10-K 1 v146326_10k.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
x  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the Fiscal Year Ended December 31, 2008
 
o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the Transition Period from ____________ to ____________
 
Commission File Number 000-50983
 
ECOTALITY, INC.
(Name of small business issuer in its charter)
 
Nevada
 
68-0515422
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
 
6821 E. Thomas Road
   
Scottsdale, AZ
 
85251
(Address of principal executive offices)
 
(Zip code)
 
Issuer’s telephone number: (480) 219-5005
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
None
 
None
 
Securities Registered Pursuant to Section 12(g) of the Act:
 
 
Common Stock, $0.001 par value
 
 
(Title of class)
 
 
 
(Title of class)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. x  Yes  o  No
 
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer   o
 
Accelerated filer   o
 
Non-accelerated filer   o  
(Do not check of a smaller reporting company)
 
Smaller reporting company  þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes    x   No
 
The issuer’s revenue for its most recent fiscal year was $11,187,314
 
The Company’s common stock is listed on the Over-the-Counter Bulletin Board under the stock ticker symbol “ETLY.”  The aggregate market value of the voting and non-voting common equity held by non-affiliates based upon a price per share of $0.07, which was the closing price on April 13, 2009, is $9,059,600
 
The number of shares outstanding of each of the issuer’s classes of common equity, as of April 13, 2009 was 160,756,194.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
Transitional Small Business Disclosure Format (Check one): Yes o No x
 

 
PART I
    3  
DESCRIPTION OF BUSINESS
    24  
DESCRIPTION OF PROPERTY
    24  
LEGAL PROCEEDINGS
    24  
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
       
PART II
       
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK
    25  
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    41  
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    F-23  
CONTROLS AND PROCEDURES
    F-23  
OTHER INFORMATION
    F-23  
PART III
       
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
    F-24  
EXECUTIVE COMPENSATION
    F-27  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    F-30  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    F-31  
EXHIBITS
    F-32  
PRINCIPAL ACCOUNTANT FEES AND SERVICES
    F-33  
SIGNATURES
    F-34  
 
 
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FORWARD LOOKING STATEMENTS
 
This Annual Report contains forward-looking statements about our business, financial condition and prospects that reflect our management’s assumptions and beliefs based on information currently available.  We can give no assurance that the expectations indicated by such forward-looking statements will be realized.  If any of our assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
 
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand its customer base, management’s ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
 
There may be other risks and circumstances that management may be unable to predict.  When used in this Report, words such as,  “believes,” “expects,” “intends,” “plans,” “anticipates,” “estimates”  and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
 
PART I
 
Description of Business
 
Business Development and Summary

We were incorporated in Nevada in 1999.  We are a leader in clean electric transportation and storage technologies. Through innovation, acquisitions, and strategic partnerships, we accelerate the market applicability of advanced electric technologies to replace carbon-based fuels. We are a leader in providing electricvehicle infrastructure products and solutions that are used in on-road grid-connected vehicles (including plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV), material handling and airport electric ground support applications. Through our main operating subsidiary, Electric Transportation Engineering Corporation (eTec), our  primary product offering is the Minit-Charger line of advanced battery fast-charge systems that are designed for various motive applications. In addition to our  electric transportation focus, we are also involved in the development, manufacture, assembly and sale of specialty solar products, advanced battery systems, and hydrogen and fuel cell systems. Our subsidiaries and primary operating segments consist of Electric Transportation Engineering Corporation (eTec), Innergy Power Corporation (Innergy),  and ECOtality Stores (dba Fuel Cell Store). In addition we have a wholly owned subsidiary in Mexico providing manufacturing services for us.

We operate with a commercial “electro-centric” strategy, targeting only products and companies involved in the creation, storage, and/or delivery of clean or renewable electric power. This strategy has resulted in the development and acquisition of various operating companies.. While focused on electric transportation infrastructure, we have developed a diversified technology portfolio that is linked through the ability to deliver comprehensive electro-centric energy alternatives and solutions. By establishing a technologically diverse multi-product base we are able to mitigate the uncertainty of clean technology demands and regulatory changes. Our current primary focus is to facilitate and execute the development and implementation of electric vehicle charging infrastructure in anticipation of mass commercialization of plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV) in the 2010 to 2012 timeframe.

Electric Transportation Engineering Corporation (eTec)

Electric Transportation Engineering Corporation (eTec) was incorporated in Arizona in 1996 to support the development and installation of battery charging infrastructures for electric vehicles. As our primary operating subsidiary, eTec is a recognized leader in the research, development and testing of advanced transportation and energy systems, and is the exclusive provider of the Minit-Charger line of battery fast-charge systems and technologies. Specializing in alternative-fuel, hybrid and electric vehicles and infrastructures, eTec offers consulting, technical support and field services and is committed to developing and commercially advancing clean electric technologies with clear market advantages.

eTec’s primary product line consists of the Minit-Charger line of battery fast-charge systems. The Minit-Charger brand is the result of a consolidation of the two leading fast-charging technologies: eTec SuperCharge  and Edison Minit-Charger. Prior to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec held exclusive patent rights to the flagship product line, eTec SuperCharge™  battery fast-charge systems that allow for rapid charging while generating less heat and promoting longer battery life than conventional chargers. The eTec SuperCharge technology was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was specifically designed for airport ground support equipment, neighborhood and on-road electric vehicle, and marine and transit system operations. Since the acquisition of the technology, eTec has made considerable engineering and product advancements and is currently a leader in providing these clean electric fast-charging technologies to airports throughout North America.

In 2007, we acquired the Minit-Charger business of Edison Source, a division of Edison International . The core Minit-Charger technology allows for material handling equipment to convert to electric power systems that can be charged quickly, conveniently and efficiently, thereby eliminating the need for propane or diesel-powered equipment or for backup batteries and costly change-out operations required with traditional straight-line charging. eTec’s Minit-Charger line of battery fast charge systems has a large customer base that consists of Fortune 500 companies and other corporate entities throughout North America.
 
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In March of 2008, all eTec fast-charging products, including the eTec SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By unifying the underlying fast-charging technologies under a single engineering, manufacturing and sales entity (eTec Minit-Charger), we are better able to streamline our operations and sales and marketing efforts. The complete portfolio of eTec Minit-Charger products provides eTec with a leadership position in current fast charging markets and well positions us to capitalize on the rapidly growing clean technology sector for electric vehicle infrastructure technologies. We believe Minit-Charger is the most superior fast-charge technology on the market as it is a smart charging system that can charge batteries (of almost all chemistries) as fast as possible, while best controlling the battery temperature and avoiding the devastating effects of overcharging.

eTec has a comparatively long history in clean and renewable technologies and has various standing contractual relationships as a test contractor and/or primary and consulting engineer for projects with the United States Department of Energy (DoE), several national research laboratories, national energy storage consortiums, and large electric utilities where they provide services in energy storage, monitoring, systems design and fabrication, product and vehicle testing, and product development. Their work has been in the areas of electric vehicle systems, recharging stations, energy demand management systems, utility communication systems, advanced battery technologies, fast charging technologies, hydrogen creation, storage and dispensing systems, and coal gasification programs. Currently, eTec is holds the exclusive contract for the DoE’s Advanced Vehicle Testing Activity (AVTA) program and has conducted more than 6 million miles of vehicle testing on more than 200 advanced fuel vehicles.

We acquired eTec as an expansion platform for its core expertise in battery technologies, fast charging systems, energy distribution infrastructure, and advanced vehicle technologies and testing, which includes electric vehicle (EV), hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and hydrogen vehicle technologies. We believe that eTec will expand its core technologies through new product development, joint ventures, acquisitions and organic growth. As eTec has unparalleled experience with electric vehicle infrastructure, we believe our experience with electric vehicles infrastructure, our knowledge of the vehicle and battery systems, as well as our industry leading fast-charging technology provides us with a distinct competitive advantage to be leading provider of electric vehicle infrastructure services and installation.

eTec has been involved in every North American EV initiative to date and is a leading provider of solutions for electric vehicles and its supporting infrastructure. Currently, eTec has installed more than 5,100 charging stations for motive applications, and has installed more chargers for on-road applications than any other company in North America.

Innergy Power Systems

Founded in 1989, Innergy Power Systems is based in San Diego, California with a manufacturing facility in Tijuana, Mexico. Innergy is the only North American manufacturer of both renewable energy solar modules and thin-sealed rechargeable batteries, as its solar photovoltaic (PV) product line addresses the burgeoning worldwide demand for solar energy products and off-grid power. Innergy’s fiberglass reinforced panel (FRP) solar modules are designed to meet a broad  range of applications for emergency preparedness and recreation, where quality, durability, rugged construction and light weight are important in the outdoor environment. Applications include logistics tracking, asset management systems, off-grid lighting, mobile communications, mobile computing, recreational vehicles, signaling devices and surveillance cameras.

Innergy and our wholly owned subsidiary providing manufacturing services, Portable Energy De Mexico, S.A. DE C.V., provides us the ability to further expand our production, manufacturing and assembly capabilities for Innergy’s solar products and energy storage devices, as well as products of our other subsidiaries, including eTec’s Minit-Charger products.  Innergy  provides us the ability to expand our offering of solar products and solutions into current and developing commercial markets, as well as provides strong manufacturing and assembly operations to assist other aspects ofour business. While we expect solar to become a major future energy source, Innergy’s battery systems that support the growing electric vehicle market is quickly expanding and we expect the combination of solar solutions and new battery sales to contribute to our long and short-term earnings and revenue growth. Innergy is actively pursuing growth opportunities through product line expansion, joint ventures, acquisitions, and manufacturing contracts.

ECOtality Stores (dba Fuel Cell Store)

ECOtality Stores (dba Fuel Cell Store) is our wholly owned subsidiary and operates as our online retail division. Fuel Cell Store (www.fuelcellstore.com) is an e-commerce marketplace that offers consumers the widest array of fuel cell products from around the globe. Based in San Diego, California and with active international operations in Japan, Russia, Italy, and Portugal, Fuel Cell Store develops, manufacturers, and sells a diverse and comprehensive range of fuel cell products that includes fuel cell stacks, systems, component parts and educational materials. In addition to primary retail operations, Fuel Cell Store also offers consulting services for high schools, colleges, and leading research institutes and is available to host workshops, conferences and corporate events. Fuel Cell Store is the leading market place for fuel cell stack, component, and hydrogen storage manufacturers to unite with consumers and is an attractive source for hydrogen and fuel cell industry activity and direction. 
 
Hydrality™

Hydrality™ is a complex reactor system that stores and delivers hydrogen on-demand using magnesium compounds and water. The EPC/Hydrality technology, which was initially developed in conjunction with NASA’s Jet Propulsion Laboratory (JPL) and subsequently advanced by Arizona State University, Green Mountain Engineering and Airboss Aerospace, Inc. continues to have promise for a variety of commercial applications. While we initially sought to design and license a cost efficient Hydrality system for use in motorized vehicles and industrial equipment, we have identified several additional and promising applications for Hydrality that include stationary applications for remote power, back-up power systems, and large scale industrial and utility use. 
 
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Products

We currently offer the following products:
   
·  
Energy engineering services (hydrogen, solar, battery, coal gasification, energy delivery infrastructure)
   
·  
eTec’s Minit-Charger fast-charge systems for material handling and airport ground support equipment
   
·  
Charging systems (Level 2 & 3) for on-road grid-connected electric vehicles
   
·  
Energy engineering services (hydrogen, solar, battery, coal gasification, energy delivery infrastructure, etc…)
   
·  
eTec Bridge Power Manager (BPM) systems
   
·  
Hydrogen internal combustion engine (HICE) vehicle conversions
   
·  
Industrial battery systems
   
·  
Solar panel production
   
·  
Specialty solar solutions
   
·  
Specialty thin-sealed lead battery products
   
·  
Various proprietary solar products for consumer, emergency response programs and remote power systems.
   
·  
Third-party hydrogen and education related products

Customers

We have a strong base of commercial, industrial, institutional, governmental, and utility customers. As the transition to renewable clean energy continues to advance, we believe that our positioning within the commercial sector gives us an advantage over companies who focus on consumer products or distribution. Our customer base includes many Fortune 500 companies, colleges and universities, international research institutes, major electric utilities, the Department of Energy, the Department of Transportation, major industry research consortiums, regional government organizations, vehicle manufacturers and original equipment manufacturers (OEM). By providing testing and engineering services, as well as being a product provider, we are on the cutting edge of technology and product development for the production, storage and delivery of renewable energy sources, which allows us to develop innovative products and solutions for industry and government needs. Our customers use our products in industrial applications and for OEM applications.

We believe that commercial/industrial entities will be the early users of clean electric and renewable energy technologies and products, precipitated by regulatory, financial, employee, and customer pressures. While we continue to achieve growth in the sale of fast-charge products for material handling and airport applications, we have identified an emerging new market for our fast-charging products for on-road electric vehicles. We are currently targeting large international retailers, property management firms, major utilities, traditional fuel providers and other commercial entities as potential on-road vehicle fast-charge customers.

Manufacturing

We have through our wholly owned subsidiary Portable Energy De MexicoS.A.De C.V., manufacturing facilities in Tijuana, Mexico operated under a “maquiladora”  program for the production of solar and battery products. The facility is highly labor-intensive. We have a high-value assembly operation in Phoenix, Arizona. Additionally, we have manufacturing agreements with third parties in Canada, Germany, and China.

If  needed, we have the ability to substantially expand our Mexican operations as well as the high-value manufacturing capability in Phoenix, Arizona. We are currently planning for new leased facilities in Mexico and Arizona to handle our anticipated growth. Part of our strategic growth plan would include more mechanized production systems, inclusive of International Organization for Standardization (ISO) quality and environmental certifications. Should the market for on-road grid-connected vehicles continue to expand, we anticipate a tremendous increase in market demand for electric vehicle supply equipment (EVSE) by 2012. As the market for EVSE enters a growth phase, the manufacturing capabilities in Mexico and Phoenix may need to be expanded through the lease or purchase of additional adjacent buildings that will allow us to increase manufacturing capacity to meet the appropriate levels of market demands

Research and Development

We devoted a large percentage of our 2007 research and development expenditures to the Hydrality project. This expenditure was with third-party technology and engineering partners including NASA’s Jet Propulsion Laboratories (JPL) and others, we have determined that we will reduce  our technology research and development expenditures at levels in-line with traditional operating technology companies based upon a reasonable percentage of revenues.

We have also determined that the vagaries of the hydrogen industry, the advancement of other renewable technologies to the commercial forefront, and the potentially long and expensive road to commercialization and profitability for hydrogen technologies necessitate that we prudently scale back our hydrogen research and development expenditures as indicated above, and proceed only on the basis of joint development projects with third-parties or significantly subsidized development with potential licensees or federal grants.
 
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This shift to joint development projects and the scaling back on our hydrogen research and development expenditures  is clearly reflected in our 2008 operating results. The most significant research and development expenditures for 2008 relate to final payments on Hydrality- related projects initiated in 2007 that were scheduled for completion in the first half of 2008.

Sales and Marketing

           We are actively marketing all of our companies and products under the ECOtality brand as well as under their historic brand names. We are striving to build a strong corporate identity as a “leader in clean electric transportation and storage technologies”. This corporate branding of group products is an important part of our strategy to provide individual and integrated electro-centric products and solutions. Product marketing is handled on a divisional and subsidiary level, with cross-marketing efforts to be a key element of the corporate marketing program. Corporate marketing and overall brand management, investor relations and group representation is handled out of our corporate headquarters in Scottsdale, Arizona.

The majority of our products and services are sold directly on a business-to-business basis. ECOtality Stores conducts sales operations through the internet of hydrogen fuel cell products and educational kits and systems. 

Government

The energy industry is highly regulated. Several states in the U.S. along with Canada and various countries in Europe and Asia have adopted a variety of government subsidies to allow new renewable sources of energy and technologies to compete with conventional fossil fuel based sources. Government grants for research and development are often the precursors to the acceptance of and government incentives for new clean technologies. We closely track government policy and strategy as it relates to renewable and clean tech energy. Our eTec subsidiary has a large portfolio of DOE contracts and is in regular contact with leaders of U.S energy and technology policies.

President-elect Barack Obama has made various claims during his Presidential campaign that suggests he will be a strong proponent of grid connected vehicles and their supporting infrastructure. Specifically, President Obama’s campaign website (www.barackobama.com) stated a primary goal of the Obama Administration would be to “make the U.S. a leader on climate change” and to "put 1 million Plug-In Hybrid cars -- cars that can get up to 150 miles per gallon -- on the road by 2015.” Other goals of the Obama plan included:

·  
Invest $150 billion over 10 years to accelerate the commercialization of plug-in hybrids (PHEVs), commercial scale renewable energy, low emissions coal plants, the next generation of fuel infrastructure and the transition to a new digital electricity grid.
   
·  
Convert the entire White House fleet to plug-ins within his first year of office
   
·  
Ensure that half of all cars purchased by the federal government be PHEVs or EVs by 2012
   
·  
Provide a $7,000 tax credit for the purchase of advanced technology vehicles as well as conversion tax credits
   
·  
Require 10% of electricity to come from renewable sources by 2012,

We believe that the Obama Administration will help advance the electric transportation technologies and will provide substantial funding opportunities to establish and advance renewable energy infrastructure, electric grid enhancements, and physical infrastructure to support this new method of transportation.  At the very least, substantial tax incentives and rebates are offered for the purchase and use of reduced emissions vehicles, for which all grid-connected vehicles currently apply, that are designed to support consumer adoption.  With our strong focus on electric transportation infrastructure, grid-connected vehicles, and renewable energy technologies, we believe the focus by the Obama Administration will provide strong funding opportunities for us and our core technologies.

eTec’s portfolio of battery-charging and fast-charging systems may be subject to regulation under the 2002 National Electric Code (“NEC”), which is a model code adopted by the National Fire Protection Association that governs, among other things, the installation of charging systems.  Accordingly, any of our systems installed in a jurisdiction that has adopted the 2002 NEC must be installed in accordance with Article 692. Additionally, standards are being devised by the Society of Automotive Engineers (SAE) for the connection and communications standards between battery charging systems and grid-connected vehicles.  Our eTec subsidiary occupies leadership positions on both the SAE’s Level 2 and Level 3 (fast-charging) committees. We expect all of our electric vehicle supply equipment (EVSE) to comply with the necessary SAE standards and specifications.

