**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE QUARTERLY PERIOD ENDED **September
      30, 2006**




o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM _________________ TO
      _________________








**A** **LTAIR** **N** **ANOTECHNOLOGIES** **I** **NC.**


(Exact
      name of registrant as specified in its charter)




**Canada**
                (State
                  or other jurisdiction
                  of
                    incorporation)
              **1-12497**
                (Commission
                  File No.)
              **33-1084375**
                (IRS
                  Employer
                  Identification
                    No.)




**204
      Edison Way**


**Reno,
      Nevada 89502**


(Address
      of principal executive offices, including zip code)





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







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES x NO o.




Indicate
      by check mark whether the registrant 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]








**As
      of November 1, 2006 the registrant had** **59,647,386,** **** **Common
      Shares outstanding.**





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




**September
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            2,107,074
            
            $
            2,264,418Investment
                in available for sale securities
            
            
            7,713,606
            
            
            20,789,656Accounts
                receivable
            
            
            712,462
            
            
            602,168Product
                inventories
            
            
            407,104
            
            
            -Prepaid
                expenses and other current assets
            
            
            457,775
            
            
            254,067Total
                current assets
            
            
            11,398,021
            
            
            23,910,309**Investment
                in Available for Sale Securities**
            
            
            1,235,872
            
            
            423,000**Property,
                Plant and Equipment, net**
            
            
            10,177,754
            
            
            8,169,445**Patents,
                net**
            
            
            826,451
            
            
            890,062**Other
                Assets**
            
            
            21,261
            
            
            71,200**Total
                Assets**
            
            $
            23,659,359
            
            $
            33,464,016**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Trade
                accounts payable
            
            $
            1,298,631
            
            $
            808,905Accrued
                salaries and benefits
            
            
            1,025,274
            
            
            709,349Accrued
                liabilities
            
            
            486,491
            
            
            309,289Note
                payable, current portion
            
            
            600,000
            
            
            600,000Total
                current liabilities
            
            
            3,410,396
            
            
            2,427,543**Note
                Payable, Long-Term Portion**
            
            
            1,800,000
            
            
            2,400,000**Stockholders'
                Equity**Common
                stock, no par value, unlimited shares authorized;59,647,386
                and 59,316,519 shares issued andoutstanding
                at September 30, 2006 and December 31, 2005
            
            
            92,694,818
            
            
            92,126,714Additional
                paid in capital
            
            
            1,191,419
            
            
            -Accumulated
                deficit
            
            
            (75,556,674
            )
            
            (63,152,905
            )Deferred
                compensation expense
            
            
            -
            
            
            (165,336
            )Accumulated
                other comprehensive income
            
            
            119,400
            
            
            (172,000
            )**Total
                Stockholders' Equity**
            
            
            18,448,963
            
            
            28,636,473**Total
                Liabilities and Stockholders' Equity**
            
            $
            23,659,359
            
            $
            33,464,016See
                notes to the unaudited condensed consolidated financial
                statements.




1


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




**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenues**License
                fees
            
            $
            -
            
            $
            -
            
            $
            364,720
            
            $
            695,000Product
                sales
            
            
            22,940
            
            
            8,494
            
            
            33,598
            
            
            74,087Commercial
                collaborations
            
            
            339,116
            
            
            327,479
            
            
            1,058,622
            
            
            584,520Contracts
                and grants
            
            
            387,842
            
            
            249,432
            
            
            895,082
            
            
            762,259Total
                revenues
            
            
            749,898
            
            
            585,405
            
            
            2,352,022
            
            
            2,115,866**Operating
                Expenses**Cost
                of product sales
            
            
            28,237
            
            
            1,427
            
            
            30,953
            
            
            17,434Research
                and development
            
            
            2,763,566
            
            
            1,290,354
            
            
            6,917,218
            
            
            2,816,031Sales
                and marketing
            
            
            423,615
            
            
            238,151
            
            
            1,384,787
            
            
            1,159,259General
                and administrative
            
            
            1,288,191
            
            
            1,146,528
            
            
            5,746,759
            
            
            4,067,661Depreciation
                and amortization
            
            
            405,072
            
            
            263,105
            
            
            1,085,190
            
            
            759,190Total
                operating expenses
            
            
            4,908,681
            
            
            2,939,565
            
            
            15,164,907
            
            
            8,819,575**Loss
                from Operations**
            
            
            (4,158,783
            )
            
            (2,354,160
            )
            
            (12,812,885
            )
            
            (6,703,709
            )**Other
                Income (Expense)**Interest
                expense
            
            
            (42,000
            )
            
            (52,397
            )
            
            (129,500
            )
            
            (154,689
            )Interest
                income
            
            
            146,235
            
            
            227,503
            
            
            539,060
            
            
            515,162Gain
                (loss) on foreign exchange
            
            
            (138
            )
            
            2,228
            
            
            (444
            )
            
            1,373Total
                other income, net
            
            
            104,097
            
            
            177,334
            
            
            409,116
            
            
            361,846**Net
                Loss**
            
            $
            (4,054,686
            )
            $
            (2,176,826
            )
            $
            (12,403,769
            )
            $
            (6,341,863
            )**Loss
                per common share - basic and diluted**
            
            $
            (0.07
            )
            $
            (0.04
            )
            $
            (0.21
            )
            $
            (0.11
            )**Weighted
                average shares - basic and diluted**
            
            
            59,461,244
            
            
            58,940,760
            
            
            59,325,488
            
            
            57,338,796See
                notes to the unaudited condensed consolidated financial
                statements.




2




**ALTAIR
                NANOTECHNOLOGIES INC. AND SUBSIDIARIES****CONDENSED****CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
                EQUITY****(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,
                JANUARY 1, 2006
            
            
            59,316,519
            
            $
            92,126,714
            
            $
            -
            
            $
            (63,152,905
            )
            $
            (165,336
            )
            $
            (172,000
            )
            $
            28,636,473Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,403,769
            )
            
            -
            
            
            -
            
            
            (12,403,769
            )Other
                comprehensive incomenet
                of taxes of $0
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            291,400
            
            
            291,400Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,112,369
            )Share-based
                compensation
            
            
            -
            
            
            226,085
            
            
            1,191,419
            
            
            -
            
            
            -
            
            
            -
            
            
            1,417,504Exercise
                of stock options
            
            
            186,324
            
            
            340,685
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            340,685Exercise
                of warrants
            
            
            66,668
            
            
            166,670
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            166,670Issuance
                of restricted stock
            
            
            77,875
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Elimination
                of deferredcompensation
                expense
            
            
            -
            
            
            (165,336
            )
            
            -
            
            
            -
            
            
            165,336
            
            
            -
            
            
            -BALANCE,
                SEPTEMBER 30, 2006
            
            
            59,647,386
            
            $
            92,694,818
            
            $
            1,191,419
            
            $
            (75,556,674
            )
            $
            -
            
            $
            119,400
            
            $
            18,448,963See
                notes to theunaudited
                condensedconsolidated
                financial statements.




