**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-KSB**

 

**x**** Annual Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**For theFiscal Year Ended December 31, 2007**

 

**o**** Transition Report Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

**For theTransition Period from                    to**

 

**CommissionFile 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’stelephone number: **(480) 219-5005**

 

SecuritiesRegistered Pursuant to Section 12(b) of the Act:

 
| **Title of  each class** | ** ** | **Name of each exchange on which registered** |
|--------------------------|------------|-----------------------------------------------------------------------------|
| None                     |       | None                                                                        |

 

SecuritiesRegistered 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) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. xYes o No

 

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-K isnot contained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB. x

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). o  Yes   x  No

 

The issuer’s revenue forits most recent fiscal year was $2,588,658.

 

The Company’s commonstock is listed on the Over-the-Counter Bulletin Board under the stock tickersymbol “ETLY.”  The aggregate market value of the voting and non-votingcommon equity held by non-affiliates based upon a price per share of $0.21,which was the closing price on March 27, 2008, is $15,796,543

 

The number of sharesoutstanding of each of the issuer’s classes of common equity, as of March 27,2008 was 124,732,861.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

None.

 

Transitional SmallBusiness Disclosure Format (Check one): Yes oNo x

 

 

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| PART I                                                                                                                |   | 3      |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|
| DESCRIPTION OF BUSINESS                                                                                                    |   | 3      |
| DESCRIPTION  OF PROPERTY                                                                                                   |   | 21     |
| LEGAL PROCEEDINGS                                                                                                          |   | 21     |
| SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                        |   | 21     |
| PART II                                                                                                               |   | 22     |
| MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED  STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK            |   | 22     |
| FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                |   | 35     |
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                                                                              |   | F-20   |
| CONTROLS  AND PROCEDURES                                                                                                   |   | F-20   |
| OTHER INFORMATION                                                                                                          |   | F-20   |
| PART III                                                                                                              |   |   |
| DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL  PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |   | F-21   |
| EXECUTIVE  COMPENSATION                                                                                                    |   | F-24   |
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT                                                            |   | F-26   |
| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                             |   | F-27   |
| EXHIBITS                                                                                                                   |   | F-28   |
| PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                     |   | F-29   |
| SIGNATURES                                                                                                                 |   | F-30   |

 

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**FORWARDLOOKING STATEMENTS**

 

This Annual Reportcontains forward-looking statements about our business, financial condition andprospects that reflect our management’s assumptions and beliefs based oninformation currently available.  We can give no assurance that theexpectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risksand uncertainties underlying such expectations should materialize, our actualresults may differ materially from those indicated by the forward-lookingstatements.

 

The key factors that arenot within our control and that may have a direct bearing on operating resultsinclude, but are not limited to, acceptance of our services, our ability toexpand its customer base, managements’ ability to raise capital in the future,the retention of key employees and changes in the regulation of our industry.

 

There may be other risksand circumstances that management may be unable to predict.  When used inthis Report, words such as, *“believes,”**“expects,” “intends,”**“plans,”**“anticipates,”**“estimates”* and similarexpressions are intended to identify and qualify forward-looking statements,although there may be certain forward-looking statements not accompanied bysuch expressions.

 

**PART I**

 

**Descriptionof Business**

 

ECOtality, Inc.is a Nevada corporation that was incorporated in 1999.  We are a renewable energy company thatdevelops, acquires and operates companies in the clean technology sector thatprovide commercial solutions for today’s global energy challenges. Throughstrategic acquisitions, partnerships and technology innovations, we strive toadvance the market applicability of clean electric technologies to becomeaccepted alternatives to carbon-based fuel technologies. In 2007, through anumber of platform acquisitions we transitioned from a development-stagecompany into a revenue producing company focused on providing renewable energyproducts and solutions.

 

Weoperate with a commercial “electro-centric” strategy, targeting only productsand companies that are involved in the creation, storage, and/or delivery ofclean or renewable electric power. This strategy has resulted in thedevelopment and acquisition of various operating companies and theestablishment of solar, hydrogen, and energy storage divisions. We aredeveloping a diverse technology product base that is linked through the abilityto deliver comprehensive electro-centric energy alternatives and solutions forcommercial customers seeking to implement greenhouse gas reduction programs(GRPs) and to prepare for the anticipated consumer and governmental moves tocarbon caps and taxes. We also believe that by building a technologicallydiverse multi-product base we can mitigate the uncertainty of renewable energydemand and regulatory changes.  With ourprimary focus on commercially advancing clean electro-centric technologies, weare focused on improving the world’s prevailing and most dominant energy system- electricity.

 

Ourgross sales grew from $0 in 2006 to $2,588,658 in 2007. The trailing twelvemonth performance of the companies acquired in 2007, coupled with the strongand quickly growing demand for clean and renewable energy technologies andproducts positions us to greatly expand our sales and market share in 2008. Asmost of our acquisitions occurred between October and December of2007, our revenue amounts reflect only the portion of sales while under ourcontrol.

 

The current operations ofthe Company consist of:

 

***HydralityTM***

 

HydralityTMis our initialtechnology and is a complex reactor system that stores and delivershydrogen on-demand using magnesium compounds and water. When used inconjunction with existing fuel cell technology, Hydrality emits only pure waterand produces no harmful emissions. An electric power cell or fuel cell is anelectrochemical device that combines hydrogen and oxygen to produce electricpower without combustion.

 

The EPC/Hydralitytechnology, which was initially developed in conjunction with NASA’s JetPropulsion Laboratory (JPL) and subsequently advanced by Arizona StateUniversity, 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 Hydralitysystem for use in motorized vehicles and industrial equipment, we have identified several additional andpromising applications for Hydrality that include stationary applications forremote power, back-up power systems, and large scale industrial and utilityuse.

 

We expect to deriverevenue from technology license fees, technology transfer fees, fuel licensingfees and fees for the design, installation and technical support of Hydralitysystems and by third parties.

 

***InnergyPower Systems***

 

Founded in 1989, InnergyPower Systems is a division of ECOtality, Inc. and is based in San Diego,California with a manufacturing facility in Tijuana, Mexico. Innergy is theonly North American manufacturer of both renewable energy solar modules andthin-sealed rechargeable batteries, as its solar photovoltaic (PV) product lineaddresses the burgeoning worldwide demand for 

 

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solar energy products andoff-grid power. Innergy’s fiberglass reinforced panel (FRP) solar modules aredesigned to meet a broad range of applications for emergency preparedness andrecreation, where quality, durability, rugged construction and light weight areimportant in the outdoor environment. Applications include logistics tracking,asset management systems, off-grid lighting, mobile communications, mobilecomputing, recreational vehicles, signaling devices and surveillance cameras.

 

Innergy and our whollyowned subsidiary, Portable Energy De Mexico, S.A. DE C.V., were acquired asplatform acquisitions that provide us the ability to further expand ourproduction and manufacturing of solar products and energy storage devices. Weviewed this acquisition as the starting point of a major move to provide solarproducts and solutions for current and developing commercial markets. We expectthat solar will become one of our four core technology groups and willcontribute to our long and short-term earnings and revenue growth. Innergy isactively pursuing growth opportunities through product line expansion, jointventures, acquisitions, and manufacturing contracts.

 

***ElectricTransportation Engineering Corporation (eTec)***

 

Electric TransportationEngineering Corporation (eTec) was incorporated in Arizona in 1996 to supportthe development and installation of battery charging infrastructures forelectric vehicles, and conducts research, development and testing of advancedtransportation and energy systems. Specializing in alternative-fuel, hybrid andelectric vehicles and infrastructures, eTec offers consulting, technicalsupport and field services and is committed to developing and commerciallyadvancing clean electric technologies with clear market advantages.  eTec also holds exclusive patent rights fortheir flagship products, the*eTecSuperChargeTM* – battery fast-charge systems that allow for rapidcharging while generating less heat and promoting longer battery life thanconventional chargers.  This technologywas licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge systemis specifically designed for airport ground support equipment, neighborhoodelectric vehicle operations, and marine and transit systems. Since theacquisition of the technology, eTec has made considerable engineering andproduct advancements and is currently a leader in providing this clean electricfast charging technology to airports throughout North America.

 

eTec has a comparativelylong history in clean and renewable technologies and has various standingcontractual relationships as a test contractor and/or primary and consultingengineer for projects with the Department of Energy, several national researchlaboratories, national energy storage consortiums, and large electric utilitieswhere they provide services in energy storage, monitoring, systems design andfabrication, product and vehicle testing, and product development. Their workhas been in the areas of advanced battery technologies, fast chargingtechnologies, hydrogen creation, storage and dispensing systems, electricvehicle systems, recharging stations, and coal gasification programs.

 

eTec was acquired as anexpansion platform for its core expertise in battery technologies, fastcharging systems, energy distribution infrastructure, and advanced vehicletechnologies and testing, which includes electric vehicle (EV), hybrid electricvehicle (HEV), plug-in hybrid electric vehicle (PHEV) and hydrogen vehicletechnologies. We believe that eTec and its subsidiaries will expand its coretechnologies through new product development, joint ventures, acquisitions andorganic growth.

 

***EdisonMinitCharger***

 

Edison MinitCharger was asubsidiary of Edison Source, a division of Edison International (the SouthernCalifornia energy conglomerate). Edison originally acquired Norvic TractionTechnology, which became Edison MinitCharger, for its unique fast charge andcomplex battery maintenance technologies that are primarily used in mobilematerial handling applications (forklifts, pallet jacks, etc.). EdisonMinitCharger has been, and continues to be, one of the leaders in the mobilematerial handling industry. The core MinitCharger technology allows formaterial handling equipment to convert to electric power systems that can becharged quickly, conveniently and efficiently, thereby eliminating the need forpropane or diesel-powered equipment or for backup batteries and costlychange-out operations required with traditional straight-line charging.Following the initial acquisition of Norvic, Edison engineers completed manyadvancements of the technology and received numerous patents all of which weretransferred to eTec in our acquisition. MinitCharger has a large customer basethat consists of Fortune 500 companies and other corporate entities throughoutNorth America.

 

Our acquisition of EdisonMinitCharger greatly increased the size of our company and reunited thetechnologies and advancements that sprung from the original Norvic Tractiontechnology: Edison’s MinitCharger and eTec’s SuperCharge products. It allowsthe unification of the underlying fast charging technology under a singleengineering, manufacturing and sales entity and puts us in a leadershipposition in the rapidly growing clean technology sector of electric vehicleinfrastructure technologies.

 

***ECOtalityStores (dba Fuel Cell Store)***

 

ECOtality Stores (dbaFuel Cell Store) is our wholly owned subsidiary and operates as our onlineretail division. Fuel Cell Store (www.fuelcellstore.com) is an e-commercemarketplace that offers consumers the widest array of fuel cell products fromaround the globe. Based in San Diego, California and with active internationaloperations in Japan, Russia, Italy, and Portugal, Fuel Cell Store develops,manufacturers, and sells a diverse and comprehensive range of fuel cellproducts that includes fuel cell stacks, systems, component parts andeducational materials. In addition to primary retail operations, Fuel CellStore also offers consulting services for high schools, colleges, and leadingresearch institutes and is available to host workshops, conferences and corporateevents. Fuel Cell Store is the leading market place for fuel cell stack,component, and hydrogen storage manufacturers to unite with consumers and is anattractive source for hydrogen and fuel cell industry activity and direction.

 

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**Products**

 

We currently offer thefollowing products:

 

·                  Hydrality technology

·                  Energy engineering services (hydrogen,solar, battery, coal gasification, energy delivery infrastructure, etc...)

·                  eTec SuperCharge fast charge systems

·                  Minit-Charger fast charge systems

·                  Industrial battery systems

·                  Solar panel production

·                  Specialty solar solutions

·                  Specialty thin-sealed lead batteryproducts

·                  Proprietary solar products for consumer,emergency response programs and remote power systems.

·                  Third-party hydrogen and educationrelated products

 

**Customers**

 

We have a strong base ofcommercial, industrial, institutional, governmental, and utility customers. Asthe move to renewable clean energy continues to advance, we believe that ourpositioning within the commercial sector gives us an advantage over companieswho focus on consumer products or distribution. Our customer base includes manyFortune 500 companies, hundreds of colleges and universities, internationalresearch institutes, major electric utilities, the Department of Energy, theDepartment of Transportation, major industry research consortiums, vehiclemanufacturers and original equipment manufacturers (OEM). By providing testingand engineering services, as well as being a product provider, we are on thecutting edge of technology and product development for the production, storageand delivery of renewable energy sources, which allows us to develop innovativeproduct solutions for industry and government needs.  Our customers use our products in industrialapplications and for OEM applications.

 

We believe thatcommercial/industrial entities will be the early adopters of renewable energytechnologies and products, precipitated by regulatory, financial, employee, andcustomer pressure. We also believe this sector will provide the most stabledemand and will be less prone to overall economy or “fad” pressures. For theimmediate future, we plan to focus our efforts and products on this high valueadded business sector.

 

**Manufacturing**

 

We have manufacturingfacilities in Mexico operated under a Maquiladora program for the production ofsolar and battery products. The facility is highly labor-intensive. We have ahigh-value assembly operation in Phoenix, Arizona. Additionally, we havemanufacturing agreements with third parties in Canada, Germany, and China.

 

We expect to expand ourMexican operations significantly in 2008, as well as the high-valuemanufacturing capability in Arizona. We are currently planning for new leasedfacilities in Mexico to handle our anticipated growth. Part of ouranticipated growth plan would include more mechanized production systems,inclusive of International Organization for Standardization (ISO) quality andenvironmental certifications. We believe that our existing plant in Arizona hassufficient room for anticipated growth.

 

**Research and Development**

 

We devoted a large percentage of our 2007research and development expenditures to the Hydrality project. Thisexpenditure was with third-party technology and engineering partners such asNASA’s Jet Propulsion Laboratories (JPL) and others. We have determined that wewill rationalize and capacitate our technology research and developmentexpenditures at levels in-line with traditional operating technology companiesbased upon a reasonable percentage of revenues. Given the proven and commerciallyviable clean technology companies we acquired in 2007 and anticipate adding in2008, we have determined we are well positioned with our strategy to growthrough a combination of organic growth of existing operations and potentialacquisitions of other mid-stage companies that are congruous with our cleanelectro-centric strategy.

 

We have determined thatthe vagaries of the hydrogen industry, the advancement of other renewabletechnologies to the commercial forefront, and the potentially long and expensiveroad to commercialization and profitability for hydrogen technologiesnecessitate that we prudently and significantly scale back our hydrogenresearch and development expenditures, and proceed only on the basis of jointdevelopment projects with third-parties or significantly subsidized developmentwith potential licensees or federal grants.

 

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**Sales and Marketing**

 

We are actively marketingall of our companies and products under the ECOtality brand as well as undertheir historic brand names. We are striving to build a strong corporateidentity as a purveyor of “renewable energy” products and solutions.  This corporate branding of group products isan important part of our strategy to provide individual and integratedelectro-centric products and solutions. All marketing programs are or will be dually targeted towards “greenproducts and green returns.” Product marketing is handled on a divisional andsubsidiary level, with cross-marketing efforts to be a key element of thecorporate marketing program. Corporate marketing and overall brand management,investor relations and group representation is handled out of corporateheadquarters in Scottsdale, Arizona.

 

The majority of ourproducts are sold directly on a business-to-business basis. ECOtality Storesoperates internet sales operations of hydrogen fuel cell products andeducational kits and systems. We intend to commercialize our Hydrality productthrough technology license fees, technology transfer fees, fuel licensing feesand fees for the design, installation and technical support of Hydralitysystems by ECOtality and/or third parties.

 

**Government**

 

The energy industry ishighly regulated.  Several states in theU.S. along with Canada and various countries in Europe and Asia have adopted avariety of government subsidies to allow new renewable sources of energy andtechnologies to compete with conventional fossil fuel based sources. Governmentgrants for research and development are often the precursors to the acceptanceof and government incentives for new clean technologies. We closely trackgovernment policy and strategy as it relates to renewable and clean techenergy. eTec has a large portfolio of DOE contracts and is in regular contactwith leaders of U.S energy and technology policies.

 

Solar power isincreasingly becoming more attractive to consumers due to government subsidiesand incentives that generally focus on grid-connected systems and take severalforms, including feed-in tariffs, net metering programs, renewable portfoliostandards, rebates, tax incentives and low-interest loans. Some programsfurther specify that a portion of the renewable energy quota must be from solarelectricity.

 

Tax incentive programsexist in the United States at both the federal and state level and can take theform of investment tax credits, accelerated depreciation and property taxexemptions. Several governments also facilitate low interest loans forphotovoltaic systems, either through direct lending, credit enhancement, orother programs.

 

Gradual government increases to Corporate Average Fuel Economy (CAFE)standards on vehicle mileage minimums, along with high gas prices and consumerecology preferences, are forcing vehicle OEMs to actively seek alternatives topetroleum-powered internal combustion engines (ICE). There is considerablejockeying for a leadership role between two factions – biofuels vs. electricvehicles (HEVs, PHEVs and pure EVs). We are well positioned to play asubstantial role in the electric vehicle sector and the associatedestablishment of an electric infrastructure for PHEVs and EVs.

 

Our Hydrality system maybe subject to regulation under the 2002 National Electric Code (“NEC”), whichis a model code adopted by the National Fire Protection Association thatgoverns, among other things, the installation of fuel cell systems. Accordingly, any of our systems installed in a jurisdiction that hasadopted the 2002 NEC must be installed in accordance with Article 692. In addition, product safety standards have been established covering theoverall fuel cell system and the power conversion electronics. There may be newregulations with respect to fuel cells, but we do not currently know the extentto which any new regulations may impact our ability to distribute, sell orinstall and service Hydrality. If Hydrality reaches the commercializationstage and we begin distributing our systems to our early target markets,federal, state or local government entities may seek to impose regulations.

 

The Federal Bayh-Dole Actrequires the California Institute of Technology (CalTech- operators of NASA’sJPL) to grant to the Federal government a worldwide, non-exclusive,non-transferable, irrevocable, paid-up license in connection with anyinvention developed under the license agreement.  Therefore,under this provision, the Federal government would have a license to useeach subject invention for NASA-related applications and for other applicationsof the Federal government.

 

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

 

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**GeneralCompetition**

 

Currently, we believethat we have no direct competitors and that our consolidated and diverseoffering of products and technologies in multiple renewable energies sectorsdifferentiates us from others in the industry and gives us a competitiveadvantage. While many of our individual technologies and products do havedirect market competition, we are aware of no other entity that hasconsolidated its products and technology offerings to extend to such diverserenewable energy market segments.

 

As competition in therenewable energy sectors is intense, the potential competition for each of theindividual products and technologies that we offer ranges from developmentstage companies to major domestic and international companies, many of whichhave financial, technical, marketing, sales, manufacturing, distribution andother resources that are significantly greater than ours.

 

**Hydrality Competition**

 

Hydrality is a complex reactor system that is currently indevelopmental stages and stores and delivers hydrogen on-demand using magnesiumcompounds and water. As Hydrality provides an alternative method of storage anddelivery of hydrogen, it competes with current suppliers of delivered hydrogenand with other manufacturers of on-site hydrogen generators. Competitors in thedelivered hydrogen market include Airgas, Inc., Air Liquide, Air Productsand Chemicals, Inc., Linde AG, Praxair Technology, Inc., andDistributed Energy Systems Corporation. Hydrality will also compete with oldergenerations of electrolysis-based hydrogen generation equipment sold byHydrogenics Corporation, Statoil Hydro, Teledyne Energy Systems, Inc., andother companies. We believe that many of these current hydrogen creation,storage and delivery methods are bulky, unreliable, expensive, energyinefficient, contain hazardous materials, or require the assistance ofmechanical compressors to produce hydrogen at high pressures.

 

There are a number of companies located in the United States, Canadaand abroad that are developing Proton Exchange Membrane (PEM) fuel celltechnology. These companies include Ballard Power Systems Inc., General MotorsCorporation, Giner, Inc., Honda Motor Company, Toyota Motor Corporation,SANYO Electric Co., Ltd., IdaTech LLC, Hydrogenics Corporation, Nuvera FuelCells, Plug Power Inc. and United Technologies Corporation. Although we believethese companies are currently primarily targeting vehicular and residentialapplications, they could decide to enter the hydrogen generation and backuppower markets we address. We may also encounter competition from companies thathave developed or are developing fuel cells based on non-PEM technology, aswell as other distributed hydrogen generation technologies.

 

**Fast-Charge Competition**

 

The eTec SuperCharge andMinit-Charger are fast battery charging systems designed for material handlingapplications, airport ground support equipment and electric vehicles. Webelieve that the principal competitive factors in the markets for our batteryfast 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 directcompetitors to the eTec SuperCharge and Minit-Charger systems are other fastcharge suppliers, including AeroVironment, Inc., Aker Wade PowerTechnologies LLC, Power Designers, LLC, and C&D Technologies, Inc.Some of the major industrial battery suppliers have begun to align themselveswith fast charge suppliers, creating a potentially more significant source ofcompetition. In addition, the eTec SuperCharge and Minit-Charger systemscompete against the traditional method of battery changing. Competitors in thisarea include suppliers of battery changing equipment and infrastructure,designers of battery changing rooms, battery manufacturers and dealers who mayexperience reduced sales volume because the eTec SuperCharge and Minit-Chargerfast charge systems reduces or eliminate the need for extra batteries.

 

**Retail Fuel Cell Competition**

 

Fuel Cell Store hasactive operations in the United States, Japan, Russia, Italy, and Portugal, andis an online retailer(e-commerce) that develops, manufacturers, and sells a diverse andcomprehensive range of fuel cell products. We believe that the principalcompetitive factors in the retail fuel cell and e-commerce markets includebreadth of product offerings, product quality, product availability, distributioncapabilities, internet rankings, ease of use of the website, customer service,technical support, brand and reputation.

 

The primary directcompetitors to Fuel Cell Store are fuel cell manufacturers, and other fuel celle-commerce sites. Fuel cell manufacturers that sell products directly toconsumers include Heliocentris Fuel Cells AG, Horizon Fuel Cell Technologies,Ltd., BCS Fuel Cells, Inc., Electrochem, Inc., and Fuel CellScientific, LLC. New e-commerce sites that are coming online in the U.S. andabroad and are duplicating the Fuel Cell Store format and sourcing from thesame vendors are providing growing competition. These companies include GasHubTechnology, JHT Power, H-Tech, Inc., Element-1 Power Systems, andminiHYDROGEN. Other renewable technologies, including solar and wind, as wellas advanced batteries and conventional fossil fuel technologies are alsocompeting technologies for fuel cells.

 

**Solar Competition**

 

The market for solarelectric power technologies is competitive and continually evolving. Innergy’ssolar products compete with a large number of competitors in the solar powermarket, including BP Solar International Inc., Evergreen Solar, Inc.,First Solar Inc., Kyocera Corporation, Mitsubishi Electric Corporation, MotechIndustries Inc., Q-Cells AG, Sanyo Corporation, Sharp Corporation, SolarWorldAG and Suntech Power Holdings Co., Ltd. Many of these companies haveestablished strong market positions, greater name recognition, a moreestablished distribution network and a larger installed base of customers. Somecompetitors also have more available capital and significantly greater accessto financial, technical, manufacturing, marketing, sales, 

 

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distribution, managementand other resources than we do. Many of our competitors also havewell-established relationships with our current and potential suppliers,resellers and their customers and have extensive knowledge of our targetmarkets. As a result, our competitors may be able to devote greaterresources to the research, development, promotion and sale of their productsand respond more quickly to evolving industry standards and changing customerrequirements than we can.

 

In addition to intensemarket competitors, universities, research institutions and other companieshave brought to market advanced and alternative technologies such as thin filmsand concentrators, which may compete with our technology in certainapplications. Furthermore, the solar power market in general competes withother sources of renewable energy and conventional power generation.

 

The principal elements ofcompetition in the solar systems market include technical expertise,experience, delivery capabilities, diversity of product offerings, financingstructures, marketing and sales, price, product performance, quality andreliability, and technical service and support. We believe that we competefavorably with respect to each of these factors, although we may be at adisadvantage in comparison to larger companies with broader product lines andgreater technical service and support capabilities and financial resources.

 

**Intellectual Property**

 

Our success depends, in part, on our ability tomaintain and protect our proprietary technology and to conduct our businesswithout infringing on the proprietary rights of others. We rely primarily on acombination of patents, trademarks and trade secrets, as well as employee andthird party confidentiality agreements, to safeguard our intellectual property.As of December 31, 2007, in the United States we held three patentapplications and 16 issued patents, which will expire at various times between2010 and 2021 if all maintenance fees are paid. We also held two PCT patentapplications, two Canadian patent applications, one Japanese patentapplication, one European patent application, 11 issued Canadian patents, fourissued Japanese patents, seven issued European patents, and one issuedAustralian patent.  Our patentapplications and any future patent applications, might not result in a patentbeing issued with the scope of the claims we seek, or at all and any patents wemay receive may be challenged, invalidated, or declared unenforceable. Wecontinually assess appropriate occasions for seeking patent protection for thoseaspects of our technology, designs and methodologies and processes that webelieve provide significant competitive advantages.  Our patents and patent applications generallyrelate to our hydrogen, battery charging, and thin-cell battery technologies.

 

In May 2006, CalTechfiled a provisional patent application on the hydrogen technology beingdeveloped pursuant to a task plan between ECOtality and Jet PropulsionLaboratory (“JPL”), a Federally Funded Research and Development Center for theNational Aeronautics and Space Administration (“NASA”).  The CaliforniaInstitute of Technology (“CalTech”) is the operator of JPL and assignee of itspatent and technology rights.  On May 7, 2007, a non-provisionalpatent application was filed by Stinson Morrison Hecker LLP in the name ofCalifornia Institute of Technology as assignee and ECOtality, Inc. asexclusive licensee of the technology, for a Method and System for Storing andGenerating Hydrogen, claiming priority from a provisional application filed byCalTech on May 8, 2006.  The details of the patent application andinvention are confidential until publication or issue, which did not occurprior December 31, 2007. The patent application is generally directedtowards the hydrogen reactor design that has been under development.

 

On June 12, 2006, weentered into a License Agreement with California Institute of Technology, whichoperates JPL, whereby we acquired certain exclusive licensed patent and/orpatent applications rights and improvement patent rights related to researchperformed under the JPL Task Plan No. 82-10777, as well as a nonexclusivelicensed technology rights developed as a result of the Task Plan.  Thelicense agreement with CalTech relates to CalTech’s rights to patents andtechnology based on inventions that are :  (a) identified in the license agreement, (b) developedunder the development agreement with JPL, (c) related to electric powercell technology developed at JPL with the involvement of our personnel, or (d) funded,in whole or in part, by us (the “CalTech Rights”).  As partialconsideration paid in connection with the License Agreement, we issued5,869,565 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 areobligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on June 12,2009, continuing until the expiration, revocation, invalidation orunenforceability of the last exclusively licensed patent rights or improvementpatent rights.  The License Agreement carries a perpetual term, subject todefault, infringement, expiration, revocation or unenforceability of theLicense Agreement and the licenses granted thereby.

 

With regard to patentedCalTech Rights, CalTech has granted us the exclusive worldwide license, withthe right to grant and authorize sublicenses, to make, have made, import, use,sell, and offer for sale any products, devices, systems, articles of manufacture,and compositions of matter, or processes or services that are covered by thepatented CalTech Rights.  With regard to non-patented CalTech Rights,CalTech has granted us a non-exclusive worldwide license, with the right togrant and authorize sublicenses, to make, have made, import, use, sell, offerfor sale, reproduce, distribute, display, perform, create derivative works of,and otherwise exploit products, devices, systems, articles of manufacture, andcompositions of matter, or processes or services that utilize the technologycovered by the non-patented CalTech Rights.  The non-patented CalTechRights include technology necessary for the development or use of our productsor services, as may be disclosed in any patent applications filed by CalTech orrequested by us and consented to by CalTech.

 

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All license rights granted by CalTech are subject to areservation of rights by CalTech for non-commercial education and researchpurposes and U.S. Government rights provided under the Bayh-Dole Act, 35 U.S.C.§ 200  et seq. and 37 C.F.R. § 401  et seq. as indicated below.

 

As of December 31, 2007, we held six UnitedStates federal trademark registrations (including eTec SUPERCHARGE®,MINIT-TRAK®, MINIT-WATCH®, INNERGY POWER®, THINLINE®, and POWER PLANT®) and 13pending applications for federal registration of trademarks (includingECOTALITYTM, HYDRALITYTM, ELETRICELLTM, ELECTRAWINDTM, BIOSOLINATM, SOLATRICITYTM,MAKING HYDROGEN POWER A REALITYTM, and related logos).  We also own various common law trademarkrights and Canadian trademark registrations.

 

With respect to, among other things, proprietaryknow-how that is not patentable and processes for which patents are difficultto enforce, we rely on trade secret protection and confidentiality agreementsto safeguard our interests. We believe that many elements of our products andmanufacturing process involve proprietary know-how, technology, or data thatare not covered by patents or patent applications, including technicalprocesses, equipment designs, algorithms and procedures. We have taken securitymeasures to protect these elements. All of our research and developmentpersonnel have entered into confidentiality and proprietary informationagreements with us. These agreements address intellectual property protectionissues and require our employees to assign to us all of the inventions, designsand technologies they develop during the course of employment with us. We alsorequire our customers and business partners to enter into confidentialityagreements before we disclose any sensitive aspects of our solar cells,technology, or business plans.

 

***Status of any announced new product or service***

 

On March 19, 2007,we received a memorandum from the National Aeronautics and Space Administration’sJet Propulsion Laboratory reporting that significant performance advancementshave been made with regard to HydralityTM, an on-demand hydrogen storage anddelivery system fueled by magnesium and water, that JPL has been developing onour behalf.  In summary, the JPL memo states that, in laboratory tests ofthe modified Hydrality system, the following has occurred:

 

1.          Hydrogen-fuel storage capacity, by weight for theentire system, has increased from 4.7% to between 8% and 9%, depending onoperating mode, allowing the modified Hydrality to meet the Department ofEnergy’s 2010 goal of 6% hydrogen storage capacity.

 

2.          A drop in operating temperature of the modifiedHydrality of 300-400 degrees Centigrade will allow the use of less expensivematerials in system construction.

 

3.          The amount of heat generated by the modified Hydralityhas decreased by approximately 80% and is expected to result in reduced systemcomplexity, in terms of cost and size.  Additionally, because less energyis generated, and subsequently wasted during operation, the regenerationefficiency of the reaction products is increased by approximately 400%.

 

As a result of thetechnical, performance and cost advancements, JPL has recommended all futureresearch and development efforts be shifted to focus on the modified Hydralityreaction and all associated systems and processes.  JPL and ECOtality haveagreed to develop and test a 7kW prototype, which JPL believes is suitable topower various commercial applications, as well as can be scaled for futuresystems.