The Federal Bayh-Dole Act requires the California Institute of Technology (CalTech- operators of NASA’s JPL) to grant to the Federal government a worldwide, non-exclusive, non-transferable, irrevocable, paid-up license in connection with any invention developed under the Hydrality license agreement.  Therefore, under this provision, the Federal government would have a license to use each subject invention for NASA-related applications and for other applications of the Federal government.

The Federal government also retains “March-in Rights, ” which would allow the Federal government to grant licenses to others if:  (1) we do not “achieve practical application” of a subject invention (i.e. commercialize the technology); (2) such action is necessary to alleviate health or safety needs that are not reasonably satisfied by us; (3) such action is necessary to meet requirements for public use specified by federal regulations and such requirements are not reasonably satisfied by us; or (4) such action is necessary because we and/or our sub licensees are manufacturing patented products outside of the United States.  We believe that the Federal government is not likely to exercise its March-in Rights with regard to any of our patented technology because March-in Rights have rarely, if ever, been invoked by the Federal government since the Bayh-Dole Act was enacted in 1980. However, we cannot assure you that the Federal government will not invoke its March-in Rights against us in the future.

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General Competition

Currently, we believe that we have no direct competitors and that our consolidated and diverse offering of products and technologies in multiple renewable energies sectors differentiates us from others in the industry and gives us a competitive advantage. While many of our individual technologies and products do have direct market competition, we are aware of no other entity that has consolidated its products and technology offerings to extend to such diverse renewable energy market segments.

As competition in the renewable energy sectors is intense, the potential competition for each of the individual products and technologies that we offer  ranges from development stage companies to major domestic and international companies, many of which have financial, technical, marketing, sales, manufacturing, distribution and other resources that are significantly greater than ours.
 
Fast-Charge Competition

The eTec SuperCharge and Minit-Charger systems (recently consolidated under the eTec Minit-Charger brand) are designed for material handling applications, airport ground support equipment and electric vehicles. We believe that the principal competitive factors in the markets for our battery fast charging products and services include product performance, features, acquisition cost, lifetime operating cost, including maintenance and support, ease of use, integration with existing equipment, quality, reliability, customer support, brand and reputation.
 
The primary direct competitors to the eTec SuperCharge and Minit-Charger systems are other fast-charge suppliers, including AeroVironment, Inc., Aker Wade Power Technologies LLC, Power Designers, LLC, and C&D Technologies, Inc. Some of the major industrial battery suppliers have begun to align themselves with fast charge suppliers, creating a potentially more significant source of competition. In addition, the eTec SuperCharge and Minit-Charger systems compete against the traditional method of battery changing. Competitors in this area include suppliers of battery changing equipment and infrastructure, designers of battery changing rooms, battery manufacturers and dealers who may experience reduced sales volume because the  eTec SuperCharge  and  Minit-Charger  fast charge systems reduces or eliminate the need for extra batteries..

Electric Vehicle Infrastructure Competition

Electric vehicle infrastructure refers to companies that provide electric vehicle supply equipment (EVSE) and services that support grid-connected vehicles. From a product standpoint, this would primarily include the physical charging system hardware and integrated software requirements. While the market is still in its relative infancy, competing firms that have publically announced intentions to enter this market include Better Place, Coulomb Technologies, Aerovironment, Inc., Aker Wade Power Technologies, LLC, Delta-Q Technologies and Elektromotive (UK). We are unaware of any competitor with comparable actual experience in installing EV infrastructure in North America. Additionally, we are unaware of any competitor that are actively engaged in extensive consulting operations for major automotive OEMS, utilities, governmental organizations, research institutes, or industry and trade groups.

Solar Competition

The market for solar electric power technologies is competitive and continually evolving. Innergy’s solar products compete with a large number of competitors in the solar power market, including BP Solar International Inc., Evergreen Solar, Inc., First Solar Inc., Kyocera Corporation, Mitsubishi Electric Corporation, Motech Industries Inc., Q-Cells AG, Sanyo Corporation, Sharp Corporation, SolarWorld AG and Suntech Power Holdings Co., Ltd. Many of these companies have established strong market positions, greater name recognition, a more established distribution network and a larger installed base of customers. Some competitors also have more available capital and significantly greater access to financial, technical, manufacturing, marketing, sales, distribution, management and other resources than we do. Many of our competitors also have well-established relationships with our current and potential suppliers, resellers and their customers and have extensive knowledge of our target markets. As a result, our competitors may be able to devote greater resources to the research, development, promotion and sale of their products and respond more quickly to evolving industry standards and changing customer requirements than we can.
 
In addition to intense market competitors, universities, research institutions and other companies have brought to market advanced and alternative technologies such as thin films and concentrators, which may compete with our technology in certain applications. Furthermore, the solar power market in general competes with other sources of renewable energy and conventional power generation.
 
The principal elements of competition in the solar systems market include technical expertise, experience, delivery capabilities, diversity of product offerings, financing structures, marketing and sales, price, product performance, quality and reliability, and technical service and support. We believe that we compete favorably with respect to each of these factors, although we may be at a disadvantage in comparison to larger companies with broader product lines and greater technical service and support capabilities and financial resources.
 
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Hydrality Competition

Hydrality is a complex reactor system that is currently in developmental stages and stores and delivers hydrogen on-demand using magnesium compounds and water. As Hydrality provides an alternative method of storage and delivery of hydrogen, it competes with current suppliers of delivered hydrogen and with other manufacturers of on-site hydrogen generators. Competitors in the delivered hydrogen market include Airgas, Inc., Air Liquide, Air Products and Chemicals, Inc., Linde AG, Praxair Technology, Inc., and Distributed Energy Systems Corporation. Hydrality will also compete with older generations of electrolysis-based hydrogen generation equipment sold by Hydrogenics Corporation, Statoil Hydro, Teledyne Energy Systems, Inc., and other companies. We believe that many of these current hydrogen creation, storage and delivery methods are bulky, unreliable, expensive, energy inefficient, contain hazardous materials, or require the assistance of mechanical compressors to produce hydrogen at high pressures.

There are a number of companies located in the United States, Canada and abroad that are developing Proton Exchange Membrane (PEM) fuel cell technology. These companies include Ballard Power Systems Inc., General Motors Corporation, Giner, Inc., Honda Motor Company, Toyota Motor Corporation, SANYO Electric Co., Ltd., IdaTech LLC, Hydrogenics Corporation, Nuvera Fuel Cells, Plug Power Inc. and United Technologies Corporation. Although we believe these companies are currently primarily targeting vehicular and residential applications, they could decide to enter the hydrogen generation and backup power markets we address. We may also encounter competition from companies that have developed or are developing fuel cells based on non-PEM technology, as well as other distributed hydrogen generation technologies.

Retail Fuel Cell Competition

Fuel Cell Store has active operations in the United States, Japan, Russia, Italy, and Portugal, and is an online retailer (e-commerce) that develops, manufacturers, and sells a diverse and comprehensive range of fuel cell products. We believe that the principal competitive factors in the retail fuel cell and e-commerce markets include breadth of product offerings, product quality, product availability, distribution capabilities, internet rankings, ease of use of the website, customer service, technical support, brand and reputation.

The primary direct competitors to Fuel Cell Store are fuel cell manufacturers, and other fuel cell e-commerce sites. Fuel cell manufacturers that sell products directly to consumers include Heliocentris Fuel Cells AG, Horizon Fuel Cell Technologies, Ltd., BCS Fuel Cells, Inc., Electrochem, Inc., and Fuel Cell Scientific, LLC. New e-commerce sites that are coming online in the U.S. and abroad and are duplicating the Fuel Cell Store format and sourcing from similar vendors are providing growing competition. These companies include GasHub Technology, JHT Power, H-Tech, Inc., Element-1 Power Systems, and miniHYDROGEN. Other renewable technologies, including solar and wind, as well as advanced batteries and conventional fossil fuel technologies are also competing technologies for fuel cells.

Intellectual Property

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of patents, trademarks and trade secrets, as well as employee and third party confidentiality agreements, to safeguard our intellectual property. As of December 31, 2008, in the United States we held three patent applications and sixteen issued patents, which will expire at various times between 2010 and 2021. We also held two PCT patent applications, two Canadian patent applications, one Japanese patent application, one European patent application, eleven issued Canadian patents, four issued Japanese patents, seven issued European patents, and one issued Australian patent. Our patent applications and any future patent applications, might not result in a patent being issued with the scope of the claims we seek, or at all and any patents we may receive may be challenged, invalidated, or declared unenforceable. We continually assess appropriate occasions for seeking patent protection for those aspects of our technology, designs and methodologies and processes that we believe provide significant competitive advantages. Our patents and patent applications generally relate to our hydrogen, battery charging, and thin-cell battery technologies.
 
In 2007, we acquired the Minit-Charger business of Edison Source, a division of Edison International. The core Minit-Charger technology allows for material handling equipment to convert to electric power systems that can be charged quickly, conveniently and efficiently, thereby eliminating the need for propane or diesel-powered equipment or for backup batteries and costly change-out operations required with traditional straight-line charging. In March of 2008, all eTec fast-charging products, including the eTec SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By unifying the underlying fast-charging technologies under a single engineering, manufacturing and sales entity (eTec Minit-Charger), we are better able to streamline our operations and sales and marketing efforts.
 
eTec’s primary product line consists of the Minit-Charger line of battery fast-charge systems. The Minit-Charger brand is the result of a consolidation of the two leading fast-charging technologies: eTec SuperCharge  and Edison Minit-Charger. Prior to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec held exclusive patent rights to the flagship product line, eTec SuperCharge™ - battery fast-charge systems that allow for rapid charging while generating less heat and promoting longer battery life than conventional chargers. The eTec SuperCharge technology was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was specifically designed for airport ground support equipment, neighborhood and on-road electric vehicle, and marine and transit system operations. Since the acquisition of the technology, eTec has made considerable engineering and product advancements and is currently a leader in providing these clean electric fast-charging technologies to airports throughout North America.
 
In May 2006, CalTech filed a provisional patent application on the hydrogen technology being developed pursuant to a task plan between ECOtality and Jet Propulsion Laboratory (“JPL”), a Federally Funded Research and Development Center for the National Aeronautics and Space Administration (“NASA”).  The California Institute of Technology (“CalTech”) is the operator of JPL and assignee of its patent and technology rights.  On May 7, 2007, a non-provisional patent application was filed by Stinson Morrison Hecker LLP in the name of California Institute of Technology as assignee and ECOtality, Inc. as exclusive licensee of the technology, for a Method and System for Storing and Generating Hydrogen, claiming priority from a provisional application filed by CalTech on May 8, 2006  The details of the patent application and invention are confidential until publication or issue, which did not occur prior December 31, 2008. The patent application is generally directed towards the hydrogen reactor design that has been under development.
 
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On June 12, 2006, we entered into a License Agreement with California Institute of Technology, which operates JPL, whereby we acquired certain exclusive licensed patent and/or patent applications rights and improvement patent rights related to research performed under the JPL Task Plan No. 82-10777, as well as a nonexclusive licensed technology rights developed as a result of the Task Plan.  The license agreement with CalTech relates to CalTech’s rights to patents and technology based on inventions that are:  (a) identified in the license agreement, (b) developed under the development agreement with JPL, (c) related to electric power cell technology developed at JPL with the involvement of our personnel, or (d) funded, in whole or in part, by us (the “CalTech Rights”).  As partial consideration paid in connection with the License Agreement, we issued 5,869,565 shares of our common stock to CalTech with a fair market value of $1.40 per share, based upon the closing price of our common stock on June 12, 2006, for a total aggregate value of $8,217,391.  Furthermore, we are obligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on June 12, 2009, continuing until the expiration, revocation, invalidation or unenforceability of the last exclusively licensed patent rights or improvement patent rights.  The License Agreement carries a perpetual term, subject to default, infringement, expiration, revocation or unenforceability of the License Agreement and the licenses granted thereby.

eTec’s primary product line consists of the Minit-Charger line of battery fast-charge systems. The Minit-Charger brand is the result of a consolidation of the two leading fast-charging technologies: eTec SuperCharge  and Edison Minit-Charger. Prior to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec held exclusive patent rights to the flagship product line, eTec SuperCharge™  - battery fast-charge systems that allow for rapid charging while generating less heat and promoting longer battery life than conventional chargers. The eTec SuperCharge technology was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was specifically designed for airport ground support equipment, neighborhood and on-road electric vehicle, and marine and transit system operations. Since the acquisition of the technology, eTec has made considerable engineering and product advancements and is currently a leader in providing these clean electric fast-charging technologies to airports throughout North America.

In 2007, we acquired the Minit-Charger business of Edison Source, a division of Edison International . The core Minit-Charger technology allows for material handling equipment to convert to electric power systems that can be charged quickly, conveniently and efficiently, thereby eliminating the need for propane or diesel-powered equipment or for backup batteries and costly change-out operations required with traditional straight-line charging In March of 2008, all eTec fast-charging products, including the eTec SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By unifying the underlying fast-charging technologies under a single engineering, manufacturing and sales entity (eTec Minit-Charger), we are better able to streamline our operations and sales and marketing efforts.

With respect to, among other things, proprietary know-how that is not patentable and processes for which patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to safeguard our interests. We believe that many elements of our products and manufacturing process involve proprietary know-how, technology, or data that are not covered by patents or patent applications, including technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect these elements. All of our research and development personnel have entered into confidentiality and proprietary information agreements with us. These agreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. We also require our customers and business partners to enter into confidentiality agreements before we disclose any sensitive aspects of our solar cells, technology, or business plans.
 
Status of any announced new product or service

On May 28, 2008, eTec announced the launch of the eTec Bridge Power Manager (BPM) that allows for eTec Minit-Charger’s fast-charge systems for electric ground support equipment (eGSE) to share power with existing 480VAC supply circuits at airport terminal gates and jetway bridges. The eTec Bridge Power Manager significantly reduces infrastructure transition and conversion costs by utilizing existing 480VAC gate power supply circuits that are typically used only when a jetway bridge is aligning with a plane. The BPM decreases power to Minit-Charger fast charge systems when a jetway bridge is in use, then returns to full power once the bridge is aligned. Up to four fast charge ports can operate from each existing bridge supply with no impact to the airport operations. By eliminating the need for new supply circuits, the BPM substantially reduces transition costs as it provides a solution for the lengthy time needed to design and construct new power circuits at an airport. As electric ground support equipment has been shown to reduce annual fueling costs by 70 to 80% and total operating costs by 30 to 40% (when compared to internal combustion engine ground support equipment that operates on gasoline or diesel fuel), the BPM additionally increases efficiency by saving time and electricity by allowing electric GSE fleets to recharge at the site of operation.

On July 22, 2008, ECOtality’s eTec announced it has launched a Plug-in Hybrid Electric Vehicles (PHEVs) Grid Interaction Project to demonstrate and evaluate bi-directional fast-charging operations for PHEVs in conjunction with smart grid technologies for facility energy management. Funded by the USDOE through Idaho National Laboratory (INL) and supported by project partner V2Green, the project will demonstrate eTec’s ability to fast-charge a PHEV in 10 minutes and will analyze the benefits and costs of using the energy storage capability of PHEVs to provide energy back to a smart metered electric grid system. Pairing the eTec Minit-Charger fast-charge system with utility smart meter interconnections, the PHEV Grid Interaction Project will demonstrate and evaluate a bi-directional fast-charge system capable of both fast-charging a PHEV in 10 minutes and supplying the stored energy of a PHEV back to a smart grid. The project utilizes V2Green’s smart grid technology to enable charging facilities (home or business) to communicate and adaptively control the flow of energy between the fast-charged PHEVs and the grid. Better energy consumption management results from vehicles recharging during off-peak periods and providing stored energy back to the grid during periods of peak-demand. The project will also evaluate the impact of bi-directional fast-charging on PHEV battery life and performance as PHEVs involved in the project will be subject to strenuous charge-discharge cycles as each vehicle will be operated for a total of 5,440 miles.
 
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On July 29, 2008, eTec announced the launch of the new eTec Minit-Charger SC battery fast-charging system. Approved by Underwriters Laboratories Inc. (UL), the SC Charger utilizes Minit-Charger’s patented advanced algorithm technology to provide a lighter, compact and a more cost-effective fast-charging system that serves a variety of material handling equipment applications. The SC Charger is a high-frequency, single-connector charger designed for medium and heavy duty applications. Providing up to 250 amps of output, the SC Charger can fast-charge battery systems of 36 volts or lower four times faster than convention charger. The SC Charger features a light and compact design that allows for the system to be pole or wall mounted in order to save valuable floor space and allows better cable management. The SC Charger also features advanced data collection capabilities, including the patented Minit-Trak™ fleet and system data management system, which provides the most comprehensive performance evaluation of a battery’s state-of-health and state-of-charge and automatically adjusts its charging rates to increase and maximize battery life.

Employees
 
As of December 31, 2008, we had 45employees, including 15 in manufacturing and the rest in research and development, sales and marketing, and general and administration positions. None of our employees are represented by labor unions or covered by a collective bargaining agreement other than our employees in our wholly owned subsidiary in Mexico. As we expand domestically and internationally, however, we may encounter employees who desire union representation. We believe that relations with our employees are good.
 
