us $100,000 in connection
      with the licensing agreement. In June 2006, Spectrum issued to us 100,000
      restricted shares of their common stock at the then current market value of
      $3.88 per share in connection with the first milestone payment due upon
      demonstration of satisfactory lanthanum serum levels. An additional 40,000
      shares were issued with the same terms, in payment of research and development
      services provided by us. Additional payments by Spectrum are contingent upon
      the
      achievement of various milestones in the testing, regulatory approval and sale
      of RenaZorbTM. Revenues of $514,840 and $729,271 were recorded in 2006 and 2005
      under this contract, respectively, of which $364,720 and $695,000 were recorded
      as a component of license fees revenues and $150,120 and $34,271 were recorded
      as a component of commercial collaborations revenues in the consolidated
      statements of operations for 2006 and 2005, respectively.





In
      November 2005, we were awarded a $250,000 grant from the Indiana Advanced Energy
      Technologies Program initiative.  The Indiana Energy Group, a division of
      the Office of the Indiana Lieutenant Governor, administers the program. The
      grant funding must be used to manufacture products containing products that
      are
      not currently in the U.S. market and that are above industry standard in terms
      of energy efficiency (e.g. hybrid automobiles, fuel cells) and/or incorporate
      an
      innovative technology, such as nanotechnology, that allows the product to save
      energy.  The grant funding was used to install production and test
      equipment for product application development in our development and
      manufacturing center in Anderson, Indiana. The pilot manufacturing facilities
      were completed in January 2006 and $250,000 of deferred revenue was recorded.
      This revenue will be recognized over the average life of the underlying capital
      assets. Revenue of $66,266 was recognized in 2006 as a component of contracts
      and grants revenue in the consolidated statements of operations.





In
      May
      2006, we entered into a collaborative research, license and commercialization
      agreement with the Elanco Animal Health Division of Eli Lilly and Company
      (“Elanco”). Under the terms of the agreement, Elanco has exclusive rights to
      develop animal health products using our nanotechnology-based products. The
      agreement gives Altair specific rights with respect to the manufacture of these
      products for Elanco. Upon successful completion of proof of concept studies
      performed by Elanco for each nanotechnology based product selected by the joint
      development committee, a $100,000 fee will be charged for the exclusive license
      rights to develop and commercialize each of these products. The proof of concept
      study relating to the first product, Renalan, was completed in December 2006
      and
      the related license fee of $100,000 was received. Other
      payments by Elanco under the contract are contingent upon the achievement of
      various milestones in the testing, regulatory approval and sale of each product
      selected for development and commercialization.





F-26


In
      August
      2006, we signed an agreement with the University of Reno, Nevada to act as
      a
      subcontractor under a $1,095,000 grant awarded to them by the Department of
      Energy to continue development of nanosensors for the detection of chemical,
      biological and radiological agents. This agreement provides for total payments
      to Altair of $250,000 over a 12-month period. This project is an outgrowth
      of
      and builds on the research initiated with the earmarks provided to Western
      Michigan University by the Department of Energy in their 2002-2003 and 2003-2004
      budgets. The overall workscope of this project will focus on homeland security
      applications specifically relating to novel fluorescent and electroluminescent
      receptor molecules. The Company’s portion of the overall project is intended to
      be the synthesis and development of suitable lanthanum and other metal-based
      nanoparticles for initiating reactions between target chemical and radiological
      agents. Revenue
      of $17,118 was recognized in 2006 as a component of contracts and grants revenue
      in the consolidated statements of operations.





In
      September 2006, we were awarded a $2.5 million grant from the Department of
      Energy, of which $2.4 million, will be available, after the deduction of
      administrative fees, to fund research for the following programs: Battery
      technology, Nanosensors, and Nanomaterials characterization. The agreement
      anticipates that this work will be accomplished over the next 12 - 24 months.
      This is a prime grant under which Altair is directly responsible for the
      contract administration. The various programs associated with this grant are
      described below:





