UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form 10-K




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




For
the Fiscal Year Ended December 31, 2008




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




For
the Transition Period from ____________ to ____________




Commission
File Number 000-50983




ECOTALITY,
INC.


(Name of
small business issuer in its charter)




Nevada
            
            68-0515422(State
      or other jurisdiction of incorporation or
organization)
            
            (I.R.S.
      employer identification number)




6821
      E. Thomas RoadScottsdale,
      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 registeredNone
            
            None




Securities
Registered Pursuant to Section 12(g) of the Act:




Common Stock, $0.001 par value(Title
      of class)






(Title of
class)




Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
x  Yeso  No




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x




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


Large
      accelerated filer  o
              
              Accelerated
      filer  o
              
              Non-accelerated
      filer  o
                (Do
      not check of a smaller reporting company)
              
              Smaller
      reporting company  þ


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




The
issuer’s revenue for its most recent fiscal year was $11,187,314




The
Company’s common stock is listed on the Over-the-Counter Bulletin Board under
the stock ticker symbol “ETLY.”  The aggregate market value of the voting
and non-voting common equity held by non-affiliates based upon a price per share
of $0.07, which was the closing price on April 13, 2009, is
$9,059,600




The
number of shares outstanding of each of the issuer’s classes of common equity,
as of April 13, 2009 was 160,756,194.




DOCUMENTS
INCORPORATED BY REFERENCE




None.




Transitional
Small Business Disclosure Format (Check one): Yes oNo x







PART I
            
            
            3DESCRIPTION
      OF BUSINESS
            
            
            24DESCRIPTION
      OF PROPERTY
            
            
            24LEGAL
      PROCEEDINGS
            
            
            24SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIMARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET
      INFORMATION FOR COMMON STOCK
            
            
            25FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            
            
            41CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS
            
            
            F-23CONTROLS
      AND PROCEDURES
            
            
            F-23OTHER
      INFORMATION
            
            
            F-23PART IIIDIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(A) OF THE EXCHANGE ACT
            
            
            F-24EXECUTIVE
      COMPENSATION
            
            
            F-27SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            
            
            F-30CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
            
            
            F-31EXHIBITS
            
            
            F-32PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            
            
            F-33SIGNATURES
            
            
            F-34






2




FORWARD
LOOKING STATEMENTS




This
Annual Report contains forward-looking statements about our business, financial
condition and prospects that reflect our management’s assumptions and beliefs
based on information currently available.  We can give no assurance that
the expectations indicated by such forward-looking statements will be realized.
 If any of our assumptions should prove incorrect, or if any of the risks
and uncertainties underlying such expectations should materialize, our actual
results may differ materially from those indicated by the forward-looking
statements.




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




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




PART I




Description
of Business




Business
Development and Summary





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





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





Electric
Transportation Engineering Corporation (eTec)





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





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





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




3





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





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





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





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





Innergy
Power Systems





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





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





ECOtality
Stores (dba Fuel Cell Store)





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




HydralityTM





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




4





Products





We
currently offer the following products:


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


·
            eTec’s
      Minit-Charger fast-charge systems for material handling and airport ground
      support equipment


·
            Charging
      systems (Level 2 & 3) for on-road grid-connected electric
      vehicles


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


·
            eTec
      Bridge Power Manager (BPM) systems


·
            Hydrogen
      internal combustion engine (HICE) vehicle
  conversions


·
            Industrial
      battery systems


·
            Solar
      panel production


·
            Specialty
      solar solutions


·
            Specialty
      thin-sealed lead battery products


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


·
            Third-party
      hydrogen and education related
products





Customers





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





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





Manufacturing





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





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





Research
and Development





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





We have
also determined that the vagaries of the hydrogen industry, the advancement of
other renewable technologies to the commercial forefront, and the potentially
long and expensive road to commercialization and profitability for hydrogen
technologies necessitate that we prudently scale back our hydrogen research and
development expenditures as indicated above, and proceed only on the basis of
joint development projects with third-parties or significantly subsidized
development with potential licensees or federal grants.




5





This
shift to joint development projects and the scaling back on our hydrogen
research and development expenditures  is clearly reflected in our 2008
operating results. The most significant research and development expenditures
for 2008 relate to final payments on Hydrality- related projects initiated in
2007 that were scheduled for completion in the first half of 2008.





Sales
and Marketing





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





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





Government





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





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





·
            Invest
      $150 billion over 10 years to accelerate the commercialization of plug-in
      hybrids (PHEVs), commercial scale renewable energy, low emissions coal
      plants, the next generation of fuel infrastructure and the transition to a
      new digital electricity grid.


·
            Convert
      the entire White House fleet to plug-ins within his first year of
      office


·
            Ensure
      that half of all cars purchased by the federal government be PHEVs or EVs
      by 2012


·
            Provide
      a $7,000 tax credit for the purchase of advanced technology vehicles as
      well as conversion tax credits


·
            Require
      10% of electricity to come from renewable sources by
  2012,





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





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





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





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





6




General
Competition





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





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




Fast-Charge
Competition





TheeTec SuperCharge andMinit-Charger systems
(recently consolidated under theeTec Minit-Charger brand)
are designed for material handling applications, airport ground support
equipment and electric vehicles. We believe that the principal competitive
factors in the markets for our battery fast charging products and services
include product performance, features, acquisition cost, lifetime operating
cost, including maintenance and support, ease of use, integration with existing
equipment, quality, reliability, customer support, brand and
reputation.




The
primary direct competitors to theeTec SuperCharge andMinit-Chargersystems are
other fast-charge suppliers, including AeroVironment, Inc., Aker Wade Power
Technologies LLC, Power Designers, LLC, and C&D Technologies, Inc. Some of
the major industrial battery suppliers have begun to align themselves with fast
charge suppliers, creating a potentially more significant source of competition.
In addition, theeTec
SuperCharge andMinit-Charger systems compete against the traditional method of battery
changing. Competitors in this area include suppliers of battery changing
equipment and infrastructure, designers of battery changing rooms, battery
manufacturers and dealers who may experience reduced sales volume because
theeTec
SuperCharge  andMinit-Charger  fast
charge systems reduces or eliminate the need for extra batteries..





Electric
Vehicle Infrastructure Competition





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





Solar
Competition





The
market for solar electric power technologies is competitive and continually
evolving. Innergy’s solar products compete with a large number of competitors in
the solar power market, including BP Solar International Inc., Evergreen Solar,
Inc., First Solar Inc., Kyocera Corporation, Mitsubishi Electric Corporation,
Motech Industries Inc., Q-Cells AG, Sanyo Corporation, Sharp Corporation,
SolarWorld AG and Suntech Power Holdings Co., Ltd. Many of these companies have
established strong market positions, greater name recognition, a more
established distribution network and a larger installed base of customers. Some
competitors also have more available capital and significantly greater access to
financial, technical, manufacturing, marketing, sales, distribution, management
and other resources than we do. Many of our competitors also have
well-established relationships with our current and potential suppliers,
resellers and their customers and have extensive knowledge of our target
markets. As a result, our competitors may be able to devote greater
resources to the research, development, promotion and sale of their products and
respond more quickly to evolving industry standards and changing customer
requirements than we can.




In addition to intense market
competitors, universities, research institutions and other companies have
brought to market advanced and alternative technologies such as thin films and
concentrators, which may compete with our technology in certain applications.
Furthermore, the solar power market in general competes with other sources of
renewable energy and conventional power generation.




The
principal elements of competition in the solar systems market include technical
expertise, experience, delivery capabilities, diversity of product offerings,
financing structures, marketing and sales, price, product performance, quality
and reliability, and technical service and support. We believe that we compete
favorably with respect to each of these factors, although we may be at a
disadvantage in comparison to larger companies with broader product lines and
greater technical service and support capabilities and financial
resources.




7




Hydrality
Competition





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





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





Retail
Fuel Cell Competition





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





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





Intellectual
Property





Our
success depends, in part, on our ability to maintain and protect our proprietary
technology and to conduct our business without infringing on the proprietary
rights of others. We rely primarily on a combination of patents, trademarks and
trade secrets, as well as employee and third party confidentiality agreements,
to safeguard our intellectual property. As of December 31, 2008, in the
United States we held three patent applications and sixteen issued patents,
which will expire at various times between 2010 and 2021. We also held two PCT
patent applications, two Canadian patent applications, one Japanese patent
application, one European patent application, eleven issued Canadian patents,
four issued Japanese patents, seven issued European patents, and one issued
Australian patent. Our patent applications and any future patent applications,
might not result in a patent being issued with the scope of the claims we seek,
or at all and any patents we may receive may be challenged, invalidated, or
declared unenforceable. We continually assess appropriate occasions for seeking
patent protection for those aspects of our technology, designs and methodologies
and processes that we believe provide significant competitive advantages. Our
patents and patent applications generally relate to our hydrogen, battery
charging, and thin-cell battery technologies.




Minit-Charger In March of 2008, all eTec fast-charging products,
including the eTec
SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By
unifying the underlying fast-charging technologies under a single engineering,
manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing
efforts.




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


In May
2006, CalTech filed a provisional patent application on the hydrogen technology
being developed pursuant to a task plan between ECOtality and Jet Propulsion
Laboratory (“JPL”), a Federally Funded Research and Development Center for the
National Aeronautics and Space Administration (“NASA”).  The California
Institute of Technology (“CalTech”) is the operator of JPL and assignee of its
patent and technology rights.  On May 7, 2007, a non-provisional
patent application was filed by Stinson Morrison Hecker LLP in the name of
California Institute of Technology as assignee and ECOtality, Inc. as
exclusive licensee of the technology, for a Method and System for Storing and
Generating Hydrogen, claiming priority from a provisional application filed by
CalTech on May 8, 2006  The details of the patent application and
invention are confidential until publication or issue, which did not occur prior
December 31, 2008. The patent application is generally directed towards the
hydrogen reactor design that has been under development.




8





On June
12, 2006, we entered into a License Agreement with California Institute of
Technology, which operates JPL, whereby we acquired certain exclusive licensed
patent and/or patent applications rights and improvement patent rights related
to research performed under the JPL Task Plan No. 82-10777, as well as a
nonexclusive licensed technology rights developed as a result of the Task Plan.
 The license agreement with CalTech relates to CalTech’s rights to patents
and technology based on inventions that are:  (a) identified in the license
agreement, (b) developed under the development agreement with JPL, (c) related
to electric power cell technology developed at JPL with the involvement of our
personnel, or (d) funded, in whole or in part, by us (the “CalTech Rights”).
 As partial consideration paid in connection with the License Agreement, we
issued 5,869,565 shares of our common stock to CalTech with a fair market value
of $1.40 per share, based upon the closing price of our common stock on June 12,
2006, for a total aggregate value of $8,217,391.  Furthermore, we are
obligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on
June 12, 2009, continuing until the expiration, revocation, invalidation or
unenforceability of the last exclusively licensed patent rights or improvement
patent rights.  The License Agreement carries a perpetual term, subject to
default, infringement, expiration, revocation or unenforceability of the License
Agreement and the licenses granted thereby.





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





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





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




Status
of any announced new product or service





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





On July
22, 2008, ECOtality’s eTec announced it has launched a Plug-in Hybrid Electric
Vehicles (PHEVs) Grid Interaction Project to demonstrate and evaluate
bi-directional fast-charging operations for PHEVs in conjunction with smart grid
technologies for facility energy management. Funded by the USDOE through Idaho
National Laboratory (INL) and supported by project partner V2Green, the project
will demonstrate eTec’s ability to fast-charge a PHEV in 10 minutes and will
analyze the benefits and costs of using the energy storage capability of PHEVs
to provide energy back to a smart metered electric grid system. Pairing the eTec
Minit-Charger fast-charge system with utility smart meter interconnections, the
PHEV Grid Interaction Project will demonstrate and evaluate a bi-directional
fast-charge system capable of both fast-charging a PHEV in 10 minutes and
supplying the stored energy of a PHEV back to a smart grid. The project utilizes
V2Green’s smart grid technology to enable charging facilities (home or business)
to communicate and adaptively control the flow of energy between the
fast-charged PHEVs and the grid. Better energy consumption management results
from vehicles recharging during off-peak periods and providing stored energy
back to the grid during periods of peak-demand. The project will also evaluate
the impact of bi-directional fast-charging on PHEV battery life and performance
as PHEVs involved in the project will be subject to strenuous charge-discharge
cycles as each vehicle will be operated for a total of 5,440 miles.




9




On July
29, 2008, eTec announced the launch of the new eTec Minit-Charger SC battery
fast-charging system. Approved by Underwriters Laboratories Inc. (UL), the SC
Charger utilizes Minit-Charger’s patented advanced algorithm technology to
provide a lighter, compact and a more cost-effective fast-charging system that
serves a variety of material handling equipment applications. The SC Charger is
a high-frequency, single-connector charger designed for medium and heavy duty
applications. Providing up to 250 amps of output, the SC Charger can fast-charge
battery systems of 36 volts or lower four times faster than convention charger.
The SC Charger features a light and compact design that allows for the system to
be pole or wall mounted in order to save valuable floor space and allows better
cable management. The SC Charger also features advanced data collection
capabilities, including the patented Minit-TrakTM fleet and system data
management system, which provides the most comprehensive performance evaluation
of a battery’s state-of-health and state-of-charge and automatically adjusts its
charging rates to increase and maximize battery life.





Employees




As of
December 31, 2008, we had 45employees, including 15 in manufacturing and
the rest in research and development, sales and marketing, and general and
administration positions. None of our employees are represented by labor unions
or covered by a collective bargaining agreement other than our employees in our
wholly owned subsidiary in Mexico. As we expand domestically and
internationally, however, we may encounter employees who desire union
representation. We believe that relations with our employees are
good.




10




Key
Transactions in 2007




Name
Change




ECOtality, Inc.
was originally incorporated in Nevada in 1999 under the name Alchemy
Enterprises, Ltd. to market biodegradable products.  In early 2006 we
commenced the development of our Hydrality technology.  On
November 14, 2006, we changed our name to “ECOtality, Inc.” We are
currently are the parent company of Electric Transportation Engineering
Corporation (eTec), Innergy Power Corporation (Innergy Power), Portable Energy
De Mexico, S.A. DE C.V. (our subsidiary located in Tijuana , Mexico), and
ECOtality Stores, Inc. dba Fuel Cell Store, each of which is wholly owned
by us, and of Innergy Power Systems, which is a operated as a division of
ECOtality, Inc.




Foote
and Winfield Settlement




On
February 15, 2007, we entered into a Settlement Agreement and Release (the
“Settlement”) with Howard Foote, Elliott Winfield and Universal Power Vehicles
Corporation (“UPV”) (collectively the “Parties”) to settle and resolve all known
disputes and uncertainties between them related to all agreements and contracts
entered into prior to the effective date of the Settlement concerning the fuel
cell intellectual property and technology.  In accordance with the
Settlement, the Parties confirm the assignment, transfer and conveyance of all
right, title and interest in and to the electric power cell and reactor
technology being developed by us.  Further to this, for a period of two
years from the effective date of the Settlement, the Parties are prohibited,
without our prior written consent, from directly or indirectly, participating in
any business in competition with us or from engaging in any business activities
that are the same or substantially similar to our business activities during the
terms Foote and Winfield were employed by, or were affiliated with, ECOtality.
 In consideration, we paid to the Parties cash in the amount of $600,000.
 Additionally, the Parties received 1,500,000 shares of our common
stock.




In
connection with the Settlement, an officer and director of ECOtality entered
into an escrow agreement with the Parties, which cancels and supersedes separate
prior escrow agreements entered into with each of Foote and Winfield,
individually, on February 15, 2006.  The 2006 Escrow provided for the
potential issuance of an aggregate of 40,000,082 shares of our common stock to
the Parties, upon the achievement of certain performance standards, as set forth
in said 2006 Escrow.  The 2007 Escrow provides for: (1) the immediate
release of 1,500,000 shares of our common stock held per the 2006 Escrow to the
Parties; (2) the immediate release from escrow and return to Harold Sciotto
of 32,500,000 shares of our common stock; and (3) the immediate release of
6,000,000 shares of our common stock from escrow for cancellation




June 2007
Acquisition – Fuel Cell Store




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




We bought the assets of the Fuel Cell Store for $350,000 in cash and to issue
300,000 shares of our common stock. Our common stock was valued at its
closing market price on the date of the agreement. The closing price was
$.63 per share, on that date for a total value of $189,000 and a total price
paid cash and stock of $539,000. We concluded this to be an
asset purchase rather than a business purchase because we did not acquire
their debt and they continued to exist after the purchase was completed. 
Of the assets acquired we identified and assigned a value to $179,775 in
merchandise inventory, $8,600 in fixed assets, and $23,843 in current accounts
receivable. We reviewed the intangible assets that we acquired, including
the customer data base, and internally developed software and determined that
the intangible assets did not have value to us. Therefore, the difference
between the assets noted and the price paid for the assets $326,782 have
been allocated to intangible assets and impaired and written-off due to the lack
of proven future cash flows generated by the assets acquired.




October 2007
Acquisition – Innergy Power Systems




On
October 1, 2007 we closed on the purchase of certain assets of Innergy
Power Corporation and its wholly owned subsidiary, Portable Energy De Mexico,
S.A. DE C.V., pursuant to an agreement that we entered into on September, 18,
2007.  Innergy designs and manufactures standard and custom solar-power and
integrated solar-battery solutions for government, industrial and
consumer applications.  The purchase price for the assets was 3,000,000
shares of our common stock.  We guaranteed to the sellers that the shares
of our common stock issued in the transaction would be worth $3,000,000 during
the 30 day period commencing 11 months from the closing date or we would be
required to either issue additional shares such that the total shares are worth
$3,000,000 at that time or pay the seller the difference in cash.  The
shares were issued to the seller and are subject to piggy back registration
rights and a lock-up agreement. On October 1, 2008 we
issued  2,000,000 shares of our common stock to settle the outstanding
acquisition purchase price guarantee.




11




November 2007
Acquisition-  eTec Group of Companies




On
November 6, 2007 we signed an agreement to acquire all of the outstanding
stock of the Clarity Group, Inc. and its affiliate, Electric Transportation
Engineering Corporation (eTec), through a stock purchase agreement.  eTec
provides technical support and field services for all aspects of electric
vehicle infrastructure.  eTec operates as our wholly owned subsidiary and
as of December 31, 2008 there were no changes to the eTec’s management
team.




The
aggregate purchase price for the outstanding capital stock of eTec was
$3,000,000 in cash and 6,500,000 shares of our common stock.   Of the
$3,000,000 in cash to be paid to eTec, $2,500,000 was paid upon closing of the
stock purchase agreement and $500,000 was to be paid in 10 equal monthly
installments, beginning December 1, 2007.  . The 6,500,000 shares were
issued in the following manner: 6,500,000 were issued upon the close of the
stock purchase agreement, 3,250,000 were released on date of signing, and
3,250,000 were released by our corporate secretary on the first anniversary of
the closing of the stock purchase agreement, subject to any indemnity claims.
 The shares bear a restrictive legend and are not subject to piggy back
registration rights.




November 2007
Financing (this note should be read in conjunction with the "August Amendment"
Note)




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




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


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




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




The
Original Issue Discount Secured Debentures are due on May 6, 2010, were
sold at an 8% discount, and are convertible into our common stock, at the
investors’ option, at a conversion price equal to $0.30 per share.  We will
not have the right to prepay any portion of the principal amount of the
November 2007 Debentures without the prior written consent of the holder.
Beginning on May 6, 2008, and continuing on the same date of each
successive month thereafter, we must repay 1/24th  of the original principal amount of the Debentures plus
accrued but unpaid interest, liquidated damages and any other amounts then owing
to the holder in respect of the Debenture.  The holders of the
November 2007 Debentures will not have the right to convert the
November 2007 Debentures, to the extent that after giving effect to such
conversion, such holder would beneficially own in excess of 9.99% of the shares
of our common stock immediately after giving effect to such
conversion.




If we, at
any time while the November 2007 Debentures are outstanding, sell or grant
any option to purchase or sell or grant any right to re-price, or otherwise
dispose of or issue (or announce any sale, grant or any option to purchase or
other disposition), any common stock or common stock equivalents entitling any
person to acquire shares of our common stock at an effective price per share
that is lower than the then-existing conversion price, the conversion price
shall be reduced to equal such effective price per share.  Such an
adjustment shall be made whenever we issue such common stock or common stock
equivalents.




We may,
at our option, redeem the November 2007 Debentures if we meet certain
equity conditions and if we deliver a notice to the debenture holders of our
irrevocable election to redeem some or all of the then outstanding principal
amount of the November 2007 Debentures for cash in an amount equal to the
sum of (i) 115% of the then outstanding principal amount of the Debentures
to be redeemed, (ii) the accrued but unpaid interest on such Debentures and
(iii) all liquidated damages and other amounts due in respect of the
Debentures on the 30th  Trading Day following such notice.  On that 30th  trading day, the redemption amount is payable in full to
the debenture holders.