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Key Transactions in 2007
 
Name Change
 
ECOtality, Inc. was originally incorporated in Nevada in 1999 under the name Alchemy Enterprises, Ltd. to market biodegradable products.  In early 2006 we commenced the development of our Hydrality technology.  On November 14, 2006, we changed our name to “ECOtality, Inc.” We are currently are the parent company of Electric Transportation Engineering Corporation (eTec), Innergy Power Corporation (Innergy Power), Portable Energy De Mexico, S.A. DE C.V. (our subsidiary located in Tijuana , Mexico), and ECOtality Stores, Inc. dba Fuel Cell Store, each of which is wholly owned by us, and of Innergy Power Systems, which is a operated as a division of ECOtality, Inc.
 
Foote and Winfield Settlement
 
On February 15, 2007, we entered into a Settlement Agreement and Release (the “Settlement”) with Howard Foote, Elliott Winfield and Universal Power Vehicles Corporation (“UPV”) (collectively the “Parties”) to settle and resolve all known disputes and uncertainties between them related to all agreements and contracts entered into prior to the effective date of the Settlement concerning the fuel cell intellectual property and technology.  In accordance with the Settlement, the Parties confirm the assignment, transfer and conveyance of all right, title and interest in and to the electric power cell and reactor technology being developed by us.  Further to this, for a period of two years from the effective date of the Settlement, the Parties are prohibited, without our prior written consent, from directly or indirectly, participating in any business in competition with us or from engaging in any business activities that are the same or substantially similar to our business activities during the terms Foote and Winfield were employed by, or were affiliated with, ECOtality.  In consideration, we paid to the Parties cash in the amount of $600,000.  Additionally, the Parties received 1,500,000 shares of our common stock.
 
In connection with the Settlement, an officer and director of ECOtality entered into an escrow agreement with the Parties, which cancels and supersedes separate prior escrow agreements entered into with each of Foote and Winfield, individually, on February 15, 2006.  The 2006 Escrow provided for the potential issuance of an aggregate of 40,000,082 shares of our common stock to the Parties, upon the achievement of certain performance standards, as set forth in said 2006 Escrow.  The 2007 Escrow provides for: (1) the immediate release of 1,500,000 shares of our common stock held per the 2006 Escrow to the Parties; (2) the immediate release from escrow and return to Harold Sciotto of 32,500,000 shares of our common stock; and (3) the immediate release of 6,000,000 shares of our common stock from escrow for cancellation
 
June 2007 Acquisition – Fuel Cell Store
 
On June 11, 2007, we bought the assets of the Fuel Cell Store (www.FuelCellStore.com), a small web-based seller of educational fuel cell products. The Fuel Cell Store product line includes demonstration kits, educational materials, fuel cell systems and component parts.  It also offers consulting services for establishing educational programs for all levels of educational institutions.  Since Fuel Cell Store was significantly smaller than we are, we were not required to provide audited financial statements for it.  We operate the Fuel Cell Store through our wholly-owned subsidiary, ECOtality Stores, Inc.  While revenue producing activities, remained the same, we moved the location of the Fuel Cell Store to San Diego California in December, 2007 andchanged the distribution system through inventory control procedures, and expanded the customer base through increased emphasis on marketing.  We sell Fuel Cell Store products through our own ECOtality Store’s website.
 
      We bought the assets of the Fuel Cell Store for $350,000 in cash and to issue 300,000 shares of our common stock. Our common stock was valued at its closing market price on the date of the agreement. The closing price was $.63 per share, on that date for a total value of $189,000 and a total price paid cash and stock of $539,000. We concluded this to be an asset purchase rather than a business purchase because we did not acquire their debt and they continued to exist after the purchase was completed.  Of the assets acquired we identified and assigned a value to $179,775 in merchandise inventory, $8,600 in fixed assets, and $23,843 in current accounts receivable. We reviewed the intangible assets that we acquired, including the customer data base, and internally developed software and determined that the intangible assets did not have value to us. Therefore, the difference between the assets noted and the price paid for the assets $326,782 have been allocated to intangible assets and impaired and written-off due to the lack of proven future cash flows generated by the assets acquired.
 
October 2007 Acquisition – Innergy Power Systems
 
On October 1, 2007 we closed on the purchase of certain assets of Innergy Power Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V., pursuant to an agreement that we entered into on September, 18, 2007.  Innergy designs and manufactures standard and custom solar-power and integrated solar-battery solutions for government, industrial and consumer applications.  The purchase price for the assets was 3,000,000 shares of our common stock.  We guaranteed to the sellers that the shares of our common stock issued in the transaction would be worth $3,000,000 during the 30 day period commencing 11 months from the closing date or we would be required to either issue additional shares such that the total shares are worth $3,000,000 at that time or pay the seller the difference in cash.  The shares were issued to the seller and are subject to piggy back registration rights and a lock-up agreement. On October 1, 2008 we issued  2,000,000 shares of our common stock to settle the outstanding acquisition purchase price guarantee.
 
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November 2007 Acquisition-  eTec Group of Companies
 
On November 6, 2007 we signed an agreement to acquire all of the outstanding stock of the Clarity Group, Inc. and its affiliate, Electric Transportation Engineering Corporation (eTec), through a stock purchase agreement.  eTec provides technical support and field services for all aspects of electric vehicle infrastructure.  eTec operates as our wholly owned subsidiary and as of December 31, 2008 there were no changes to the eTec’s management team.
 
The aggregate purchase price for the outstanding capital stock of eTec was $3,000,000 in cash and 6,500,000 shares of our common stock.   Of the $3,000,000 in cash to be paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement and $500,000 was to be paid in 10 equal monthly installments, beginning December 1, 2007.  . The 6,500,000 shares were issued in the following manner: 6,500,000 were issued upon the close of the stock purchase agreement, 3,250,000 were released on date of signing, and 3,250,000 were released by our corporate secretary on the first anniversary of the closing of the stock purchase agreement, subject to any indemnity claims.  The shares bear a restrictive legend and are not subject to piggy back registration rights.
 
November 2007 Financing (this note should be read in conjunction with the "August Amendment" Note)
 
On November 6, 2007, we entered into a financing arrangement with a group of accredited investors pursuant to which we sold our Original Issue Discount 8% Secured Convertible Debentures and warrants to purchase our common stock in consideration of an aggregate of $4,117,649.  We received gross proceeds of approximately $3,500,000 from this offering.  In connection with the November 2007 financing, we issued the following securities to the investors:
 
·          
$4,117,649 in Secured Original Issue Discount Convertible Debentures; and
   
·          
Common Stock Purchase Warrants to purchase 6,862,748 shares of common stock at $0.32 per share for a period of five years.
 
The warrants are exercisable to purchase one share of common stock at $0.32 per share, and have a term of exercise equal to 5 years.  The warrant holders may not exercise the warrants for a number of shares of common stock in excess of that number of shares which upon giving effect to such exercise would cause the aggregate number of shares beneficially owned by the holder to exceed 9.99% of the outstanding shares of the common stock following such exercise.
 
The Original Issue Discount Secured Debentures are due on May 6, 2010, were sold at an 8% discount, and are convertible into our common stock, at the investors’ option, at a conversion price equal to $0.30 per share.  We will not have the right to prepay any portion of the principal amount of the November 2007 Debentures without the prior written consent of the holder. Beginning on May 6, 2008, and continuing on the same date of each successive month thereafter, we must repay 1/24 th  of the original principal amount of the Debentures plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the holder in respect of the Debenture.  The holders of the November 2007 Debentures will not have the right to convert the November 2007 Debentures, to the extent that after giving effect to such conversion, such holder would beneficially own in excess of 9.99% of the shares of our common stock immediately after giving effect to such conversion.
 
If we, at any time while the November 2007 Debentures are outstanding, sell or grant any option to purchase or sell or grant any right to re-price, or otherwise dispose of or issue (or announce any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of our common stock at an effective price per share that is lower than the then-existing conversion price, the conversion price shall be reduced to equal such effective price per share.  Such an adjustment shall be made whenever we issue such common stock or common stock equivalents.
 
We may, at our option, redeem the November 2007 Debentures if we meet certain equity conditions and if we deliver a notice to the debenture holders of our irrevocable election to redeem some or all of the then outstanding principal amount of the November 2007 Debentures for cash in an amount equal to the sum of (i) 115% of the then outstanding principal amount of the Debentures to be redeemed, (ii) the accrued but unpaid interest on such Debentures and (iii) all liquidated damages and other amounts due in respect of the Debentures on the 30 th  Trading Day following such notice.  On that 30 th  trading day, the redemption amount is payable in full to the debenture holders.
 
We must redeem a portion of the November 2007 Debentures each month for cash.  If we satisfy certain equity conditions and give 10 trading days’ prior written irrevocable notice to the debenture holders, on each such monthly redemption date, we may, at our option, elect to pay all or part of a monthly redemption amount in shares of our common stock based on a conversion price equal to the lesser of (i) the then conversion price and (ii) 88% of the average of the VWAPs for the 10 consecutive trading days ending on the day that is immediately prior to the applicable monthly redemption date.  The debenture holder may convert any principal amount of the November 2007 Debenture subject to a monthly redemption at any time prior to the date that the monthly redemption amount, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the holder are due and paid in full.
 
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We may, at our option, force the debenture holders to convert all or portion of the then outstanding principal amount of the November 2007 Debentures (plus any accrued buy unpaid interest, liquidated damages and other amounts then owing the debenture holders) into shares of our common stock if we satisfy certain equity conditions, the VWAP for 20 out of any 30 consecutive trading days exceeds $0.75, and, within one trading day, we deliver a written notice to the debenture holders of such conversion.
 
We granted the November 2007 Debenture investors a first priority security interest in all of our assets and those of each of our subsidiaries subject only to the December 2007 Debentures, pursuant to the security agreement, dated as of November 6, 2007, between us, our subsidiaries and the secured parties.
 
In conjunction with the November 2007 Debenture transaction, our subsidiaries entered into a guarantee agreement pursuant to which each of them guaranteed our obligations under the securities purchase agreement and the documents entered into pursuant to the securities purchase agreement, including the November 2007 Debentures.
 
We granted the November 2007 Debenture investors registration rights with respect to the shares issuable upon conversion of the debentures and the shares of common stock underlying the warrants.  Pursuant to the registration rights agreement by and among us and each of the parties signatory thereto, we filed a registration statement on January 8, 2008. Our registration statement was declared effective by the U.S. Securities and Exchange Commission (the “Commission”) on January 28, 2008. With respect to any additional registration statements which may be required pursuant to which, the number of registerable securities at any time exceeds 100% of the number of shares of common stock then registered in a registration statement during the period of effectiveness, we are required to file the additional registration statements within 90 days from closing.  If we failed to have the registration statement filed or declared effective by the required dates, we were obligated to pay a penalty equal to 2% of the purchase price to each investor upon any such registration failure and for each thirty days that such registration failure continues.  The parties agreed that the maximum aggregate liquidated damages payable to a holder under the registration rights agreement shall be 20% of the aggregate subscription amount paid by such holder pursuant to the securities purchase agreement.
 
December 2007 Acquisition – Edison Minit-Charger and related Corporate Assets
 
In December 2007, we entered into and completed various stock and asset purchase agreements with Electric Transportation Engineering Corporation, Edison Source, Edison Enterprises and 0810009 B.C. Unlimited Liability Company to purchase certain technology and assets related to the manufacture and selling of a “fast charge” battery charging system to be used in commercial and industrial market places.
 
The aggregate purchase price was $1,000,000 in cash and 2,000,000 shares of our common stock.  If, on December 14, 2008, the average closing price for our common stock during the 30-day period ending on December 4, 2008 is less than $1.00 per share, we, at our option, must:
 
 
·      
Issue additional shares of common stock to the seller so that the aggregate value of the common stock issued to the seller in the transaction is equal to $2,000,000;
 
 
·      
Pay to the seller an additional amount of cash so that the aggregate value equals difference between the amount of the purchase price and the cash consideration payable to the seller; or
 
 
·      
Purchase or cause the purchase of the common stock issued to the seller in the transaction for an aggregate price equal to $2,000,000.

December 2007 Financing (this note should be read in conjunction with the "August Amendment" Note)
 
On December 6, 2007, we entered into a financing arrangement with a group of accredited investors pursuant to which we sold our Original Issue Discount 8% Secured Convertible Debentures and warrants to purchase our common stock in consideration of an aggregate of $1,764,706.  We received gross proceeds of approximately $1,500,000 from this offering.  In connection with the December 2007 financing, we issued the following securities to the investors:
 
·      
$1,764,706.50 in Secured Original Issue Discount Convertible Debentures; and
   
·      
Common Stock Purchase Warrants to purchase 2,941,177 shares of common stock at $0.32 per share for a period of five years.
 
The warrants are exercisable to purchase one share of common stock at $0.30 per share, and have a term of exercise equal to 5 years.  The Warrant holders may not exercise the Warrants for a number of shares of common stock in excess of that number of shares which upon giving effect to such exercise would cause the aggregate number of shares beneficially owned by the holder to exceed 9.99% of the outstanding shares of the Common stock following such exercise.
 
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The Original Issue Discount Secured Debentures are due on June 6, 2010, were sold at an 8% discount, and are convertible into our common stock, at the investors’ option, at a conversion price equal to $0.32 per share.  We will not have the right to prepay any portion of the principal amount of the Debentures without the prior written consent of the holder. Beginning on June 4, 2008, and continuing on the same date of each successive month thereafter, we must repay 1/24 th  of the original principal amount of the Debenture plus accrued but unpaid interest, liquidated damages, if any, and any other amounts then owing to the holder in respect of the Debenture.  The holders of the Debentures will not have the right to convert the Debentures, to the extent that after giving effect to such conversion, such holder would beneficially own in excess of 9.99% of the shares of our common stock immediately after giving effect to such conversion.
 
If we, at any time while the December 2007 Debenture is outstanding, sell or grant any option to purchase or sell or grant any right to re-price, or otherwise dispose of or issue (or announce any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of our common stock at an effective price per share that is lower than the then-existing conversion price, the conversion price shall be reduced to equal such effective price per share.  Such adjustment shall be made whenever we issue such common Stock or common stock equivalents.
 
We may, at our option, redeem the December 2007 Debentures if we meet certain equity conditions and if we deliver a notice to the debenture holders of our irrevocable election to redeem some or all of the then outstanding principal amount of the December 2007 Debentures for cash in an amount equal to the sum of (i) 115% of the then outstanding principal amount of the Debentures to be redeemed, (ii) the accrued but unpaid interest on such Debentures and (iii) all liquidated damages and other amounts due in respect of the Debentures on the 30 th  Trading Day following such notice.  On that 30 th  trading day, the redemption amount is payable in full to the debenture holders.
 
We must redeem a portion of the December 2007 Debentures each month for cash.  If we satisfy certain equity conditions and give 10 trading days’ prior written irrevocable notice to the debenture holders, on each such monthly redemption date, we may, at our option, elect to pay all or part of a monthly redemption amount in shares of our common stock based on a conversion price equal to the lesser of (i) the then conversion price and (ii) 88% of the average of the VWAPs for the 10 consecutive trading days ending on the day that is immediately prior to the applicable monthly redemption date.  The debenture holder may convert any principal amount of the December 2007 Debenture subject to a monthly redemption at any time prior to the date that the monthly redemption amount, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the holder are due and paid in full.
 
We may, at our option, force the debenture holders to convert all or portion of the then outstanding principal amount of the December 2007 Debentures (plus any accrued buy unpaid interest, liquidated damages and other amounts then owing the debenture holders) into shares of our common stock if we satisfy certain equity conditions, the VWAP for 20 out of any 30 consecutive trading days exceeds $0.75, and, within one trading day, we deliver a written notice to the debenture holders of such conversion
 
We granted the December 2007 Debenture investors a first priority security interest in all of our assets and each subsidiary subject only to the November 2007 Debentures, pursuant to the Security Agreement, dated as of November 6, 2007 between us, our subsidiaries and the secured parties.
 
In connection with the December 2007 Debenture transaction, each of our subsidiaries entered into a guarantee agreement pursuant to which it guaranteed the obligations of the Company under the securities purchase agreement and the documents entered into pursuant to the securities purchase agreement, including the December 2007 Debentures.
 
We granted the investors registration rights with respect to the debentures and the shares of common stock underlying the warrants.  Pursuant to the registration rights agreement by and among us and each of the parties signatory thereto, we filed a registration statement on January 8, 2008.  Our registration Statement was declared effective by the Commission on January 28, 2008. With respect to any additional registration statements which may be required pursuant to which, the number of registerable securities at any time exceeds 100% of the number of shares of common stock then registered in a registration statement during the period of effectiveness, we are required to file the additional registration statements within 90 days from closing.  If we fail to have the registration statement filed or declared effective by the required dates, we will be obligated to pay a penalty equal to 2% of the purchase price to each investor upon any such registration failure and for each thirty days that such registration failure continues.  The parties agreed that the maximum aggregate liquidated damages payable to a holder under the registration rights agreement shall be 20% of the aggregate subscription amount paid by such holder pursuant to the securities purchase agreement.
 
August Amendment to the November and December Debentures
                As described above, in November and December of 2007, we received gross proceeds of $5,000,000 in exchange for a note payable of $5,882,356 as part of a private offering of 8% Secured Convertible Debentures (the “Debentures”).  The debentures were convertible into common stock at $0.30 per share. Debenture principal payments were due beginning in May and June of 2008 (1/24th of the outstanding amount is due each month thereafter). In connection with these debentures, we issued debenture holders warrants (“the Warrants”) to purchase up to 9,803,925 shares of our common stock with an exercise price of $0.32. The warrants were exercisable immediately upon issue.
 
