**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Amendment Number 5 to**

**Form 10-KSB/A**
| **x**** Annual Report Pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                   |
| **For the Fiscal Year EndedDecember 31,  2006**                                                                                                                                                                                                                              |
| ** **                                                                                                                                                                                                                                                                   |
| **o**** Transition Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934**                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                   |
| **For the Transition Period from                       to                   ** |
| ** **                                                                                                                                                                                                                                                                   |
| **Commission File Number 000-50983**                                                                                                                                                                                                                                         |

 

**ECOTALITY,INC.**

(Name of small business issuer in its charter)

| **Nevada**                                                      |   | **68-0515422**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. employer  identification number) |
|                                                            |   |                                     |
| **6821 E.  Thomas Road**                                        |   |                                     |
| **Scottsdale,  AZ**                                             |   | **85251**                                |
| (Address of  principal executive offices)                       |   | (Zip code)                               |

 

Issuer’s telephone number: **(480) 219-5005**

| Securities Registered Pursuant to Section 12(b)  of the Act: |
|--------------------------------------------------------------|
|                                                         |   |   |
| **Title of  each class**                                     | ** ** | **Name of  each exchange on which registered** |
| None                                                         |   | None |

 

| Securities Registered  Pursuant to Section 12(g) of the Act: |
|--------------------------------------------------------------|
|                                                         |
| **Common**                                                   |
| (Title of class)                                             |
|                                                         |
|                                                         |
| (Title of class)                                             |

 

Check whether theissuer (1) filed all 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 to suchfiling requirements for the past 90 days.  xYes o No

Check if there isno disclosure 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-K or any amendment tothis Form 10-K.  x

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Act). o

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  o Yes    x  No

Theissuer’s revenue for its most recent fiscal year was $0.

The Company’scommon stock is listed on the Over-the-Counter Bulletin Board under the stockticker symbol “ETLY.”  The aggregate market value of the voting andnon-voting common equity held by non-affiliates based upon a price per share of$0.87, which was the closing price on April 12, 2007, is $54,323,639.

Thenumber of shares outstanding of each of the issuer’s classes of common equity,as of April 12, 2007 was 106,999,906.

 

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**DOCUMENTSINCORPORATED BY REFERENCE**

If the followingdocuments are incorporated by reference, briefly describe them and identify thepart of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the documentis incorporated: (1) any annual report to security holders; (2) any proxy orinformation statement; and (3) any prospectus filed pursuant to Rule 424(b) or(c) of the Securities Act of 1933 (“Securities Act”).  The listeddocuments should be clearly described for identification purposes (e.g., annualreport to security holders for fiscal year ended December 24, 1990).

None.

Transitional SmallBusiness Disclosure Format (Check one): Yes oNo x
| FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA    |   |   |
|-------------------------------------------------|--------|--------|
| EXECUTIVE COMPENSATION                          |   |   |
| CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS |   |   |
| EXHIBITS                                        |   |   |
| SIGNATURES                                      |   |   |

 

2

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**FORWARD LOOKING STATEMENTS**

ThisAnnual Report contains forward-looking statements about our business, financialcondition and prospects that reflect our management’s assumptions and beliefsbased on information currently available.  We can give no assurance thatthe expectations 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, ETLY’sactual results may differ materially from those indicated by theforward-looking statements.

Thekey factors that are not within our control and that may have a direct bearingon operating results include, but are not limited to, acceptance of ourservices, our ability to expand its customer base, managements’ ability toraise capital in the future, the retention of key employees and changes in theregulation of our industry.

Theremay be other risks and circumstances that management may be unable to predict. When used in this Report, words such as,  *“believes,”*   *“expects,” “intends,”*   *“plans,”*   *“anticipates,”*   *“estimates”*  and similar expressions are intended toidentify and qualify forward-looking statements, although there may be certainforward-looking statements not accompanied by such expressions.

MANAGEMENT’S DISCUSSION AND PLAN OF OPERATIONS.

**Forward-Looking Statements**

Thestatements contained in all parts of this document that are not historicalfacts are, or may be deemed to be, “forward-looking statements” within themeaning of  Section 27A of  the Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934.  Such forward-lookingstatements include, but are not limited to, those relating to the following:the Company’s ability to secure necessary financing; plans for opening one ormore restaurant units (including the scope, timing, impact and effectsthereof); expected growth; future operating expenses; future margins;fluctuations in interest rates; ability to continue to grow and  implementgrowth, and regarding future growth, cash needs, operations, business plans andfinancial results and any other statements that are not historical facts.

Whenused in this document, the words “anticipate,” “estimate,” “expect,” “may,” “plans,”“project,” and similar expressions are intended to be among the statements thatidentify forward-looking statements.  Ecotality, Inc.’s results may differsignificantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but notlimited to, those relating to costs, delays and difficulties related to theCompany’s dependence on its ability to attract and retain skilled managers andother personnel; the intense competition within the restaurant industry; theuncertainty of the Company’s ability to manage and continue its growth andimplement its business strategy; its vulnerability to general economicconditions; accuracy of accounting and other estimates; the Company’s futurefinancial and operating results, cash needs and demand for services; and theCompany’s ability to maintain and comply with permits and licenses; as well asother risk factors described in this Annual Report. Should one or more of theserisks or uncertainties materialize, or should underlying assumptions proveincorrect, actual outcomes may vary materially from those projected.

**Overview of the Business**

OnFebruary 15, 2007, we entered into a Settlement Agreement with Howard Foote,Elliott Winfield and Universal Power Vehicles Corporation to settle and resolveall known 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, the Parties confirmthe assignment, transfer and conveyance of all right, title and interest in andto the electric power cell and reactor technology being developed by us. In consideration, we paid to the Parties cash in the amount of $600,000. Additionally, the Parties received 1,500,000 shares of our common stock.

3

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Inconnection with the Settlement, an officer and director of Ecotality enteredinto an escrow agreement with the Parties, which cancels and supersedesseparate prior escrow agreements entered into with each of Foote and Winfield,individually, on February 15, 2006.  The 2006 Escrow provided for thepotential issuance of an aggregate of 40,000,082 shares of our common stock tothe Parties, upon the achievement of certain performance standards, as setforth in said 2006 Escrow.  The 2007 Escrow provides for: (1) theimmediate release of 1,500,000 shares of our common stock held per the 2006Escrow to the Parties; (2) the immediate release from escrow and return toHarold Sciotto of 32,500,000 shares of our common stock; and (3) the immediaterelease to Ecotality of 6,000,000 shares of our common stock from escrow forcancellation.

Weare a development stage company seeking to design and license a cost efficientelectric power cell for use in motorized vehicles and industrial equipment. A power or fuel cell is an electrochemical device that combines hydrogenand oxygen to produce electric power without combustion.  On June 12,2006, we entered into a License Agreement with California Institute ofTechnology, which operates JPL, whereby we acquired certain exclusive licensedpatent and/or patent applications rights and improvement patent rights relatedto research performed under the JPL Task Plan No. 82-10777, entitled “Mechanically-FedMetal-Air Fuel Cell As A High Energy Power Source” (“Task Plan”), as well as anonexclusive licensed technology rights developed as a result of the Task Plan. As partial consideration paid in connection with the License Agreement,we issued 5,869,565 shares of our common stock to CalTech with a fair marketvalue of $1.40 per share, based upon the closing price of our common stock onJune 12, 2006, for a total aggregate value of $8,217,391.  Furthermore, weare obligated to pay an annual maintenance fee of $50,000 to CalTech, beginningon 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.

Underour agreement with JPL, we have hired it to engineer a magnesium-based systemthat produces a hybrid power source creating hydrogen fuel and electricity ondemand, for which we expect to pay JPL a total of $1,350,000.  We believethat available hydrogen fuel cell technology 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 EPC and storagesystem may make future electric propulsion devices as practical as the currentgeneration of gasoline-powered systems.  If we are successful incommercially developing our EPC, we intend to sublicense the technology underour exclusive license agreement with CalTech for a broad range of applicationsincluding various types of motorized vehicles and industrial equipment. We hope to derive revenue from technology sublicense fees, fuel licensingfees and fees for the design and technical support of refueling stations androyalty fees.

OnMarch 19, 2007, we received a memorandum from the National Aeronautics andSpace Administration’s Jet Propulsion Laboratory reporting that significantperformance advancements have been made with regard to the HydratusTM, anon-demand hydrogen storage and delivery system fueled by magnesium and water,JPL has been developing on our behalf.  In summary, the JPL memo statesthat, in laboratory tests of the modified HydratusTM, the following has occurred:

1.   Hydrogen-fuel storage capacity, by weight for the entire system,has increased from 4.7% to between 8% and 9%, depending on operating mode,allowing the modified HydratusTM to meet the Department of Energy’s 2010 goal of6% hydrogen storage capacity.

2.   A drop in operating temperature of the modified HydratusTM of300-400 degrees Centigrade will allow the use of less expensive materials insystem construction.

3.   The amount of heat generated by the modified HydratusTM hasdecreased significantly by approximately 80% is expected to result in reducedsystem complexity, in terms of cost and size.  Additionally, because lessenergy is generated, and subsequently wasted during operation, the regenerationefficiency of the reaction products is increased by approximately 400%.

4

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As a result of thetechnical, performance and cost advancements, JPL has recommended all futureresearch and development efforts be shifted to focus on the modified HydratusTMand all associated systems and processes.  JPL and Ecotality have agreed todevelop and test a 7kW prototype, which JPL believes is suitable to powervarious commercial applications, as well as can be scaled for future systems. Additionally, JPL and Ecotality plan to design and test a full-size 65kWHydratusTM suitable for application in a bus.  We believe the modified 65kWHydratusTM will be implemented in a proof of concept vehicle in the second halfof 2007.

**Results of Operations**

Inthe year ended December 31, 2006, we did not generate any revenues related toour current business.  Our focus is currently on research and developmentof the EPC technology.  We do not have any marketable products or servicesthat we could sell to generate revenues.  Our management cannot predictwhen, if at all, we will begin to generate revenues.