 

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 ofEnergy (DOE). The objective of this partnership is to investigate the use ofHydralityTM – an on-demand hydrogen production and storage technology – tosupport APS’ hydrogasification efforts to deliver “clean” electricity to thepublic. The Hydrality testing is currently estimated to commence in the middleof 2008.  The AHP program is acollaborative project among APS and industry partners, including the Departmentof Energy’s National Energy Technology Laboratory (NETL), to develop aneconomical process of producing substitute natural gas (SNG) from coal withoutthe release of carbon dioxide, a known greenhouse gas. The APS project will usehydrogen to react with coal in a high temperature and pressure reaction thatultimately produces methane that can be injected into existing natural gaspipelines. Specifically aimed at supporting the AHP hydrogasification efforts,the project will conduct testing to evaluate the process kinetics and reactordynamics of our Hydrality process for large-scale hydrogen production andstorage applications**.**

 

**Employees**

 

As of December 31,2007, we had 63 employees, including 43 in manufacturing and the rest inresearch and development, sales and marketing, and general and administrationpositions. None of our employees are represented by labor unions or covered bya collective bargaining agreement. As we expand domestically and internationally,however, we may encounter employees who desire union representation. We believethat relations with our employees are good.

 

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**KeyTransactions in 2007**

 

***Name Change***

 

ECOtality, Inc. wasoriginally incorporated in Nevada in 1999 under the name Alchemy Enterprises,Ltd. to market biodegradable products.  In early 2006 we commenced thedevelopment of our Hydrality technology.  On November 14, 2006, wechanged our name to “ECOtality, Inc.” We are currently are the parentcompany of Electric Transportation Engineering Corporation (eTec), PortableEnergy 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 whollyowned by us, and of Innergy Power Systems, which is a operated as a division ofECOtality, Inc.

 

***Foote and Winfield Settlement***

 

On February 15,2006, we entered into and closed a Technology Contribution Agreement withHoward Foote and Elliot Winfield (“Transferors”), pursuant to which we acquiredall of Transferors’ right, title and interest in and to a certain electricpower cell (“EPC”) technology to be used in connection with the development ofan improved electric battery represented by a U.S. Patent Office patentapplication (the “Technology”).  As a result of the TechnologyContribution Agreement, our board of directors made a decision to change ourbusiness focus from marketing chemical products toward developing theEPC/Hydrality technology.  Due to a change in business, year-to-yearcomparisons are not significant, are not a reliable indicator of futureprospects, and accordingly are not presented in this annual report.

 

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 anduncertainties between them related to all agreements and contracts entered intoprior to the effective date of the Settlement concerning the fuel cellintellectual property and technology.  In accordance with the Settlement,the Parties confirm the assignment, transfer and conveyance of all right, titleand interest in and to the electric power cell and reactor technology beingdeveloped by us.  Further to this, for a period of two years from theeffective date of the Settlement, the Parties are prohibited, without our priorwritten consent, from directly or indirectly, participating in any business incompetition with us or from engaging in any business activities that are thesame or substantially similar to our business activities during the terms Footeand Winfield were employed by, or were affiliated with, ECOtality.  Inconsideration, 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 theSettlement, an officer and director of ECOtality entered into an escrowagreement with the Parties, which cancels and supersedes separate prior escrowagreements entered into with each of Foote and Winfield, individually, on February 15,2006.  The 2006 Escrow provided for the potential issuance of an aggregateof 40,000,082 shares of our common stock to the Parties, upon the achievementof certain performance standards, as set forth in said 2006 Escrow.  The2007 Escrow provides for: (1) the immediate release of 1,500,000 shares ofour common stock held per the 2006 Escrow to the Parties; (2) theimmediate release from escrow and return to Harold Sciotto of 32,500,000 sharesof our common stock; and (3) the immediate release of 6,000,000 shares ofour common stock from escrow for cancellation

 

***June 2007Acquisition – Fuel Cell Store***

 

On June 11, 2007, webought the assets of the Fuel Cell Store (www.FuelCellStore.com), a smallweb-based seller of educational fuel cell products. The Fuel Cell Store productline includes demonstration kits, educational materials, fuel cell systems andcomponent parts.  It also offers consulting services for establishingeducational programs for all levels of educational institutions.  SinceFuel Cell Store was significantly smaller than we are, we were not required toprovide audited financial statements for it.  We operate the FuelCell Store through our wholly-owned subsidiary, ECOtality Stores, Inc. While revenue producing activities, facilities and employees have initiallyremained the same, we have changed the distribution system through inventorycontrol procedures, and expanded the customer base through increased emphasison marketing.  We sell Fuel Cell Store products through our own ECOtalityStore’s website.

 

     We bought the assets of the Fuel Cell Store for $350,000 in cash and to issue300,000 shares of our common stock. Our common stock was valued at itsclosing market price on the date of the agreement. The closing price was$.63 per share, on that date for a total value of $189,000 and a total pricepaid cash and stock of $539,000. We concluded this to be anasset purchase rather than a business purchase because we did not acquiretheir debt and they continued to exist after the purchase was completed. Of the assets acquired we identified and assigned a value to $179,775 inmerchandise inventory, $8,600 in fixed assets, and $23,843 in current accountsreceivable. We reviewed the intangible assets that we acquired, includingthe customer data base, and internally developed software and determined thatthe intangible assets did not have value to us. Therefore, the differencebetween the assets noted and the price paid for the assets $326,782 havebeen allocated to intangible assets and impaired and written-off due to thelack of proven future cash flows generated by the assets acquired.

 

***October 2007Acquisition – Innergy Power Systems***

 

On October 1, 2007we closed on the purchase of certain assets of Innergy Power Corporation andits wholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V., pursuant toan agreement that we entered into on September, 18, 2007.  Innergy designsand manufactures standard and custom solar-power and integrated solar-batterysolutions for government, industrial 

 

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and consumerapplications.  The purchase price for the assets was 3,000,000 shares ofour common stock.  We guaranteed to the sellers that the shares of ourcommon stock issued in the transaction would be worth $3,000,000 during the 30day period commencing 11 months from the closing date or we would be requiredto 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.  Theshares were issued to the seller and are subject to piggy back registrationrights and a lock-up agreement.

 

***November 2007Acquisition-  eTec Group of Companies***

 

On November 6, 2007we signed an agreement to acquire all of the outstanding stock of the ClarityGroup, Inc. and its affiliate, Electric Transportation EngineeringCorporation (eTec), through a stock purchase agreement.  eTec provides technical support and fieldservices for all aspects of electric vehicle infrastructure.  eTecoperates as our wholly owned subsidiary and there have been no changes to theeTec’s management team.

 

The aggregate purchaseprice for the outstanding capital stock of eTec was $3,000,000 in cash and6,500,000 shares of our common stock.   Of the $3,000,000 in cash tobe paid to eTec, $2,500,000 was paid upon closing of the stock purchaseagreement and $500,000 is being paid in 10 equal monthly installments,beginning December 1, 2007.  The 6,500,000 shares were issued in thefollowing manner: 6,500,000 were issued upon the close of the stock purchaseagreement, 3,250,000 were released on date of signing, and 3,250,000 are to bereleased by our corporate secretary on the first anniversary of the closing ofthe stock purchase agreement, subject to any indemnity claims.  The sharesbear a restrictive legend and are not subject to piggy back registrationrights.

 

***November 2007Financing***

 

On November 6, 2007,we entered into a financing arrangement with a group of accredited investorspursuant to which we sold our Original Issue Discount 8% Secured ConvertibleDebentures and warrants to purchase our common stock in consideration of anaggregate of $4,117,649.  We received gross proceeds of approximately$3,500,000 from this offering.  In connection with the November 2007financing, we issued the following securities to the investors:

 

·                                          $4,117,649in Secured Original Issue Discount Convertible Debentures; and

·                                          CommonStock Purchase Warrants to purchase 6,862,748 shares of common stock at $0.32per share for a period of five years.

 

The warrants areexercisable to purchase one share of common stock at $0.32 per share, and havea term of exercise equal to 5 years.  The warrant holders may not exercisethe warrants for a number of shares of common stock in excess of that number ofshares which upon giving effect to such exercise would cause the aggregatenumber of shares beneficially owned by the holder to exceed 9.99% of theoutstanding shares of the common stock following such exercise.

 

The Original IssueDiscount 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 theright to prepay any portion of the principal amount of the November 2007Debentures without the prior written consent of the holder. Beginning on May 6,2008, and continuing on the same date of each successive month thereafter, wemust repay 1/24thof the original principal amount of the Debentures plus accrued but unpaidinterest, liquidated damages and any other amounts then owing to the holder inrespect of the Debenture.  The holders of the November 2007Debentures will not have the right to convert the November 2007Debentures, to the extent that after giving effect to such conversion, suchholder would beneficially own in excess of 9.99% of the shares of our commonstock immediately after giving effect to such conversion.

 

If we, at any time whilethe November 2007 Debentures are outstanding, sell or grant any option topurchase or sell or grant any right to re-price, or otherwise dispose of orissue (or announce any sale, grant or any option to purchase or otherdisposition), any common stock or common stock equivalents entitling any personto acquire shares of our common stock at an effective price per share that islower than the then-existing conversion price, the conversion price shall bereduced to equal such effective price per share.  Such an adjustment shallbe 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 conditionsand if we deliver a notice to the debenture holders of our irrevocable electionto redeem some or all of the then outstanding principal amount of the November 2007Debentures for cash in an amount equal to the sum of (i) 115% of the thenoutstanding principal amount of the Debentures to be redeemed, (ii) theaccrued but unpaid interest on such Debentures and (iii) all liquidateddamages and other amounts due in respect of the Debentures on the 30th Trading Day following suchnotice.  On that 30thtrading day, the redemption amount is payable in full to the debenture holders.

 

We must redeem a portionof the November 2007 Debentures each month for cash.  If we satisfy certain equity conditions andgive 10 trading days’ prior written irrevocable notice to the debentureholders, on each such monthly redemption date, we may, at our option, elect topay all or part of a monthly redemption amount in shares of our common stockbased on a conversion price equal to the lesser of (i) the then conversionprice and (ii) 88% of the average of the VWAPs for the 10 consecutivetrading days ending on the day that is immediately prior to the applicablemonthly redemption date.  The debenture holder may convert any principalamount of the November 2007 Debenture subject to a monthly redemption atany time prior to the date that the monthly redemption amount, 

 

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plus accrued but unpaidinterest, liquidated damages and any other amounts then owing to the holder aredue and paid in full.

 

We may, at our option,force the debenture holders to convert all or portion of the then outstandingprincipal amount of the November 2007 Debentures (plus any accrued buyunpaid interest, liquidated damages and other amounts then owing the debentureholders) into shares of our common stock if we satisfy certain equityconditions, 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 thedebenture holders of such conversion.

 

We granted the November 2007Debenture investors a first priority security interest in all of our assets andthose of each of our subsidiaries subject only to the December 2007Debentures, pursuant to the security agreement, dated as of November 6,2007, between us, our subsidiaries and the secured parties.

 

In conjunction with the November 2007Debenture transaction, our subsidiaries entered into a guarantee agreementpursuant to which each of them guaranteed our obligations under the securitiespurchase agreement and the documents entered into pursuant to the securitiespurchase agreement, including the November 2007 Debentures.

 

We granted the November 2007Debenture investors registration rights with respect to the shares issuableupon conversion of the debentures and the shares of common stock underlying thewarrants.  Pursuant to the registration rights agreement by and among usand each of the parties signatory thereto, we filed a registration statement onJanuary 8, 2008. Our registration statement was declared effective by theU.S. Securities and Exchange Commission (the “Commission”) on January 28,2008. With respect to any additional registration statements which may berequired pursuant to which, the number of registerable securities at any timeexceeds 100% of the number of shares of common stock then registered in aregistration statement during the period of effectiveness, we are required tofile the additional registration statements within 90 days from closing. If we failed to have the registration statement filed or declared effective bythe required dates, we were obligated to pay a penalty equal to 2% of thepurchase price to each investor upon any such registration failure and for eachthirty days that such registration failure continues.  The parties agreedthat the maximum aggregate liquidated damages payable to a holder under theregistration rights agreement shall be 20% of the aggregate subscription amountpaid by such holder pursuant to the securities purchase agreement.

 

As of December 31,2007, there was $1,232,028, net of discounts of $2,885,620 outstanding underthe November 2007 Debentures.

 

***December 2007Acquisition – Edison Minit-Charger and related Corporate Assets***

 

In December 2007, weentered into and completed various stock and asset purchase agreements withElectric Transportation Engineering Corporation, Edison Source, EdisonEnterprises and 0810009 B.C. Unlimited Liability Company to purchase certaintechnology 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 purchaseprice 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 stockduring the 30-day period ending on December 4, 2008 is less than $1.00 pershare, we, at our option, must:

 

·                     Issueadditional shares of common stock to the seller so that the aggregate value ofthe common stock issued to the seller in the transaction is equal to$2,000,000;

 

·                     Payto the seller an additional amount of cash so that the aggregate value equalsdifference between the amount of the purchase price and the cash considerationpayable to the seller; or

 

·                     Purchaseor cause the purchase of the common stock issued to the seller in thetransaction for an aggregate price equal to $2,000,000.

 

***December 2007Financing***

 

On December 6, 2007,we entered into a financing arrangement with a group of accredited investorspursuant to which we sold our Original Issue Discount 8% Secured ConvertibleDebentures and warrants to purchase our common stock in consideration of anaggregate of $1,764,706..  We received gross proceeds of approximately$1,500,000 from this offering.  In connection with the December 2007financing, we issued the following securities to the investors:

 

·                                          $1,764,706.50in Secured Original Issue Discount Convertible Debentures; and

·                                          CommonStock Purchase Warrants to purchase 2,941,177 shares of common stock at $0.32per share for a period of five years.

 

The warrants areexercisable to purchase one share of common stock at $0.30 per share, and havea term of exercise equal to 

 

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5 years.  TheWarrant holders may not exercise the Warrants for a number of shares of commonstock in excess of that number of shares which upon giving effect to suchexercise would cause the aggregate number of shares beneficially owned by theholder to exceed 9.99% of the outstanding shares of the Common stock followingsuch exercise.

 

The Original IssueDiscount 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 theright to prepay any portion of the principal amount of the Debentures withoutthe prior written consent of the holder. Beginning on June 4, 2008, andcontinuing on the same date of each successive month thereafter, we must repay1/24th ofthe original principal amount of the Debenture plus accrued but unpaid interest,liquidated damages, if any, and any other amounts then owing to the holder inrespect of the Debenture.  The holders of the Debentures will not have theright to convert the Debentures, to the extent that after giving effect to suchconversion, such holder would beneficially own in excess of 9.99% of the sharesof our common stock immediately after giving effect to such conversion.

 

If we, at any time whilethe December 2007 Debenture is outstanding, sell or grant any option topurchase or sell or grant any right to re-price, or otherwise dispose of orissue (or announce any sale, grant or any option to purchase or otherdisposition), any common stock or common stock equivalents entitling any personto acquire shares of our common stock at an effective price per share that islower than the then-existing conversion price, the conversion price shall bereduced to equal such effective price per share.  Such adjustment shall bemade 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 conditionsand if we deliver a notice to the debenture holders of our irrevocable electionto redeem some or all of the then outstanding principal amount of the December 2007Debentures for cash in an amount equal to the sum of (i) 115% of the thenoutstanding principal amount of the Debentures to be redeemed, (ii) theaccrued but unpaid interest on such Debentures and (iii) all liquidateddamages and other amounts due in respect of the Debentures on the 30th Trading Day following suchnotice.  On that 30thtrading day, the redemption amount is payable in full to the debenture holders.

 

We must redeem a portionof the December 2007 Debentures each month for cash.  If we satisfy certain equity conditions andgive 10 trading days’ prior written irrevocable notice to the debentureholders, on each such monthly redemption date, we may, at our option, elect topay all or part of a monthly redemption amount in shares of our common stockbased on a conversion price equal to the lesser of (i) the then conversionprice and (ii) 88% of the average of the VWAPs for the 10 consecutivetrading days ending on the day that is immediately prior to the applicablemonthly redemption date.  The debenture holder may convert any principalamount of the December 2007 Debenture subject to a monthly redemption atany time prior to the date that the monthly redemption amount, plus accrued butunpaid interest, liquidated damages and any other amounts then owing to theholder are due and paid in full.

 

We may, at our option,force the debenture holders to convert all or portion of the then outstandingprincipal amount of the December 2007 Debentures (plus any accrued buyunpaid interest, liquidated damages and other amounts then owing the debentureholders) into shares of our common stock if we satisfy certain equityconditions, 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 debentureholders of such conversion

 

We granted the December 2007Debenture investors a first priority security interest in all of our assets andeach subsidiary subject only to the November 2007 Debentures, pursuant tothe Security Agreement, dated as of November 6, 2007 between us, oursubsidiaries and the secured parties.

 

In connection with the December 2007Debenture transaction, each of our subsidiaries entered into a guaranteeagreement pursuant to which it guaranteed the obligations of the Company under thesecurities purchase agreement and the documents entered into pursuant to thesecurities purchase agreement, including the December 2007 Debentures.

 

We granted the investorsregistration rights with respect to the debentures and the shares of common stockunderlying the warrants.  Pursuant to the registration rights agreement byand among us and each of the parties signatory thereto, we filed a registrationstatement on January 8, 2008.  Ourregistration Statement was declared effective by the Commission on January 28,2008. With respect to any additional registration statements which may berequired pursuant to which, the number of registerable securities at any timeexceeds 100% of the number of shares of common stock then registered in aregistration statement during the period of effectiveness, we are required tofile the additional registration statements within 90 days from closing. If we fail to have the registration statement filed or declared effective bythe required dates, we will be obligated to pay a penalty equal to 2% of thepurchase price to each investor upon any such registration failure and for eachthirty days that such registration failure continues.  The parties agreedthat the maximum aggregate liquidated damages payable to a holder under theregistration rights agreement shall be 20% of the aggregate subscription amountpaid by such holder pursuant to the securities purchase agreement.

 

As of December 31,2007, there was $981,342, net of discounts of $783,365 outstanding under the December 2007Debentures.

 

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**Available Information**

 

We maintain a website athttp://www.ecotality.com. We make available free of charge on our website ourannual reports on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K, proxy statement and any amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of theExchange Act, as soon as reasonably practicable after we electronically filethese materials with, or furnish them to, the SEC. The information contained inor 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 SECat the SEC’s Public Reference Room at 100 F Street, NE,Washington, D.C. 20549. The public may obtain information on the operationof the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SECalso maintains an Internet website that contains reports and other informationregarding issuers, such as ECOtality, that file electronically with the SEC.The SEC’s Internet website is located at http://www.sec.gov.

 

**RiskFactors**

 

***We may be unable to commercially develop our Hydralitytechnology, which is still unproven.  In such event, we would not be ableto remain in this business.***

 

Through JPL and others,we are in the process of commercially developing our Hydrality technology. The Hydrality technology is new and commercially untested and there canbe no assurance that we can develop the technology or that the technology willresult in the creation of commercially saleable products.  If thetechnology cannot be developed, we will be unable to remain in this business.

 

***There is no assurance that the Hydrality technology ispatentable by JPL or, if patented, that others will not develop functionallysimilar products outside the patent.  Without patent protection, ourcompetitors could develop functionally similar products.***

 

We have entered into alicense agreement with the California Institute of Technology (CalTech) underwhich we have the exclusive license to use and sell the Hydrality technologyunder any JPL patent and patent application.  There can be no assurancethat CalTech will obtain any patents on the Hydrality technology or, if obtained,that others will not develop functionally similar products that do not infringeon the patents.  All license rights granted by CalTech are subject to areservation of rights by CalTech for non-commercial education and researchpurposes and U.S. Government rights provided by statute.  Without patentprotection, our competitors could develop functionally similar products.

 

***We face competition from large established renewable andalternative energy development companies which are also seeking to developalternative energy power sources.  Such competition could reduce ourrevenue or force us to reduce our prices, which would reduce our potentialprofitability.***

 

Literally hundreds ofcompanies, including many of the largest companies in the world, are seeking todevelop similar or competitive technologies to that of all of our technologies. There can be no assurance that we can commercially develop the Hydralitytechnology or that competitors will not develop substantially equivalent orsuperior technology.  Such competition could reduce our revenue or forceus to reduce our prices, which would reduce or eliminate our potentialprofitability.

 

***Even if our Hydrality technology is successfully developedfor transportation applications, we will be unable to sell the technologyunless others build and operate fueling stations to provide the required fuelfor this technology.***

 

In order to implement theHydrality technology, it will be necessary to develop “fueling stations”similar to gas stations.  Without these fueling stations there will be nomarket for the Hydrality technology.  There can be no assurance thatothers will build or operate the necessary fueling stations.

 

***Any license wereceive from JPL will be subject to a reservation of rights transferred to theUS Government, thereby potentially reducing our rights to sublicense theHydrality technology.***

 

Should JPL commerciallydevelop the Hydrality technology, we intend to sublicense rights to thetechnology to third parties. However, any license we receive from JPL will besubject to the Federal Government’s right to a worldwide, non-exclusive,non-transferable, irrevocable paid up license in connection with any inventiondeveloped under the license agreement to use the Hydrality technology fornon-commercial education and research purposes.  Such a reservationreduces our ability to market the Hydrality technology as it would not allowour exclusively licensing to anyone for non commercial education, research andNASA related applications and for other application of the Federal Government.

 

The Federal governmentalso retains “March-in Rights,” which would allow the Federal government togrant licenses to others if:  (1) we do not “achieve practicalapplication” of a subject invention (i.e., commercialize the technology); (2) suchaction is necessary to alleviate health or safety needs that are not reasonablysatisfied by us; (3) such action is necessary to meet requirements forpublic use specified by federal regulations and such requirements are notreasonably satisfied by us; or (4) such action is necessary because weand/or our sublicensees are manufacturing patented products outside of theUnited States.  We believe that the Federal government is not likely toexercise its March-in Rights with regard to any of our patented technologybecause March-in Rights have rarely, if ever, been invoked by the Federalgovernment since the Bayh-Dole Act was enacted in 1980.  However, we cannot assure 

 

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you that the Federal governmentwill not invoke its March-in Rights against us in the future.

 

***Alternatives to our Hydrality technology or improvements totraditional energy technologies could make the Hydrality less attractive orrender it obsolete, thereby limiting or eliminating our potential sales.***

 

The Hydrality technologyis among a number of alternative energy products being developed by companiesaround the world.  A significant amount of public and private funding iscurrently directed towards development of microturbines, solar power, windpower and other types of fuel cell technologies.  Technological advancesin alternative energy products, improvements in the electric power grid orother fuel cell technologies may make the Hydrality technology less attractiveor render it obsolete, thereby limiting or eliminating our potential sales.

 

***We may not be able to protect our patents and intellectualproperty and we could incur substantial costs defending against claims that ourproducts infringe on the proprietary or other rights of third parties.***

 

We expect to rely onpatents and other policies and procedures related to confidentiality to protectour intellectual property.  Four provisional patent applications werefiled by Howard Foote in 2006 and assigned to us. CalTech also filed aprovisional patent application on the technology in 2006.  In anticipationof filing non-provisional patent applications, all provisional patentapplications were reviewed by us. It was determined that the CalTechprovisional patent best embodied the technology desired by us, and that theFoote provisional applications either duplicated the CalTech provisional patentor embodied magnesium metal-air battery technology no longer of interest to us. Thus, some of the Foote provisional applications have been allowed tolapse by the failure to file non-provisional applications based thereon. On May 7,2007 a non-provisional patent application based on the CalTech provisionalpatent application was prepared and filed by Stinson Morrison Hecker LLP in thename of California Institute of Technology as assignee and us as exclusivelicensee of the technology. We also expect to file during 2007 a provisionalpatent application on a hydrogen reactor design currently under development.

 

However, some of ourintellectual property may not be covered by any patent or patent application. Moreover, we do not know whether any of our pending patent applicationsor those CalTech will file or, in the case of patents issued or to beissued, that the claims allowed are or will be sufficiently broad to protectour technology and processes.  Even if all of our patent applications areissued and are sufficiently broad, our patents may be challenged orinvalidated.  We could incur substantial costs in prosecuting or defendingpatent infringement suits or otherwise protecting our intellectual propertyrights.  While we have attempted to safeguard and maintain our proprietaryrights, we do not know whether we have been or will be completely successful indoing so.  Moreover, patent applications filed in foreign countries may besubject to laws, rules and procedures that are substantially differentfrom those of the United States, and any resulting foreign patents may bedifficult and expensive to enforce.

 

Our competitors mayindependently develop or patent technologies or processes that aresubstantially equivalent or superior to ours.  If we are found to beinfringing on third party patents, we could be required to pay substantialroyalties and/or damages, and we do not know whether we will be able to obtainlicenses to use such patents on acceptable terms, if at all.  Failure toobtain needed licenses could delay or prevent the development, manufacture orsale of our products, and could necessitate the expenditure of significant resourcesto develop or acquire non-infringing intellectual property.

 

Asserting, defending andmaintaining our intellectual property rights could be difficult and costly andfailure to do so may diminish our ability to compete effectively and may harmour operating results.  We may need to pursue lawsuits or legal action inthe future to enforce our intellectual property rights, to protect our tradesecrets and domain names and to determine the validity and scope of theproprietary rights of others.  If third parties prepare and fileapplications for trademarks used or registered by us, we may oppose thoseapplications and be required to participate in proceedings to determine thepriority of rights to the trademark.  Similarly, competitors may have filedapplications for patents, may have received patents and may obtain additionalpatents and proprietary rights relating to products or technology that block orcompete with ours.  We may have to participate in interference proceedingsto determine the priority of invention and the right to a patent for thetechnology.  Litigation and interference proceedings, even if they aresuccessful, are expensive to pursue and time consuming, and we could use asubstantial amount of our financial resources in either case.

 

***Our failure to protect our intellectualproperty rights may undermine our competitive position and litigation toprotect our intellectual property rights or defend against third-partyallegations of infringement may be costly.***

 

Protection of ourproprietary processes, methods and other technology, especially our proprietaryvapor transport deposition process and laser scribing process, is critical toour business. Failure to protect and monitor the use of our existingintellectual property rights could result in the loss of valuable technologies.We rely primarily on patents, trademarks, trade secrets, copyrights and othercontractual restrictions to protect our intellectual property. We have receivedpatents in the United States and select foreign jurisdictions and we havepending applications in such jurisdictions as well. Our existing patents andfuture patents could be challenged, invalidated, circumvented, or renderedunenforceable. We have pending patent applications in the United States and inforeign jurisdictions. Our pending patent applications may not result in issuedpatents, or if patents are issued to us, such patents may not be sufficient toprovide meaningful protection against competitors or against competitivetechnologies.

 

We also rely uponunpatented proprietary manufacturing expertise, continuing technologicalinnovation and other trade secrets to develop and maintain our competitiveposition. While we generally enter into confidentiality agreements with ouremployees and third parties to protect our intellectual property, suchconfidentiality agreements are limited in duration and could be breached and 

 

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may not provide meaningful protection for our trade secrets or proprietarymanufacturing expertise. Adequate remedies may not be available in the event ofunauthorized use or disclosure of our trade secrets and manufacturingexpertise. In addition, others may obtain knowledge of our trade secretsthrough independent development or legal means. The failure of our patents orconfidentiality agreements to protect our processes, equipment, technology,trade secrets and proprietary manufacturing expertise, methods and compoundscould have a material adverse effect on our business. In addition, effectivepatent, trademark, copyright and trade secret protection may be unavailable orlimited in some foreign countries. In some countries we have not applied forpatent, trademark, or copyright protection.

 

Third parties mayinfringe or misappropriate our proprietary technologies or other intellectualproperty rights, which could have a material adverse effect on our business,financial condition and operating results. Policing unauthorized use ofproprietary technology can be difficult and expensive. Also, litigation may benecessary to protect our legitimate interests.

 

***We cannot assure you of market acceptance of our Hydralitytechnology, the absence of which will limit our revenue and potential profit.***

 

Even if we are able todevelop the Hydrality technology, there can be no assurance that a market willdevelop for it.  Even if an electric fuel vehicle market develops, adifferent form of vehicle may be more accepted in the marketplace. Moreover, other solutions to the problem of containing emissions createdby internal combustion engines may be invented, developed and produced. Any other solution could achieve greater market acceptance than ourHydrality technology.  The failure of a market for our Hydralitytechnology would adversely affect or eliminate our revenue and potentialprofit.

 

***Wecannot assure you that eTec will continue to receive Department of Energy(DOE), or any other government funding, which comprises a large portion of itsrevenue.***

 

Government funding ofprojects related to renewable energy, energy, and transportation is subject tocuts or cancellation without notice. A large portion of the consulting andtesting revenue of eTec is DOE related activity, and as such the future of suchrevenue streams is uncertain and out of our control.

 

***Wecannot assure that the underlying technology of SuperCharge and MinitChargerwill remain commercially viable, and this could affect the revenue andpotential profit of eTec and MinitCharger.***

 

We face competition inthe 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 industrialapplications, we cannot assure you that competitors will not develop and bringto market substantially equivalent or superior technology. A loss of ourtechnology advantage could adversely impact or eliminate our revenue andprofitability

 

***Wecannot assure you that the demand for hydrogen testing, educational and small-scaleapplications will continue, and this could affect the prospects for Fuel CellStore.***

 

We face competition inthe provision of fuel cell products and educational materials from a number ofcompanies. Additionally, the hydrogen industry is evolving, demand isunpredictable and follows outside forces such as school funding programs andgovernment funding which are out of our control.

 

***We have incurred losses since ourinception and may be unable to generate sufficient net sales in the future tosustain profitability.***

 

We incurred a net loss of$14,497,768 in 2006 and $13,691,964 in 2007. We had an accumulated deficit of$(28,270,409) at December 31, 2007 and we may incur losses in the future.In addition, we expect our operating expenses to increase as we expand ouroperations. Our ability to reach profitability depends on a number of factors,including the growth rate of the renewable energy industry, the continuedmarket acceptance electric transportation systems, solar products and batteryproducts, and the competitiveness of our technology and engineering services.If we are unable to generate sufficient net sales to sustain profitability andpositive cash flows, we could be unable to satisfy our commitments and may haveto discontinue operations.

 

***An increase in interest rates or adramatic tightening of corporate credit markets could make it difficult forend-users to finance the cost of a conversion to renewable energy products andsystems and could reduce or eliminate the demand for our products.***

 

Many of our end-usersdepend on debt financing to fund the initial capital expenditure required topurchase and install renewable energy products and systems. As a result, an increasein interest rates could make it difficult for our end-users to secure thefinancing necessary to purchase and install renewable energy products and systems******on favorableterms, or at all and thus lower demand for our products and reduce our netsales. In addition, we believe that a significant percentage of our end-usersinstall renewableenergy products as an investment, funding the initial capitalexpenditure through a combination of equity and debt. An increase in interestrates could lower an investor’s return on investment in a******renewable energyproducts and systems******andmake alternative investments more attractive relative to renewable energy products and, in eachcase, could cause these end-users to seek alternative investments.

 

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***Problems with product quality orperformance may cause us to incur warranty expenses, damage our marketreputation and prevent us from maintaining or increasing our market share.***

 

Our products are soldwith various materials and workmanship warranty for technical defects and a tenyear and twenty-five year warranty against declines of more than 10% and 20% oftheir initial rated power, respectively. As a result, we bear the risk ofextensive warranty claims long after we have sold our products and recognizednet sales. As of December 31, 2007, our accrued warranty expense amountedto approximately $231,303.