3





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




**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Cash
                flows from operating activities:**Net
                loss
            
            $
            (4,054,686
            )
            $
            (2,176,826
            )
            $
            (12,403,769
            )
            $
            (6,341,863
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            405,072
            
            
            263,105
            
            
            1,085,190
            
            
            759,190Variable
                accounting on stock options
            
            
            -
            
            
            (44,249
            )
            
            -
            
            
            433,115Securities
                received in payment of license fees
            
            
            (8,148
            )
            
            -
            
            
            (521,472
            )
            
            (595,000
            )Amortization
                of discount on note payable
            
            
            -
            
            
            17,397
            
            
            -
            
            
            119,689Share-based
                compensation
            
            
            410,157
            
            
            46,861
            
            
            1,417,504
            
            
            50
                ,932Loss
                on disposal of fixed assets
            
            
            -
            
            
            -
            
            
            21,098
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (238,018
            )
            
            (133,914
            )
            
            (110,294
            )
            
            (14,692
            )Product
                inventories
            
            
            (407,104
            )
            
            
            
            
            (407,104
            )Prepaid
                expenses and other current assets
            
            
            (65,699
            )
            
            (281,660
            )
            
            (203,708
            )
            
            (193,603
            )Other
                assets
            
            
            -
            
            
            (52,000
            )
            
            49,939
            
            
            (57,000
            )Trade
                accounts payable
            
            
            (84,720
            )
            
            (84,441
            )
            
            395,162
            
            
            591,617Accrued
                salaries and benefits
            
            
            104,430
            
            
            (35,927
            )
            
            315,925
            
            
            115,535Accrued
                liabilities
            
            
            18,522
            
            
            (42,834
            )
            
            177,202
            
            
            125,854**Net
                cash used in operating activities**
            
            
            (3,920,194
            )
            
            (2,524,488
            )
            
            (10,184,327
            )
            
            (5,006,226
            )**Cash
                flows from investing activities:**Sale
                of available for sale securities
            
            
            15,250,000
            
            
            -
            
            
            26,050,000
            
            
            -Purchase
                of available for sale securities
            
            
            (10,198,763
            )
            
            (15,728,213
            )
            
            (12,973,949
            )
            
            (15,728,213
            )Purchase
                of property and equipment
            
            
            (1,068,023
            )
            
            (360,871
            )
            
            (2,956,423
            )
            
            (880,509
            )**Net
                cash provided by (used in) investing activities**
            
            
            3,983,214
            
            
            (16,089,084
            )
            
            10,119,628
            
            
            (16,608,722
            )*(continued)*


4





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




**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Cash
                flows from financing activities:**Issuance
                of common shares for cash, net ofissuance
                costs
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            19,329,800Proceeds
                from exercise of stock options
            
            
            199,013
            
            
            37,100
            
            
            340,685
            
            
            1,777,290Proceeds
                from exercise of warrants
            
            
            166,670
            
            
            40,963
            
            
            166,670
            
            
            4,300,635Payment
                of notes payable
            
            
            -
            
            
            -
            
            
            (600,000
            )
            
            -**Net
                cash (used in) provided by financing activities**
            
            
            365,683
            
            
            78,063
            
            
            (92,645
            )
            
            25,407,725**Net
                (decrease) increase in cash and cash equivalents**
            
            
            428,703
            
            
            18,535,509
            
            
            (157,344
            )
            
            3,792,777**Cash
                and cash equivalents, beginning of period**
            
            
            1,678,372
            
            
            29,686,129
            
            
            2,264,418
            
            
            7,357,843**Cash
                and cash equivalents, end of period**
            
            $
            2,107,074
            
            $
            11,150,620
            
            $
            2,107,074
            
            $
            11,150,620**Supplemental
                disclosures:**Cash
                paid for interest
            
            
            None
            
            
            None
            
            $
            105,000
            
            
            NoneCash
                paid for income taxes
            
            
            None
            
            
            None
            
            
            None
            
            
            None**Supplemental
                schedule of non-cash investing and financing
                activities:****For
                the three months ended September 30, 2006:**-
                We made property and equipment purchases of $95,000 which are included
                in
                trade accounts payable at September 30, 2006.-
                We had an unrealized gain on available for sale securities of
                $321,600.**For
                the three months ended September 30, 2005:**-
                We issued 30,000 of shares of restricted stock to employees having
                a fair
                value of approximately $86,000 for which nocash
                will be received.-
                We had an unrealized gain on available for sale securities of
                $76,000.**For
                the nine months ended September 30, 2006:**-
                We issued 56,875 shares of restricted stock to employees having a
                fair
                value of approximately $180,000 for which no cash will be received.-
                We made property and equipment purchases of $94,564 which are included
                in
                trade accounts payable at September 30, 2006.-
                We had an unrealized gain on available for sale securities of
                $291,400.**For
                the nine months ended September 30, 2005:**-
                We issued 90,000 of shares of restricted stock to employees having
                a fair
                value of approximately $257,000 for which nocash
                will be received.-
                We had an unrealized loss on available for sale securities of
                $99,000.See
                notes to the unaudited condensed consolidated financial
                statements.
            
            
            
            
            
            
            
            *(concluded)*


5


**ALTAIR
      NANOTECHNOLOGIES INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**Note
      1. Basis of Preparation of Condensed Consolidated Financial
      Statements**





These
      unaudited interim condensed consolidated financial statements of Altair
      Nanotechnologies Inc. and its subsidiaries (collectively, “Altair”, “we” or the
“Company”) have been prepared in accordance with the rules and regulations of
      the United States Securities and Exchange Commission (the “Commission”). Such
      rules and regulations allow the omission of certain information and footnote
      disclosures normally included in financial statements prepared in accordance
      with accounting principles generally accepted in the United States of America,
      so long as the statements are not misleading. In the opinion of Company
      management, these condensed consolidated financial statements and accompanying
      notes contain all adjustments (consisting of only normal recurring adjustments)
      necessary to present fairly the financial position and results of operations
      for
      the periods shown. These interim condensed consolidated financial statements
      should be read in conjunction with the audited consolidated financial statements
      and notes thereto contained in our  Annual
      Report on Form 10-K for the year ended December 31, 2005, as filed with the
      Commission on March 16, 2006.





Effective
      July 7, 2006, the Company’s subsidiary Altair Nanomaterials, Inc., changed its
      name to Altairnano, Inc. The Company’s Tennessee Valley Titanium, Inc.
      subsidiary, which had no assets or operations, was dissolved on the same
      date.




The
      results of operations for the three- and nine-month periods ended September
      30,
      2006 are not necessarily indicative of the results to be expected for the full
      year.





**Note
      2. Summary of Significant Accounting Policies**




**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 which are highly liquid, have insignificant interest rate risk
      and
      maturities of 90 days or less are classified as cash and cash equivalents.
      Investments which do not meet the definition of cash equivalents are classified
      as held-to-maturity or available-for-sale in accordance with the provisions
      of
      Statement of Financial Accounting Standards No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* .
      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 September
      30, 2006 and December 31, 2005, we had cash deposits of approximately $1.5
      million and $1.9 million, respectively, in excess of FDIC insurance
      limits.