Totaloperating expenses during the year ended December 31, 2006 were $14,055,877, ofwhich $8,222,572 is attributable to licenses and permits.  Of this amount,$8,217,391 (or approximately 99%) is attributable to the June 12, 2006 LicenseAgreement, for which we issued 5,869,565 shares of our common stock to CalTech. The material components of total operating expenses consisted of$1,930,209 in general and administrative expenses and $1,088,104 in researchand development costs specifically related to the EPC technology. Approximately92% of our general and administrative expenses can be attributed to four majorcategories; (1) professional fees in the amount of $760,917 for servicesperformed to  obtain the necessary capital and other resources necessary todevelop the technology, (2) $439,501 on public and investor relations,advertising and marketing , (3) $360,148 on website design, development,installation and operations, and (4) $206,649 in legal fees. Approximately 87%, or $949,200, of the research and development expenseswas paid to NASA in accordance with the task plan identified above.  Sinceour focus is research, development and the commercialization of technology, weexpect to incur additional research and development costs for the foreseeablefuture.  In addition, during the year ended December 31, 2006 we paid$2,795,006 in executive compensation. Because the amount of executivecompensation was a significant component of general and administrative expenseswe separated the amount on our annual financial statement. When general andadministrative expenses are considered together, fully 59% of the general andadministrative expenses are attributed to executive compensation and $2,475,006of the executive compensation reflects the value of the shares of our commonstock issued to our CEO on February 15, 2006. We incurred $20,166 indepreciation expense related to our computer equipment and bus purchased fromHydrogenics.  Since our inception through December 31, 2006, we havepurchased computer equipment for cost of $21,075 and a bus for $775,000, bothof which, net of depreciation expense, is currently valued at $777,813.

Withouthaving realized operating revenues, our operating loss for the year periodended December 31, 2006 was $14,055,877.  We expect to continue to incurongoing operating losses for the foreseeable future, because the Technologyacquired in the Technology Contribution Agreement is still in the research anddevelopment stage.  As a result, we do not currently have any revenue generatingpotential and will not until we are able to demonstrate the commercial abilityof our Technology effectively, of which there can be no assurance.

Since our inception, we realized total other income of$14,907, consisting solely of interest income.

Additionally,we incurred interest expense in the amount of $456,796 during the year endedDecember 31, 2006, of which $50,056 is attributed to a private offering ofsecurities conducted on February 9, 2006, whereby we raised $750,000 in bridgeloan financing from three non-affiliated individuals.  The notes were dueon August 9, 2006, bearing an interest rate of 10.5% calculated annually andcontain no prepayment penalty.  The maturity date of the notes wassubsequently extended to October 9, 2006.  The notes were repaid onSeptember 29, 2006.  In addition during the period July 7, 2006 throughSeptember 27, 2006 we obtained additional bridge loans in varying amounts fromtwo stockholders with a due date of December 29, 2006.  Interest expensein the amount of $391,740 has been recorded for the bridge loans and warrantsissued in conjunction with these loans.

Aftertaking other income and expenses into account, our net loss was $14,497,768during the year ended December 31, 2006 and $14,578,445 from our inception toDecember 31, 2006.

Asof December 31, 2006, we had $5,047,968 of cash on hand and held certificatesof deposit in the amount of $2,014,767. We believe this cash and the fundsderived from our private placement of our common stock described below shouldbe sufficient to continue our operations as a development stage company for thenext twelve to eighteen months.  If we expect to continue to pursue ourbusiness plan and develop our EPC Technology, we may need to raise additionalcapital by issuing common stock or debt securities in exchange for cash

5

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*Liquidity and Capital Resources*

Theavailability of capital resources is a limiting factor to our continuingresearch and development efforts as a renewable energy company.

OnApril 10, 2006, we entered into a letter of intent with Brookstreet Capital, aninvestment banking firm, to act as a placement agent in connection with aprivate placement of our unregistered common stock, pursuant to Regulation D,Rule 506, offered solely to accredited investors.  The private placementwas conducted on a best efforts basis and there was no assurance that any orall of the securities offered thereby would be sold.  As of October 31,2006, we sold 34,499,920 shares of our $0.001 par value common stock.  Theaggregate gross proceeds received in this private placement was $12,074,935.

Thewarrants issued in conjunction with the private placement will generateapproximately $2,414,888 in cash should all 6,899,982 warrants be exercised at$.35 per share.

Theproceeds generated from the private placement should allow us to continue ourEPC research and development program per our overall business plan. However, there can be no assurance that these capital resources willresult in profitable operations through the sale of commercial products andlicenses.

*Management’s Plan of Operation*

Asdescribed in Liquidity and Capital Resources, above, we raised gross proceedsof $12,074,935 in a private placement.  The warrants underlying the commonshares issued in connection with this private placement may generate up to anadditional $2,414,888 in capital over the next four (4) years beginning fiscalyear 2007.  As of January 1, 2007 we had available to us approximately$7,062,735 to meet our operating requirements.  In planning for fiscalyear 2007, to achieve our research and development goals we developed anoverall operating budget of $3,650,000, including $2,100,000 for research anddevelopment projects.  In addition, we identified the following othermajor costs: (1) $717,000 for officer and employee compensation, (2) $425,000for advertising, marketing, website and new media operations, and (3) $260,000for professional and legal fees.  These identified categories and costsare generally consistent with our expenses incurred during the year endedDecember 31, 2006.  We do not anticipate the purchase or sale of any majorcapital equipment, nor do we anticipate adding a significant number ofemployees.

Ourefforts during fiscal year 2007 will be directed at achieving our research anddevelopment objectives, and represent at least 60% of our operating plan. While we have established a budget for how we will spend our research anddevelopment funds, we may have to spend more dollars than planned. However, given available funds and our plan for fiscal 2007, we anticipatethat we have adequate capital resources complete our objectives for the year.

*Working Capital*

Networking capital is an important measure of our ability to finance ouroperations.  Given that our net working capital at December 31, 2006 waspositive, and that our private placement efforts have been successful to date,we believe we have adequate working capital to maintain our research and developmentefforts during 2007 as a minimum.  We may need to obtain additionalfinancing prior to having profitable commercial operations.

*Commitments and Long Term Liabilities*

OnJanuary 19, 2007 we purchased a small (1750 square feet) stand alone officebuilding at a cost of $575,615.  We paid $287,959 in cash, recorded a taxcredit in the amount of $516 and signed a 5 year promisory note (no prepaymentpenalties) at 6.75% per annum interest with the building’s current owner forthe balance of the purchase price.

OnJune 12, 2006, the Company entered into a License Agreement with CaliforniaInstitute of Technology, whereby the Company obtained certain exclusive andnon-exclusive intellectual property licenses pertaining to the development ofan electronic fuel cell technology, in exchange for 5,869,565 shares of commonstock of the Company with a fair market value of $8,217,391.  The LicenseAgreement carries an annual maintenance fee of $50,000, with the first paymentdue on or about June 12, 2009.  The License Agreement carries a perpetualterm, subject to default, infringement, expiration, revocation orunenforceability of the License Agreement and the licenses granted thereby.

6

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The followingdocuments (pages F-1 to F-8) form part of the report on the FinancialStatements
| Independent  Registered Public Accounting Firm Reports |   |   |
|--------------------------------------------------------|--------|--------|
| Balance Sheets                                         |   |   |
| Statements of  Operations                              |   |   |
| Statement  of Stockholders’ Equity (Deficit)      |   |   |
| Statements of  Cash Flows                              |   |   |
| Footnotes                                              |   |   |

 

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**Ecotality, Inc.**

**(aDevelopment Stage Company)**

**Balance Sheets**

**as of**

**December31, 2006 and 2005**

**and**

**Statementsof Operations,**

**Stockholders’ Equity, and**

**Cash Flows**

**For theyears ended**

**December31, 2006 and 2005,**

**and**

**for theperiod**

**April21, 1999 (Date of Inception)**

**through**

**December31, 2006**

8

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TABLE OF CONTENTS
| Independent  Registered Public Accounting Firm Report 2006 |   |   |
|------------------------------------------------------------|--------|--------|
|                                                       |   |   |
| Independent  Registered Public Accounting Firm Report 2005 |   |   |
|                                                       |   |   |
| Balance Sheets                                             |   |   |
|                                                       |   |   |
| Statements of  Operations                                  |   |   |
|                                                       |   |   |
| Statement  of Changes in Stockholders’ Equity         |   |   |
|                                                       |   |   |
| Statements of  Cash Flows                                  |   |   |
|                                                       |   |   |
| Footnotes                                                  |   |   |

 

9

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** WEAVER & MARTIN**

To the Board of Directors and Stockholders

Ecotality, Inc.

(Formerly Alchemy Enterprises, Ltd.)

Scottsdale,AZ

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheet of Ecotality, Inc.(Formerly Alchemy Enterprises, Ltd.) as of December 31, 2006 and the relatedstatements of operations, stockholders’ equity, and cash flows for the yearthen ended.  Ecotality, Inc.’s managementis responsible for these financial statements. Our responsibility is to express an opinion on these financialstatements based on our audit.

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. Our audit of the financial statements includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Ecotality, Inc.(Alchemy Enterprises, Ltd.) as of December 31, 2006, and the results of itsoperations and cash flows for the year then ended in conformity with accountingprinciples generally accepted in the United States of America.

As discussed in Note 10 to the financial statements, the financialstatements have been restated for the correction of an error in the valuationof shares given as executive compensation.
| /s/                      |   |
|--------------------------|--------|
| Weaver & Martin, LLC |
| Kansas City, Missouri    |

March 23, 2007, except as to the restatement discussed in Note 10 tothe financial statements which is as of July 13, 2007

 Certified Public Accountants & Consultants

 411 Valentine, Suite 300

 Kansas City, Missouri 64111

 Phone: (816) 756-5525

 Fax: (816)756-2252

F-1

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** Beckstead and Watts, LLP**

***Certified Public Accountants***

2425 W HorizonRidge Parkway

Henderson, NV 89052

702.257.1984  (tel)

702.362.0540 (fax)

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

We have auditedthe accompanying balance sheet of Ecotality, Inc. (formerly AlchemyEnterprises, Ltd.) (the “Company”) (a Development Stage Company), as ofDecember 31, 2005, and the related statements of operations, stockholders’equity, and cash flows for the year then ended, and for the period from April21, 1999 (Date of Inception) to December 31, 2005.  These financialstatements are the responsibility of the Company’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audit.

We conducted ouraudit in accordance with the standards of Public Company Accounting OversightBoard (United States).  Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditprovides a reasonable basis for our opinion.

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of Ecotality, Inc. (formerly AlchemyEnterprises, Ltd.) (a Development Stage Company) as of December 31, 2005, andthe results of its operations and cash flows for the years then ended, and forthe period April 21, 1999 (Date of Inception) to December 31, 2005, inconformity with U.S. generally accepted accounting principles.