We must
redeem a portion of the November 2007 Debentures each month for cash. 
If we satisfy certain equity conditions and give 10 trading days’ prior written
irrevocable notice to the debenture holders, on each such monthly redemption
date, we may, at our option, elect to pay all or part of a monthly redemption
amount in shares of our common stock based on a conversion price equal to the
lesser of (i) the then conversion price and (ii) 88% of the average of
the VWAPs for the 10 consecutive trading days ending on the day that is
immediately prior to the applicable monthly redemption date.  The debenture
holder may convert any principal amount of the November 2007 Debenture
subject to a monthly redemption at any time prior to the date that the monthly
redemption amount, plus
accrued but unpaid interest, liquidated damages and any other amounts then owing
to the holder are due and paid in full.




12




We may,
at our option, force the debenture holders to convert all or portion of the then
outstanding principal amount of the November 2007 Debentures (plus any
accrued buy unpaid interest, liquidated damages and other amounts then owing the
debenture holders) into shares of our common stock if we satisfy certain equity
conditions, the VWAP for 20 out of any 30 consecutive trading days exceeds
$0.75, and, within one trading day, we deliver a written notice to the debenture
holders of such conversion.




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




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




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




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




In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation, Edison
Source, Edison Enterprises and 0810009 B.C. Unlimited Liability Company to
purchase certain technology and assets related to the manufacture and selling of
a “fast charge” battery charging system to be used in commercial and industrial
market places.




The
aggregate purchase price was $1,000,000 in cash and 2,000,000 shares of our
common stock.  If, on December 14, 2008, the average closing price for
our common stock during the 30-day period ending on December 4, 2008 is
less than $1.00 per share, we, at our option, must:





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





·
            Pay
      to the seller an additional amount of cash so that the aggregate value
      equals difference between the amount of the purchase price and the cash
      consideration payable to the seller;
or





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





December 2007
Financing (this note should be read in conjunction with the "August Amendment"
Note)




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




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


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




The
warrants are exercisable to purchase one share of common stock at $0.30 per
share, and have a term of exercise equal to 5
years.  The Warrant holders may not exercise the Warrants for a number of
shares of common stock in excess of that number of shares which upon giving
effect to such exercise would cause the aggregate number of shares beneficially
owned by the holder to exceed 9.99% of the outstanding shares of the Common
stock following such exercise.




13




The
Original Issue Discount Secured Debentures are due on June 6, 2010, were
sold at an 8% discount, and are convertible into our common stock, at the
investors’ option, at a conversion price equal to $0.32 per share.  We will
not have the right to prepay any portion of the principal amount of the
Debentures without the prior written consent of the holder. Beginning on
June 4, 2008, and continuing on the same date of each successive month
thereafter, we must repay 1/24th  of the original principal amount of the Debenture plus
accrued but unpaid interest, liquidated damages, if any, and any other amounts
then owing to the holder in respect of the Debenture.  The holders of the
Debentures will not have the right to convert the Debentures, to the extent that
after giving effect to such conversion, such holder would beneficially own in
excess of 9.99% of the shares of our common stock immediately after giving
effect to such conversion.




If we, at
any time while the December 2007 Debenture is outstanding, sell or grant
any option to purchase or sell or grant any right to re-price, or otherwise
dispose of or issue (or announce any sale, grant or any option to purchase or
other disposition), any common stock or common stock equivalents entitling any
person to acquire shares of our common stock at an effective price per share
that is lower than the then-existing conversion price, the conversion price
shall be reduced to equal such effective price per share.  Such adjustment
shall be made whenever we issue such common Stock or common stock
equivalents.




We may,
at our option, redeem the December 2007 Debentures if we meet certain
equity conditions and if we deliver a notice to the debenture holders of our
irrevocable election to redeem some or all of the then outstanding principal
amount of the December 2007 Debentures for cash in an amount equal to the
sum of (i) 115% of the then outstanding principal amount of the Debentures
to be redeemed, (ii) the accrued but unpaid interest on such Debentures and
(iii) all liquidated damages and other amounts due in respect of the
Debentures on the 30th  Trading Day following such notice.  On that 30th  trading day, the redemption amount is payable in full to
the debenture holders.




We must
redeem a portion of the December 2007 Debentures each month for cash. 
If we satisfy certain equity conditions and give 10 trading days’ prior written
irrevocable notice to the debenture holders, on each such monthly redemption
date, we may, at our option, elect to pay all or part of a monthly redemption
amount in shares of our common stock based on a conversion price equal to the
lesser of (i) the then conversion price and (ii) 88% of the average of
the VWAPs for the 10 consecutive trading days ending on the day that is
immediately prior to the applicable monthly redemption date.  The debenture
holder may convert any principal amount of the December 2007 Debenture
subject to a monthly redemption at any time prior to the date that the monthly
redemption amount, plus accrued but unpaid interest, liquidated damages and any
other amounts then owing to the holder are due and paid in full.




We may,
at our option, force the debenture holders to convert all or portion of the then
outstanding principal amount of the December 2007 Debentures (plus any
accrued buy unpaid interest, liquidated damages and other amounts then owing the
debenture holders) into shares of our common stock if we satisfy certain equity
conditions, the VWAP for 20 out of any 30 consecutive trading days exceeds
$0.75, and, within one trading day, we deliver a written notice to the debenture
holders of such conversion




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




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




We
granted the investors registration rights with respect to the debentures and the
shares of common stock underlying the warrants.  Pursuant to the
registration rights agreement by and among us and each of the parties signatory
thereto, we filed a registration statement on January 8, 2008.  Our
registration Statement was declared effective by the Commission on
January 28, 2008. With respect to any additional registration statements
which may be required pursuant to which, the number of registerable securities
at any time exceeds 100% of the number of shares of common stock then registered
in a registration statement during the period of effectiveness, we are required
to file the additional registration statements within 90 days from
closing.  If we fail to have the registration statement filed or declared
effective by the required dates, we will be obligated to pay a penalty equal to
2% of the purchase price to each investor upon any such registration failure and
for each thirty days that such registration failure continues.  The parties
agreed that the maximum aggregate liquidated damages payable to a holder under
the registration rights agreement shall be 20% of the aggregate subscription
amount paid by such holder pursuant to the securities purchase
agreement.




August Amendment to the November
and December Debentures


As
described above, in November and December of 2007, we received gross proceeds of
$5,000,000 in exchange for a note payable of $5,882,356 as part of a private
offering of 8% Secured Convertible Debentures (the “Debentures”).  The
debentures were convertible into common stock at $0.30 per share. Debenture
principal payments were due beginning in May and June of 2008 (1/24th of the
outstanding amount is due each month thereafter). In connection with these
debentures, we issued debenture holders warrants (“the Warrants”) to purchase up
to 9,803,925 shares of our common stock with an exercise price of $0.32. The
warrants were exercisable immediately upon issue.




14





On
August 29, 2008 we signed an Amendment to the Debenture agreements deferring
these payments. The purpose of the agreement was to provide us time to fund our
working capital requirements internally through organic growth as well as to
obtain both short and long term funding through equity financing and other
sources of capital.





The
waiver, deferment agreement aligned with our short term working capital plan and
provided time to achieve our objectives in this regard.  In exchange
for the Amendment to the Debentures, we agreed to:




A.
            Waiver
      of interest payments due between May-December
  2008


B.
            Deferment
      of monthly redemptions for the period May-December
  2008.


C.
            Increase
      to the outstanding principal amount plus accrued interest though December
      31, 2008 for the debentures by 120% as of the effective date of the
      agreement.


D.
            Reset
      of the common stock conversion rate from $0.30 to
  $0.15.


E.
            Commencement
      of  principal payments starting January 1, 2009 with no change
      to the redemption period (May 2010)


F.
            Commencement
      of interest payments @ 8% per year April 1, 2009 (first payment
      due).


G.
            Inclusion
      of make whole provisions to reset common stock warrant conversion prices
      to the value used to “true-up” both the Innergy Power Company and
      Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
      For both of these acquisitions the Sellers were issued shares which the
      Company guaranteed would be worth $1.00 per share for the thirty days
      prior to the anniversary date of the purchase.  This guarantee
      requires the issuance of additional shares or payment in cash for the
      difference in the share price on the respective anniversary
      dates.  In the case of Innergy, the number of required “true up”
      shares is capped at 4,000,000.


H.
            Inclusion
      of further make whole provisions to issue additional warrants adequate to
      maintain the pro rata debenture ownership % when fully diluted as per
      schedule 13 in the waiver
agreement.


I.
            Compliance
      with covenants per quarterly public reports issued for the periods ending
      June 30, September 30, and December 31, 2008 for the
      following:




1.
            Net
      cash used


2.
            Current
      ratio adjusted for non-cash
liabilities


3.
            Corporate
      Headquarters accounts payable
amount




Subsequent Debenture
Amendment




Subsequently,
on March 5, 2009 we entered in to an Agreement entitled “Amendment to Debentures
and Warrants, Agreement and Waiver” (the “Agreement”) restructuring
our equity with the institutional debt holders of the our Original Issue
Discount 8% Senior Secured Convertible Debentures, dated November 6, 2007 (the
“November 2007 Debentures”) (aggregate principal amount equal to $4,971,588
at December 31, 2008) and with our debt holder of our Original Issue Discount 8%
Secured Convertible Debentures, dated December 6, 2007 (the “December 2007
Debenture”) (aggregate principle amount equal to $2,203,138 at December 31,
2008).  The November and December 2007 Debentures are held by Enable
Growth Partners LP (“EGP”), Enable Opportunity Partners LP (“EOP”), Pierce
Diversified Strategy Master Fund LLC, Ena (“Pierce”), and BridgePointe Master
Find Ltd  (“BridgePointe”)(individually referred to as “Holder” and
collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.





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





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





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





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





D.
            The
      right to recommend for placement on the Company's Board of Directors, a
      nominee by either BridgePointe or BridgePointe’s investment manager
      Roswell Capital Partners LLC. Such a recommendation shall meet the
      Company’s requirements as set forth in the Company’s Bylaws and all
      applicable federal and state law. The nominee shall serve until such time
      as the Company has redeemed the
debentures.




15





E.
            All
      outstanding Warrants (defined in the Securities Purchase Agreements dated
      November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
      as consideration for the current or prior Amendments to the November 2007
      Debentures and the December 2007 Debentures shall be amended to have an
      exercise price of $0.06 (to the extent that such exercise price was
      previously above $0.06), and the expiration dates shall be extended to May
      1, 2014.




F.
            Use
      best efforts to obtain stockholder approval of an increase in the
      authorized number of shares of common stock of the Company.  The
      proposal shall increase the number of authorized common shares from
      300,000,000 to 500,000,000.





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





We
believe this latest extension is timely and consideration appropriate, given the
growing and significant potential opportunities to successfully achieve our
capital objectives based on the strength and appeal of our products and
technical expertise in the electric vehicle microclimate infrastructure
environment.




16




Available
Information




We
maintain a website at http://www.ecotality.com. We make available free of charge
on our website our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statement and any
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file these materials with, or furnish them
to, the SEC. The information contained in or connected to our website is not
incorporated by reference into this report.




The
public may also read and copy any materials that we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an Internet website that contains reports and other information regarding
issuers, such as ECOtality, that file electronically with the SEC. The SEC’s
Internet website is located at http://www.sec.gov.




Risk
Factors




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




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




There
is no assurance that the Hydrality technology is patentable by JPL or, if
patented, that others will not develop functionally similar products outside the
patent.  Without patent protection, our competitors could develop
functionally similar products.




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




We
face competition from large established renewable and alternative energy
development companies which are also seeking to develop alternative energy power
sources.  Such competition could reduce our revenue or force us to reduce
our prices, which would reduce our potential profitability.




Literally
hundreds of companies, including many of the largest companies in the world, are
seeking to develop similar or competitive technologies to that of all of our
technologies.  There can be no assurance that we can commercially develop
the Hydrality technology or that competitors will not develop substantially
equivalent or superior technology.  Such competition could reduce our
revenue or force us to reduce our prices, which would reduce or eliminate our
potential profitability.




Even
if our Hydrality technology is successfully developed for transportation
applications, we will be unable to sell the technology unless others build and
operate fueling stations to provide the required fuel for this
technology.




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




Any
license we receive from JPL will be subject to a reservation of rights
transferred to the US Government, thereby potentially reducing our rights to
sublicense the Hydrality technology.




Should
JPL commercially develop the Hydrality technology, we intend to sublicense
rights to the technology to third parties. However, any license we receive from
JPL will be subject to the Federal Government’s right to a worldwide,
non-exclusive, non-transferable, irrevocable paid up license in connection with
any invention developed under the license agreement to use the Hydrality
technology for non-commercial education and research purposes.  Such a
reservation reduces our ability to market the Hydrality technology as it would
not allow our exclusively licensing to anyone for non commercial education,
research and NASA related applications and for other application of the Federal
Government.




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




17




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




The
Hydrality technology is among a number of alternative energy products being
developed by companies around the world.  A significant amount of public
and private funding is currently directed towards development of microturbines,
solar power, wind power and other types of fuel cell technologies.
 Technological advances in alternative energy products, improvements in the
electric power grid or other fuel cell technologies may make the Hydrality
technology less attractive or render it obsolete, thereby limiting or
eliminating our potential sales.




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




We expect
to rely on patents and other policies and procedures related to confidentiality
to protect our intellectual property.  Four provisional patent applications
were filed by Howard Foote in 2006 and assigned to us. CalTech also filed a
provisional patent application on the technology in 2006.  In anticipation
of filing non-provisional patent applications, all provisional patent
applications were reviewed by us. It was determined that the CalTech provisional
patent best embodied the technology desired by us, and that the Foote
provisional applications either duplicated the CalTech provisional patent or
embodied magnesium metal-air battery technology no longer of interest to us.
 Thus, some of the Foote provisional applications have been allowed to
lapse by the failure to file non-provisional applications based thereon. On
May 7, 2007 a non-provisional patent application based on the CalTech
provisional patent application was prepared and filed by Stinson Morrison Hecker
LLP in the name of California Institute of Technology as assignee and us as
exclusive licensee of the technology. We also expect to file during 2007 a
provisional patent application on a hydrogen reactor design currently under
development.




However,
some of our intellectual property may not be covered by any patent or patent
application.  Moreover, we do not know whether any of our pending patent
applications or those CalTech will file or, in the case of patents issued
or to be issued, that the claims allowed are or will be sufficiently broad to
protect our technology and processes.  Even if all of our patent
applications are issued and are sufficiently broad, our patents may be
challenged or invalidated.  We could incur substantial costs in prosecuting
or defending patent infringement suits or otherwise protecting our intellectual
property rights.  While we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be completely
successful in doing so.  Moreover, patent applications filed in foreign
countries may be subject to laws, rules and procedures that are
substantially different from those of the United States, and any resulting
foreign patents may be difficult and expensive to enforce.




Our
competitors may independently develop or patent technologies or processes that
are substantially equivalent or superior to ours.  If we are found to be
infringing on third party patents, we could be required to pay substantial
royalties and/or damages, and we do not know whether we will be able to obtain
licenses to use such patents on acceptable terms, if at all.  Failure to
obtain needed licenses could delay or prevent the development, manufacture or
sale of our products, and could necessitate the expenditure of significant
resources to develop or acquire non-infringing intellectual
property.




Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and failure to do so may diminish our ability to compete effectively
and may harm our operating results.  We may need to pursue lawsuits or
legal action in the future to enforce our intellectual property rights, to
protect our trade secrets and domain names and to determine the validity and
scope of the proprietary rights of others.  If third parties prepare and
file applications for trademarks used or registered by us, we may oppose those
applications and be required to participate in proceedings to determine the
priority of rights to the trademark.  Similarly, competitors may have filed
applications for patents, may have received patents and may obtain additional
patents and proprietary rights relating to products or technology that block or
compete with ours.  We may have to participate in interference proceedings
to determine the priority of invention and the right to a patent for the
technology.  Litigation and interference proceedings, even if they are
successful, are expensive to pursue and time consuming, and we could use a
substantial amount of our financial resources in either case.




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




Protection
of our proprietary processes, methods and other technology, especially our
proprietary vapor transport deposition process and laser scribing process, is
critical to our business. Failure to protect and monitor the use of our existing
intellectual property rights could result in the loss of valuable technologies.
We rely primarily on patents, trademarks, trade secrets, copyrights and other
contractual restrictions to protect our intellectual property. We have received
patents in the United States and select foreign jurisdictions and we have
pending applications in such jurisdictions as well. Our existing patents and
future patents could be challenged, invalidated, circumvented, or rendered
unenforceable. We have pending patent applications in the United States and in
foreign jurisdictions. Our pending patent applications may not result in issued
patents, or if patents are issued to us, such patents may not be sufficient to
provide meaningful protection against competitors or against competitive
technologies.




We also
rely upon unpatented proprietary manufacturing expertise, continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While we generally enter into confidentiality agreements
with our employees and third parties to protect our intellectual property, such
confidentiality agreements are limited in duration and could be breached and may not
provide meaningful protection for our trade secrets or proprietary manufacturing
expertise. Adequate remedies may not be available in the event of unauthorized
use or disclosure of our trade secrets and manufacturing expertise. In addition,
others may obtain knowledge of our trade secrets through independent development
or legal means. The failure of our patents or confidentiality agreements to
protect our processes, equipment, technology, trade secrets and proprietary
manufacturing expertise, methods and compounds could have a material adverse
effect on our business. In addition, effective patent, trademark, copyright and
trade secret protection may be unavailable or limited in some foreign countries.
In some countries we have not applied for patent, trademark, or copyright
protection.




18




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




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




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




We
cannot assure you that eTec will continue to receive Department of Energy (DOE),
or any other government funding, which comprises a large portion of its
revenue.




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




We
cannot assure that the underlying technology of SuperCharge and MinitCharger
will remain commercially viable, and this could affect the revenue and potential
profit of eTec and MinitCharger.




We face
competition in the battery recharging and fast charging sector from a number of
companies. While we believe that we currently have the best technology in fast
charging, conditioning and monitoring batteries for transportation and
industrial applications, we cannot assure you that competitors will not develop
and bring to market substantially equivalent or superior technology. A loss of
our technology advantage could adversely impact or eliminate our revenue and
profitability




We
cannot assure you that the demand for hydrogen testing, educational and
small-scale applications will continue, and this could affect the prospects for
Fuel Cell Store.




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




We
have incurred losses since our inception and may be unable to generate
sufficient net sales in the future to sustain profitability.




We
incurred a net loss of $13,691,964 in 2007 and $8,067,211 in 2008 We had an
accumulated deficit of $(36,337,624) at December 31, 2008 and we may incur
losses in the future. In addition, we expect our operating expenses to increase
as we expand our operations. Our ability to reach profitability depends on a
number of factors, including the growth rate of the renewable energy industry,
the continued market acceptance electric transportation systems, solar products
and battery products, and the competitiveness of our technology and engineering
services. If we are unable to generate sufficient net sales to sustain
profitability and positive cash flows, we could be unable to satisfy our
commitments and may have to discontinue operations.




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




Many of
our end-users depend on debt financing to fund the initial capital expenditure
required to purchase and install renewable energy products and systems. As a
result, an increase in interest rates could make it difficult for our end-users
to secure the financing necessary to purchase and install renewable energy
products and systems on favorable terms, or at all and thus lower demand for our
products and reduce our net sales. In addition, we believe that a significant
percentage of our end-users install renewable energy products as an investment,
funding the initial capital expenditure through a combination of equity and
debt. An increase in interest rates could lower an investor’s return on
investment in a renewable energy products and systems and make alternative
investments more attractive relative to renewable energy products and, in each
case, could cause these end-users to seek alternative investments.




19




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




Our
products are sold with various materials and workmanship warranty for technical
defects and a ten year and twenty-five year warranty against declines of more
than 10% and 20% of their initial rated power, respectively. As a result, we
bear the risk of extensive warranty claims long after we have sold our products
and recognized net sales. As of December 31, 2008, our accrued warranty
expense amounted to approximately $163,751.




Because
of the limited operating history of our products, we have been required to make
assumptions regarding the durability and reliability of our products. Our
assumptions could prove to be materially different from the actual performance
of our products, causing us to incur substantial expense to repair or replace
defective solar modules in the future. Any widespread product failures may
damage our market reputation and cause our sales to decline and require us to
repair or replace the defective products, which could have a material adverse
effect on our financials results




We
depend on a limited number of third-party suppliers for key raw materials and
their failure to perform could cause manufacturing delays and impair our ability
to deliver our products to customers in the required quality and quantities and
at a price that is profitable to us.