**Investment
      in Available for Sale Securities (long-term) -** Available
      for sale securities (long-term) **** includes
      publicly-traded equity investments which are classified as available for sale
      and recorded at fair 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.





**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.





6





**Accumulated
      Other Comprehensive Income -** Accumulated
      other comprehensive income consists entirely of unrealized gain on the
      investment in available for sale securities.





The
      components of comprehensive loss for the three and nine-month periods ended
      September 30, 2006 and 2005 are as follows:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2006**
            
            **September
                30, 2006****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                loss
            
            $
            4,054,686
            
            $
            2,176,826
            
            $
            12,403,769
            
            $
            6,341,863Unrealized
                (gain) loss on investment in availablefor
                sale securities, net of taxes of $0
            
            
            (321,600
            )
            
            (76,000
            )
            
            (291,400
            )
            
            99,000Comprehensive
                loss
            
            $
            3,733,086
            
            $
            2,100,826
            
            $
            12,112,369
            
            $
            6,440,863








**Long-Lived
      Assets -** We
      evaluate the carrying value of long-lived assets, including intangible assets,
      when events or circumstances 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.





**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 tax assets. The valuation allowance reduces deferred tax assets to
      an
      amount that represents management’s best estimate of the amount of such deferred
      tax assets that more likely than not will be realized.





**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.  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 at the time the product is shipped. 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 allocated to research and development based on labor
      costs.





**Net
      Loss Per Common Share**  -
      Basic loss per share is computed using the weighted average number of common
      shares outstanding during the period.  Diluted loss per share is computed
      using the weighted average number of common and potentially dilutive shares
      outstanding during the period.  Potentially dilutive shares consist of the
      incremental common shares issuable upon the exercise of stock options and
      warrants.  Potentially dilutive shares are excluded from the computation if
      their effect is 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 was included in the computation of diluted loss
      per share as they were antidilutive.








7





**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 share-based compensation, and
      to
      determine the subsequent impact on the APIC pool and consolidated statements
      of
      cash flows of the tax effects of employee share-based compensation awards that
      are outstanding upon adoption of Statement of Financial Accounting Standards
      No.
      123 (revised 2004), *Share
      Based Payment,* (“SFAS
      123R”). We
      are currently evaluating the available transition alternatives of FSP 123R-3.
      We
      do not believe the adoption of FSP 123R-3 will have a material impact on our
      financial position, results of operations or cash flows.





On
      September 13, 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. We do not believe the adoption of SAB 108 will 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 period.





**Note
      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.





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 provisions 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. On receipt, the shares were recorded at their
      market value of $1,138,000 as measured by their closing price on the Nasdaq
      Capital Market. At September 30, 2006, their fair value was approximately
      $1,257,400, representing an unrealized holding gain of approximately $119,400.




**Note
      4. Inventory**




**September
                30, 2006**
            
            **December
                31, 2005**Work
                in Process
            
            $
            349,939
            
            $
            -Demonstration
                Units
            
            
            57,165
            
            
            -Total
                Product Inventories
            
            $
            407,104
            
            $
            -





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 September 30, 2006 work in process consisted
      primarily of the labor and materials to produce the battery packs associated
      with the $750,000 Phoenix purchase order. The demonstration unit inventory
      reflects the cost of hybrid and electrical vehicles that are in the process
      of
      being retrofitted with battery packs produced with the nano-Titanate battery
      cells. These vehicles are planned to be used to demonstrate to potential
      customers, the unique characteristics of our nano-structured lithium
      titanate.








8





**Note
      5. Note Payable**





**September
                30, 2006**
            
            **December
                31, 2005**Note
                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





The
      note payable to BHP Minerals International, Inc., in the face amount of
      $3,000,000, was entered into on August 8, 2002 and is secured by the property
      we
      acquired. Interest on the note did not begin to accrue until August 8, 2005.
      As
      a result, we imputed the interest at a rate of 7% and reduced the face amount
      of
      the note payable by $566,763 at the date of issuance, then amortized that amount
      to interest expense from August 8, 2002 through August 8, 2005. The first
      payment of $600,000 of principal plus accrued interest was due and paid February
      8, 2006. Additional payments of $600,000 plus accrued interest are due annually
      on February 8, 2007 through 2010.




**Note
      6. Patents**





Our
      patents are associated with the nanomaterials and titanium dioxide pigment
      technology. We are amortizing these assets over their useful lives. The
      amortized patents balances as of September 30, 2006 and December 31, 2005
      were:


**September
                  30,**
                **2006**
              
              **December
                  31,**
                **2005**Patents
              
              $
              1,517,736
              
              $
              1,517,736Less
                  accumulated amortization
              
              
              (691,285
              )
              
              (627,674
              )Total
                  Patents
              
              $
              826,451
              
              $
              890,062


The
      weighted average amortization period for patents is approximately 16.5 years. Amortization expense, which represents the amortization relating to
      the
      identified amortizable patents, was $63,611 for each of the nine months ended September 30, 2006 and 2005 and was $21,204 for each of the three month periods ended September 30, 2006 and 2005. For
      each
      of the next five years, amortization expense relating to patents is expected
      to
      be approximately $ 85,000 per year. Management believes the net carrying amount of patents will be
      recovered by future cash flows generated by commercialization of the titanium
      processing technology.





**Note
      7.** **Share-Based
      Compensation**





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. Options granted
      under the plan 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 total number of shares authorized to be granted under the
      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 2,055,600 are
      outstanding and unexercised at September 30, 2006.





Effective
      January 1, 2006, we adopted the provisions of SFAS 123R. Under the provisions
      of
      SFAS 123R, 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). We have made the transition to SFAS 123R using
      the
      modified prospective method. Under the modified prospective method, SFAS 123R
      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.






9





The
      estimated fair value of equity-based awards, less expected forfeitures, is
      amortized over the awards’ vesting period on a straight-line basis. Share-based
      compensation expense recognized in the consolidated statements of operations
      for
      the three- and nine-month periods ended September 30, 2006 related to stock
      options and restricted stock was $410,157
      ($0.01 per share) and $1,417,504 ($0.02 per share ),
      respectively. The amount of expense for the three- and nine-month periods ended
      September 30, 2006 related to restricted stock that would have been included
      in
      the consolidated statements of operations under the provisions of Accounting
      Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* was
      $87,047 ($0.00 per share) and $171,029 ($0.00 per share), respectively. We
      have
      not recorded income tax benefits related to equity-based compensation expense
      as
      deferred tax assets are fully offset by a valuation allowance. The
      implementation of SFAS 123R did not have a significant impact on cash flows
      from
      operations during the nine months ended September 30, 2006.