The accompanyingfinancial statements have been prepared assuming the Company will continue as agoing concern.  As discussed in Note 3 to the financial statements, theCompany has had limited operations and have not commenced planned principaloperations.  This raises substantial doubt about its ability to continueas a going concern.  Management’s plans in regard to these matters arealso described in Note 3.  The financial statements do not include anyadjustments that might result from the outcome of this uncertainty.
| /s/ Beckstead and Watts, LLP |   |
|------------------------------|--------|
|                         |   |
|                         |   |
| February 3, 2005             |

F-2

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**Ecotality, Inc.**

**(formerlyAlchemy Enterprises, Ltd.)**

**(aDevelopment Stage Company)**

**Restated BalanceSheets**
| ** **                                                                                                                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                          | ** ** | **(RESTATED)**        | ** ** | ** ** | ** ** |
| **Assets**                                                                                                                                                          | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                                                                                                |       |                  |       |   |   |
| Current assets:                                                                                                                                                     |       |                  |       |   |   |
| Cash                                                                                                                                                                |       | $                     | 5,047,968  |   | $ | 5,878 |   |
| Certificates of  deposit                                                                                                                                            |       | 2,014,767             |       | — |   |
| Inventory                                                                                                                                                           |       | —                |       | 2,453 |   |
| Prepaid expenses                                                                                                                                                    |       | 88,885                |       | — |   |
| Total current  assets                                                                                                                                               |       | 7,151,620             |       | 8,331 |   |
|                                                                                                                                                                |       |                  |       |   |   |
| Fixed assets,  net                                                                                                                                                  |       | 777,813               |       | 1,904 |   |
|                                                                                                                                                                |       |                  |       |   |   |
|                                                                                                                                                                |       | $                     | 7,929,433  |   | $ | 10,235 |   |
|                                                                                                                                                                |       |                  |       |   |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                      | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                                                                                                |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                |       |                  |       |   |   |
| Accounts payable                                                                                                                                                    |       | $                     | 594,075    |   | $ | — |   |
| Payroll  liability                                                                                                                                                  |       | 12,404                |       | — |   |
| Total current  liabilities                                                                                                                                          |       | 606,479               |       | — |   |
|                                                                                                                                                                |       |                  |       |   |   |
| 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, 112,999,906 and 64,058,974  shares issued and outstanding as of 12/31/06 and 12/31/05, respectively |       | 113,000               |       | 64,059 |   |
| Additional  paid-in capital                                                                                                                                         |       | 21,788,399            |       | 26,853 |   |
| (Deficit)  accumulated during development stage                                                                                                                     |       | (14,578,445           | )          | (80,677 | ) |
| Total  stockholders’ equity                                                                                                                                    |       | 7,322,954             |       | 10,235 |   |
|                                                                                                                                                                |       |                  |       |   |   |
|                                                                                                                                                                |       | $                     | 7,929,433  |   | $ | 10,235 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

F-3

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**Ecotality, Inc.**

**(formerlyAlchemy Enterprises, Ltd.)**

**(aDevelopment Stage Company)**

**Restated Statements of Operations**
| ** **                                                                                                      | ** ** | **For the years ended** | ** **  | **April 21, 1999** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|------------------------------|------------|
| ** **                                                                                                      | ** ** | **December 31,**                  | ** **  | **(Inception) to**      | ** ** |
| ** **                                                                                                      | ** ** | **2006**                               | ** **  | **2005**                     | ** ** | **December 31, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **(RESTATED)**                         | ** **  | ** **                   | ** ** | **(RESTATED)** | ** ** |
| Revenue                                                                                                         |       | $                                      | —      |                         | $          | 851 |   | $ | 851 |   |
| Cost of goods sold                                                                                              |       | —                                 |        | 506                          |       | 506 |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Gross profit                                                                                                    |       | —                                 |        | 345                          |       | 345 |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Expenses:                                                                                                       | ** ** | ** **                             | ** **  | ** **                   | ** ** | ** ** | ** ** |
| Depreciation                                                                                                    |       | 20,166                                 |        | 788                          |       | 21,087 |   |
| Executive  compensation                                                                                         |       | 2,795,006                              |        | —                       |       | 2,795,006 |   |
| Licenses and  permits                                                                                           |       | 8,222,572                              |        | —                       |       | 8,222,572 |   |
| General and  administrative expenses ($2,795,006 excluded because it is presented as  separate line item above) |       | 1,930,029                              |        | 14,941                       |       | 2,010,132 |   |
| Research and  development                                                                                       |       | 1,088,104                              |        | —                       |       | 1,088,104 |   |
| Total expenses                                                                                                  |       | 14,055,877                             |        | 15,729                       |       | 14,136,901 |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Operating loss                                                                                                  |       | (14,055,877                            | )           | (15,383                      | )          | (14,136,556 | ) |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Other income:                                                                                                   |       |                                   |        |                         |       |   |   |
| Interest income                                                                                                 |       | 14,905                                 |        | —                       |       | 14,907 |   |
| Total other  income                                                                                             |       | 14,905                                 |        | —                       |       | 14,907 |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Other expenses:                                                                                                 |       |                                   |        |                         |       |   |   |
| Interest expense                                                                                                |       | 456,796                                |        | —                       |       | 456,796 |   |
| Total other  expenses                                                                                           |       | 456,796                                |        | —                       |       | 456,796 |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Loss from operations  before income taxes                                                                       |       | $                                      | (14,497,768 | )                            | $          | (15,383 | ) | $ | (14,578,445 | ) |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Provision for income  taxes                                                                                     |       | —                                 |        | —                       |       | — |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Net (loss)                                                                                                      |       | $                                      | (14,497,768 | )                            | $          | (15,384 | ) | $ | (14,578,445 | ) |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Weighted average number  of common shares outstanding - basic and fully diluted                                 |       | 82,866,709                             |        | 64,058,973                   |       |   |   |
|                                                                                                            |       |                                   |        |                         |       |   |   |
| Net (loss) per share-basic and fully diluted                                                                    |       | $                                      | (0.18       | )                            | $          | (0.00 | ) |   |   |

 

The accompanying notes are an integral part of thesefinancial statements.

F-4

----

** Ecotality, Inc.**

**(formerlyAlchemy Enterprises, Ltd.)**

**(aDevelopment Stage Company)**

**Restated Statement of Stockholders’Equity**
| ** **                           | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **(Deficit)**   | ** ** | ** **             | ** ** |
|--------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|-----------------|------------|------------------------|------------|
| ** **                           | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **Accumulated** | ** ** | **Total**              | ** ** |
| ** **                           | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**  | ** ** | **During**      | ** ** | **Stockholders’** | ** ** |
| ** **                           | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Development** | ** ** | **Equity**      | ** ** |
| ** **                           | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Stage**       | ** ** | ** **             | ** ** |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Founders shares issued  for services |       | 35,294,200            |       | $           | 35,294     |            | $          | —          |       | $                      | (34,294    | ) | $ | 1,000 |   |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| April 21, 1999                       |       |                  |       |        |       |            |       |            |       |                   |       |
| (Inception) to                       |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  1999                   |       |                  |       |        |       |            |       | (1,000          | )          | (1,000                 | )          |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  1999          |       | 35,294,200            |       | 35,294      |       | —          |       | (35,294         | )          | —                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year  ended                  |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2000                   |       |                  |       |        |       |            |       | —          |       | —                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  2000          |       | 35,294,200            |       | 35,294      |       | —          |       | (35,294         | )          | —                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year ended                   |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2001                   |       |                  |       |        |       |            |       | —          |       | —                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  2001          |       | 35,294,200            |       | 35,294      |       | —          |       | (35,294         | )          | —                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Shares issued  for cash              |       | 7,058,840             |       | 7,059       |       | —          |       | (2,059          | )          | 5,000                  |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year  ended                  |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2002                   |       |                  |       |        |       |            |       | (4,467          | )          | (4,467                 | )          |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  2002          |       | 42,353,040            |       | 42,353      |       | —          |       | (41,820         | )          | 533                    |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Shares issued  for cash              |       | 7,058,840             |       | 7,059       |       | —          |       | (2,059          | )          | 5,000                  |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year  ended                  |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2003                   |       |                  |       |        |       |            |       | (4,370          | )          | (4,370                 | )          |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  2003          |       | 49,411,880            |       | 49,412      |       | —          |       | (48,249         | )          | 1,163                  |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Shares issued  for cash              |       | 14,647,094            |       | 14,647      |       | 26,853          |       |            |       | 41,500                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year  ended                  |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2004                   |       |                  |       |        |       |            |       | (17,044         | )          | (17,044                | )          |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31,  2004          |       | 64,058,974            |       | 64,059      |       | 26,853          |       | (65,293         | )          | 25,619                 |       |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Net (loss)                           |       |                  |       |        |       |            |       |            |       |                   |       |
| For the year  ended                  |       |                  |       |        |       |            |       |            |       |                   |       |
| December 31,  2005                   |       |                  |       |        |       |            |       | (15,384         | )          | (15,384                | )          |
|                                 |       |                  |       |        |       |            |       |            |       |                   |       |
| Balance, December 31, 2005           |       | 64,058,974            |       | 64,059      |       | 26,853          |       | (80,677         | )          | 10,235                 |       |
|                                      |            |                       |            |             |            |                 |            |                 |            |                        |            |  |  |  |  |

 

The accompanying notes are an integral part of thesefinancial statements.

F-5

----

 
| 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 | )      | (14,497,768 | )           |
|                                              |   |        |   |   |    |       |   |        |   |        |        |
| Balance, December 31, 2006                        |   | 112,999,906 |   | $      | 113,000 |       | $      | 21,788,399  |   | $           | (14,578,445 | ) | $ | 7,322,954 |   |
|                                                   |        |             |        |        |         |            |        |             |        |             |             |  |  |  |  |

 

The accompanying notes are an integral part of thesefinancial statements.