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               On August 29, 2008 we signed an Amendment to the Debenture agreements deferring these payments. The purpose of the agreement was to provide us time to fund our working capital requirements internally through organic growth as well as to obtain both short and long term funding through equity financing and other sources of capital.

The waiver, deferment agreement aligned with our short term working capital plan and provided time to achieve our objectives in this regard.  In exchange for the Amendment to the Debentures, we agreed to:
 
A.  
Waiver of interest payments due between May-December 2008
   
B.  
Deferment of monthly redemptions for the period May-December 2008.
   
C.  
Increase to the outstanding principal amount plus accrued interest though December 31, 2008 for the debentures by 120% as of the effective date of the agreement.
   
D.  
Reset of the common stock conversion rate from $0.30 to $0.15.
   
E.  
Commencement of  principal payments starting January 1, 2009 with no change to the redemption period (May 2010)
   
F.  
Commencement of interest payments @ 8% per year April 1, 2009 (first payment due).
   
G.  
Inclusion of make whole provisions to reset common stock warrant conversion prices to the value used to “true-up” both the Innergy Power Company and Minit-Charger (Edison) acquisitions when both “true-ups” are completed. For both of these acquisitions the Sellers were issued shares which the Company guaranteed would be worth $1.00 per share for the thirty days prior to the anniversary date of the purchase.  This guarantee requires the issuance of additional shares or payment in cash for the difference in the share price on the respective anniversary dates.  In the case of Innergy, the number of required “true up” shares is capped at 4,000,000.
   
H.  
Inclusion of further make whole provisions to issue additional warrants adequate to maintain the pro rata debenture ownership % when fully diluted as per schedule 13 in the waiver agreement.
   
I.  
Compliance with covenants per quarterly public reports issued for the periods ending June 30, September 30, and December 31, 2008 for the following:
 
1.  
Net cash used
   
2.  
Current ratio adjusted for non-cash liabilities
   
3.  
Corporate Headquarters accounts payable amount
 
Subsequent Debenture Amendment
 
               Subsequently, on March 5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and Warrants, Agreement and Waiver” (the “Agreement”) restructuring our equity with the institutional debt holders of the our Original Issue Discount 8% Senior Secured Convertible Debentures, dated November 6, 2007 (the “November 2007 Debentures”) (aggregate principal amount equal to $4,971,588 at December 31, 2008) and with our debt holder of our Original Issue Discount 8% Secured Convertible Debentures, dated December 6, 2007 (the “December 2007 Debenture”) (aggregate principle amount equal to $2,203,138 at December 31, 2008).  The November and December 2007 Debentures are held by Enable Growth Partners LP (“EGP”), Enable Opportunity Partners LP (“EOP”), Pierce Diversified Strategy Master Fund LLC, Ena (“Pierce”), and BridgePointe Master Find Ltd  (“BridgePointe”)(individually referred to as “Holder” and collectively as the “Holders”). The Agreement’s effective date is January 1, 2009.

To allow the additional time necessary for us to achieve our working capital targets in the current economic environment, we have requested our debenture holders further extend a waiver of debt service requirements.  Therefore, in exchange for signing an Amendment to Debentures and Warrants, Agreement and Waiver which defers interest payments due for the first quarter 2009 until May 1, 2009 and payment of monthly principal redemptions until May 1, 2009, we agreed to the following:

A.  
Adjust the conversion price of the November 2007 Debentures and December 2007 Debentures to $.06.

B.  
The Holders collectively shall maintain an equity position in the Company, in fully diluted shares, of 50.4%. Should the Holders’ equity position collectively become less than the 50.4%, the Company shall issue warrants to each Holder, pro-ratably to bring Holders’ equity position back to 50.4%.

C.  
 Additional covenants related to not exceeding $2,000,000 accounts payable amount or payment of other liabilities while the debentures are outstanding.

D.  
The right to recommend for placement on the Company's Board of Directors, a nominee by either BridgePointe or BridgePointe’s investment manager Roswell Capital Partners LLC. Such a recommendation shall meet the Company’s requirements as set forth in the Company’s Bylaws and all applicable federal and state law. The nominee shall serve until such time as the Company has redeemed the debentures.
 
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E.  
All outstanding Warrants (defined in the Securities Purchase Agreements dated November 6, 2007 and December 6, 2007), and all Warrants issued to Holders as consideration for the current or prior Amendments to the November 2007 Debentures and the December 2007 Debentures shall be amended to have an exercise price of $0.06 (to the extent that such exercise price was previously above $0.06), and the expiration dates shall be extended to May 1, 2014.
 
F.  
Use best efforts to obtain stockholder approval of an increase in the authorized number of shares of common stock of the Company.  The proposal shall increase the number of authorized common shares from 300,000,000 to 500,000,000.

G.  
In addition, the Securities Agreement, dated November 6, 2007 and all UCC-1 filings made as required thereof, shall be amended to include each of the Company’s current and future Patents and Trademarks. In addition the Company shall file notice of the Assignment for Security of the Company’s current and any future Patents and Trademarks with the United States Patent and Trademark Office and other foreign countries as appropriate.

We believe this latest extension is timely and consideration appropriate, given the growing and significant potential opportunities to successfully achieve our capital objectives based on the strength and appeal of our products and technical expertise in the electric vehicle microclimate infrastructure environment.
 
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Available Information
 
We maintain a website at http://www.ecotality.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statement and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the SEC. The information contained in or connected to our website is not incorporated by reference into this report.
 
The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports and other information regarding issuers, such as ECOtality, that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.
 
Risk Factors
 
We may be unable to commercially develop our Hydrality technology, which is still unproven.  In such event, we would not be able to remain in this business.
 
Through JPL and others, we have been  in the process of commercially developing our Hydrality technology.  The Hydrality technology is new and commercially untested and there can be no assurance that we can develop the technology or that the technology will result in the creation of commercially saleable products.  If the technology cannot be developed, we will be unable to remain in this business.
 
There is no assurance that the Hydrality technology is patentable by JPL or, if patented, that others will not develop functionally similar products outside the patent.  Without patent protection, our competitors could develop functionally similar products.
 
We have entered into a license agreement with the California Institute of Technology (CalTech) under which we have the exclusive license to use and sell the Hydrality technology under any JPL patent and patent application.  There can be no assurance that CalTech will obtain any patents on the Hydrality technology or, if obtained, that others will not develop functionally similar products that do not infringe on the patents.  All license rights granted by CalTech are subject to a reservation of rights by CalTech for non-commercial education and research purposes and U.S. Government rights provided by statute.  Without patent protection, our competitors could develop functionally similar products.
 
We face competition from large established renewable and alternative energy development companies which are also seeking to develop alternative energy power sources.  Such competition could reduce our revenue or force us to reduce our prices, which would reduce our potential profitability.
 
Literally hundreds of companies, including many of the largest companies in the world, are seeking to develop similar or competitive technologies to that of all of our technologies.  There can be no assurance that we can commercially develop the Hydrality technology or that competitors will not develop substantially equivalent or superior technology.  Such competition could reduce our revenue or force us to reduce our prices, which would reduce or eliminate our potential profitability.
 
Even if our Hydrality technology is successfully developed for transportation applications, we will be unable to sell the technology unless others build and operate fueling stations to provide the required fuel for this technology.
 
In order to implement the Hydrality technology, it will be necessary to develop “fueling stations” similar to gas stations.  Without these fueling stations there will be no market for the Hydrality technology.  There can be no assurance that others will build or operate the necessary fueling stations.
 
Any license we receive from JPL will be subject to a reservation of rights transferred to the US Government, thereby potentially reducing our rights to sublicense the Hydrality technology.
 
Should JPL commercially develop the Hydrality technology, we intend to sublicense rights to the technology to third parties. However, any license we receive from JPL will be subject to the Federal Government’s right to a worldwide, non-exclusive, non-transferable, irrevocable paid up license in connection with any invention developed under the license agreement to use the Hydrality technology for non-commercial education and research purposes.  Such a reservation reduces our ability to market the Hydrality technology as it would not allow our exclusively licensing to anyone for non commercial education, research and NASA related applications and for other application of the Federal Government.
 
The Federal government also retains “March-in Rights,” which would allow the Federal government to grant licenses to others if:  (1) we do not “achieve practical application” of a subject invention (i.e., commercialize the technology); (2) such action is necessary to alleviate health or safety needs that are not reasonably satisfied by us; (3) such action is necessary to meet requirements for public use specified by federal regulations and such requirements are not reasonably satisfied by us; or (4) such action is necessary because we and/or our sub licensees are manufacturing patented products outside of the United States.  We believe that the Federal government is not likely to exercise its March-in Rights with regard to any of our patented technology because March-in Rights have rarely, if ever, been invoked by the Federal government since the Bayh-Dole Act was enacted in 1980.  However, we cannot assure you that the Federal government will not invoke its March-in Rights against us in the future.
 
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Alternatives to our Hydrality technology or improvements to traditional energy technologies could make the Hydrality less attractive or render it obsolete, thereby limiting or eliminating our potential sales.
 
The Hydrality technology is among a number of alternative energy products being developed by companies around the world.  A significant amount of public and private funding is currently directed towards development of microturbines, solar power, wind power and other types of fuel cell technologies.  Technological advances in alternative energy products, improvements in the electric power grid or other fuel cell technologies may make the Hydrality technology less attractive or render it obsolete, thereby limiting or eliminating our potential sales.
 
We may not be able to protect our patents and intellectual property and we could incur substantial costs defending against claims that our products infringe on the proprietary or other rights of third parties.
 
We expect to rely on patents and other policies and procedures related to confidentiality to protect our intellectual property.  Four provisional patent applications were filed by Howard Foote in 2006 and assigned to us. CalTech also filed a provisional patent application on the technology in 2006.  In anticipation of filing non-provisional patent applications, all provisional patent applications were reviewed by us. It was determined that the CalTech provisional patent best embodied the technology desired by us, and that the Foote provisional applications either duplicated the CalTech provisional patent or embodied magnesium metal-air battery technology no longer of interest to us.  Thus, some of the Foote provisional applications have been allowed to lapse by the failure to file non-provisional applications based thereon. On May 7, 2007 a non-provisional patent application based on the CalTech provisional patent application was prepared and filed by Stinson Morrison Hecker LLP in the name of California Institute of Technology as assignee and us as exclusive licensee of the technology. We also expect to file during 2007 a provisional patent application on a hydrogen reactor design currently under development.
 
However, some of our intellectual property may not be covered by any patent or patent application.  Moreover, we do not know whether any of our pending patent applications or those CalTech will file or, in the case of patents issued or to be issued, that the claims allowed are or will be sufficiently broad to protect our technology and processes.  Even if all of our patent applications are issued and are sufficiently broad, our patents may be challenged or invalidated.  We could incur substantial costs in prosecuting or defending patent infringement suits or otherwise protecting our intellectual property rights.  While we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely successful in doing so.  Moreover, patent applications filed in foreign countries may be subject to laws, rules and procedures that are substantially different from those of the United States, and any resulting foreign patents may be difficult and expensive to enforce.
 
Our competitors may independently develop or patent technologies or processes that are substantially equivalent or superior to ours.  If we are found to be infringing on third party patents, we could be required to pay substantial royalties and/or damages, and we do not know whether we will be able to obtain licenses to use such patents on acceptable terms, if at all.  Failure to obtain needed licenses could delay or prevent the development, manufacture or sale of our products, and could necessitate the expenditure of significant resources to develop or acquire non-infringing intellectual property.
 
Asserting, defending and maintaining our intellectual property rights could be difficult and costly and failure to do so may diminish our ability to compete effectively and may harm our operating results.  We may need to pursue lawsuits or legal action in the future to enforce our intellectual property rights, to protect our trade secrets and domain names and to determine the validity and scope of the proprietary rights of others.  If third parties prepare and file applications for trademarks used or registered by us, we may oppose those applications and be required to participate in proceedings to determine the priority of rights to the trademark.  Similarly, competitors may have filed applications for patents, may have received patents and may obtain additional patents and proprietary rights relating to products or technology that block or compete with ours.  We may have to participate in interference proceedings to determine the priority of invention and the right to a patent for the technology.  Litigation and interference proceedings, even if they are successful, are expensive to pursue and time consuming, and we could use a substantial amount of our financial resources in either case.
 
Our failure to protect our intellectual property rights may undermine our competitive position and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.
 
Protection of our proprietary processes, methods and other technology, especially our proprietary vapor transport deposition process and laser scribing process, is critical to our business. Failure to protect and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies. We rely primarily on patents, trademarks, trade secrets, copyrights and other contractual restrictions to protect our intellectual property. We have received patents in the United States and select foreign jurisdictions and we have pending applications in such jurisdictions as well. Our existing patents and future patents could be challenged, invalidated, circumvented, or rendered unenforceable. We have pending patent applications in the United States and in foreign jurisdictions. Our pending patent applications may not result in issued patents, or if patents are issued to us, such patents may not be sufficient to provide meaningful protection against competitors or against competitive technologies.
 
We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, such confidentiality agreements are limited in duration and could be breached and may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge of our trade secrets through independent development or legal means. The failure of our patents or confidentiality agreements to protect our processes, equipment, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we have not applied for patent, trademark, or copyright protection.
 
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Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition and operating results. Policing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to protect our legitimate interests.
 
We cannot assure you of market acceptance of our Hydrality technology, the absence of which will limit our revenue and potential profit.
 
Even if we are able to develop the Hydrality technology, there can be no assurance that a market will develop for it.  Even if an electric fuel vehicle market develops, a different form of vehicle may be more accepted in the marketplace.  Moreover, other solutions to the problem of containing emissions created by internal combustion engines may be invented, developed and produced.  Any other solution could achieve greater market acceptance than our Hydrality technology.  The failure of a market for our Hydrality technology would adversely affect or eliminate our revenue and potential profit.
 
We cannot assure you that eTec will continue to receive Department of Energy (DOE), or any other government funding, which comprises a large portion of its revenue.
 
Government funding of projects related to renewable energy, energy, and transportation is subject to cuts or cancellation without notice. A large portion of the consulting and testing revenue of eTec is DOE related activity, and as such the future of such revenue streams is uncertain and out of our control.
 
We cannot assure that the underlying technology of SuperCharge and MinitCharger will remain commercially viable, and this could affect the revenue and potential profit of eTec and MinitCharger.
 
We face competition in the battery recharging and fast charging sector from a number of companies. While we believe that we currently have the best technology in fast charging, conditioning and monitoring batteries for transportation and industrial applications, we cannot assure you that competitors will not develop and bring to market substantially equivalent or superior technology. A loss of our technology advantage could adversely impact or eliminate our revenue and profitability
 
We cannot assure you that the demand for hydrogen testing, educational and small-scale applications will continue, and this could affect the prospects for Fuel Cell Store.
 
We face competition in the provision of fuel cell products and educational materials from a number of companies. Additionally, the hydrogen industry is evolving, demand is unpredictable and follows outside forces such as school funding programs and government funding which are out of our control.
 
We have incurred losses since our inception and may be unable to generate sufficient net sales in the future to sustain profitability.
 
We incurred a net loss of $13,691,964 in 2007 and $8,067,211 in 2008 We had an accumulated deficit of $(36,337,624) at December 31, 2008 and we may incur losses in the future. In addition, we expect our operating expenses to increase as we expand our operations. Our ability to reach profitability depends on a number of factors, including the growth rate of the renewable energy industry, the continued market acceptance electric transportation systems, solar products and battery products, and the competitiveness of our technology and engineering services. If we are unable to generate sufficient net sales to sustain profitability and positive cash flows, we could be unable to satisfy our commitments and may have to discontinue operations.
 
An increase in interest rates or a dramatic tightening of corporate credit markets could make it difficult for end-users to finance the cost of a conversion to renewable energy products and systems and could reduce or eliminate the demand for our products.
 
Many of our end-users depend on debt financing to fund the initial capital expenditure required to purchase and install renewable energy products and systems. As a result, an increase in interest rates could make it difficult for our end-users to secure the financing necessary to purchase and install renewable energy products and systems on favorable terms, or at all and thus lower demand for our products and reduce our net sales. In addition, we believe that a significant percentage of our end-users install renewable energy products as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates could lower an investor’s return on investment in a renewable energy products and systems and make alternative investments more attractive relative to renewable energy products and, in each case, could cause these end-users to seek alternative investments.
 
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Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation and prevent us from maintaining or increasing our market share.
 
Our products are sold with various materials and workmanship warranty for technical defects and a ten year and twenty-five year warranty against declines of more than 10% and 20% of their initial rated power, respectively. As a result, we bear the risk of extensive warranty claims long after we have sold our products and recognized net sales. As of December 31, 2008, our accrued warranty expense amounted to approximately $163,751.
 
Because of the limited operating history of our products, we have been required to make assumptions regarding the durability and reliability of our products. Our assumptions could prove to be materially different from the actual performance of our products, causing us to incur substantial expense to repair or replace defective solar modules in the future. Any widespread product failures may damage our market reputation and cause our sales to decline and require us to repair or replace the defective products, which could have a material adverse effect on our financials results
 
We depend on a limited number of third-party suppliers for key raw materials and their failure to perform could cause manufacturing delays and impair our ability to deliver our products to customers in the required quality and quantities and at a price that is profitable to us.
 
Our failure to obtain raw materials and components that meet our quality, quantity and cost requirements in a timely manner could interrupt or impair our ability to manufacture our products or increase our manufacturing cost. Most of our key raw materials are either sole-sourced or sourced by a limited number of third-party suppliers. As a result, the failure of any of our suppliers to perform could disrupt our supply chain and impair our operations. In addition, many of our suppliers are small companies that may be unable to supply our increasing demand for raw materials as we implement our planned rapid expansion. We may be unable to identify new suppliers or qualify their products for use on our production lines in a timely manner and on commercially reasonable terms, if at all.
 
Our substantial international operations subject us to a number of risks, including unfavorable political, regulatory, labor and tax conditions in foreign countries.
 