**Stock
      Options**





In
      calculating compensation related to stock option grants, 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:





**Three
                Months**
            
            **Nine
                Months****Ended**
            
            **Ended****September
                30, 2006**
            
            **September
                30, 2006**Dividend
                yield
            
            
            None
            
            
            NoneExpected
                volatility
            
            
            90%
            
            
            95%Risk-free
                interest rate
            
            
            5.1%
            
            
            4.8%Expected
                term (years)
            
            
            4.56
            
            
            4.62








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 employee exercise behavior
      with respect to option grants.





A
      summary of the changes in stock options outstanding under our equity-based
      compensation plans during the nine months ended September 30, 2006 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
            
            
            1,279,631
            
            
            3.32Exercised
            
            
            (186,324
            )
            
            1.72Forfeited/Expired
            
            
            (152,613
            )
            
            3.28Outstanding
                at September 30, 2006
            
            
            3,473,894
            
            $
            3.06
            
            
            6.1
            
            $
            3,660,799Exercisable
                at September 30, 2006
            
            
            2,441,227
            
            $
            3.12
            
            
            5.0
            
            $
            2,714,792








The
      weighted average grant date fair value of options granted during the three-
      and
      nine-month periods ended September 30, 2006
      was
      $2.98 and $3.32 ,
      respectively. The total intrinsic value of options exercised during the three-
      and nine-month periods ended September 30, 2006 was
      $183,290 and $310,667 ,
      respectively.








10





A
      summary of the status of nonvested shares at September 30, 2006 and changes
      during the nine months ended September 30, 2006 is presented below:




**Weighted****Average****Grant
                Date****Shares**
            
            **Fair
                Value**Non-vested
                shares at January 1, 2006
            
            
            793,875
            
            $
            1.87Granted
            
            
            1,279,631
            
            
            3.32Vested
            
            
            (967,589
            )
            
            3.12Forfeited/Expired
            
            
            (73,250
            )
            
            3.62Non-vested
                shares at September 30, 2006
            
            
            1,032,667
            
            $
            2.91








As
      of September 30, 2006, there was $976,035 of total unrecognized compensation cost related to nonvested 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 three-
      and
      nine-month periods ended September 30, 2006 was $220,779
      and $2,177,692, respectively. Cash received from warrant and stock option
      exercises for the three- and nine-month periods ended September 30, 2006 was
      $199,013 and $507,355, respectively.





**Restricted
      Stock**





Our
      stock
      incentive plan provides for the granting of other incentive awards in addition
      to stock options. During the nine months ended September 30, 2006, the Board
      of
      Directors granted 56,875 shares of restricted stock under the plan with a
      weighted average fair value of $3.17 per share. During the three months ended
      September 30, 2006, the Board of Directors granted no shares of restricted
      stock
      under the plan. 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 SFAS 123R, 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 SFAS 123R 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 nine months ended
      September 30, 2006 is presented below:





**Weighted****Average****Grant
                Date****Shares**
            
            **Fair
                Value**Non-vested
                shares at January 1, 2006
            
            
            132,500
            
            $
            2.82Granted
            
            
            56,875
            
            
            3.17Vested
            
            
            (52,000
            )
            
            2.87Forfeited/Expired
            
            
            (15,000
            )
            
            2.88Non-vested
                shares at September 30, 2006
            
            
            122,375
            
            $
            2.95





As
      of September 30, 2006, we had
      $360,939 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.








11





**Pro
      Forma Information for Periods Prior to 2006**





In
      periods prior to 2006, we followed the disclosure-only provisions of SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      (“SFAS 123”). The following table illustrates the effect on net income and
      earnings per share for the three- and nine-month periods ended September 30,
      2005 as if the fair value recognition provisions of SFAS 123 had been applied
      to
      options granted during the period:





**Three
                Months**
            
            **Nine
                Months****Ended**
            
            **Ended****September
                30, 2005**
            
            **September
                30, 2005**Net
                loss as reported
            
            $
            (2,176,826
            )
            $
            (6,341,863
            )Add
                (Deduct): stock-based employee compensation expense included
                inreported
                net loss, net of income taxes of $0
            
            
            44,249
            
            
            (433,115
            )Add:
                total stock-based employee compensation expense determinedunder
                fair value based method for all awards, net of income taxes of
                $0
            
            
            218,260
            
            
            832,714Pro
                forma net loss
            
            $
            (1,914,317
            )
            $
            (5,942,264
            )Loss
                per common share (basic and diluted):As
                reported
            
            $
            (0.04
            )
            $
            (0.11
            )Pro
                forma
            
            $
            (0.03
            )
            $
            (0.10
            )








In
      calculating pro forma compensation related to employee stock option grants,
      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:





**Three
                Months**
            
            **Nine
                Months****Ended**
            
            **Ended****September
                30, 2005**
            
            **September
                30, 2005**Dividend
                yield
            
            
            None
            
            
            NoneExpected
                volatility
            
            
            98%
            
            
            105%Risk-free
                interest rate
            
            
            4.08%
            
            
            3.89%Expected
                term (years)
            
            
            2.83
            
            
            2.83








**Note
      8. 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 from February 2004 through May 31, 2006. The agreement stipulates
      that ATG will furnish consulting services in reviewing potential federal grant
      opportunities and providing proposal development assistance on selected
      programs. 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 period January 1, 2006
      through May 31, 2006, we paid ATG $5,722 in connection with our National Science
      Foundation Phase II grant application and $25,800 for certain consulting
      services. 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 September 30, 2006
      payments under the June 2006 agreement totaled $7,500. David King left the
      Altair board of directors effective June 1, 2006 and is no longer a related
      party.








12





**Note
      9. Business Segment Information**





Management
      views the Company as operating in three business segments: Performance
      Materials, Advanced Materials and Power Systems (“AMPS”) and Life Sciences. The
      Performance Materials segment produces advanced materials for paints, coatings,
      sensors, power systems and materials for improving process technologies. The
      AMPS segment develops and produces materials for lithium ion batteries, battery
      cells and systems and materials for research related to hydrogen generation
      and
      fuel cells. The Life Sciences segment produces pharmaceutical products, drug
      delivery products and dental materials.