F-6

----

** Ecotality, Inc.**

**(formerlyAlchemy Enterprises, Ltd.)**

**(aDevelopment Stage Company)**

**Restated Statements of Cash Flows**
| ** **                                           | ** ** | ** **                             | ** **  | ** **              | ** ** | **April 21, 1999** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|-------------|-------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **For the years ended** | ** **  | **(Inception) to** | ** ** |
| ** **                                           | ** ** | **December 31,**                  | ** **  | **December 31,**   | ** ** |
| ** **                                           | ** ** | **2006**                               | ** **  | **2005**                | ** ** | **2006**                     | ** ** |
| ** **                                           | ** ** | **(RESTATED)**                         | ** **  | ** **              | ** ** | **(RESTATED)**               | ** ** |
| **Cash flows from operating  activities**            |       |                                   |        |                    |       |                         |       |
| Net (loss)                                           |       | $                                      | (14,497,768 | )                       | $          | (15,384                      | )          | $ | (14,578,445 | ) |
| Adjustments to  reconcile net (loss) to              |       |                                   |        |                    |       |                         |       |
| net cash (used)  by operating activities:            |       |                                   |        |                    |       |                         |       |
| Shares issued  for executive compensation            |       | 2,475,006                              |        | —                  |       | 2,475,006                    |       |
| Shares issued  for services                          |       | —                                 |        | —                  |       | 1,000                        |       |
| Shares issued  for licenses                          |       | 8,217,391                              |        | —                  |       | 8,217,391                    |       |
| Depreciation                                         |       | 20,166                                 |        | 788                     |       | 21,087                       |       |
| Warrants issued  with notes payable                  |       | 382,656                                |        | —                  |       | 382,656                      |       |
| Stock split  adjustments                             |       | —                                 |        | —                  |       | 38,412                       |       |
| Changes in operating  assets and liabilities:        |       |                                   |        |                    |       |                         |       |
| (Increase)  decrease in inventory                    |       | 2,453                                  |        | (2,453                  | )          | —                       |       |
| (Increase) in  prepaid expenses                      |       | (88,885                                | )           | —                  |       | (88,885                      | )          |
| Increase in  accounts payable                        |       | 594,075                                |        | —                  |       | 594,075                      |       |
| Increase in  payroll liabilities                     |       | 12,404                                 |        | —                  |       | 12,404                       |       |
| Net cash (used) by  operating activities             |       | (2,882,502                             | )           | (17,049                 | )          | (2,925,299                   | )          |
|                                                 |       |                                   |        |                    |       |                         |       |
| **Cash flows from investing  activities**            | ** ** | ** **                             | ** **  | ** **              | ** ** | ** **                   | ** ** |
| Purchase of  fixed assets                            |       | (796,075                               | )           | (836                    | )          | (798,900                     | )          |
| Purchase of  certificates of deposit                 |       | (2,014,767                             | )           | —                  |       | (2,014,767                   | )          |
| Net cash (used) by  investing activities             |       | (2,810,842                             | )           | (836                    | )          | (2,813,667                   | )          |
|                                                 |       |                                   |        |                    |       |                         |       |
| **Cash flows from financing  activities**            | ** ** | ** **                             | ** **  | ** **              | ** ** | ** **                   | ** ** |
| Proceeds from  note payable                          |       | 1,425,000                              |        | —                  |       | 1,425,000                    |       |
| Repayments of  notes payable                         |       | (1,425,000                             | )           | —                  |       | (1,425,000                   | )          |
| Issuances of  common stock                           |       | 10,735,434                             |        | —                  |       | 10,786,934                   |       |
| Net cash provided by  financing activities           |       | 10,735,434                             |        | —                  |       | 10,786,934                   |       |
|                                                 |       |                                   |        |                    |       |                         |       |
| Net increase (decrease)  in cash                     |       | 5,042,090                              |        | (17,885                 | )          | 5,047,968                    |       |
| Cash – beginning                                |       | 5,878                                  |        | 23,763                  |       | —                       |       |
| Cash – ending                                   |       | $                                      | 5,047,968   |                    | $          | 5,878                        |       | $ | 5,047,968 |   |
|                                                 |       |                                   |        |                    |       |                         |       |
| Supplemental  disclosures:                           |       |                                   |        |                    |       |                         |       |
| Interest paid                                        |       | $                                      | 59,140      |                    | $          | —                       |       | $ | 59,140 |   |
| Income taxes  paid                                   |       | $                                      | —      |                    | $          | —                       |       | $ | — |   |
|                                                 |       |                                   |        |                    |       |                         |       |
| Non-cash transactions:                               |       |                                   |        |                    |       |                         |       |
| Shares issued  for executive compensation            |       | $                                      | 2,475,006   |                    | $          | —                       |       | $ | 2,475,006 |   |
| Number of shares  issued for executive compensation  |       | 7,500,018                              |        | —                  |       | 7,500,018                    |       |
|                                                 |       |                                   |        |                    |       |                         |       |
| Shares issued  for services                          |       | $                                      | —      |                    | $          | —                       |       | $ | 1,000 |   |
| Number of shares  issued for services                |       | —                                 |        | —                  |       | 35,294,200                   |       |
|                                                 |       |                                   |        |                    |       |                         |       |
| Shares issued  for licenses                          |       | $                                      | 8,217,391   |                    | $          | —                       |       | $ | 8,217,391 |   |
| Number of shares  issued for licenses                |       | 5,869,565                              |        | —                  |       | 5,869,565                    |       |
|                                                 |       |                                   |        |                    |       |                         |       |
| Amortization of  warrants issued for financing costs |       | $                                      | 382,656     |                    | $          | —                       |       | $ | 382,656 |   |
| Number of shares issued  for services                |       | 2,971,429                              |        | —                  |       | 2,971,429                    |       |

 

The accompanying notes are an integral part of thesefinancial statements.

F-7

----

**Ecotality, Inc.**

**(formerly Alchemy Enterprises, Ltd.)**

**(aDevelopment Stage Company)**

**Notes to Restated FinancialStatements**

**Note 1 – History and organization of the company**

The Company wasorganized April 21, 1999 (Date of Inception) under the laws of the State ofNevada, as Alchemy Enterprises, Ltd.  The Company has limited operationsand in accordance with Statement of Financial Accounting Standards No. 7 (SFAS#7), “Accounting and Reporting by Development Stage Enterprises,” the Companyis considered a development stage company.  The Company was initiallyauthorized to issue 25,000 shares of its no par value common stock.

On October 29,2002, the Company amended its articles of incorporation to increase itsauthorized capital to 25,000,000 shares with a par value of $0.001.  OnJanuary 26, 2005, the Company amended its articles of incorporation again,increasing authorized capital to 100,000,000 shares of common stock with a parvalue of $0.001.  Subsequently, on March 1, 2006, the Company amended itsarticles of incorporation, increasing authorized capital to 300,000,000 sharesof common stock, each with a par value of $0.001, and 200,000,000 shares ofpreferred stock, 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.

The formerbusiness of the Company was to market a private-label bio-degradable productline.  During the year ended December 31, 2006, the board of directorschanged the Company’s focus toward developing an electric power celltechnology.

**Note 2 – Accounting policies and procedures**

Use of estimates

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period.  Actualresults could differ from those estimates.

Cash and cashequivalents

For thepurpose of the statements of cash flows, all highly liquid investments with anoriginal maturity of three months or less are considered to be cashequivalents.  There were no cash equivalents as of December 31, 2006 and2005.

Revenuerecognition

The Company’srevenue recognition policies are in compliance with Staff Accounting Bulletin(SAB) 104. Revenue is recognized when a formal arrangement exists, the price isfixed or determinable, all obligations have been performed pursuant to theterms of the formal arrangement and collectibility is reasonably assured. The Company recognizes revenues on product sales, based on the terms ofthe customer agreement.  The customer agreement takes the form of either acontract or a customer purchase order and each provide information with respectto the product or service being sold and the sales price.  If the customeragreement does not have specific delivery or customer acceptance terms, revenueis recognized at the time of shipment of the product to the customer.

Managementperiodically reviews all product returns and evaluates the need forestablishing either a reserve for product returns or a product warrantyliability. As of December 31, 2006, management has concluded that neither areserve for product returns nor a warranty liability is required.

F-8

----

Advertising costs

The Companyexpenses all costs of advertising as incurred.  There were advertisingcosts of $439,501 and $0 included in selling, general and administrativeexpenses for the years ended December 31, 2006 and 2005, respectively.

Impairment of long-lived assets

On January 1,2002, the Company adopted the provisions of SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financialaccounting and reporting for the disposal of long-lived assets and supersedesSFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed of.” The adoption of this statement did nothave a material effect on the Company’s results of operations or financialcondition.

Managementregularly reviews property, equipment and other long-lived assets for possibleimpairment. This review occurs quarterly, or more frequently if events orchanges in circumstances indicate the carrying amount of the asset may not berecoverable. If there is indication of impairment , then management prepares anestimate of future cash flows (undiscounted and without interest charges) expectedto result from the use of the asset and its eventual disposition. If these cashflows are less than the carrying amount of the asset, an impairment loss isrecognized to write down the asset to its estimated fair value. Managementbelieves that the accounting estimate related to impairment of its property andequipment, is a “critical accounting estimate” because: (1) it is highlysusceptible to change from period to period because it requires management toestimate fair value, which is based on assumptions about cash flows anddiscount rates; and (2) the impact that recognizing an impairment wouldhave on the assets reported on our balance sheet, as well as net income, couldbe material. Management’s assumptions about cash flows and discount rates requiresignificant judgment because actual revenues and expenses have fluctuated inthe past and are expected to continue to do so.

Property and Equipment

Property andequipment are recorded at historical cost.  Minor additions and renewalsare expensed 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. Depreciation expense is recorded within selling, general andadministrative expense.  The Company uses other depreciation methods(generally accelerated) for tax purposes where appropriate.  The estimateduseful lives for significant property and equipment categories are as follows:
| Computer Equipment |   | 3 years |   |
|--------------------|--------|---------|--------|
| Vehicles           |   | 5 years |   |

 

Loss per share

The Companypresents basic loss per share (“EPS”) and diluted EPS on the face of statementsof operations.  Basic EPS is computed by dividing reported losses by theweighted average shares outstanding. Diluted EPS is computed by adding to theweighted average shares the dilutive effect if stock warrants were exercisedinto common stock.  For the years ended December 31, 2006 and 2005, thedenominator in the diluted EPS computation is the same as the denominator forbasic EPS due to the anti-dilutive effect of the stock warrants on the Company’snet loss.

Research and development costs

Research anddevelopment costs are charged to expense when incurred.

F-9

----

Fair value offinancial instruments

Fair valueestimates discussed herein are based upon certain market assumptions andpertinent information available to management as of December 31, 2006 and 2005. The respective carrying value of certain on-balance-sheet financialinstruments approximated their fair values.  Fair values were assumed toapproximate carrying values for cash and payables because they are short termin nature and their carrying amounts approximate fair values or they arepayable on demand.

Income Taxes

The Companyfollows Statement of Financial Accounting Standard No. 109, “Accounting forIncome Taxes” (“SFAS No. 109”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon thedifference between the financial statement and income tax basis of assets andliabilities using the enacted marginal tax rate applicable when the related assetor liability is expected to be realized or settled.  Deferred income taxexpenses or benefits are based on the changes in the asset or liability eachperiod.  If available evidence suggests that it is more likely than notthat some portion or all of the deferred tax assets will not be realized, avaluation allowance is required to reduce the deferred tax assets to the amountthat is more likely than not to be realized.  Future changes in suchvaluation allowance are included in the provision for deferred income taxes inthe period of change.