·
            the
                Nanosensors program, funded by $981,000 of the Department of Energy
                grant,
                will extend the existing collaboration with Western Michigan University
                to
                continue the development of a sensing system for detecting chemical,
                biological and radiological agents over a period of 12 months. The
                workscope associated with this grant builds upon the accomplishments
                and
                progress made under the 2004 Western Michigan University Department
                of
                Energy Nanosensor grant, to focus on increasing the signal strength
                and
                selectivity of the sensing devices developed. The ultimate goal is
                to
                develop a unique nanosensor-based platform for the error-free, “lab on a
                chip” detection of chemical, biological and radiological agents for hazard
                materials remediation and threat detection;




·
            the
                Battery technology program consists of two objectives, 1) Design,
                Synthesis, and Testing of Li-ion Hosts for Cathode Service and 2)
                Development, Testing, and Demonstration of High Rate Low Temperature
                Lithium Ion Battery, funded in the amounts of $508,000 and $606,000
                respectively. Objective 1 continues research on optimized anode and
                cathode materials for high power, safe, fast charge batteries. The
                agreement anticipates that this work will be accomplished over 24
                months.
                This research will also extend the collaboration with Rutgers University
                for prototype cell testing through November 2008. Objective 2 furthers
                the
                investigation of extreme temperature range battery performance and
                extends
                over 12 months;




·
            the
                Nanomaterials characterization program was funded by $311,000 of
                the
                Department of Energy Grant. This research will be conducted in
                collaboration with the University of California, Santa Barbara (“UCSB”),
                to investigate the interaction of Altairnano’s nanomaterials with various
                non-aqueous environments over a 12 month period. This research will
                focus
                on interaction mechanisms between cells and nanoparticles, with the
                goal
                of understanding how specific chemical, physical, and electrical
                properties of these nanoparticles influence that interaction. Our
                research
                with UCSB will examine a range of microbes that have environmental
                or
                societal importance. The results of this research are expected to
                provide
                the basis for both 1) predicting potential negative impacts of specific
                nanoparticle characteristics on the environment and human health
                and 2)
                developing novel antimicrobial agents and surface treatments that
                could
                defeat antibiotic-resistant strains of harmful
                microbes.








F-27


**16.**
            **RELATED
                PARTY TRANSACTIONS**




On
      December 31, 2003, we entered into a consulting agreement with Advanced
      Technology Group LLC (“ATG”), whose managing partner is David King, a Director
      of the Company. The agreement stipulates that ATG will furnish consulting
      services in reviewing potential federal grant opportunities and providing
      proposal development assistance on selected programs for a period of one year.
      The agreement was subsequently extended through December 31, 2005. Under the
      terms of the agreement, ATG is paid on a contingency basis at a rate of 6%
      of
      the first $1,000,000 in grant monies secured from applications prepared in
      any
      calendar year plus 3.5% of any cumulative amounts over $1,000,000. ATG also
      agreed to provide consulting services at a rate of $200 per hour upon request
      of
      the Company. During the year ended December 31, 2004, we paid ATG $6,000 in
      fees
      in connection with securing a $100,000 grant from the National Science
      Foundation and $4,500 in fees for consulting work in connection with product
      marketing. During the year ended December 31, 2005, ATG earned $2,833 for
      certain consulting services and $28,611 in connection with our National Science
      Foundation Phase II grant application ,
      of
      which $7,153 was paid and $21,458 was recorded as a component of accrued
      liabilities on the consolidated balance sheets at December 31, 2005. During
      the
      year ended December 31, 2006, additional payments of $11,444 relating to the
      National Science Foundation Phase II grant application and payments for general
      consulting services of $25,800 were made.





On
      June
      1, 2006, we entered into a new consulting agreement with ATG, which replaced
      the
      December 2003 agreement. This agreement provides for the payment of a fixed
      quarterly fee of $7,500 for a minimum of 40 hours of service per quarter.
      Pre-approved hours incurred over 40 are billed at a rate of $200 per hour,
      and
      hours of service provided in excess of 120 are billed at a rate of $250 per
      hour. During the period June 1, 2006 through December
      31, 2006 payments under the June 2006 agreement totaled $27,101. David King
      left
      the Altair board of directors effective June 1, 2006 and is no longer a related
      party.