We have significant marketing and distribution operations outside the United States and expect to continue to have significant manufacturing operations outside the United States in the near future.  We have significant manufacturing operations in Mexico. In the future, we may have operations in other European countries, and other Asian countries and, as a result, we will be subject to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to international operations, include, but are not limited to, the following:
 
·     
difficulty in enforcing agreements in foreign legal systems;
 
 
·     
foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs, or adopt other restrictions on foreign trade and investment, including currency exchange controls;
 
 
·     
fluctuations in exchange rates may affect product demand and may adversely affect our profitability in U.S. dollars to the extent the price of our solar modules, cost of raw materials and labor and equipment is denominated in a foreign currency;
 
 
·     
inability to obtain, maintain, or enforce intellectual property rights;
 
 
·     
risk of nationalization of private enterprises;
 
 
·     
changes in general economic and political conditions in the countries in which we operate;
 
 
·     
unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export duties and quotas;
 
 
·     
difficulty with staffing and managing widespread operations; and
 
 
·     
trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our solar modules and make us less competitive in some countries.
 
Our future success depends on our ability to retain our key employees and to successfully integrate them into our management team.
 
We are dependent on the services of Jonathan Read our Chief Executive Officer, Barry Baer, our Chief Financial Officer, Don Karner, President of our eTec subsidiary, and other members of our senior management team. The loss of Messrs. Read, Baer, Karner, or any other member of our senior management team could have a material adverse effect on us. There is a risk that we will not be able to retain or replace these key employees. Several of our current key employees, including Messrs. Read, Baer, Karner, are subject to employment conditions or arrangements that contain post-employment non-competition provisions. However, these arrangements permit the employees to terminate their employment with us upon little or no notice.
 
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Failure to Maintain our small management team could prove disruptive to our daily operations, require a disproportionate amount of resources and management attention and prove unsuccessful.
 
We have limited insurance coverage and may incur losses resulting from product liability claims, business interruptions, or natural disasters.
 
We are exposed to risks associated with product liability claims in the event that the use of our solar modules results in personal injury or property damage. Our recharging systems, batteries, solar modules are electricity-producing devices, and it is possible that users could be injured or killed by our products due to product malfunctions, defects, improper installation, or other causes. Our companies commercial shipment of products began in 1999 and, due to our limited historical experience, we are unable to predict whether product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on our business. Moreover, we may not have adequate resources and insurance to satisfy a judgment in the event of a successful claim against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. Any business disruption or natural disaster could result in substantial costs and diversion of resources.

Risks Relating to Our Common Stock:
 
If We Fail to Remain Current on Our Reporting Requirements with the commission, We Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell Their Securities in the Secondary Market.
 
Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports to the commission under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our SEC reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
 
Our Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
 
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
·             
that a broker or dealer approve a person’s account for transactions in penny stocks; and
   
·             
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
 
·             
obtain financial information and investment experience objectives of the person; and
 
·             
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
 
·             
sets forth the basis on which the broker or dealer made the suitability determination; and
 
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·             
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
If our stock price fluctuates, you could lose a significant part of your investment.
 
The market price of our stock may be influenced by many factors, some of which are beyond our control, including those described above and the following:
 
 
·     
the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
 
 
·     
the inability to meet the financial estimates of analysts who follow our common stock;
 
 
·     
announcements by us or our competitors of significant contracts, productions, acquisitions, or capital commitments;
 
 
·     
variations in quarterly operating results;
 
 
·     
general economic conditions;
 
 
·     
terrorist acts;
 
 
·     
future sales of our common stock; and
 
 
·     
investor perception of us and the renewable energy industry.
 
As a result of these factors, investors in our common stock may not be able to resell their shares at or above the price they paid for the common stock. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
 
If an event of default occurs under the security agreement, secured convertible notes, or stock pledge agreement, we could lose possession of all our assets and the assets of our subsidiaries.
 
In connection with the security agreement entered into on November 6, 2007, which secures the November 2007 Debentures and the December 2007 Debentures, we granted a security interest on our and our subsidiaries’ goods, inventory, contractual rights and general intangibles, receivables, documents, instruments, chattel paper, and intellectual property. The security agreement provides that upon the occurrence of an event of default under any agreement with the purchasers signatory to the securities purchase agreement shall have the right to take possession of the collateral, to operate our business using the collateral, and have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the collateral, at public or private sale or otherwise to satisfy our obligations under these agreements. Any attempt by the guaranteed parties to foreclose on our assets could likewise cause us to curtail our current operations.
 
Risks Relating To Our Convertible Debentures:
 
The issuance of our stock upon conversion of the debentures could encourage short sales by third parties, which could contribute to the future decline of our stock price and materially dilute existing stockholders’ equity and voting rights.
 
The November 2007 and December 2007 debentures have the potential to cause significant downward pressure on the price of our common stock. This is particularly the case if the shares being placed into the market exceed the market’s ability to absorb the increased number of shares of stock. Such an event could place further downward pressure on the price of our common stock, which presents an opportunity to short sellers and others to contribute to the future decline of our stock price. If there are significant short sales of our stock, the price decline that would result from this activity will cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market. If there is an imbalance on the sell side of the market for the stock, our stock price will decline. Falling prices may encourage investors to profit by engaging in short sales by borrowing shares that they do not own in anticipation of a decline in price to enable the seller to cover the sale with a purchase at a later date, at a lower price, and thus at a profit, which further contributes to a decline in the price of our stock. If this occurs, the number of shares of our common stock that is issuable upon conversion of the debentures will increase, which will materially dilute existing stockholders’ equity and voting rights.
 
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If we are required for any reason to repay our outstanding secured convertible debentures, we would be required to further deplete our working capital.
 
If we were required to repay the convertible debentures, we would be required to deplete our working capital and/or raise additional funds. If we were unable to repay the debentures when required, the holders could commence legal action against us to enforce their rights. Any such action may require us to curtail or cease operations.
 
Our directors, executive officers and affiliates will continue to exert significant control over our future direction, which could reduce the sale value of our company.
 
As of December 31, 2008 members of our Board of Directors and our executive officers, together with their affiliates, own approximately 36.5% of our outstanding common stock.  Accordingly, these stockholders, if they act together, may be able to control all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions.  The concentration of ownership, which could result in a continued concentration of representation on our Board of Directors, may delay, prevent or deter a change in control and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our assets.
 
Investors should not anticipate receiving cash dividends on our common stock.
 
We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion.  Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future.
 
There is a reduced probability of a change of control or acquisition of us due to the possible issuance of preferred stock.  This reduced probability could deprive our investors of the opportunity to otherwise sell our stock in an acquisition of us by others.
 
Our Articles of Incorporation authorize our Board of Directors to issue up to 200,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or designation of such series, without further vote or action by stockholders.  As a result of the existence of “blank check” preferred stock, potential acquirers of our company may find it more difficult to, or be discouraged from, attempting to effect an acquisition transaction with, or a change of control of, our company, thereby possibly depriving holders of our securities of certain opportunities to sell or otherwise dispose of such securities at above-market prices pursuant to such transactions.
 
We may need to raise additional funds which, if available to us, would dilute the ownership of existing investors.
 
We may need to raise additional funds in the future to finance our further growth and development of our technologies. We cannot give any assurance that we would be successful in raising such funds and, should we do so through the sale of equity securities, such sale would dilute the stock ownership of existing investors.
 
There are a large number of shares underlying our convertible debentures and warrants that may be available for future sale and the sale of these shares may depress the market price of our common stock.
 
As of December 31, 2008, we had 129,422,861 shares of common stock issued and outstanding as well as outstanding warrants to purchase an additional 57,838,729 shares of common stock.  Based upon our debenture deferments and waivers signed in 2008 and 2009, there may be an additional 122 million shares outstanding if all warrants are exercised and the debentures are redeemed.
 
If we are not successful in meeting our Debenture covenant requirements we maybe declared in default on the debentures Should we be declared in default we could risk losing the assets of our company to the debenture holders. Should this event occur, then our shares may not have any value for our share holders.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
 
As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that both addresses management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We also expect the new regulations to increase our legal and financial compliance cost, make it more difficult to attract and retain qualified officers and members of our board of directors (particularly to serve on our audit committee) and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations since there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
 
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DESCRIPTION OF PROPERTY
 
Our primary property consists of office and manufacturing facilities to support our operations. Our facilities are summarized in the following table:
 
Type
 
Location
 
Ownership
 
Approximate
 Square Feet
 
Headquarters
 
Scottsdale, AZ
 
Owned
 
1,700
 
Manufacturing/Office
 
Phoenix, AZ
 
Leased
 
2,300
 
Manufacturing/Office
 
San Diego, CA
 
Leased
 
5,400
 
Manufacturing/Office
 
Tijuana, Mexico
 
Leased
 
19,000
 
Manufacturing/Office
 
Phoenix, AZ
 
Leased
 
15,000
 
 
We purchased the office building that serves as our headquarters and which is located in Scottsdale, Arizona, on January 16, 2007 for an aggregate price of $575,615.  A total of $287,959 has been paid as of December 31, 2007 and a tax credit has been recorded in the amount of $156.  The remaining balance of $287,500 is structured as an interest-only loan, bears interest at a rate of 6.75% calculated annually, with monthly payments in the amount of $1,617 due beginning on February 16, 2007.  The entire principal balance of the loan is due on or before January 16, 2012.  The loan is secured by a deed of trust on the office building.
 
Our lease terms range from month to month through to 2013, with all terminating on or before June of 2013.
 
It is our belief that we are adequately insured regarding our leased and owned properties.
 
LEGAL PROCEEDINGS
 
None of our directors, officers, significant employees, or affiliates has been convicted in a criminal proceeding, exclusive of traffic violations.
 
None of our directors, officers, significant employees, or affiliates has been permanently or temporarily enjoined, barred, suspended, or otherwise limited from involvement in any type of business, securities or banking activities.
 
None of our directors, officers, significant employees, or affiliates of has been convicted of violating a federal or state securities or commodities law.
 
We are not a party to any pending legal proceedings.
 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
On December 10, 2007 we solicited the proxies of our shareholders to vote to approve an amendment and restatement of our Articles of Incorporation to clarify Ecotality, Inc.’s authorized capital stock and the ability of our board of directors to set the number of directors constituting the full board of directors consistent with the terms of our bylaws.  Approval was obtained from our shareholders January 3, 2008.
 
24

 
PART II
 
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK
 
Market information
 
Our common stock has been quoted on the NASD’s OTC Bulletin Board under the trading symbol “ACHM” from December 7, 2005 until December 12, 2006 when our symbol was changed to “ETLY.”  The high and low closing prices of our common stock for the periods indicated are set forth below.  These closing prices do not reflect retail mark-up, markdown or commissions.
 
2005
 
High
   
Low
 
First Quarter
  $ n/a     $ n/a  
Second Quarter
  $ n/a     $ n/a  
Third Quarter
  $ n/a     $ n/a  
Fourth Quarter
  $ n/a     $ n/a  
 
2006
 
High
   
Low
 
First Quarter
  $ 1.95     $ 0.33  
Second Quarter
  $ 1.59     $ 1.08  
Third Quarter
  $ 1.50     $ 1.10  
Fourth Quarter
  $ 2.07     $ 1.20  
 
2007
 
High
   
Low
 
First Quarter
  $ 1.72     $ 0.58  
Second Quarter
  $ 1.07     $ 0.11  
Third Quarter
  $ 0.60     $ 0.28  
Fourth Quarter
  $ 0.40       0.18  
 
2008
 
High
   
Low
 
First Quarter
  $ 0.31     $ 0.13  
Second Quarter
  $ 0.20     $ 0.14  
Third Quarter
  $ 0.16     $ 0.06  
Fourth Quarter
  $ 0.09       .03  
 
On December 31, 2008 the closing bid price on the OTC Bulletin Board for our common stock was $0.03 per share.
 
The shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act”), commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
 
The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant’s net tangible assets; or exempted from the definition by the Commission.  Trading in the shares is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.
 
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks.  Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in the company’s common stock and may affect the ability of shareholders to sell their shares.
 
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Shares Available Under Rule 144
 
As of April 10, 2009, we had 160,756,194 shares of common stock outstanding,  In general, under the recently amended Rule 144 which became effective on February 15, 2008 a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least six months (subject only to the Rule 144(c) public information requirement until the securities have been held for one year), previously, including a person who may be deemed our affiliate, is entitled to sell within any three month period, a number of shares that does not exceed the greater of:
 
1.         
1% of the then outstanding shares of our common stock; or
 
 
2.         
The average weekly trading volume of our common stock during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission.
 
 
Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us.  Any person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who owns shares within the definition of “restricted securities” under Rule 144 under the Securities Act that were purchased from us, or any affiliate, at least one year previously, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements.
 
Future sales of restricted common stock under Rule 144 or otherwise or of the shares could negatively impact the market price of our common stock.  We are unable to estimate the number of shares that may be sold in the future by our existing stockholders or the effect, if any, that sales of shares by such stockholders will have on the market price of our common stock prevailing from time to time.  Sales of substantial amounts of our common stock by existing stockholders could adversely affect prevailing market prices.
 
Holders
 
As of December 31, 2008, we had approximately 129,42,861 shares of $0.001 par value common stock issued and outstanding held by 473 shareholders of record.  ECOtality, Inc.’s Transfer Agent is:  Holladay Stock Transfer, Inc., 2939 N. 67th Place, Suite C, Scottsdale, AZ 85251, and phone: (480) 481-3940, fax: (480) 481-3941.
 
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Dividends
 
We have not declared or paid any cash dividends on our common stock.  For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and do not anticipate paying any cash dividends on our common stock.  Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and the results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.

Securities Authorized for Issuance under Equity Compensation Plans
 
The following table provides the following information as of December 31, 2008, for equity compensation plans previously approved by security holders, as well as those not previously approved by security holders:
 
1.         
The number of securities to be issued upon the exercise of outstanding options, warrants and rights;
 
 
2.         
The weighted-average exercise price of the outstanding options, warrants and rights; and
   
3.          
Other than securities to be issued upon the exercise of the outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plan.
 
   
Number of Shares
 
Total Securities Approved to be issued under the Equity Compensation Plan
 
10,000,000
 
       
Securities to be issued upon exercise of outstanding options, warrants and rights
 
2,950,000
(1)
Securities Committed to Approved Compensation Plans not yet Issued
 
100,000
 
Number of Securities Issued from Plan to Date
 
2,005,000
 
       
Number of securities remaining available for future issuance
 
4,945,000
 
 

(1)  Weighted Average Price of Outstanding Options, Warrants and Rights is $0.17 per share
 
Recent Sales of Unregistered Securities
 
In October 2006 we issued an aggregate of 34,499,920 shares of our common stock to a group of 277 accredited investors through Brookstreet Securities Corporation, as Placement Agent, at $0.35 per share pursuant to the exemption provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder.  The shares were offered solely to accredited investors, no form of general advertising was used, all investors took the shares as an investment and not with the intent to distribute and all shares were issued with a restrictive legend thereon.  The total offering costs related to this issuance was $9,352,713.  As additional consideration for acting as our Placement Agent, we issued to Brookstreet warrants to acquire 6,899,982 shares of our common stock at $0.35 per share until October 27, 2011.
 
On November 6, 2007, we entered into a financing arrangement with a group of accredited investors pursuant to which we sold our Original Issue Discount 8% Secured Convertible Debentures and warrants to purchase our common stock in consideration of an aggregate of $4,117,649.  We received gross proceeds of approximately $3,500,000 from this offering.  In connection with the November 2007 financing, we issued the following securities to the investors:
 
·             
$4,117,649 in Secured Original Issue Discount Convertible Debentures; and
   
·             
Common Stock Purchase Warrants to purchase 6,862,748 shares of common stock at $0.32 per share for a period of five years.
 
The warrants are exercisable to purchase one share of common stock at $0.32 per share, and have a term of exercise equal to 5 years.  The warrant holders may not exercise the warrants for a number of shares of common stock in excess of that number of shares which upon giving effect to such exercise would cause the aggregate number of shares beneficially owned by the holder to exceed 9.99% of the outstanding shares of the common stock following such exercise.  As of December 31, 2007, no shares of common stock had been issued upon conversion of the debentures or the warrants issued on November 6, 2007.
 
On December 6, 2007, we entered into a financing arrangement with a group of accredited investors pursuant to which we sold our Original Issue Discount 8% Secured Convertible Debentures and warrants to purchase our common stock in consideration of an aggregate of $1,764,706.We received gross proceeds of approximately $1,500,000 from this offering.  In connection with the December 2007 financing, we issued the following securities to the investors:
 
·             
$1,764,706.50 in Secured Original Issue Discount Convertible Debentures; and
 
·             
Common Stock Purchase Warrants to purchase 2,941,177 shares of common stock at $0.32 per share for a period of five years.
 
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The warrants are exercisable to purchase one share of common stock at $0.30 per share, and have a term of exercise equal to 5 years.  The Warrant holders may not exercise the Warrants for a number of shares of common stock in excess of that number of shares which upon giving effect to such exercise would cause the aggregate number of shares beneficially owned by the holder to exceed 9.99% of the outstanding shares of the Common stock following such exercise.  As of December 31, 2008, 100,000 shares of common stock had been issued upon conversion of the debentures issued on December 6, 2007.
 
MANAGEMENT’S DISCUSSION AND PLAN OF OPERATIONS.
 