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




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




We have
significant marketing and distribution operations outside the United States and
expect to continue to have significant manufacturing operations outside the
United States in the near future.  We have significant manufacturing
operations in Mexico. In the future, we may have operations in other European
countries, and other Asian countries and, as a result, we will be subject to the
legal, political, social and regulatory requirements and economic conditions of
many jurisdictions. Risks inherent to international operations, include, but are
not limited to, the following:




·
            difficulty
      in enforcing agreements in foreign legal
  systems;





·
            foreign
      countries may impose additional withholding taxes or otherwise tax our
      foreign income, impose tariffs, or adopt other restrictions on foreign
      trade and investment, including currency exchange
  controls;





·
            fluctuations
      in exchange rates may affect product demand and may adversely affect our
      profitability in U.S. dollars to the extent the price of our solar
      modules, cost of raw materials and labor and equipment is denominated in a
      foreign currency;





·
            inability
      to obtain, maintain, or enforce intellectual property
    rights;





·
            risk
      of nationalization of private
enterprises;





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





·
            unexpected
      adverse changes in foreign laws or regulatory requirements, including
      those with respect to environmental protection, export duties and
      quotas;





·
            difficulty
      with staffing and managing widespread operations;
  and





·
            trade
      barriers such as export requirements, tariffs, taxes and other
      restrictions and expenses, which could increase the prices of our solar
      modules and make us less competitive in some
  countries.




Our
future success depends on our ability to retain our key employees and to
successfully integrate them into our management team.




We are
dependent on the services of Jonathan Read our Chief Executive Officer, Barry
Baer, our Chief Financial Officer, Don Karner, President of our eTec
subsidiary, and other members of our senior management team. The loss of
Messrs. Read, Baer, Karner, or any other member of our senior management
team could have a material adverse effect on us. There is a risk that we will
not be able to retain or replace these key employees. Several of our current key
employees, including Messrs. Read, Baer, Karner, are subject to employment
conditions or arrangements that contain post-employment non-competition
provisions. However, these arrangements permit the employees to terminate their
employment with us upon little or no notice.




20




Failure
to Maintain our small management team could prove disruptive to our daily
operations, require a disproportionate amount of resources and management
attention and prove unsuccessful.




We
have limited insurance coverage and may incur losses resulting from product
liability claims, business interruptions, or natural disasters.




We are
exposed to risks associated with product liability claims in the event that the
use of our solar modules results in personal injury or property damage. Our
recharging systems, batteries, solar modules are electricity-producing devices,
and it is possible that users could be injured or killed by our products due to
product malfunctions, defects, improper installation, or other causes. Our
companies commercial shipment of products began in 1999 and, due to our limited
historical experience, we are unable to predict whether product liability claims
will be brought against us in the future or the effect of any resulting adverse
publicity on our business. Moreover, we may not have adequate resources and
insurance to satisfy a judgment in the event of a successful claim against us.
The successful assertion of product liability claims against us could result in
potentially significant monetary damages and require us to make significant
payments. Any business disruption or natural disaster could result in
substantial costs and diversion of resources.





Risks Relating to Our Common
Stock:




If
We Fail to Remain Current on Our Reporting Requirements with the commission, We
Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of
Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell
Their Securities in the Secondary Market.




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




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




The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a “penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the
rules require:




·
            that
      a broker or dealer approve a person’s account for transactions in penny
      stocks; and·
            the
      broker or dealer receives from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.




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




·
            obtain
      financial information and investment experience objectives of the person;
      and




·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.




The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:




·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and




21




·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.




Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.




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




If
our stock price fluctuates, you could lose a significant part of your
investment.




The
market price of our stock may be influenced by many factors, some of which are
beyond our control, including those described above and the
following:





·
            the
      failure of securities analysts to cover our common stock or changes in
      financial estimates by analysts;





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





·
            announcements
      by us or our competitors of significant contracts, productions,
      acquisitions, or capital
commitments;





·
            variations
      in quarterly operating results;





·
            general
      economic conditions;





·
            terrorist
      acts;





·
            future
      sales of our common stock; and





·
            investor
      perception of us and the renewable energy
  industry.




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




If
an event of default occurs under the security agreement, secured convertible
notes, or stock pledge agreement, we could lose possession of all our assets and
the assets of our subsidiaries.




In
connection with the security agreement entered into on
November 6, 2007, which secures the November 2007 Debentures and
the December 2007 Debentures, we granted a security interest on our and our
subsidiaries’ goods, inventory, contractual rights and general intangibles,
receivables, documents, instruments, chattel paper, and intellectual property.
The security agreement provides that upon the occurrence of an event of default
under any agreement with the purchasers signatory to the securities purchase
agreement shall have the right to take possession of the collateral, to operate
our business using the collateral, and have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the collateral, at public or
private sale or otherwise to satisfy our obligations under these agreements. Any
attempt by the guaranteed parties to foreclose on our assets could likewise
cause us to curtail our current operations.




Risks Relating To Our
Convertible Debentures:




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




The
November 2007 and December 2007 debentures have the potential to cause
significant downward pressure on the price of our common stock. This is
particularly the case if the shares being placed into the market exceed the
market’s ability to absorb the increased number of shares of stock. Such an
event could place further downward pressure on the price of our common stock,
which presents an opportunity to short sellers and others to contribute to the
future decline of our stock price. If there are significant short sales of our
stock, the price decline that would result from this activity will cause the
share price to decline more so, which, in turn, may cause long holders of the
stock to sell their shares thereby contributing to sales of stock in the market.
If there is an imbalance on the sell side of the market for the stock, our stock
price will decline. Falling prices may encourage investors to profit by engaging
in short sales by borrowing shares that they do not own in anticipation of a
decline in price to enable the seller to cover the sale with a purchase
at a later date, at a lower price, and thus at a profit, which further
contributes to a decline in the price of our stock. If this occurs, the number
of shares of our common stock that is issuable upon conversion of the debentures
will increase, which will materially dilute existing stockholders’ equity and
voting rights.




22




If
we are required for any reason to repay our outstanding secured convertible
debentures, we would be required to further deplete our working
capital.




If we
were required to repay the convertible debentures, we would be required to
deplete our working capital and/or raise additional funds. If we were unable to
repay the debentures when required, the holders could commence legal action
against us to enforce their rights. Any such action may require us to curtail or
cease operations.




Our
directors, executive officers and affiliates will continue to exert significant
control over our future direction, which could reduce the sale value of our
company.




As of
December 31, 2008 members of our Board of Directors and our executive officers,
together with their affiliates, own approximately 36.5% of our outstanding
common stock.  Accordingly, these stockholders, if they act together, may
be able to control all matters requiring approval of our stockholders, including
the election of directors and approval of significant corporate transactions.
 The concentration of ownership, which could result in a continued
concentration of representation on our Board of Directors, may delay, prevent or
deter a change in control and could deprive our stockholders of an opportunity
to receive a premium for their common stock as part of a sale of our
assets.




Investors
should not anticipate receiving cash dividends on our common stock.




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




There
is a reduced probability of a change of control or acquisition of us due to the
possible issuance of preferred stock.  This reduced probability could
deprive our investors of the opportunity to otherwise sell our stock in an
acquisition of us by others.




Our
Articles of Incorporation authorize our Board of Directors to issue up to
200,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or
designation of such series, without further vote or action by stockholders.
 As a result of the existence of “blank check” preferred stock, potential
acquirers of our company may find it more difficult to, or be discouraged from,
attempting to effect an acquisition transaction with, or a change of control of,
our company, thereby possibly depriving holders of our securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.




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




We may
need to raise additional funds in the future to finance our further growth and
development of our technologies. We cannot give any assurance that we would be
successful in raising such funds and, should we do so through the sale of equity
securities, such sale would dilute the stock ownership of existing
investors.




There
are a large number of shares underlying our convertible debentures and warrants
that may be available for future sale and the sale of these shares may depress
the market price of our common stock.




As of
December 31, 2008, we had 129,422,861 shares of common stock issued and
outstanding as well as outstanding warrants to purchase an additional 57,838,729
shares of common stock.  Based upon our debenture deferments and waivers
signed in 2008 and 2009, there may be an additional 122 million shares
outstanding if all warrants are exercised and the debentures are
redeemed.




If
we are not successful in meeting our Debenture covenant requirements we maybe
declared in default on the debentures Should we be declared in default we
could risk losing the assets of our company to the debenture holders.
Should this event occur, then our shares may not have any value for our share
holders.





Failure
to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material adverse effect
on our business and stock price.




As a
public company, we are required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which will require annual management assessments of the
effectiveness of our internal control over financial reporting and a report by
our independent registered public accounting firm that both addresses
management’s assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting.
During the course of our testing, we may identify deficiencies which we may not
be able to remediate in time to meet our deadline for compliance with
Section 404. Testing and maintaining internal controls can divert our
management’s attention from other matters that are important to our business. We
also expect the new regulations to increase our legal and financial compliance
cost, make it more difficult to attract and retain qualified officers and
members of our board of directors (particularly to serve on our audit committee)
and make some activities more difficult, time consuming and costly. We may not
be able to conclude on an ongoing basis that we have effective internal control
over financial reporting in accordance with Section 404 or our independent
registered public accounting firm may not be able or willing to issue an
unqualified report on the effectiveness of our internal control over financial
reporting. If we conclude that our internal control over financial reporting is
not effective, we cannot be certain as to the timing of completion of our
evaluation, testing and remediation actions or their effect on our operations
since there is presently no precedent available by which to measure compliance
adequacy. If either we are unable to conclude that we have effective internal
control over financial reporting or our independent auditors are unable to
provide us with an unqualified report as required by Section 404, then
investors could lose confidence in our reported financial information, which
could have a negative effect on the trading price of our stock.




23




DESCRIPTION
OF PROPERTY




Our
primary property consists of office and manufacturing facilities to support our
operations. Our facilities are summarized in the following table:




Type
            
            Location
            
            Ownership
            
            Approximate
              Square FeetHeadquarters
            
            Scottsdale,
      AZ
            
            Owned
            
            1,700Manufacturing/Office
            
            Phoenix,
      AZ
            
            Leased
            
            2,300Manufacturing/Office
            
            San
      Diego, CA
            
            Leased
            
            5,400Manufacturing/Office
            
            Tijuana,
      Mexico
            
            Leased
            
            19,000Manufacturing/Office
            
            Phoenix,
      AZ
            
            Leased
            
            15,000




We
purchased the office building that serves as our headquarters and which is
located in Scottsdale, Arizona, on January 16, 2007 for an aggregate price
of $575,615.  A total of $287,959 has been paid as of December 31,
2007 and a tax credit has been recorded in the amount of $156.  The
remaining balance of $287,500 is structured as an interest-only loan, bears
interest at a rate of 6.75% calculated annually, with monthly payments in the
amount of $1,617 due beginning on February 16, 2007.  The entire
principal balance of the loan is due on or before January 16, 2012. 
The loan is secured by a deed of trust on the office building.




Our lease
terms range from month to month through to 2013, with all terminating on or
before June of 2013.




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




LEGAL
PROCEEDINGS




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




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




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




We are
not a party to any pending legal proceedings.




SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS




On
December 10, 2007 we solicited the proxies of our shareholders to vote to
approve an amendment and restatement of our Articles of Incorporation to clarify
Ecotality, Inc.’s authorized capital stock and the ability of our board of
directors to set the number of directors constituting the full board of
directors consistent with the terms of our bylaws.  Approval was obtained
from our shareholders January 3, 2008.




24




PART II




MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET
INFORMATION FOR COMMON STOCK




Market
information




Our
common stock has been quoted on the NASD’s OTC Bulletin Board under the trading
symbol “ACHM” from December 7, 2005 until December 12, 2006 when our
symbol was changed to “ETLY.”  The high and low closing prices of our
common stock for the periods indicated are set forth below.  These closing
prices do not reflect retail mark-up, markdown or commissions.




2005
            
            High
            
            
            LowFirst Quarter
            
            $
            n/a
            
            
            $
            n/aSecond
      Quarter
            
            $
            n/a
            
            
            $
            n/aThird
      Quarter
            
            $
            n/a
            
            
            $
            n/aFourth
      Quarter
            
            $
            n/a
            
            
            $
            n/a




2006
            
            High
            
            
            LowFirst
      Quarter
            
            $
            1.95
            
            
            $
            0.33Second
      Quarter
            
            $
            1.59
            
            
            $
            1.08Third
      Quarter
            
            $
            1.50
            
            
            $
            1.10Fourth
      Quarter
            
            $
            2.07
            
            
            $
            1.20




2007
            
            High
            
            
            LowFirst
      Quarter
            
            $
            1.72
            
            
            $
            0.58Second
      Quarter
            
            $
            1.07
            
            
            $
            0.11Third
      Quarter
            
            $
            0.60
            
            
            $
            0.28Fourth
      Quarter
            
            $
            0.40
            
            
            
            0.18




2008
            
            High
            
            
            LowFirst
      Quarter
            
            $
            0.31
            
            
            $
            0.13Second
      Quarter
            
            $
            0.20
            
            
            $
            0.14Third
      Quarter
            
            $
            0.16
            
            
            $
            0.06Fourth
      Quarter
            
            $
            0.09
            
            
            
            .03




On
December 31, 2008 the closing bid price on the OTC Bulletin Board for our
common stock was $0.03 per share.




The
shares quoted are subject to the provisions of Section 15(g) and
Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange
Act”), commonly referred to as the “penny stock” rule.
Section 15(g) sets forth certain requirements for transactions in
penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny
stock as that used in Rule 3a51-1 of the Exchange Act.




The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides that any equity security is considered to be a penny
stock unless that security is: registered and traded on a national securities
exchange meeting specified criteria set by the Commission; authorized for
quotation on The NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00 per share) or
the registrant’s net tangible assets; or exempted from the definition by the
Commission.  Trading in the shares is subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.




For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of
a risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks.  Consequently, these rules may restrict the ability of broker
dealers to trade and/or maintain a market in the company’s common stock and may
affect the ability of shareholders to sell their shares.




25




Shares
Available Under Rule 144




As of
April 10, 2009, we had 160,756,194 shares of common stock outstanding,  In
general, under the recently amended Rule 144 which became effective on
February 15, 2008 a person, or persons whose shares are aggregated, who owns
shares that were purchased from us, or any affiliate, at least six months
(subject only to the Rule 144(c) public information requirement until
the securities have been held for one year), previously, including a person who
may be deemed our affiliate, is entitled to sell within any three month period,
a number of shares that does not exceed the greater of:




1.
            1%
      of the then outstanding shares of our common stock;
  or





2.
            The
      average weekly trading volume of our common stock during the four calendar
      weeks preceding the date on which notice of the sale is filed with the
      Securities and Exchange Commission.





Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
 Any person who is not deemed to have been our affiliate at any time during
the 90 days preceding a sale, and who owns shares within the definition of
“restricted securities” under Rule 144 under the Securities Act that were
purchased from us, or any affiliate, at least one year previously, is entitled
to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.




Future
sales of restricted common stock under Rule 144 or otherwise or of the
shares could negatively impact the market price of our common stock.  We
are unable to estimate the number of shares that may be sold in the future by
our existing stockholders or the effect, if any, that sales of shares by such
stockholders will have on the market price of our common stock prevailing from
time to time.  Sales of substantial amounts of our common stock by existing
stockholders could adversely affect prevailing market prices.




Holders




As of
December 31, 2008, we had approximately 129,42,861 shares of $0.001 par
value common stock issued and outstanding held by 473 shareholders of record.
 ECOtality, Inc.’s Transfer Agent is:  Holladay Stock
Transfer, Inc., 2939 N. 67th Place, Suite C, Scottsdale, AZ 85251, and
phone: (480) 481-3940, fax: (480) 481-3941.




26




Dividends




We have
not declared or paid any cash dividends on our common stock.  For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and do not anticipate paying any cash dividends
on our common stock.  Any future determination to pay dividends will be at
the discretion of the Board of Directors and will be dependent upon then
existing conditions, including our financial condition and the results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the Board of Directors considers relevant.





Securities
Authorized for Issuance under Equity Compensation Plans




The
following table provides the following information as of December 31, 2008,
for equity compensation plans previously approved by security holders, as well
as those not previously approved by security holders:




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





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


3.
            Other
      than securities to be issued upon the exercise of the outstanding options,
      warrants and rights, the number of securities remaining available for
      future issuance under the
plan.




Number of SharesTotal
      Securities Approved to be issued under the Equity Compensation
      Plan
            
            10,000,000Securities
      to be issued upon exercise of outstanding options, warrants and
      rights
            
            2,950,000
            (1)Securities
      Committed to Approved Compensation Plans not yet Issued
            
            100,000Number
      of Securities Issued from Plan to Date
            
            2,005,000Number
      of securities remaining available for future issuance
            
            4,945,000




(1) Weighted Average
Price of Outstanding Options, Warrants and Rights is $0.17 per
share




Recent
Sales of Unregistered Securities




In
October 2006 we issued an aggregate of 34,499,920 shares of our common
stock to a group of 277 accredited investors through Brookstreet Securities
Corporation, as Placement Agent, at $0.35 per share pursuant to the exemption
provided by Section 4(2) of the Act and Rule 506 of Regulation D
promulgated thereunder.  The shares were offered solely to accredited
investors, no form of general advertising was used, all investors took the
shares as an investment and not with the intent to distribute and all shares
were issued with a restrictive legend thereon.  The total offering costs
related to this issuance was $9,352,713.  As additional consideration for
acting as our Placement Agent, we issued to Brookstreet warrants to acquire
6,899,982 shares of our common stock at $0.35 per share until October 27,
2011.




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




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


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




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




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




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




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




27




The
warrants are exercisable to purchase one share of common stock at $0.30 per
share, and have a term of exercise equal to 5 years.  The Warrant holders
may not exercise the Warrants for a number of shares of common stock in excess
of that number of shares which upon giving effect to such exercise would cause
the aggregate number of shares beneficially owned by the holder to exceed 9.99%
of the outstanding shares of the Common stock following such exercise.  As
of December 31, 2008, 100,000 shares of common stock had been issued upon
conversion of the debentures issued on December 6, 2007.




MANAGEMENT’S
DISCUSSION AND PLAN OF OPERATIONS.




Forward-Looking
Statements




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




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




Overview
of the Business




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





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




Electric
Transportation Engineering Corporation (eTec)





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




28





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





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





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





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





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





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





Innergy
Power Systems





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





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




29





ECOtality
Stores (dba Fuel Cell Store)





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




HydralityTM





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





Organizational
History




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





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





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





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





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





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




30




In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.





Electric
Transportation Engineering Corporation (eTec)




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




The
aggregate purchase price for the outstanding capital stock of eTec is $3,000,000
in cash and 6,500,000 shares of our common stock of the $3,000,000 in cash to be
paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement
and $500,000 will be paid in 10 equal monthly installments, beginning
December 1, 2007.  The 6,500,000 shares will be issued in the
following manner: 6,500,000 were issued upon the close of the stock purchase
agreement, 3,250,000 were released on date of signing, and 3,250,000 are to be
released on the first anniversary of the closing of the stock purchase agreement
from the Company corporate secretary barring any indemnity claims.  The
shares bear a restrictive legend and are not subject to piggy-back registration
rights.




Edison
Minit-Charger




In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.




The
aggregate purchase price is $1,000,000 in cash and 2,000,000 shares of our
common stock.  If, on the 10th day
following the first anniversary date of the agreements, which date shall be
December 14, 2008, the average closing price for our common stock during
the 30-day period ending on the first anniversary date of the Stock Purchase
Agreement (December 4, 2008) is less than $1.00 per share, we, at our
option, shall either:




1.
            Issue
      additional shares of common stock to the seller so that the aggregate
      value of our common stock is equal to the $2,000,000 (“Stock Consideration
      Amount”);




31




2.
              Pay
      to the seller an additional amount of cash so that the aggregate value
      equals difference between the amount of the Purchase Price and the Stock
      Consideration Amount; or3.
              Purchase
      or cause the purchase of the common stock issued for an aggregate price
      equal to the Stock Consideration
Amount.


Our
Hydrality System




We have
been developing HydralityTM, a system that stores and delivers hydrogen on-demand
using magnesium compounds and water. When used in conjunction with existing fuel
cell technology, Hydrality emits only pure water and produces no harmful
emissions.




While we
initially sought to design and license a cost efficient Hydrality system for use
in motorized vehicles and industrial equipment, we have identified several
additional promising applications for Hydrality that include stationary
application for remote power, back-up power systems, and large-scale industrial
and utility use as we have described above in our description of our
business.




On
May 7, 2007, a non-provisional patent application was filed by Stinson
Morrison Hecker LLP in the name of California Institute of Technology as
assignee and us as exclusive licensee of the technology, for a Method and System
for Storing and Generating Hydrogen, claiming priority from a provisional
application filed by CalTech on May 8, 2006.  The details of the
patent application and invention are confidential until publication or issue.
 The patent application is generally directed towards the hydrogen reactor
design currently under development.




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




While we
are now are in the process of investigating and analyzing third-generation
reactor models, we anticipate this to be a long term project given the minimal
amount of funds we are expending on this research and development effort.
 Laboratory-scale test reactors are being used to gather data for the
purpose of characterizing the reactor and constructing analytical design models.
 It is anticipated that patent protection will be sought on one or more
aspects or features of the third-generation reactor.  However, it is not
our stated intent to manufacture reactors. Rather, it is our intent to use the
third-generation reactors to demonstrate the technology, and then license the
technology and/or the reactor design to others for commercialization. The
specifications of the commercial reactors have not yet been determined, and the
designs will vary based on different customer application
requirements.