 

Because of the limitedoperating history of our products, we have been required to make assumptionsregarding the durability and reliability of our products. Our assumptions couldprove to be materially different from the actual performance of our products,causing us to incur substantial expense to repair or replace defective solarmodules in the future. Any widespread product failures may damage our marketreputation and cause our sales to decline and require us to repair or replacethe defective products, which could have a material adverse effect on ourfinancials results

 

***We depend on a limited number ofthird-party suppliers for key raw materials and their failure to perform couldcause manufacturing delays and impair our ability to deliver our products tocustomers in the required quality and quantities and at a price that isprofitable to us.***

 

Our failure to obtain rawmaterials and components that meet our quality, quantity and cost requirementsin a timely manner could interrupt or impair our ability to manufacture ourproducts or increase our manufacturing cost. Most of our key raw materials areeither sole-sourced or sourced by a limited number of third-party suppliers. Asa result, the failure of any of our suppliers to perform could disrupt oursupply chain and impair our operations. In addition, many of our suppliers aresmall companies that may be unable to supply our increasing demand for rawmaterials as we implement our planned rapid expansion. We may be unable toidentify new suppliers or qualify their products for use on our productionlines in a timely manner and on commercially reasonable terms, if at all.

 

***Our substantial international operationssubject us to a number of risks, including unfavorable political, regulatory,labor and tax conditions in foreign countries.***

 

We have significantmarketing and distribution operations outside the United States and expect tocontinue to have significant manufacturing operations outside the United Statesin the near future.  We have significantmanufacturing operations in Mexico. In the future, we may have operations inother European countries, and other Asian countries and, as a result, we willbe subject to the legal, political, social and regulatory requirements andeconomic conditions of many jurisdictions. Risks inherent to internationaloperations, include, but are not limited to, the following:

 

·                  difficulty in enforcing agreements inforeign legal systems;

 

·                  foreign countries may imposeadditional withholding taxes or otherwise tax our foreign income, imposetariffs, or adopt other restrictions on foreign trade and investment, includingcurrency exchange controls;

 

·                  fluctuations inexchange rates may affect product demand and may adversely affect ourprofitability in U.S. dollars to the extent the price of our solarmodules, cost of raw materials and labor and equipment is denominated in aforeign currency;

 

·                  inability to obtain, maintain, orenforce intellectual property rights;

 

·                  risk of nationalization of privateenterprises;

 

·                  changes in general economic andpolitical conditions in the countries in which we operate;

 

·                  unexpected adverse changes in foreignlaws or regulatory requirements, including those with respect to environmentalprotection, export duties and quotas;

 

·                  difficulty with staffing and managingwidespread operations; and

 

·                  trade barriers such as exportrequirements, tariffs, taxes and other restrictions and expenses, which couldincrease the prices of our solar modules and make us less competitive in somecountries.

 

***Our future success depends on ourability to retain our key employees and to successfully integrate them into ourmanagement team.***

 

We are dependent on the services of Jonathan Read our Chief ExecutiveOfficer, Barry Baer, our Chief Financial Officer, Don Karner, Chief ExecutiveOfficer of our eTec subsidiary, Darrell Musick, Chief Executive Officer ofInnergy, and other members of our senior management team. The loss of Messrs. Read,Baer, Karner, and Musick or any other member of our senior management teamcould have a material adverse effect on us. There is a risk that we will not beable to retain or replace these key employees. Several of our current keyemployees, including Messrs. Read, Baer, Karner, and Musick, are subjectto employment conditions or arrangements that contain post-employmentnon-competition provisions. However, these arrangements permit the employees toterminate their employment with us upon little or no notice. We recently addedseveral members to our senior management team. 

 

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Integrating them into our management team could prove disruptive to our dailyoperations, require a disproportionate amount of resources and managementattention and prove unsuccessful.

 

***We have limited insurance coverage andmay incur losses resulting from product liability claims, businessinterruptions, or natural disasters.***

 

We are exposed to risks associated with product liability claims in theevent that the use of our solar modules results in personal injury or propertydamage. Our recharging systems, batteries, solar modules areelectricity-producing devices, and it is possible that users could be injuredor killed by our products due to product malfunctions, defects, improperinstallation, or other causes. Our companies commercial shipment of productsbegan in 1999 and, due to our limited historical experience, we are unable topredict whether product liability claims will be brought against us in thefuture or the effect of any resulting adverse publicity on our business.Moreover, we may not have adequate resources and insurance to satisfy ajudgment in the event of a successful claim against us. The successfulassertion of product liability claims against us could result in potentiallysignificant monetary damages and require us to make significant payments. Anybusiness disruption or natural disaster could result in substantial costs anddiversion of resources.

 

**RisksRelating to Our Common Stock:**

 

***If We Fail toRemain Current on Our Reporting Requirements with the commission, We Could beRemoved From the OTC Bulletin Board Which Would Limit the Ability ofBroker-Dealers to Sell Our Securities and the Ability of Stockholders to SellTheir Securities in the Secondary Market.***

 

Companies trading on theOTC Bulletin Board, such as us, must be reporting issuers under Section 12of the Securities Exchange Act of 1934, as amended, and must be current intheir reports to the commission under Section 13, in order to maintainprice quotation privileges on the OTC Bulletin Board. If we fail to remaincurrent on our SEC reporting requirements, we could be removed from the OTCBulletin Board. As a result, the market liquidity for our securities could beseverely adversely affected by limiting the ability of broker-dealers to sellour securities and the ability of stockholders to sell their securities in thesecondary market.

 

***Our Common Stockis Subject to the “Penny Stock” Rules of the SEC and the Trading Market inOur Securities is Limited, Which Makes Transactions in Our Stock Cumbersome andMay Reduce the Value of an Investment in Our Stock.***

 

The Securities andExchange Commission has adopted Rule 15g-9 which establishes thedefinition of a “penny stock,” for the purposes relevant to us, as any equitysecurity that has a market price of less than $5.00 per share or with anexercise price of less than $5.00 per share, subject to certain exceptions. Forany transaction involving a penny stock, unless exempt, the rules require:

 

·                                          thata broker or dealer approve a person’s account for transactions in penny stocks;and

 

·                                          thebroker or dealer receives from the investor a written agreement to thetransaction, setting forth the identity and quantity of the penny stock to bepurchased.

 

In order to approve aperson’s account for transactions in penny stocks, the broker or dealer must:

 

·                                          obtainfinancial information and investment experience objectives of the person; and

 

·                                          makea reasonable determination that the transactions in penny stocks are suitablefor that person and the person has sufficient knowledge and experience infinancial matters to be capable of evaluating the risks of transactions inpenny stocks.

 

The broker or dealer mustalso deliver, prior to any transaction in a penny stock, a disclosure scheduleprescribed by the Commission relating to the penny stock market, which, inhighlight form:

 

·                                          setsforth the basis on which the broker or dealer made the suitabilitydetermination; and

 

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·                                          thatthe broker or dealer received a signed, written agreement from the investorprior to the transaction.

 

Disclosure also has to bemade about the risks of investing in penny stocks in both public offerings andin secondary trading and about the commissions payable to both thebroker-dealer and the registered representative, current quotations for thesecurities and the rights and remedies available to an investor in cases offraud in penny stock transactions. Finally, monthly statements have to be sentdisclosing recent price information for the penny stock held in the account andinformation on the limited market in penny stocks.

 

Generally, brokers may beless willing to execute transactions in securities subject to the “penny stock”rules. This may make it more difficult for investors to dispose of our commonstock and cause a decline in the market value of our stock.

 

***If our stock price fluctuates, you couldlose a significant part of your investment.***

 

The market price of ourstock 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 tocover our common stock or changes in financial estimates by analysts;

 

·                  the inability to meet the financialestimates of analysts who follow our common stock;

 

·                  announcements by us or ourcompetitors of significant contracts, productions, acquisitions, or capitalcommitments;

 

·                  variations in quarterly operatingresults;

 

·                  general economic conditions;

 

·                  terrorist acts;

 

·                  future sales of our commonstock; and

 

·                  investor perception of us and therenewable energy industry.

 

As a result of thesefactors, investors in our common stock may not be able to resell their sharesat or above the price they paid for the common stock. These broad market andindustry factors may materially reduce the market price of our common stock,regardless of our operating performance.

 

***If an event ofdefault occurs under the security agreement, secured convertible notes, orstock pledge agreement, we could lose possession of all our assets and theassets of our subsidiaries.***

 

In connection with thesecurity agreement entered into on November 6, 2007, which securesthe November 2007 Debentures and the December 2007 Debentures, wegranted 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 agreementprovides that upon the occurrence of an event of default under any agreementwith the purchasers signatory to the securities purchase agreement shall havethe right to take possession of the collateral, to operate our business usingthe collateral, and have the right to assign, sell, lease or otherwise disposeof and deliver all or any part of the collateral, at public or private sale orotherwise to satisfy our obligations under these agreements. Any attempt by theguaranteed parties to foreclose on our assets could likewise cause us tocurtail our current operations.

 

**RisksRelating To Our Convertible Debentures:**

 

***The issuance ofour stock upon conversion of the debentures could encourage short sales bythird parties, which could contribute to the future decline of our stock priceand materially dilute existing stockholders’ equity and voting rights.***

 

The November 2007and December 2007 debentures have the potential to cause significantdownward pressure on the price of our common stock. This is particularly thecase if the shares being placed into the market exceed the market’s ability toabsorb the increased number of shares of stock. Such an event could placefurther downward pressure on the price of our common stock, which presents anopportunity to short sellers and others to contribute to the future decline ofour stock price. If there are significant short sales of our stock, the pricedecline that would result from this activity will cause the share price todecline more so, which, in turn, may cause long holders of the stock to selltheir shares thereby contributing to sales of stock in the market. If there isan imbalance on the sell side of the market for the stock, our stock price willdecline. Falling prices may encourage investors to profit by engaging in shortsales by borrowing shares that they do not own in anticipation of a decline inprice to enable the seller to cover the sale with a 

 

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purchase at a later date,at a lower price, and thus at a profit, which further contributes to a declinein the price of our stock. If this occurs, the number of shares of our commonstock that is issuable upon conversion of the debentures will increase, whichwill materially dilute existing stockholders’ equity and voting rights.

 

***If we arerequired for any reason to repay our outstanding secured convertibledebentures, we would be required to further deplete our working capital.***

 

If we were required torepay the convertible debentures, we would be required to deplete our workingcapital and/or raise additional funds. If we were unable to repay thedebentures when required, the holders could commence legal action against us toenforce their rights. Any such action may require us to curtail or ceaseoperations.

 

***Our directors, executive officers and affiliates willcontinue to exert significant control over our future direction, which couldreduce the sale value of our company.***

 

Members of our Board ofDirectors and our executive officers, together with their affiliates, ownapproximately 39.9% of our outstanding common stock.  Accordingly, thesestockholders, if they act together, may be able to control all mattersrequiring approval of our stockholders, including the election of directors andapproval of significant corporate transactions.  The concentration ofownership, which could result in a continued concentration of representation onour Board of Directors, may delay, prevent or deter a change in control andcould deprive our stockholders of an opportunity to receive a premium for theircommon stock as part of a sale of our assets.

 

***Investors should not anticipate receiving cash dividends onour common stock.***

 

We have never declared orpaid any cash dividends or distributions on our common stock and intend toretain future earnings, if any, to support our operations and to financeexpansion.  Therefore, we do not anticipate paying any cash dividends on thecommon stock in the foreseeable future.

 

***There is a reduced probability of a change of control oracquisition of us due to the possible issuance of preferred stock.  Thisreduced probability could deprive our investors of the opportunity to otherwisesell our stock in an acquisition of us by others.***

 

Our Articles ofIncorporation authorize our Board of Directors to issue up to 200,000,000shares 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 ordesignation of such series, without further vote or action by stockholders. As a result of the existence of “blank check” preferred stock, potentialacquirers of our company may find it more difficult to, or be discouraged from,attempting to effect an acquisition transaction with, or a change of controlof, our company, thereby possibly depriving holders of our securities of certainopportunities to sell or otherwise dispose of such securities at above-marketprices pursuant to such transactions.

 

***We may need to raise additional funds which, if available tous, would dilute the ownership of existing investors.***

 

We may need to raiseadditional funds in the future to finance our further growth and development ofour technologies. We cannot give any assurance that we would be successful inraising 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 alarge number of shares underlying our convertible debentures and warrants thatmay be available for future sale and the sale of these shares may depress themarket price of our common stock.***

 

As of December 31,2007, we had 124,224,528 shares of common stock issued and outstanding as wellas outstanding warrants to purchase an additional 19,075,462 shares of commonstock.  In the offering pursuant to the registration statement, effectiveon January 28, 2008 the selling stockholders may convert up to 19,607,852shares of common stock underlying convertible debentures and exercise up to9,803,925 shares of common stock underlying warrants.

 

***Failure to achieve and maintaineffective internal controls in accordance with Section 404 of theSarbanes-Oxley Act could have a material adverse effect on our business andstock price.***

 

As a public company, we are required to document and test our internalcontrol procedures in order to satisfy the requirements of Section 404 ofthe Sarbanes-Oxley Act, which will require annual management assessments of theeffectiveness of our internal control over financial reporting and a report byour independent registered public accounting firm that both addresses management’sassessment of the effectiveness of internal control over financial reportingand the effectiveness of internal control over financial reporting. During thecourse of our testing, we may identify deficiencies which we may not be able toremediate in time to meet our deadline for compliance with Section 404.Testing and maintaining internal controls can divert our management’s attentionfrom other matters that are important to our business. We also expect the newregulations to increase our legal and financial compliance cost, make it moredifficult to attract and retain qualified officers and members of our board ofdirectors (particularly to serve on our audit committee) and make someactivities more difficult, time consuming and costly. We may not be able toconclude on an ongoing basis that we have effective internal control overfinancial reporting in accordance with Section 404 or our independentregistered public accounting firm may not be able or willing to issue anunqualified report on the effectiveness of our internal control over financialreporting. If we conclude that our internal control over financial reporting isnot effective, we cannot be certain as to the timing of completion of ourevaluation, testing and remediation actions or their effect on our operationssince there is presently no precedent available by which to measure complianceadequacy. If either we are unable to conclude that we have effective internalcontrol over financial reporting or our independent auditors are unable to provideus with an unqualified report as required by Section 404, then investorscould lose confidence in our reported financial information, which could have anegative effect on the trading price of our stock.

 

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DESCRIPTION OF PROPERTY

 

Our primary propertyconsists of office and manufacturing facilities to support our operations. Ourfacilities 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                            |       |
| Warehouse/Office     |       | Toronto, Canada |       | Leased        |       | 12,000                            |       |
| Warehouse            |       | Toronto, Canada |       | Leased        |       | 9,000                             |       |

 

We purchased the officebuilding 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 isstructured as an interest-only loan, bears interest at a rate of 6.75%calculated annually, with monthly payments in the amount of $1,617 duebeginning on February 16, 2007.  Theentire principal balance of the loan is due on or before January 16,2012.  The loan is secured by a deed oftrust on the office building.

 

Our lease terms rangefrom month to month through to 2010, with all terminating on or before November30, 2010.

 

It is our belief that weare adequately insured regarding our leased and owned properties.

 

LEGAL PROCEEDINGS

 

None of our directors,officers, significant employees, or affiliates has been convicted in a criminalproceeding, exclusive of traffic violations.

 

None of our directors,officers, significant employees, or affiliates has been permanently ortemporarily enjoined, barred, suspended, or otherwise limited from involvementin any type of business, securities or banking activities.

 

None of our directors,officers, significant employees, or affiliates of has been convicted ofviolating a federal or state securities or commodities law.

 

We arenot a party to any pending legal proceedings.

 

SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS

 

On December 10, 2007 we solicited the proxies ofour shareholders to vote to approve an amendment and restatement of ourArticles of Incorporation to clarify Ecotality, Inc.’s authorized capitalstock and the ability of our board of directors to set the number of directorsconstituting the full board of directors consistent with the terms of ourbylaws.  Approval was obtained from ourshareholders January 3, 2008.

 

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**PART II**

 

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK

 

**Marketinformation**

 

Our common stock has beenquoted 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 periodsindicated are set forth below.  These closing prices do not reflect retailmark-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       |   |

 

On December 31, 2007the closing bid price on the OTC Bulletin Board for our common stock was $0.19 per share.

 

The shares quoted aresubject to the provisions of Section 15(g) and Rule 15g-9 of theSecurities Exchange Act of 1934, as amended (the Exchange Act”), commonlyreferred to as the “penny stock” rule. Section 15(g) sets forthcertain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporatesthe definition of penny stock as that used in Rule 3a51-1 of the ExchangeAct.

 

The Commission generallydefines 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 thatany equity security is considered to be a penny stock unless that security is:registered and traded on a national securities exchange meeting specifiedcriteria set by the Commission; authorized for quotation on The NASDAQ StockMarket; issued by a registered investment company; excluded from the definitionon the basis of price (at least $5.00 per share) or the registrant’s nettangible assets; or exempted from the definition by the Commission. Trading in the shares is subject to additional sales practice requirements onbroker-dealers who sell penny stocks to persons other than establishedcustomers and accredited investors, generally persons with assets in excess of$1,000,000 or annual income exceeding $200,000, or $300,000 together with theirspouse.

 

For transactions coveredby these rules, broker-dealers must make a special suitability determinationfor the purchase of such securities and must have received the purchaser’swritten consent to the transaction prior to the purchase. Additionally, for anytransaction involving a penny stock, unless exempt, the rules require thedelivery, prior to the first transaction, of a risk disclosure documentrelating to the penny stock market. A broker-dealer also must disclose thecommissions payable to both the broker-dealer and the registeredrepresentative, and current quotations for the securities. Finally, the monthlystatements must be sent disclosing recent price information for the pennystocks held in the account and information on the limited market in pennystocks.  Consequently, these rules may restrict the ability of brokerdealers to trade and/or maintain a market in the company’s common stock and mayaffect the ability of shareholders to sell their shares.

 

**SharesAvailable Under Rule 144**

 

As of March 28,2008, we had 124,742,860 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 thatwere purchased from us, or any affiliate, at least six months (subject only tothe Rule 144(c) public information requirement until the securitieshave been held for one year), previously, including a person who may be deemedour affiliate, is entitled to sell within any three month period, a number ofshares that does not exceed the greater of:

 

1.          1% of the thenoutstanding shares of our common stock; or

 

2.          The average weeklytrading volume of our common stock during the four calendar weeks preceding thedate on which notice of the sale is filed with the Securities and ExchangeCommission.

 

Sales under Rule 144are also subject to manner of sale provisions, notice requirements and theavailability of current public information about us.  Any person who isnot deemed to have been our affiliate at any time during the 90 dayspreceding a sale, and who owns shares within the definition of “restricted securities”under Rule 144 under the Securities Act that were purchased from us, orany affiliate, at least one year previously, is entitled to sell such sharesunder Rule 144(k) without regard to the volume limitations, manner ofsale provisions, public information requirements or notice requirements.

 

Future sales ofrestricted common stock under Rule 144 or otherwise or of the shares couldnegatively impact the market price of our common stock.  We are unable toestimate the number of shares that may be sold in the future by our existingstockholders or the effect, if any, that sales of shares by such stockholderswill have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock by existing stockholderscould adversely affect prevailing market prices.

 

**Holders**

 

As of December 31,2007, ECOtality, Inc. had approximately 124,224,528 shares of $0.001 parvalue common stock issued and outstanding held by 458 shareholders of record. ECOtality, Inc.’s Transfer Agent is:  Holladay StockTransfer, 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 orpaid any cash dividends on our common stock.  For the foreseeable future,we intend to retain any earnings to finance the development and expansion ofour business, and do not anticipate paying any cash dividends on our commonstock.  Any future determination to pay dividends will be at thediscretion of the Board of Directors and will be dependent upon then existingconditions, including our financial condition and the results of operations,capital requirements, contractual restrictions, business prospects, and other factorsthat the Board of Directors considers relevant.

 

**SecuritiesAuthorized for Issuance under Equity Compensation Plans**

 

The following tableprovides the following information as of December 31, 2007, for equitycompensation plans previously approved by security holders, as well as thosenot previously approved by security holders:

 

1.          The number of securitiesto be issued upon the exercise of outstanding options, warrants and rights;

 

2.          The weighted-averageexercise price of the outstanding options, warrants and rights; and

 

3.               Otherthan securities to be issued upon the exercise of the outstanding options,warrants and rights, the number of securities remaining available for futureissuance 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** | ** ** | **1,950,000**                  | **(1)**    |
| **Securities  Committed to Approved Compensation Plans not yet Issued**                | ** ** | **1,200,000**                  | ** ** |
| **Number  of Securities Issued from Plan to Date**                                     | ** ** | **750,000**                    | ** ** |
| ** **                                                                             | ** ** | ** **                     | ** ** |
| **Number  of securities remaining available for future issuance**                      | ** ** | **6,100,000**                  | ** ** |

 

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**(1) **Weighted Average Price of Outstanding Options, Warrants andRights is $0.23 per share

 

**RecentSales of Unregistered Securities**

 

In October 2006 weissued an aggregate of 34,499,920 shares of our common stock to a group of 277accredited investors through Brookstreet Securities Corporation, as PlacementAgent, at $0.35 per share pursuant to the exemption provided by Section 4(2) ofthe Act and Rule 506 of Regulation D promulgated thereunder.  Theshares were offered solely to accredited investors, no form of generaladvertising was used, all investors took the shares as an investment and notwith the intent to distribute and all shares were issued with a restrictivelegend thereon.  The total offering costs related to this issuance was$9,352,713.  As additional consideration for acting as our PlacementAgent, we issued to Brookstreet warrants to acquire 6,899,982 shares of ourcommon 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 investorspursuant to which we sold our Original Issue Discount 8% Secured ConvertibleDebentures and warrants to purchase our common stock in consideration of anaggregate of $4,117,649.  We received gross proceeds of approximately$3,500,000 from this offering.  In connection with the November 2007financing, we issued the following securities to the investors:

 

·                                          $4,117,649in Secured Original Issue Discount Convertible Debentures; and

·                                          CommonStock Purchase Warrants to purchase 6,862,748 shares of common stock at $0.32per share for a period of five years.

 

The warrants areexercisable to purchase one share of common stock at $0.32 per share, and havea term of exercise equal to 5 years.  The warrant holders may not exercisethe warrants for a number of shares of common stock in excess of that number ofshares which upon giving effect to such exercise would cause the aggregatenumber of shares beneficially owned by the holder to exceed 9.99% of theoutstanding shares of the common stock following such exercise.  As of December 31, 2007, no shares ofcommon stock had been issued upon conversion of the debentures or the warrantsissued on November 6, 2007.

 

On December 6, 2007,we entered into a financing arrangement with a group of accredited investorspursuant to which we sold our Original Issue Discount 8% Secured ConvertibleDebentures and warrants to purchase our common stock in consideration of 

 

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an aggregate of$1,764,706..  We received gross proceeds of approximately $1,500,000 fromthis offering.  In connection with the December 2007 financing, weissued the following securities to the investors:

 

·                                          $1,764,706.50in Secured Original Issue Discount Convertible Debentures; and

·                                          CommonStock Purchase Warrants to purchase 2,941,177 shares of common stock at $0.32per share for a period of five years.

 

The warrants areexercisable to purchase one share of common stock at $0.30 per share, and havea term of exercise equal to 5 years.  The Warrant holders may not exercisethe Warrants for a number of shares of common stock in excess of that number ofshares which upon giving effect to such exercise would cause the aggregatenumber of shares beneficially owned by the holder to exceed 9.99% of theoutstanding shares of the Common stock following such exercise.  As of December 31, 2007, no shares ofcommon stock had been issued upon conversion of the debentures or the warrantsissued on December 6, 2007.

 

MANAGEMENT’SDISCUSSION AND PLAN OF OPERATIONS.

 

**Forward-LookingStatements**

 

The statements containedin all parts of this document that are not historical facts are, or may bedeemed to be, “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934.  Such forward-looking statements include, but arenot limited to, those relating to the following: our ability to securenecessary financing; expected growth; future operating expenses; futuremargins; fluctuations in interest rates; ability to continue to growand implement growth, and regarding future growth, cash needs, operations,business plans and financial results and any other statements that are nothistorical facts.

 

When used in thisdocument, the words “anticipate,” “estimate,” “expect,” “may,” “plans,” “project,”and similar expressions are intended to be among the statements that identifyforward-looking statements.  Our results may differ significantly from theresults discussed in the forward-looking statements.  Such statementsinvolve risks and uncertainties, including, but not limited to, those relatingto costs, delays and difficulties related to our dependence on our ability toattract and retain skilled managers and other personnel; the intensecompetition within our industry; the uncertainty of our ability to manage andcontinue its growth and implement its business strategy; its vulnerability togeneral economic conditions; accuracy of accounting and other estimates; ourfuture financial and operating results, cash needs and demand for services; andour ability to maintain and comply with permits and licenses; as well as otherrisk factors described in this Annual Report. Should one or more of these risksor uncertainties materialize, or should underlying assumptions prove incorrect,actual outcomes may vary materially from those projected.

 

**Overviewof the Business**

 

Weare a renewable energy company that develops, acquires and operates companiesin the clean technology sector that provide commercial solutions for today’sglobal energy challenges. Through strategic acquisitions, partnerships andtechnology innovations, we strive to advance the market applicability of cleanelectric technologies to become accepted alternatives to carbon-based fueltechnologies. In 2007, through a number of platform acquisitions wetransitioned from a development-stage company into a revenue producing companyfocused on providing renewable energy products and solutions.

 

Weoperate with a commercial “electro-centric” strategy, targeting only productsand companies that are involved in the creation, storage, and/or delivery ofclean or renewable electric power. This strategy has resulted in thedevelopment and acquisition of various operating companies and theestablishment of solar, hydrogen, and energy storage divisions. We aredeveloping a diverse technology product base that is linked through the abilityto deliver comprehensive electro-centric energy alternatives and solutions forcommercial customers seeking to implement greenhouse gas reduction programs(GRPs) and prepare for the impending consumer and governmental moves to carboncaps and taxes. We also believe that by building a technologically diversemulti-product base we can mitigate the uncertainty of renewable energy demandand regulatory changes.  With our primaryfocus on commercially advancing clean electro-centric technologies, we arefocused on improving the world’s prevailing and most dominant energy system -electricity.

 

The current operations ofthe Company consist of:

 

***HydralityTM***

 

HydralityTMis our initial technology and is a complex reactor system that stores and delivers hydrogen on-demandusing magnesium compounds and water. When used in conjunction with existingfuel cell technology, Hydrality emits only pure water and produces no harmfulemissions. An electric power cell or fuel cell is an electrochemicaldevice that combines hydrogen and oxygen to produce electric power withoutcombustion.

 

Based upon a technologydeveloped in conjunction with NASA’s Jet Propulsion Laboratories (JPL) andsubsequently advanced by Arizona State University, Green Mountain Engineeringand Airboss Aerospace, Inc., the technology holds continued promise for avariety of applications. While we initially sought to design and license a costefficient Hydrality system for use in 

 

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motorized vehicles andindustrial equipment, we have identified severaladditional and promising applications for Hydrality that include stationaryapplications for remote power, back-up power systems, and large scaleindustrial and utility use.

 

We expect to derive revenuefrom technology license fees, technology transfer fees, fuel licensing fees andfees for the design, installation and technical support of Hydrality systemsand by third parties.

 

***InnergyPower Systems***

 

Founded in 1989, ourInnergy Power Systems division is based in San Diego, Calif ., with amanufacturing facility in Tijuana, Mexico. Innergy Power is the only NorthAmerican manufacturer of both renewable energy solar modules and thin-sealedrechargeable batteries, as its solar photovoltaic (PV) product line addressesthe burgeoning worldwide demand for solar energy products and off-grid power.Innergy Power’s fiberglass reinforced panel (FRP) solar modules are designed tomeet a broad range of applications for emergency preparedness and recreation,where quality, durability, rugged construction and light weight are importantin the outdoor environment. Applications include logistics tracking, assetmanagement systems, off-grid lighting, mobile communications, mobile computing,recreational vehicles, signaling devices and surveillance cameras.

 

Innergy and itssubsidiary, Portable Energy De Mexico, S.A. DE C.V., were acquired as platformacquisitions that provide us the ability to further expand our production andmanufacturing of solar products and energy storage devices. We viewed thisacquisition as the starting point of a major move to provide solar products andsolutions for current and developing commercial markets. Solar is expected tobecome one of our four core technology groups and is expected to contributesignificant long and short-term earnings and revenue growth for us. Innergy isactively pursuing growth opportunities through product line expansion, jointventures, acquisitions, and manufacturing contracts.

 

***eTec***

 

Electric TransportationEngineering Corporation (eTec) was incorporated in Arizona in 1996 to supportthe development and installation of battery charging infrastructures forelectric vehicles.  eTec conductsresearch, development and testing of advanced transportation and energy systems.Specializing in alternative-fuel, hybrid and electric vehicles andinfrastructures, eTec offers consulting, technical support and field servicesand is committed to developing and commercially advancing clean electrictechnologies with clear market advantages. eTec also holds exclusive patent rights for their flagship products, the*eTec SuperChargeTM*  –battery fast charge systems that allow forextremely fast charging while generating less heat and promoting longer batterylife than conventional chargers.  Thistechnology was licensed to eTec from Norvic Traction in 1999. The eTec SuperChargesystem is specifically designed for airport ground support equipment,neighborhood electric vehicle operations, and marine and transit systems. Sincethe acquisition of the technology, eTec has made considerable engineering andproduct advancements and is currently a leader in providing this clean electricfast charging technology to airports throughout North America.

 

eTec has a long historyin clean and renewable technologies and has various standing contractualrelationships as a test contractor and/or primary and consulting engineer forprojects with the Department of Energy, several national research laboratories,national energy storage consortiums, and large electric utilities where theyprovide services in energy storage, monitoring, system design and fabrication,product and vehicle testing, and product development. Their work has been inthe areas of advanced battery technologies, fast charging technologies,hydrogen creation, storage and dispensing systems, electric vehicle systems,recharging stations, and coal gasification programs.

 

eTec was acquired as anexpansion platform for it’s core expertise in battery technologies, fastcharging systems, energy distribution infrastructure, and advanced vehicletechnologies and testing, which includes electric vehicle (EV), hybrid electricvehicle (HEV), plug-in hybrid electric vehicle (PHEV) and hydrogen vehicletechnologies. We believe that eTec and its subsidiaries will expand its coretechnologies through new product development, joint ventures, acquisitions andorganic growth.

 

***EdisonMinit-Charger***

 

Prior to our acquisitionof it in November 2007, Edison MinitCharger was a division of EdisonSource, itself a division of Edison International (the Southern Californiaenergy conglomerate), since 1999. Edison had originally acquired NorvicTraction Technology which became Edison MinitCharger for its unique technologyin fast charge and complex battery maintenance programs for use in materialhandling applications (forklifts etc)  Ithas been and continues to be one of the leaders in that industry. The coretechnology is one that allows for the conversion of materials handlingequipment electricity requirements into fast charging capability, eliminatingthe need for propane or diesel equipment or for backup batteries and costlychange out operations required with traditional straight line charging.Following the initial acquisition of Norvic, Edison engineers completed manyadvancements of the technology and received numerous patents, all of which weretransferred to us in the acquisition. eTec/MinitCharger has a large customerbase of Fortune 500 companies and corporate entities across North America.