Forward-Looking Statements
 
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements include, but are not limited to, those relating to the following: our ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
 
When used in this document, the words “anticipate,” “estimate,” “expect,” “may,” “plans,” “project,” and similar expressions are intended to be among the statements that identify forward-looking statements.  Our results may differ significantly from the results discussed in the forward-looking statements.  Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to our dependence on our ability to attract and retain skilled managers and other personnel; the intense competition within our industry; the uncertainty of our ability to manage and continue its growth and implement its business strategy; its vulnerability to general economic conditions; accuracy of accounting and other estimates; our future financial and operating results, cash needs and demand for services; and our ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
 
Overview of the Business
 
We were incorporated in Nevada in 1999.  We are a leader in clean electric transportation and storage technologies. Through innovation, acquisitions, and strategic partnerships, we accelerate the market applicability of advanced electric technologies to replace carbon-based fuels. We are a leader in providing electricvehicle infrastructure products and solutions that are used in on-road grid-connected vehicles (including plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV)), material handling and airport electric ground support applications. Through our main operating subsidiary, Electric Transportation Engineering Corporation (eTec), our  primary product offering is the Minit-Charger line of advanced battery fast-charge systems that are designed for various motive applications. In addition to our  electric transportation focus, we are also involved in the development, manufacture, assembly and sale of specialty solar products, advanced battery systems, and hydrogen and fuel cell systems. Our subsidiaries and primary operating segments consist of Electric Transportation Engineering Corporation (eTec), Innergy Power Corporation (Innergy),  and ECOtality Stores (dba Fuel Cell Store). In addition we have a wholly owned subsidiary in Mexico providing manufacturing services for us.

We operate with a commercial “electro-centric” strategy, targeting only products and companies involved in the creation, storage, and/or delivery of clean or renewable electric power. This strategy has resulted in the development and acquisition of various operating companies.. While focused on electric transportation infrastructure, we have developed a diversified technology portfolio that is linked through the ability to deliver comprehensive electro-centric energy alternatives and solutions. By establishing a technologically diverse multi-product base we are able to mitigate the uncertainty of clean technology demands and regulatory changes. Our current primary focus is to facilitate and execute the development and implementation of electric vehicle charging infrastructure in anticipation of mass commercialization of plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV) in the 2010 to 2012 timeframe.
 
Electric Transportation Engineering Corporation (eTec)

Electric Transportation Engineering Corporation (eTec) was incorporated in Arizona in 1996 to support the development and installation of battery charging infrastructures for electric vehicles. As our primary operating subsidiary, eTec is a recognized leader in the research, development and testing of advanced transportation and energy systems, and is the exclusive provider of the Minit-Charger line of battery fast-charge systems and technologies. Specializing in alternative-fuel, hybrid and electric vehicles and infrastructures, eTec offers consulting, technical support and field services and is committed to developing and commercially advancing clean electric technologies with clear market advantages.
 
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eTec’s primary product line consists of the Minit-Charger line of battery fast-charge systems. The Minit-Charger brand is the result of a consolidation of the two leading fast-charging technologies: eTec SuperCharge  and Edison Minit-Charger. Prior to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec held exclusive patent rights to the flagship product line, eTec SuperCharge™  - battery fast-charge systems that allow for rapid charging while generating less heat and promoting longer battery life than conventional chargers. The eTec SuperCharge technology was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was specifically designed for airport ground support equipment, neighborhood and on-road electric vehicle, and marine and transit system operations. Since the acquisition of the technology, eTec has made considerable engineering and product advancements and is currently a leader in providing these clean electric fast-charging technologies to airports throughout North America.

In 2007, we acquired the Minit-Charger business of Edison Source, a division of Edison International . The core Minit-Charger technology allows for material handling equipment to convert to electric power systems that can be charged quickly, conveniently and efficiently, thereby eliminating the need for propane or diesel-powered equipment or for backup batteries and costly change-out operations required with traditional straight-line charging.. eTec’s Minit-Charger line of battery fast charge systems has a large customer base that consists of Fortune 500 companies and other corporate entities throughout North America.

In March of 2008, all eTec fast-charging products, including the eTec SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By unifying the underlying fast-charging technologies under a single engineering, manufacturing and sales entity (eTec Minit-Charger), we are better able to streamline our operations and sales and marketing efforts. The complete portfolio of eTec Minit-Charger products provides eTec with a leadership position in current fast charging markets and well positions us to capitalize on the rapidly growing clean technology sector for electric vehicle infrastructure technologies. We believe Minit-Charger is the most superior fast-charge technology on the market as it is a smart charging system that can charge batteries (of almost all chemistries) as fast as possible, while best controlling the battery temperature and avoiding the devastating effects of overcharging.

eTec has a comparatively long history in clean and renewable technologies and has various standing contractual relationships as a test contractor and/or primary and consulting engineer for projects with the United States Department of Energy (DoE), several national research laboratories, national energy storage consortiums, and large electric utilities where they provide services in energy storage, monitoring, systems design and fabrication, product and vehicle testing, and product development. Their work has been in the areas of electric vehicle systems, recharging stations, energy demand management systems, utility communication systems, advanced battery technologies, fast charging technologies, hydrogen creation, storage and dispensing systems, and coal gasification programs. Currently, eTec is holds the exclusive contract for the DoE’s Advanced Vehicle Testing Activity (AVTA) program and has conducted more than 6 million miles of vehicle testing on more than 200 advanced fuel vehicles.

eTec was acquired as an expansion platform for its core expertise in battery technologies, fast charging systems, energy distribution infrastructure, and advanced vehicle technologies and testing, which includes electric vehicle (EV), hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and hydrogen vehicle technologies. We believe that eTec will expand its core technologies through new product development, joint ventures, acquisitions and organic growth. As eTec has unparalleled experience with electric vehicle infrastructure, we believe our experience with electric vehicles infrastructure, our knowledge of the vehicle and battery systems, as well as our industry leading fast-charging technology provides us with a distinct competitive advantage to be leading provider of electric vehicle infrastructure services and installation.

eTec has been involved in every North American EV initiative to date and is a leading provider of solutions for electric vehicles and its supporting infrastructure. Currently, eTec has installed more than 5,100 charging stations for motive applications, and has installed more chargers for on-road applications than any other company in North America.

Innergy Power Systems

Founded in 1989, Innergy Power Systems is based in San Diego, California with a manufacturing facility in Tijuana, Mexico. Innergy is the only North American manufacturer of both renewable energy solar modules and thin-sealed rechargeable batteries, as its solar photovoltaic (PV) product line addresses the burgeoning worldwide demand for solar energy products and off-grid power. Innergy’s fiberglass reinforced panel (FRP) solar modules are designed to meet a broad  range of applications for emergency preparedness and recreation, where quality, durability, rugged construction and light weight are important in the outdoor environment. Applications include logistics tracking, asset management systems, off-grid lighting, mobile communications, mobile computing, recreational vehicles, signaling devices and surveillance cameras.

Innergy and our wholly owned subsidiary providing manufacturing services, Portable Energy De Mexico, S.A. DE C.V., provides us the ability to further expand our production, manufacturing and assembly capabilities for Innergy’s solar products and energy storage devices, as well as products of our other subsidiaries, including eTec’s Minit-Charger products.  Innergy  provides us the ability to expand our offering of solar products and solutions into current and developing commercial markets, as well as provides strong manufacturing and assembly operations to assist other aspects ofour business. While we expect solar to become a major future energy source, Innergy’s battery systems that support the growing electric vehicle market is quickly expanding and we expect the combination of solar solutions and new battery sales to contribute to our long and short-term earnings and revenue growth. Innergy is actively pursuing growth opportunities through product line expansion, joint ventures, acquisitions, and manufacturing contracts.
 
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ECOtality Stores (dba Fuel Cell Store)

ECOtality Stores (dba Fuel Cell Store) is our wholly owned subsidiary and operates as our online retail division. Fuel Cell Store (www.fuelcellstore.com) is an e-commerce marketplace that offers consumers the widest array of fuel cell products from around the globe. Based in San Diego, California and with active international operations in Japan, Russia, Italy, and Portugal, Fuel Cell Store develops, manufacturers, and sells a diverse and comprehensive range of fuel cell products that includes fuel cell stacks, systems, component parts and educational materials. In addition to primary retail operations, Fuel Cell Store also offers consulting services for high schools, colleges, and leading research institutes and is available to host workshops, conferences and corporate events. Fuel Cell Store is the leading market place for fuel cell stack, component, and hydrogen storage manufacturers to unite with consumers and is an attractive source for hydrogen and fuel cell industry activity and direction. 
 
Hydrality™

Hydrality™ is a complex reactor system that stores and delivers hydrogen on-demand using magnesium compounds and water. The EPC/Hydrality technology, which was initially developed in conjunction with NASA’s Jet Propulsion Laboratory (JPL) and subsequently advanced by Arizona State University, Green Mountain Engineering and Airboss Aerospace, Inc. continues to have strong promise for a variety of commercial applications. While we initially sought to design and license a cost efficient Hydrality system for use in motorized vehicles and industrial equipment, we have identified several additional and promising applications for Hydrality that include stationary applications for remote power, back-up power systems, and large scale industrial and utility use. 

Organizational History
 
We were incorporated in Nevada in 1999 under the name Alchemy Enterprises, Ltd. to market biodegradable products.  On November 14, 2006, we changed our name to “ECOtality, Inc.” to better reflect our renewable energy strategy.

On June 12, 2006, we entered into a License Agreement with California Institute of Technology (CalTech), which operates Jet Propulsion Laboratory (JPL), whereby we acquired certain exclusive licensed patent and/or patent applications rights and improvement patent rights related to research performed under the JPL Task Plan No. 82-10777, entitled “Mechanically-Fed Metal-Air Fuel Cell As A High Energy Power Source” (“Task Plan”), as well as a nonexclusive licensed technology rights developed as a result of the Task Plan.  As partial consideration paid in connection with the License Agreement, we issued 5,869,565 shares of our common stock to CalTech with a fair market value of $1.40 per share, based upon the closing price of our common stock on June 12, 2006, for a total aggregate value of $8,217,391.  Furthermore, we are obligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on June 12, 2009, continuing until the expiration, revocation, invalidation or unenforceability of the last exclusively licensed patent rights or improvement patent rights.  The License Agreement carries a perpetual term, subject to default, infringement, expiration, revocation or unenforceability of the License Agreement and the licenses granted thereby.

On February 15, 2007, we entered into a Settlement Agreement with Howard Foote, Elliott Winfield and Universal Power Vehicles Corporation (the Parties) to settle and resolve all known disputes and uncertainties between them related to all agreements and contracts entered into concerning the fuel cell intellectual property and technology.  In accordance with the Settlement, all parties to the settlement confirmed the assignment, transfer and conveyance of all right, title and interest in and to the electric power cell and reactor technology being developed by us.  In consideration, we paid to the Howard Foote, Elliott Winfield, and Universal Power Vehicles Corporation cash in the amount of $600,000.  Additionally, Foote, Winfield and Universal Power Vehicles Corporation received 1,500,000 shares of our common stock.

On June 11, 2007, we bought the assets of the Fuel Cell Store (www.FuelCellStore.com), a small web-based seller of educational fuel cell products. The Fuel Cell Store product line includes demonstration kits, educational materials, fuel cell systems and component parts.  It also offers consulting services for establishing educational programs for all levels of educational institutions.  Since Fuel Cell Store was significantly smaller than we are, we were not required to provide audited financial statements for it.  We operate the Fuel Cell Store through our wholly-owned subsidiary, ECOtality Stores, Inc.  While revenue producing activities, facilities and employees has initially remained the same, we have changed the distribution system through inventory control procedures, and expanded the customer base through increased emphasis on marketing.  We sell Fuel Cell Store products through our own ECOtality Store’s website (www.fuelcellstore.com).

On October 1, 2007 we closed on the purchase of certain assets of Innergy Power Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V., pursuant to an agreement that we entered into on September, 18, 2007.  Innergy designs and manufactures standard and custom solar-power and integrated solar-battery solutions for government, industrial and consumer applications.  The purchase price for the assets was 3,000,000 shares of our common stock.  We guaranteed to the sellers that the shares of our common stock issued in the transaction would be worth $3,000,000 during the 30 day period commencing 11 months from the closing date or we would be required to either issue additional shares such that the total shares are worth $3,000,000 at that time or pay the seller the difference in cash.  The shares were issued to the seller and are subject to piggy back registration rights and a lock-up agreement.

 On November 6, 2007 we signed an agreement to acquire all of the outstanding stock of the Clarity Group, Inc. and its affiliate, Electric Transportation Engineering Corporation (eTec), through a stock purchase agreement.  eTec provides technical support and field services for all aspects of electric vehicle infrastructure.  eTec operates as our wholly owned subsidiary and there have been no changes to the eTec’s management team.
 
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In December 2007, we entered into and completed various stock and asset purchase agreements with Electric Transportation Engineering Corporation (“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009 B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and assets related to the manufacture and selling of a “fast charge” battery charging system to be used in commercial and industrial market places.

Electric Transportation Engineering Corporation (eTec)
 
On November 6, 2007, we signed a stock purchase agreement with two non-affiliated individuals whereby we purchased all of the issued and outstanding capital stock of Electric Transportation Engineering Corporation, as well as its affiliated company Clarity Group, Inc. (both of which are collectively referred to as “eTec”).  eTec provides technical support and field services for all aspects of electric vehicle infrastructure.  eTec will operate as our subsidiary and there will be no changes to the company’s management team.
 
The aggregate purchase price for the outstanding capital stock of eTec is $3,000,000 in cash and 6,500,000 shares of our common stock of the $3,000,000 in cash to be paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement and $500,000 will be paid in 10 equal monthly installments, beginning December 1, 2007.  The 6,500,000 shares will be issued in the following manner: 6,500,000 were issued upon the close of the stock purchase agreement, 3,250,000 were released on date of signing, and 3,250,000 are to be released on the first anniversary of the closing of the stock purchase agreement from the Company corporate secretary barring any indemnity claims.  The shares bear a restrictive legend and are not subject to piggy-back registration rights.
 
Edison Minit-Charger
 
In December 2007, we entered into and completed various stock and asset purchase agreements with Electric Transportation Engineering Corporation (“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009 B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and assets related to the manufacture and selling of a “fast charge” battery charging system to be used in commercial and industrial market places.
 
The aggregate purchase price is $1,000,000 in cash and 2,000,000 shares of our common stock.  If, on the 10th day following the first anniversary date of the agreements, which date shall be December 14, 2008, the average closing price for our common stock during the 30-day period ending on the first anniversary date of the Stock Purchase Agreement (December 4, 2008) is less than $1.00 per share, we, at our option, shall either:
 
1.                
Issue additional shares of common stock to the seller so that the aggregate value of our common stock is equal to the $2,000,000 (“Stock Consideration Amount”);
 
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2.                
Pay to the seller an additional amount of cash so that the aggregate value equals difference between the amount of the Purchase Price and the Stock Consideration Amount; or
   
3.              
Purchase or cause the purchase of the common stock issued for an aggregate price equal to the Stock Consideration Amount.
 
Our Hydrality System
 
We have been developing Hydrality™, a system that stores and delivers hydrogen on-demand using magnesium compounds and water. When used in conjunction with existing fuel cell technology, Hydrality emits only pure water and produces no harmful emissions.
 
While we initially sought to design and license a cost efficient Hydrality system for use in motorized vehicles and industrial equipment, we have identified several additional promising applications for Hydrality that include stationary application for remote power, back-up power systems, and large-scale industrial and utility use as we have described above in our description of our business.
 
On May 7, 2007, a non-provisional patent application was filed by Stinson Morrison Hecker LLP in the name of California Institute of Technology as assignee and us as exclusive licensee of the technology, for a Method and System for Storing and Generating Hydrogen, claiming priority from a provisional application filed by CalTech on May 8, 2006.  The details of the patent application and invention are confidential until publication or issue.  The patent application is generally directed towards the hydrogen reactor design currently under development.
 
The current technology, which is the subject of the pending patent application, is a method for generating hydrogen in an on-board vehicle reaction chamber to fuel a fuel cell or modified engine on demand.  The information and diagrams in the Technology Contribution Agreement and JPL Task Plan involve a metal-air battery design.  Based on the research of JPL into the metal-air battery design, the technology has migrated from a basic metal-air battery concept to a hydrogen reactor.
 
While we are now are in the process of investigating and analyzing third-generation reactor models, we anticipate this to be a long term project given the minimal amount of funds we are expending on this research and development effort.  Laboratory-scale test reactors are being used to gather data for the purpose of characterizing the reactor and constructing analytical design models.  It is anticipated that patent protection will be sought on one or more aspects or features of the third-generation reactor.  However, it is not our stated intent to manufacture reactors. Rather, it is our intent to use the third-generation reactors to demonstrate the technology, and then license the technology and/or the reactor design to others for commercialization. The specifications of the commercial reactors have not yet been determined, and the designs will vary based on different customer application requirements.
 
Status of any announced new product or service
 
Throughout 2008, the Company has stressed its focus on being the leading supplier of electric vehicle infrastructure. We have also continued to reiterate that although we initially sought to design and license a cost efficient Hydrality system for use in motorized vehicles and industrial equipment, we have identified several additional and promising applications for Hydrality that include stationary applications for remote power, back-up power systems, and large scale industrial and utility use. 
 
Fuel Cell Store
 
On June 17, 2007 we bought the assets of the Fuel Cell Store for $350,000 in cash and 300,000 shares of our common stock.   Our common stock will be valued at its closing market price on the date of the agreement.  The closing price was $0.63 per share, on that date for a total value of $189,000 and a total price paid cash and stock of $539,000. We concluded this to be an asset purchase rather than a business purchase because we did not acquire their debt and they continue to exist after the purchase is completed.  Of the assets acquired we identified and assigned a value of $179,775 in merchandise inventory, $8,600 in fixed assets, and $23,843 in current accounts receivable. We reviewed the intangible assets that we acquired, including the customer data base and internally developed software, and determined that the intangible assets did not have value to us. Therefore, the difference between the assets noted and the price paid for the assets $326,782 have been allocated to intangible assets and impaired and written-off due to the lack of proven future cash flows generated by the assets acquired.
 