Status
of any announced new product or service




Throughout
2008, the Company has stressed its focus on being the leading supplier of
electric vehicle infrastructure. We have also continued to reiterate that
although we initially sought to design and license a cost efficient Hydrality
system for use in motorized vehicles and industrial equipment, we have
identified several additional and promising applications for Hydrality that
include stationary applications for remote power, back-up power systems, and
large scale industrial and utility use.




Fuel
Cell Store




On
June 17, 2007 we bought the assets of the Fuel Cell Store for $350,000 in
cash and 300,000 shares of our common stock.   Our common stock will
be valued at its closing market price on the date of the agreement.  The
closing price was $0.63 per share, on that date for a total value of $189,000
and a total price paid cash and stock of $539,000. We concluded this to be
an asset purchase rather than a business purchase because we did not
acquire their debt and they continue to exist after the purchase is
completed.  Of the assets acquired we identified and assigned a value
of $179,775 in merchandise inventory, $8,600 in fixed assets, and $23,843
in current accounts receivable. We reviewed the intangible assets that we
acquired, including the customer data base and internally developed software,
and determined that the intangible assets did not have value to
us. Therefore, the difference between the assets noted and the price
paid for the assets $326,782 have been allocated to intangible assets and
impaired and written-off due to the lack of proven future cash flows generated
by the assets acquired.




Innergy
Power Corporation




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




32




Electric
Transportation Engineering Corporation (eTec)




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




The
aggregate purchase price for the outstanding capital stock of eTec is $3,000,000
in cash and 6,500,000 shares of our common stock of the $3,000,000 in cash to be
paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement
and $500,000 will be paid in 10 equal monthly installments, beginning
December 1, 2007.  The 6,500,000 shares will be issued in the
following manner: 6,500,000 were issued upon the close of the stock purchase
agreement, 3,250,000 were released on date of signing, and 3,250,000 are to be
released on the first anniversary of the closing of the stock purchase agreement
from the Company corporate secretary barring any indemnity claims.  The
shares bear a restrictive legend and are not subject to piggy-back registration
rights.




Edison
Minit-Charger




In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.




The
aggregate purchase price is $1,000,000 in cash and 2,000,000 shares of our
common stock.  If, on the 10th day
following the first anniversary date of the agreements, which date shall be
December 14, 2008, the average closing price for our common stock during
the 30-day period ending on the first anniversary date of the Stock Purchase
Agreement (December 4, 2008) is less than $1.00 per share, we, at our
option, shall either:




1.
            Issue additional
      shares of common stock to the seller so that the aggregate value of our
      common stock is equal to the $2,000,000 (“Stock Consideration
      Amount”);




33




2.
              Pay
      to the seller an additional amount of cash so that the aggregate value
      equals difference between the amount of the Purchase Price and the Stock
      Consideration Amount; or3.
              Purchase
      or cause the purchase of the common stock issued for an aggregate price
      equal to the Stock Consideration
Amount.


Stage
of Commercialization of the Hydrality Technology




NASA’s
Jet Propulsion Laboratory (JPL), under its agreement with us, has completed
testing of the Hydrality technology on lab-scale models of the reactor resulting
in announced results and improvements. Its research is ongoing on our behalf and
will continue throughout the implementation stages of the technology.
Additionally, we have entered into an agreement with Arizona State University
(ASU) to evaluate potential regeneration technologies and determine cost and
energy efficiencies for converting magnesium oxide, the main byproduct of
Hydrality, back to its original form of magnesium.




Current
transportation industry trends suggest that the commercial viability of hydrogen
fuel cell vehicles remains on the distant horizon (about 10 years away) due to
cost and efficiency problems with underlying fuel cell technologies. Being
reactive and reflexive to these market trends, we have reduced the developmental
costs of Hydrality for transportation applications to pursue additional
applications with immediate commercial applicability in 2008. With the current
shift in the transportation market towards plug-in hybrid vehicles (PHEV) and
pure electric vehicles (EV), we will aggressively explore the use of eTec’s fast
charging systems in PHEV and EV infrastructure applications.  If and when
fuel cell technologies begin to present a practical and economically viable
solution for alternative electric propulsion systems, the Company will be
prepared to capitalize upon the ongoing research and development efforts of
Hydrality to modify the system for use in transportation
applications.




As our
research and development efforts have identified several new and promising
applications for Hydrality that include stationary use, remote power, back-up
power systems, and large scale industrial and utility use, we intend to refocus
our research and development expenditures upon these areas that we determine to
have immediate commercial applicability. While we will target our research and
development efforts primarily on stationary and utility power applications, the
research and testing for large-scale applications of our Hydrality system will
be valuable in further advancing the technology for all applications, including
those of transportation.




In
October of 2007, we announced that we will participate in the Arizona
Public Service (APS) Advanced Hydrogasification Project (AHP).  APS,
Arizona’s largest public utility company, has previously received $8.9 million
in funding for this pilot project from the U.S. Department of Energy (DOE). The
objective of this partnership is to investigate the use of HydralityTM – an
on-demand hydrogen production and storage technology – to support APS’
hydrogasification efforts to deliver “clean” electricity to the public. The
Hydrality testing is currently estimated to commence in the middle of
2008.  The AHP program is a collaborative project among APS and industry
partners, including the Department of Energy’s National Energy Technology
Laboratory (NETL), to develop an economical process of producing substitute
natural gas (SNG) from coal without the release of carbon dioxide, a known
greenhouse gas. The APS project will use hydrogen to react with coal in a high
temperature and pressure reaction that ultimately produces methane that can be
injected into existing natural gas pipelines. Specifically aimed at supporting
the AHP hydrogasification efforts, the project will conduct testing to evaluate
the process kinetics and reactor dynamics of our Hydrality process for
large-scale hydrogen production and storage applications.




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





2007 and
2008 PROFOMA Results





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




34




The
following table contains our 2008 reported figures and unaudited pro forma
results for the year ended December 31, 2007 as if the acquisitions
occurring in the fourth quarter ending December 31, 2007 had occurred on
January 1, 2007





Year
      Ended December 31,2008
            
            
            2007Reported
            
            
            Reported
            
            
            Pro FormaNet
      Revenues
            
            $
            11,187,384
            
            
            $
            2,588,658
            
            
            $
            13,723,131Net
      Income (loss)
            
            $
            (8,067,211
            )
            
            $
            (13,691,964
            )
            
            $
            (15,587,966
            )Net
      (loss) per share-basic and fully diluted
            
            $
            (0.06
            )
            
            $
            (0.12
            )
            
            $
            (0.14
            )


Segment
Information




SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance.  Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) and eTec’s
Minit-Charger business acquisitions from June through December 2007,
we identified our segments based on the way we expect to organize our Company to
assess performance and make operating decisions regarding the allocation of
resources.   In accordance with the criteria in SFAS No. 131,
“Disclosure about Segments of an Enterprise and Related Information,” we have
concluded we have three reportable segments for the year ended December 31,
2008; ECOtality/ECOtality Stores segment, Innergy Power segment and eTec
segment. The ECOtality/ECOtality Stores segment is the online marketplace for
fuel cell-related products and technologies with online distribution sites in
the U.S., Japan, Russia, Italy and Portugal.  The Innergy Power segment is
comprised of the sale
of solar batteries and other solar and battery powered devices to end-users. The
eTec segment relates to sale of fast-charge systems for material handling and
airport ground support applications to the testing and development of plug-in
hybrids, advanced battery systems and hydrogen ICE conversions and consulting
revenues.  This segment also includes the Minit-Charger business which
relates to the research, development and testing of advanced transportation and
energy systems with a focus on alternative-fuel, hybrid and electric vehicles
and infrastructures.  eTec holds exclusive patent rights to the eTec
SuperChargeTM and Minit-Charger systems - battery fast charge systems that allow
for faster charging with less heat generation and longer battery life than
conventional chargers.  We have aggregated these subsidiaries into three
reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.




35




The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 2 of this Form 10-K.
Management is currently assessing how it evaluates segment performance, and
currently utilize income (loss) from operations, excluding share-based
compensation (benefits), depreciation and intangibles amortization and income
taxes. There were no inter-segment sales during the year ended December 31,
2008.




Summarized
financial information concerning our reportable segments for the year ended
December 31, 2007 and 2008 are as follows:


Year Ended
              
              ECOtality/
              
              
              
              
              
              eTec/December 31, 2007
              
              Fuel Cell Store
              
              
              Innergy
              
              
              Minit-Charger
              
              
              TotalTotal
      net operating revenues
              
              $
              769,986
              
              
              $
              716,406
              
              
              $
              1,102,266
              
              
              $
              2,588,658Depreciation
      and amortization
              
              
              134,756
              
              
              
              6,259
              
              
              
              56,170
              
              
              
              197,185Operating
      income (loss)
              
              
              (8,809,018
              )
              
              
              (2,461,500
              )
              
              
              (1,124,362
              )
              
              
              (12,394,880
              )Interest
      expense
              
              
              (284,754
              )
              
              
              —
              
              
              
              (358
              )
              
              
              (285,112
              )Interest
      income
              
              
              56,288
              
              
              
              1,223
              
              
              
              14
              
              
              
              57,525Registration
      rights penalty expense
              
              
              (1,069,497
              )
              
              
              —
              
              
              
              —
              
              
              
              (1,069,497
              )Income
      (loss) before income tax
              
              
              (10,106,981
              )
              
              
              (2,460,277
              )
              
              
              (1,124,706
              )
              
              
              (13,691,964
              )Income
      tax provision (benefit)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
      assets
              
              
              6,144,355
              
              
              
              694,921
              
              
              
              4,814,749
              
              
              
              11,654,025




YEAR
      ENDED DECEMBER 31, 2008ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            8,072,664
            
            
            $
            2,324,170
            
            
            $
            790,549
            
            
            $
            11,187,383Depreciation
      and amortization
            
            $
            470,929
            
            
            $
            6,229
            
            
            $
            3,560
            
            
            $
            480,718Operating
      income (loss)
            
            $
            (528,193
            )
            
            $
            (40,368
            )
            
            $
            49,859
            
            
            $
            (518,702
            )Interest
      Income
            
            $
            9,632
            
            
            $
            519
            
            
            $
            -
            
            
            $
            10,151Gain
      / (Loss) on disposal of assets
            
            $
            (95
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (95
            )Other
      Income - Working Capital True Up
            
            $
            364,645
            
            
            $
            -
            
            
            $
            -
            
            
            $
            364,645Segment
      Income before Corporate Overhead Allocation
            
            $
            (154,011
            )
            
            $
            (39,849
            )
            
            $
            49,859
            
            
            $
            (144,001
            )Corporate
      Overhead Allocation
            
            $
            5,721,432
            
            
            $
            1,534,970
            
            
            $
            531,566
            
            
            $
            7,787,968Segment
      Income / (Loss)
            
            $
            (5,875,443
            )
            
            $
            (1,574,819
            )
            
            $
            (481,707
            )
            
            $
            (7,931,969
            )Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            135,241Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (8,067,210
            )Capital
      Expenditures
            
            $
            251,260
            
            
            $
            12,025
            
            
            $
            -
            
            
            $
            263,285Total
      segment assets - excluding intercompany receivables
            
            $
            3,637,112
            
            
            $
            512,532
            
            
            $
            158,599
            
            
            $
            4,308,243Other
      items Not included in Segment Assets:Goodwill
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            3,495,878Other
      Corporate Assets
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,022,336Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,826,457





Results
of Operations




YEAR
ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007




CONSOLIDATED
RESULTS




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





In the
year ended December 31, 2008, we had revenues of $11,187,384 compared to the
year ended December 31, 2007 of $2,588,658. The 2007 revenue is attributable to
Fuel Cell Store and approximately one to two months of sales for our three
subsequent acquisitions (eTec/Minit Charger and Innergy) made during the fourth
quarter of 2007. The cost of goods sold percentage for the year ending December
31, 2008 was 63% leaving us with a gross profit of $4,078,839, as compared to
54% and $1,187,730 for the same period in 2007. The increase in revenues in 2008
as compared to 2007 is consistent with our efforts in 2007 to move from being a
development stage company to a revenue-generating renewable energy
company.




Operating
Expense




Total
operating expenses during the year ended December 31, 2008 were $7,900,473
compared to $13,582,610 for the year ended December 31, 2007.  General
and administrative expenses were $6,991,804 or 88% of total operating expenses
for the year ended December 31, 2008 compared with $6,121,914 or 45% for
the year ended December 31, 2007. The increases in general and operating
expenses are described below:




Professional
fees were $417,767 for the year ended December 31, 2008 compared with
$1,446,239 for year ended December 31, 2007.  This decrease is driven
by increased efficiencies and our consolidation of business activities following
the heightened activity at the end of the 2007 acquisition period. New media,
marketing, advertising and investor and public relations expenses were $253,301
for the year ended December 31, 2008 compared with $792,464 for the year
ended December 31, 2007 with the reduction primarily attributable to the
gradual decrease in spending in 2008 around investor relations related to our
acquisitions.  Legal fees were $448,943 for the year ended
December 31, 2008 compared with $517,450 for the year ended
December 31, 2007 and accounting fees were $155,981 for the year ended
December 31, 2008 compared with $379,535 for the year ended
December 31, 2006.  Both legal and accounting fee reductions are a
direct result of reduced regulatory and audit work in support of the business
post-acquisition, following our successful integration of our new
businesses.  Executive compensation (not including subsidiary executives)
was $659,300 for the year ended December 31, 2008 compared with $966,831
for the year ended December 31, 2007.  The higher figure in 2007 is
attributable to a bonus and stock award to our chief executive
officer.




36




Depreciation
expense was $615,960 for the year ended December 31, 2008 compared to
$197,185 for the year ended December 31, 2007.  The increase is based
on new depreciation for the assets acquired as part of the acquisitions. 
All other general and administrative spending totaled $6,991,804 for the
year ended December 31, 2008 compared to $6,121,914 for the year ended
December 31, 2007.  The increase is attributable to our acquisitions
which represent $3,973,056 of 2008 expenses, as compared to a total of
$1,683,692 for a comparable period in 2007.




Expenses
for research and development totaled $292,709 for the year ended
December 31, 2008 compared to $1,362,098 for year ended December 31,
2007.  This reduction reflects our focused strategy on applications
with short-term commercialization potential supported through joint projects and
grants to help defray costs. Since one of our primary objectives continues to be
the commercial advancement of clean electric technologies that reduce our
dependence upon carbon based fuels, we have retained a strong focus on research
and development activities, and expect to continue to incur additional research
and development costs, although at a significantly reduced rate, for the
foreseeable future





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





The
impairment expense of $4,101,413 for year ended December 31, 2007 reflects our
write-downs of goodwill related to acquisitions made in 2007 attributable to the
businesses as follows:  Innergy $2,494,565, MinitCharger $1,280,066 and
Ecotality Stores $326,782.   The impairment expense was booked in
accordance with SFAS No. 144 as there was a lack of proven future cash
flows to support the goodwill initially estimated at the time of purchase. 
Since that time, the accretive nature of these acquisitions and the synergistic
opportunities they present have afforded us many opportunities and solidified
our leadership position in the electric vehicle charging and infrastructure
market.




Our
operating loss compared favorably with prior year for a loss of $3,821,634 for
the year ended December 31, 2008 compared with a loss of $12,394,880 for
the year ended December 31, 2007, reflecting an improvement year over year
of $8,573,246.  Excluding the one-time settlement and impairment expenses
totaling $5,901,413 operating loss for the year ended December 31, 2008 was
favorable $2,671,833.




For the
year ended December 31, 2008, we earned interest income in the amount of
$17,184 compared with $57,525 for the year ended December 31,
2007.




Interest
expense was $4,620,364 for the year ended December 31, 2008 compared to
$285,112 for the year ended December 31, 2007.  The higher amount for
2008 was driven by the standard interest and the additional fees related to our
waiver on the convertible debentures we issued in November and December of
2007.  Loss on disposal of assets was $7,043 for the year ended
December 31, 2008 compared to $0 for the period ended December 31,
2008.  Other income was $364,646 for the year ended December 31, 2008
compared to $0 for prior year. The 2008 figure is attributable to the Net
Working Capital True up associated with our Minit-Charger
acquisition.





Other
expense was $0 for the year ended December 31, 2008 compared to $1,069,497 for
the year ended December 31, 2007.  The 2007 figure is fully
attributable to a reserve we established to cover penalties in conjunction with
registering our common shares of stock with the SEC.  The amount we
reserved was based upon the number of shares that were issued.




Our net
loss after other income and expenses compared favorably for year ended
December 31, 2008 for a loss of  $8,067,211 compared with a
$13,691,964 loss for year ended December 31, 2007.




Liquidity
and Capital Resources




We have
reached the point that we are unable to finance our operations and meet our debt
obligations without an infusion of capital.  This may preclude our ability
continue operations as indicated in Note #2 Going Concern.




As of
December 31, 2008, we had $327,332 of cash on hand and held certificates of
deposit in the amount of $28,044 compared to year end 2007 balances of $677,318
of cash on hand and $1,197,784 in certificates of deposit.




We
utilized cash for operating activities in 2008 in the amount of $1,704,742
compared to $3,390,042 for 2007.   In addition, cash used in investing
activities was $228,177 for the year ended December 31, 2008 compared to
$7,165,977 for 2007.  The variance of $6,957,050 was driven by lower
investment in fixed assets (down $143,322), and proceeds from sales of fixed
assets in 2008 of $35,108.  Year ended December 31, 2007 also included
investment in subsidiaries of $6,759,371.




Cash
generated by financing activities was $1,622,938 in 2008 compared to $6,185,369
in 2007. The cash generated in 2008 is related to our Line of Credit with Mr.
Karner and Ms. Forbes, our 2007 cash was attributable to the mortgage of our
corporate headquarters. Of note is that for the year ended December 31, 2008,
net cash used was $349,986 compared to $4,370,650 for the year ended December
31, 2007. This significant improvement is indicative of our transition to being
a revenue generating company as well as instituting overall cost controls at
corporate headquarters and at our subsidiaries.




37







Our
current financing activities are described below:





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





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





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





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




Management’s
Plan of Operation





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





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




(1)
            continued
      tight management of overall operations while improving
    margin





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





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





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





Working
Capital





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





We do not
have any off-balance sheet arrangements.





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





Commitments
and Long Term Liabilities




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




38




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




As of
December 31, 2008, the Company has four leases in effect for operating space.
Future obligations under these commitments are $209,186 for 2009, $203,413 for
2010, and $95,978 for 2011, $98,060 for 2012 and $41,225 for
2013.




Critical
Accounting Policy and Estimates




Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America.  The preparation of the financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  On an on-going basis,
we evaluate our estimates and judgments, including those related to revenue
recognition, recoverability of intangible assets, and contingencies and
litigation.  We base our estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.  The most significant accounting
estimates inherent in the preparation of our consolidated financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, primarily the
valuation of intangible assets.  The methods, estimates and judgments we
use in applying these most critical accounting policies have a significant
impact on the results we report in our consolidated financial
statements.




Loss per
share




Net loss
per share is provided in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS #128), “Earnings Per Share”. We present basic loss
per share (“EPS”) and diluted EPS on the face of statements of operations.
 Basic EPS is computed by dividing reported losses by the weighted average
shares outstanding.   Except where the result would be anti-dilutive to
income from continuing operations, diluted earnings per share has been computed
assuming the conversion of the convertible long-term debt and the elimination of
the related interest expense, and the exercise of stock warrants. For the year
ended December 31, 2008, the assumed conversion of convertible long-term
debt and the exercise of stock warrants are anti-dilutive due to our net loss
and were excluded in determining diluted loss per share.




Reporting on the costs of
start-up activities




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




Fair value of financial
instruments




Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to us as of December 31, 2008 and 2007.
 The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values.  Fair value was assumed to
approximate carrying value for cash because it is short term in nature and its
carrying amount approximates fair value.




Income
Taxes




We follow
Statement of Financial Accounting Standard No. 109 (SFAS #109), “Accounting
for Income Taxes,” for recording the provision for income taxes. Deferred tax
assets and liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rate applicable when the related asset or liability is
expected to be realized or settled. Deferred income tax expenses or benefits are
based on the changes in the asset or liability each period. If available
evidence suggests that it is more likely than not that some portion or all of
the deferred tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely than not to
be realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.




Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification
of assets and liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability are
classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.




39




Segment
reporting




SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance.  We are the parent company of Innergy Power Corporation, Fuel
Cell Store and Electric Transportation Engineering Corporation. Innergy Power is
a leader in the design and manufacture of thin sealed rechargeable lead
batteries and high quality flat-panel multi-crystalline solar modules. 
Fuel Cell Store is the leading online marketplace for fuel cell-related products
and technologies with online distribution sites in the U.S., Japan, Russia,
Italy and Portugal.  eTec is a leader in the research, development and
testing of advanced transportation and energy systems with a focus on
alternative-fuel, hybrid and electric vehicles and infrastructures.  eTec
also holds exclusive patent rights to theeTec SuperChargeTM
  andMinit-Charger  systems
- battery fast charge systems that allow for faster charging with less heat
generation and longer battery life than conventional chargers.  We have
aggregated these subsidiaries into three reportable segments: ECOtality/Fuel
Cell Store, eTec and Innergy.