The
      accounting policies of these business segments are the same as described in
      Note
      2 to the unaudited condensed consolidated financial statements Reportable
      segment data reconciled to the consolidated financial statements as of and
      for
      the three- and nine-month periods ended September 30, 2006 and September 30,
      2005 is as follows:




**(Income)**
            
            **Depreciation****Loss
                From**
            
            **and****Three
                Months Ended**
            
            **Revenues**
            
            **Operations**
            
            **Amortization**
            
            **Assets****September
                30, 2006:**Performance
                Materials
            
            $
            506,857
            
            $
            1,284,568
            
            $
            281,764
            
            $
            6,262,198AMPS
            
            
            238,810
            
            
            1,300,836
            
            
            90,038
            
            
            3,242,991Life
                Sciences
            
            
            4,232
            
            
            163,674
            
            
            2,669
            
            
            1,375,828Corporate
                and Other
            
            
            -
            
            
            1,409,704
            
            
            30,601
            
            
            12,778,342Consolidated
                Total
            
            $
            749,898
            
            $
            4,158,783
            
            $
            405,072
            
            $
            23,659,359**September
                30, 2005:**Performance
                Materials
            
            $
            516,470
            
            $
            651,995
            
            $
            237,746
            
            $
            5,645,287AMPS
            
            
            65,045
            
            
            308,280
            
            
            -
            
            
            -Life
                Sciences
            
            
            3,890
            
            
            316,460
            
            
            446
            
            
            538,396Corporate
                and Other
            
            
            -
            
            
            1,077,425
            
            
            24,913
            
            
            29,766,942Consolidated
                Total
            
            $
            585,405
            
            $
            2,354,160
            
            $
            263,105
            
            $
            35,950,625





**(Income)**
            
            **Depreciation****Loss
                From**
            
            **and****Nine
                Months Ended**
            
            **Revenues**
            
            **Operations**
            
            **Amortization**
            
            **Assets****September
                30, 2006:**Performance
                Materials
            
            $
            1,408,648
            
            $
            3,159,215
            
            $
            795,722
            
            $
            6,262,198AMPS
            
            
            428,535
            
            
            3,582,422
            
            
            194,434
            
            
            3,242,991Life
                Sciences
            
            
            514,840
            
            
            (147,355
            )
            
            7,374
            
            
            1,375,828Corporate
                and Other
            
            
            -
            
            
            6,218,602
            
            
            87,660
            
            
            12,778,342Consolidated
                Total
            
            $
            2,352,022
            
            $
            12,812,885
            
            $
            1,085,190
            
            $
            23,659,359**September
                30, 2005:**Performance
                Materials
            
            $
            1,292,717
            
            $
            1,801,441
            
            $
            690,034
            
            $
            5,645,287AMPS
            
            
            98,378
            
            
            508,751
            
            
            -
            
            
            -Life
                Sciences
            
            
            724,771
            
            
            (124,123
            )
            
            825
            
            
            538,396Corporate
                and Other
            
            
            -
            
            
            4,517,640
            
            
            68,332
            
            
            29,766,942Consolidated
                Total
            
            $
            2,115,866
            
            $
            6,703,709
            
            $
            759,190
            
            $
            35,950,625


In
        the table above, corporate and other expense in the (Income) Loss From
        Operations column includes such expenses as investor relations, business
        consulting, general legal expense, accounting and audit, general insurance
        expense, shareholder information expense and general office
        expense.


13





For
      the three months ended September 30, 2006, we had sales to four major customers,
      each of which accounted for 10% or more of revenues. Total sales to these
      customers for the three months ended September 30, 2006 and the balance of
      their
      accounts receivable at September 30, 2006 were as follows:





**Revenues
                - 3 Months Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **September
                30, 2006**
            
            **September
                30, 2006****Performance
                Materials Division:**Western
                Oil Sands
            
            $
            298,730
            
            $
            190,305UNLV
                Research Foundation
            
            $
            74,152
            
            $
            52,266Department
                of Energy
            
            $
            97,819
            
            $
            84,025**AMPS
                Division:**National
                Science Foundation
            
            $
            51,184
            
            $
            111,146Department
                of Energy
            
            $
            152,438
            
            $
            136,575







For
      the three months ended September 30, 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 three months ended September 30, 2005 and the balance of
      their
      accounts receivable at September 30, 2005 were as follows:





**Revenues
                - 3 Months Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **September
                30, 2005**
            
            **September
                30, 2005****Performance
                Materials Division:**Western
                Michigan University
            
            $
            100,595
            
            $
            68,289Western
                Oil Sands
            
            $
            262,846
            
            $
            272,162UNLV
                Research Foundation
            
            $
            83,792
            
            $
            58,335**AMPS
                Division:**National
                Science Foundation
            
            $
            65,045
            
            $
            -







For
      the nine months ended September 30, 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 nine months ended September 30, 2006 and the balance of their
      accounts receivable at September 30, 2006 were as follows:





**Revenues
                - 9 Months Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **September
                30, 2006**
            
            **September
                30, 2006****Performance
                Materials Division:**Western
                Oil Sands
            
            $
            819,117
            
            $
            190,305UNLV
                Research Foundation
            
            $
            377,406
            
            $
            52,266Department
                of Energy
            
            $
            97,819
            
            $
            84,025**AMPS
                Division:**National
                Science Foundation
            
            $
            198,125
            
            $
            111,146Department
                of Energy
            
            $
            152,438
            
            $
            136,575**Life
                Sciences Division:**Spectrum
                Pharmaceuticals, Inc.
            
            $
            514,840
            
            $
            1,232








14





For
      the nine months ended September 30, 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 six months ended September 30, 2005 and the balance of their
      accounts receivable at September 30, 2005 were as follows:





**Revenues
                - 9 Months Ended**
            
            **Accounts
                Receivable at****Customer**
            
            **September
                30, 2005**
            
            **September
                30, 2005****Performance
                Materials Division:**Western
                Michigan University
            
            $
            349,034
            
            $
            68,289Western
                Oil Sands
            
            $
            428,080
            
            $
            272,162UNLV
                Research Foundation
            
            $
            314,847
            
            $
            58,335**Life
                Sciences Division:**Spectrum
                Pharmaceuticals, Inc.
            
            $
            724,271
            
            $
            28,881





Revenues
      for the three-month periods ended September 30, 2006 and 2005 by geographic
      area
      were as follows:





**Revenues
                -**
            
            **Revenues
                -****3
                Months Ended**
            
            **3
                Months Ended****Geographic
                information (a):**
            
            **September
                30, 2006**
            
            **September
                30, 2005**United
                States
            
            $
            428,228
            
            $
            310,352Canada
            
            
            298,730
            
            
            274,164Other
                foreign countries
            
            
            22,940
            
            
            889Total
            
            $
            749,898
            
            $
            585,405





Revenues
      for the nine-month periods ended September 30, 2006 and 2005 by geographic
      area
      were as follows:





**Revenues
                -**
            
            **Revenues
                -****9
                Months Ended**
            
            **9
                Months Ended****Geographic
                information (a):**
            
            **September
                30, 2006**
            
            **September
                30, 2005**United
                States
            
            $
            1,457,421
            
            $
            1,673,756Canada
            
            
            821,781
            
            
            440,580Other
                foreign countries
            
            
            72,820
            
            
            1,530Total
            
            $
            2,352,022
            
            $
            2,115,866(a)
                Revenues are attributed to countries based on location of
                customer.








15





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




**Forward-Looking
      Statements**




This
      Quarterly Report on Form 10-Q (this “Report”) contains various forward-looking
      statements. Such statements can be identified by the use of the forward-looking
      words "anticipate," "estimate," "project," "likely," "believe," "intend,"
      "expect" or similar words. These statements discuss future expectations, contain
      projections regarding future developments, operations, or financial conditions,
      or state other forward-looking information. When considering such
      forward-looking statements, you should keep in mind the risk factors noted
      in
“Item 1A. Risk Factors” and other cautionary statements throughout this Report
      and our other filings with the SEC. You should also keep in mind that all
      forward-looking statements are based on management’s existing beliefs about
      present and future events outside of management’s control and on assumptions
      that may prove to be incorrect. If one or more risks identified in this Report
      or any other applicable filings materializes, or any other underlying
      assumptions prove incorrect, our actual results may vary materially from those
      anticipated, estimated, projected, or intended.