 

The acquisition of EdisonMinit-Charger creates a much larger eTec and remerges the technologies and advancementsthat sprung from the original Norvic Traction technology: Edison’sMinit-Charger and eTec’s SuperCharge products. It allows the 

 

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unification of theunderlying fast charging technology under a single engineering, manufacturingand sales entity and creates an immediate leadership position in the rapidlygrowing clean technology sector of electric vehicle infrastructuretechnologies.

 

***ECOtalityStores, Inc. (dba Fuel Cell Store)***

 

ECOtality Stores, Inc.(dba Fuel Cell Store) operates as our online retail division. Fuel Cell Store(www.fuelcellstore,com) in an e-commerce marketplace that offers consumers thewidest 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 andcomprehensive range of fuel cell products including fuel cell stacks, systems,component parts and educational materials. In addition to primary retail operations, Fuel Cell Store also offersconsulting services for high schools, colleges, and leading researchinstitutes, and is available to host workshops, conferences and corporateevents. Fuel Cell Store is the leading market place for fuel cell stack,component, and hydrogen storage manufacturers to unite with consumers and is anattractive source for hydrogen and fuel cell industry activity and direction.

 

**OrganizationalHistory**

 

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

 

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

 

In connection with theSettlement, an officer and director of ECOtality entered into an escrowagreement with the Parties, which canceled and superseded separate prior escrowagreements entered into with each of Foote and Winfield, individually, on February 15,2006.  The 2006 Escrow provided for the potential issuance of an aggregateof 40,000,082 shares of our common stock to the Parties, upon the achievementof certain performance standards, as set forth in the 2006 Escrow.  The2007 Escrow provides for: (1) the immediate release of 1,500,000 shares ofour common stock held per the 2006 Escrow to the Parties; (2) theimmediate release from escrow and return to Harold Sciotto of 32,500,000 sharesof our common stock; and (3) the immediate release to us of 6,000,000shares of our common stock from escrow for cancellation.

 

On June 12, 2006, weentered into a License Agreement with California Institute of Technology(CalTech), which operates Jet Propulsion Laboratory (JPL), whereby we acquiredcertain exclusive licensed patent and/or patent applications rights andimprovement patent rights related to research performed under the JPL Task PlanNo. 82-10777, entitled “Mechanically-Fed Metal-Air Fuel Cell As A HighEnergy Power Source” (“Task Plan”), as well as a nonexclusive licensedtechnology rights developed as a result of the Task Plan.  As partialconsideration paid in connection with the License Agreement, we issued5,869,565 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 areobligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on June 12,2009, continuing until the expiration, revocation, invalidation orunenforceability of the last exclusively licensed patent rights or improvementpatent rights.  The License Agreement carries a perpetual term, subject todefault, infringement, expiration, revocation or unenforceability of the LicenseAgreement and the licenses granted thereby.

 

Under our agreement withJPL, we hired it to engineer a magnesium-based system that produces a hybridpower source that releases hydrogen on demand, for which we paid JPL a total of$1,263,000.  We believe that availablehydrogen generation, storage and delivery methods are bulky, unreliable,expensive or energy inefficient.  We are seeking to build and improve uponexisting hydrogen fuel cell technologies and combine it with our system toachieve safe, clean and reusable power.  A cost efficient hydrogen storageand delivery system may make future electric propulsion devices as practical asthe current generation of gasoline-powered systems.  If we are successfulin commercially developing our Hydrality system, we intend to sublicense thetechnology under our exclusive license agreement with CalTech for a broad rangeof applications including various types of motorized vehicles and industrialequipment.  Additionally, ourresearch and development efforts have identified several new promisingapplications for Hydrality that we intend to further explore which includestationary use, remote power, back-up power systems, and large-scale industrialand utility use. We hope to derive revenue from technologylicense fees, technology transfer fees, fuel licensing fees and fees for thedesign, installation and technical support of Hydrality systems and royaltyfees.

 

**OurHydrality System**

 

Weare developing HydralityTM, a system that stores and delivers hydrogen on-demandusing magnesium compounds and water. When used in conjunction with existingfuel cell technology, Hydrality emits only pure water and produces no harmfulemissions. An electric power cell or fuel cell is an electrochemicaldevice that combines hydrogen and oxygen to produce electric power withoutcombustion. Our Hydrality system began with research directed by Howard Footeand Elliott Winfield, on behalf of Universal Power Vehicles Corporation (“UPV”),into the use of magnesium and water in a metal-air battery to generate powerfor extending the range of all-electric fleet vehicles, the byproduct beingmagnesium oxide.

 

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In September 2005,UPV entered into a task plan with Jet Propulsion Laboratory (“JPL”), aFederally Funded Research and Development Center for the National Aeronauticsand Space Administration (“NASA”) (the “Task Plan”).  The CaliforniaInstitute of Technology (“CalTech”) is the operator of JPL and assignee of itspatent and technology rights.  It was believed that Mr. Foote hadpreviously worked with JPL as a contracting party.  JPL is a leadingcenter for battery and fuel cell research in the country, with a strongbackground in the understanding of aqueous batteries based on reactive metals. JPL’s capability encompasses materials development, cell design anddevelopment, system integration, analysis of performance, modeling and study offailure mechanisms for batteries and fuel cells.

 

Under the Task Plan, JPLwould determine the power requirements for vehicles identified by UPV, conducta design study, identify operational issues for a 65 kW metal-air fuel cellsystem, and recommend the most promising approach.  JPL would then design,assemble and test a 100-watt proof-of-concept system based on the selectedmetal-air system.  JPL would then design, assemble and test a 1-kilowattsystem based on experience generated in Phase II.

 

Based on the research ofJPL first initiated by Mr. Foote and subsequently directed and funded byus, the Hydrality system now comprises a reaction chamber for producinghydrogen into which magnesium is introduced with steam and produces a magnesiumoxide byproduct, instead of magnesium oxide.  The pending patentapplication identifies this chemical reaction and process of generatinghydrogen using an oxidation reaction that yields hydrogen and magnesium oxide. Because hydrogen is not trapped in the hydroxide, we believe only halfthe water is needed for the generation of an equivalent amount of hydrogen at alower temperature. We believe this reaction can be achieved in a reactor thatis onboard a vehicle, allowing for on-board hydrogen generation.  Thehydrogen would then be run through a fuel cell in conjunction with loadmanagement devices to produce electricity to power the vehicle.  If theHydrality technology is commercially developed, then the time-consumingrecharging and limited performance of conventional batteries may no longer berequired.

 

While we initially soughtto design and license a cost efficient Hydrality system for use in motorizedvehicles and industrial equipment, wehave identified several additional promising applications for Hydrality thatinclude stationary application for remote power, back-up power systems, andlarge-scale industrial and utility use as we have described above in ourdescription of our business.

 

The research anddevelopment performed by JPL under the Task Plan and funded by us has significantlyadvanced the Hydrality system beyond the original metal-air battery conceptfirst proposed by Foote and Winfield Further, if the commercial development ofHydrality is successful, the system will have substantial advantages overcurrent hydrogen storage and delivery technologies that are bulky, unreliableexpensive or energy inefficient.

 

On May 7, 2007, anon-provisional patent application was filed by Stinson Morrison Hecker LLP inthe name of California Institute of Technology as assignee and us as exclusivelicensee of the technology, for a Method and System for Storing and GeneratingHydrogen, claiming priority from a provisional application filed by CalTech on May 8,2006.  The details of the patent application and invention areconfidential until publication or issue.  The patent application isgenerally directed towards the hydrogen reactor design currently underdevelopment.

 

The current technology,which is the subject of the pending patent application, is a method forgenerating hydrogen in an on-board vehicle reaction chamber to fuel a fuel cellor modified engine on demand.  The information and diagrams in theTechnology Contribution Agreement and JPL Task Plan involve a metal-air batterydesign.  Based on the research of JPL into the metal-air battery design,the technology has migrated from a basic metal-air battery concept to ahydrogen reactor.

 

We now are in the processof investigating and analyzing third-generation reactor models. Laboratory-scale test reactors are being used to gather data for thepurpose of characterizing the reactor and constructing analytical designmodels.  It is anticipated that patent protection will be sought on one ormore aspects or features of the third-generation reactor.  However, it isnot our stated intent to manufacture reactors. Rather, it is our intent to usethe third-generation reactors to demonstrate the technology, and then licensethe technology and/or the reactor design to others for commercialization. Thespecifications of the commercial reactors have not yet been determined, and thedesigns will vary based on different customer application requirements.

 

**Statusof any announced new product or service**

** **

On March 19, 2007,we received a memorandum from the National Aeronautics and Space Administration’sJet Propulsion Laboratory (JPL) reporting that significant performanceadvancements have been made with regard to the HydralityTM, an on-demandhydrogen storage and delivery system fueled by magnesium and water, JPL hasbeen developing on our behalf.  In summary, the JPL memo states that, inlaboratory tests of the modified Hydrality, the following has occurred:

 

1.          Hydrogen-fuel storage capacity, by weight for theentire system, has increased from 4.7% to between 8% and 9%, depending onoperating mode, allowing the modified Hydrality to meet the Department ofEnergy’s 2010 goal of 6% hydrogen storage capacity.

 

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2.          A drop in operating temperature of the modifiedHydrality of 300-400 degrees Centigrade will allow the use of less expensivematerials in system construction.

 

3.          The amount of heat generated by the modified Hydralityhas decreased by approximately 80% and is expected to result in reduced systemcomplexity, in terms of cost and size.  Additionally, because less energyis generated, and subsequently wasted during operation, the regenerationefficiency of the reaction products is increased by approximately 400%.

 

As a result of thetechnical, performance and cost advancements, JPL has recommended all futureresearch and development efforts be shifted to focus on the modified Hydralityreaction and all associated systems and processes.  JPL and ECOtality haveagreed to develop and test a 7kW prototype, which JPL believes is suitable topower various commercial applications, as well as can be scaled for futuresystems

 

**FuelCell Store**

 

On June 17, 2007 webought the assets of the Fuel Cell Store for $350,000 in cash and 300,000shares of our common stock.   Our common stock will be valued at itsclosing 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 pricepaid cash and stock of $539,000. We concluded this to be anasset purchase rather than a business purchase because we did not acquiretheir debt and they continue to exist after the purchase is completed.  Ofthe assets acquired we identified and assigned a value of $179,775 inmerchandise inventory, $8,600 in fixed assets, and $23,843 in current accountsreceivable. We reviewed the intangible assets that we acquired, including thecustomer data base and internally developed software, and determined that theintangible assets did not have value to us. Therefore, the differencebetween the assets noted and the price paid for the assets $326,782 havebeen allocated to intangible assets and impaired and written-off due to thelack of proven future cash flows generated by the assets acquired.

 

**InnergyPower Corporation**

** **

On October 1, 2007,we purchased certain assets of Innergy Power Corporation and its wholly-ownedsubsidiary, Portable Energy De Mexico, S.A. DE C.V..  The purchase pricefor the assets was 3,000,000 shares of our common stock.  We haveguaranteed to the seller that the shares of our common stock issued to them inthe acquisition will be worth $3,000,000 during the 30 day period commencing 11months from the closing date or we will be required to either issue additionalshares such that the total shares are worth $3,000,000 at that time or pay theseller the difference in cash.  The shares that we issued to the sellerare subject to piggy back registration rights and a lock up agreement to beexecuted by the seller’s stockholders.

 

**ElectricTransportation Engineering Corporation (eTec)**

** **

On November 6, 2007,we signed a stock purchase agreement with two non-affiliated individualswhereby we purchased all of the issued and outstanding capital stock ofElectric Transportation Engineering Corporation, as well as its affiliatedcompany Clarity Group, Inc. (both of which are collectively referred to as“eTec”).  eTec provides technical support and field services for allaspects of electric vehicle infrastructure.  eTec will operate as oursubsidiary and there will be no changes to the company’s management team.

 

The aggregate purchaseprice for the outstanding capital stock of eTec is $3,000,000 in cash and6,500,000 shares of our common stock of the $3,000,000 in cash to be paid toeTec, $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, 3,250,000were released on date of signing, and 3,250,000 are to be released on the firstanniversary of the closing of the stock purchase agreement from the Companycorporate secretary barring any indemnity claims.  The shares bear arestrictive legend and are not subject to piggy-back registration rights.

 

**EdisonMinit-Charger**

** **

In December 2007, weentered into and completed various stock and asset purchase agreements withElectric 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 andselling of a “fast charge” battery charging system to be used in commercial andindustrial market places.

 

The aggregate purchaseprice 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 theagreements, which date shall be December 14, 2008, the average closingprice for our common stock during the 30-day period ending on the firstanniversary date of the Stock Purchase Agreement (December 4, 2008) isless than $1.00 per share, we, at our option, shall either:

 

1.                 Issue additional shares of common stockto 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 ofcash so that the aggregate value equals difference between the amount of thePurchase Price and the Stock Consideration Amount; or

 

3.               Purchase or cause the purchase of thecommon stock issued for an aggregate price equal to the Stock ConsiderationAmount.

 

**Stage ofCommercialization of the Hydrality Technology**

** **

NASA’s JetPropulsion Laboratory (JPL), under its agreement with us, has completed testingof the Hydrality technology on lab-scale models of the reactor resulting inannounced results and improvements. Its research is ongoing on our behalf andwill continue throughout the implementation stages of the technology. Under theguidance of JPL we have engaged two additional engineering firms (AirBossAerospace & Green Mountain Engineering) to accelerate the developmentof the actual Hydrality reactor with sufficient continuous hydrogen output topower a 65 KW fuel cell. Major system designs have been completed and rampingscale models are being tested. Additionally, we have entered into an agreement with Arizona StateUniversity (ASU) to evaluate potential regeneration technologies and determinecost and energy efficiencies for converting magnesium oxide, the main byproductof Hydrality, back to its original form of magnesium.

 

Current transportationindustry trends suggest that the commercial viability of hydrogen fuel cellvehicles remains on the distant horizon (about 10 years away) due to cost andefficiency problems with underlying fuel cell technologies. Being reactive andreflexive to these market trends, we will strive to reduce the developmentalcosts of Hydrality for transportation applications to pursue additionalapplications with immediate commercial applicability in 2008. With the currentshift in the transportation market towards plug-in hybrid vehicles (PHEV) andpure electric vehicles (EV), we will aggressively explore the use of eTec’s fastcharging systems in PHEV and EV infrastructure applications.  If and when fuel cell technologies begin topresent a practical and economically viable solution for alternative electricpropulsion systems, the Company will be prepared to capitalize upon the ongoingresearch and development efforts of Hydrality to modify the system for use intransportation applications.

 

As our research and development efforts have identified several newand promising applications for Hydrality that include stationary use, remotepower, back-up power systems, and large scale industrial and utility use, weintend to refocus our research and development expenditures upon these areasthat we determine to have immediate commercial applicability. While we willtarget our research and development efforts primarily on stationary and utilitypower applications, the research and testing for large-scale applications ofour Hydrality system will be valuable in further advancing the technology forall 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 ofEnergy (DOE). The objective of this partnership is to investigate the use ofHydralityTM – an on-demand hydrogen production and storage technology – tosupport APS’ hydrogasification efforts to deliver “clean” electricity to thepublic. The Hydrality testing is currently estimated to commence in the middleof 2008.  The AHP program is acollaborative project among APS and industry partners, including the Departmentof Energy’s National Energy Technology Laboratory (NETL), to develop aneconomical process of producing substitute natural gas (SNG) from coal withoutthe release of carbon dioxide, a known greenhouse gas. The APS project will usehydrogen to react with coal in a high temperature and pressure reaction thatultimately produces methane that can be injected into existing natural gas pipelines.Specifically aimed at supporting the AHP hydrogasification efforts, the projectwill conduct testing to evaluate the process kinetics and reactor dynamics ofour Hydrality process for large-scale hydrogen production and storageapplications**.**

** **

We believe the Hydralitytechnology has a promising future, but this future was not as eminent as it wastwo years ago. There have been dramatic changes in the hydrogen industry and anabsence of expected interrelated product advancements (i.e. fuel cells). Thus wehave determined that the extreme vagaries of the hydrogen technology industry,the immediate advancement of other renewable technologies to the commercialforefront, and the potentially long and expensive road to commerciality andprofitability for any hydrogen technology necessitates us to prudently andsignificantly scale back all hydrogen expenditures, and proceed only on thebasis of joint development projects or significantly subsidized developmentwith potential licensees or DOE grants.

 

**Pro forma financial statements**

 

The unaudited pro formaconsolidated statement of operations for the years ended December 31, 2007and 2006 combines the historical results of ECOtality, Inc and the unauditedpro forma results of the four companies acquired during 2007 and gives effectto the acquisitions as if they occurred on January 1, 2007 and 2006.  Pro forma adjustments have been made relatedto impairment of goodwill.  The pro formaconsolidated results do not purport to be indicative of results that would haveoccurred had the acquisition been in effect for the periods presented, nor dothey 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 achievedin the consolidations of the companies.

 

The following tablecontains unaudited pro forma results for the years ended December 31, 2007and 2006 as if the acquisitions had occurred on January 1, 2006:

 
| ** **                                    | ** ** | **Year Ended December 31,** | ** **  | ** **         | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|-------------|--------------------|------------|
| ** **                                    | ** ** | **2007**                                   | ** **  | ** **         | ** ** | **2006** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Reported**                               | ** **  | **Pro Forma** | ** ** | **Reported** | ** ** | **Pro Forma** | ** ** |
| Net Revenues                                  |       | $                                          | 2,588,658   |               | $          | 13,723,131 |   | $ | — |   | $ | 10,882,089 |   |
| Net Income  (loss)                            |       | $                                          | (13,691,964 | )                  | $          | (15,587,966 | ) | $ | (14,497,768 | ) | $ | (15,544,934 | ) |
| Net (loss) per  share-basic and fully diluted |       | $                                          | (0.12       | )                  | $          | (0.14 | ) | $ | (0.17 | ) | $ | (0.19 | ) |

 

**Segment Information**

** **

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” requires disclosuresrelated to components of a company for which separate financial information isavailable that is evaluated regularly by a company’s chief operating decisionmaker 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 Companyto assess performance and make operating decisions regarding the allocation ofresources.   In accordance with thecriteria in SFAS No. 131, “Disclosure about Segments of an Enterprise andRelated Information,” we have concluded we have three reportable segments forthe year ended December 31, 2007; ECOtality/ECOtality Stores segment,Innergy Power segment and eTec segment. The ECOtality/ECOtality Stores segmentis the online marketplace for fuel cell-related products and technologies withonline distribution sites in the U.S., Japan, Russia, Italy and Portugal.  The Innergy Power segment is comprised of

 

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the sale of solarbatteries and other solar and battery powered devices to end-users. The eTecsegment relates to sale of fast-charge systems for material handling andairport ground support applications to the testing and development of plug-inhybrids, advanced battery systems and hydrogen ICE conversions and consultingrevenues.  This segment also includes theMinit-Charger business which relates to the research, development and testingof advanced transportation and energy systems with a focus on alternative-fuel,hybrid and electric vehicles and infrastructures.  eTec holds exclusivepatent rights to the eTec SuperChargeTM and Minit-Charger systems - battery fastcharge systems that allow for faster charging with less heat generation andlonger battery life than conventional chargers. We have aggregated these subsidiaries into three reportable segments:ECOtality/Fuel Cell Store, eTec and Innergy.

 

The accounting policiesfor the segments are the same as those described in the summary of significantaccounting policies in Note 2 of this Form 10-K. Management is currentlyassessing 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 nointer-segment sales during the year ended December 31, 2007.

 

As a development stagecompany with no revenue we did not report separate segments for the year ended December 31,2006.

 

Summarized financialinformation concerning our reportable segments for the year ended December 31,2007 is 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  |       |
|                                      |            |                               |            |             |            |                   |            |             |            |  |  |  |  |

 

**Resultsof Operations**

** **

YEAR ENDED DECEMBER 31,2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006

 

CONSOLIDATED RESULTS

 

It is difficult tocompare 2007 results to those of 2006 as we have transformed ourselves frombeing a development stage company to a growth oriented renewable energycompany.  Thus, the variations reflectedin our results of operations described below are based upon thistransformation.

 

In the year ended December 31,2007, we had revenues of $2,588,658 compared to the year ended December 31,2006 of $0.  This increased revenue wasgenerated from our four new acquisitions made in 2007.  The cost of goods sold percentage for theyear ending December 31, 2007 was 54% leaving us with a gross profit of$1,187,730. ** **The increase in revenues isconsistent with our efforts to move from being a development stage company in2006 to a revenue-generating renewable energy company during the year ended December 31,2007.

 

*OperatingExpense*

 

Total operating expensesduring the year ended December 31, 2007 were $13,582,610 compared to$14,055,877 for the year ended December 31, 2006.  General and administrative expenses were$6,121,914 or 45% of total operating expenses for the year ended December 31,2007 compared with $4,725,035 or 34% for the year ended December 31, 2006.The increases in general and operating expenses are described below:

** **

Professional fees were$1,446,239 for the year ended December 31, 2007 compared with $760,917 foryear ended December 31, 2006.  Thisincrease is related to the increased resources being utilized given theincreased size of the company post-acquisitions. New media, marketing,advertising and investor and public relations expenses were $792,464 for theyear ended December 31, 2007 compared with $439,501 for the year ended December 31,2006 with the increase primarily attributable to increased investor relationsspending in support of our acquisitions. Legal fees were $517,450 for the year ended December 31, 2007compared with $206,649 for the year ended December 31, 2006 and accountingfees were $379,525 for the year ended December 31, 2007 compared with$12,176 for the year ended December 31, 2006.  Both legal and accounting fee increases are adirect result of regulatory and audit work in support of the businesspost-acquisition and ongoing integration of the new businesses.  Executive compensation was $966,831 for theyear ended December 31, 2007 compared with $2,795,006 for the year ended December 31,2006.  The higher figure in 2006 isattributable to stock awards to our chief executive officer. Depreciationexpense was $197,185 for the year ended December 31, 2007

 

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compared to $20,166 forthe year ended December 31, 2006. The increase is based on the purchase of a hydrogen-powered bus in November 2006which is being depreciated over 5 years, as well as new depreciation for theassets acquired as part of the acquisitions. All other general and administrative spending totaled $2,019,405 for theyear ended December 31, 2007 compared to $480,786 for the year ended December 31,2006.  The increase is attributable toour acquisitions which represent $1,683,692 of 2007 expenses, as compared to atotal of $145,073 for a comparable period in 2006.

 

Expenses for research anddevelopment totaled $1,362,098 for the year ended December 31, 2007compared to $1,088,104 for year ended December 31, 2006 with expenses forboth years related to engineering work performed for us by the Jet PropulsionLaboratory and other firms supporting our Hydrality technology development. Asoutlined in the commercialization discussion above, as we move forward we willbe limiting our expense in support of this research through securing grants andincreasing the focus in areas showing potential for short-termcommercialization to help defray costs.

 

Licenses and permits were$0 for the year ended December 31, 2007 compared to $8,222,572 for theyear ended December 31, 2006.  Theamount for 2006 is related to the June 12, 2006 License Agreement forwhich we issued 5,869,565 shares of our common stock to CalTec.

 

Other significantcomponents of total operating expenses for the year ended December 31,2007 consist of $4,101,413 in impairment expense compared with $0 for yearended December 31, 2006, and $1,800,000 in settlement expense for the yearended December 31, 2007 compared with $0 for year ended December 31,2006.  The impairment expense reflectsour write-downs of goodwill related to acquisitions made in 2007 attributableto the businesses as follows:  Innergy$2,494,565, MinitCharger $1,280,066 and Ecotality Stores $326,782.   The impairment expense was booked inaccordance with SFAS No. 144 (see note 3 to the financial statements fordetails) as there was a lack of proven future cash flows to support thegoodwill initially estimated at the time of purchase.  We believe that the accretive nature of theseacquisitions and the synergistic opportunities they present will allow us tobuild value over time with focused leadership and improved systems.  The settlement expense in 2007 is related tothe settlement with Howard Foot and Elliot Winfield in resolution of all knowndisputes and uncertainties between them and us related to all agreements andcontracts entered into concerning the fuel cell intellectual property andtechnology.  We have included thisexpense as part of our operating costs due to the nature of our businessregarding intellectual property.  Since aprimary objective of ours has been the commercial advancement of clean electrictechnologies that reduce our dependence upon carbon based fuels, we haveretained a strong focus on research and development activities, and expect tocontinue to incur additional research and development costs, although at asignificantly reduced rate, for the foreseeable future.

 

Our operating losscompared favorably with prior year for a loss of $12,394,880 for the year endedDecember 31, 2007 compared with a loss of $14,055,877 for the year ended December 31,2006, reflecting an improvement year over year of $1,660,997.  Excluding the one-time settlement andimpairment expenses totaling $5,901,413 operating loss for the year ended December 31,2007 was favorable $7,562,410 or 54% less than that of 2006.

 

For the year ended December 31,2007, we earned interest income in the amount of $57,525 compared with $14,905for the year ended December 31, 2006.

 

Interest expense was$285,112 for the year ended December 31, 2007 compared to $456,796 for theyear ended December 31, 2006.  Thehigher amount for 2006 was driven by the repayment of the bridge loan notes on September 29,2006.  Other expense was $1,069,497 forthe year ended December 31, 2007 compared to $0 for the year ended December 31,2006 and is fully attributable to a reserve we established to cover penaltiesin 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 otherincome and expenses compared favorably for year ended December 31, 2007 ata $13,691,964 loss compared with a $14,497,768 loss for year ended December 31,2006.

 

*Liquidityand Capital Resources*

* *

As of December 31,2007, we had $677,318 of cash on hand and held certificates of deposit in theamount of $1,197,784 compared to year end 2006 balances of $5,047,968 of cashon hand and $2,014,767 in certificates of deposit.

 

We utilized cash foroperating activities in 2007 in the amount of $3,390,042 compared to $4,897,269for 2006.   In addition, cash used ininvesting activities was $7,165,977 for the year ended December 31,2007compared to $796,075 for 2006.  Thevariance of $6,369,902 was driven by lower investment in fixed assets in 2007(down $389,469), and investment in subsidiaries for 2007 of $6,759,371.

 

Cash generated byfinancing activities was $6,185,369 in 2007 compared to $10,735,434 in 2006.These financing activities are described below:

 

In 2006 we generated$10,735,434 in cash through the sale of common stock net of related expenses.

 

In 2007 we acquired$899,102 in cash through acquisitions, received proceeds from a mortgagepayable relating to our 

 

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building purchase of$287,500 and issued convertible debentures with proceeds of $5,000,000.  The warrants issued with the convertibledebentures could generate another $2,207,955 if all warrants are exercised incash in the future.

 

The ability to fund ouroperating cash requirements, planned capital expenditures and debt servicerequirements for the foreseeable future is based largely from internal cashgeneration through the planned organic growth of our recent acquisitions aswell as through the use of additional financing activities.  We are also exploring the addition of a modestbank credit facility to supplement our sources of operating capital

 

We believe that we havethe ability to fund our operating cash requirements, planned capitalexpenditures and debt service requirements for the foreseeable future largelyfrom internal cash generation through the planned organic growth of our recentacquisitions as well as through the potential cash generation associated withour private placement warrants.

 

*Management’sPlan of Operation*

* *

Our plan of operationcalls for sustained organic growth.  Webelieve that the acquisitions we completed during 2007 will provide us with abase to support this objective and that this growth is reflected in our budgetand business plans for 2008.

 

We plan to continue toleverage current invested capital through focused cash management, leancorporate staffing, and the implementation a company-wide Enterprise ResourcePlanning (ERP) system to support more automation, tight inventory controls andcost-effective operating procedures throughout our organization.

 

*WorkingCapital*

* *

Net working capital is animportant measure of our ability to finance our operations.  Our networking capital at December 31, 2007 was negative by $679,899 or a ratioof 0.91 to 1.  This ratio issignificantly impacted by the reserve we have established to cover the maximumpossible liability associated with the issuance of common stock priceguarantees due in 2008 per certain of our acquisition agreements, which aredescribed in further detail elsewhere in this annual report (See *Key Transactions in 2007*). It should be noted that we have the ability to meet this obligationthrough the issuance of cash or equity at our discretion.  When this reserve of $4,075,000 is excludedfrom the calculation, our working capital is positive $3,395,101 or a ratio of1.47:1.

 

We do not have anyoff-balance sheet arrangements.

 

We do not anticipate theneed to add significant numbers of full- or part- time employees over the next12 months.  We plan to outsource the research and development and productionof our products.

 

*Commitmentsand Long Term Liabilities*

* *

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

 

On January 19, 2007we purchased a small (1,750 square feet) stand alone office building at a costof $575,615.  A total of $287,959 has been paid and a tax credit has beenrecorded in the amount of $156.  The remaining balance of $287,500 isstructured as an interest-only loan from a non affiliated third-party, bears aninterest rate of 6.75% calculated annually, with monthly payments in the amountof $1,617 due beginning on February 16, 2007. The entire principal balanceis due on or before January 16, 2012.

 

As of December 31,2007, the Company has seven leases in effect for operating space.  Future obligations under these commitmentsare $214,912 for 2008, $119,400 for 2009, $109,450 for 2010, and $0 for 2011and thereafter.

 

**Controlsand Procedures**

** **

We maintain a set of disclosurecontrols and procedures designed to ensure that information required to bedisclosed by us in the reports filed under the Securities Exchange Act, isrecorded, processed, summarized and reported within the time periods specifiedby the Commission’s rules and forms.  Disclosure controls are alsodesigned with the objective of ensuring that this information is accumulatedand communicated to our management, including our chief executive officer andchief financial officer, as appropriate, to allow timely decisions regardingrequired disclosure.  In view of ourrestatement of the financial statements for the year ended December 31,2006, management reevaluated its disclosure controls and deemed themineffective.  We made the following changes in our disclosure controls tomake them effective for gathering, analyzing and disclosing the information theinformation we are required to disclose in the reports filed under theSecurities and Exchange Act of 1934, within the time periods specified in theCommission’s rules and forms.  These changes included adding anadditional individual to record transactions in our books of account after theyhave been reviewed by appropriate company officials, reemphasized properposting of transactions, having an independent accountant review transactionsfor compliance with applicable guidance, reviewing our chart of accounts toensure that account classifications are in place, and ensuring accountingpersonnel attend continuing professional education. In addition to the aboveactions we have added a professional accountant to specifically oversee allreporting for us and our subsidiaries and performed an assessment of internaland 

 

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disclosure controls atour acquired entities.  As a result ofthese actions, we believe our disclosure controls and internal controls areeffective for the year ended December 31, 2007.

 

Our management does notexpect that our disclosure controls or internal controls over financialreporting will prevent all errors or all instances of fraud.  A controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within our company have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Because of the inherent limitation of a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

**CriticalAccounting Policy and Estimates**

** **

Our Management’sDiscussion and Analysis of Financial Condition and Results of Operationssection discusses our financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America.  The preparation of the financial statements requires us tomake estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  On an on-going basis,we evaluate our estimates and judgments, including those related to revenuerecognition, recoverability of intangible assets, and contingencies andlitigation.  We base our estimates and judgments on historical experienceand 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 carryingvalue of assets and liabilities that are not readily apparent from othersources.  Actual results may differ from these estimates under differentassumptions or conditions.  The most significant accounting estimatesinherent in the preparation of our consolidated financial statements includeestimates as to the appropriate carrying value of certain assets andliabilities which are not readily apparent from other sources, primarily thevaluation of intangible assets.  The methods, estimates and judgments weuse in applying these most critical accounting policies have a significantimpact on the results we report in our consolidated financial statements.