Dividends






We have
not yet adopted any policy regarding payment of dividends. No dividends have
been paid or declared since inception.




Recent
Pronouncements




In
December 2004, the FASB issued Financial Accounting Standards No. 123
(revised 2004) (“FAS 123R”), Share-Based Payments, FAS 123R replaces FAS
No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. FAS 123R requires
compensation expense, measured as the fair value at the grant date, related to
share-based payment transactions to be recognized in the financial statements
over the period that an employee provides service in exchange for the award. FAS
123R is effective January 1, 2006. The company has adopted this accounting
standard for the year ended December 31, 2008 and 2007.  The
implementation of this standard did not have a material impact on the Company’s
financial position, results of operations or cash flows.




In
November 2004, FASB issued Financial Accounting Standards No. 151,
Inventory Costing, an amendment amends the guidance in ARB No. 43, Chapter
4, “Inventory Pricing,” to clarify the accounting for abnormal amounts such as
wasted material. This Statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of
“abnormal.” The implementation of this standard did not have a material impact
on the Company’s financial position, results of operations or cash flows for the
years ended December 31, 2008 and 2007




In
September of 2006, the FASB issued SFAS No. 157 “Fair Value
Measurements” (SFAS No. 157). SFAS No. 157 establishes a framework for
measuring fair value under generally accepted accounting procedures and expands
disclosures on fair value measurements. This statement applies under previously
established valuation pronouncements and does not require the changing of any
fair value measurements, though it may cause some valuation procedures to
change. Under SFAS No. 157, fair value is established by the price that
would be received to sell the item or the amount to be paid to transfer the
liability of the asset as opposed to the price to be paid for the asset or
received to transfer the liability. Further, it defines fair value as a market
specific valuation as opposed to an entity specific valuation, though the
statement does recognize that there may be instances when the low amount of
market activity for a particular item or liability may challenge an entity’s
ability to establish a market amount. In the instances that the item is
restricted, this pronouncement states that the owner of the asset or liability
should take into consideration what affects the restriction would have if viewed
from the perspective of the buyer or assumer of the liability. This statement is
effective for all assets valued in financial statements for fiscal years
beginning after November 15, 2007.  Although SFAS No. 157 applies
to and amends the provisions of existing FASB and AICPA pronouncements, it does
not, of itself, require any new fair value measurements, nor does it establish
valuation standards.  SFAS No. 157 applies to all other accounting
pronouncements requiring or permitting fair value measurements, except for: SFAS
No. 123(R), share-based payment and related pronouncements, the
practicability exceptions to fair value determinations allowed by various other
authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
that deal with software revenue recognition. The Company is currently evaluating
the impact of SFAS No. 157 to its financial position and result of
operations.




In
July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertain Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109 “Accounting for Income Taxes”. It
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken, in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.  The implementation of this standard did not have a
material impact on the Company’s financial position, results of operations or
cash flows for the years ended December 31, 2008.




40




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




FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA




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




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




41





TABLE OF
CONTENTS




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




42






WEAVER &
      MARTIN
              Certified
      Public Accountants & Consultants
              411
      Valentine, Suite 300
              Kansas
      City, Missouri 64111
              Phone:
      (816) 756-5525
              Fax:
      (816) 756-2252




To the
Board of Directors and Stockholders


Ecotality,
Inc. and Subsidiaries


Scottsdale,
Arizona





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





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





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





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





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





Weaver
& Martin, LLC


Kansas
City, Missouri


April 15,
2009




F-1




ECOtality,
      Inc.Consolidated
      Balance Sheets




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





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




ECOtality, Inc.Consolidated
      Statement of Operations




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





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




ECOtality, Inc.




Consolidated
Statement of Stockholders’ Equity





Common
            
            
            
            
            
            Unamortized
            
            
            
            
            
            AccumStock
            
            
            
            
            
            Stock
            
            
            
            
            
            ForeignOwed
            
            
            Additional
            
            
            Issued
            
            
            
            
            
            Currency
            
            
            TotalCommon
      Stock
            
            
            but
      not
            
            
            Paid-in
            
            
            for
            
            
            Retained
            
            
            Trans
            
            
            Stockholders’Shares
            
            
            Amount
            
            
            issued
            
            
            Capital
            
            
            Services
            
            
            Earnings
            
            
            Adj
            
            
            EquityBalance,
      December 31, 2006
            
            
            112,999,906
            
            
            $
            113,000
            
            
            $
            0
            
            
            $
            21,788,399
            
            
            $
            0
            
            
            $
            (14,578,445
            )
            
            $
            0
            
            
            $
            7,322,954Cancelled
      shares: Foote & Winfield
            
            
            (6,000,000
            )
            
            $
            (6,000
            )
            
            
            
            
            
            $
            6,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            0Shares
      issued for settlement of escrow
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,200,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,200,000Shares
      issued for professional services
            
            
            790,000
            
            
            $
            790
            
            
            
            
            
            
            $
            399,610
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            400,400Shares
      issued for compensation
            
            
            750,000
            
            
            $
            750
            
            
            
            
            
            
            $
            315,250
            
            
            $
            (225,000
            )
            
            
            
            
            
            
            
            
            
            $
            91,000Shares
      issued for warrants
            
            
            434,632
            
            
            $
            435
            
            
            
            
            
            
            $
            (435
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            0Shares
      issued for acquisitions
            
            
            11,800,000
            
            
            $
            11,800
            
            
            
            
            
            
            $
            2,922,200
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,934,000Penalty
      shares issued
            
            
            3,449,991
            
            
            $
            3,450
            
            
            
            
            
            
            $
            1,066,047
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,069,497Option
      issued to purchase Ecotality shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            460,377
            
            
            $
            (281,300
            )
            
            
            
            
            
            
            
            
            
            $
            179,077Convertible
      debentures issued
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,993,901
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,993,901Amortization
      of stock issued for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            135,943
            
            
            
            
            
            
            
            
            
            
            $
            135,943Accumulated
      Foreign Currency Translation Adj
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            0
            
            
            $
            0Net
      (loss)For
      the year endedDecember 31, 2007
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (13,691,964
            )
            
            $
            0
            
            
            $
            (13,691,964
            )Balance,
      December 31, 2007
            
            
            124,224,528
            
            
            $
            124,225
            
            
            
            
            
            
            $
            31,151,349
            
            
            $
            (370,357
            )
            
            $
            (28,270,409
            )
            
            $
            0
            
            
            $
            2,634,808Shares
      issued for professional services
            
            
            565,000
            
            
            $
            565
            
            
            
            
            
            
            $
            81,160
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            81,725Shares
      issued for Conversion of Debt
            
            
            333,333
            
            
            $
            333
            
            
            
            
            
            
            $
            99,667
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            100,000Option
      issued to purchase Ecotality Shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            55,168
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            55,168Option
      issued for compensation
            
            
            300,000
            
            
            $
            300
            
            
            $
            75
            
            
            $
            24,625
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            25,000Options
      Revalued per Purchase Agreements
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,195,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,195,000Amortization
      of stock issued for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            253,151
            
            
            
            
            
            
            
            
            
            
            $
            253,151Shares
      issued for 2007 acquisitions
            
            
            4,000,000
            
            
            $
            4,000
            
            
            
            
            
            
            $
            (4,000
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            -Accumulated
      Foreign Currency Translation Adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (40,006
            )
            
            $
            (40,006
            )Net
      (loss)For
      the year endedDecember 31, 2008
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (8,067,214
            )
            
            
            
            
            
            $
            (8,067,214
            )Balance,
      December 31, 2008
            
            
            129,422,861
            
            
            $
            129,423
            
            
            $
            75
            
            
            $
            33,602,969
            
            
            $
            (117,206
            )
            
            $
            (36,337,623
            )
            
            $
            (40,006
            )
            
            $
            (2,762,368
            )





The
accompanying notes are an integral part of these consolidated financial
statements.




F-4




ECOtality,
      Inc.Consolidated
      Statement of Cash Flows




Year
      Ended December 31,2008
            
            
            2007Cash
      flows from operating activitiesNet
      Income (loss)
            
            $
            (8,067,211
            )
            
            $
            (13,691,964
            )Adjustments
      to reconcile:Stock
      and options issued for services and compensation
            
            
            161,893
            
            
            
            386,102Shares
      issued for settlement
            
            
            -
            
            
            
            1,200,000Shares
      Accrued for registration penalty
            
            
            -
            
            
            
            1,069,497Shares
      issued for Acquisition
            
            
            -
            
            
            
            2,934,000Depreciation
            
            
            615,960
            
            
            
            197,185Amortization
      of stock issued for services
            
            
            253,151
            
            
            
            420,372Amortization
      of discount on notes payable
            
            
            1,590,148
            
            
            
            207,271Impairment
      of Goodwill
            
            
            -
            
            
            
            4,101,413Gain
      on disposal of assets
            
            
            7,043
            
            
            
            -Changes
      in operating assets and liabilities:Certificate
      of deposit
            
            
            1,169,740
            
            
            
            843,712Accounts
      Receivable
            
            
            431,232
            
            
            
            (941,223
            )Inventory
            
            
            641,293
            
            
            
            157,571Prepaid
      expenses and other
            
            
            240,490
            
            
            
            (223,545
            )Accounts
      Payable
            
            
            192,361
            
            
            
            (180,494
            )Accrued
      Liabilities
            
            
            1,059,158
            
            
            
            130,061Net
      cash provided (used) by operating activities
            
            
            (1,704,743
            )
            
            
            (3,390,042
            )Cash
      flows from investing activitiesPurchase
      of fixed assets
            
            
            (263,284
            )
            
            
            (406,606
            )Proceeds
      from sales of fixed assets
            
            
            35,108
            
            
            
            -Investment
      in subsidiaries
            
            
            -
            
            
            
            (6,759,371
            )Net
      cash (used) by investing activities
            
            
            (228,177
            )
            
            
            (7,165,977
            )Cash
      flows from financing activitiesProceeds
      from mortgage payable
            
            
            -
            
            
            
            -Proceeds
      from notes payable
            
            
            2,009,859
            
            
            
            5,287,500Payments
      on notes payable
            
            
            (386,921
            )
            
            
            (1,233
            )Cash
      Acquired through Acquisition
            
            
            
            
            
            
            899,102Net
      cash provided (used) by financing activities
            
            
            1,622,938
            
            
            
            6,185,369Effects
      of exchange rate changes
            
            
            (40,006
            )
            
            
            -Net
      increase (decrease) in cash
            
            
            (349,987
            )
            
            
            (4,370,650
            )Cash
      – beginning
            
            
            677,318
            
            
            
            5,047,968Cash
      – ending
            
            $
            327,332
            
            
            $
            677,318Supplemental
      disclosures:Interest
      paid
            
            $
            129,622
            
            
            $
            19,233Income
      Taxes paid
            
            $
            800
            
            
            $
            800Non-cash
      transactions:Stock
      and options issued for services
            
            $
            161,893
            
            
            $
            270,077Shares
      of stock issued
            
            $
            865,000
            
            
            $
            300,000Number
      of options issued
            
            
            1,000,000
            
            
            
            1,950,000Stock
      issued for settlement
            
            $
            -
            
            
            $
            1,200,000Shares
      of stock issued
            
            
            -
            
            
            
            -Stock
      issued for acquisition
            
            $
            -
            
            
            $
            2,934,000Shares
      of stock issued
            
            
            -
            
            
            
            11,800,000Amortization
      of stock issued for services
            
            $
            253,151
            
            
            $
            420,317Amortization
      of discount on notes payable
            
            $
            1,590,148
            
            
            $
            207,271Note
      Payable converted for common stock
            
            $
            100,000
            
            
            $
            -Shares
      of stock issued
            
            
            333,333
            
            
            
            -





The
accompanying notes are an integral part of these financial
statements
  F-5




ECOtality, Inc.




Notes
to Consolidated Financial Statements




Note
1 – History and organization of the company




The
Company was organized April 21, 1999 (Date of Inception) under the laws of
the State of Nevada, as Alchemy Enterprises, Ltd.  The Company was
initially authorized 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 its authorized capital to 25,000,000 shares with a par value of $0.001.
 On January 26, 2005, the Company amended its articles of
incorporation again, increasing authorized capital to 100,000,000 shares of
common stock with a par value of $0.001.  On March 1, 2006, the
Company amended its articles of incorporation, increasing authorized capital to
300,000,000 shares of common stock, each with a par value of $0.001, and
200,000,000 shares of preferred stock, each with a par value of
$0.001.




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




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




On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts.  It also offers consulting services on
establishing educational programs for all levels of educational
institutions.  FuelCellStore.com now operates as a wholly owned subsidiary
call ECOtality Stores, Inc.  See note 3 for further
information.




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




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




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




The
consolidated financial statements as of December 31, 2008 include the
accounts of ECOtality, Innergy Power Corporation, eTec, and Minit-Charger. 
All significant inter-company balances and transactions have been
eliminated.  ECOtality and its subsidiaries will collectively be referred
herein as the “Company”.




Note
2 – Going concern





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred a net loss of
$8,067,211 for the year ended December 31, 2008.  The Company has a
working capital of ($5,918,712) as of December 31, 2008 and has accumulated a
retained deficit of $36,337,624 since its date of inception.





These
conditions give rise to doubt about the Company’s ability to continue as a going
concern. These financial statements do not include adjustments relating to the
recoverability and classification of reported asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company’s continuation as a going
concern is dependent upon its ability to obtain additional financing or sale of
its common stock as may be required and ultimately to attain
profitability.




Note
3 – Summary of Significant Accounting Policies





Use of
estimates


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


Cash and
cash equivalents




F-6




For
financial statement presentation purposes, the Company considers short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.





Interest
income is credited to cash balances as earned. For the year ended December 31,
2008 and 2007 interest income was $17,184 and $57,525,
respectively.





Credit
Risk


Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits and accounts receivable. The Company
maintains cash and cash equivalent balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $100,000 for 2007 and
$250,000 for 2008.  Deposits with these banks may exceed the amount of
insurance provided on such deposits.  At December 31, 2008 and 2007, the
Company had approximately $0 and $250,000 in excess of FDIC insured limits,
respectively.





Accounts
Receivable


Accounts
receivable at December 31, 2008 was $1,963,073, and at December 31, 2007 was
$2,387,542. At December 31, 2008 we had two customers that represented in excess
of 10% of our receivable balance. The first, Factory Direct had a balance of
$387,060 that was remitted in January and March 2009, the second, American Wind
Power and Hydrogen had a balance of $206,000 which was paid in full in January
2009. The Company has not experienced material losses in the past from these or
any other significant customers and continues to monitor its exposures to
minimize potential credit losses.  The allowance for doubtful accounts
was $69,176 and $21,743 at December 31 2008 and 2007 respectively.





Impairment
of long-lived assets and intangible assets


The
Company follows the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” and SFAS No. 142, “Goodwill and other
intangible assets”, which addresses financial accounting and reporting for
acquired goodwill and other intangible assets. Management regularly reviews
property, equipment, intangibles and other long-lived assets for possible
impairment. This review occurs quarterly, or more frequently if events or
changes in circumstances indicate the carrying amount of the asset may not be
recoverable. If there is indication of impairment, then management prepares an
estimate of future cash flows expected to result from the use of the asset and
its eventual disposition. If these cash flows are less than the carrying amount
of the asset, an impairment loss is recognized to write down the asset to its
estimated fair value. Management believes that the accounting estimate related
to impairment of its property and equipment, is a “critical accounting estimate”
because: (1) it is highly susceptible to change from period to period
because it requires management to estimate fair value, which is based on
assumptions about cash flows and discount rates; and (2) the impact that
recognizing an impairment would have on the assets reported on our balance
sheet, as well as net income, could be material. Management’s assumptions about
cash flows and discount rates require significant judgment because actual
revenues and expenses have fluctuated in the past and are expected to continue
to do so. During the year ended December 31, 2008 and 2007, the Company had
impairment expense of $0 and $4,101,413, respectively.




Revenue
recognition


The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104 and Accounting Research Bulletin (ARB) 45. Revenue is
recognized when a formal arrangement exists, the price is fixed or determinable,
all obligations have been performed pursuant to the terms of the formal
arrangement and collectibility is reasonably assured.





Sales
related to long-term contracts for services (such as engineering, product
development and testing) extending over several years are accounted for under
the percentage-of-completion method of accounting under the American Institute
of Certified Public Accountants’ Statement of Position 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type Contracts .
Sales and earnings under these contracts are recorded based on the ratio of
actual costs incurred to total estimated costs expected to be incurred related
to the contract under the cost-to-cost method based budgeted milestones or tasks
as designated per each contract. Anticipated losses on contracts are recognized
in full in the period in which losses become probable and
estimable.





For all
other sales of product or services the Company recognizes revenues based on the
terms of the customer agreement.  The customer agreement takes the form of
either a contract or a customer purchase order and each provides information
with respect to the product or service being sold and the sales price.  If
the customer agreement does not have specific delivery or customer acceptance
terms, revenue is recognized at the time of shipment of the product to the
customer.





Warranty
Liability


The
Company warrants a limited number of Minit-Charger products against defects for
periods up to 33 months. The estimate of warranty liability is based on
historical product data and anticipated future costs. Should actual failure
rates differ significantly from our estimates, we record the impact of these
unforeseen costs or cost reductions in subsequent periods and update our
assumptions and forecasting models accordingly. At December 31, 2007 the
warranty reserve was $226,994. At December 31, 2008 the reserve was
$163,751.




F-7





Inventory


Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, or
market. Inventory includes material, labor, and factory overhead required in the
production of our products. Inventory obsolescence is examined on a regular
basis. The allowance for obsolescence as of December 31, 2008 and 2007 was
$167,487 and $293,934 respectively.





Advertising
costs


The
Company expenses all costs of advertising as incurred. Included in general and
administrative expenses for the year ended December 31, 2008 and 2007 were
advertising costs of $8,212 and $103,012 respectively.





Research
and development costs


Research
and development costs are charged to expense when incurred. For the year ended
December 31, 2008 and 2007, research and development costs were $292,709 and
$1,362,098, respectively.





Contingencies


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





Fair
Value of Financial Instruments


The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values based on their short-term nature. Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2008 and 2007.
 The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values.





Loss per
Common Share


Net loss
per share is provided in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS 128), “Earnings Per Share”. We present basic loss
per share (“EPS”) and diluted EPS on the face of statements of operations.
 Basic EPS is computed by dividing reported losses by the weighted average
shares outstanding.   Except where the result would be anti-dilutive to
income from continuing operations, diluted earnings per share has been computed
assuming the conversion of the convertible long-term debt and the elimination of
the related interest expense, and the exercise of stock warrants. Loss per
common share has been computed using the weighted average number of common
shares outstanding during the year. For the year ended December 31, 2008 and
2007, the assumed conversion of convertible long-term debt and the exercise of
stock warrants are anti-dilutive due to the Company’s net losses and are
excluded in determining diluted loss per share.





Foreign
Currency Translation FAS 52


In 2008,
a Company subsidiary, Portable Energy De Mexico operated outside the United
States and their local currency is their functional currency. The functional
currency is translated into U.S. dollars for balance sheet accounts using the
period end rates in effect as of the balance sheet date and the average exchange
rate for revenue and expense accounts for each respective period. The
translation adjustments are deferred as a separate component of stockholders'
equity, within other comprehensive loss, net of tax where
applicable.





In 2008,
a Company subsidiary, eTec, conducted a portion of their business in Canadian
Dollars. Because their functional currency is US dollars, the impact of the
translation was taken directly to the income statement and included in General
and Administrative expense.





Stock-Based
Compensation


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




Property
and Equipment


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





Equipment
            5-7
      yearsBuildings
            39
      years







F-8




Income
Taxes


The
Company has adopted the provisions of SFAS No. 109, “Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns.  Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred income tax expenses or benefits are based on the changes in the asset
or liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized.  A valuation
allowance is provided for those deferred tax assets for which the related
benefits will likely not be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of
change.





Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.





The
Company adopted FASB Interpretation Number 48, Accounting for Uncertainty in
Income Taxes, as of January 1, 2007. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in the companies’ financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. As a
result, the Company applies a more-likely-than-not recognition threshold for all
tax uncertainties. FIN 48 only allows the recognition of those tax benefits that
have a greater than fifty percent likelihood of being sustained upon examination
by the taxing authorities. As a result of implementing FIN 48, the Company
reviewed its tax positions and determined there were no outstanding, or
retroactive tax positions with less than a fifty percent likelihood of being
sustained upon examination, therefore the implementation of this standard has
not had a material affect on the Company.





The
Company does not anticipate any significant changes to its total unrecognized
tax benefits with the next twelve months. As of December 31, 2008 no income tax
expense has been incurred.