**Overview**





The
      following discussion summarizes the material changes in our financial condition
      between December 31, 2005 and September 30, 2006 and the material changes in
      our
      results of operations and financial condition between the three-and nine-month
      periods ended September 30, 2006 and September 30, 2005. This discussion should
      be read in conjunction with Management’s Discussion and Analysis of Financial
      Condition and Results of Operations included in the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2005.





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





·
            Advanced
                Materials


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


o
            The
                marketing and production of nano-structured ceramic powders for thermal
                spray applications.


o
            The
                development of nano-structured ceramic powders for nano-sensor
                applications.


·
            Air
                and Water Treatment


o
            The
                development, production and sale of photocatalytic materials for
                air and
                water cleansing.


o
            The
                marketing****of
                Nanocheck products for phosphate binding to prevent or reduce algae
                growth
                in recreational and industrial
                water.


·
            Alternative
                Energy


o
            The
                development, production and sale for testing purposes of nano-structured
                lithium titanate spinel, lithium cobaltate and lithium manganate
                spinel
                materials for high performance lithium ion batteries.


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


o
            The
                development of materials for photovoltaics and transparent electrodes
                for
                hydrogen generation and fuel cells.


·
            Lanthanum
                based Pharmaceutical Products


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
                testing of Renalan, a development-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.











16








·
            Chemical
                Delivery Products


o
            The
                research and development of TiNano Spheres, which are rigid, hollow,
                porous, high surface area ceramic micro structures that are derived
                from
                Altair’s proprietary process technology for the delivery of chemicals,
                drugs and biocides.


·
            Biocompatible
                Materials


o
            The
                research and development of nanomaterials for use in various products
                for
                dental implants, dental fillings and dental products, as well as
                biocompatible coatings on implants.





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





Our
      revenues have been, and we expect them to continue to be, generated by license
      fees, product sales, commercial collaborations, 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) license and evaluate our pigment production process for the
      production of titanium dioxide  pigment
      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 materials and
      thermal spray products. Future revenues will depend on the success of our
      contracted projects, the results of our other research and development work,
      the
      success of the RenaZorb and animal application  licensees
      in obtaining regulatory approval for the drugs, or other products and the
      success of our marketing efforts with respect to both product sales and
      technology licenses.





**General
      Outlook**





We
      have
      generated net losses in each fiscal year since incorporation. In fiscal 2005,
      revenues from product sales, commercial collaborations and contracts and grants
      increased significantly, 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 advanced battery
      materials to be a source of such higher-margin revenues. Consequently, during
      2005, we greatly expanded the scope of our battery initiative by (1) hiring
      thirteen highly qualified advanced battery scientists, engineers, manufacturing
      and marketing specialists, (2) leasing office, laboratory and production space
      in Indiana, and (3) acquiring test and production equipment.  During
      2006, we have continued to make substantial battery initiative expenditures
      for
      the acquisition of equipment and production of batteries, battery cells and
      battery packs for test and development.





As
      we
      attempt to significantly expand our revenues from licensing, manufacturing,
      product 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 advanced battery materials
                and
                battery systems, produce sufficient quantities of batteries and battery
                cells for test purposes, obtain satisfactory test results and successfully
                market the materials and systems. 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 battery
                materials and battery systems to the automotive, stationary power
                and
                military specialty battery industries where we must be able to demonstrate
                to prospective customers that our battery materials and battery systems
                offer significant advantages over existing
                technologies.





·
            Spectrum
                must successfully complete the testing and application processes
                necessary
                to receive FDA approval of our RenaZorb product. Following the settlement
                in early June 2006 regarding certain contractual matters, Spectrum
                appears
                to have re-focused on the product development process and the project
                is
                progressing as anticipated.







17





·
            The
                initial phase of work for the Western Oil Sands license agreement
                has been
                expanded and will run through December 31, 2006. We must successfully
                complete the initial phase, and Western Oil Sands must decide to
                proceed
                with phase 2 work for this project to continue to move toward
                commercialization.





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.





**Recent
      Business Developments**





**Advanced
      Materials and Power Systems Division**




In
      September 2006, we signed an agreement with Alcoa’s AFL Automotive business to
      jointly develop a battery pack system. This collaboration brings together
      Altairnano’s innovative nano-Titanate 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. Alcoa is also a major supplier of light weight, 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 Altairnano’s NanoSafeTM
      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 is expected to be completed in early
      2007.




To
      help understand, communicate and to differentiate our lithium titanate based
      batteries, we have followed past convention and recognized that our lithium
      titanate electrode materials, which replace graphite based anode materials
      are
      in fact a new class of batteries and should be named as such. In the past,
      when
      metal hydride electrode materials replaced cadmium in nickel cadmium batteries,
      this new class of batteries was named “nickel metal hydride” batteries.
      Following this convention, we have named our new class of rechargeable batteries
      lithium “nano-Titanate” batteries and have begun to brand them as Altairnano
“NanoSafeTM” nanoTitanate batteries.




On
      September 9, 2006, approval was finalized on the $2.5 million grant received
      from the Department of Energy (“DOE”). Of the $2.5 million, $2,406,000 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.




In
      June 2006, we received a purchase order from Phoenix Motorcars, Inc. (“Phoenix”)
      for lithium ion battery packs to be used in electric vehicles produced by
      Phoenix. Phoenix is using the engineering services of Boshart Engineering,
      Inc.,
      based in Ontario, California, to develop the battery integration, validation,
      certification and regulatory testing for the vehicles. Delivery of the battery
      packs is scheduled for December 2006. The total value of the purchase order
      is
      $750,000.




**Performance
      Materials Division**




In
      September 2006, the Nanosensors program, funded by $981,000 of the Department
      of
      Energy grant, will extend the existing collaboration with Western Michigan
      University (“WMU”) 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 WMU DOE 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. Acting as a
      subcontractor to WMU under the 2004 grant, we successfully designed and built
      sensors that generate signals when exposed to various agents.




18




**Life
      Sciences Division**





In
      September 2006, the Nanomaterials characterization program was funded by
      $311,000 of the DOE 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.
      This research will focus on interaction mechanisms between cells and
      nanoparticles, with the goal of understanding how specific chemical, physical,
      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.





**Liquidity
      and Capital Resources**




**Current
      and Expected Liquidity**





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 the near future, as additional capital is needed, we expect
      to rely primarily on the sale of equity securities, including related derivative
      securities. We
      do not
      have any commitments with respect to future financing and may, or may not,
      be
      able to obtain such financing.