 

Loss per share

 

Net loss per share is provided in accordance with Statement ofFinancial Accounting Standards No. 128 (SFAS #128), “Earnings Per Share”.We present basic loss per share (“EPS”) and diluted EPS on the face ofstatements of operations.  Basic EPS is computed by dividing reportedlosses by the weighted average shares outstanding.   Except where theresult would be anti-dilutive to income from continuing operations, dilutedearnings per share has been computed assuming the conversion of the convertiblelong-term debt and the elimination of the related interest expense, and theexercise of stock warrants. For the year ended December 31, 2007, theassumed conversion of convertible long-term debt and the exercise of stockwarrants are anti-dilutive due to our net loss and were excluded in determiningdiluted loss per share.

 

Reporting on thecosts of start-up activities

 

Statement of Position98-5 (SOP 98-5), “Reporting on the Costs of Start-Up Activities,” whichprovides guidance on the financial reporting of start-up costs andorganizational costs, requires most costs of start-up activities andorganizational costs to be expensed as incurred. SOP 98-5 is effective forfiscal years beginning after December 15, 1998. The adoption of SOP 98-5has had little or no effect on our financial statements.

 

Fair value offinancial instruments

 

Fair value estimatesdiscussed herein are based upon certain market assumptions and pertinentinformation available to us as of December 31, 2007 and 2006.  Therespective carrying value of certain on-balance-sheet financial instrumentsapproximated their fair values.  Fair value was assumed to approximatecarrying value for cash because it is short term in nature and its carryingamount approximates fair value.

 

Income Taxes

 

We follow Statement ofFinancial Accounting Standard No. 109 (SFAS #109), “Accounting for IncomeTaxes,” for recording the provision for income taxes. Deferred tax assets andliabilities are computed based upon the difference between the financialstatement and income tax basis of assets and liabilities using the enactedmarginal tax rate applicable when the related asset or liability is expected tobe realized or settled. Deferred income tax expenses or benefits are based onthe changes in the asset or liability each period. If available evidencesuggests that it is more likely than not that some portion or all of thedeferred tax assets will not be realized, a valuation allowance is required toreduce the deferred tax assets to the amount that is more likely than not to berealized. Future changes in such valuation allowance are included in theprovision for deferred income taxes in the period of change.

 

Deferred income taxes mayarise from temporary differences resulting from income and expense itemsreported for financial accounting and tax purposes in different periods.Deferred taxes are classified as current or non-current, depending on the 

 

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classification of assetsand liabilities to which they relate. Deferred taxes arising from temporarydifferences that are not related to an asset or liability are classified ascurrent or non-current depending on the periods in which the temporarydifferences are expected to reverse.

 

Segment reporting

 

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” requires disclosuresrelated to components of a company for which separate financial information isavailable that is evaluated regularly by a company’s chief operating decisionmaker in deciding the allocation of resources and assessing performance.  We are the parent company of Innergy PowerCorporation, Fuel Cell Store and Electric Transportation EngineeringCorporation. Innergy Power is a leader in the design and manufacture of thinsealed rechargeable lead batteries and high quality flat-panelmulti-crystalline solar modules.  Fuel Cell Store is the leading onlinemarketplace for fuel cell-related products and technologies with onlinedistribution sites in the U.S., Japan, Russia, Italy and Portugal.  eTecis a leader in the research, development and testing of advanced transportationand energy systems with a focus on alternative-fuel, hybrid and electricvehicles and infrastructures.  eTec also holds exclusive patent rights tothe*eTec SuperChargeTM*  and*Minit-Charger* systems - battery fast charge systems that allow forfaster charging with less heat generation and longer battery life thanconventional chargers.  We haveaggregated these subsidiaries into three reportable segments: ECOtality/Fuel CellStore, eTec and Innergy.

 

Dividends

 

We have not yet adoptedany policy regarding payment of dividends. No dividends have been paid ordeclared since inception.

 

RecentPronouncements

 

In December 2004,the FASB issued Financial Accounting Standards No. 123 (revised 2004) (“FAS123R”), Share-Based Payments, FAS 123R replaces FAS No. 123, Accountingfor Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees. FAS 123R requires compensationexpense, measured as the fair value at the grant date, related to share-basedpayment transactions to be recognized in the financial statements over theperiod that an employee provides service in exchange for the award. FAS 123R iseffective January 1, 2006. The company has adopted this accountingstandard for the year ended December 31, 2007 and 2006.  The implementation of this standard did nothave a material impact on the Company’s financial position, results ofoperations or cash flows.

 

In November 2004,FASB issued Financial Accounting Standards No. 151, Inventory Costing, anamendment amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts such as wastedmaterial. This Statement requires that those items be recognized ascurrent-period charges regardless of whether they meet the criterion of “abnormal.”The implementation of this standard did not have a material impact on theCompany’s financial position, results of operations or cash flows for the yearsended December 31, 2007 and 2006.

 

In September of2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157).SFAS No. 157 establishes a framework for measuring fair value undergenerally accepted accounting procedures and expands disclosures on fair valuemeasurements. This statement applies under previously established valuationpronouncements and does not require the changing of any fair valuemeasurements, though it may cause some valuation procedures to change. UnderSFAS No. 157, fair value is established by the price that would bereceived to sell the item or the amount to be paid to transfer the liability ofthe asset as opposed to the price to be paid for the asset or received totransfer the liability. Further, it defines fair value as a market specificvaluation as opposed to an entity specific valuation, though the statement doesrecognize that there may be instances when the low amount of market activityfor a particular item or liability may challenge an entity’s ability toestablish a market amount. In the instances that the item is restricted, thispronouncement states that the owner of the asset or liability should take intoconsideration what affects the restriction would have if viewed from theperspective of the buyer or assumer of the liability. This statement iseffective for all assets valued in financial statements for fiscal yearsbeginning after November 15, 2007. Although SFAS No. 157 applies to and amends the provisions ofexisting FASB and AICPA pronouncements, it does not, of itself, require any newfair value measurements, nor does it establish valuation standards.  SFAS No. 157applies to all other accounting pronouncements requiring or permitting fairvalue measurements, except for: SFAS No. 123(R), share-based payment andrelated pronouncements, the practicability exceptions to fair valuedeterminations allowed by various other authoritative pronouncements, and AICPAStatements of Position 97-2 and 98-9 that deal with software revenuerecognition. The Company is currently evaluating the impact of SFAS No. 157to its financial position and result of operations.

 

In July 2006, theFASB issued FASB Interpretation No. 48 “Accounting for Uncertain TaxPositions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withFASB Statement No. 109 “Accounting for Income Taxes”. It prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken, ina tax return. FIN 48 also provides guidance on de-recognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. FIN 48 is effective for fiscal years beginning after December 15,2006.  The implementation of thisstandard did not have a material impact on the Company’s financial position,results of operations or cash flows for the years ended December 31, 2007.

 

In December 2007,FASB issued Statement of Financial Accounting Standards No. 141 (revised2007) on Business 

 

34

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Combinations. Thisguidance retains the fundamental requirements in Statement 141 that theacquisition method of accounting (which Statement 141 called the purchasemethod) be used for all business combinations and for an acquirer to beidentified for each business combination. This Statement defines the acquireras the entity that obtains control of one or more businesses in the business combinationand establishes the acquisition date as the date that the acquirer achievescontrol. This guidance requires an acquirer to recognize the assets acquired,the liabilities assumed, and any non-controlling interest in the acquiree atthe acquisition date, measured at their fair values as of that date, withlimited exceptions specified in the Statement. It replaces Statement 141’scost-allocation process, which required the cost of an acquisition to beallocated to the individual assets acquired and liabilities assumed based ontheir estimated fair values. For example, Statement 141 required the acquirerto include the costs incurred to effect the acquisition (acquisition- relatedcosts) in the cost of the acquisition that was allocated to the assets acquiredand the liabilities assumed. This guidance requires those costs to berecognized separately from the acquisition. In addition, in accordance withStatement 141, restructuring costs that the acquirer expected but was notobligated to incur were recognized as if they were a liability assumed at theacquisition date. This guidance requires the acquirer to recognize those costsseparately from the business combination. The Company has followed the aboveguidance in accounting for all acquisitions that happened in 2007.

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The following documents (pages F-1to F-8) form part of the report on the Financial Statements

 
| ** **                                                     | **PAGE** |
|----------------------------------------------------------------|----------|
|                                                           |     |
| Independent Registered Public Accounting Firm Reports          | F-1      |
| Consolidated Balance Sheets                                    | F-2      |
| Consolidated Statements of Operations                          | F-3      |
| Consolidated Statement of Stockholders’ Equity  (Deficit) | F-4      |
| Consolidated Statements of Cash Flows                          | F-5      |
| Footnotes                                                      | F-6      |

 

35

----

 

**ECOtality****, Inc.**

 

**ConsolidatedBalance Sheets**

**asof**

**December 31,2007 and 2006**

 

**and**

 

**ConsolidatedStatements of Operations,**

**Stockholders’Equity, and**

**CashFlows**

**Forthe years ended**

**December 31,2007 and 2006,**

 

36

----

 

TABLE OF CONTENTS

 
| ** **                                                      | **PAGE** |
|-----------------------------------------------------------------|----------|
|                                                            |     |
| Independent  Registered Public Accounting Firm Report 2007      | F-1      |
|                                                            |     |
| Consolidated Balance Sheets                                     | F-2      |
|                                                            |     |
| Consolidated Statements of Operations                           | F-3      |
|                                                            |     |
| Consolidated Statement of Changes in Stockholders’  Equity | F-4      |
|                                                            |     |
| Statements of Cash Flows                                        | F-5      |
|                                                            |     |
| Footnotes                                                       | F-6      |

 

37

----

 

**WEAVER &MARTIN**

 

To the Board of Directorsand Stockholders

ECOtality, Inc.

Scottsdale, AZ

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

We have audited theaccompanying consolidated balance sheets of ECOtality, Inc. andSubsidiaries as of December 31, 2007 and 2006 and the related consolidatedstatements of operations, stockholders’ equity, and cash flows for the yearsthen ended.  ECOtality, Inc.’smanagement is responsible for these financial statements.  Our responsibility is to express an opinionon these financial statements based on our audit.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. Our audits of the financialstatements include examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of ECOtality, Inc. andSubsidiaries as of December 31, 2007 and 2006, and the results of itsconsolidated operations, stockholders’ equity, and cash flows for the yearsthen ended in conformity with accounting principles generally accepted in theUnited States of America.

 

 
| /s/ Weaver &  Martin, LLC |
|------------------------------------|
| Kansas City, Missouri              |

 

March 28, 2008

 

 

CertifiedPublic Accountants & Consultants

411Valentine, Suite 300

KansasCity, Missouri 64111

Phone:(816) 756-5525

Fax:(816) 756-2252

 

F-1

----

 

**ECOtality****, Inc.**

 

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                           | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                           | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                                                                                                                                                                 |       |                  |       |   |   |
| **Assets**                                                                                                                                                           |       |                  |       |   |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                                                                                      |       |                  |       |   |   |
| Cash                                                                                                                                                                 |       | $                     | 677,318    |   | $ | 5,047,968 |   |
| Certificates of  deposit                                                                                                                                             |       | 1,197,784             |       | 2,014,767 |   |
| Receivables, net  of allowance for bad debt of $21,743                                                                                                               |       | 2,387,542             |       | — |   |
| Inventory, net  of allowance for obsolecence of $293,934                                                                                                             |       | 1,791,174             |       | — |   |
| Prepaid expenses  and other current assets                                                                                                                           |       | 477,186               |       | 88,885 |   |
| Total current  assets                                                                                                                                                |       | 6,531,004             |       | 7,151,620 |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Fixed assets,  net                                                                                                                                                   |       | 2,027,142             |       | 777,813 |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Goodwill                                                                                                                                                             |       | 3,095,878             |       | — |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Total assets                                                                                                                                                         |       | $                     | 11,654,025 |   | $ | 7,929,433 |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                       |       |                  |       |   |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Current  liabilities:                                                                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                                                                     |       | $                     | 1,317,916  |   | $ | 594,075 |   |
| Accrued  liabilities                                                                                                                                                 |       | 670,746               |       | 12,404 |   |
| Liability for  purchase price                                                                                                                                        |       | 4,075,000             |       | — |   |
| Current portion  of LT Debt, net of discount of $1,174,075                                                                                                           |       | 1,147,241             |       | — |   |
| Total current  liabilities                                                                                                                                           |       | 7,210,903             |       | 606,479 |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Total LT  Liabilities, net of discount of $2,494,910                                                                                                                 |       | 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, 124,224,528 and 112,999,906  shares issued and outstanding as of 12/31/07 and 12/31/06, respectively |       | 124,225               |       | 113,000 |   |
| Additional  paid-in capital                                                                                                                                          |       | 31,151,349            |       | 21,788,399 |   |
| Unamortized  stock issued for services                                                                                                                               |       | (370,357              | )          | — |   |
| Retained deficit                                                                                                                                                     |       | (28,270,409           | )          | (14,578,445 | ) |
| Total stockholders’  equity                                                                                                                                     |       | 2,634,808             |       | 7,322,954 |   |
|                                                                                                                                                                 |       |                  |       |   |   |
| Total  liabilities and stockholders’ equity                                                                                                                     |       | $                     | 11,654,025 |   | $ | 7,929,433 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-2

----

 

**ECOtality****, Inc.**

 

**Consolidated Statements of Operations**

** **
| ** **                                                                      | ** ** | **For the Years Ended December 31,** | ** **  |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|-------------|
| ** **                                                                      | ** ** | **2007**                                  | ** **  | **2006** | ** ** |
|                                                                            |       |                                      |        |   |   |
| Revenue                                                                         |       | $                                         | 2,588,658   |   | $ | — |   |
| Cost of goods  sold                                                             |       | 1,400,928                                 |        | — |   |
|                                                                            |       |                                      |        |   |   |
| Gross profit                                                                    |       | $                                         | 1,187,730   |   | $ | — |   |
|                                                                            |       |                                      |        |   |   |
| **Expenses****:**                                                               |       |                                      |        |   |   |
| Depreciation                                                                    |       | 197,185                                   |        | 20,166 |   |
| Licenses and  permits                                                           |       |                                      |        | 8,222,572 |   |
| General and  administrative expenses                                            |       | 6,121,914                                 |        | 4,725,035 |   |
| Research and  development                                                       |       | 1,362,098                                 |        | 1,088,104 |   |
| Impairment  Expense                                                             |       | 4,101,413                                 |        | — |   |
| Settlement  Expense                                                             |       | 1,800,000                                 |        | — |   |
| Total expenses                                                                  |       | 13,582,610                                |        | 14,055,877 |   |
|                                                                            |       |                                      |        |   |   |
| Operating loss                                                                  |       | (12,394,880                               | )           | (14,055,877 | ) |
|                                                                            |       |                                      |        |   |   |
| Other income:                                                                   |       |                                      |        |   |   |
| Interest income                                                                 |       | 57,525                                    |        | 14,905 |   |
| Total other  income                                                             |       | 57,525                                    |        | 14,905 |   |
|                                                                            |       |                                      |        |   |   |
| Other expenses:                                                                 |       |                                      |        |   |   |
| Interest expense                                                                |       | 285,112                                   |        | 456,796 |   |
| Registration  rights penalty expense                                            |       | 1,069,497                                 |        | — |   |
| Total other  expenses                                                           |       | 1,354,609                                 |        | 456,796 |   |
|                                                                            |       |                                      |        |   |   |
| Loss from  operations before income taxes                                       |       | $                                         | (13,691,964 | ) | $ | (14,497,768 | ) |
|                                                                            |       |                                      |        |   |   |
| Provision for  income taxes                                                     |       | —                                    |        | — |   |
|                                                                            |       |                                      |        |   |   |
| Net (loss)                                                                      |       | $                                         | (13,691,964 | ) | $ | (14,497,768 | ) |
|                                                                            |       |                                      |        |   |   |
| Weighted average  number of common shares outstanding - basic and fully diluted |       | 110,972,340                               |        | 82,866,709 |   |
|                                                                            |       |                                      |        |   |   |
| Net (loss) per  share-basic and fully diluted                                   |       | $                                         | (0.12       | ) | $ | (0.18 | ) |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-3

----

 

**ECOtality****, Inc.**

 

**Consolidated Statement ofStockholders’ Equity**

 
| ** **                                        | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**        | ** ** | **Unamortized**       | ** ** | ** **             | ** **  | **Total**  | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------------|------------|-----------------------|------------|------------------------|-------------|------------|------------|
| ** **                                        | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Stock Issued** | ** ** | **Retained**          | ** ** | **Stockholders’** | ** **  |
| ** **                                        | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**           | ** ** | **for Services** | ** ** | **Earnings**           | ** **  | **Equity** | ** ** |
| Balance,  December 31, 2005                       |       | 64,058,974            |       | $           | 64,059     |                  | $          | 26,853                |       | $                      | 0           |       | $          | (80,677 | ) | $ | 10,235 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Shares issued  for services                       |       | 7,500,018             |       | $           | 7,500      |                  | $          | 2,467,506             |       |                   |        |       |       | $ | 2,475,006 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Warrants issued  with note payable                |       |                  |       |        |       | $                     | 382,656    |                  |       |                   |        |       | $          | 382,656 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Shares issued  for cash from exercise of warrants |       | 1,071,429             |       | $           | 1,071      |                  | $          | 373,929               |       |                   |        |       |       | $ | 375,000 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Shares issued  for licenses                       |       | 5,869,565             |       | $           | 5,870      |                  | $          | 8,211,521             |       |                   |        |       |       | $ | 8,217,391 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Shares issued  for cash net of offering costs     |       | 34,499,920            |       | $           | 34,500     |                  | $          | 10,325,934            |       |                   |        |       |       | $ | 10,360,434 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Net (loss)                                        |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| For the year  ended December 31, 2006             |       |                  |       |        |       |                  |       |                  |       | $                      | (14,497,768 | )          | $          | 0 |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Balance,  December 31, 2006                       |       | 112,999,906           |       | $           | 113,000    |                  | $          | 21,788,399            |       | $                      | 0           |       | $          | (14,578,445 | ) | $ | 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    |   |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Net (loss)                                        |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| For the year  ended December 31, 2007             |       |                  |       |        |       |                  |       |                  |       | $                      | (13,691,964 | )          | $          | (13,691,964 | ) |
|                                              |       |                  |       |        |       |                  |       |                  |       |                   |        |       |       |
| Balance,  December 31, 2007                       |       | 124,224,528           |       | $           | 124,225    |                  | $          | 31,151,349            |       | $                      | (370,357    | )          | $          | (28,270,409 | ) | $ | 2,634,808 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-4

----

 

**ECOtality****, Inc.**

 

**Consolidated Statements of Cash Flows**

 
| ** **                                              | ** ** | **For the years ended** | ** **  |
|---------------------------------------------------------|------------|----------------------------------------|-------------|
| ** **                                              | ** ** | **December 31,**                  | ** **  |
| ** **                                              | ** ** | **2007**                               | ** **  | **2006** | ** ** |
| **Cash  flows from operating activities**               |       |                                   |        |   |   |
| Net Income  (loss)                                      |       | $                                      | (13,691,964 | ) | $ | (14,497,768 | ) |
| Adjustments to  reconcile:                              |       |                                   |        |   |   |
| Stock and  options issued for services and compensation |       | 386,102                                |        | 2,475,006 |   |
| Stock issued for  settlement                            |       | 1,200,000                              |        | — |   |
| Stock issued for  registration penalty                  |       | 1,069,497                              |        | — |   |
| Stock issued for  acquisitions                          |       | 2,934,000                              |        | — |   |
| Shares issued  for licenses                             |       | —                                 |        | 8,217,391 |   |
| Depreciation                                            |       | 197,185                                |        | 20,166 |   |
| Warrants issued  with notes payable                     |       | —                                 |        | 382,656 |   |
| Amortization of  stock issued for services              |       | 420,372                                |        | — |   |
| Amortization of  discount on notes payable              |       | 207,271                                |        | — |   |
| Impairment of  Goodwill                                 |       | 4,101,413                              |        | — |   |
| Changes in  operating assets and liabilities:           |       |                                   |        |   |   |
| Certificate of  deposit                                 |       | 843,712                                |        | (2,014,767 | ) |
| Accounts  Receivable                                    |       | (941,223                               | )           | — |   |
| Inventory                                               |       | 157,571                                |        | 2,453 |   |
| Prepaid expenses  and other                             |       | (223,545                               | )           | (88,885 | ) |
| Accounts Payable                                        |       | (180,494                               | )           | 594,075 |   |
| Accrued  Liabilities                                    |       | 130,061                                |        | 12,404 |   |
| Net cash (used)  by operating activities                |       | (3,390,042                             | )           | (4,897,269 | ) |
| **Cash  flows from investing activities**               |       |                                   |        |   |   |
| Purchase of  fixed assets                               |       | (406,606                               | )           | (796,075 | ) |
| Investment in  subsidiaries                             |       | (6,759,371                             | )           | 0 |   |
| Net cash (used)  by investing activities                |       | (7,165,977                             | )           | (796,075 | ) |
|                                                    |       |                                   |        |   |   |
| **Cash  flows from financing activities**               |       |                                   |        |   |   |
| Proceeds from  notes payable                            |       | 5,287,500                              |        | 1,425,000 |   |
| Payments on  notes payable                              |       | (1,233                                 | )           | (1,425,000 | ) |
| Issuance of  common stock                               |       |                                   |        | 10,735,434 |   |
| Cash acquired  through acquisition                      |       | 899,102                                |        |   |   |
| Net cash  provided by financing activities              |       | 6,185,369                              |        | 10,735,434 |   |
|                                                    |       |                                   |        |   |   |
| Net increase  (decrease) in cash                        |       | (4,370,650                             | )           | 5,042,090 |   |
| Cash – beginning                                   |       | 5,047,968                              |        | 5,878 |   |
| Cash – ending                                      |       | 677,318                                |        | 5,047,968 |   |
|                                                    |       |                                   |        |   |   |
| Supplemental  disclosures:                              |       |                                   |        |   |   |
| Interest paid                                           |       | 19,233                                 |        | $ | 59,140 |   |
| Income taxes  paid                                      |       | 800                                    |        | $ | — |   |
|                                                    |       |                                   |        |   |   |
| Non-cash  transactions:                                 |       |                                   |        |   |   |
| Shares issued  for executive compensation               |       | —                                 |        | 2,475,006 |   |
|                                                    |       |                                   |        |   |   |
| Number of shares  issued for executive compensation     |       | —                                 |        | 7,500,018 |   |
|                                                    |       |                                   |        |   |   |
| Stock and  options issued for services                  |       | 270,077                                |        | $ | — |   |
| Shares of stock  issued                                 |       | 300,000                                |        | — |   |
| Number of  options issued                               |       | 1,950,000                              |        | — |   |
|                                                    |       |                                   |        |   |   |
| Stock issued for  settlement                            |       | $                                      | 1,200,000   |   | $ | 0 |   |
| Shares of stock  issued                                 |       | —                                 |        | — |   |
|                                                    |       |                                   |        |   |   |
| Stock issued for  registration penalty                  |       | $                                      | 1,069,497   |   | $ | 0 |   |
| Shares of stock  issued                                 |       | 3,449,991                              |        | — |   |
|                                                    |       |                                   |        |   |   |
| Stock issued for  acquisitions                          |       | $                                      | 2,934,000   |   | $ | 0 |   |
| Shares of stock  issued                                 |       | 11,800,000                             |        | — |   |
|                                                    |       |                                   |        |   |   |
| Shares issued  for licenses                             |       | —                                 |        | 8,217,391 |   |
| Number of shares  issued for licenses                   |       | —                                 |        | 5,869,565 |   |
|                                                    |       |                                   |        |   |   |
| Amortization of  warrants issued for financing costs    |       | —                                 |        | 382,656 |   |
| Number of shares  issued for services                   |       | —                                 |        | 2,971,429 |   |
|                                                    |       |                                   |        |   |   |
| Amortization of  stock issued for services              |       | $                                      | 420,317     |   | $ | 0 |   |
| Amortization of  discount on notes payable              |       | $                                      | 207,271     |   | $ | 0 |   |
|                                                         |            |                                        |             |  |  |  |  |  |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

F-5

----

 

**ECOtality, Inc.**

 

**Notes to Consolidated  Financial Statements**

 

**Note 1 – History and organizationof the company**

 

The Company was organizedApril 21, 1999 (Date of Inception) under the laws of the State of Nevada,as Alchemy Enterprises, Ltd.  The Company was initially authorized toissue 25,000 shares of its no par value common stock.

 

On October 29, 2002,the Company amended its articles of incorporation to increase its authorizedcapital to 25,000,000 shares with a par value of $0.001.  On January 26,2005, the Company amended its articles of incorporation again, increasingauthorized capital to 100,000,000 shares of common stock with a par value of$0.001.  On March 1, 2006, the Company amended its articles ofincorporation, increasing authorized capital to 300,000,000 shares of commonstock, each with a par value of $0.001, and 200,000,000 shares of preferredstock, each with a par value of $0.001.

 

On November 26,2006, the Company amended its articles of incorporation to change its name fromAlchemy Enterprises, Ltd. to ECOtality, Inc to better reflect our renewableenergy strategy.

 

The former business ofthe Company was to market a private-label biodegradable product line.  During the year ended December 31, 2006,the board of directors changed the Company’s focus toward developing anelectric power cell technology.

 

On June 11, 2007,the Company acquired the assets of the FuelCellStore.com, a small web basedseller of educational fuel cell products. The FuelCellStore.com product lineincludes demonstration kits, educational materials, fuel cell systems andcomponent parts.  It also offers consulting services on establishingeducational programs for all levels of educational institutions.  FuelCellStore.com now operates as a whollyowned subsidiary call ECOtality Stores, Inc.  See note 3 for further information.

 

On October 1, 2007,the Company purchased certain assets of Innergy Power Corporation and itswholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V.  Innergy Power Corporation designs andmanufactures standard and custom solar-power and integrated solar-batterysolutions for government, industrial and consumer applications.  See note 3 for further information.

 

On November 6, 2007the Company acquired all the outstanding capital stock of ElectricTransportation Engineering Corporation, as well as its affiliated company TheClarity Group (collectively referred to as eTec).  eTec designs fast-charge systems for materialhandling and airport ground support applications. eTec also tests and developsplug-in hybrids, advanced battery systems and hydrogen ICE conversions.  See note 3 for further information.

 

On December 6, 2007the Company acquired through eTec the Minit-Charger business of EdisonEnterprises. Minit-Charger makes products that enable fast charging of lifttrucks using revolutionary technologies. See note 3 for further information.

 

The consolidatedfinancial statements as of December 31, 2007 include the accounts ofECOtality, Innergy Power Corporation, eTec, and Minit-Charger.  All significant inter-company balances andtransactions have been eliminated. ECOtality and its subsidiaries will collectively be referred herein asthe “Company”.

 

**Note 2 – Summary of SignificantAccounting Policies**

 

Use of estimates

 

Preparation of financialstatements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Significant estimates have been used by management in conjunction withthe measurement of the valuation allowance relating to deferred tax assets andfuture cash flows associated with long-lived assets.  Actual results could differ from thoseestimates.

 

Cash and cash equivalents

 

For financial statementpresentation purposes, the Company considers short-term, highly liquidinvestments with original maturities of three months or less to be cash andcash equivalents.

 

Interest income iscredited to cash balances as earned.  Forthe years ended December 31, 2007 and 2006, interest income was $57,525and $14,905, respectively.

 

Credit risks

 

Financial instrumentsthat potentially subject the Company to concentrations of credit risk consistprincipally of cash deposits.  TheCompany maintains cash and cash equivalent balances at financial institutionsthat are insured by the Federal Deposit Insurance Corporation up to $100,000. Deposits with these banks may exceed the amount of insurance provided onsuch deposits.  At December 31, 2007 and 2006, the Company hadapproximately $1,300,000 and $6,962,735 in excess of FDIC insured limits,respectively.

 

F-6

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Impairment of long-livedassets and intangible assets

 

The Company follows theprovisions of SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets” and SFAS No. 142, “Goodwill and other intangible assets”,which addresses financial accounting and reporting for acquired goodwill andother intangible assets.  Managementregularly reviews property, equipment, intangibles and other long-lived assetsfor possible impairment. This review occurs quarterly, or more frequently ifevents or changes in circumstances indicate the carrying amount of the assetmay not be recoverable. If there is indication of impairment, then managementprepares an estimate of future cash flows expected to result from the use ofthe asset and its eventual disposition. If these cash flows are less than thecarrying amount of the asset, an impairment loss is recognized to write downthe asset to its estimated fair value. Management believes that the accountingestimate related to impairment of its property and equipment, is a “criticalaccounting estimate” because: (1) it is highly susceptible to change fromperiod to period because it requires management to estimate fair value, whichis based on assumptions about cash flows and discount rates; and (2) theimpact that recognizing an impairment would have on the assets reported on ourbalance sheet, as well as net income, could be material. Management’sassumptions about cash flows and discount rates require significant judgmentbecause actual revenues and expenses have fluctuated in the past and areexpected to continue to do so.  Duringthe years ended December 31, 2007 and 2006, the Company had impairmentexpense of $4,101,413 and $0, respectively. See Note 3 for further information.

 

Revenue recognition

 

The Company’s revenuerecognition policies are in compliance with Staff Accounting Bulletin (SAB)104.  Revenue is recognized when a formalarrangement exists, the price is fixed or determinable, all obligations havebeen performed pursuant to the terms of the formal arrangement andcollectibility is reasonably assured.  The Company recognizes revenues onproduct sales, based on the terms of the customer agreement.  The customeragreement takes the form of either a contract or a customer purchase order andeach provide information with respect to the product or service being sold andthe sales price.  If the customer agreement does not have specificdelivery or customer acceptance terms, revenue is recognized at the time ofshipment of the product to the customer.

 

Management periodicallyreviews all product returns and evaluates the need for establishing either areserve for product returns or a product warranty liability.  As of December 31, 2007 and 2006,management has concluded that no reserve is required for product returns.

 

We warrant to ourcustomers that our product and services are in good working order at the timeof delivery.  In our acquisition ofMinit-Charger, we assumed a warranty reserve in relation to warranties ofproducts.  At the time of acquisition,the warranty reserve was $ 231,303 and as of December 31, 2007 thewarranty reserve was $226,994. Management has concluded this warranty reserve to be adequate for futureexpenses relating to the warranty.

 

Accounts receivable

 

Accounts receivable arecarried on a gross basis, with no discounting, less the allowance for doubtfulaccounts. Management estimates the allowance for doubtful accounts based onexisting economic conditions, the financial conditions of the customers, andthe amount and the age of past due accounts. Receivables are considered past due if full payment is not received bythe contractual due date.  Past due accountsare generally written off against the allowance for doubtful accounts onlyafter all collection attempts have been exhausted.  There is no collateral held by the Companyfor accounts receivable.  The allowancefor doubtful accounts was $21,743 and $0 as of December 31, 2007 and 2006,respectively.