Deferred incometaxes may arise from temporary differences resulting from income and expenseitems reported 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.  Deferredtaxes arising 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.

General andadministrative expenses

The significantcomponents of general and administrative expenses consist of meals andentertainment expenses, legal and professional fees, outside services, office supplies,postage, and travel expenses.

Segment reporting

The Companyfollows Statement of Financial Accounting Standards No. 131, “Disclosures AboutSegments of an Enterprise and Related Information”. The Company operates as asingle segment and will evaluate additional segment disclosure requirements asit expands its operations.

Dividends

The Company hasnot yet adopted any policy regarding payment of dividends.  No dividendshave been paid or declared since inception.

Stock basedcompensation

In December 2004,the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is arevision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employeesand amends SFAS No. 95, Statement of Cash Flows. Generally, the approach inSFAS No. 123(R) is similar to the approach described in SFAS No. 123. However,SFAS No. 123(R) requires all share-based payments to employees, includinggrants of employee stock options, to be recognized in the income statementbased on their fair values. Pro forma disclosure is no longer an alternative.The new standard will be effective for the Company in the first interim orannual reporting period beginning after December 15, 2005. The Company hasadopted this standard will and expects to have a material impact on itsfinancial statements assuming employee stock options or awards are granted inthe future.

F-10

----

Recentpronouncements

In May 2005, theFASB issued Statement of Financial Accounting Standards No. 154 (SFAS No. 154),“Accounting Changes and Error Corrections.”  SFAS 154 requiresretrospective application to prior-period financial statements of changes inaccounting principles, unless it is impracticable to determine either theperiod-specific effects or the cumulative effect of the change.  SFAS 154also redefines “restatement” as the revising of previously issued financialstatements to reflect the correction of an error.  This statement iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005.  The adoption of SFAS 154 is expectedto have a material impact on the Company’s financial statements and disclosuresbased on the restatement of the second quarter of 2006.

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), whichestablishes a formal framework for measuring fair value under GAAP. SFAS 157defines and codifies the many definitions of fair value included among variousother authoritative literature, clarifies and, in some instances, expands onthe guidance for implementing fair value measurements, and increases the levelof disclosure required for fair value measurements.

Although SFAS No.157 applies to and amends the provisions of existing FASB and AICPApronouncements, it does not, of itself, require any new fair valuemeasurements, nor does it establish valuation standards. SFAS No.       157 applies to all other accountingpronouncements requiring or permitting fair value measurements, except for:SFAS No. 123(R), share-based payment and related pronouncements, thepracticability exceptions to fair value determinations allowed by various otherauthoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9that deal with software revenue recognition. SFAS No. 157 is effective forfinancial statements issued for fiscal years beginning after November 15, 2007,and interim periods within those fiscal years.

Credit Risks

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist principally of cash deposits.  Accounts at each institutionare insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At December 31, 2006 and 2005, the Company had approximately $6,962,735and $0 in excess of FDIC insured limits, respectively.

Reclassifications

Certainreclassifications have been made to the prior years’ financial statements toconform to the current year presentation.  These reclassifications had noeffect on previously reported results of operations or retained earnings.

Year end

TheCompany has adopted December 31 as its fiscal year end.

F-11

----

**Note 3 –Income taxes**

For the year endedDecember 31, 2006, the Company incurred net operating losses and accordingly,no provision 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, 2006, the Company had approximately $4,000,000 offederal and state net operating losses. The net operating loss carryforwards,if not utilized will begin to expire in 2009.

The components ofthe Company’s deferred tax asset are as follows:
| ** **                       | ** **   | **As of  December 31,  2006** | ** **   | **As of  December 31,  2005** | ** **   |
|----------------------------------|--------------|-----------------------------------------|--------------|-----------------------------------------|--------------|
|                             | *** *** | *** ***                            | *** *** | *** ***                            | *** *** |
| Deferred tax  assets:            |         |                                    |         |                                    |         |
| Net operating loss carryforwards |         | $                                       | 1,400,000    |                                    | $            | 14,370 |   |
| Total deferred  tax assets       |         | 1,400,000                               |         | 14,370                                  |         |
|                                  |              |                                         |              |                                         |              |  |  |

 

As of December 31,2006, Management believes it is more likely than not that the deferred taxasset will not be fully realized and has therefore provided a valuationallowance in the amount of $1,400,000 to offset the deferred tax asset of thesame amount.  As of December 31, 2006, the total deferred tax assets, netof the valuation allowance was $0.

**Note4 – Fixed assets**

Fixed assets as ofDecember 31, 2006 consisted of the following:
| Computer equipment        |   | $       | 23,900  |   |
|---------------------------|--------|---------|---------|--------|
| Vehicles                  |   | 775,000 |    |
| Accumulated  depreciation |   | (21,087 | )       |
|                      |   | $       | 777,813 |   |

 

Depreciationexpense for the years ended December 31, 2006 and 2005 was $20,166 and$788, respectively.

**Note 5 – Debt and interest expense**

On February 9,2006, the Company conducted a private offering of debt securities, whereby itraised $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 notes wererepaid on September 29, 2006 including interest of $50,056.

In connection withthe February 9, 2006 debt offering, the note holders were issued warrants topurchase shares of the Company’s par value common stock.  Resultantly, adiscount of $92 was attributed to the value of the notes, which amount is beingamortized over a period of six months.  As of December 31, 2006, a totalof $92 has been amortized and recorded as interest expense.  See note 7for additional discussion regarding the issuance of warrants.

On July 7, 2006,the Company 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 withthe July 7, 2006 debt offering, the note holders were issued warrants topurchase shares of the Company’s par value common stock.  Resultantly, adiscount of $223,391 was attributed to the value of the notes, which amount isbeing amortized over a period of approximately six months.  As of December31, 2006, a total of $223,391 has been amortized and recorded as interestexpense.  See note 7 for additional discussion regarding the issuance ofwarrants.

F-12

----

On August3, 2006, the Company raised $100,000 in bridge loan financing from twoshareholders.  The notes are due December 29, 2006, bear an interest rateof 10.5% calculated annually and contain no prepayment penalty.  The noteswere repaid on October 2, 2006 including interest of $1,668.

In connection withthe August 3, 2006 debt offering, the note holders were issued warrants topurchase shares of the Company’s par value common stock.  Resultantly, adiscount of $79,079 was attributed to the value of the notes, which amount isbeing amortized over a period of approximately five months.  As ofDecember 31, 2006, a total of $79,079 has been amortized and recorded asinterest expense.  See note 7 for additional discussion regarding theissuance of warrants.

On September 9, 2006,the Company raised $100,000 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 $552.

In connection withthe September 9, 2006 debt offering, the note holders were issued warrants topurchase shares of the Company’s par value common stock.  Resultantly, adiscount of $80,094 was attributed to the value of the notes, which amount isbeing amortized over a period of approximately four months.  As ofDecember 31, 2006, a total of $80,094 has been amortized and recorded asinterest expense.  See note 7 for additional discussion regarding theissuance 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 onOctober 2, 2006.

Interestexpense totaled $456,796 and $0 for the years ended December 31, 2006 and 2005,respectively.

**Note6 – Stockholders’ equity**

The Company isauthorized to 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 October 29,2002, the Company effected a 1000-for-1 forward stock split of its $0.001 parvalue common stock.  Subsequently, on March 1, 2006, the Company effecteda 17.6471-for-1 forward stock split of its $0.001 par value common stock. All share and per share amounts have been retroactively restated toreflect this split.

On May 1, 1999,the Company issued 35,294,200 shares of its no par value common stock asfounders’ shares to an officer and director in exchange for services renderedin the amount of $1,000, which has been recorded as general and administrativeexpense.

On August 13,2002, the Company issued 7,058,840 shares of its $0.001 par value common stockto an unrelated third party in exchange for cash in the amount of $5,000.

On July 15, 2003,the Company issued 7,058,840 shares of its $0.001 par value common stock to anunrelated third party in exchange for cash in the amount of $5,000.

F-13

----

On May 17, 2004,the Company closed their Regulation D, Rule 504 offering, registered in Nevada,and issued a total of 14,647,094 shares of its $0.001 par value common stock inexchange for cash of $41,500.

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. See note 8 for additional discussion on this issue.

During the yearended December 31, 2006, the Company conducted a private placement of itscommon stock pursuant to Regulation D, Rule 506.  As of December 31, 2006,the Company issued 34,499,920 shares of its $0.001 par value common stock at aprice per share of $0.35, for total gross proceeds of $12,074,935.  Thetotal offering costs related to this issuance was $9,352,713.

**Note 7 – Warrants**

As ofJanuary 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 Schoeles Merton pricing modelusing the following estimates:  4 % risk free rate, 100 % volatility andexpected life of the warrants of 6 months.  On March 23, 2006, all ofthese warrants were exercised for total gross proceeds of $375,000.

On July 7, 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 of1,100,000 shares of common stock of the Company for an a purchase price of $1,562,00or $1.42 a share.  The aggregate fair value of such warrants totaled$223,391 based on the Black Schoeles Merton pricing model using the followingestimates:  4% risk free rate, 100% volatility and expected life of 5years.

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 Schoeles Merton pricing model using the following estimates: 4% risk free rate, 100% volatility and expected life of 5 years.

F-14

----

OnSeptember 6, 2006, the Company issued warrants to purchase shares of theCompany’s par value common stock to two shareholders in conjunction with bridgeloan agreements.  The warrant holders were granted the right to purchase atotal of 400,000 shares of common stock of the Company for a purchase price of$528,000 or $1.32 a share.  The aggregate fair value of such warrantstotaled $80,094 based on the Black Schoeles Merton pricing model using thefollowing estimates:  4% risk free rate, 100% volatility and expected lifeof 5 years.

On October 27,2006 the 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 BlackSchoeles Merton pricing model using the following estimates:  4% risk freerate, 91% volatility and expected life of 5 years.  The Company netted thefair market value of the warrants against expenses related the offering ofcommon stock conducted by Brookstreet Securities Corporation.

Paragraph 5(Registration Rights) of the Subscription Agreement for the private placementdescribed above states that  ”If the Company fails to (i) file theRegistration Statement with the SEC on or prior to 60 days after the ClosingDate, (ii) obtain effectiveness of the Registration Statement by the SEC on orprior to 150 days after the Closing Date, or (iii) maintain effectiveness ofthe Registration Statement for 12 months after the date of effectiveness, theCompany shall be obligated to issue to the undersigned additional Shares” The Registration Rights paragraph further holds that if we fail or failto obtain or maintain the effectiveness of the registration statement, within30 days following the determination date (date upon which we fail to meet the60 or 150 day requirement)  we are to issue to the subscribers the numberof shares equal 1% of the number of shares issued as a part of thissubscription and do so on a weekly basis until such time as we are incompliancewith the registration requirement.  Further, the number of shares issuedas “penalty shares” in aggregate cannot exceed 10% of the number of sharesoriginally subscribed..  As of December 31, 2006, the Company  hasnot incurred any penalties (compensatory or otherwise) and has not reserved anyamounts for incurring any penalties in conjunction with this registration.