Dividends


The
Company has not adopted any policy regarding payment of dividends.  No
dividends have been paid or declared since inception.  For the foreseeable
future, the Company intends to retain any earnings to finance the development
and expansion of its business and it does not anticipate paying any cash
dividends on its common stock.  Any future determination to pay dividends
will be at the discretion of the Board of Directors and will be dependent upon
then existing conditions, including the Company’s financial condition and
results of operations, capital requirements, contractual restrictions, business
prospects and other factors that the board of directors considers
relevant.





Segment
reporting


SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance. Upon completion of FuelCellStores.com, Innergy Power Corporation,
Electric Transportation Engineering Corporation (eTec) and eTec’s Minit-Charger
business acquisitions from June through December 2007, the Company identified
its segments based on the way management expects to organize the Company to
assess performance and make operating decisions regarding the allocation of
resources. In accordance with the criteria in SFAS No. 131, “Disclosure
about Segments of an Enterprise and Related Information,” the Company has
concluded it has three reportable segments for the year ended December 31, 2008;
ECOtality Stores, DBA Fuel Cell Store segment, Innergy Power segment and eTec
segment. The ECOtality Stores segment is the online marketplace for fuel
cell-related products and technologies with online distribution sites in the
U.S., Japan, Russia, Italy and Portugal. The Innergy Power segment is comprised
of the sale of solar batteries and other solar and battery powered devices to
end-users. The eTec segment relates to sale of fast-charge systems for material
handling and airport ground support applications to the testing and development
of plug-in hybrids, advanced battery systems and hydrogen ICE conversions and
consulting revenues. This segment also includes the Minit-Charger business which
relates to the research, development and testing of advanced transportation and
energy systems with a focus on alternative-fuel, hybrid and electric vehicles
and infrastructures.  eTec holds exclusive patent rights to the eTec
SuperChargeTM and Minit-Charger systems - battery fast charge systems that allow
for faster charging with less heat generation and longer battery life than
conventional chargers. The Company has aggregated these subsidiaries into three
reportable segments: Ecotality/Fuel Cell Store, eTec and Innergy.





While
management is currently assessing how it evaluates segment performance, we
currently utilize income (loss) from operations, excluding depreciation of
corporate assets. We also exclude goodwill from segment assets. There were no
inter-segment sales during the year ended December 31, 2008.





Recent
Accounting pronouncements





In
September of 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”
(SFAS No. 157). SFAS No. 157 establishes a framework for measuring
fair value under generally accepted accounting procedures and expands
disclosures on fair value measurements. This statement applies under previously
established valuation pronouncements and does not require the changing of any
fair value measurements, though it may cause some valuation procedures to
change. Under SFAS No. 157, fair value is established by the price that
would be received to sell the item or the amount to be paid to transfer the
liability of the asset as opposed to the price to be paid for the asset or
received to transfer the liability. Further, it defines fair value as a market
specific valuation as opposed to an entity specific valuation, though the
statement does recognize that there may be instances when the low amount of
market activity for a particular item or liability may challenge an entity’s
ability to establish a market amount. In the instances that the item is
restricted, this pronouncement states that the owner of the asset or liability
should take into consideration what affects the restriction would have if viewed
from the perspective of the buyer or assumer of the liability. This statement is
effective for all assets valued in financial statements for fiscal years
beginning after November 15, 2007. Although SFAS No. 157 applies to and
amends the provisions of existing FASB and AICPA pronouncements, it does not, of
itself, require any new fair value measurements, nor does it establish valuation
standards.  SFAS No. 157 applies to all other accounting pronouncements
requiring or permitting fair value measurements, except for: SFAS No. 123(R),
share-based payment and related pronouncements, the practicability exceptions to
fair value determinations allowed by various other authoritative pronouncements,
and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue
recognition. The implementation of this standard did not have a material impact
on the Company's financial position results of operations or cash flows for the
year ended December 31, 2008.




F-9





In July
2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertain
Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109 “Accounting for Income Taxes”. It prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken, in
a tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The implementation of this standard did not have a
material impact on the Company’s financial position, results of operations or
cash flows for the year ended December 31, 2008.





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





Reclassifications


Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation.  These reclassifications had no
effect on previously reported results of operations or retained
earnings.





Year
end


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





Note 4- Acquisitions and
Goodwill




FuelCellStore.com
acquisition


On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts.  It also offers consulting services on
establishing educational programs for all levels of educational institutions.
FuelCellStore.com now operates as a wholly owned subsidiary called ECOtality
Stores, Inc. The acquisition has been accounted for under the purchase
accounting method pursuant to SFAS 141. Our consolidated financial statements
for the year ended December 31, 2008 and 2007 include the financial results of
ECOtality Stores, Inc. subsequent to the date of the acquisition.





The fair
value of the transaction was $539,000. The company paid $350,000 in cash and
issued 300,000 shares of common stock, which was valued at $189,000 based on the
closing market price on the date of the agreement.


The
aggregate purchase price was allocated to the assets acquired on their
preliminary estimated fair values at the date of the acquisition.  The
preliminary estimate of the excess of purchase price over the fair value of net
tangible assets acquired was allocated to identifiable intangible assets and
goodwill.  In accordance with U.S. generally accepted accounting
principles, we have up to twelve months from closing of the acquisition to
finalize the valuation.  The following table summarizes the preliminary
estimate of fair value of assets as part of the acquisition with ECOtality
Stores, Inc.:




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




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




F-10





Innergy Power Corporation
acquisition


On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and custom
solar-power and integrated solar-battery solutions for government, industrial
and consumer applications. The acquisition has been accounted for under the
purchase accounting method pursuant to SFAS 141. Our consolidated financial
statements for the year ended December 31, 2008 and 2007 include the financial
results of Innergy Power Corporation and its subsidiary subsequent to the date
of the acquisition.





The fair
market value of the transaction was $3,000,000. The Company issued 3,000,000
shares of the Company’s common stock for the acquisition.  The Company
guaranteed to the sellers that the shares would be worth $1 each ($3,000,000)
during the 30-day period commencing 11 months from the closing date. If the
shares were not worth $3,000,000, the company would be required to either (a)
issue additional shares such that the total shares are worth $3,000,000 at that
time or, (b) issue a total of 4,000,000 new shares, or (c) pay cash to the
seller such that the aggregate value of the 3,000,000 shares plus the cash given
would equal $3,000,000.





The
purchase price obligation was settled in full on October 17, 2008 with the
issuance of 4,000,000 shares of Ecotality’s $0.001 par value common
stock.




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




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




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







eTec
acquisition


On
November 6, 2007, the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec develops and
provides fast-charge systems designed for electric vehicle (EVs and PHEVs),
mobile material handling, airport ground support, and marine and transit
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. The acquisition has been accounted for
under the purchase accounting method pursuant to SFAS 141. Our consolidated
financial statements for the year ended December 31, 2007 include the financial
results of eTec subsequent to the date of the acquisition.





The fair
market value of the transaction was $5,437,193. The Company paid $2,500,000 in
cash, issued a $500,000 note payable, and issued 6,500,000 shares of the
company’s common stock for the acquisition, which was valued at $1,820,000 based
on the closing market price on the date of the agreement.  The total value
of the transaction also includes $217,193 in direct acquisition costs and the
subsequent Net Working Capital Adjustment discussed below.





The
$500,000 is payable was initially payable in monthly installments of $50,000
beginning December of 2007.  Payment of the balance of the note
payable remaining at December 31, 2008 was $235,253 and payment of this amount
has been deferred by the Sellers until April 20, 2009.





Included
in the purchase agreement was a Net Working Capital Adjustment which called for
an adjustment to the purchase price to be made via a post-Closing payment from
the Sellers to the Buyers or the Buyers to the Seller to the extent that the
actual Net Working Capital as of the Closing Date was more or less than the
agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented by the Sellers in August 2008 and a True Up
Payment of $400,000 from the Buyers to the Sellers was agreed to in full
satisfaction of this purchase agreement requirement. The resulting note payable
represents an adjustment of the purchase price, and as such has been recorded as
an increase to Goodwill of $400,000.





The
balance of the note payable attributable to the Working Capital True up as of
December 31, 2008 was $400,000.  The December 15, 2008 payment has
been deferred by the Sellers until April 20, 2009.





The
aggregate purchase price, including the Working Capital Adjustment above, has
been allocated to the assets acquired and liabilities assumed on their
preliminary estimated fair values at the date of the acquisition. The
preliminary estimate of the excess of purchase price over the fair value of net
tangible assets acquired has been allocated to identifiable intangible assets
and goodwill. In accordance with U.S. generally accepted accounting principles,
we have up to twelve months from closing of the acquisition to finalize the
valuation. The purchase price allocation is preliminary, pending finalization of
our valuation of certain liabilities assumed. The following table summarizes the
preliminary estimate of fair value of assets as part of the acquisition with
eTec.




F-11




2007Tangible
      assets acquired, net of liabilities assumed
            
            $
            1,941,315Goodwill
            
            
            3,495,878$
            5,437,193




In
accordance with SFAS No. 144, “Accounting for the impairment or disposal of long
lived assets”, the Company reviewed the goodwill for impairment. Due to a proven
track record of cash flows generated by the assets acquired, no impairment was
taken during the year ended December 31, 2007 or 2008.




Minit-Charger
acquisition


On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. Minit-Charger makes products that enable fast charging of
mobile material handling equipment using revolutionary proprietary technologies.
The acquisition has been accounted for under the purchase accounting method
pursuant to SFAS 14.





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





The fair
value of the common stock given, based on the closing price of the Company’s
common stock on December 31, 2007, was $370,000. A liability for the balance of
$1,630,000 based on the December 31 closing price was recorded as a current
liability for purchase price on the consolidated balance sheet as of December
31, 2007. This liability has been adjusted to reflect the actual obligation due
of $1,880,000 on the December 31, 2008 balance sheet.   This
obligation totals the $2,000,000 remaining purchase price obligation multiplied
by $0.94 (the difference between $1.00 and the VWAP of $0.06 for the thirty days
prior to the true up date of December 15, 2008).





Included
in the purchase agreement with Edison was a Net Working Capital Adjustment which
called for an adjustment to the purchase price to be made via a post-Closing
payment from the Sellers to the Buyers or the Buyers to the Seller to the extent
that the actual Net Working Capital as of the Closing Date was more or less than
the agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented to the Sellers in April 2008. Based on this
reconciliation and additional documentation and updates from both parties a true
up payment of $390,174 was received in December 2008 in full satisfaction of
this obligation.  This True Up represents an adjustment of the
purchase price. As all goodwill associated with the MinitCharger acquisition was
impaired and written down to $0 in year ended December 31, 2007, the $390,174
has been recorded as other income in our eTec business segment for the year
ended December 31, 2008.





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




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




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




Pro forma
financial statements





The
unaudited pro forma consolidated statement of operations for the three months
and nine months ended September 30, 2008 and 2007 combine the historical results
of ECOtality, Inc and the unaudited pro forma results of the four companies
acquired during 2007 and gives effect to the acquisitions as if they occurred on
January 1, 2007.  Pro
forma adjustments have been made related to impairment of goodwill. The pro
forma consolidated results do not purport to be indicative of results that would
have occurred had the acquisition been in effect for the periods presented, nor
do they claim to be indicative of the results that will be obtained in the
future, and do not include any adjustments for cost savings or other synergies
achieved in the consolidations of the companies.




F-12





The
following table contains our results for the year ended December 31, 2008 and
unaudited pro forma results for the year ended December 31, 2007 as if the
acquisitions had occurred on January 1, 2007:





Year
      Ended December 31,2008
            
            
            2007Reported
            
            
            Reported
            
            
            Pro FormaNet
      Revenues
            
            $
            11,187,384
            
            
            $
            2,588,658
            
            
            $
            13,723,131Net
      Income (loss)
            
            $
            (8,067,211
            )
            
            $
            (13,691,964
            )
            
            $
            (15,587,966
            )Net
      (loss) per share-basic and fully diluted
            
            $
            (0.06
            )
            
            $
            (0.12
            )
            
            $
            (0.14
            )





F-13




Note
5 – Fixed assets




Fixed
assets as of December 31, 2008 and 2007 consisted of the
following:





At
      December 31
            
            
            At
      December 31,2008
            
            
            2007Equipment
            
            $
            3,143,273
            
            
            $
            3,350,128Buildings
            
            
            575,615
            
            
            
            617,765Vehicles
            
            
            1,600,849
            
            
            
            1,589,315Furniture
      and fixtures
            
            
            47,409
            
            
            
            47,957Leasehold
      improvements
            
            
            470,380
            
            
            
            306,280Computer
      Software
            
            
            78,655
            
            
            
            -5,916,181
            
            
            
            5,911,445Less:
      accumulated depreciation
            
            
            (4,283,866
            )
            
            
            (3,884,303
            )$
            1,632,315
            
            
            
            2,027,142





Depreciation
expense totaled $615,960 and $197,185, for the years ended December 31,
2008 and 2007 respectively.




Note
6 – Notes payable




For the
year ended December 31, 2007:





On
January 16, 2007, the Company purchased an office building for an aggregate
price of $575,615. $287,959 in cash was paid and the remaining balance of
$287,500 was structured as an interest-only loan. The loan bears an interest
rate of 6.75% calculated annually, with monthly interest-only payments due
beginning on February 16, 2007.  The entire principal balance is due
on or before January 16, 2012 and is recorded as a long-term note payable
on the consolidated financial statements.





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




For the
year ended December 31, 2008:





During
2007, the Company incurred a $500,000 note payable to the previous owners of
eTec through the acquisition of eTec. The loan is payable in ten monthly
installments of $50,000 each. See note 4 for details. As of December 31, 2008,
$235,253 was owed and recorded as an accrued liability on the consolidated
financial statements.





During
2007, the Company acquired a note payable in the acquisition of eTec. The note
related to a vehicle that was also acquired in the acquisition. In the year
ended December 31, 2008 the vehicle had been sold and the related note payable
was paid in full.





In
November and December of 2007, the Company received gross proceeds of $5,000,000
in exchange for a note payable of $5,882,356 as part of a private offering of 8%
Secured Convertible Debentures (the “Debentures”).  The debentures were
convertible into common stock at $0.30 per share. Debenture principal payments
were due beginning in May and June of 2008 (1/24th of the outstanding amount is
due each month thereafter). In connection with these debentures, the Company
issued debenture holders warrants (“the Warrants”) to purchase up to 9,803,925
shares of the Company’s common stock with an exercise price of $0.32. The
warrants were exercisable immediately upon issue. The Warrants expire five years
from the date of issue.  The aggregate fair value of the Warrants equaled
$2,272,942 based on the Black-Scholes pricing model using the following
assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, and strike price of
$0.32, market price of $0.22-$0.32, no yield, and an expected life of 912 days.
The gross proceeds received were bifurcated between the note payable and the
warrants issued and a discount of $3,876,256 was recorded. The discount is being
amortized over the loan term of two and one half years.  As of December 31,
2008, a total of $1,797,419 had been amortized and recorded as interest expense
and $2,078,836 remains as the unamortized discount.  See note 8 for
additional discussion regarding the issuance of warrants.





On August
29, 2008 the Company signed an Amendment to the Debenture agreements deferring
the payments indicated above. The purpose of the agreement is to provide the
Company time to fund its working capital requirements internally through organic
growth as well as to obtain both short and long term funding through equity
financing and other sources of capital.




F-14





The
waiver, deferment agreement aligns with the Company’s short term working capital
plan and provides time to achieve company objectives in this regard. In exchange
for the Amendment to the Debentures, the Company agreed to:




A.
              Waiver
      of interest payments due between May-December
  2008




B.
              Deferment
      of monthly redemptions for the period May-December
  2008.
 
 C.
              Increase
      to the outstanding principal amount plus accrued interest though December
      31, 2008 for the debentures by 120% as of the effective date of the
      agreement.
 D.
              Reset
      of the common stock conversion rate from $0.30 to
$0.15.
 E.
              Commencement
      of principal payments starting January 1, 2009 with no change to the
      redemption period (May 2010)
 F.
              Commencement
      of interest payments @ 8% per year April 1, 2009 (first payment
      due).
  G.
              Inclusion
      of make whole provisions to reset common stock warrant conversion prices
      to the value used to “true-up” both the Innergy Power Company and
      Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
      For both of these acquisitions the Sellers were issued shares which the
      Company guaranteed would be worth $1.00 per share for the thirty days
      prior to the anniversary date of the purchase. This guarantee requires the
      issuance of additional shares or payment in cash for the difference in the
      share price on the respective anniversary dates. In the case of Innergy,
      the number of required “true up” shares is capped at
      4,000,000.
 H.
              Inclusion
      of further make whole provisions to issue additional warrants adequate to
      maintain the pro rata debenture ownership % when fully diluted as per
      schedule 13 in the waiver
agreement.
 
 I.
              Compliance
      with covenants per quarterly public reports issued for the periods ending
      June 30, September 30, and December 31, 2008 for the
      following:
 1.
              Net
      cash used
 2.
              Current
      ratio adjusted for non-cash
liabilities
 3.
              Corporate
      Headquarters accounts payable
amount




The total
impact to the financial statements for the provisions of the waiver noted above
were estimated at $3,205,985 and expensed over the waiver period of August 29,
2008 to December 31, 2008. The calculations for the cost of the waiver were as
follows:





1)
            The
      increase to principal of $1,559,859 (see letter “C” above) was added to
      the long term note and $1,157,315 (the increase to principal less
      previously accrued interest) was expensed ratably over the waiver
      period.





2)
            The
      estimated change in value of the original 9,803,925 debenture warrants
      related to the pending reset of the exercise price (see letter “G” above)
      was calculated by using the Volume Weighted Average Price (VWAP) for the
      most recent 30 days prior to September 30, 2008 of $0.08 as the estimated
      new exercise price following the reset and the warrants were valued first
      at their current exercise price then at the estimated new price using the
      Black Scholes Model using the following assumptions: Strike Price $0.32
      (old) and $0.08 (new), Stock Price $0.10 (price on date of agreement),
      time 780 days for November Warrants and 795 for December Warrants,
      Volatility 146.39%, Risk Free Interest Rate 3.83%. The increase in value
      calculated totaled $207,941.





3)
            The
      estimated number of additional warrants required to be issued to true up
      to the original aggregate exercise price for the November and December
      Warrants (see letter “G” above) following the reset of the exercise price
      was calculated using the difference between the current aggregate exercise
      price of $3,137,256 (9,803,925 total warrants at original exercise price
      $0.32), and the new aggregate exercise price of $784,314 following the
      reset of the exercise price to $0.08. This difference totaled $2,352,942
      requiring the issuance of an estimated 29,411,775 warrants (at $0.08) to
      maintain the previous aggregate exercise price. The new warrants were
      valued at $1,438,235 using the Black Scholes Model with the following
      assumptions: Strike Price $0.08, Stock Price $0.07 (price at September 30,
      2008), time 753 days, Volatility 146.39%, Risk Free Rate
      3.83%.




F-15




On
October 17, 2008, the Company satisfied in full its purchase price obligations
related to our Innergy acquisition.  The purchase obligation was
satisfied through the issuance of 4,000,000 shares, which were valued at
$0.06.  This purchase price true up triggered the make whole
provisions (see “G” and “H”) above, requiring a change to the conversion rate of
the debenture debt and to the strike price of the existing debenture warrants to
match the valuation of the new shares issued to Innergy.  Our waiver
agreement further calls for the issuance of new warrants to ensure the debenture
holders maintain the same aggregate exercise price following the change to the
exercise price.





The total
impact to the financial statements related to the make whole provisions which
were triggered in October was a favorable ($410,061) reduction to interest
expense.  This result was favorable despite the issuance of additional
warrants as the revaluation was based on warrants with a lower exercise price on
shares with a lower share price at the time of the revaluation. The calculations
for the cost of the make whole provisions are outlined below:





1)
            The
      estimated change in value of the restated original 9,803,925 debenture
      warrants related to the reset of the exercise price from $0.08 to $0.06
      (the price at which the Innergy “true up” was executed) was calculated by
      using $0.06 as the new exercise price following the reset and revaluing
      the warrants using the Black Scholes Model using the following
      assumptions: Strike Price $0.06, Stock Price $0.10, time 780 days for
      November Warrants and 795 for December Warrants, Volatility 146.39%, Risk
      Free Interest Rate 3.83%. The increase in value calculated totaled $35,001
      and was charged to interest
expense.





2)
            A
      second calculation was done to estimating the change in value of the
      29,411,775 new warrants related to the August waiver, and to add another
      $8,351,492 warrants required to maintain the aggregate exercise price
      following the change in exercise price from $0.08 to $0.06.  The
      valuations were made using the Black Scholes Model with the following
      assumptions: Strike Price $0.06, Stock Price $0.04, time 753 days,
      Volatility 146.39%, Risk Free Rate 3.83%. The impact of these calculations
      was ($445,061), booked in December 2008 as a reduction to interest
      expense.