We
      have a
      single note payable in an 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 principal payment of $600,000
      plus accrued interest was due and paid on February 8, 2006, and future payments
      are due annually on February 8, 2007 through 2010.





Our
      cash and short-term investments decreased by $13,233,394, from $23,054,074
      at
      December 31, 2005 to $9,820,680 at September 30, 2006, due primarily to the
      loss
      from operations (approximately $10,184,000) and purchases of property and
      equipment (approximately $2,956,000).





During
      the nine months ended September 30, 2006, our cash used in operations was
      $10,184,327. Unusual or infrequently occurring payments made during the first
      six months of 2006 included approximately $400,000 of facility repair costs
      associated with a flood at our Reno, Nevada headquarters. The amount of cash
      we
      use in operations is dependent on the amount and mix of revenues we generate.
      In
      the nine months ended September 30, 2006, revenues were $2,352,022, which
      included $33,598 of product sales. Although we expect quarterly revenues to
      increase during the remainder of the year, and we expect product sales to become
      a larger percentage of the sales mix, we cannot be certain that this will occur.





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





At
      November 1, 2006, we had 59,647,389 common shares issued and outstanding. As
      of
      that same date, there were outstanding warrants to purchase up to 960,224 shares
      of common stock and options to purchase up to 3,444,046 shares of common
      stock.





**Capital
      Commitments**





We
      intend to purchase equipment for both our Reno, Nevada and Anderson, Indiana
      facilities for use in the development of advanced battery materials and
      production of prototype batteries and battery packs. We expect to spend
      approximately $325,000 for this equipment and related facility upgrades during the quarter ended
      December 31, 2006.




19





The
      following table discloses aggregate information about our contractual
      obligations and the periods in which payments are due as of September 30,
      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
            
            
            1,091,983
            
            
            1,087,483
            
            
            4,500
            
            
            -
            
            
            -Facilities
                and Property Leases
            
            
            388,575
            
            
            208,402
            
            
            156,866
            
            
            23,306
            
            
            -Unfulfilled
                Purchase Orders
            
            
            1,424,791
            
            
            1,424,791
            
            
            -
            
            
            -
            
            
            -Total
                Contractual Obligations
            
            $
            5,725,349
            
            $
            3,488,676
            
            $
            1,571,366
            
            $
            665,307
            
            $
            -








**Off-Balance
      Sheet Arrangements**





There
      were no off-balance sheet arrangements at September 30, 2006.





**Critical
      Accounting Policies and Estimates**




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




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





·
            Long-Lived
                assets. Our long-lived assets consist principally of the nanomaterials
                and
                titanium dioxide pigment assets, the intellectual property (patents
                and
                patent applications) associated with them, and a building.Included
                in these long-lived assets are those that relate to our research
                and
                development process.   If the assets have alternative future
                uses (in research and development projects or otherwise), they are
                capitalized when acquired or constructed; if they do not have alternative
                future uses, they are expensed as incurred.At
                September 30, 2006, the carrying value of these assets was $10,660,989,
                or
                45% 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.





·
            Share-Based
                Compensation. We have a stock incentive plan which 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 Note 6 of Notes to the Unaudited Condensed
                Consolidated Financial Statements, are appropriate and reasonable.




20





·
            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.  Historically, our
                revenues have been derived from four sources: license fees, commercial
                collaborations, contract research and development and product sales. 
                License fees are recognized when the agreement is signed, we have
                performed all material obligations related to the particular milestone
                payment or other revenue component and the earnings process is complete.
                Revenue for product sales is recognized at the time the purchaser
                has
                accepted delivery of the product. 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 overhead 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.





·
            Deferred
                Income Taxes. 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.  The Company has 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
                there is
                insufficient basis as of September 30, 2006 for projecting that the
                Company will realize the benefits of these deductible differences
                as of
                September 30, 2006.  Management has, therefore, established a full
                valuation allowance against its net deferred income tax assets as
                of
                September 30, 2006.





**Results
      of Operations**





*Three
      Months Ended September30, 2006 Compared to Three Months Ended September 30,
      2005*





The
      net loss for the quarter ended September 30, 2006, which was the third quarter
      of our 2006 fiscal year, totaled $4,054,686 ($.07 per share) compared to a
      net
      loss of $2,176,826 ($.04 per share) in the third quarter of 2005.





Total
      revenues for the quarter ended September 30, 2006 were $749,898 compared to
      $585,405 for the same period of 2005. Revenues
      from contracts and grants increased by $138,410, from $249,432 in the third
      quarter of 2005 to $387,842 in the third quarter of 2006. Revenues from the
      Department of Energy Grant formally authorized in September 2006 totaled
      approximately $250,000. This increase was offset by a decrease in revenues
      associated with the 2004 Nanosensors grant subcontract with Western Michigan
      University of approximately $100,000 that was fully expended in February
      2006.




21





Research
      and development expenses increased by $1,473,212, from $1,290,354 in the third
      quarter of 2005 to $2,763,566 in the same quarter of 2006. Within research
      and
      development, labor and overhead costs increased by approximately $590,000 due
      to
      the addition of twenty-five new employees. Expenditures for materials, supplies
      and other operating costs (exclusive of labor) for the battery initiative and
      internal development of the titanium dioxide pigment production technology
      increased by approximately $463,000 and $273,500, respectively.





Sales
      and marketing expenses increased by $185,464, from $238,151 in the third quarter
      of 2005 to $423,615 in the third quarter of 2006. This change primarily relates
      to increased marketing efforts in the AMPS division.





General
      and administrative expenses increased by $141,663 from $1,146,528 in the third
      quarter of 2005 to $1,288,191 in the same period of 2006. Share-based
      compensation expense, a non-cash item, increased by approximately $408,000,
      primarily as a result of implementing SFAS 123R as of January 1, 2006. This
      increase was partially offset by a decrease in consulting and accounting expense
      of approximately $258,000 related to compliance with Sarbanes-Oxley rules,
      which
      was largely accomplished during 2005.





*Nine
      Months Ended September30, 2006 Compared to Nine Months Ended September 30,
      2005*





The
      net loss for the nine months ended September 30, 2006 totaled $12,403,769 ($.21
      per share) compared to a net loss of $6,341,863 ($.11 per share) in the same
      period of 2005.





Total
      revenues for the nine months ended September 30, 2006 were $2,352,022 compared
      to $2,115,866 for the same period of 2005. Revenues from commercial
      collaborations increased by $474,102, from $584,520 in the nine months ended
      September 30, 2005, to $1,058,622 in the same period of 2006. Revenues from
      Western Oil Sands increased by approximately $391,000 due to the expanded scope
      of the project. Revenues from Spectrum increased by approximately $120,000
      due
      to a higher level of billable product development efforts.





Revenues
      from contracts and grants increased by $132,823, from $762,259 in the nine
      months ended September 2005, to $895,082 in the same period of 2006. Revenues
      from the Department of Energy Grant formally authorized in September 2006
      totaled approximately $250,000 and other grant revenues increased by $216,000.
      These increases were offset by a decrease in revenues associated with the 2004
      Nanosensors grant subcontract with Western Michigan University of approximately
      $334,000 that was fully expended in February 2006.