Innergy Power Corporation
 
On October 1, 2007, we purchased certain assets of Innergy Power Corporation and its wholly-owned subsidiary, Portable Energy De Mexico, S.A. DE C.V..  The purchase price for the assets was 3,000,000 shares of our common stock.  We have guaranteed to the seller that the shares of our common stock issued to them in the acquisition will be worth $3,000,000 during the 30 day period commencing 11 months from the closing date or we will be required to either issue additional shares such that the total shares are worth $3,000,000 at that time or pay the seller the difference in cash.  The shares that we issued to the seller are subject to piggy back registration rights and a lock up agreement to be executed by the seller’s stockholders.
 
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Electric Transportation Engineering Corporation (eTec)
 
On November 6, 2007, we signed a stock purchase agreement with two non-affiliated individuals whereby we purchased all of the issued and outstanding capital stock of Electric Transportation Engineering Corporation, as well as its affiliated company Clarity Group, Inc. (both of which are collectively referred to as “eTec”).  eTec provides technical support and field services for all aspects of electric vehicle infrastructure.  eTec will operate as our subsidiary and there will be no changes to the company’s management team.
 
The aggregate purchase price for the outstanding capital stock of eTec is $3,000,000 in cash and 6,500,000 shares of our common stock of the $3,000,000 in cash to be paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement and $500,000 will be paid in 10 equal monthly installments, beginning December 1, 2007.  The 6,500,000 shares will be issued in the following manner: 6,500,000 were issued upon the close of the stock purchase agreement, 3,250,000 were released on date of signing, and 3,250,000 are to be released on the first anniversary of the closing of the stock purchase agreement from the Company corporate secretary barring any indemnity claims.  The shares bear a restrictive legend and are not subject to piggy-back registration rights.
 
Edison Minit-Charger
 
In December 2007, we entered into and completed various stock and asset purchase agreements with Electric Transportation Engineering Corporation (“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009 B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and assets related to the manufacture and selling of a “fast charge” battery charging system to be used in commercial and industrial market places.
 
The aggregate purchase price is $1,000,000 in cash and 2,000,000 shares of our common stock.  If, on the 10th day following the first anniversary date of the agreements, which date shall be December 14, 2008, the average closing price for our common stock during the 30-day period ending on the first anniversary date of the Stock Purchase Agreement (December 4, 2008) is less than $1.00 per share, we, at our option, shall either:
 
1.               
 Issue additional shares of common stock to the seller so that the aggregate value of our common stock is equal to the $2,000,000 (“Stock Consideration Amount”);
 
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2.                
Pay to the seller an additional amount of cash so that the aggregate value equals difference between the amount of the Purchase Price and the Stock Consideration Amount; or
   
3.              
Purchase or cause the purchase of the common stock issued for an aggregate price equal to the Stock Consideration Amount.
 
Stage of Commercialization of the Hydrality Technology
 
NASA’s Jet Propulsion Laboratory (JPL), under its agreement with us, has completed testing of the Hydrality technology on lab-scale models of the reactor resulting in announced results and improvements. Its research is ongoing on our behalf and will continue throughout the implementation stages of the technology. Additionally, we have entered into an agreement with Arizona State University (ASU) to evaluate potential regeneration technologies and determine cost and energy efficiencies for converting magnesium oxide, the main byproduct of Hydrality, back to its original form of magnesium.
 
Current transportation industry trends suggest that the commercial viability of hydrogen fuel cell vehicles remains on the distant horizon (about 10 years away) due to cost and efficiency problems with underlying fuel cell technologies. Being reactive and reflexive to these market trends, we have reduced the developmental costs of Hydrality for transportation applications to pursue additional applications with immediate commercial applicability in 2008. With the current shift in the transportation market towards plug-in hybrid vehicles (PHEV) and pure electric vehicles (EV), we will aggressively explore the use of eTec’s fast charging systems in PHEV and EV infrastructure applications.  If and when fuel cell technologies begin to present a practical and economically viable solution for alternative electric propulsion systems, the Company will be prepared to capitalize upon the ongoing research and development efforts of Hydrality to modify the system for use in transportation applications.
 
As our research and development efforts have identified several new and promising applications for Hydrality that include stationary use, remote power, back-up power systems, and large scale industrial and utility use, we intend to refocus our research and development expenditures upon these areas that we determine to have immediate commercial applicability. While we will target our research and development efforts primarily on stationary and utility power applications, the research and testing for large-scale applications of our Hydrality system will be valuable in further advancing the technology for all applications, including those of transportation.
 
In October of 2007, we announced that we will participate in the Arizona Public Service (APS) Advanced Hydrogasification Project (AHP).  APS, Arizona’s largest public utility company, has previously received $8.9 million in funding for this pilot project from the U.S. Department of Energy (DOE). The objective of this partnership is to investigate the use of Hydrality™ – an on-demand hydrogen production and storage technology – to support APS’ hydrogasification efforts to deliver “clean” electricity to the public. The Hydrality testing is currently estimated to commence in the middle of 2008.  The AHP program is a collaborative project among APS and industry partners, including the Department of Energy’s National Energy Technology Laboratory (NETL), to develop an economical process of producing substitute natural gas (SNG) from coal without the release of carbon dioxide, a known greenhouse gas. The APS project will use hydrogen to react with coal in a high temperature and pressure reaction that ultimately produces methane that can be injected into existing natural gas pipelines. Specifically aimed at supporting the AHP hydrogasification efforts, the project will conduct testing to evaluate the process kinetics and reactor dynamics of our Hydrality process for large-scale hydrogen production and storage applications .
 
We believe the Hydrality technology has a promising future, but this future was not as eminent as it was two years ago. There have been dramatic changes in the hydrogen industry and an absence of expected interrelated product advancements (i.e. fuel cells). Thus we have determined that the extreme vagaries of the hydrogen technology industry, the immediate advancement of other renewable technologies to the commercial forefront, and the potentially long and expensive road to commerciality and profitability for any hydrogen technology necessitates us to prudently and significantly scale back all hydrogen expenditures, and proceed only on the basis of joint development projects or significantly subsidized development with potential licensees or DOE grants.

2007 and 2008 PROFOMA Results
  
The unaudited pro forma consolidated statement of operations for the years ended December 31, 2008 and 2007 combines our historical results, Inc and the unaudited pro forma results of the four companies acquired during 2007 and gives effect to the acquisitions as if they occurred on January 1, 2007.  Pro forma adjustments have been made related to impairment of goodwill.  The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisition been in effect for the periods presented, nor do they claim to be indicative of the results that will be obtained in the future, and do not include any adjustments for cost savings or other synergies achieved in the consolidations of the companies.
 
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The following table contains our 2008 reported figures and unaudited pro forma results for the year ended December 31, 2007 as if the acquisitions occurring in the fourth quarter ending December 31, 2007 had occurred on January 1, 2007

   
Year Ended December 31,
 
   
2008
   
2007
 
   
Reported
   
Reported
   
Pro Forma
 
Net Revenues
  $ 11,187,384     $ 2,588,658     $ 13,723,131  
Net Income (loss)
  $ (8,067,211 )   $ (13,691,964 )   $ (15,587,966 )
Net (loss) per share-basic and fully diluted
  $ (0.06 )   $ (0.12 )   $ (0.14 )
                         
Segment Information
 
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by a company’s chief operating decision maker in deciding the allocation of resources and assessing performance.  Upon completion of FuelCellStores.com, Innergy Power Corporation, Electric Transportation Engineering Corporation (eTec) and eTec’s Minit-Charger business acquisitions from June through December 2007, we identified our segments based on the way we expect to organize our Company to assess performance and make operating decisions regarding the allocation of resources.   In accordance with the criteria in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” we have concluded we have three reportable segments for the year ended December 31, 2008; ECOtality/ECOtality Stores segment, Innergy Power segment and eTec segment. The ECOtality/ECOtality Stores segment is the online marketplace for fuel cell-related products and technologies with online distribution sites in the U.S., Japan, Russia, Italy and Portugal.  The Innergy Power segment is comprised of the sale of solar batteries and other solar and battery powered devices to end-users. The eTec segment relates to sale of fast-charge systems for material handling and airport ground support applications to the testing and development of plug-in hybrids, advanced battery systems and hydrogen ICE conversions and consulting revenues.  This segment also includes the Minit-Charger business which relates to the research, development and testing of advanced transportation and energy systems with a focus on alternative-fuel, hybrid and electric vehicles and infrastructures.  eTec holds exclusive patent rights to the eTec SuperCharge™ and Minit-Charger systems - battery fast charge systems that allow for faster charging with less heat generation and longer battery life than conventional chargers.  We have aggregated these subsidiaries into three reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.
 
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The accounting policies for the segments are the same as those described in the summary of significant accounting policies in Note 2 of this Form 10-K. Management is currently assessing how it evaluates segment performance, and currently utilize income (loss) from operations, excluding share-based compensation (benefits), depreciation and intangibles amortization and income taxes. There were no inter-segment sales during the year ended December 31, 2008.
 
Summarized financial information concerning our reportable segments for the year ended December 31, 2007 and 2008 are as follows:
                         
Year Ended
 
ECOtality/
         
eTec/
       
December 31, 2007
 
Fuel Cell Store
   
Innergy
   
Minit-Charger
   
Total
 
Total net operating revenues
  $ 769,986     $ 716,406     $ 1,102,266     $ 2,588,658  
Depreciation and amortization
    134,756       6,259       56,170       197,185  
Operating income (loss)
    (8,809,018 )     (2,461,500 )     (1,124,362 )     (12,394,880 )
Interest expense
    (284,754 )           (358 )     (285,112 )
Interest income
    56,288       1,223       14       57,525  
Registration rights penalty expense
    (1,069,497 )                 (1,069,497 )
Income (loss) before income tax
    (10,106,981 )     (2,460,277 )     (1,124,706 )     (13,691,964 )
Income tax provision (benefit)
                       
Total assets
    6,144,355       694,921       4,814,749       11,654,025  
 
YEAR ENDED DECEMBER 31, 2008
 
   
   
ETEC
   
INNERGY
   
FUEL CELL STORE
   
TOTAL
 
Total net operating revenues
  $ 8,072,664     $ 2,324,170     $ 790,549     $ 11,187,383  
Depreciation and amortization
  $ 470,929     $ 6,229     $ 3,560     $ 480,718  
Operating income (loss)
  $ (528,193 )   $ (40,368 )   $ 49,859     $ (518,702 )
Interest Income
  $ 9,632     $ 519     $ -     $ 10,151  
Gain / (Loss) on disposal of assets
  $ (95 )   $ -     $ -     $ (95 )
Other Income - Working Capital True Up
  $ 364,645     $ -     $ -     $ 364,645  
Segment Income before Corporate Overhead Allocation
  $ (154,011 )   $ (39,849 )   $ 49,859     $ (144,001 )
Corporate Overhead Allocation
  $ 5,721,432     $ 1,534,970     $ 531,566     $ 7,787,968  
Segment Income / (Loss)
  $ (5,875,443 )   $ (1,574,819 )   $ (481,707 )   $ (7,931,969 )
                                 
Not Included in segment income:
                               
Depreciation on Corporate Assets
                          $ 135,241  
Reported Net income after tax
                                 $ (8,067,210 )
Capital Expenditures
  $ 251,260     $ 12,025     $ -     $ 263,285  
                                 
Total segment assets - excluding intercompany receivables
  $ 3,637,112     $ 512,532     $ 158,599     $ 4,308,243  
Other items Not included in Segment Assets:
                               
Goodwill
  $ -     $ -     $ -     $ 3,495,878  
Other Corporate Assets
  $ -     $ -     $ -     $ 1,022,336  
Total Reported Assets
                          $ 8,826,457  

Results of Operations
 
YEAR ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007
 
CONSOLIDATED RESULTS
 
It is difficult to compare the year ended December 31, 2008 results for the same period in 2007 as we have transformed ourselves from being a development stage company to a growth oriented renewable energy company. Thus, the variations reflected in our results of operations described below are based upon this transformation and the impact of the global economic slowdown.

In the year ended December 31, 2008, we had revenues of $11,187,384 compared to the year ended December 31, 2007 of $2,588,658. The 2007 revenue is attributable to Fuel Cell Store and approximately one to two months of sales for our three subsequent acquisitions (eTec/Minit Charger and Innergy) made during the fourth quarter of 2007. The cost of goods sold percentage for the year ending December 31, 2008 was 63% leaving us with a gross profit of $4,078,839, as compared to 54% and $1,187,730 for the same period in 2007. The increase in revenues in 2008 as compared to 2007 is consistent with our efforts in 2007 to move from being a development stage company to a revenue-generating renewable energy company.
 
Operating Expense
 
Total operating expenses during the year ended December 31, 2008 were $7,900,473 compared to $13,582,610 for the year ended December 31, 2007.  General and administrative expenses were $6,991,804 or 88% of total operating expenses for the year ended December 31, 2008 compared with $6,121,914 or 45% for the year ended December 31, 2007. The increases in general and operating expenses are described below:
 
Professional fees were $417,767 for the year ended December 31, 2008 compared with $1,446,239 for year ended December 31, 2007.  This decrease is driven by increased efficiencies and our consolidation of business activities following the heightened activity at the end of the 2007 acquisition period. New media, marketing, advertising and investor and public relations expenses were $253,301 for the year ended December 31, 2008 compared with $792,464 for the year ended December 31, 2007 with the reduction primarily attributable to the gradual decrease in spending in 2008 around investor relations related to our acquisitions.  Legal fees were $448,943 for the year ended December 31, 2008 compared with $517,450 for the year ended December 31, 2007 and accounting fees were $155,981 for the year ended December 31, 2008 compared with $379,535 for the year ended December 31, 2006.  Both legal and accounting fee reductions are a direct result of reduced regulatory and audit work in support of the business post-acquisition, following our successful integration of our new businesses.  Executive compensation (not including subsidiary executives) was $659,300 for the year ended December 31, 2008 compared with $966,831 for the year ended December 31, 2007.  The higher figure in 2007 is attributable to a bonus and stock award to our chief executive officer.
 
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Depreciation expense was $615,960 for the year ended December 31, 2008 compared to $197,185 for the year ended December 31, 2007.  The increase is based on new depreciation for the assets acquired as part of the acquisitions.  All other general and administrative spending totaled $6,991,804 for the year ended December 31, 2008 compared to $6,121,914 for the year ended December 31, 2007.  The increase is attributable to our acquisitions which represent $3,973,056 of 2008 expenses, as compared to a total of $1,683,692 for a comparable period in 2007.
 
Expenses for research and development totaled $292,709 for the year ended December 31, 2008 compared to $1,362,098 for year ended December 31, 2007.  This reduction reflects our focused strategy on applications with short-term commercialization potential supported through joint projects and grants to help defray costs. Since one of our primary objectives continues to be the commercial advancement of clean electric technologies that reduce our dependence upon carbon based fuels, we have retained a strong focus on research and development activities, and expect to continue to incur additional research and development costs, although at a significantly reduced rate, for the foreseeable future

The settlement expense of $1,800,000 incurred in year ended December 31, 2007 is related to the settlement with Howard Foote and Elliott Winfield in resolution of all known disputes and uncertainties between them and us related to all agreements and contract entered into concerning the fuel cell intellectual property and technology. We have included this expense as part of our operating costs due to the nature of our business regarding intellectual property.

The impairment expense of $4,101,413 for year ended December 31, 2007 reflects our write-downs of goodwill related to acquisitions made in 2007 attributable to the businesses as follows:  Innergy $2,494,565, MinitCharger $1,280,066 and Ecotality Stores $326,782.   The impairment expense was booked in accordance with SFAS No. 144 as there was a lack of proven future cash flows to support the goodwill initially estimated at the time of purchase.  Since that time, the accretive nature of these acquisitions and the synergistic opportunities they present have afforded us many opportunities and solidified our leadership position in the electric vehicle charging and infrastructure market.
 
Our operating loss compared favorably with prior year for a loss of $3,821,634 for the year ended December 31, 2008 compared with a loss of $12,394,880 for the year ended December 31, 2007, reflecting an improvement year over year of $8,573,246.  Excluding the one-time settlement and impairment expenses totaling $5,901,413 operating loss for the year ended December 31, 2008 was favorable $2,671,833.
 
For the year ended December 31, 2008, we earned interest income in the amount of $17,184 compared with $57,525 for the year ended December 31, 2007.
 
Interest expense was $4,620,364 for the year ended December 31, 2008 compared to $285,112 for the year ended December 31, 2007.  The higher amount for 2008 was driven by the standard interest and the additional fees related to our waiver on the convertible debentures we issued in November and December of 2007.  Loss on disposal of assets was $7,043 for the year ended December 31, 2008 compared to $0 for the period ended December 31, 2008.  Other income was $364,646 for the year ended December 31, 2008 compared to $0 for prior year. The 2008 figure is attributable to the Net Working Capital True up associated with our Minit-Charger acquisition.

Other expense was $0 for the year ended December 31, 2008 compared to $1,069,497 for the year ended December 31, 2007.  The 2007 figure is fully attributable to a reserve we established to cover penalties in conjunction with registering our common shares of stock with the SEC.  The amount we reserved was based upon the number of shares that were issued.
 
Our net loss after other income and expenses compared favorably for year ended December 31, 2008 for a loss of  $8,067,211 compared with a $13,691,964 loss for year ended December 31, 2007.
 
Liquidity and Capital Resources
 
We have reached the point that we are unable to finance our operations and meet our debt obligations without an infusion of capital.  This may preclude our ability continue operations as indicated in Note #2 Going Concern.
 
As of December 31, 2008, we had $327,332 of cash on hand and held certificates of deposit in the amount of $28,044 compared to year end 2007 balances of $677,318 of cash on hand and $1,197,784 in certificates of deposit.
 