On
August 29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn
Forbes agreed to provide the Company a line of credit for up to $650,000. This
Line is secured by a second position on receivables (junior to previously issued
debentures). During the year ended December 31, 2008, $450,000 was advanced by
Mr. Karner and Ms. Forbes. Further advances above $450,000 were contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carries a loan fee of $45,000 payable when the line expires.  The
line was originally scheduled to expire December 15, 2008, but has been extended
to April 20, 2009 by the Lenders.  In consideration of the extension,
an interest fee of $50,000 was paid to the Lenders in December
2008.  No other interest payments or fees are required under the
agreement. The fee of $45,000 was expensed in full as of December 31,
2008.  All amounts advanced under the Line were due and
payable December 15, 2008. The balance of the note payable was $450,000 at
December 31, 2008. We are currently in default of this obligation.




We are in
default with our obligations  to Mr Karner (former director) with respect
to the bridge loan and acquisition agreement and as of this filing we
are negotiating a waiver of the default with Mr Karner.  However,
these negotiations have not been completed.  If the waiver is not obtained
from Mr Karner, we may be in default with our debenture holders.  Should we
not be able to obtain the waiver, we may be declared in default by our debenture
holders.  However, there is a cure period for the default. 
Our financial statements do not reflect the potential
default




Note
7 – Stockholders’ equity




The
Company is authorized to issue 300,000,000 shares of its $0.001 par value common
stock and 200,000,000 shares of $0.001 par value preferred stock.




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




In
February of 2007, the Company entered into a settlement Agreement and
release to the Technology Contribution Agreement, originally entered into on
February 15, 2006, to settle and resolve all known disputes and
uncertainties between the Company 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 the Intellectual Property transferred in the Contribution
Agreement.  In consideration, the Company agreed to pay to Foote, Winfield
and UPV cash in the amount of $600,000.  Additionally, the Parties received
common stock in the aggregate amount of 1,500,000 shares of the Company, as per
a separate escrow agreement between Foote, Winfield and Mr. Harold Sciotto,
an officer and director of the Company. The shares were owned by
Mr. Sciotto and not the company. The escrow also provided for: (1) the
immediate release from escrow and return to Harold Sciotto of 32,500,000 shares
of our common stock; and (2) the immediate release to ECOtality of
6,000,000 shares of our common stock from escrow for cancellation.
 The 6,000,000 shares were cancelled immediately upon receipt at their par
value amount of $6,000 and that paid in capital was reduced by that amount.
 The shares transferred were valued at $1,200,000, which was based upon
market value at the time of the transaction and have been reflected, along with
the cash paid of $600,000 as settlement expense in our financial
statements.  Settlement expenses totaled $1,800,000 for the year ended
December 31, 2007.




F-16




During
the year ended December 31, 2007, the Company issued 11,800,000 shares in
four different acquisitions.  See Note 4 for further
information.




During
the year ended December 31, 2007, the Company issued a total of 750,000
shares of common stock to employees as an incentive. The stock was valued at the
current market price at the date of issue for a total of $316,000.  Of this
amount $91,000 was expensed and $225,000 was recorded as unamortized cost of
stock issued for services to be amortized over the periods of the related
agreements.  During the year ended December 31, 2007, $112,500 has
been amortized and $112,500 remains in unamortized cost of stock issued for
services.  During the year ended December 31, 2008 the remaining
$112,500 has been amortized.




During
the year ended December 31, 2007, the Company signed an employment
agreement with the CEO of the Company.  The Company agreed to issue a total
of 1,000,000 options for shares of common stock currently and issue another
1,000,000 options to him one year from the date of the agreement.  The
options issued in 2007 have a term of ten years and a strike price of
$0.30.  The aggregate fair value of the Warrants equals $281,300 based on
the Black-Scholes pricing model using the following assumptions: 3.95% risk free
rate, 162.69% volatility, strike price of $0.30, market price of $0.32, no
yield, and an expected life of 5 years.  This amount was recorded as
unamortized cost of stock issued for services to be amortized over the two-year
period of the agreement.  During the year ended December 31, 2007,
$23,442 has been amortized into expense and $257,858 remains in unamortized cost
of stock issued for services.  $140,650 was amortized in 2008 and
$117,208 remains in unamortized cost of stock issued for services. The
options to be issued in 2008 were treated as earned equally over the two-year
term of the agreement so that 83,334 of these options were earned as of
December 31, 2007.  Those options were valued using the Black-Scholes
pricing model using the same assumptions and valued at $14,442.  This
amount was expensed during the year ended December 31,
2007.   These options earned in 2008 were valued at $55,168 using
the Black Scholes pricing model.




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




During
the year ended December 31, 2007, the Company issued a total of 790,000
shares of common stock to consultants for services. The stock was valued at the
current market price at the date of issue for a total of $400,400.  This
amount was recorded as a prepaid expense for services to be amortized over the
periods of the related agreements.  During the year ended December 31,
2007, $284,375 has been amortized and $116,025 remains in prepaid
expenses.  During the year ended December 31, 2008 $116,025 was
amortized and $0 remains in prepaid expenses.




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




During
2006, the Company had issued warrants to purchase shares of the Company’s par
value common stock to the brokers of Brookstreet Securities Corporation as
additional consideration for their acting as placement agent. Pursuant to this
agreement, the Company had been obligated to issue registration rights penalty
shares to the subscribers if the underlying shares were not registered by
April 5, 2007.  The Company was obligated to issue 344,999 shares per
week for a maximum of 10 weeks for a total of 3,449,990 shares.  These
shares were issued on November 2, 2007 and valued at $1,069,498 based on
the market price over the period of time the penalty was being accrued. 
For the year ended December 31, 2007, a registration rights penalty expense
of $1,069,498 has been recorded.




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





During
the year ended December 31, 2008, the Company signed various agreements
with the employees and consultants of the Company.  The Company agreed
to issue a total of 865,000 shares in connection with these
agreements.  The shares were valued at market at $106,725 and expensed
in the year ended December 31, 2008.





During
the year ended December 31, 2008, a debenture holder, BridgePointe, elected to
convert a portion of their principal to shares at the conversion rate in affect
at that time of $0.30 per share.  $100,000 of principal was converted
to 333,332 shares





On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. The fair market value of the transaction was $3,000,000. The Company issued
3,000,000 shares of the Company’s common stock for the acquisition.  The
Company guaranteed to the sellers that the shares would be worth $1 each
($3,000,000) during the 30-day period commencing 11 months from the closing
date. If the shares were not worth $3,000,000, the company would be required to
either (a) issue additional shares such that the total shares are worth
$3,000,000 at that time or, (b) issue a total of 4,000,000 new shares, or (c)
pay cash to the seller such that the aggregate value of the 3,000,000 shares
plus the cash given would equal $3,000,000. On October 17, 2008, 4,000,000
shares were issued to Innergy Power Corporation in full satisfaction of our
purchase obligation to them.




F-17




There is
no preferred stock issued or outstanding as of December 31, 2007 or
December 31, 2008.




Note
8 – Options and Warrants






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




In
November and December of 2007, the Company issued debenture holders
warrants to purchase up to 9,803,925 shares of the Company’s common stock with
an exercise price of $0.32. The Warrants expire in five years from the date of
issue.





During
the year ended December 31, 2007, the Company signed an employment
agreement with the CEO of the Company.  The Company agreed to issue a total
of 1,000,000 options for shares of common stock currently and issue another
1,000,000 options to him one year from the date of the agreement.  The
options issued in 2007 have a term of ten years and a strike price of
$0.28.  The aggregate fair value of the Warrants equals $281,300 based on
the Black-Scholes pricing model using the following assumptions: 3.95% risk free
rate, 162.69% volatility, strike price of $0.30, market price of $0.32, no
yield, and an expected life of 5 years.  This amount was recorded as
unamortized cost of stock issued for services to be amortized over the two-year
period of the agreement.  During the year ended December 31, 2007,
$23,442 has been amortized into expense and $257,858 remains in unamortized cost
of stock issued for services rendered in 2008.  The options to be issued in
2008 were treated as earned equally over the two-year term of the agreement so
that 83,334 of these options were earned as of December 31, 2007. $140,650
was amortized in 2008 and $117,208 remains in unamortized cost of stock
issued for services.  Those options were valued using the Black-Scholes
pricing model using the same assumptions and valued at $14,442.  This
amount was expensed during the year ended December 31, 2007.  The
remainder of the options will be expensed over the two-year term of the
agreement as they are earned. For the year ended December 31, 2008, $30,005 was
expensed as earned.




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




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




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





The
November and December debenture warrants issues in year ending December 31, 2007
were covered by the 2008 Debenture Waiver documents and as such were subject to
the reset provisions outlined in Note 6 (A-I).  In October 2008 these
warrants were reset to an exercise price of $0.06 and additional “make whole”
warrants were issued to allow the denture holders to true up to the previous
aggregate exercise price (original number of warrants extended at previous
higher exercise price vs. the lower true up price triggered by the Innergy true
up make whole provision.).  This reset led to the issuance of an
additional 37,763,267 warrants attributable to the November and December
Warrants with an exercise price of $0.06.  See Note 6 for
valuation.





F-18




Number
            
            
            
            Weighted-AverageOf
      Shares
            
            
            
            Exercise
      PriceOutstanding
      at December 31, 2006
            
            
            8,799,982
            
            
            $
            0.57Granted
            
            
            11,753,925
            
            
            $
            0.31Exercised
            
            
            (1,478,445
            )
            
            $
            0.35Cancelled
            
            
            0
            
            
            $
            0.00Outstanding
      at December 31,2007
            
            
            19,075,462
            
            
            $
            0.42Granted
            
            
            38,763,267
            
            
            $
            0.06Exercised
            
            
            0
            
            
            $
            0.00Cancelled
            
            
            0
            
            
            $
            0.00Outstanding
      at December 31, 2008
            
            
            57,838,729
            
            
            $
            0.16




STOCK
      WARRANTS OUTSTANDINGNumber
      of
            
            
            Weighted-Average
            
            
            Weighted-Range
      of
            
            
            Shares
            
            
            Remaining
            
            
            AverageExercise
      Prices
            
            
            Outstanding
            
            
            Contractual Life
      in Years
            
            
            Exercise
      Price$
            0.35
            
            
            
            5,421,537
            
            
            
            2.83
            
            
            $
            0.35$
            1.24
      - $1.42
            
            
            
            1,900,000
            
            
            
            2.55
            
            
            $
            1.36$
            0.06
            
            
            
            32,777,304
            
            
            
            3.83
            
            
            $
            0.06$
            0.06
            
            
            
            14,789,888
            
            
            
            3.92
            
            
            $
            0.06$
            0.28
            
            
            
            1,000,000
            
            
            
            8.83
            
            
            $
            0.28$
            0.19
            
            
            
            950,000
            
            
            
            9.00
            
            
            $
            0.19$
            0.04
            
            
            
            1,000,000
            
            
            
            9.83
            
            
            $
            0.0457,838,729
            
            
            
            3.99
            
            
            $
            0.14




STOCK
      WARRANTS EXERCISABLENumber
      of
            
            
            Weighted-Range
      of
            
            
            Shares
            
            
            AverageExercise
      Prices
            
            
            Exercisable
            
            
            Exercise
      Price$
            0.35
            
            
            
            5,421,537
            
            
            $
            0.35$
            1.24
      - $1.42
            
            
            
            1,900,000
            
            
            $
            1.36$
            0.06
            
            
            
            32,777,304
            
            
            $
            0.06$
            0.06
            
            
            
            14,789,888
            
            
            $
            0.06$
            0.28
            
            
            
            1,000,000
            
            
            $
            0.28$
            0.19
            
            
            
            950,000
            
            
            $
            0.19$
            0.04
            
            
            
            1,000,000
            
            
            $
            0.0457,838,729
            
            
            $
            0.14





Note
9 – Income Taxes





For the
years ended December 31, 2008 and 2007, the Company incurred net operating
losses and accordingly, no provision for income taxes has been recorded. In
addition, no benefit for income taxes has been recorded due to the uncertainty
of the realization of any tax assets.  At December 31 2008 and 2007
the Company had approximately $19,5000,000 and $11,500,000 of federal and state
taxable The net operating loss carry-forward, if not utilized, will begin to
expire in 2009.








As
      of December 31, 2008
            
            2008
            
            
            2007Net
      Operating Loss Carry forward
            
            $
            6,825,000
            
            
            $
            3,910,000Less:
      Valuation allowance
            
            $
            (6,825,000
            )
            
            $
            (3,910,000
            )Balance:
            
            $
            0
            
            
            $
            0





For
financial reporting purposes, the Company has incurred a loss since inception to
December 31, 2008.  Based on the available objective evidence,
including the Company’s history of losses, management believes it is more likely
than not that the deferred tax asset will not be fully realized and has
therefore provided a valuation allowance for the full amount of the deferred tax
assets.




The
federal and state statutory income tax rate of 35% has been fully offset by the
change in the valuation allowance during the years ended December 31, 2008
and 2007.  The effective income tax rate of the Company over these years is
0%.




F-19






Note 10
– Commitments and contingencies




As of
December 31, 2008, the Company has four leases in effect for operating
space.  Future obligations under these commitments are $209,186 for 2009,
$203,413 for 2010, $95,978 for 2011 and 98,060 for 2012 and $41,225 for
2013.




In
June of 2006, the Company entered into a License Agreement with California
Institute of Technology, whereby the Company obtained certain exclusive and
non-exclusive intellectual property licenses pertaining to the development of an
electronic fuel cell technology.  The License Agreement carries an annual
maintenance fee of $50,000, with the first payment due on or about June 12,
2009.  The License Agreement carries a perpetual term, subject to default,
infringement, expiration, revocation or unenforceability of the License
Agreement and the licenses granted thereby.




Note 11
– Segment Reporting




SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance.  Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) and eTec’s
Minit-Charger business acquisitions from June through December 2007,
the Company identified its segments based on the way management expects to
organize the Company to assess performance and make operating decisions
regarding the allocation of resources.   In accordance with the
criteria in SFAS No. 131, “Disclosure about Segments of an Enterprise and
Related Information,” the Company has concluded it has three reportable segments
for the year ended December 31, 2007; ECOtality/ECOtality Stores segment,
Innergy Power segment and eTec segment. The ECOtality/ECOtality Stores segment
is the online marketplace for fuel cell-related products and technologies with
online distribution sites in the U.S., Japan, Russia, Italy and Portugal. 
The Innergy Power segment is comprised of the sale of solar batteries and other
solar and battery powered devices to end-users. The eTec segment relates to sale
of fast-charge systems for material handling and airport ground support
applications to the testing and development of plug-in hybrids, advanced battery
systems and hydrogen ICE conversions and consulting revenues.  This segment
also includes the Minit-Charger business which relates to the research,
development and testing of advanced transportation and energy systems with a
focus on alternative-fuel, hybrid and electric vehicles and
infrastructures.  eTec holds exclusive patent rights to the eTec
SuperChargeTM and Minit-Charger  systems - battery fast charge systems that
allow for faster charging with less heat generation and longer battery life than
conventional chargers.  The Company has aggregated these subsidiaries into
three reportable segments: ECOtality/Fuel Cell Store, eTec and
Innergy.




The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 2 of this Form 10-K.
Management is currently assessing how it evaluates segment performance, and
currently utilize income (loss) from operations, excluding share-based
compensation (benefits), depreciation and intangibles amortization and income
taxes. There were no inter-segment sales during the year ended December 31,
2008.




Summarized
financial information concerning the Company’s reportable segments for the year
ended December 31, 2007 and 2008 is as follows:




Year Ended
              
              ECOtality/
              
              
              
              
              
              eTec/December 31, 2007
              
              Fuel Cell Store
              
              
              Innergy
              
              
              Minit-Charger
              
              
              TotalTotal
      net operating revenues
              
              $
              769,986
              
              
              $
              716,406
              
              
              $
              1,102,266
              
              
              $
              2,588,658Depreciation
      and amortization
              
              
              134,756
              
              
              
              6,259
              
              
              
              56,170
              
              
              
              197,185Operating
      income (loss)
              
              
              (8,809,018
              )
              
              
              (2,461,500
              )
              
              
              (1,124,362
              )
              
              
              (12,394,880
              )Interest
      expense
              
              
              (284,754
              )
              
              
              —
              
              
              
              (358
              )
              
              
              (285,112
              )Interest
      income
              
              
              56,288
              
              
              
              1,223
              
              
              
              14
              
              
              
              57,525Registration
      rights penalty expense
              
              
              (1,069,497
              )
              
              
              —
              
              
              
              —
              
              
              
              (1,069,497
              )Income
      (loss) before income tax
              
              
              (10,106,981
              )
              
              
              (2,460,277
              )
              
              
              (1,124,706
              )
              
              
              (13,691,964
              )Income
      tax provision (benefit)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
      assets
              
              
              6,144,355
              
              
              
              694,921
              
              
              
              4,814,749
              
              
              
              11,654,025





YEAR
      ENDED DECEMBER 31, 2008ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            8,072,664
            
            
            $
            2,324,170
            
            
            $
            790,549
            
            
            $
            11,187,383Depreciation
      and amortization
            
            $
            470,929
            
            
            $
            6,229
            
            
            $
            3,560
            
            
            $
            480,718Operating
      income (loss)
            
            $
            (528,193
            )
            
            $
            (40,368
            )
            
            $
            49,859
            
            
            $
            (518,702
            )Interest
      Income
            
            $
            9,632
            
            
            $
            519
            
            
            $
            -
            
            
            $
            10,151Gain
      / (Loss) on disposal of assets
            
            $
            (95
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (95
            )Other
      Income - Working Capital True Up
            
            $
            364,645
            
            
            $
            -
            
            
            $
            -
            
            
            $
            364,645Segment
      Income before Corporate Overhead Allocation
            
            $
            (154,011
            )
            
            $
            (39,849
            )
            
            $
            49,859
            
            
            $
            (144,001
            )Corporate
      Overhead Allocation
            
            $
            5,721,432
            
            
            $
            1,534,970
            
            
            $
            531,566
            
            
            $
            7,787,968Segment
      Income / (Loss)
            
            $
            (5,875,443
            )
            
            $
            (1,574,819
            )
            
            $
            (481,707
            )
            
            $
            (7,931,969
            )Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            135,241Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (8,067,210
            )Capital
      Expenditures
            
            $
            251,260
            
            
            $
            12,025
            
            
            $
            -
            
            
            $
            263,285Total
      segment assets - excluding intercompany receivables
            
            $
            3,637,112
            
            
            $
            512,532
            
            
            $
            158,599
            
            
            $
            4,308,243Other
      items Not included in Segment Assets:Goodwill
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            3,495,878Other
      Corporate Assets
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,022,336Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,826,457




F-20




NOTE
12 – Related Party Transactions




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




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





On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line is
secured by a second position on receivables (junior to previously issued
debentures). During the 9 months ended September 30, 2008, $300,000 was advanced
by Mr. Karner and Ms. Forbes. Further advances above $450,000 are contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carries a loan fee of $45,000 payable when the line expires on December 15,
2008. No other interest payments or fees are required under the agreement. The
fee of $45,000 is being expensed over the life of the Line. All amounts advanced
under the Line were due and payable December 31, 2008. The balance of the note
payable was $450,000 at December 31, 2008. We are currently in default on this
obligation




Note
13 – Subsequent Events




On
March 5, 2009 we entered in to an Agreement entitled “Amendment to Debentures
and Warrants, Agreement and Waiver” (the “Agreement”) restructuring
our equity with the institutional debt holders of the our Original Issue
Discount 8% Senior Secured Convertible Debentures, dated November 6, 2007 (the
“November 2007 Debentures”) (aggregate principal amount equal to
$4,117,649) and with our debt holder of our Original Issue Discount 8% Secured
Convertible Debentures, dated December 6, 2007 (the “December 2007
Debenture”) (aggregate principle amount equal to
$1,764,707).  The November and December 2007 Debentures are held by
Enable Growth Partners LP (“EGP”), Enable Opportunity Partners LP (“EOP”),
Pierce Diversified Strategy Master Fund LLC, Ena (“Pierce”), and BridgePointe
Master Find Ltd  (“BridgePointe”)(individually referred to as “Holder”
and collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.





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





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





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





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




F-21




D.
            The
      right to recommend for placement on the Company's Board of Directors, a
      nominee by either BridgePointe or BridgePointe’s investment manager
      Roswell Capital Partners LLC. Such a recommendation shall meet the
      Company’s requirements as set forth in the Company’s Bylaws and all
      applicable federal and state law. The nominee shall serve until such time
      as the Company has redeemed the
debentures.





E.
            All
      outstanding Warrants (defined in the Securities Purchase Agreements dated
      November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
      as consideration for the current or prior Amendments to the November 2007
      Debentures and the December 2007 Debentures shall be amended to have an
      exercise price of $0.06 (to the extent that such exercise price was
      previously above $0.06), and the expiration dates shall be extended to May
      1, 2014.





F.
            Use
      best efforts to obtain stockholder approval of an increase in the
      authorized number of shares of common stock of the Company.  The
      proposal shall increase the number of authorized common shares from
      300,000,000 to 500,000,000.





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





We
believe this latest extension is timely and consideration appropriate, given the
growing and significant potential opportunities to successfully achieve our
capital objectives based on the strength and appeal of our products and
technical expertise in the electric vehicle microclimate infrastructure
environment.