 

Inventory

 

Inventory is valued atthe lower of cost, determined on a first-in, first-out basis, or market.  Inventory includes material, labor, andfactory overhead required in the production of our products.  Inventory obsolescence is examined on aregular basis.  The allowance for obsolescenceas of December 31, 2007 was $293,934.

 

Advertising costs

 

The Company expenses allcosts of advertising as incurred.  There were advertising costs of  $103,012 and $439,501 included in general andadministrative expenses for the years ended December 31, 2007 and 2006,respectively.

 

Research and developmentcosts

 

Research and developmentcosts are charged to expense when incurred. For the years ended December 31, 2007 and 2006, research anddevelopment costs were $1,362,098 and $1,088,104, respectively.

 

Contingencies

 

The Company is notcurrently a party to any pending or threatened legal proceedings.  Basedon information currently available, management is not aware of any matters thatwould have a material adverse effect on the Company’s financial condition,results of operations or cash flows.

 

Fair Value of FinancialInstruments

 

The carrying amounts ofthe Company’s financial instruments, including cash and cash equivalents,accounts receivable, accounts payable, accrued expenses and notes payableapproximate their fair values based on their short-term nature. Fair valueestimates discussed herein are based upon certain market assumptions andpertinent information available to management as of December 31, 

 

F-7

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2007 and 2006.  Therespective carrying value of certain on-balance-sheet financial instrumentsapproximated their fair values.

 

Loss per Common Share

 

Net loss per share isprovided in accordance with Statement of Financial Accounting Standards No. 128(SFAS #128), “Earnings Per Share”. We present basic loss per share (“EPS”) anddiluted EPS on the face of statements of operations.  Basic EPS iscomputed by dividing reported losses by the weighted average sharesoutstanding.   Except where the result would be anti-dilutive to incomefrom continuing operations, diluted earnings per share has been computedassuming the conversion of the convertible long-term debt and the eliminationof the related interest expense, and the exercise of stock warrants. Loss percommon share has been computed using the weighted average number of commonshares outstanding during the year. For the year ended December 31, 2007and 2006, the assumed conversion of convertible long-term debt and the exerciseof stock warrants are anti-dilutive due to the Company’s net loss and wereexcluded in determining diluted loss per share.

 

Foreign CurrencyTranslation

 

In 2007, the Company’ssubsidiaries, namely; Innergy Power and Minit-Charger operate outside theUnited States and their local currencies are their functional currencies. Thefunctional currency is translated into U.S. dollars for balance sheet accountsusing the period end rates in effect as of the balance sheet date and theaverage exchange rate for revenue and expense accounts for each respectiveperiod. The translation adjustments are deferred as a separate component ofstockholders’ equity, within other comprehensive loss, net of tax whereapplicable.  Since the acquisitions wereso close to year-end and the functional currencies remaining constant for thatshort period, there were no translation adjustments to record as of December 31,2007.

 

Stock-Based Compensation

 

The Company recordsstock-based compensation in accordance with SFAS No. 123R “Share BasedPayments”, using the fair value method. All transactions in which goods orservices are the consideration received for the issuance of equity instrumentsare accounted for based on Emerging Issues Task Force Issue No. 96-18, “Accountingfor Equity Instruments That Are Issued to Other Than Employees for Acquiring,or in Conjunction with Selling, Goods or Services” using the fair value of theconsideration received or the fair value of the equity instrument issued,whichever is more reliably measurable.

 

Property and Equipment

 

Property and equipmentare recorded at historical cost.  Minor additions and renewals areexpensed in the year incurred.  Major additions and renewals arecapitalized and depreciated over their estimated useful lives.  Whenproperty and equipment are retired or otherwise disposed of, the cost andaccumulated depreciation are removed from the accounts and any resulting gainor loss is included in the results of operations for the respective period. The Company uses other depreciation methods (generally accelerated) fortax purposes where appropriate.  The estimated useful lives forsignificant property and equipment categories are as follows:

 

| Equipment | 5-7 years |
|-----------|-----------|
|      |      |
| Buildings | 39 years  |

 

Income Taxes

 

The Company has adoptedthe provisions of SFAS No. 109, “Accounting for Income Taxes” whichrequires recognition of deferred tax liabilities and assets for the expectedfuture tax consequences of events that have been included in the financialstatements or tax returns.  Under this method, deferred tax liabilitiesand assets are determined based on the difference between the financialstatement and tax basis of assets and liabilities using enacted tax rates ineffect for the year in which the differences are expected to reverse. Deferredincome tax expenses or benefits are based on the changes in the asset orliability each period. If available evidence suggests that it is more likelythan not that some portion or all of the deferred tax assets will not berealized, a valuation allowance is required to reduce the deferred tax assetsto the amount that is more likely than not to be realized.  A valuationallowance is provided for those deferred tax assets for which the relatedbenefits will likely not be realized. Future changes in such valuation allowance are included in the provisionfor deferred income taxes in the period of change.

 

Deferred income taxes mayarise from temporary differences resulting from income and expense itemsreported for financial accounting and tax purposes in different periods.Deferred taxes are classified as current or non-current, depending on theclassification of assets and liabilities to which they relate. Deferred taxesarising from temporary differences that are not related to an asset orliability are classified as current or non-current depending on the periods inwhich the temporary differences are expected to reverse.

 

The Company adopted FASBInterpretation Number. 48, Accounting for Uncertainty in Income Taxes, as of January 1,2007.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in the companies’ financialstatements in accordance with FASB Statement No. 109, Accounting forIncome Taxes.  As a result, the Companyapplies a more-likely-than-not recognition threshold for all tax uncertainties.  FIN 48 only allows the recognition of thosetax benefits that have a greater than fifty percent likelihood of beingsustained upon examination by the taxing authorities.  As a result of implementing FIN 48, theCompany reviewed its tax positions and determined there were no outstanding, orretroactive tax positions with less than a fifty percent likelihood of beingsustained upon examination, therefore the implementation of this standard hasnot had a material affect on the Company.

 

The Company does notanticipate any significant changes to its total unrecognized tax benefits withthe next twelve months.  As of December 31,2007 and 2006, no income tax expense has been incurred.

 

F-8

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Dividends

 

The Company has not yetadopted any policy regarding payment of dividends.  No dividends have beenpaid or declared since inception.  For the foreseeable future, the Companyintends to retain any earnings to finance the development and expansion of itsbusiness and it does not anticipate paying any cash dividends on its commonstock.  Any future determination to pay dividends will be at thediscretion of the Board of Directors and will be dependent upon then existingconditions, including the Company’s financial condition and results ofoperations, capital requirements, contractual restrictions, business prospectsand other factors that the board of directors considers relevant.

 

Segment reporting

 

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” requires disclosuresrelated to components of a company for which separate financial information isavailable that is evaluated regularly by a company’s chief operating decisionmaker 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,the Company identified its segments based on the way management expects toorganize the Company to assess performance and make operating decisionsregarding the allocation of resources.  In accordance with the criteria in SFAS No. 131, “Disclosure aboutSegments of an Enterprise and Related Information,” the Company has concludedit has three reportable segments for the year ended December 31, 2007;ECOtality/ECOtality Stores segment, Innergy Power segment and eTec segment. TheECOtality/ECOtality Stores segment is the online marketplace for fuelcell-related products and technologies with online distribution sites in theU.S., Japan, Russia, Italy and Portugal. The Innergy Power segment is comprised of the sale of solar batteriesand other solar and battery powered devices to end-users. The eTec segmentrelates to sale of fast-charge systems for material handling and airport groundsupport 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-Chargerbusiness which relates to the research, development and testing of advancedtransportation and energy systems with a focus on alternative-fuel, hybrid andelectric vehicles and infrastructures.  eTec holds exclusive patent rightsto the eTec SuperChargeTM  and  Minit-Charger systems - battery fast charge systems that allow for faster chargingwith less heat generation and longer battery life than conventionalchargers.  The Company has aggregatedthese subsidiaries into three reportable segments: ECOtality/Fuel Cell Store,eTec and Innergy.

 

The accounting policiesfor the segments are the same as those described in the summary of significantaccounting policies in Note 2 of this Form 10-K. Management is currentlyassessing 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 nointer-segment sales during the year ended December 31, 2007.  See Note 9 for more information.

 

Recent Accountingpronouncements

 

In December 2004,the FASB issued Financial Accounting Standards No. 123 (revised 2004) (“FAS123R”), Share-Based Payments, FAS 123R replaces FAS No. 123, Accounting forStock-Based Compensation, and supersedes APB Opinion No. 25, Accountingfor Stock Issued to Employees. FAS 123R requires compensation expense, measuredas the fair value at the grant date, related to share-based paymenttransactions to be recognized in the financial statements over the period thatan 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 31,2007 and 2006.  The implementation ofthis standard did not have a material impact on the Company’s financialposition, results of operations or cash flows.

 

In November 2004,FASB issued Financial Accounting Standards No. 151, Inventory Costing, anamendment amends the guidance in ARB No. 43, Chapter 4, “InventoryPricing,” to clarify the accounting for abnormal amounts such as wastedmaterial. This Statement requires that those items be recognized ascurrent-period charges regardless of whether they meet the criterion of “abnormal.”The implementation of this standard did not have a material impact on theCompany’s financial position, results of operations or cash flows for the yearsended December 31, 2007 and 2006.

 

In September of2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157).SFAS No. 157 establishes a framework for measuring fair value undergenerally accepted accounting procedures and expands disclosures on fair valuemeasurements. This statement applies under previously established valuationpronouncements and does not require the changing of any fair valuemeasurements, though it may cause some valuation procedures to change. UnderSFAS No. 157, fair value is established by the price that would bereceived to sell the item or the amount to be paid to transfer the liability ofthe asset as opposed to the price to be paid for the asset or received totransfer the liability. Further, it defines fair value as a market specificvaluation as opposed to an entity specific valuation, though the statement doesrecognize that there may be instances when the low amount of market activityfor a particular item or liability may challenge an entity’s ability toestablish a market amount. In the instances that the item is restricted, thispronouncement states that the owner of the asset or liability should take intoconsideration what affects the restriction would have if viewed from theperspective of the buyer or assumer of the liability. This statement iseffective for all assets valued in financial statements for fiscal yearsbeginning after November 15, 2007. Although SFAS No. 157 applies to and amends the provisions ofexisting FASB and AICPA pronouncements, it does not, of itself, require any newfair value measurements, nor does it establish valuation standards.  SFAS No. 157applies to all other accounting pronouncements requiring or permitting fairvalue measurements, except for: SFAS No. 123(R), share-based payment andrelated pronouncements, the practicability exceptions to fair valuedeterminations allowed by various other authoritative pronouncements, and AICPAStatements of Position 97-2 and 98-9 that deal with software revenuerecognition. The Company is currently evaluating the impact of SFAS No. 157to its financial position and result of operations.

 

F-9

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In July 2006, theFASB issued FASB Interpretation No. 48 “Accounting for Uncertain TaxPositions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109 “Accounting for Income Taxes”. It prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken, ina tax return. FIN 48 also provides guidance on de-recognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. FIN 48 is effective for fiscal years beginning after December 15,2006.  The implementation of thisstandard did not have a material impact on the Company’s financial position,results of operations or cash flows for the years ended December 31, 2007.

 

In December 2007,FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007)on Business Combinations. This guidance retains the fundamental requirements inStatement 141 that the acquisition method of accounting (which Statement 141called the purchase method) be used for all business combinations and for anacquirer to be identified for each business combination. This Statement definesthe acquirer as the entity that obtains control of one or more businesses inthe business combination and establishes the acquisition date as the date thatthe acquirer achieves control. This guidance requires an acquirer to recognizethe assets acquired, the liabilities assumed, and any non-controlling interestin the acquiree at the acquisition date, measured at their fair values as ofthat date, with limited exceptions specified in the Statement. It replacesStatement 141’s cost-allocation process, which required the cost of anacquisition to be allocated to the individual assets acquired and liabilitiesassumed based on their estimated fair values. For example, Statement 141required the acquirer to include the costs incurred to effect the acquisition(acquisition- related costs) in the cost of the acquisition that was allocatedto the assets acquired and the liabilities assumed. This guidance requiresthose costs to be recognized separately from the acquisition. In addition, inaccordance with Statement 141, restructuring costs that the acquirer expectedbut was not obligated to incur were recognized as if they were a liabilityassumed at the acquisition date. This guidance requires the acquirer torecognize those costs separately from the business combination. The Company hasfollowed the above guidance in accounting for all acquisitions that happened in2007.

 

Reclassifications

 

Certain reclassificationshave been made to the prior years’ financial statements to conform to thecurrent year presentation.  These reclassifications had no effect onpreviously reported results of operations or retained earnings.

 

Year end

 

The Company has adopted December 31as its fiscal year end.

 

**Note 3 – Acquisitions, Goodwill,and Goodwill Impairment**

 

FuelCellStore.comacquisition

 

On June 11, 2007,the Company acquired the assets of the FuelCellStore.com, a small web basedseller of educational fuel cell products. The FuelCellStore.com product lineincludes demonstration kits, educational materials, fuel cell systems andcomponent parts.  It also offers consulting services on establishingeducational programs for all levels of educational institutions.  FuelCellStore.com now operates as a whollyowned subsidiary call ECOtality Stores, Inc.  The acquisition has been accounted for underthe purchase accounting method pursuant to SFAS 141.  Our consolidated financial statements for theyear ended December 31, 2007 include the financial results of ECOtalityStore, Inc. subsequent to the date of the acquisition.

 

The fair value of thetransaction was $539,000.  The companypaid $350,000 in cash and issued 300,000 shares of common stock, which wasvalued at $189,000 based on the closing market price on the date of theagreement.

 

The aggregate purchaseprice was allocated to the assets acquired on their preliminary estimated fairvalues at the date of the acquisition. The preliminary estimate of the excess of purchase price over the fairvalue of net tangible assets acquired was allocated to identifiable intangibleassets and goodwill.  In accordance withU.S. generally accepted accounting principles, we have up to twelve months fromclosing of the acquisition to finalize the valuation.  The following table summarizes thepreliminary estimate of fair value of assets as part of the acquisition withECOtality Stores, Inc.:

 
| ** **                                            | ** ** | **2007** | ** ** |
|-------------------------------------------------------|------------|----------|------------|
| Tangible assets  acquired, net of liabilities assumed |       | $        | 212,218    |   |
| Goodwill                                              |       | 326,782  |       |
|                                                  |       | $        | 539,000    |   |

 

In accordance with SFAS No. 144,“Accounting for the impairment or disposal of long lived assets”, the Companyreviewed the goodwill for impairment. Due to the lack of proven future cash flows generated by the assetsacquired, the full amount of goodwill was impaired during the year ended December 31,2007.  Impairment expense relating tothis acquisition was $326,782 for the year ended December 31, 2007.

 

Innergy Power Corporationacquisition

 

On October 1, 2007,the Company acquired certain assets of the Innergy Power Corporation and itswholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V.  Innergy Power Corporation designs andmanufactures standard and custom solar-power and 

 

F-10

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integrated solar-batterysolutions for government, industrial and consumer applications.  The acquisition has been accounted for underthe purchase accounting method pursuant to SFAS 141.  Our consolidated financial statements for theyear ended December 31, 2007 include the financial results of Innergy PowerCorporation and its subsidiary subsequent to the date of the acquisition.

 

The fair market value ofthe transaction was $3,000,000.  TheCompany issued 3,000,000 shares of the Company’s common stock for theacquisition.  The Company guaranteed to the sellers that the shares wouldbe worth $1 each ($3,000,000) during the 30-day period commencing 11 monthsfrom the closing date.  If the shares arenot worth $3,000,000, the company would be required to either issue additionalshares such that the total shares are worth $3,000,000 at that time or pay cashto the seller so that the aggregate value of the 3,000,000 shares plus the cashgiven would equal $3,000,000.

 

The fair value of the3,000,000 shares of common stock given, based on the closing price of theCompany’s common stock on December 31, 2007, was $555,000.  A liability for the balance of $2,445,000 hasbeen recorded as a current liability for purchase price on the consolidatedbalance sheet as of December 31, 2007.

 

The aggregate purchaseprice was allocated to the assets acquired and liabilities assumed on theirpreliminary estimated fair values at the date of the acquisition.  The preliminary estimate of the excess ofpurchase price over the fair value of net tangible assets acquired wasallocated to identifiable intangible assets and goodwill.  In accordance with U.S. generally acceptedaccounting principles, we have up to twelve months from closing of theacquisition to finalize the valuation. The purchase price allocation is preliminary, pending finalization ofour valuation of certain liabilities assumed. The following table summarizes the preliminary estimate of fair value ofassets as part of the acquisition of Innergy Power Corporation:

 
| ** **                                            | ** ** | **2007**  | ** ** |
|-------------------------------------------------------|------------|-----------|------------|
| Tangible assets  acquired, net of liabilities assumed |       | $         | 505,435    |   |
| Goodwill                                              |       | 2,494,565 |       |
|                                                  |       | $         | 3,000,000  |   |

 

In accordance with SFAS No. 144,“Accounting for the impairment or disposal of long lived assets”, the Companyreviewed the goodwill for impairment. Due to the lack of proven future cash flows generated by the assetsacquired, the full amount of goodwill was impaired during the year ended December 31,2007.  Impairment expense relating tothis acquisition was $2,494,565 for the year ended December 31, 2007.

 

eTec acquisition

 

On November 6, 2007,the Company acquired all the outstanding capital stock of ElectricTransportation Engineering Corporation, as well as its affiliated company TheClarity Group (collectively referred to as eTec). eTec designs fast-chargesystems for material handling and airport ground support applications. eTecalso tests and develops plug-in hybrids, advanced battery systems and hydrogenICE conversions.  The acquisition hasbeen accounted for under the purchase accounting method pursuant to SFAS141.  Our consolidated financialstatements for the year ended December 31, 2007 include the financialresults of eTec subsequent to the date of the acquisition.

 

The fair market value ofthe transaction was $5,037,193.  TheCompany paid $2,500,000 in cash, issued a $500,000 note payable, and issued6,500,000 shares of the company’s common stock for the acquisition, which wasvalued at $1,820,000 based on the closing market price on the date of theagreement.  The total value of the transaction also includes $217,193 indirect acquisition costs.

 

The $500,000 is payablein monthly installments of $50,000 beginning December of 2007.  The note payable balance as of December 31,2007 was $428,400 and will be paid off during 2008.

 

The aggregate purchaseprice was allocated to the assets acquired and liabilities assumed on theirpreliminary estimated fair values at the date of the acquisition.  The preliminary estimate of the excess ofpurchase price over the fair value of net tangible assets acquired wasallocated to identifiable intangible assets and goodwill.  In accordance with U.S. generally acceptedaccounting principles, we have up to twelve months from closing of theacquisition to finalize the valuation. The purchase price allocation is preliminary, pending finalization ofour valuation of certain liabilities assumed. The following table summarizes the preliminary estimate of fair value ofassets as part of the acquisition with eTec:

 
| ** **                                            | ** ** | **2007**  | ** ** |
|-------------------------------------------------------|------------|-----------|------------|
| Tangible assets  acquired, net of liabilities assumed |       | $         | 1,941,315  |   |
| Goodwill                                              |       | 3,095,878 |       |
|                                                  |       | $         | 5,037,193  |   |

 

In accordance with SFAS No. 144,“Accounting for the impairment or disposal of long lived assets”, the Companyreviewed the goodwill for impairment. Due to a proven track record of cash flows generated by the assetsacquired, no impairment was taken during the year ended December 31,2007.  Impairment expense relating tothis acquisition was $0 for the year ended December 31, 2007.

 

F-11

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Minit-Charger acquisition

 

On December 6, 2007the Company acquired through eTec the Minit-Charger business of EdisonEnterprises. Minit-Charger makes products that enable fast charging of lifttrucks using revolutionary technologies. The acquisition has been accounted for under the purchase accountingmethod pursuant to SFAS 141.  Ourconsolidated financial statements for the year ended December 31, 2007include the financial results of Minit-Charger subsequent to the date of theacquisition.

 

The fair market value ofthe transaction was $3,000,000.  Thecompany paid $1,000,000 in cash and issued 2,000,000 shares of the company’scommon stock for the acquisition.  The company guaranteed to the sellersthat the shares would be worth $1 each ($2,000,000) by the tenth day followingthe first anniversary date of the transaction. If the shares are not worth $2,000,000, the company would be required toeither issue additional shares such that the total shares are worth $2,000,000at that time or pay cash to the seller so that the aggregate value of the 2,000,000shares plus the cash given would equal $2,000,000.

 

The fair value of thecommon stock given, based on the closing price of the Company’s common stock onDecember 31, 2007, was $370,000.  Aliability for the balance of $1,630,000 has been recorded as a currentliability for purchase price on the consolidated balance sheet as of December 31,2007.

 

The aggregate purchaseprice was allocated to the assets acquired and liabilities assumed on theirpreliminary estimated fair values at the date of the acquisition.  The preliminary estimate of the excess ofpurchase price over the fair value of net tangible assets acquired wasallocated to identifiable intangible assets and goodwill.  In accordance with U.S. generally acceptedaccounting principles, we have up to twelve months from closing of theacquisition to finalize the valuation. The purchase price allocation is preliminary, pending finalization ofour valuation of certain liabilities assumed. The following table summarizes the preliminary estimate of fair value ofassets as part of the acquisition with Minit-Charger:

 
| ** **                                            | ** ** | **2007**  | ** ** |
|-------------------------------------------------------|------------|-----------|------------|
| Tangible assets  acquired, net of liabilities assumed |       | $         | 1,719,934  |   |
| Goodwill                                              |       | 1,280,066 |       |
|                                                  |       | $         | 3,000,000  |   |

 

In accordance with SFAS No. 144,“Accounting for the impairment or disposal of long lived assets”, the Companyreviewed the goodwill for impairment. Due to the lack of proven future cash flows generated by the assetsacquired, the full amount of goodwill was impaired during the year ended December 31,2007.  Impairment expense relating tothis acquisition was $1,280,066 for the year ended December 31, 2007.

 

Pro forma financialstatements

 

The unaudited pro formaconsolidated statement of operations for the years ended December 31, 2007and 2006 combines the historical results of ECOtality, Inc and the unauditedpro forma results of the four companies acquired during 2007 and gives effectto the acquisitions as if they occurred on January 1, 2007 and 2006.  Pro forma adjustments have been made relatedto impairment of goodwill.  The pro formaconsolidated results do not purport to be indicative of results that would haveoccurred had the acquisition been in effect for the periods presented, nor dothey 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 achievedin the consolidations of the companies.

 

The following tablecontains unaudited pro forma results for the years ended December 31, 2007and 2006 as if the acquisitions had occurred on January 1, 2006:

 
| ** **                                    | ** ** | **Year Ended December 31,** | ** **  | ** **         | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|-------------|--------------------|------------|
| ** **                                    | ** ** | **2007**                                   | ** **  | ** **         | ** ** | **2006** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Reported**                               | ** **  | **Pro Forma** | ** ** | **Reported** | ** ** | **Pro Forma** | ** ** |
| Net Revenues                                  |       | $                                          | 2,588,658   |               | $          | 13,723,131 |   | $ | — |   | $ | 10,882,089 |   |
| Net Income  (loss)                            |       | $                                          | (13,691,964 | )                  | $          | (15,587,966 | ) | $ | (14,497,768 | ) | $ | (15,544,934 | ) |
| Net (loss) per  share-basic and fully diluted |       | $                                          | (0.12       | )                  | $          | (0.14 | ) | $ | (0.17 | ) | $ | (0.19 | ) |

 

F-12

----

 

**Note 4 – Fixed assets**

 

Fixed assets as of December 31,2007 and 2006 consisted of the following:

 
| ** **                      | ** ** | **2007**   | ** ** | **2006** | ** ** |
|---------------------------------|------------|------------|------------|----------|------------|
|                            |       |       |       |     |       |
| Equipment                       |       | $          | 3,350,128  |     | $          | 23,900 |   |
| Buildings                       |       | 617,765    |       | —   |       |
| Vehicles                        |       | 1,589,315  |       | 775,000  |       |
| Furniture and  fixtures         |       | 47,957     |       | —   |       |
| Leasehold  improvements         |       | 306,280    |       | —   |       |
|                            |       | 5,911,445  |       | 798,900  |       |
| Less:  accumulated depreciation |       | (3,884,302 | )          | (21,087  | )          |
|                            |       | $          | 2,027,143  |     | $          | 777,813 |   |

 

Depreciation expensetotaled $197,185 and $20,166, for the years ended December 31, 2007 and2006 respectively.

 

**Note 5 – Notes payable**

 

For the year ended December 31,2006

 

On February 9, 2006,the Company conducted a private offering of debt securities, whereby it raised$750,000 in bridge loan financing from three non-affiliated individuals. The notes were due August 9, 2006, bear an interest rate of 10.5%calculated annually and contain no prepayment penalty.  The maturity dateof the notes was subsequently extended to October 9, 2006.  The noteswere repaid on September 29, 2006 including interest of $50,056.

 

In connection with the February 9,2006 debt offering, the note holders were issued warrants to purchase shares ofthe Company’s par value common stock.  Resultantly, a discount of $92 wasattributed to the value of the notes, which amount is being amortized over aperiod of six months.  As of December 31, 2006, a total of $92 hadbeen amortized and recorded as interest expense.  See note 7 foradditional discussion regarding the issuance of warrants.

 

On July 7, 2006, theCompany raised $275,000 in bridge loan financing from two shareholders. The notes are due December 29, 2006, bear an interest rate of 10.5%calculated annually and contain no prepayment penalty.  The notes wererepaid on October 2, 2006 including interest of $6,724.

 

In connection with the July 7,2006 debt offering, the note holders were issued warrants to purchase shares ofthe Company’s par value common stock.  Resultantly, a discount of $223,391was attributed to the value of the notes, which amount is being amortized overa period of approximately six months.  As of December 31, 2006, atotal of $223,391 had been amortized and recorded as interest expense. See note 7 for additional discussion regarding the issuance of warrants.

 

On August 3, 2006,the Company raised $100,000 in bridge loan financing from twoshareholders.  The notes are due December 29,2006, bear an interest rate of 10.5% calculated annually and contain noprepayment penalty.  The notes were repaid on October 2, 2006including interest of $1,668.

 

In connection with the August 3,2006 debt offering, the note holders were issued warrants to purchase shares ofthe Company’s par value common stock.  Resultantly, a discount of $79,079was attributed to the value of the notes, which amount is being amortized overa period of approximately five months.  As of December 31, 2006, atotal of $79,079 had been amortized and recorded as interest expense.  Seenote 7 for additional discussion regarding the issuance of warrants.

 

On September 9,2006, the Company raised $100,000 in bridge loan financing from twoshareholders.  The notes are due December 29, 2006, bear an interestrate of 10.5% calculated annually and contain no prepayment penalty.  Thenotes were repaid on October 2, 2006 including interest of $552.

 

In connection with the September 9,2006 debt offering, the note holders were issued warrants to purchase shares ofthe Company’s par value common stock.  Resultantly, a discount of $80,094was attributed to the value of the notes, which amount is being amortized overa period of approximately four months.  As of December 31, 2006, atotal of $80,094 had been amortized and recorded as interest expense.  Seenote 7 for additional discussion regarding the issuance of warrants.

 

On September 27,2006, the Company raised $200,000 in bridge loan financing from twoshareholders.  The notes are due December 29, 2006, are non-interestbearing and contain no prepayment penalty.  The notes were repaid on October 2,2006.

 

Interest expense totaled$456,796 for the year ended December 31, 2006.

 

As of December 31,2006, there were no outstanding notes payable.

 

For the year ended December 31,2007

 

On January 16, 2007,the Company purchased an office building for an aggregate price of$575,615.  $287,959 in cash was paid and 

 

F-13

----

 

the remaining balance of$287,500 was structured as an interest-only loan.  The loan bears an interest rate of 6.75%calculated annually, with monthly interest-only payments due beginning on February 16,2007.  The entire principal balance is due on or before January 16,2012 and is recorded as a long-term note payable on the consolidated financialstatements.

 

During 2007, the Companyacquired a note payable in the acquisition of eTec.  The note relates to a vehicle that was alsoacquired in the acquisition.  As of December 31,2007, $26,285 was owed on the note; $5,660 of which is due during 2008 with theremainder, $20,625 recorded as a long-term note payable on the consolidatedfinancial statements.

 

During 2007, the Companyincurred a $500,000 note payable to the previous owners of eTec through the acquisitionof eTec.  The loan is payable in tenmonthly installments of $50,000 each. See note 3 for details.  As of December 31,2007, $428,400 was owed and recorded as long-term note payable on theconsolidated financial statements.

 

In November and December of2007, the Company received gross proceeds of $5,000,000 in exchange for a notepayable of $5,882,356 as part of a private offering of 8% Secured ConvertibleDebentures (the “Debentures”).  The debentures are convertible into commonstock at $0.30 per share.  The debenturesare due beginning in May and June of 2008.  1/24th of the outstanding amount is due eachmonth thereafter. In connection with these debentures, the Company issueddebenture holders warrants (“the Warrants”) to purchase up to 9,803,925 sharesof the Company’s common stock with an exercise price of $0.32. The warrants areexercisable immediately upon issue.  TheWarrants expire five years from the date of issue.  The aggregate fairvalue of the Warrants equals $2,272,942 based on the Black-Scholes pricingmodel using the following assumptions: 3.39%-3.99% risk free rate, 162.69%volatility, strike price of $0.32, market price of $0.22-$0.32, no yield, andan expected life of 912 days.  The grossproceeds received were bifurcated between the note payable and the warrantsissued and a discount of $3,876,256 was recorded.  The discount is being amortized over the loanterm of two and one half years.  As of December 31, 2007, a total of$207,271 had been amortized and recorded as interest expense and $3,668,985remains as the unamortized discount.  See note 7 for additional discussionregarding the issuance of warrants.

 

The current portion ofthe debentures is recorded, net of a $1,174,075 discount, as $713,181 at December 31,2007.  The long-term portion of thedebentures is recorded, net of a $2,494,910 discount, as $1,500,189 as of December 31,2007.

 

Included in accruedliabilities is $60,129 of accrued interest relating to the debentures at December 31,2007.

 

Interest expense totaled $285,112for the year ended December 31, 2007.

 

**Note 6 – Stockholders’ equity**

 

The Company is authorizedto issue 300,000,000 shares of its $0.001 par value common stock and200,000,000 shares of $0.001 par value preferred stock.

 

On February 15,2006, the Company issued 7,500,018 shares of its $0.001 par value common stockto an individual who is an officer and director as executive compensationvalued at $2,475,006, calculated at the fair market value of $0.33 on March 2,2006 when the company began trading shares of stock.

 

On March 23, 2006,three warrant holders exercised their rights to purchase shares of par valuecommon stock of the Company.  As a result, the Company issued an aggregateof 1,071,429 shares of common stock at a price per share of $0.35, for totalcash proceeds of $375,000.  See note 7 for additional discussion on thisissue.