The following is asummary of the status of all of the Company’s stock warrants as of December 31,2006 and 2005 and changes during the years ended on those dates:
| ** **                                | ** **   | **Number**         | ** **   | **Weighted-Average**    | ** **   |
|-------------------------------------------|--------------|--------------------|--------------|-------------------------|--------------|
| ** **                                | ** **   | **Of Shares** | ** **   | **Exercise Price** | ** **   |
| *** ***                              | *** *** | *** ***       | *** *** | *** ***            | *** *** |
| Outstanding at  December 31, 2005         |         | 0                  |         | $                       | 0.00         |   |
| Granted                                   |         | 0                  |         | $                       | 0.00         |   |
| Exercised                                 |         | 0                  |         | $                       | 0.00         |   |
| Cancelled                                 |         | 0                  |         | $                       | 0.00         |   |
| Outstanding at  December 31, 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         |   |
| Options  exercisable at December 31, 2005 |         | 0                  |         | $                       | 0.00         |   |
| Options exercisable at  December 31, 2006 |         | 8,799,982          |         | $                       | 0.57         |   |

 

The followingtables summarize information about stock warrants outstanding and exercisableat December 31, 2006:
| ** **                              | ** ** | **STOCK WARRANTS OUTSTANDING** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number of  Shares  Outstanding**  | ** ** | **Weighted-Average  Remaining  Contractual  Life in Years** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $ 0.35                             |       | 6,899,982                                |       | 4.83 |   | $ | 0.35 |   |
| $ 1.24–$ 1.42            |       | 1,900,000                                |       | 4.57 |   | $ | 1.36 |   |
|                                    |       | 8,799,982                                |       | 4.77 |   | $ | 1.36 |   |

 
| ** **                              | ** ** | **STOCK WARRANTS EXERCISABLE** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number of  Shares  Exercisable**  | ** ** | ** ** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| ** **                              | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| $ 0.35                             |       | 6,899,982                                |       |   |   | $ | 0.35 |   |
| $ 1.24–$ 1.42            |       | 1,900,000                                |       |   |   | $ | 1.36 |   |
|                                    |       | 8,799,982                                |       |   |   | $ | 0.57 |   |

 

**Note 8 – Commitments and contingencies**

On February 15,2006, the Company entered into a Technology Contribution Agreement with twoindividuals to acquire the rights, titles and interests to the intellectualproperty for the development of an electric power cell.  In exchange forthe rights to this intellectual property, the Company agreed to finance thedevelopment of the electric power cell system up to $1,350,000 and payoff$15,000 in interest costs for related debt.  To date, $750,000 has beenrecorded as research and development expense in relation to the technology and$15,000 as interest expense.

F-15

----

On February 15,2006, the Company entered into a consulting agreement with Universal PowerVehicles Corporation for annual compensation of $200,000.  The term of theagreement is three years and may be extended upon agreement by both parties. The Company prepaid one-half of the compensation upon execution of theagreement, with the remaining compensation to be paid monthly beginning August15.  The Company fully amortized $100,000 as an expense in the year endedDecember 31, 2006.  The consulting agreement has subsequently beenterminated, without penalty, and no additional payments will be made.

On February 15,2006, the Company entered into an employment agreement with an individual whois an officer and director of the Company.  The compensation is $120,000annually.  Additionally, the Company issued 7,500,018 (split-adjusted)shares of par value common stock to this individual as executive compensationvalued at $2,475,006.  The term of the agreement is one year and isautomatically renewed annually.

On February 16,2006, the Company entered into an employment agreement with an individual whois an officer and director of the Company for annual compensation of $120,000. The term of the agreement is one year and is automatically renewedannually.

On March 21, 2006,the Company entered into a lease agreement to rent office space at a rate of$547 per month and requires a refundable deposit of $500, which was paid by theCompany during the period ended March 31, 2006.  On October 31, 2006, theCompany added an addendum to the original lease agreement to rent additionaloffice space at a rate of $547 per month and requires an additional refundabledeposit of $500, which was paid by the Company during the period ended December31, 2006.  The deposits are recorded in prepaid expenses.  The leaseand addendum expire collectively on March 31, 2007.  The future minimumlease payments for 2007 are $3,282.

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, which amount has been recordedas licenses and permits expense.  The License Agreement carries an annualmaintenance fee of $50,000, with the first payment due on or about June 12,2009.  The License Agreement carries a perpetual term, subject to default,infringement, expiration, revocation or unenforceability of the LicenseAgreement and the licenses granted thereby.

**Note9 – Subsequent Events**

On January 16,2007, the Company purchased an office building for an aggregate price of$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 third-party, bears an interest rateof 6.75% calculated annually, with monthly payments in the amount of $1,617 duebeginning on February 16, 2007.  The entire principal balance is due on orbefore January 16, 2012.

On February 15,2007, the Company entered into a Settlement Agreement and Release to theTechnology Contribution Agreement, originally entered into on February 15,2006, to settle and resolve all known disputes and uncertainties between theCompany and Howard Foote, Elliott Winfield and Universal Power Vehicles, Inc. In accordance with the Settlement, the Parties confirm the assignment,transfer and conveyance of all right, title and interest in and to theIntellectual Property transferred in the Contribution Agreement.  Inconsideration, the Company agreed to pay to Foote, Winfield and UPV cash in theamount of $600,000.  Additionally, the Parties are to receive common stockin the aggregate amount of 1,500,000 shares of the Company, as per a separateescrow agreement between Foote, Winfield and an officer and director of theCompany.  The 1,500,000 shares were valued at $1,200,000 based on ourmarket price on the day of the transaction.

F-16

----

**Note 10 – Restatement of financial statements**

In connection withthe preparation of our audited financial statements for the years endedDecember 31, 2006 and 2005, we determined that there were errors in accountingtreatment and reported amounts in our previously filed financial statements. As a result, we determined to restate our financial statements for theyear ended December 31, 2006.  The restatements are included in thisAnnual Report on Form 10-KSB/A (Amendment No. 4).

These restatedfinancial statements include adjustments related primarily to the following:

*Stockholders’Equity*.  The Company has restated its December 31, 2006financial statements to reflect the revaluation of compensation paid to anexecutive officer.  The resulting addition to executive compensationexpense and reduction to additional paid-in capital totaled $2,453,756 for theyear ended December 31, 2006.

The foregoingadjustments did not affect our previously reported cash and cash equivalentsbalances in prior periods. The following tables present the effect of therestatement adjustments by financial statement line item for the BalanceSheets, Statements of Operations, Statement of Stockholders’ Equity andStatements of Cash Flows.

*Balance Sheets as of December 31, 2006*
| ** **                                                                                                                                                          | ** ** | **As of December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                          | ** ** | **As**                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                          | ** ** | **Previously**                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                          | ** ** | **Stated**                                      | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| **Assets**                                                                                                                                                          | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets:                                                                                                                                                     |       |                                            |       |   |   |   |   |
| Cash                                                                                                                                                                |       | $                                               | 5,047,968  |   | $ | — |   | $ | 5,047,968 |   |
| Certificates of deposit                                                                                                                                             |       | 2,014,767                                       |       |   |   | 2,014,767 |   |
| Inventory                                                                                                                                                           |       | —                                          |       |   |   | — |   |
| Prepaid expenses                                                                                                                                                    |       | 88,885                                          |       | — |   | 88,885 |   |
| Total current assets                                                                                                                                                |       | 7,151,620                                       |       | — |   | 7,151,620 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| Fixed assets,  net                                                                                                                                                  |       | 777,813                                         |       | — |   | 777,813 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
|                                                                                                                                                                |       | $                                               | 7,929,433  |   | $ | — |   | $ | 7,929,433 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                      | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  liabilities:                                                                                                                                               |       |                                            |       |   |   |   |   |
| Accounts payable                                                                                                                                                    |       | $                                               | 594,075    |   | $ | — |   | $ | 594,075 |   |
| Payroll liability                                                                                                                                                   |       | 12,404                                          |       | — |   | 12,404 |   |
| Total current liabilities                                                                                                                                           |       | 606,479                                         |       | — |   | 606,479 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
| 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,  112,999,906 and 64,058,974 shares issued and outstanding as of 12/31/06 and  12/31/05, respectively |       | 113,000                                         |       |   |   | 113,000 |   |
| Additional paid-in capital                                                                                                                                          |       | 19,334,643                                      |       | 2,453,756 |   | 21,788,399 |   |
| (Deficit) accumulated during development stage                                                                                                                      |       | (12,124,689                                     | )          | (2,453,756 | ) | (14,578,445 | ) |
|                                                                                                                                                                |       | 7,322,954                                       |       | — |   | 7,322,954 |   |
|                                                                                                                                                                |       |                                            |       |   |   |   |   |
|                                                                                                                                                                |       | $                                               | 7,929,433  |   | $ | — |   | $ | 7,929,433 |   |

 