As
      described in Note 18 Subsequent Events, in January 2007 Phoenix Motorcars,
      Inc.,
      a significant customer, issued 1,000,000 shares of its common stock to us in
      consideration for a three-year exclusivity agreement included as a provision
      of
      the multi-year purchase and supply contract. Total sales of battery packs to
      Phoenix, all recorded during the fourth quarter of 2006 totaled $825,000. Total
      accounts receivable and long term notes receivable (see Note 7) due from Phoenix
      at December 31, 2006 totaled $495,000 and $330,000, respectively.








**17.**
            **BUSINESS
                SEGMENT INFORMATION**




Management
      views the Company as operating in four business segments: Performance Materials,
      Life Sciences, Advanced Materials and Power Systems (“AMPS”)
      and an Altair Hydrochloride Pigment Process Division (“AHP”). Two of
      these divisions were formed in 2006, AMPS and AHPP. The activity relating to
      these business units was previously included in Performance Materials For all
      years presented, this activity has been reclassed out of Performance Materials
      and reported in the new business units.





F-28


The
      Performance Materials segment produces advanced materials for paints, coatings,
      sensors, power systems, alternative energy devices and materials for improving
      process technologies. The Life Sciences segment produces pharmaceutical
      products, drug delivery products and dental materials. The AMPS segment develops,
      produces, and sells nano-structured LTO, nanoTitanate, NanoSafe battery cells,
      and battery packs and provides related design and test services. The AHP segment
      markets and licenses our titanium dioxide pigment production
      technology.





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, 2006, 2005, and 2004 is as follows:





**Depreciation****(Gain)/Loss
                From**
            
            **and****Net
                Sales**
            
            **Operations**
            
            **Amortization**
            
            **Assets****2006:**Performance
                Materials
            
            $
            1,033,894
            
            $
            1,037,451
            
            $
            1,083,207
            
            $
            6,375,103Life
                Sciences
            
            
            614,840
            
            
            (117,724
            )
            
            11,691
            
            
            1,473,793AMPS
            
            
            1,513,650
            
            
            5,324,403
            
            
            305,743
            
            
            3,651,917AHP
            
            
            1,161,576
            
            
            1,015,145
            
            
            -
            
            
            1,170,993Corporate
            
            
            -
            
            
            10,422,140
            
            
            119,109
            
            
            30,448,767Consolidated
                Total
            
            $
            4,323,960
            
            $
            17,681,415
            
            $
            1,519,750
            
            $
            43,120,573**2005:**Performance
                Materials
            
            $
            1,214,527
            
            $
            3,758,541
            
            $
            932,390
            
            $
            5,591,246Life
                Sciences
            
            
            724,771
            
            
            191,149
            
            
            5,506
            
            
            543,059AMPS
            
            
            225,722
            
            
            146,383
            
            
            883
            
            
            1,361,597AHP
            
            
            641,515
            
            
            513,988
            
            
            -
            
            
            171,271Corporate
            
            
            -
            
            
            5,871,792
            
            
            95,423
            
            
            25,796,843Consolidated
                Total
            
            $
            2,806,535
            
            $
            10,481,853
            
            $
            1,034,202
            
            $
            33,464,016**2004:**Performance
                Materials
            
            $
            769,145
            
            $
            4,182,239
            
            $
            839,974
            
            $
            5,500,494Life
                Sciences
            
            
            -
            
            
            250,855
            
            
            1,307
            
            
            104,534AMPS
            
            
            68,388
            
            
            76,266
            
            
            -
            
            
            -AHP
            
            
            314,359
            
            
            216,508
            
            
            -
            
            
            67,191Corporate
            
            
            -
            
            
            2,179,087
            
            
            63,272
            
            
            9,874,802Consolidated
                Total
            
            $
            1,151,892
            
            $
            6,904,955
            
            $
            904,553
            
            $
            15,547,021





F-29


In
      the
      table above, corporate and other 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.