In
January 2009 the company issued 31,333,333 shares to Edison Enterprises in full
satisfaction of our purchase price obligation to them relating to our
acquisition of the Edison Minit-Charger business in 2007.




F-22




CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS




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




During
the Registrant’s two most recent fiscal years and during any subsequent interim
periods preceding the date of termination, there were no disagreements with
Beckstead and Watts, LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to Beckstead and Watts, LLP’s satisfaction,
would have caused them to refer to the subject matter of the
disagreement(s) in connection with their report; and there were no
“reportable events” as defined in Item 304 (a)(1)(v) of the Securities and
Exchange Commission’s Regulation S-K.




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




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




CONTROLS
AND PROCEDURES





Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures




We
maintain a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by us in the reports filed under the
Securities Exchange Act, is recorded, processed, summarized and reported within
the time periods specified by the Commission’s rules and forms.
 Disclosure controls are also designed with the objective of ensuring that
this information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure.  We evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this report. As a result of this evaluation, we
concluded that our disclosure controls and procedures were effective for the
period ended December 31, 2008.





Changes
in Internal Control





There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). These internal controls are
designed to provide reasonable assurance that the reported financial information
is presented fairly, that disclosures are adequate and that the judgment
inherent in the preparation of financial statements is reasonable.





Our
management does not expect that our disclosure controls or internal controls
over financial reporting will prevent all errors or all instances of fraud.
 A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact that
there 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 of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, 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.





Management
conducted its evaluation of the effectiveness of our internal controls over
financial reporting based on the framework and criteria established in Internal
Control-Integrated Framework, issued by the Committee of Sponsoring
Organization’s of the Treadway Commission (COSO). Based on this evaluation, we
concluded that our internal controls over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) were
effective for the year ended December 31, 2008.








This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s Report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.




OTHER
INFORMATION




None.




F-23






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




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




The
following table sets forth certain information regarding the executive officers
and directors of the Company as of December 31, 2008.







Name
            
            Age
            
            PositionJonathan
      R. Read
            
            50
            
            Chief
      Executive Officer, President and DirectorHarold
      W. Sciotto
            
            68
            
            Secretary,
      Treasurer and DirectorBarry
      S. Baer
            
            65
            
            Chief
      Financial Officer, Director (note 1)Jerry
      Y.S. Lin, PhD
            
            47
            
            DirectorE.
      Slade Mead
            
            42
            
            DirectorDonald
      B. Karner
            
            56
            
            Director
      (note 2)




Note
1...appointed to board effective February 10, 2009 to fill vacancy of Don
Karner


Note
2...resigned from Board of Directors effective February 9, 2009.





Jonathan
R. Read, Chief Executive Officer, President and Director




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




Harold
W. Sciotto, Director




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




Barry
S Baer, Chief Financial Officer, Director




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




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




F-24




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




Jerry
Y.S. Lin, Director




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




Dr. Lin
has received numerous international professional and academic awards.  He
has also headed many research programs funded by such agencies as the U.S.
Department of Energy and Department of Defense and private sector companies such
as Amoco, BP, Exxon, Honda and the Petroleum Research Board.  He is on the
Board of Directors of North American Membrane Society and editorial boards of
several journals.  Dr. Lin is the conference chairman of the
International Conference on Inorganic Membranes (ICIM8).




Slade
Mead, Director




Slade
Mead joined us as a Director on October 31, 2007.  Mr. Mead is a
lawyer, professional sports consultant and former Arizona State Senator.
 The founder of The Baseball Players Group, Mr. Mead specializes in
arbitration cases and represents several professional athletes, including Andy
Roddick.  Previously, Mr. Mead worked for Advantage International, a
leading global sports management firm, where he ran the London office and
represented several professional tennis and baseball players. Mr. Mead is a
former Arizona State Senator who served on the Appropriations, Government and
Education (Vice-Chair) Committees.  With a deep commitment to education,
Mr. Mead was voted the Arizona School Board Legislator of the Year (2003),
Arizona Women’s Political Caucus Legislator of the Year (2004), and Arizona
Career Technical Education Policy Maker of the Year (2004).  Mr. Mead
remains very active in education and state politics as he ran for Arizona
Superintendent of Public Instruction in 2006, and is a Court appointed School
Board and Receiver Board member for the Maricopa Regional School
District.




Donald
Karner, Director (note 2, resigned as director effective February 9,
2009)




Donald
Karner joined us as a director on November 7, 2007.  Mr. Karner
has 30 years of engineering and technical project management experience. 15
years of this experience was in the electric utility industry, where he
developed and implemented strategic direction for engineering, operating and
maintenance organizations ranging in size from 10 to 3,000 people in nuclear,
fossil, environmental and rate-making arenas.  The balance of his
experience has been with advanced vehicle design and fueling infrastructure as
the president of Electric Transportation Engineering Corporation, which he
co-founded in 1996.  Mr. Karner holds a Bachelor of Science degree in
Electrical Engineering from Arizona State University and a Master of Science
degree in Nuclear Engineering from the University of Arizona. He is also a
graduate of the Public Utility Executive Program of the University of Michigan
School of Business.




Role
of the Board




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




Directors
hold office until the next annual meeting of stockholders and the election and
qualification of their successors.  Officers are elected annually by the
Board of Directors and serve at the discretion of the Board.




Family
Relationships




None.




Board
Committees




We
currently have no compensation committee or other board committee performing
equivalent functions.  Currently, all members of our board of directors
participate in discussions concerning executive officer
compensation.




F-25




We
currently have a non-independent Audit Committee consisting of Harold Sciotto as
Chairman, Slade Mead and Barry Baer.




Involvement
on Certain Material Legal Proceedings during the Last Five Years




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




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




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




No
director, officer or significant employee has been convicted of violating a
federal or state securities or commodities law.




F-26




Section 16(a) Beneficial
Ownership Reporting Compliance




Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers, and persons who beneficially own more than 10%
of a registered class of the Company’s equity securities, to file reports of
beneficial ownership and changes in beneficial ownership of the Company’s
securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership),
4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual
Statement of Beneficial Ownership of Securities). Directors, executive officers
and beneficial owners of more than 10% of the Company’s Common Stock are
required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms that they file.  Except as otherwise set
forth herein, based solely on review of the copies of such forms furnished to
the Company, or written representations that no reports were required, the
Company believes that for the fiscal year ended December 31, 2008
beneficial owners did comply with Section 16(a) filing requirements
applicable to them to the extent they filed all form required under
Section 16(a) in February 2006.




Code
of Ethics




We have
not adopted a Code of Business Conduct and Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.





EXECUTIVE
COMPENSATION




Summary
Compensation Table




The
following table sets forth, for the last two completed fiscal years ended
December 31, 2008 and 2007, the cash compensation paid by the Company, as
well as certain other compensation paid with respect to those years and months,
to the Chief Executive Officer and, to the extent applicable, each of the three
other most highly compensated executive officers of the Company in all
capacities in which they served:




Summary Compensation Table
  Name
      and Principal Position
                
                Year
                
                Salary
      ($)
                
                
                Bonus
      ($)
                
                Stock
      Awards ($)
                
                Option
      Awards ($)
                
                Non-Equity
      Incentive Plan Compensation
                
                Change
      in Pension Value and Nonqualified Deferred Compensation Earnings
      ($)
                
                All
      Other Compensation ($)
                
                Total
      ($)Johnathan
      R Read CEO and President
                
                2008
                
                
                341,224
                
                
                
                
                
                
                
                55,168
                (1)
                
                
                
                
                
                
                
                396,3922007
                
                
                218,000
                
                
                
                150,000
                
                
                
                
                295,742
                (1)
                
                
                
                
                
                
                
                663,742Harold
      W. Sciotto  Secretary and Treasurer
                
                2008
                
                
                120,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                120,0002007
                
                
                120,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                120,000Barry
      S. Baer Chief Financial Officer
                
                2008
                
                
                142,908
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                142,9082007
                
                
                96,439
                
                
                
                
                
                
                
                
                86,650
                (2)
                
                
                
                
                
                
                
                183,089Donald
      B. Karner
                
                2008
                
                
                250,001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                250,001CEO,
      eTec Subsidiary
                
                2007
                
                
                120,600
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                120,600Kevin
      P. Morrow  Exec. VP eTec Subsidiary
                
                2008
                
                
                150,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                150,0002007
                
                
                125,693
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                125,693
 Notes:
 
 (1)
                  On
      November 1, 2007 we granted 2,000,000 options to acquire shares of the
      Company's $0.001 par value common stock to Mr. Read  asadditional
      incentive compensation for services, the first 1,000,000 options vested
      on November 1, 2007  and were valued at $281,300 calculated
      at$.2813
      per share using the Black Scholes Option Calculator. The second 1,000,000
      options will vest on November 1, 2008.  The portion of theseoptions
      earned in 2007 was valued at $14,442, calculated at $.1733 using the Black
      ScholesOption Calculator, the remainder of the options wereearned
      in 2008 and were valued at $55,168, calculated monthly resulting in a
      weighted average value per share of $0.1103 using the Blck ScholesOption
      Calculator.
 
 (2)
                  On
      December 31, 2007 we issued 500,000 options to acquires shares of the
      Company's $0.001 par value common stock to Mr. Baer ascompensation
      for services valued at $86,650, calculated at $.1733 using the Black
      Scholes Option Calculator.
  F-27


Employment
Agreements and Executive Compensation




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




OUSTANDING EQUITY AWARDS AT FISCAL YEAR
      -ENDOption
      Awards
              
              
              
              Equity
      AwardsName and Principal Position
              
              Number of Securities Underlying Unexercised
      Options (#) Exercisable
              
              
              Number of Securities Underlying Unexercised
      Options (#) Unexercisable
              
              
              Equity Incentive Plan Awards: Number of Securities
      Underlying Unexercised Unearned Options (#)
              
              
              Option Exercise Price ($)
              
              Option Expiration
Date
              
              
              
              Number or shares or Units of Stock That Have Not
      Vested (#)
              
              
              Market Value of Shares or Units of Stock That Have
      Not Vested ($)
              
              
              Equity Incentive Plan Awards: Number of Unearned
      Shares, Units or Other Rights That Have Not Vested
    (#)
              
              
              Equity Incentive Plan Awards: Market of Payout
      Value of Unearned Shares, Units or Other Rights That Have Not Vested
      ($)Johnathan
      R Read CEO and President
              
              
              1,000,000
              
              
              
              -
              
              
              
              1,000,000
              
              
              
              0.04
              
              11/1/2018
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -1,000,000
              
              
              
              -
              
              
              
              1,000,000
              
              
              
              0.28
              
              11/1/2017
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Barry
      S. Baer  Chief Financial Officer
              
              
              500,000
              
              
              
              -
              
              
              
              -
              
              
              
              0.19
              
              12/31/2012
              
              (2
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              --
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -


Notes:
  (1)
              On
      November 1, 2007 we granted 2,000,000 options to acquire shares of the
      Company's $0.001 par value common stock to Mr.
      Read  as  additional incentive compensation for
      services, the first 1,000,000 options vested on November 1,
      2007  and were valued at $281,300 calculated at $.2813 per share
      using the Black Scholes Option Calculator. The second 1,000,000 options
      will vest on November 1, 2008.  The portion of
      these options earned in 2007 was valued at $14,442, calculated at
      $.1733 using the Black Scholes Option Calculator, the remainder of the
      options were earned in 2008 and were valued at $55,168, calculated
      monthly resulting in a weighted average value per share of $0.1103 using
      the Blck Scholes Option
      Calculator.
  (2)
              On
      December 31, 2007 we issued 500,000 options to acquires shares of the
      Company's $0.001 par value common stock to Mr. Baer
      as  compensation for services valued at $86,650, calculated at
      $.1733 using the Black Scholes Option
    Calculator.
 F-28




In
November 2006 we engaged Barry S. Baer to serve as Chief Financial Officer
at a rate of $100.00 per hour.  This engagement continues based on mutual
agreement between the parties. As of  May? 2008 this rate has been
increased to $125 per hour




Directors’
Compensation




During
the year ended December 31, 2008, we had the following arrangements or
agreements in place to compensate our directors for services they provide as
directors of our company:




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




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




Equity
Incentive Plan




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




The plan
is administered by our Board of Directors.  Currently, we have 6,100,000
shares of common stock reserved for future issuance upon the exercise of stock
options granted under the plan.  Under the plan, the Board of Directors
determine which individuals will receive options, grants or stock appreciation
rights, the time period during which the rights may be exercised, the number of
shares of common stock that may be purchased under the rights and the option
price.




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




No
options may be transferred by an optionee other than by will or the laws of
descent and distribution, and during the lifetime of an optionee, the option may
only be exercisable by the optionee.  Options may be exercised only if the
option holder remains continuously associated with us from the date of grant to
the date of exercise, unless extended under the plan grant.  Options under
the plan must be granted within ten years from the effective date of the
plan and the exercise date of an option cannot be later than five years
from the date of grant.  Any options that expire unexercised or that
terminate upon an optionee’s ceasing to be employed by us will become available
once again for issuance.  Shares issued upon exercise of an option will
rank equally with other shares then outstanding.




Liability
and Indemnification of Officers and Directors




Under our
Articles of Incorporation, our directors are not liable for monetary damages for
breach of fiduciary duty, except in connection with:




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





·
      Acts or omissions not in good faith or which involve intentional
      misconduct, fraud or a knowing violation of
law;





·
      A transaction from which a director received an improper benefit;
      or





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




F-29




Our
Articles of Incorporation and Bylaws require us to indemnify our officers and
directors and other persons against expenses, judgments, fines and amounts
incurred or paid in settlement in connection with civil or criminal claims,
actions, suits or proceedings against such persons by reason of serving or
having served as officers, directors, or in other capacities, if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to our best interests and, in a criminal action or proceeding, if he
had no reasonable cause to believe that his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of no contest or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to our best
interests or that he or she had reasonable cause to believe his or her conduct
was unlawful.  Indemnification as provided in our Bylaws will be made only
as authorized in a specific case and upon a determination that the person met
the applicable standards of conduct.  Insofar as the limitation of, or
indemnification for, liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, or persons controlling us pursuant to the
foregoing, or otherwise, we have been advised that, in the opinion of the SEC,
such limitation or indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.




SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




Security
Ownership of Certain Beneficial Owners and Management




As of
December 31, 2008, there are 129,422,861 shares of common stock
outstanding.  The following table sets forth as of December 31, 2008,
certain information regarding the beneficial ownership of the outstanding shares
as of the date of this prospectus assuming all shares of preferred stock have
been converted into common stock by:




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





2.
      Each of our directors and executive officers
and





3.
      All of our directors and executive officers as a
  group.





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




Name
      of Beneficial Owner
            
            Amount
      and Nature
            
            Percent
      ofTitle
      of
            of
      Beneficial
            Issued
      andClass
            Owener
            OutstandingCommon
      Stock
            Harold
      Sciotto, Secretary, Treasurer and Director (1)
            
            35,558,924
            
            27.47%Common
      Stock
            Jonathan
      R. Read, President and Director (1)
            
            7,250,018
            
            5.60%Common
      Stock
            Donald
      Karner, Director (1)
            
            3,744,000
            
            2.89%Common
      Stock
            Kevin
      Morrow (1)
            
            2,444,000
            
            1.89%Common
      Stock
            Edward
      S Mead, Director (1)
            
            424,586
            
            0.33%Common
      Stock
            Jerry
      Y.S. Lin, Director (1)
            
            200,000
            
            0.15%Officers
      and Directors as a Group
            
            49,621,528
            
            38.34%Common
      Stock
            Enable
      Growth Partners, LP (2)
            
            7,108,838
            (4)
            5.49%Common
      Stock
            Enable
      Opportunity Partners, LP & Pierce Diversitifed Strategy Master Fund,
      LLC (2)
            
            1,098,352
            (4)
            0.85%Common
      Stock
            Edison
      Enterprises (3)
            
            2,000,000
            
            1.55%Common
      Stock
            Officers,
      Directors and 5% Shareholders, as a Group
            
            59,828,718
            
            46.23%Common
      Stock
            Shares
      Outstanding non-directors/beneficial owners
            
            69,594,143
            
            53.77%Common
      Stock
            TOTAL
      OUTSTANDING
            
            129,422,861
            
            100.00%Notes:(1)
            The
      address for these shareholders is c/o ECOtality, Inc., 6821 E. Thomas
      Road, Scottsdale, AZ  85251(2)
            The
      address for these shareholders is One Ferry Building, Suite 255, San
      Francisco, CA  94111(3)
            The
      address for these shareholders is 2244 Walnut Grove, Rosemead,
      CA  91770 Edison
      Enterprises is shown here as they were issued an additional 31,333,333
      shares Februrary 2, 2009.(4)
            Enable
      Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce
      Diversified Strategy Master Fund LLC, collectively
      own an aggregate of 8,207,190 shares of our common stock, or 6.34% of our
      total issued and outstanding shares
      as of December 31,
2008.




F-30




CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS






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




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




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





F-31




Exhibit Number
            
            Name
      and/or Identification of Exhibit2
            
            Plan
      of Purchase, Sale, Reorganization, arrangement, liquidation or
      successiona.
       Technology Contribution Agreement and Exhibits thereto
      (1)b.
       License Agreement with California Institute of Technology
      (2)3
            
            Articles
      of Incorporation & By-Lawsa.
       Articles of Incorporation filed on April 21, 1999
      (3)b.
       Amendment to Articles of Incorporation filed on November 27,
      2006c.
       Amendment to Articles of Incorporation filed on November 27,
      2006d.
       Restated Bylaws October 31, 2007(5)e.
       Amendment to Articles of Incorporation filed on January 3, 2008
      (4)10
            
            Material
      Contractsa.
        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) Certification32
            
            Certification
      under Section 906 of the Sarbanes-Oxley Act (18 U.S.C.
      Section 1350)99
            
            Additional
      Exhibitsa. 
      Escrow Agreement(6)b.
       Letter from NASA/Jet Propulsion Laboratories
  (8)




Notes:




(1)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      February 21, 2006.(2)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      July 12, 2006.(3)
                                Incorporated
      by reference to the Registration Statement on Form 10SB12G, as
      amended, previously filed with the SEC on March 3,
    2005.(4)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      December 4, 2006.(5)
                                Incorporated
      by reference herein to the Form SB-2, previously filed with the SEC
      on February 12, 2007.(6)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      February 21, 2007.(7)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      January 30, 2007.(8)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      March 27, 2007.(9)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      June 15, 2007.(10)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      July 10, 2007.(11)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      September 20, 2007.(12)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      November 2, 2007.(13)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      November 9, 2007.(14)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      December 7, 2007.(15)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      December 11, 2007.(16)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      December 26, 2007.(17)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      December 31, 2007.(18)
                                Incorporated
      by reference herein to the Form SB-2, previously filed with the SEC
      on January 8, 2008.(18)
                                Incorporated
      by reference herein to the Form SB-2, previously filed with the SEC
      on January 31, 2008.(19)
                                Incorporated
      by reference herein to the Form SB-2, previously filed with the SEC
      on January 31, 2008.(20)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      January 31, 2008.(21)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      April 11, 2008.(22)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      September 4, 2008.(23)
                                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      September 25,
2008.




F-32




PRINCIPAL
ACCOUNTANT FEES AND SERVICES




The
following table sets forth fees billed to us by our independent auditors for the
years ended December 31, 2008 and 2007 for (i) services rendered for
the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services rendered that are reasonably related to
the performance of the audit or review of our financial statements that are not
reported as Audit Fees, and (iii) services rendered in connection with tax
preparation, compliance, advice and assistance.




SERVICES
            
            2008
            
            
            2007Audit
      fees
            
            
            176,325
            
            
            $
            39,250Audit-related
      fees
            
            
            —
            
            
            
            —Tax
      fees
            
            
            —
            
            
            
            275All
      other fees
            
            
            17,500
            
            
            
            200,000Total
      fees
            
            
            193,825
            
            
            $
            239,250




F-33





SIGNATURES




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




ECOTALITY,
INC.




Signature
            
            Title
            
            Date/s/
      Jonathan R. Read
            
            Chief
      Executive Officer
            
            April
      15, 2009Jonathan
      R. Read




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




ECOTALITY,
INC.




Signature
            
            Title
            
            Date/s/
      Jonathan R. Read
            
            Chief
      Executive Officer,
            
            April
      15, 2009Jonathan
      R. Read
            
            President
      and Director/s/
      Harold W. Sciotto
            
            Secretary,
      Treasurer
            
            April
      15, 2009Harold
      W. Sciotto
            
            and
      Director/s/
      Barry S. Baer
            
            Chief
      Financial Officer
            
            April
      15, 2009Barry
      S. Baer
            
            Principal
      Accounting Officer, Director/s/
      Jerry Y. S. Lin
            
            Director
            
            April
      15, 2009Jerry
      Y. S. Lin/s/
      E. Slade Mead
            
            Director
            
            April
      15, 2009E.
      Slade Mead Don




F-34