F-17

----

*Statementsof Operations for the year ended December 31, 2006 and for the period fromApril 21, 1999 (Inception) to December 31, 2006*
| ** **                                                                           | ** ** | **For the year ended** | ** ** | **April 21, 1999 (Inception) to** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **December 31, 2006**       | ** ** | **December 31, 2006**                       | ** ** |
| ** **                                                                           | ** ** | **As**                                | ** ** | ** **                                            | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                           | ** ** | **Previously**                        | ** ** | ** **                                            | ** ** | ** ** | ** ** | **Previously** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                           | ** ** | **Stated**                            | ** ** | **Adjustments**                                       | ** ** | **As Restated** | ** ** | **Stated** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Revenue                                                                              |       | $                                     | —     |                                                  | $          | — |   | $ | - |   | $ | 851 |   | $ | — |   | $ | 851 |   |
| Cost of goods  sold                                                                  |       | —                                |       | —                                                |       | — |   | 506 |   | — |   | 506 |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Gross profit                                                                         |       | —                                |       | —                                                |       | — |   | 345 |   |   |   | 345 |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Expenses:                                                                            |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                         |       | 20,166                                |       | —                                                |       | 20,166 |   | 21,087 |   | — |   | 21,087 |   |
| Executive compensation                                                               |       | 341,250                               |       | 2,453,756                                             |       | 2,795,006 |   | 341,250 |   | 2,453,756 |   | 2,795,006 |   |
| Licenses and permits                                                                 |       | 8,222,572                             |       | —                                                |       | 8,222,572 |   | 8,222,572 |   | — |   | 8,222,572 |   |
| General and administrative expenses                                                  |       | 1,930,029                             |       | —                                                |       | 1,930,029 |   | 2,010,132 |   | — |   | 2,010,132 |   |
| Research and Development                                                             |       | 1,088,104                             |       | —                                                |       | 1,088,104 |   | 1,088,104 |   | — |   | 1,088,104 |   |
| Total expenses                                                                       |       | 11,602,121                            |       | 2,453,756                                             |       | 14,055,877 |   | 11,683,145 |   | 2,453,756 |   | 14,136,901 |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Operating Loss                                                                       |       | (11,602,121                           | )          | (2,453,756                                            | )          | (14,055,877 | ) | (11,682,800 | ) | (2,453,756 | ) | (14,136,556 | ) |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Other income                                                                         |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Interest income                                                                      |       | 14,905                                |       | —                                                |       | 14,905 |   | 14,907 |   | — |   | 14,907 |   |
| Total other income                                                                   |       | 14,905                                |       | —                                                |       | 14,905 |   | 14,907 |   | — |   | 14,907 |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Other expenses:                                                                      |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                     |       | 456,796                               |       | —                                                |       | 456,796 |   | 456,796 |   | — |   | 456,796 |   |
| Total other expenses                                                                 |       | 456,796                               |       | —                                                |       | 456,796 |   | 456,796 |   | — |   | 456,796 |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Loss from  operations before income taxes                                            |       | (12,044,012                           | )          | (2,453,756                                            | )          | (14,497,768 | ) | (12,124,689 | ) | (2,453,756 | ) | (14,578,445 | ) |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes                                                          |       | —                                |       | —                                                |       | — |   | — |   | — |   | — |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Net (loss)                                                                           |       | $                                     | (8,610,979 | )                                                     | $          | (2,453,756 | ) | $ | (14,497,768 | ) | $ | (12,124,689 | ) | $ | (2,453,756 | ) | $ | (14,578,445 | ) |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Weighted average  number of common shares outstanding – basic and fully diluted |       | 82,866,709                            |       | —                                                |       | 82,866,709 |   |   |   |   |   |   |   |
|                                                                                 |       |                                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Net (loss) per share –  basic and fully diluted                                 |       | $                                     | (0.15      | )                                                     | $          | (0.03 | ) | $ | (0.18 | ) |   |   |   |   |   |   |

 

F-18

----

*Statement of Stockholders’ Equity*
| ** **                                      | ** ** | **As**         | ** ** | ** **      | ** ** | ** **      | ** ** |
|-------------------------------------------------|------------|----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                      | ** ** | **Previously** | ** ** | ** **      | ** ** | ** **      | ** ** |
| ** **                                      | ** ** | **Stated**     | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|                                            |       |           |       |            |       |            |       |
| For the year ended December 31, 2006            |       |           |       |            |       |            |       |
|                                            |       |           |       |            |       |            |       |
| Shares issued for services                      |       |           |       |            |       |            |       |
| Additional paid-in  capital                     |       | 13,750         |       | 2,453,756       |       | 2,467,506       |       |
| Total stockholders’  equity                |       | 21,250         |       | 2,453,756       |       | 2,475,006       |       |
|                                            |       |           |       |            |       |            |       |
| Net (loss) for the year ended December 31, 2006 |       |           |       |            |       |            |       |
| (Deficit) accumulated  during development stage |       | (12,044,012    | )          | (2,453,756      | )          | (14,497,768     | )          |
| Total stockholders’  equity                |       | (12,044,012    | )          | (2,453,756      | )          | (14,497,768     | )          |
|                                            |       |           |       |            |       |            |       |
| Balance, December 31, 2006                      |       |           |       |            |       |            |       |
| Additional paid-in  capital                     |       | 19,334,643     |       | 2,453,756       |       | 21,788,399      |       |
| (Deficit) accumulated  during development stage |       | (12,124,689    | )          | (2,453,756      | )          | (14,578,445     | )          |

 

F-19

----

*Statementsof Cash Flows for the year ended December 31, 2006 and for the period fromApril 21, 1999 (Inception) to December 31, 2006*
| ** **                                                                       | ** ** | **For the year ended** | ** **  | **April 21, 1999 (Inception) to** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------|-------------|-------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **December 31, 2006**       | ** **  | **December 31, 2006**                       | ** ** |
| ** **                                                                       | ** ** | **As**                                | ** **  | ** **                                            | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **Previously**                        | ** **  | ** **                                            | ** ** | ** ** | ** ** | **Previously** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **Stated**                            | ** **  | **Adjustments**                                       | ** ** | **As Restated** | ** ** | **Stated** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| **Cash  flows from operating activities**                                        | ** ** | ** **                            | ** **  | ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss)                                                                       |       | $                                     | (12,044,012 | )                                                     | $          | (2,453,756 | ) | $ | (14,497,768 | ) | $ | (12,124,689 | ) | $ | (2,453,756 | ) | $ | (14,578,445 | ) |
| Adjustments to  reconcile net (loss) to net cash (used) by operating activities: |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Shares issued for executive compensation                                         |       | 21,250                                |        | 2,453,756                                             |       | 2,475,006 |   | 21,250 |   | 2,453,756 |   | 21,250 |   |
| Shares issued for services                                                       |       | —                                |        | —                                                |       | — |   | 1,000 |   | — |   | 1,000 |   |
| Shares issued for licenses                                                       |       | 8,217,391                             |        | —                                                |       | 8,217,391 |   | 8,217,391 |   | — |   | 8,217,391 |   |
| Depreciation                                                                     |       | 20,166                                |        | —                                                |       | 20,166 |   | 21,087 |   | — |   | 21,087 |   |
| Warrants issued with notes payable                                               |       | 382,656                               |        | —                                                |       | 382,656 |   | 382,656 |   | — |   | 382,656 |   |
| Stock split adjustments                                                          |       | —                                |        |                                                  |       | — |   | 38,412 |   |   |   | 38,412 |   |
| Changes in  operating assets and liabilities:                                    |       | —                                |        | —                                                |       |   |   |   |   |   |   |   |   |
| (Increase) decrease in inventory                                                 |       | 2,453                                 |        | —                                                |       | 2,453 |   | — |   | — |   | — |   |
| (Increase) in prepaid expenses                                                   |       | (88,885                               | )           | —                                                |       | (88,885 | ) | (88,885 | ) | — |   | (88,885 | ) |
| Increase in accounts payable                                                     |       | 594,075                               |        | —                                                |       | 594,075 |   | 594,075 |   | — |   | 594,075 |   |
| Increase in payroll liabilities                                                  |       | 12,404                                |        | —                                                |       | 12,404 |   | 12,404 |   | — |   | 12,404 |   |
| Net cash (used)  by operating activities                                         |       | (2,882,502                            | )           | —                                                |       | (2,882,502 | ) | (2,925,299 | ) | — |   | (2,925,299 | ) |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                        | ** ** | ** **                            | ** **  | ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchase of fixed assets                                                         |       | (796,075                              | )           | —                                                |       | (796,075 | ) | (798,900 | ) | — |   | (798,900 | ) |
| Purchase of certificates of deposit                                              |       | (2,014,767                            | )           |                                                  |       | (2,014,767 | ) | (2,014,767 | ) |   |   | (2,014,767 | ) |
| Net cash (used)  by investing activities                                         |       | (2,810,842                            | )           | —                                                |       | (2,810,842 | ) | (2,813,667 | ) | — |   | (2,813,667 | ) |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                        | ** ** | ** **                            | ** **  | ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from notes payable                                                      |       | 1,425,000                             |        | —                                                |       | 1,425,000 |   | 1,425,000 |   | — |   | 1,425,000 |   |
| Repayments of notes payable                                                      |       | (1,425,000                            | )           |                                                  |       | (1,425,000 | ) | (1,425,000 | ) |   |   | (1,425,000 | ) |
| Issuances of common stock                                                        |       | 10,735,434                            |        | —                                                |       | 10,735,434 |   | 10,786,934 |   | — |   | 10,786,934 |   |
| Net cash  provided by financing activities                                       |       | 10,735,434                            |        | —                                                |       | 10,735,434 |   | 10,786,934 |   | — |   | 10,786,934 |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Net (decrease)  increase in cash                                                 |       | 5,042,090                             |        | —                                                |       | 5,042,090 |   | 5,047,968 |   | — |   | 5,047,968 |   |
| Cash – beginning                                                            |       | 5,878                                 |        | —                                                |       | 5,878 |   | — |   | — |   | — |   |
| Cash – ending                                                               |       | $                                     | 5,047,968   |                                                  | $          | — |   | $ | 5,047,968 |   | $ | 5,047,968 |   | $ | — |   | $ | 5,047,968 |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Supplemental  disclosures:                                                       |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Interest paid                                                                    |       | $                                     | 59,140      |                                                  | $          | — |   | $ | 59,140 |   | $ | 59,140 |   | $ | — |   | $ | 59,140 |   |
| Income taxes paid                                                                |       | $                                     | —      |                                                  | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Non-cash  transactions:                                                          |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Shares issued  for executive compensation                                        |       | $                                     | 21,250      |                                                  | 2,453,756  |   | $ | 2,475,006 |   | $ | 21,250 |   | 2,453,756 |   | $ | 2,475,006 |   |
| Number of shares  issued for executive compensation                              |       | 7,500,018                             |        |                                                  |       | 7,500,018 |   | 7,500,018 |   |   |   | 7,500,018 |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Shares issued  for services                                                      |       | $                                     | —      |                                                  |       |   | $ | — |   | $ | 1,000 |   |   |   | $ | 1,000 |   |
| Number of shares  issued for services                                            |       | —                                |        |                                                  |       |   |   | 35,294,200 |   |   |   | 35,294,200 |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Shares issued  for licenses                                                      |       | $                                     | 8,217,391   |                                                  |       |   | $ | 8,217,391 |   | $ | 8,217,391 |   |   |   | $ | 8,217,391 |   |
| Number of shares  issued for licenses                                            |       | 5,869,565                             |        |                                                  |       | 5,869,565 |   | 5,869,565 |   |   |   | 5,869,565 |   |
|                                                                             |       |                                  |        |                                                  |       |   |   |   |   |   |   |   |   |
| Amortization of  warrants issued for financing costs                             |       | $                                     | 382,656     |                                                  |       |   | $ | 382,656 |   | $ | 382,656 |   |   |   | $ | 382,656 |   |
| Number of shares issued  for services                                            |       | 2,971,429                             |        |                                                  |       | 2,971,429 |   | 2,971,429 |   |   |   | 2,971,429 |   |

 

F-20

----

As a result of theaforementioned restatement the related disclosures included in the notes to theconsolidated financial statements have been revised.