 

On June 12, 2006,the Company entered into a License Agreement with California Institute ofTechnology, whereby the Company issued 5,869,565 shares of common stock at afair market value of $1.40 per share, based on the quoted market price on thegrant date, for licenses and permits carrying an aggregate value of $8,217,391.

 

During the year ended December 31,2006, the Company conducted a private placement of its common stock pursuant toRegulation D, Rule 506.  As of December 31, 2006, the Companyissued 34,499,920 shares of its $0.001 par value common stock at a price pershare of $0.35, for total gross proceeds of $12,074,935.  The totaloffering costs related to this issuance was $9,352,713.

 

There were 112,999,906shares of common stock issued and outstanding at December 31, 2006.

 

In February of 2007,the Company entered into a settlement Agreement and release to the TechnologyContribution Agreement, originally entered into on February 15, 2006, tosettle and resolve all known disputes and uncertainties between the Company andHoward Foote, Elliott Winfield and Universal Power Vehicles, Inc.  Inaccordance with the Settlement, the Parties confirm the assignment, transferand conveyance of all right, title and interest in and to the IntellectualProperty transferred in the Contribution Agreement.  In consideration, theCompany agreed to pay to Foote, Winfield and UPV cash in the amount of$600,000.  Additionally, the Parties received common stock in theaggregate amount of 1,500,000 shares of the Company, as per a separate escrowagreement between Foote, Winfield and Mr. Harold Sciotto, an officer anddirector of the Company. The shares were owned by Mr. Sciotto and not thecompany. The escrow also provided for: (1) the immediate release fromescrow and return to Harold Sciotto of 32,500,000 shares of our common stock;and (2) the immediate release to ECOtality of 6,000,000 shares of ourcommon stock from escrow for 

 

F-14

----

 

cancellation.  The6,000,000 shares were cancelled immediately upon receipt at their par valueamount of $6,000 and that paid in capital was reduced by that amount.  Theshares transferred were valued at $1,200,000, which was based upon market valueat the time of the transaction and have been reflected, along with the cashpaid of $600,000 as settlement expense in our financial statements.  Settlement expenses totaled $1,800,000 forthe year ended December 31, 2007.

 

During the year ended December 31,2007, the Company issued 11,800,000 shares in four different acquisitions.  See Note 3 for further information.

 

During the year ended December 31,2007, the Company issued a total of 750,000 shares of common stock to employeesas an incentive. The stock was valued at the current market price at the dateof issue for a total of $316,000.  Ofthis amount $91,000 was expensed and $225,000 was recorded as unamortized costof stock issued for services to be amortized over the periods of the relatedagreements.  During the year ended December 31,2007, $112,500 has been amortized and $112,500 remains in unamortized cost ofstock issued for services.

 

During the year ended December 31,2007, the Company signed an employment agreement with the CEO of theCompany.  The Company agreed to issue atotal of 1,000,000 options for shares of common stock currently and issueanother 1,000,000 options to him one year from the date of the agreement.  The options issued in 2007 have a term of tenyears and a strike price of $0.30.  Theaggregate fair value of the Warrants equals $281,300 based on the Black-Scholespricing model using the following assumptions: 3.95% risk free rate, 162.69%volatility, strike price of $0.30, market price of $0.32, no yield, and anexpected life of 5 years.  This amountwas recorded as unamortized cost of stock issued for services to be amortizedover the two-year period of the agreement. During the year ended December 31, 2007, $23,442 has been amortizedinto expense and $257,858 remains in unamortized cost of stock issued forservices.  The options to be issued in2008 were treated as earned equally over the two-year term of the agreement sothat 83,334 of these options were earned as of December 31, 2007.  Those options were valued using theBlack-Scholes pricing model using the same assumptions and valued at$14,442.  This amount was expensed duringthe year ended December 31, 2007. The remainder of the options will be expensed over the two-year term ofthe agreement as they are earned.

 

During the year ended December 31,2007, the Company signed various agreements with the employees and consultantsof the Company.  The Company agreed toissue a total of 950,000 options for shares of common stock in connection withthese agreements.  The options have aterm of ten years and a strike price of $0.185 and all vested immediately.  The aggregate fair value of the Warrantsequals $164,635 based on the Black-Scholes pricing model using the followingassumptions: 3.49% risk free rate, 162.69% volatility, strike price of $0.185,market price of $0.185, no yield, and an expected life of 5 years.  This amount was expensed in the year ended December 31,2007.

 

During the year ended December 31,2007, the Company issued a total of 790,000 shares of common stock toconsultants for services. The stock was valued at the current market price atthe date of issue for a total of $400,400. This amount was recorded as a prepaid expense for services to beamortized over the periods of the related agreements.  During the year ended December 31, 2007,$284,375 has been amortized and $116,025 remains in prepaid expenses.

 

During the year ended December 31,2007, 1,478,445 warrants were exercised in a cashless exercise for 434,632shares of common stock.

 

During 2006, the Companyhad issued warrants to purchase shares of the Company’s par value common stockto the brokers of Brookstreet Securities Corporation as additionalconsideration for their acting as placement agent. Pursuant to this agreement,the Company had been obligated to issue registration rights penalty shares tothe subscribers if the underlying shares were not registered by April 5,2007.  The Company was obligated to issue344,999 shares per week for a maximum of 10 weeks for a total of 3,449,990shares.  These shares were issued on November 2,2007 and valued at $1,069,498 based on the market price over the period of timethe penalty was being accrued.  For theyear ended December 31, 2007, a registration rights penalty expense of$1,069,498 has been recorded.

 

There were 124,224,528shares of common stock issued and outstanding at December 31, 2007.

 

There is no preferredstock issued or outstanding as of December 31, 2007.

 

**Note 7 – Options and Warrants**

 

As of January 1,2006, there were no warrants outstanding.

 

On February 9, 2006,the Company issued warrants to purchase shares of the Company’s par valuecommon stock to three non-affiliated individuals in conjunction with bridgeloan agreements.  The warrant holders were granted the right to purchase atotal of 1,071,429 shares of common stock of the Company for an aggregatepurchase price of $375,000 or $0.35 a share.  The aggregate fair value ofsuch warrants totaled $92 based on the Black Scholes Merton pricing model usingthe following estimates:  4 % risk free rate, 100 % volatility andexpected life of the warrants of 6 months. On March 23, 2006, all of these warrants were exercised for totalgross proceeds of $375,000.

 

F-15

----

 

On July 7, 2006, theCompany issued warrants to purchase shares of the Company’s par value commonstock to two shareholders in conjunction with bridge loan agreements.  Thewarrant holders were granted the right to purchase a total of 1,100,000 sharesof common stock of the Company for a purchase price of $1,562,00 or $1.42 ashare.  The aggregate fair value of such warrants totaled $223,391 basedon the Black Scholes Merton pricing model using the following estimates:  4%risk free rate, 100% volatility and expected life of 5 years.

 

On August 3, 2006,the Company issued warrants to purchase shares of the Company’s par valuecommon stock to two shareholders in conjunction with bridge loan agreements. The warrant holders were granted the right to purchase a total of 400,000shares of common stock of the Company for a purchase price of $496,000 or $1.24a share.  The aggregate fair value of such warrants totaled $79,079 basedon the Black Scholes pricing model using the following estimates:  4% riskfree rate, 100% volatility and expected life of 5 years.

 

On September 6,2006, the Company issued warrants to purchase shares of the Company’s par valuecommon stock to two shareholders in conjunction with bridge loan agreements. The warrant holders were granted the right to purchase a total of 400,000shares of common stock of the Company for a purchase price of $528,000 or $1.32a share.  The aggregate fair value of such warrants totaled $80,094 basedon the Black Scholes pricing model using the following estimates:  4% riskfree rate, 100% volatility and expected life of 5 years.

 

On October 27, 2006the Company issued warrants to purchase shares of the Company’s par valuecommon stock to the brokers of Brookstreet Securities Corporation as additionalconsideration for their acting as placement agent.  The warrant holderswere granted the right to purchase a total of 6,899,982 shares of common stockof the Company for a purchase price of $2,414,994, or $0.35 per share. The aggregate fair value of such warrants totaled $7,638,212 based on the BlackScholes pricing model using the following estimates:  4% risk free rate,91% volatility and expected life of 5 years.  The Company netted the fairmarket value of the warrants against expenses related the offering of commonstock conducted by Brookstreet Securities Corporation.

 

As of December 31,2006, there were 8,799,982 options and warrants outstanding.

 

In November and December of2007, the Company issued debenture holders warrants to purchase up to 9,803,925shares of the Company’s common stock with an exercise price of $0.32. TheWarrants expire in five years from the date of issue.  See Note 5 forfurther information.

 

During the year ended December 31,2007, the Company signed an employment agreement with the CEO of theCompany.  The Company agreed to issue atotal of 1,000,000 options for shares of common stock currently and issueanother 1,000,000 options to him one year from the date of the agreement.  The options issued in 2007 have a term of tenyears and a strike price of $0.30.  Theaggregate fair value of the Warrants equals $281,300 based on the Black-Scholespricing model using the following assumptions: 3.95% risk free rate, 162.69%volatility, strike price of $0.30, market price of $0.32, no yield, and anexpected life of 5 years.  This amountwas recorded as unamortized cost of stock issued for services to be amortizedover the two-year period of the agreement. During the year ended December 31, 2007, $23,442 has been amortizedinto expense and $257,858 remains in unamortized cost of stock issued forservices.  The options to be issued in2008 were treated as earned equally over the two-year term of the agreement sothat 83,334 of these options were earned as of December 31, 2007.  Those options were valued using theBlack-Scholes pricing model using the same assumptions and valued at$14,442.  This amount was expensed duringthe year ended December 31, 2007. The remainder of the options will be expensed over the two-year term ofthe agreement as they are earned.

 

During the year ended December 31,2007, the Company signed various agreements with the employees and consultantsof the Company.  The Company agreed toissue a total of 950,000 options for shares of common stock in connection withthese agreements.  The options have aterm of ten years and a strike price of $0.185 and all vested immediately.  The aggregate fair value of the Warrantsequals $164,635 based on the Black-Scholes pricing model using the followingassumptions: 3.49% risk free rate, 162.69% volatility, strike price of $0.185,market price of $0.185, no yield, and an expected life of 5 years.  This amount was expensed in the year ended December 31,2007.

 

During the year ended December 31,2007, 1,478,445 warrants were exercised in a cashless exercise for 434,632shares of common stock.

 

As of December 31,2007, there were 19,075,462 options and warrants outstanding.

 

F-16

----

 

The following is asummary of the status of the Company’s stock warrants:

 
| ** **                             | ** ** | **Number**         | ** ** | **Weighted-Average**    | ** ** |
|----------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **Of Shares** | ** ** | **Exercise Price** | ** ** |
| Outstanding at  January 1, 2006   |       | **0**              | ** ** | **$**                   | **0.00**   | ** ** |
| Granted                                | ** ** | **9,871,411**      | ** ** | **$**                   | **0.54**   | ** ** |
| Exercised                              | ** ** | **(1,071,429**     | **)**      | **$**                   | **0.35**   | ** ** |
| Cancelled                              |       | **0**              | ** ** | **$**                   | **0.00**   | ** ** |
| Outstanding at  December 31, 2006 | ** ** | **8,799,982**      | ** ** | **$**                   | **0.57**   | ** ** |
|                                   |       |               | ** ** |                    |       |
| Granted                                | ** ** | **11,753,925**     | ** ** | **$**                   | **0.31**   | ** ** |
| Exercised                              | ** ** | **(1,478,445**     | **)**      | **$**                   | **0.35**   | ** ** |
| Cancelled                              |       | **0**              | ** ** | **$**                   | **0.00**   | ** ** |
| Outstanding at  December 31, 2007 | ** ** | **19,075,462**     | ** ** | **$**                   | **0.42**   | ** ** |

 
| ** **               | ** ** | **STOCK WARRANTS OUTSTANDING** | ** ** |
|--------------------------|------------|------------------------------------------|------------|
| ** **               | ** ** | ** **                               | ** ** | **Weighted-** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **                               | ** ** | **Average** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Number of**                       | ** ** | **Remaining** | ** ** | **Weighted-** | ** ** |
| **Range of**        | ** ** | **Shares**                               | ** ** | **Contractual** | ** ** | **Average** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding**                          | ** ** | **Life in  Years** | ** ** | **Exercise Price** | ** ** |
| **$0.35**                |       | **5,421,537**                            | ** ** | **3.81** | ** ** | **$** | **0.35** | ** ** |
| **$1.24 -  $1.42**       |       | **1,900,000**                            | ** ** | **3.57** | ** ** | **$** | **1.36** | ** ** |
| **$0.32**                |       | **6,862,748**                            | ** ** | **4.84** | ** ** | **$** | **0.32** | ** ** |
| **$0.32**                |       | **2,941,177**                            | ** ** | **4.92** | ** ** | **$** | **0.32** | ** ** |
| **$0.30**                |       | **1,000,000**                            | ** ** | **9.82** | ** ** | **$** | **0.30** | ** ** |
| **$0.18**                |       | **950,000**                              | ** ** | **10.00** | ** ** | **$** | **0.18** | ** ** |
|                     | ** ** | **19,075,462**                           | ** ** | **4.95** | ** ** | **$** | **0.42** | ** ** |

 
| ** **               | ** ** | **STOCK WARRANTS EXERCISABLE** | ** ** |
|--------------------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **Number of**                  | ** ** | **Weighted-** | ** ** |
| **Range of**        | ** ** | **Shares**                          | ** ** | **Average** | ** ** |
| **Exercise Prices** | ** ** | **Exercisable**                     | ** ** | **Exercise Price** | ** ** |
| **$0.35**                | ** ** | **5,421,537**                       | ** ** | **$** | **0.35** | ** ** |
| **$1.24 -  $1.42**       | ** ** | **1,900,000**                       | ** ** | **$** | **1.36** | ** ** |
| **$0.32**                | ** ** | **6,862,748**                       | ** ** | **$** | **0.32** | ** ** |
| **$0.32**                | ** ** | **2,941,177**                       | ** ** | **$** | **0.32** | ** ** |
| **$0.30**                | ** ** | **1,000,000**                       | ** ** | **$** | **0.30** | ** ** |
| **$0.18**                | ** ** | **950,000**                         | ** ** | **$** | **0.18** | ** ** |
| ** **               | ** ** | **19,075,462**                      |       | **$** | **0.42** |   |

 

**Note 7 – Income taxes**

 

For the years ended December 31,2007 and 2006, the Company incurred net operating losses and accordingly, noprovision for income taxes has been recorded. In addition, no benefit forincome taxes has been recorded due to the uncertainty of the realization of anytax assets. At December 31, 2007 and 2006, the Company had approximately$11,500,000 and $4,000,000 of federal and state net operating losses. The netoperating loss carry-forward, if not utilized, will begin to expire in 2009.

 
| ** **                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Net Operating  Loss Carry forward |       | $        | 3,910,000  |     | $          | 1,400,000 |   |
| Less: Valuation  allowance        |       | $        | (3,910,000 | )        | $          | (1,400,000 | ) |
| Balance:                          |       | $        | 0          |     | $          | 0 |   |

 

For financial reportingpurposes, the Company has incurred a loss since inception to December 31,2007.  Based on the available objectiveevidence, including the Company’s history of losses, management believes it ismore likely than not that the deferred tax asset will not be fully realized andhas therefore provided a valuation allowance for the full amount of thedeferred tax assets.

 

The federal and statestatutory income tax rate of 34% has been fully offset by the change in thevaluation allowance during the years ended December 31, 2007 and2006.  The effective income tax rate ofthe Company over these years is 0%.

 

F-17

----

 

**Note 8 – Commitments andcontingencies**

 

As of December 31,2007, the Company has seven leases in effect for operating space.  Future obligations under these commitments are$214,912 for 2008, $119,400 for 2009, $109,450 for 2010, and $0 for 2011 andthereafter.

 

In June of 2006, theCompany entered into a License Agreement with California Institute ofTechnology, whereby the Company obtained certain exclusive and non-exclusiveintellectual property licenses pertaining to the development of an electronicfuel cell technology.  The LicenseAgreement carries an annual maintenance fee of $50,000, with the first paymentdue on or about June 12, 2009.  TheLicense Agreement carries a perpetual term, subject to default, infringement,expiration, revocation or unenforceability of the License Agreement and thelicenses granted thereby.

 

**Note 9 – Segment Reporting**

 

SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” requires disclosuresrelated to components of a company for which separate financial information isavailable that is evaluated regularly by a company’s chief operating decisionmaker 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,the Company identified its segments based on the way management expects toorganize the Company to assess performance and make operating decisionsregarding the allocation of resources.  In accordance with the criteria in SFAS No. 131, “Disclosure aboutSegments of an Enterprise and Related Information,” the Company has concludedit has three reportable segments for the year ended December 31, 2007;ECOtality/ECOtality Stores segment, Innergy Power segment and eTec segment. TheECOtality/ECOtality Stores segment is the online marketplace for fuel cell-relatedproducts and technologies with online distribution sites in the U.S., Japan,Russia, Italy and Portugal.  The InnergyPower segment is comprised of the sale of solar batteries and other solar andbattery powered devices to end-users. The eTec segment relates to sale offast-charge systems for material handling and airport ground supportapplications to the testing and development of plug-in hybrids, advancedbattery systems and hydrogen ICE conversions and consulting revenues.  This segment also includes the Minit-Chargerbusiness which relates to the research, development and testing of advancedtransportation and energy systems with a focus on alternative-fuel, hybrid andelectric vehicles and infrastructures.  eTec holds exclusive patent rightsto the eTec SuperChargeTM and Minit-Charger systems - battery fast charge systems that allow for faster chargingwith less heat generation and longer battery life than conventional chargers.  The Company has aggregated these subsidiariesinto three reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.

 

The accounting policiesfor the segments are the same as those described in the summary of significantaccounting policies in Note 2 of this Form 10-K. Management is currentlyassessing 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 nointer-segment sales during the year ended December 31, 2007.

 

The Company did notreport  separate segments for the yearended December 31, 2006.

 

Summarized financialinformation concerning the Company’s reportable segments for the year ended December 31,2007 is 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  |       |
|                                      |            |                               |            |             |            |                   |            |             |            |  |  |  |  |

 

**NOTE 10 – Related PartyTransactions**

 

During the year ended December 31,2006, the Company obtained bridge loans in varying amounts aggregating $357,500from a corporate shareholder, Lynn-Cole Capital. The loans were repaid on October 2,2006. Interest expense in the amount of $195,870 has been recorded for thebridge loans and warrants issued in conjunction with these loans. The warrantholder was granted the right to purchase a total of 950,000 shares of ourcommon stock for a weighted average exercise price of $1,292,000 or $1.36 ashare.  The aggregate fair value of such warrants totaled $191,282 basedon the Black Scholes Merton pricing model using the following estimates: 4% risk free rate, 100% volatility and expected life of 5 years.

 

F-18

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In February 2006 weentered into a Technology Contribution Agreement with Howard Foote and ElliottWinfield which we refer to collectively as “F&W,” under which F&Wcontributed to us all of their right, title and interest in and to theEPC/Hydrality technology.  In exchangefor the contribution of the Hydrality technology, we agreed to finance ongoingresearch and development of the technology up to $1,350,000.  Theagreement was conditioned upon our ability to develop Hydrality technology thatwas determined to be commercially and technologically viable for massproduction.  In the event we were unable to do so by February 2009due to a lack of best efforts by F&W, abandonment of the project, or breachof employment agreements by F&W, then we could terminate the agreement andF&W would be responsible for reimbursing us for any funds expended by us,together with interest on the principal amount accrued at the rate of 15% peryear.  In the event the agreement was terminated by us, the rights,patents and ownership of the intellectual property conveyed by F&W to uswould revert to F&W and the shares returned to Mr. Sciotto, asdescribed below.

 

In February 2006 anagreement was entered into by and between Harold Sciotto, our former Presidentand majority stockholder, and Howard Foote under which Mr. Sciotto agreedto transfer ownership of 32,000,000 shares of our common stock to Mr. Foote. The 32,000,000 shares were placed in an escrow account to be delivered toMr. Foote: (i) upon delivery to us of an Hydrality system that isdetermined to be commercially and technologically viable for mass production,16,000,000 shares of common stock shall be transferred to Mr. Foote and (ii) uponeither (a) the acquisition of a hybrid transit bus company, or (b) ourobtaining profitability, an additional 16,000,000 shares of common stock shallbe transferred to Mr. Foote.  If at any time, until February 2009,we reasonably determine, in our sole discretion, that the EPC/Hydrality systemis not commercially or technically viable, Mr. Sciotto may terminate theagreement, whereupon Mr. Foote must return any shares of common stockdisbursed from the escrow account and the remaining portion of escrow stockremaining in the escrow account will be released to Mr. Sciotto. Upon such termination of the agreement, all patent rights and theownership of the intellectual property conveyed from Mr. Foote to us willrevert to Mr. Foote. Simultaneously with the execution of the agreement, Mr. Sciottoentered into an identical agreement with Elliot Winfield pursuant to which8,000,001 shares were placed in escrow to be delivered to Mr. Winfield,4,000,001 and 4,000,000 shares, respectively.

 

On February 15,2007, we entered into a Settlement Agreement and Release with Foote andWinfield and Universal Power Vehicles Corporation to settle and resolve allknown disputes and uncertainties between them related to all agreements andcontracts entered in heretofore concerning the fuel cell intellectual propertyand technology.  In accordance with the Settlement, Foote, Winfield andUPV confirm the assignment, transfer and conveyance of all right, title andinterest in and to the electric power cell and reactor technology beingdeveloped by us.  Further to this, for a period of two years from theeffective date of the Settlement, Foote, Winfield and UPV are prohibited,without our prior written consent, from directly or indirectly, participatingin any business in competition with us or from engaging in any businessactivities that are the same or substantially similar to our businessactivities during the terms Foote, Winfield and UPV were employed by, or wereaffiliated with, us.  As consideration, we paid to Foote, Winfield and UPVcash in the aggregate amount of $600,000. Additionally, Foote, Winfield and UPV received common stock in theaggregate amount of 1,500,000 shares.  In compliance with a condition ofthe Settlement described herein, Howard Foote resigned as a Director ofECOtality, effective February 15, 2007. All work being conducted in association with JPL is currently overseenby members of our staff. We do not believe Mr. Foote’s departure and hisinvolvement in the JPL project has had, or will have, any impact upon theproject or our ongoing business plans. Further, the settlement is not relatedto any findings regarding the commercial viability of the technology.  TheSettlement Agreement provides that the Assignment Agreement dated September 7,2006, remains in full force and requires Foote, Winfield and UPV to reasonablycooperate with us in connection with the preparation, filing, prosecution,maintenance and defense of the Hydrality technology in any suit forinfringement of the Hydrality technology brought by us against a third party.

 

On February 15,2007, Harold Sciotto, an officer and director, entered into an escrow agreementwith Foote and Winfield, jointly,  whichcancels and supersedes separate prior escrow agreements entered into with eachof Foote and Winfield, individually, on February 15, 2006.  The 2006Escrow provided for the potential issuance of an aggregate of 40,000,082 sharesto us, upon the achievement of certain performance standards, as set forth insaid 2006 Escrow.  The 2007 Escrow provides for: (1) the immediaterelease of 1,500,000 shares of our Escrow Stock; (2) the immediate releasefrom escrow and return to Harold Sciotto of 32,500,000 shares of Escrow Stock;and (3) the immediate release of 6,000,000 shares of Escrow Stock fromescrow and delivery to us for cancellation. 

 

**Note 11 – Subsequent Events**

 

In January and February of2008, owners of the convertible debentures described in Note 5 converted$100,000 of debentures into 333,332 shares of common stock at a conversionprice of $0.30.

 

In January of 2008,the Company amended its Articles of Incorporation to clarify the authorizedcapital stock of the Company and the ability of our board of directors to setthe number of directors constituting the full board of directors consistentwith the terms of the Companies Bylaws.

 

In January 2008, theCompany’s issued 175,000 shares to the employees of eTec.

 

F-19

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

 

On January 25, 2007,our Audit Committee approved the dismissal of Beckstead and Watts, LLP as ourprincipal certifying accountants.  None of the reports of Beckstead andWatts, LLP on our financial statements contained any adverse opinion ordisclaimer of opinion, or was qualified or modified as to uncertainty, auditscope or accounting principles, except as follows: Beckstead and Watts, LLP’sreport on our financial statements as of and for the years ended December 31,2005 and 2004.

 

During the Registrant’stwo most recent fiscal years and during any subsequent interim periodspreceding the date of termination, there were no disagreements with Becksteadand Watts, LLP on any matter of accounting principles or practices, financialstatement disclosure, or auditing scope or procedure, which disagreement(s), ifnot resolved to Beckstead and Watts, LLP’s satisfaction, would have caused themto refer to the subject matter of the disagreement(s) in connection withtheir report; and there were no “reportable events” as defined in Item 304(a)(1)(v) of the Securities and Exchange Commission’s Regulation S-K.

 

On January 25, 2007,the Registrant engaged Weaver & Martin, CPAs, 411 Valentine, Suite 300,Kansas City, Missouri 64111, as its independent registered public accountingfirm commencing January 25, 2007, for the fiscal year ended December 31,2006.  During the most recent two fiscal years through January 25,2007 (the date of engagement), neither the Registrant nor anyone engaged on itsbehalf has consulted with Weaver & Martin, CPAs regarding: (i) eitherthe application of accounting principles to a specified transaction, eithercompleted or proposed; or the type of audit opinion that might be rendered onthe Registrant’s financial statements; or (ii) any matter that was eitherthe subject of a disagreement (as defined in Item 304(a)(1)(v) ofRegulation S-K).

 

A Form 8-K has beenfiled with the Commission regarding this matter.

 

CONTROLS AND PROCEDURES

 

We maintain a set ofdisclosure controls and procedures designed to ensure that information requiredto be disclosed by us in the reports filed under the Securities Exchange Act,is recorded, processed, summarized and reported within the time periodsspecified by the Commission’s rules and forms.  Disclosure controlsare also designed with the objective of ensuring that this information isaccumulated and communicated to our management, including our chief executiveofficer and chief financial officer, as appropriate, to allow timely decisionsregarding required disclosure.  In viewof our restatement of the financial statements for the year ended December 31,2006, management reevaluated its disclosure controls and deemed themineffective.  We made the following changes in our disclosure controls tomake them effective for gathering, analyzing and disclosing the information theinformation we are required to disclose in the reports filed under theSecurities and Exchange Act of 1934, within the time periods specified in theCommission’s rules and forms.  These changes included adding anadditional individual to record transactions in our books of account after theyhave been reviewed by appropriate company officials, reemphasized properposting of transactions, having an independent accountant review transactionsfor compliance with applicable guidance, reviewing our chart of accounts toensure that account classifications are in place, and ensuring accountingpersonnel attend continuing professional education. In addition to the aboveactions we have added a professional accountant to specifically oversee allreporting for us and our subsidiaries and performed an assessment of internaland disclosure controls at our acquired entities.  As a result of these actions, we believe ourdisclosure controls and internal controls are effective for the year ended December 31,2007.

 

Our management does notexpect that our disclosure controls or internal controls over financialreporting will prevent all errors or all instances of fraud.  A controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within our company have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Because of the inherent limitation of a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

OTHER INFORMATION

 

None.

 

F-20

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROLPERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 

Each of our directors iselected by the stockholders to a term of one (1) year and serves until hissuccessor is elected and qualified.  Each officer is appointed by theBoard of Directors to a term of one (1) year and serves until hissuccessor is duly elected and qualified, or until he is removed from office. The Board of Directors has no nominating, auditing, or compensation.

 

The following table setsforth certain information regarding the executive officers and directors of theCompany as of December 31, 2007

 
| **Name**                  | ** ** | **Age** | ** ** | **Position**                                     |
|---------------------------|------------|---------|------------|--------------------------------------------------|
| Jonathan R. Read          |       | 49      |       | Chief Executive  Officer, President and Director |
|                      |       |    |       |                                             |
| Harold W. Sciotto         |       | 67      |       | Secretary, Treasurer  and Director               |
|                      |       |    |       |                                             |
| Barry S. Baer             |       | 64      |       | Chief Financial Officer                          |
|                      |       |    |       |                                             |
| Jerry Y.S.  Lin, PhD |       | 47      |       | Director                                         |
|                      |       |    |       |                                             |
| E. Slade Mead             |       | 42      |       | Director                                         |
|                      |       |    |       |                                             |
| Donald B. Karner          |       | 56      |       | Director                                         |

 

**JonathanR. Read, Chief Executive Officer, President and Director**

 

From 1976 to 1978, Mr. Readwas a Regional Manager for Specialty Restaurant Corporation, operating a themedinner house throughout California.  From 1979 to 1984 he was ManagingDirector for a group of international companies based in Malaysia, Indonesiaand Singapore ranging from hospitality interests to manufacturing and realestate.  From 1984 until he sold that company in 1989, he was the Chairmanand Chief Executive Officer of Shakey’s International, a worldwide restaurantchain with operations in the United States, Southeast Asia, Japan, South America,Mexico, Europe and the Caribbean.  In 1986, Mr. Read founded ParkPlaza International (Park Inn International/ Park Plaza Worldwide) and servedas Chairman and CEO from 1986 to 2003.  He expanded Park Plaza from fourhotels into a global hotel group.  He built, owned, operated, managed, andfranchised hotels across the United States as well as in England, FranceGermany, Switzerland, Holland, Belgium, Hungary, Austria, Ireland, Scotland,Spain, Poland, South Africa, Australia, New Zealand, Malaysia, Indonesia, HongKong, Philippines, New Guinea, Vietnam, Japan, Tahiti, Israel, Saudi Arabia,Dubai, Lebanon, Jordan, Mexico, Costa Rica and  Brazil.  Mr. Readsold the companies to Carlson Hospitality and Golden Wall Investments in 2003and was an investor for his own accounts until he joined us in 2005.

 

**Harold W. Sciotto, Director**

 

Mr. Sciotto wasemployed from June 1964 until his retirement in May 1993, by SearsRoebuck & Company in various sales and management positions. These positions encompassed store sales and department managementpositions, such as store merchandise manager, district business manager for sixstates and store manager of three stores in Arizona.  His duties includedsales, advertising, personnel management, financial statement preparation andaccounting.  From 1989 through the present, Mr. Sciotto has also beenan independent business consultant to various early-stage business ventures. He was our Chief Executive Officer from April 2005 through February 2006,when he served as our Chief Financial Officer from February 2006 through December 2006. Mr. Sciotto currently serves as Corporate Secretary and a Director.

 

**Barry SBaer, Chief Financial Officer**

 

Colonel Barry S. Baerjoined us as our Chief Financial Officer in December, 2006. He has had anextensive career and was the CFO at Obsidian Enterprises from February 2003to March 2004, and at a number of manufacturing corporations including MaxKatz Bag Company (March 2004 to the present), Apex Industries (August 2002to December 2003) and Pharmaceutical Corporation of America (March 1993to August 2002). Previously, he worked with the City of Indianapolis asits Director of Public Works.  Currently, Colonel Baer also serves as CFOfor Buck_A-Roo$ Holding Corporation (BRHC) and is a member of the State ofIndiana Unemployment Insurance Board.