For
      the
      year ended December 31, 2006, we had sales to five major customers, each of
      which accounted for 10% or more of revenues. Total sales to these customers
      for
      the year ended December 31, 2006 and the balance of their accounts receivable
      at
      December 31, 2006 were as follows:





**Sales
                - Year Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **December
                31, 2006**
            
            **December
                31, 2006****Performance
                Materials Division:**UNLV
                Research Foundation
            
            $
            416,687
            
            $
            28,369Department
                of Energy
            
            $
            398,533
            
            $
            284,049**Life
                Sciences Division:**Spectrum
                Pharmaceuticals, Inc.
            
            $
            514,840
            
            $
            -**AMPS
                Division:**Department
                of Energy
            
            $
            347,904
            
            $
            270,692Phoenix
                Motorcars, Inc.
            
            $
            825,000
            
            $
            495,000**AHP
                Division:**Western
                Oil Sands
            
            $
            1,111,697
            
            $
            313,415




For
      the
      year ended December 31, 2005, 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, 2005 and the balance of their accounts receivable
      at
      December 31, 2005 were as follows:





**Sales
                - Year Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **December
                31, 2005**
            
            **December
                31, 2005****Performance
                Materials Division:**Western
                Michigan University
            
            $
            481,519
            
            $
            118,478UNLV
                Research Foundation
            
            $
            492,818
            
            $
            160,053**Life
                Sciences Division:**Spectrum
                Pharmaceuticals, Inc.
            
            $
            729,271
            
            $
            30,881**AHP
                Division:**Western
                Oil Sands
            
            $
            616,515
            
            $
            166,031








F-30




For
      the
      year ended December 31, 2004, we had sales to three major customers, each of
      which accounted for 10% or more of revenues. Total sales to these customers
      for
      the year ended December 31, 2004 and the balance of their accounts receivable
      at
      December 31, 2004 were as follows:





**Sales
                - Year Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **December
                31, 2003**
            
            **December
                31, 2003****Performance
                Materials Division:**Titanium
                Metals Corp.
            
            $
            152,550
            
            $
            39,382Western
                Michigan University
            
            $
            491,320
            
            $
            319,739**AHP
                Division:**Western
                Oil Sands
            
            $
            314,359
            
            $
            67,191





Revenues
      for the years ended December 31, 2006, 2005 and 2004 by geographic area were
      as
      follows:




**Geographic
                information (a):**
            
            **2006**
            
            **2005**
            
            **2004**United
                States
            
            $
            3,101,481
            
            $
            2,101,552
            
            $
            817,052Canada
            
            
            1,114,869
            
            
            641,515
            
            
            314,540Other
                foreign countries
            
            
            107,610
            
            
            63,468
            
            
            20,300Total
            
            $
            4,323,960
            
            $
            2,806,535
            
            $
            1,151,892




(a)Revenues
                are attributed to countries based on location of customer.








**18.**
            **SUBSEQUENT
                EVENTS (U****NAUDITED)**




In
      January 2007, we entered into a multi-year purchase and supply agreement with
      Phoenix Motorcars, Inc. (“Phoenix”) for up to 500 battery pack systems. The
      initial order of battery pack systems, valued at $1,040,000, has been received
      and is expected to ship in March and April 2007. Under the terms of the
      agreement, Phoenix will purchase all battery packs for its electric vehicles
      from us. Additionally, 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. The exclusivity agreement provides Phoenix
      with limited, exclusive use of Altairnano’s NanoSafe battery packs in
      four-wheel, all-electric vehicles having a gross weight up to 6,000 pounds.
      The
      NanoSafe battery packs manufactured by us for hybrid electric vehicles and
      plug-in electric vehicles are excluded from the exclusivity agreement Phoenix
      must meet minimum battery pack purchases, annually, to maintain the limited
      exclusivity agreement through its expiration in December 2009. The minimum
      commitment to maintain exclusivity for 2007 would provide $16 million in battery
      pack sales. The common stock shares received represent a 16.6% ownership
      interest in Phoenix. Since these shares are not and may never be registered
      under the Securities and Exchange Act or any other state securities laws, a
      number of factors must be considered in establishing a fair value associated
      with this investment. The Company expects to complete this assessment in the
      first quarter of 2007.





In
      March
      2007, AES Corporation, one of the world’s largest global power companies,
      privately purchased 895,523 unregistered shares of the Company’s common stock at
      a price of $3.35 per share. The Company 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.






F-31