We utilized cash for operating activities in 2008 in the amount of $1,704,742 compared to $3,390,042 for 2007.   In addition, cash used in investing activities was $228,177 for the year ended December 31, 2008 compared to $7,165,977 for 2007.  The variance of $6,957,050 was driven by lower investment in fixed assets (down $143,322), and proceeds from sales of fixed assets in 2008 of $35,108.  Year ended December 31, 2007 also included investment in subsidiaries of $6,759,371.
 
Cash generated by financing activities was $1,622,938 in 2008 compared to $6,185,369 in 2007. The cash generated in 2008 is related to our Line of Credit with Mr. Karner and Ms. Forbes, our 2007 cash was attributable to the mortgage of our corporate headquarters. Of note is that for the year ended December 31, 2008, net cash used was $349,986 compared to $4,370,650 for the year ended December 31, 2007. This significant improvement is indicative of our transition to being a revenue generating company as well as instituting overall cost controls at corporate headquarters and at our subsidiaries.
 
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Our current financing activities are described below:

Focused cost controls and operational efficiencies implemented in the first half of 2008 supported our ability during that period to generate funds internally to meet our operating cash requirements.

Given our competitive edge in the fast charger market, as well as having efficient plant operating capacity in Mexico, we believed our strengths in the alternative energy field would allow us to achieve our planned objectives, and to generate adequate levels of working capital again in the second half of the year period ending December 31, 2008. These assumptions, however, did not adequately capture the magnitude nor the speed of the economic down turn and its subsequent impact in even the alternative energy field. These external forces restricting growth and access to capital simultaneously resulted in our financing options being very limited and expensive.

To bridge this period required the establishment of a line of credit and relief from debt service requirements as we continued to pursue our objectives of raising working capital through equity or other sources. Following a period of negotiation with our debenture holders, we reached agreement to waive payment of principal and interest for the period May through December 31, 2008 to provide us the time needed to begin funding our requirements internally through planned organic growth and to seek other equity financing options. The consideration for this waiver/deferment was material to our fiscal operations but necessary to seeking our growth objectives. We further negotiated a line of Credit with one of our Directors for advances up to $650,000 to provide additional strength to our cash position in the short term.

These successful cash management efforts in the year ended December 31, 2008, while adequate for that period require additional measures, most notably a successful capital raise and organic growth of our operations to allow us to meet our obligations going forward.
 
Management’s Plan of Operation

 Our overall plan of operation calls for sustained organic growth. We believed that the acquisitions we completed during 2007 would provide us with a base to support this objective and this growth was reflected in our budget and business plans for 2008. However, growth consistent with our plans did not occur in the third and fourth quarters of 2008. Sales, consulting services and manufacturing levels remained at lower levels..

We have continued to leverage current invested capital through focused cash management, lean corporate staffing, tight inventory controls and cost-effective operating procedures throughout our organization. This leveraged growth strategy supports our business model in developing commercial applications for the growing clean electric transportation business sector. However we have leveraged our business upon future growth and an ability to sustain our operations dependent upon:
 
 
(1)
continued tight management of overall operations while improving margin

 
(2)
obtaining additional working capital including a bridge loan until additional capital is secured to sustain our growth objectives

 
(3)
public and private support of alternative energy such that there is a requirement to build the electric vehicle/past changing infrastructure throughout the United States

 
(4)
economic improvement in the US both from a liquidity standpoint and willingness of the market to invest in alternative energy infrastructure

Working Capital

Net working capital is an important measure of our ability to finance our operations.  Our net working capital at December 31, 2008 was negative by $5,918,712 or a ratio of 0.38 to 1.    This ratio is significantly impacted by the reserve we have established to cover the maximum possible liability associated with the issuance of common stock price guarantees due in 2009 per certain of our acquisition agreements. It should be noted that we have the ability to meet this obligation through the issuance of cash or equity at our discretion.

We do not have any off-balance sheet arrangements.

We do not anticipate the need to add significant numbers of full- or part- time employees over the next 12 months.  We continue to outsource the research and development and other activities where it is cost effective to do so.

Commitments and Long Term Liabilities
 
On June 12, 2006, the Company entered into a License Agreement with California Institute of Technology, whereby the Company obtained certain exclusive and non-exclusive intellectual property licenses pertaining to the development of an electronic fuel cell technology, in exchange for 5,869,565 shares of common stock of the Company with a fair market value of $8,217,391.  The License Agreement carries an annual maintenance fee of $50,000, with the first payment due on or about June 12, 2009.  The License Agreement carries a perpetual term, subject to default, infringement, expiration, revocation or unenforceability of the License Agreement and the licenses granted thereby.
 
38

 
On January 19, 2007 we purchased a small (1,750 square feet) stand alone office building at a cost of $575,615.  A total of $287,959 has been paid and a tax credit has been recorded in the amount of $156.  The remaining balance of $287,500 is structured as an interest-only loan from a non affiliated third-party, bears an interest rate of 6.75% calculated annually, with monthly payments in the amount of $1,617 due beginning on February 16, 2007. The entire principal balance is due on or before January 16, 2012.
 
As of December 31, 2008, the Company has four leases in effect for operating space. Future obligations under these commitments are $209,186 for 2009, $203,413 for 2010, and $95,978 for 2011, $98,060 for 2012 and $41,225 for 2013.
 
Critical Accounting Policy and Estimates
 
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, recoverability of intangible assets, and contingencies and litigation.  We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily the valuation of intangible assets.  The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.
 
Loss per share
 
Net loss per share is provided in accordance with Statement of Financial Accounting Standards No. 128 (SFAS #128), “Earnings Per Share”. We present basic loss per share (“EPS”) and diluted EPS on the face of statements of operations.  Basic EPS is computed by dividing reported losses by the weighted average shares outstanding.   Except where the result would be anti-dilutive to income from continuing operations, diluted earnings per share has been computed assuming the conversion of the convertible long-term debt and the elimination of the related interest expense, and the exercise of stock warrants. For the year ended December 31, 2008, the assumed conversion of convertible long-term debt and the exercise of stock warrants are anti-dilutive due to our net loss and were excluded in determining diluted loss per share.
 
Reporting on the costs of start-up activities
 
Statement of Position 98-5 (SOP 98-5), “Reporting on the Costs of Start-Up Activities,” which provides guidance on the financial reporting of start-up costs and organizational costs, requires most costs of start-up activities and organizational costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The adoption of SOP 98-5 has had little or no effect on our financial statements.
 
Fair value of financial instruments
 
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of December 31, 2008 and 2007.  The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values.  Fair value was assumed to approximate carrying value for cash because it is short term in nature and its carrying amount approximates fair value.
 
Income Taxes
 
We follow Statement of Financial Accounting Standard No. 109 (SFAS #109), “Accounting for Income Taxes,” for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
 
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
 
39

 
Segment reporting
 
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by a company’s chief operating decision maker in deciding the allocation of resources and assessing performance.  We are the parent company of Innergy Power Corporation, Fuel Cell Store and Electric Transportation Engineering Corporation. Innergy Power is a leader in the design and manufacture of thin sealed rechargeable lead batteries and high quality flat-panel multi-crystalline solar modules.  Fuel Cell Store is the leading online marketplace for fuel cell-related products and technologies with online distribution sites in the U.S., Japan, Russia, Italy and Portugal.  eTec is a leader in the research, development and testing of advanced transportation and energy systems with a focus on alternative-fuel, hybrid and electric vehicles and infrastructures.  eTec also holds exclusive patent rights to the  eTec SuperCharge™   and  Minit-Charger  systems - battery fast charge systems that allow for faster charging with less heat generation and longer battery life than conventional chargers.  We have aggregated these subsidiaries into three reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.
 
Dividends
 
We have not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
 
Recent Pronouncements
 
In December 2004, the FASB issued Financial Accounting Standards No. 123 (revised 2004) (“FAS 123R”), Share-Based Payments, FAS 123R replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. FAS 123R requires compensation expense, measured as the fair value at the grant date, related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. FAS 123R is effective January 1, 2006. The company has adopted this accounting standard for the year ended December 31, 2008 and 2007.  The implementation of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
 
In November 2004, FASB issued Financial Accounting Standards No. 151, Inventory Costing, an amendment amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts such as wasted material. This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “abnormal.” The implementation of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows for the years ended December 31, 2008 and 2007
 
In September of 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value under generally accepted accounting procedures and expands disclosures on fair value measurements. This statement applies under previously established valuation pronouncements and does not require the changing of any fair value measurements, though it may cause some valuation procedures to change. Under SFAS No. 157, fair value is established by the price that would be received to sell the item or the amount to be paid to transfer the liability of the asset as opposed to the price to be paid for the asset or received to transfer the liability. Further, it defines fair value as a market specific valuation as opposed to an entity specific valuation, though the statement does recognize that there may be instances when the low amount of market activity for a particular item or liability may challenge an entity’s ability to establish a market amount. In the instances that the item is restricted, this pronouncement states that the owner of the asset or liability should take into consideration what affects the restriction would have if viewed from the perspective of the buyer or assumer of the liability. This statement is effective for all assets valued in financial statements for fiscal years beginning after November 15, 2007.  Although SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA pronouncements, it does not, of itself, require any new fair value measurements, nor does it establish valuation standards.  SFAS No. 157 applies to all other accounting pronouncements requiring or permitting fair value measurements, except for: SFAS No. 123(R), share-based payment and related pronouncements, the practicability exceptions to fair value determinations allowed by various other authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue recognition. The Company is currently evaluating the impact of SFAS No. 157 to its financial position and result of operations.
 
In July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertain Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes”. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken, in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.  The implementation of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows for the years ended December 31, 2008.
 
40

 
In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007) on Business Combinations. This guidance retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. It replaces Statement 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. For example, Statement 141 required the acquirer to include the costs incurred to effect the acquisition (acquisition- related costs) in the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed. This guidance requires those costs to be recognized separately from the acquisition. In addition, in accordance with Statement 141, restructuring costs that the acquirer expected but was not obligated to incur were recognized as if they were a liability assumed at the acquisition date. This guidance requires the acquirer to recognize those costs separately from the business combination. The Company has followed the above guidance in accounting for all acquisitions that happened in 2007.
 
 
The following documents (pages F-1 to F-8) form part of the report on the Financial Statements
 
 
41


TABLE OF CONTENTS
 
 
PAGE
Independent Registered Public Accounting Firm Report
F-1
   
F-2
   
F-3
   
F-4
   
F-5
   
F-6
 
42

 
 
WEAVER & MARTIN
Certified Public Accountants & Consultants
411 Valentine, Suite 300
Kansas City, Missouri 64111
Phone: (816) 756-5525
Fax: (816) 756-2252
 
To the Board of Directors and Stockholders
Ecotality, Inc. and Subsidiaries
Scottsdale, Arizona

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Ecotality, Inc. and subsidiaries as of December 31, 2008 and 2007 and the related statements of income, stockholders’ equity, and cash flows for the years then ended.  Ecotality’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecotality, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of its operations, stockholders’ equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Weaver & Martin, LLC
Kansas City, Missouri
April 15, 2009
 
F-1

 
ECOtality, Inc.
Consolidated Balance Sheets
 
   
December 31, 2008
   
December 31, 2007
 
Assets
           
             
Current assets:
           
Cash
  $ 327,332     $ 677,318  
Certificates of deposit
    28,044       1,197,784  
Receivables, net of allowance for bad debt of  $69,176 and $21,743 as of 12/31/08 and 12/31/07 respectively
    1,963,073       2,387,542  
Inventory, net of allowance for obsolescence of $167,487 and $293,934 as of 12/31/08 and 12/31/07 respectively
    1,149,881       1,791,174  
Prepaid expenses and other current assets
    229,931       477,186  
Total current assets
    3,698,263       6,531,004  
                 
Fixed assets, net accumulated depreciation of $4,283,866 and  $3,884,303 as of 12/31/08 and 12/31/07 respectively
    1,632,315       2,027,142  
                 
Goodwill
    3,495,878       3,095,878  
                 
Total assets
  $ 8,826,457     $ 11,654,025  
                 
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
  $ 1,510,277     $ 1,317,916  
Accrued liabilities
    848,789       610,615  
Accrued Interest
    1,281,115       60,131  
Liability for purchase price
    2,115,253       4,075,000  
Note Payable - related party
    450,000       -  
Current portion of LT Debt, net of discount of $1,530,101 and 1,174,075 as of 12/31/08 and 12/31/07 respectively
    3,411,540       1,147,241  
Total current liabilities
    9,616,975       7,210,903  
                 
Total LT Liabilities, net of discount of $548,735 and $2,494,910 as of 12/31/08 and 12/31/07 respectively
    1,971,849       1,808,314  
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 200,000,000 shares
               
authorized, no shares issued and outstanding
    -       -  
Common stock, $0.001 par value, 300,000,000 shares
               
authorized, 129,422,861 and 124,224,528 shares issued
               
and outstanding as of 12/31/08 and 12/31/07, respectively
    129,423       124,225  
Common stock owed but not issued 75,000 shares at 12/31/08
    75       -  
Additional paid-in capital
    33,485,763       30,780,992  
Retained deficit
    (36,337,624 )     (28,270,409 )
Accumulated Foreign Currency Translation Adjustments
    (40,006 )     -  
Total stockholders' equity
    (2,762,368 )     2,634,808  
                 
Total liabilities and stockholders' equity
  $ 8,826,457     $ 11,654,025  

The accompanying notes are an integral part of these financial statements
 
F-2

 
Consolidated Statement of Operations
 
   
For the Years Ended
December 31,
 
   
2008
   
2007
 
Revenue
  $ 11,187,384     $ 2,588,658  
Cost of goods sold
    7,108,545       1,400,928  
                 
Gross profit
    4,078,839       1,187,730  
                 
Expenses:
               
Depreciation
    615,960       197,185  
General and administrative expenses
    6,991,804       6,121,914  
Research and development
    292,709       1,362,098  
Settlement Expense
    -       1,800,000  
Impairment Expense
    -       4,101,413  
Total expenses
    7,900,473       13,582,610  
                 
Operating loss
    (3,821,634 )     (12,394,880 )
                 
Other income:
               
Interest income
    17,184       57,525  
Other Income
    364,646       -  
Total other income
    381,830       57,525  
                 
Other expenses:
               
Interest expense
    4,620,364       285,112  
Loss on Disposal of Assets
    7,043       -  
Registration rights penalty expense
    -       1,069,497  
Total other expenses
    4,627,407       1,354,609  
                 
Loss from operations before income taxes
    (8,067,211 )     (13,691,964 )
                 
Provision for income taxes
    -       -  
                 
Net (loss)
  $ (8,067,211 )   $ (13,691,964 )
                 
Weighted average number of
               
common shares outstanding - basic and fully diluted
    125,673,412       110,972,340  
                 
Net (loss) per share-basic and fully diluted
  $ (0.06 )   $ (0.12 )

The accompanying notes are an integral part of these financial statements
 
F-3

 
ECOtality, Inc.
 
Consolidated Statement of Stockholders’ Equity

               
Common
         
Unamortized
          Accum        
               
Stock
          Stock          
Foreign
       
               
Owed
   
Additional
   
Issued
          Currency    
Total
 
   
Common Stock
   
but not
   
Paid-in
    for    
Retained
   
Trans
   
Stockholders’
 
   
Shares
   
Amount
   
issued
   
Capital
   
Services
   
Earnings
   
Adj
   
Equity
 
Balance, December 31, 2006
    112,999,906     $ 113,000     $ 0     $ 21,788,399     $ 0     $ (14,578,445 )   $ 0     $ 7,322,954  
                                                                 
Cancelled shares: Foote & Winfield
    (6,000,000 )   $ (6,000 )           $ 6,000                             $ 0  
                                                                 
Shares issued for settlement of escrow
                          $ 1,200,000                             $ 1,200,000  
                                                                 
Shares issued for professional services
    790,000     $ 790             $ 399,610                             $ 400,400  
                                                                 
Shares issued for compensation
    750,000     $ 750             $ 315,250     $ (225,000 )                   $ 91,000  
                                                                 
Shares issued for warrants
    434,632     $ 435             $ (435 )                           $ 0  
                                                                 
Shares issued for acquisitions
    11,800,000     $ 11,800             $ 2,922,200                             $ 2,934,000  
                                                                 
Penalty shares issued
    3,449,991     $ 3,450             $ 1,066,047                             $ 1,069,497  
                                                                 
Option issued to purchase Ecotality shares
                          $ 460,377     $ (281,300 )                   $ 179,077  
                                                                 
Convertible debentures issued
                          $ 2,993,901                             $ 2,993,901  
                                                                 
Amortization of stock issued for services
                                    135,943                     $ 135,943  
                                                                 
Accumulated Foreign Currency Translation Adj
                                                  $ 0     $ 0  
Net (loss)
                                                               
For the year ended December 31, 2007
                                                    $ (13,691,964 )   $ 0     $ (13,691,964 )
Balance, December 31, 2007
    124,224,528     $ 124,225               $ 31,151,349     $ (370,357 )   $ (28,270,409 )   $ 0     $ 2,634,808  
                                                                 
Shares issued for professional services
    565,000     $ 565             $ 81,160                             $ 81,725  
                                                                 
Shares issued for Conversion of Debt
    333,333     $ 333             $ 99,667                             $ 100,000  
                                                                 
Option issued to purchase Ecotality Shares
                          $ 55,168                             $ 55,168  
                                                                 
Option issued for compensation
    300,000     $ 300     $ 75     $ 24,625                             $ 25,000  
                                                                 
Options Revalued per Purchase Agreements
                          $ 2,195,000                             $ 2,195,000  
                                                                 
Amortization of stock issued for services
                                  $ 253,151                     $ 253,151  
                                                                 
                                                                 
Shares issued for 2007 acquisitions
  &