 

He was a member of theU.S. Army from 1965 to 1992 ending his career as a Colonel. He received hiscertification as a Certified Public Accountant while serving on active duty inthe Army. Colonel Baer’s military service includes Commander of an armoredcavalry troop in Vietnam; Director of the Accounting Systems for the U.S. Army;Commander of the 18th Finance Group during Operation Desert Shield/Desert Stormin the first Gulf War and Deputy Chief of Staff for Resource Management for theArmy Material Command.

 

F-21

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Colonel Baer earned a BS(Accounting) and an MBA from the University of Colorado.  He devotesapproximately 40% of his time to other business interests.

 

**JerryY.S. Lin, Director**

 

Dr. Lin has been aprofessor of chemical engineering and Interim Department Chair of theDepartment of Chemical and Materials Engineering at Arizona State Universitysince January 2005.  Dr. Lin joined the faculty of theUniversity of Cincinnati in 1991, where he was a professor of chemicalengineering and co-director of the NSF Center for Membrane Applied Science andTechnology until 2005.  His areas of expertise include inorganicmembranes, solid oxide fuel cells, adsorption and catalysis.  Dr. Linhas published over 150 referred journal publications and holds three patents. Dr. Lin has given 100 invited lectures to academia and industryaround the world.  He received his B.S. degree from Zhejiang University inChina and M.S. and PhD degrees from Worcester Polytechnic Institute in theU.S., all in chemical engineering.  He was a post-doctoral staff member atthe University of Twente in the Netherlands.

 

Dr. Lin has receivednumerous international professional and academic awards.  He has alsoheaded many research programs funded by such agencies as the U.S. Department ofEnergy and Department of Defense and private sector companies such as Amoco,BP, Exxon, Honda and the Petroleum Research Board.  He is on the Board ofDirectors of North American Membrane Society and editorial boards of severaljournals.  Dr. Lin is the conference chairman of the InternationalConference on Inorganic Membranes (ICIM8).

 

**SladeMead, Director**

 

Slade Mead joined us as aDirector on October 31, 2007.  Mr. Mead is a lawyer,professional sports consultant and former Arizona State Senator.  Thefounder of The Baseball Players Group, Mr. Mead specializes in arbitrationcases and represents several professional athletes, including Andy Roddick. Previously, Mr. Mead worked for Advantage International, a leadingglobal sports management firm, where he ran the London office and representedseveral professional tennis and baseball players. Mr. Mead is a formerArizona State Senator who served on the Appropriations, Government andEducation (Vice-Chair) Committees.  With a deep commitment to education, Mr. Meadwas voted the Arizona School Board Legislator of the Year (2003), Arizona Women’sPolitical Caucus Legislator of the Year (2004), and Arizona Career TechnicalEducation Policy Maker of the Year (2004).  Mr. Mead remains veryactive in education and state politics as he ran for Arizona Superintendent ofPublic Instruction in 2006, and is a Court appointed School Board and ReceiverBoard member for the Maricopa Regional School District.

 

**DonaldKarner, Director**

 

Donald Karner joined usas a director on November 7, 2007.  Mr. Karner has 30 years ofengineering and technical project management experience. 15 years of thisexperience was in the electric utility industry, where he developed andimplemented strategic direction for engineering, operating and maintenanceorganizations ranging in size from 10 to 3,000 people in nuclear, fossil,environmental and rate-making arenas.  The balance of his experience hasbeen with advanced vehicle design and fueling infrastructure as the presidentof Electric Transportation Engineering Corporation, which he co-founded in1996.  Mr. Karner holds a Bachelor of Science degree in ElectricalEngineering from Arizona State University and a Master of Science degree inNuclear Engineering from the University of Arizona. He is also a graduate ofthe Public Utility Executive Program of the University of Michigan School ofBusiness.

 

**Role ofthe Board**

 

The board has responsibilityfor establishing broad corporate policies and for the overall performance anddirection of the Company, but is not involved in day-to-day operations. Members of the board keep informed of the Company’s business by participatingin board and committee meetings, by reviewing analyses and reports sent to themregularly, and through discussions with its executive officers.

 

Directors hold officeuntil the next annual meeting of stockholders and the election andqualification of their successors.  Officers are elected annually by theBoard of Directors and serve at the discretion of the Board.

 

**FamilyRelationships**

 

None.

 

**BoardCommittees**

 

We currently have nocompensation committee or other board committee performing equivalentfunctions.  Currently, all members of our board of directors participatein discussions concerning executive officer compensation.

 

F-22

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We currently have anon-independent Audit Committee consisting of Harold Sciotto as Chairman, SladeMead and Barry Baer.

 

**Involvementon Certain Material Legal Proceedings during the Last Five Years**

 

No director, officer,significant employee or consultant has been convicted in a criminal proceeding,exclusive of traffic violations.

 

No bankruptcy petitionshave been filed by or against any business or property of any director,officer, significant employee or consultant of the Company nor has anybankruptcy petition been filed against a partnership or business associationwhere these persons were general partners or executive officers.

 

No director, officer,significant employee or consultant has been permanently or temporarilyenjoined, barred, suspended or otherwise limited from involvement in any typeof business, securities or banking activities.

 

No director, officer orsignificant employee has been convicted of violating a federal or statesecurities or commodities law.

 

F-23

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**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) ofthe Securities Exchange Act of 1934, as amended, requires the Company’sdirectors and executive officers, and persons who beneficially own more than10% of a registered class of the Company’s equity securities, to file reportsof beneficial ownership and changes in beneficial ownership of the Company’ssecurities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership),4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (AnnualStatement of Beneficial Ownership of Securities). Directors, executive officersand beneficial owners of more than 10% of the Company’s Common Stock arerequired by SEC regulations to furnish the Company with copies of all Section 16(a) formsthat they file.  Except as otherwise set forth herein, based solely onreview of the copies of such forms furnished to the Company, or writtenrepresentations that no reports were required, the Company believes that forthe fiscal year ended December 31, 2006 beneficial owners did comply with Section 16(a) filingrequirements applicable to them to the extent they filed all form requiredunder Section 16(a) in February 2006.

 

**Codeof Ethics**

 

We have not adopted aCode of Business Conduct and Ethics that applies to our principal executiveofficer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions.

 

EXECUTIVE COMPENSATION

 

**SummaryCompensation Table**

 

The following table setsforth, for the last two completed fiscal years ended December 31, 2007 and2006, the cash compensation paid by the Company, as well as certain othercompensation paid with respect to those years and months, to the ChiefExecutive Officer and, to the extent applicable, each of the three other mosthighly compensated executive officers of the Company in all capacities in whichthey served:

 

**SummaryCompensation Table**

 
| ** **                                 | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | **Change in**     | ** ** | ** **       | ** ** | ** **     | ** ** |
|--------------------------------------------|------------|------------|------------|-----------------|------------|----------------|------------|---------------|------------|-----------------|------------|---------------------|------------|------------------------|------------|------------------|------------|----------------|------------|
| ** **                                 | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | **Pension Value** | ** ** | ** **       | ** ** | ** **     | ** ** |
| ** **                                 | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | **and**                | ** ** | ** **       | ** ** | ** **     | ** ** |
| ** **                                 | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | **Nonqualified**       | ** ** | ** **       | ** ** | ** **     | ** ** |
| ** **                                 | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **    | ** ** | ** **      | ** ** | **Non-Equity**      | ** ** | **Deferred**           | ** ** | **All  Other**   | ** ** | ** **     | ** ** |
| **Name and Principal**                     | ** ** | ** ** | ** ** | ** **      | ** ** | ** **     | ** ** | **Stock**     | ** ** | **Option**      | ** ** | **Incentive  Plan** | ** ** | **Compensation**       | ** ** | **Compensation** | ** ** | ** **     | ** ** |
| **Position**                               | ** ** | **Year**   | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Awards($)** | ** ** | **Awards  ($)** | ** ** | **Compensation**    | ** ** | **Earnings  ($)**      | ** ** | **($)**          | ** ** | **Total  ($)** | ** ** |
|                                       | ** ** |       | ** ** |            | ** ** |           | ** ** | ** **    | ** ** |            |       | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** |           | ** ** |
| Johnathan R Read CEO  and President        | ** ** | 2007       | ** ** | 218,000         | ** ** | 150,000        | ** ** | ** **    | ** ** | 295,742         | (2)        | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** | 663,742        | ** ** |
| ** **                                 | 2006       | ** ** | 120,000    | ** **      |       | ** **     | 2,475,006  | (1)           | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | 2,595,006  | ** **     |
| ** **                                 | 2005       | ** ** |       | ** **      |       | ** **     |       | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | —     | ** **     |
|                                       | ** ** |       | ** ** |            | ** ** |           | ** ** |          | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** |           | ** ** |
| Harold W. Sciotto  Secretary and Treasurer | ** ** | 2007       | ** ** | 120,000         | ** ** |           | ** ** |          | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** | 120,000        | ** ** |
| ** **                                 | 2006       | ** ** | 120,000    | ** **      |       | ** **     |       | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | 120,000    | ** **     |
| ** **                                 | 2005       | ** ** |       | ** **      |       | ** **     |       | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | —     | ** **     |
|                                       | ** ** |       | ** ** |            | ** ** |           | ** ** |          | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** |           | ** ** |
| Barry S. Baer  Chief Financial Officer     | ** ** | 2007       | ** ** | 96,439          | ** ** |           | ** ** |          | ** ** | 86,650          | (3)        | ** **          | ** ** | ** **             | ** ** | ** **       | ** ** | 183,089        | ** ** |
| ** **                                 | 2006       | ** ** |       | ** **      |       | ** **     |       | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | —     | ** **     |
| ** **                                 | 2005       | ** ** |       | ** **      |       | ** **     |       | ** **    | ** ** | ** **      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **       | —     | ** **     |

 

----

Notes:

 

(1) On February 15, 2006 we issued 7,500,018 shares of our$0.001 par value common stock to Mr. Read as compensation for servicesvalued at $2,475,006, calculated at $0.33 per share which was the closing priceof our common stock on March 2,2006, the date our stock began trading on theBulletin Board.

 

(2) On November 1, 2007 we granted 2,000,000 options toacquire shares of the Company’s $0.001 par value common stock to Mr. Readas additional incentive compensation for services, the first 1,000,000 optionsvested on November 1,2007 and were valued at $281,300 calculated at $.2813per share using the Black Scholes Option Calculator. The second 1,000,000options will vest on November 1,2008. The portion of these options earnedin 2007 was valued at $14,442, calculated at $.1733 using the BlackScholesOption Calculator, the remainder of the options to be earned in 2008.

 

(3) On December 31, 2007 we issued 500,000 options to acquiresshares of the Company’s $0.001 par value common stock to Mr. Baer as compensationfor services valued at $86,650, caculated at $.1733 using the Black ScholesOption Calculator.

 

**EmploymentAgreements and Executive Compensation**

 

In October 2007 weentered into a two-year employment agreement with Mr. Read for an annualsalary of $300,000 and a one-time bonus of $150,000 payable upon the executionof the agreement.  In February 2007we renewed our employment agreement with Mr. Sciotto, providing for anannual salary of $120,000 per year.

 

F-24

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In November 2006 weengaged Barry S. Baer to serve as Chief Financial Officer at a rate of $100.00per hour.  This engagement continuesbased on mutual agreement between the parties.

 

**Directors’Compensation**

 

During the year ended December 31,2007, we had the following arrangements or agreements in place to compensateour directors for services they provide as directors of our company:

 

In November 2007 weentered into an arrangement with E. Slade Mead to pay a directors fee of $1,000per month for his services to the company.

 

In August 2006 weentered into an agreement to with Jerry Y.S. Lin to pay a directors fee of$1,000 per month in addition to a Chairman, Technology Committee Fee of $2,500per month for his services to the company.

 

**EquityIncentive Plan**

 

In January 2007 weadopted, subject to stockholder approval, an equity incentive plan whichprovides for the grant of options intended to qualify as “incentive stockoptions” and “non-statutory stock options” within the meaning of Section 422of the Internal Revenue Code of 1986 together with the grant of bonus stock andstock appreciation rights at the discretion of our Board of Directors. Incentive stock options are issuable only to our eligible officers,directors and key employees.  Non-statutory stock options are issuableonly to our non-employee directors and consultants.

 

The plan is administeredby our Board of Directors.  Currently, we have 6,100,000 shares of commonstock reserved for future issuance upon the exercise of stock options grantedunder the plan.  Under the plan, the Board of Directors determine whichindividuals will receive options, grants or stock appreciation rights, the timeperiod during which the rights may be exercised, the number of shares of commonstock that may be purchased under the rights and the option price.

 

With respect to stockoptions, the per share exercise price of the common stock may not be less thanthe fair market value of the common stock on the date the option is granted. No person who owns, directly or indirectly, at the time of the grantingof an incentive stock option, more than 10% of the total combined voting powerof all classes of our stock is eligible to receive incentive stock options underthe plan unless the option price is at least 110% of the fair market value ofthe common stock subject to the option on the date of grant.  The optionprice for non-statutory options is established by the Board and may not be lessthan 100% of the fair market value of the common stock subject to the option onthe date of grant.

 

No options may betransferred by an optionee other than by will or the laws of descent anddistribution, and during the lifetime of an optionee, the option may only beexercisable by the optionee.  Options may be exercised only if the optionholder remains continuously associated with us from the date of grant to thedate of exercise, unless extended under the plan grant.  Options under theplan must be granted within ten years from the effective date of the planand the exercise date of an option cannot be later than five years fromthe date of grant.  Any options that expire unexercised or that terminateupon an optionee’s ceasing to be employed by us will become available onceagain for issuance.  Shares issued upon exercise of an option will rankequally with other shares then outstanding.

 

**Liabilityand Indemnification of Officers and Directors**

 

Under our Articles ofIncorporation, our directors are not liable for monetary damages for breach offiduciary duty, except in connection with:

 

·      A breach of a director’sduty of loyalty to us or our stockholders;

 

·      Acts or omissions not ingood faith or which involve intentional misconduct, fraud or a knowingviolation of law;

 

·      A transaction from which adirector received an improper benefit; or

 

·      An act or omission for whichthe liability of a director is expressly provided under Nevada law.

 

F-25

----

 

Our Articles ofIncorporation and Bylaws require us to indemnify our officers and directors andother persons against expenses, judgments, fines and amounts incurred or paidin settlement in connection with civil or criminal claims, actions, suits orproceedings against such persons by reason of serving or having served asofficers, directors, or in other capacities, if such person acted in good faithand in a manner such person reasonably believed to be in or not opposed to ourbest interests and, in a criminal action or proceeding, if he had no reasonablecause to believe that his/her conduct was unlawful. The termination of anyaction, suit or proceeding by judgment, order, settlement, conviction or upon aplea of no contest or its equivalent shall not, of itself, create a presumptionthat the person did not act in good faith and in a manner which he or shereasonably believed to be in or not opposed to our best interests or that he orshe had reasonable cause to believe his or her conduct was unlawful. Indemnification as provided in our Bylaws will be made only as authorizedin a specific case and upon a determination that the person met the applicablestandards of conduct.  Insofar as the limitation of, or indemnificationfor, liabilities arising under the Securities Act of 1933 may be permitted todirectors, officers, or persons controlling us pursuant to the foregoing, orotherwise, we have been advised that, in the opinion of the SEC, suchlimitation or indemnification is against public policy as expressed in theSecurities Act of 1933 and is, therefore, unenforceable.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT

 

**SecurityOwnership of Certain Beneficial Owners and Management**

 

As of December 31,2007, there are 124,224,528 shares of common stock outstanding.  Thefollowing table sets forth as of December 31, 2007, certain informationregarding the beneficial ownership of the outstanding shares as of the date ofthis prospectus assuming all shares of preferred stock have been converted intocommon stock by:

 

1.     Each person who is known usto be the beneficial owner of more than 5% of the common stock,

 

2.     Each of our directors andexecutive officers and

 

3.     All of our directors andexecutive officers as a group.

 

Except as otherwiseindicated, each such person has investment and voting power with respect tosuch shares, subject to community property laws where applicable. The addressesof all executive officers and directors are in care of our company.

 
| ** **        | ** ** | ** **                                             | ** ** | **Amount and Nature** | ** ** | **Percent of** | ** ** |
|-------------------|------------|--------------------------------------------------------|------------|---------------------------------|------------|---------------------|------------|
| **Title of** | ** ** | ** **                                             | ** ** | **of Beneficial**          | ** ** | **Issued and** | ** ** |
| **Class**         | ** ** | **Name of Beneficial Owner**            | ** ** | **Owener**                      | ** ** | **Outstanding**     | ** ** |
|              |       |                                                   |       |                            |       |                |       |
| Common Stock      |       | Harold Sciotto, Secretary, Treasurer and Director  (1) |       | 35,558,924                      |       | 28.62               | %          |
| Common Stock      |       | Jonathan R. Read, President and Director (1)           |       | 7,250,018                       |       | 5.84                | %          |
| Common Stock      |       | Donald Karner, Director (1)                            |       | 3,744,000                       |       | 3.01                | %          |
| Common Stock      |       | Kevin Morrow (1)                                       |       | 2,444,000                       |       | 1.97                | %          |
| Common Stock      |       | Edward S Mead, Director (1)                            |       | 314,286                         |       | 0.25                | %          |
| Common Stock      |       | Jerry Y.S. Lin, Director (1)                           |       | 200,000                         |       | 0.16                | %          |
|              |       |                                                   |       |                            |       |                |       |
|              |       | Officers and  Directors as a Group                     |       | 49,511,228                      |       | 39.86               | %          |
|              |       |                                                   |       |                            |       |                |       |
| Common Stock      |       | Enable Growth Partners, LP (2)                         |       | 7,892,234                       | (3)        | 6.35                | %          |
| Common Stock      |       | Enable Opportunity Partners, LP (2)                    |       | 928,497                         | (3)        | 0.75                | %          |
| Common Stock      |       | Pierce Diversified Strategy Master Fund, LLC (2)       |       | 464,249                         | (3)        | 0.37                | %          |
| Common Stock      |       | Innergy Power (1)                                      |       | 3,000,000                       |       | 2.41                | %          |
| Common Stock      |       | Edison Source Company                                  |       | 2,000,000                       | (4)        | 1.61                | %          |
| Common Stock      |       | California Institute of Technology                     |       | 5,869,565                       | (3)        | 4.72                | %          |
|              |       |                                                   |       |                            |       |                |       |
| Common Stock      |       | Officers, Directors and 5 Shareholders, as a Group     |       | 69,665,773                      |       | 56.08               | %          |
| Common Stock      |       | Shares Outstanding non-directors/beneficial owners     |       | 54,558,755                      |       | 43.92               | %          |
| Common Stock      | ** ** | **TOTAL  OUTSTANDING**                                 |       | 124,224,528                     |       | 100.00              | %          |

 

----

Notes:

 

(1)    The address for theseshareholders is c/o ECOtality, Inc., 6821 E. Thomas Road, Scottsdale, AZ85251.

 

(2)    The address for theseshareholders is One Ferry Building 255, San Francisco, CA 94111.

 

(3)    Enable Growth Partners, LP,Enable Opportunity Partners, LP and Pierce Diversified Strategy Master Fund LLCcollectively own an aggregate of 9,284,980 shares of our common stock, or 7.47%of our total issued and outstanding shares as of December 31, 2007.

 

(4)    Edison Source Company wasissued 2,000,000 shares upon purchase of their Minit-Charger business

 

F-26

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

In February 2006 weentered into a Technology Contribution Agreement with Howard Foote and ElliottWinfield which we refer to collectively as “F&W,” under which F&Wcontributed to us all of their right, title and interest in and to theEPC/Hydrality technology.  In exchange for the contribution of theHydrality technology, we agreed to finance ongoing research and development ofthe technology up to $1,350,000.  The agreement was conditioned upon ourability to develop Hydrality technology that was determined to be commerciallyand technologically viable for mass production.  In the event we wereunable to do so by February 2009 due to a lack of best efforts by F&W,abandonment of the project, or breach of employment agreements by F&W, thenwe could terminate the agreement and F&W would be responsible forreimbursing us for any funds expended by us, together with interest on theprincipal amount accrued at the rate of 15% per year.  In the event theagreement was terminated by us, the rights, patents and ownership of theintellectual property conveyed by F&W to us would revert to F&W and theshares returned to Mr. Sciotto, as described below.

 

In February 2006 anagreement was entered into by and between Harold Sciotto, our former Presidentand majority stockholder, and Howard Foote under which Mr. Sciotto agreedto transfer ownership of 32,000,000 shares of our common stock to Mr. Foote. The 32,000,000 shares were placed in an escrow account to be delivered toMr. Foote: (i) upon delivery to us of an Hydrality system that isdetermined to be commercially and technologically viable for mass production,16,000,000 shares of common stock shall be transferred to Mr. Foote and (ii) uponeither (a) the acquisition of a hybrid transit bus company, or (b) ourobtaining profitability, an additional 16,000,000 shares of common stock shallbe transferred to Mr. Foote.  If at any time, until February 2009,we reasonably determine, in our sole discretion, that the EPC/Hydrality systemis not commercially or technically viable, Mr. Sciotto may terminate theagreement, whereupon Mr. Foote must return any shares of common stockdisbursed from the escrow account and the remaining portion of escrow stockremaining in the escrow account will be released to Mr. Sciotto. Upon such termination of the agreement, all patent rights and theownership of the intellectual property conveyed from Mr. Foote to us willrevert to Mr. Foote. Simultaneously with the execution of the agreement, Mr. Sciottoentered into an identical agreement with Elliot Winfield pursuant to which8,000,001 shares were placed in escrow to be delivered to Mr. Winfield,4,000,001 and 4,000,000 shares, respectively.

 

On February 15,2007, we entered into a Settlement Agreement and Release with Foote andWinfield and Universal Power Vehicles Corporation to settle and resolve allknown disputes and uncertainties between them related to all agreements andcontracts entered in heretofore concerning the fuel cell intellectual property andtechnology.  In accordance with the Settlement, Foote, Winfield and UPVconfirm the assignment, transfer and conveyance of all right, title andinterest in and to the electric power cell and reactor technology beingdeveloped by us.  Further to this, for a period of two years from theeffective date of the Settlement, Foote, Winfield and UPV are prohibited,without our prior written consent, from directly or indirectly, participatingin any business in competition with us or from engaging in any businessactivities that are the same or substantially similar to our businessactivities during the terms Foote, Winfield and UPV were employed by, or wereaffiliated with, us.  As consideration, we paid to Foote, Winfield and UPVcash in the aggregate amount of $600,000.  Additionally, Foote, Winfieldand UPV received common stock in the aggregate amount of 1,500,000 shares. In compliance with a condition of the Settlement described herein, HowardFoote resigned as a Director of ECOtality, effective February 15,2007.  All work being conducted inassociation with JPL is currently overseen by members of our staff. We do notbelieve Mr. Foote’s departure and his involvement in the JPL project hashad, or will have, any impact upon the project or our ongoing business plans.Further, the settlement is not related to any findings regarding the commercialviability of the technology.  The Settlement Agreement provides that theAssignment Agreement dated September 7, 2006, remains in full force andrequires Foote, Winfield and UPV to reasonably cooperate with us in connectionwith the preparation, filing, prosecution, maintenance and defense of theHydrality technology in any suit for infringement of the Hydrality technologybrought by us against a third party.

 

On February 15,2007, Harold Sciotto, an officer and director, entered into an escrow agreementwith Foote and Winfield, jointly, which cancels and supersedes separate priorescrow agreements entered into with each of Foote and Winfield, individually,on February 15, 2006.  The 2006 Escrow provided for the potentialissuance of an aggregate of 40,000,082 shares to us, upon the achievement ofcertain performance standards, as set forth in said 2006 Escrow.  The 2007Escrow provides for: (1) the immediate release of 1,500,000 shares of ourEscrow Stock; (2) the immediate release from escrow and return to HaroldSciotto of 32,500,000 shares of Escrow Stock; and (3) the immediaterelease of 6,000,000 shares of Escrow Stock from escrow and delivery to us forcancellation.

 

During the period July 7,2006 through September 27, 2006 we obtained bridge loans in varyingamounts aggregating $357,500 from a corporate shareholder (Lynn-Cole Capital)with a due date of December 29, 2006. The loans were repaid on October 2,2006. Interest expense in the amount of $195,870 has been recorded for thebridge loans and warrants issued in conjunction with these loans. The warrantholder was granted the right to purchase a total of 950,000 shares of ourcommon stock for a weighted average exercise price of $1,292,000 or $1.36 ashare.  The aggregate fair value of such warrants totaled $191,282 basedon the Black Schoeles Merton pricing model using the following estimates: 4% risk free rate, 100% volatility and expected life of 5 years.

 

F-27

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| **Exhibit Number** | ** ** | **Name and/or Identification of Exhibit**                                                      |
|-------------------------|------------|------------------------------------------------------------------------------------------------|
|                    |       |                                                                                           |
| 2                       |       | Plan  of Purchase, Sale, Reorganization, arrangement, liquidation or succession                |
|                    |       | a.  Technology Contribution Agreement and  Exhibits thereto (1)                           |
|                    |       | b.  License Agreement with California  Institute of Technology (2)                        |
|                    |       |                                                                                           |
| 3                       |       | Articles  of Incorporation & By-Laws                                                  |
|                    |       | a.  Articles of Incorporation filed on  April 21, 1999 (3)                           |
|                    |       | b.  Amendment to Articles of Incorporation  filed on November 27, 2006               |
|                    |       | c.  Amendment to Articles of Incorporation  filed on November 27, 2006               |
|                    |       | d.  Restated Bylaws October 31, 2007(5)                                                   |
|                    |       | e.  Amendment to Articles of Incorporation  filed on January 3, 2008 (4)                  |
|                    |       |                                                                                           |
| 10                      |       | Material  Contracts                                                                            |
|                    |       | a.   Purchase Order with Hydrogenics Corporation  (4)                                |
|                    |       | b.  Settlement Agreement and Release (6)                                                  |
|                    |       |                                                                                           |
| 16                      |       | Letter  on change in certifying accountant (7)                                                 |
|                    |       |                                                                                           |
| 31                      |       | Rule 13a-14(a)/15d-14(a) Certification                                               |
|                    |       |                                                                                           |
| 32                      |       | Certification  under Section 906 of the Sarbanes-Oxley Act (18 U.S.C.  Section 1350) |
|                    |       |                                                                                           |
| 99                      |       | Additional  Exhibits                                                                           |
|                    |       | a.  Escrow Agreement(6)                                                                   |
|                    |       | b.  Letter from NASA/Jet Propulsion  Laboratories (8)                                     |

 

----

Notes:

 
| (1)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  February 21, 2006.                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                             |
| (2)    | Incorporated by reference  herein to the Form 8-K, previously filed with the SEC on July 12,  2006.                                    |
|   |                                                                                                                                             |
| (3)    | Incorporated by  reference to the Registration Statement on Form 10SB12G, as amended,  previously filed with the SEC on March 3, 2005. |
|   |                                                                                                                                             |
| (4)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  December 4, 2006.                                 |
|   |                                                                                                                                             |
| (5)    | Incorporated by  reference herein to the Form SB-2, previously filed with the SEC on  February 12, 2007.                               |
|   |                                                                                                                                             |
| (6)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  February 21, 2007.                                |
|   |                                                                                                                                             |
| (7)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  January 30, 2007.                                 |
|   |                                                                                                                                             |
| (8)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  March 27, 2007.                                   |
|   |                                                                                                                                             |
| (9)    | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  June 15, 2007.                                    |
|   |                                                                                                                                             |
| (10)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  July 10, 2007.                                    |
|   |                                                                                                                                             |
| (11)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  September 20, 2007.                               |
|   |                                                                                                                                             |
| (12)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  November 2, 2007.                                 |
|   |                                                                                                                                             |
| (13)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  November 9, 2007.                                 |
|   |                                                                                                                                             |
| (14)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  December 7, 2007.                                 |
|   |                                                                                                                                             |
| (15)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  December 11, 2007.                                |
|   |                                                                                                                                             |
| (16)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  December 26, 2007.                                |
|   |                                                                                                                                             |
| (17)   | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on  December 31, 2007.                                |
|   |                                                                                                                                             |
| (18)   | Incorporated by  reference herein to the Form SB-2, previously filed with the SEC on  January 8, 2008.                                 |
|   |                                                                                                                                             |
| (18)   | Incorporated by  reference herein to the Form SB-2, previously filed with the SEC on  January 31, 2008.                                |

 

F-28

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PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table setsforth fees billed to us by our independent auditors for the years ended December 31,2007 and 2006 for (i) services rendered for the audit of our annualfinancial statements and the review of our quarterly financial statements, (ii) servicesrendered that are reasonably related to the performance of the audit or reviewof our financial statements that are not reported as Audit Fees, and (iii) servicesrendered in connection with tax preparation, compliance, advice and assistance.

 
| **SERVICES**        | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit fees          |       | 39,250   |       | $        | 11,500     |   |
|                |       |     |       |     |       |
| Audit-related  fees |       | —   |       | —   |       |
|                |       |     |       |     |       |
| Tax fees            |       | —   |       | 275      |       |
|                |       |     |       |     |       |
| All other fees      |       | 200,000  |       | 401      |       |
|                |       |     |       |     |       |
| **Total  fees**     |       | 239,250  |       | $        | 12,176     |   |

 

F-29

----

 

**SIGNATURES**

 

In accordance with Section 13or 15(d) of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereto duly authorized.

 

 

**ECOTALITY, INC.**

 
| **Signature**        | ** ** | **Title**               | ** ** | **Date**            | ** ** |
|----------------------|------------|-------------------------|------------|---------------------|------------|
|                 |       |                    |       |                |       |
| /s/ Jonathan R. Read |       | Chief Executive Officer |       | March 28, 2008 |       |
| Jonathan R. Read     |       |                    |       |                |       |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 

**ECOTALITY,INC.**

 
| **Signature**         | ** ** | **Title**                    | ** ** | **Date**            | ** ** |
|-----------------------|------------|------------------------------|------------|---------------------|------------|
|                  |       |                         |       |                |       |
| /s/ Jonathan R. Read  |       | Chief Executive Officer,     |       | March 28, 2008 |       |
| Jonathan R. Read      |       | President and Director       |       |                |       |
|                  |       |                         |       |                |       |
| /s/ Harold W. Sciotto |       | Secretary, Treasurer         |       | March 28, 2008 |       |
| Harold W. Sciotto     |       | and Director                 |       |                |       |
|                  |       |                         |       |                |       |
| /s/ Barry S. Baer     |       | Chief Financial Officer      |       | March 28, 2008 |       |
| Barry S. Baer         |       | Principal Accounting Officer |       |                |       |
|                  |       |                         |       |                |       |
| /s/ Jerry Y. S. Lin   |       | Director                     |       | March 28, 2008 |       |
| Jerry Y. S. Lin       |       |                         |       |                |       |
|                  |       |                         |       |                |       |
| /s/ E. Slade Mead     |       | Director                     |       | March 28, 2008 |       |
| E. Slade MeadDon      |       |                         |       |                |       |
|                  |       |                         |       |                |       |
| /s/ Donald B. Karner  |       | Director                     |       | March 28, 2008 |       |
| Donald B. KarnerDon   |       |                         |       |                |       |

 

F-30

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