F-21

----

## **CONTROLS AND PROCEDURES**

The Companymaintains a set of disclosure controls and procedures designed to ensure that informationrequired to be disclosed by the Company in the reports filed under theSecurities Exchange Act, is recorded, processed, summarized and reported withinthe time periods specified by the SEC’s rules and forms.  Disclosure controls are also designed withthe objective of ensuring that this information is accumulated and communicatedto the Company’s management, including the Company’s chief executive officerand chief financial officer, as appropriate, to allow timely decisionsregarding required disclosure. In view of the Company’s restatement of thefinancial statements for the twelve months ended December 31,2006, managementhas reevaluated its disclosure controls and has deemed them ineffective.  The Company has made the following changes inits disclosure controls to make them effective for gathering, analyzing anddisclosing the information the information the Company is required to disclosein the reports filed under the Securities and Exchange Act of 1934, within thetime periods specified in the SEC’s rules and forms.  These changes include adding an additionalindividual to record transactions in our books of account after they have beenreviewed by appropriate company officials., reemphasized proper posting oftransactions, having an independent accountant review transactions forcompliance with applicable guidance, reviewing our chart of accounts to ensurethat account classifications are in place, and ensuring accounting personnelattend continuing professional education.

The company’smanagement does not expect that its disclosure controls or internal controlsover financial reporting will prevent all errors or all instances offraud.  A control system, no matter howwell designed and operated, can provide only reasonable, not absolute,assurance that the control system’s objectives will be met. Further, the designof a control system must reflect the fact that there are resource constraints,and the benefits of controls must be considered relative to their costs.Because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within our company have been detected. These inherentlimitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of simple error or mistake.Because of the inherent limitation of a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

F-22

----

EXECUTIVE COMPENSATION

**SummaryCompensation Table**

 The following table sets forth, for the lasttwo completed fiscal years ended December 31, 2006 and 2005, the cashcompensation paid by the Company, as well as certain other compensation paidwith respect to those years and months, to the Chief Executive Officer and, tothe extent applicable, each of the three other most highly compensatedexecutive officers of the Company in all capacities in which they served:

**SummaryCompensation Table**
| ** **                                              | ** ** | **Annual Compensation** | ** ** | ** **          | ** ** | ** **     | ** ** | **Long-Term Compensation**          | ** ** | ** **                             | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|---------------------|------------|----------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| **Name and  Principal Position**              | ** ** | **Year**                     | ** ** | **Salary ($)** | ** ** | **Bonus  ($)** | ** ** | **Other  Annual  Compensation ($)** | ** ** | **Restricted  Stock  Awards ($)** | ** ** | **Securities  Underlying  Options (#)** | ** ** | **LTIP  Payouts ($)** | ** ** | **All  Other  Compensation ($)** | ** ** |
|                                                    |       |                         |       |                |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |
| Jonathan R. Read  CEO and President |       | 2006                         |       | 120,000             |       |           |       |                                     |       | 2,475,006                              |       |   |   |   |   |   |   |
| Harold W.  Sciotto                                      |       | 2006                         |       | 120,000             |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |
| Secretary and  Treasurer                                |       | 2005                         |       |                |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |
|                                                    |       |                         |       |                |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |
| Howard A. Foote  (2)  CTO                               |       | 2006                         |       | 60,000              |       | 100,000        | (1)        |                                     |       |                                   |       |   |   |   |   |   |   |
|                                                    |       |                         |       |                |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |
| Elliott Winfield (2)                                    |       | 2006                         |       | 60,000              |       |           |       |                                     |       |                                   |       |   |   |   |   |   |   |

 

----

Notes:
|        | (1) | Universal Power Vehicles was paid a total of  $100,000 during the year ended December 31, 2006 for consulting services  related to the development of our power cell technology.  UPV is owned  and controlled by Howard A. Foote. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Messrs. Foote and Winfield are no longer employed by  us.                                                                                                                                                                               |

F-23

----

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 In February 2006 we entered into a TechnologyContribution Agreement with Howard Foote and Elliott Winfield which we refer tocollectively as “F&W,” under which F&W contributed to us all of theirright, title and interest in and to the EPC technology.  In exchange forthe contribution of the EPC technology, we agreed to finance ongoing researchand development of the technology up to $1,350,000.  The agreement wasconditioned upon our ability to develop EPC technology that was determined tobe commercially and technologically viable for mass production.  In theevent we were unable to do so by February 2009 due to a lack of best efforts byF&W, abandonment of the project, or breach of employment agreements byF&W, then we could terminate the agreement and F&W would be responsiblefor reimbursing 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 agreed totransfer 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 EPC system that is determined to becommercially and technologically viable for mass production, 16,000,000 sharesof common stock shall be transferred to Mr. Foote and (ii) upon either (a) theacquisition of a hybrid transit bus company, or (b) our obtainingprofitability, an additional 16,000,000 shares of common stock shall betransferred to Mr. Foote.  If at any time, until February 2009, wereasonably determine, in our sole discretion, that the EPC system is notcommercially or technically viable, Mr. Sciotto may terminate the agreement,whereupon Mr. Foote must return any shares of common stock disbursed from theescrow account and the remaining portion of escrow stock remaining in theescrow account will be released to Mr. Sciotto.  Upon such termination ofthe agreement, all patent rights and the ownership of the intellectual propertyconveyed from Mr. Foote to us will revert to Mr. Foote. Simultaneously with theexecution of the agreement, Mr. Sciotto entered into an identical agreementwith Elliot Winfield pursuant to which 8,000,001 shares were placed in escrowto be delivered to Mr. Winfield, 4,000,001 and 4,000,000 shares, respectively.

 On February 15, 2007, we entered into aSettlement Agreement and Release with Foote and Winfield and Universal PowerVehicles Corporation to settle and resolve all known disputes and uncertaintiesbetween them related to all agreements and contracts entered in heretoforeconcerning the fuel cell intellectual property and technology.  Inaccordance with the Settlement, Foote, Winfield and UPV confirm the assignment,transfer and conveyance of all right, title and interest in and to the electricpower cell and reactor technology being developed by us.  Further to this,for a period of two years from the effective date of the Settlement, Foote,Winfield and UPV are prohibited, without our prior written consent, fromdirectly or indirectly, participating in any business in competition with us orfrom engaging in any business activities that are the same or substantiallysimilar to our business activities during the terms Foote, Winfield and UPVwere employed by, or were affiliated with, us.  As consideration, we paidto Foote, Winfield and UPV cash 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.

 As described above on February 15, 2007, theCompany entered into a Settlement Agreement and Release to the TechnologyContribution Agreement, originally entered into on February 15, 2006, to settleand resolve all known disputes and uncertainties between the Company and HowardFoote, Elliott Winfield and Universal Power Vehicles, Inc.  In accordancewith the Settlement, the Parties confirm the assignment, transfer andconveyance of all right, title and interest in and to the Intellectual Propertytransferred in the Contribution Agreement.  In consideration, the Companyagreed to pay to Foote, Winfield and UPV cash in the amount of $600,000. Additionally, the Parties received common stock in the aggregate amountof 1,500,000 shares of the Company, as per a separate escrow agreement betweenFoote, Winfield and and Mr. Harlod Sciotto, an officer and director of theCompany. The shares were owned by Mr. Sciotto and not the company. The escrowalso provided for: (1) the immediate release from escrow and return to HaroldSciotto of 32,500,000 shares of our common stock; and (2) the immediate releaseto Ecotality of 6,000,000 shares of our common stock from escrow forcancellation.  The 6,000,000 shares were cancelled immediately uponreceipt at their par value amount of $6,000 and that paid in capital wasreduced by that amount.  The value of the shares transferred was basedupon market value ($1,200,000) at the time of the transaction and have beenreflected as an expense in our financial statements with a corresponding creditto paid in capital in accordance with SEC bulletins topic 5:T.

F-24

----

**EXHIBITS**
| 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.                                                                                  | Amendment to Articles of Incorporation filed on  November 27, 2006 (4) |
|           |       | e.                                                                                  | Restated Bylaws (5) |
|           |       |                                                                                |
| 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)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on February21, 2006.

(2)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on July 12,2006.

(3)     Incorporatedby reference to the Registration Statement on Form 10SB12G, as amended,previously filed with the SEC on March 3, 2005.

(4)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on December4, 2006.

(5)     Incorporatedby reference herein to the Form SB-2, previously filed with the SEC on February12, 2007.

(6)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on February21, 2007.

(7)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on January30, 2007.

(8)     Incorporatedby reference herein to the Form 8-K, previously filed with the SEC on March 27,2007.

F-25

----

**SIGNATURES**

Inaccordance with Section 13 or 15(d) of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereto dulyauthorized.

**ECOTALITY, INC.**
| Signature        | ** **           | **Title** | ** ** | **Date**                 |
|------------------|----------------------|-----------|------------|--------------------------|
|             |                 |      |       |                     |
|             | /s/ Jonathan R. Read |      |       | Chief Executive  Officer |   | August 10, 2007 |
| Jonathan R. Read |                 |      |       |                     |
|                  |                      |           |            |                          |  |  |

 

In accordancewith the Exchange Act, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

**ECOTALITY,INC.**
| Signature         | ** **            | **Title**                     | ** ** | **Date**                  |
|-------------------|-----------------------|-------------------------------|------------|---------------------------|
|              |                  |                          |       |                      |
|              | /s/ Jonathan R. Read  |                          |       | Chief Executive  Officer, |   | August 10, 2007 |
| Jonathan R. Read  |                  | President and  Director       |       |                      |
|              |                  |                          |       |                      |
|              | /s/ Harold W. Sciotto |                          |       | Secretary,  Treasurer     |   | August 10, 2007 |
| Harold W. Sciotto |                  | and Director                  |       |                      |
|              |                  |                          |       |                      |
|              | /s/ Barry S. Baer     |                          |       | Chief Financial  Officer  |   | August 10, 2007 |
| Barry S. Baer     |                  | Principal  Accounting Officer |       |                      |
|              |                  |                          |       |                      |
|              | /s/ Jerry Y. S. Lin   |                          |       | Director                  |   | August 10, 2007 |
| Jerry Y. S. Lin   |                  |                          |       |                      |
|                   |                       |                               |            |                           |  |  |  |  |  |  |  |  |  |  |

 

F-26

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