These
      increases in contracts and grant revenue are offset by a decrease in license
      fees recorded for the nine months ending September 2006. We recorded license
      fee
      revenues of $695,000 during the nine months ended September 30, 2005 upon
      receipt of 100,000 shares of Spectrum common stock. The stock was issued to
      us
      in payment of license fees for RenaZorb. During the second quarter of 2006,
      we
      recorded $364,720 of additional license fee revenues from Spectrum. Although
      we
      received 100,000 shares of Spectrum common stock in 2006 and 2005, the amount
      recorded as revenues decreased due to a decline in the market value per share
      at
      the dates of the transactions.





Research
      and development expenses increased by $4,101,187, from $2,816,031 in the nine
      months ended September 30, 2005 to $6,917,218 in the same period of 2006. Within
      research and development, labor and overhead costs increased by approximately
      $1,915,000 due to the addition of 25 new employees. Expenditures for materials,
      supplies and other operating costs (exclusive of labor) for the battery
      initiative increased by approximately $1,707,000, and other research and
      development operations increased by approximately $479,000.





Sales
      and marketing expenses increased by $225,528, from $1,159,259 in the nine months
      ended September 30, 2005 to $1,384,787 in the same period of 2006. We
      experienced an increase in expense of $726,000 in the first nine months of
      2006
      due to an increase in payroll expense resulting from additional sales and
      marketing employees and increased activity associated with the AMPS division.
      This increase was largely offset due to the fact that, in the nine months ended
      September 30, 2005, we paid a $500,000 fee to RBC Capital Markets in connection
      with the RenaZorb licensing agreement; no comparable fees were paid in
      2006.




22








General
      and administrative expenses increased by $1,679,098 from $4,067,661 in the
      nine
      months ended September 30, 2005 to $5,746,759 in the same period of 2006. We
      incurred approximately $400,000 of expenses associated with a flood at our
      headquarters in Reno, Nevada in January 2006. Share-based compensation expense,
      a non-cash item, increased by approximately $934,000, primarily as a result
      of
      implementing SFAS 123R as of January 1, 2006. General legal and patent expenses
      increased by approximately $371,000 and general corporate expenses increased
      by
      a net amount of approximately $256,000. Also, the Company recorded a $218,000
      non-recurring gain on sale of the pilot plant assets at the Camden Tennessee
      location in the nine months ending 2005. These increases were partially offset
      by a decrease in consulting and accounting expense of approximately $500,000
      related to compliance with Sarbanes-Oxley rules, which was largely accomplished
      during 2005.





**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





We
      do not have any derivative instruments, commodity instruments, or other
      financial instruments for trading or speculative purposes, nor are we presently
      at material risk for changes in interest rates or foreign currency exchange
      rates.





**Item
      4.**  **Controls
      and Procedures**





(a)  Based
      on the evaluation of our "disclosure controls and procedures" (as defined in
      the
      Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by
      paragraph (b) of Rules 13a-15 or 15d-15, our chief executive officer and our
      chief financial officer have concluded that, as of September 30, 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.




(b)  There
      have been no changes in our internal control over financial reporting identified
      in connection with the evaluation required by paragraph (d) of Exchange Act
      Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.









**PART
      II - OTHER INFORMATION**





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





Material
      Changes in Risk Factors





Other
      than the updating from June 30, 2006 to September 30, 2006 of financial data
      referred to therein, the risk factors set forth below under “ Risk
      Factors ”
reflect
      no material changes from the “Risk Factors” identified in Item 1A of our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2005 (the “Form
      10-K”), as updated by the “Material Changes in Risk Factors” subsection of Item
      1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
      filed with the SEC on August 8, 2006, which disclosure is incorporated herein
      by
      reference.





Risk
      Factors




*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 below and other cautionary
      statements throughout this Report and our other filings with the SEC. You should
      also keep in mind that all forward-looking statements are based on management’s
      existing beliefs about present and future events outside of management’s control
      and on assumptions that may prove to be incorrect. If one or more risks
      identified in this Report or any other applicable filings materializes, or
      any
      other underlying assumptions prove incorrect, our actual results may vary
      materially from those anticipated, estimated, projected, or
      intended.*




23





***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 $10,481,853 in 2005 and $12,403,769 in the nine months ended
      September 30, 2006. Even if we do generate net 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 net 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,
      2005, 2004 and 2003, contract services revenues comprised 70%, 99% and 88%,
      respectively, of our operating revenues, and during the first nine months of
      2006, contract service revenues comprised 83% of our 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:




·
              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;
  24
 
 ·
              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.***





None
      of
      the existing or potential products being developed with our nanomaterials and
      titanium dioxide pigment technology is designed for direct use by the ultimate
      end user. Phrased differently, all of our products are components of other
      products. For example, our lithium titanate spinel battery materials and
      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 lithium titanate spinel battery 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:


·
              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;
  25
 
 ·
              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;
  ·
              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.




26




***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 lithium titanate spinel battery materials and 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.




***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
                  licensee 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;
  27
 
 ·
              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
 
 ·
              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 payment of $600,000 of principal plus accrued interest was due and paid
      February 8, 2006. Additional payments of $600,000 plus accrued interest are
      due
      annually on February 8, 2007 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
      September 30, 2006, we had approximately $9.8 million in cash, cash equivalents
      and short-term investments. Together with projected revenues, this is an amount
      sufficient to fund our ongoing operations for approximately a year at current
      levels. If anticipated revenues are not obtained, the Company intends to monitor
      and reduce expenditure levels as necessary to preserve working capital for
      priority projects. 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;
 28




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 (i) 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 (ii) 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, Dr. Bruce Sabacky, our Chief Technology Officer
      and
      Douglas Ellsworth and Roy Graham, our Senior Vice Presidents. 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.




***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;
  29
 
 ·
              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 approximately one-year 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.





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.








30











**Item
      6. Exhibits**





See
      the Exhibit Index attached hereto following the signature page.





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





Altair
                Nanotechnologies Inc.November
                8, 2006
            
            By:
                /s/ Alan J. GotcherDate
            
            Alan
                J. Gotcher, Chief Executive OfficerNovember
                8, 2006
            
            By:
                /s/ Edward H. DickinsonDate
            
            Edward
                H. Dickinson, Chief Financial
                Officer









31




**EXHIBIT
                INDEX****Exhibit
                No.**
            
            **Exhibit**
            
            **Incorporated
                by Reference/ Filed Herewith**31.1
            
            Section
                302 Certification of Chief Executive Officer
            
            Filed
                herewith31.2
            
            Section
                302 Certification of Chief Financial Officer
            
            Filed
                herewith32.1
            
            Section
                906 Certification of Chief Executive Officer
            
            Filed
                herewith32.2
            
            Section
                906 Certification of Chief Financial Officer
            
            Filed
                herewith











_________________________________________




32