UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549





FORM
10-Q




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended: June 30, 2010





Or





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





Commission File Number:
000-50983




ECOTALITY,
INC.


(Exact
name of registrant as specified in its charter)




Nevada
              68-0515422(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)Four
      Embarcadero Center, Suite 3720
                San
      Francisco, CA
              94111(Address
      of principal executive offices)
              (Zip
      Code)




(415)
992-3000





(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x    No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈    No 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  ̈
              
              Accelerated
      filer  ̈
              
              Non-accelerated
      filer  ̈
                (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).


Yes  ̈    No x




There
were 9,348,734 shares of common stock outstanding at August 9,
2010.










ECOtality, Inc.





Table
of Contents





PART
      I - FINANCIAL INFORMATION
                
                3Financial
      StatementsCondensed
      Consolidated Statements of Operations
                
                3Condensed
      Consolidated Balance Sheet
                
                4Condensed
      Consolidated Statements of Cash Flows
                
                5Notes
      to Condensed Consolidated Financial Statements
                
                6Management’s
      Discussion and Analysis of Financial Condition and Results  of
      Operation
                
                27Quantitative
      and Qualitative Disclosures about Market Risk
                
                35Controls
      and Procedures
                
                35PART
      II - OTHER INFORMATION
                
                36Legal
      Proceedings
                
                36Risk
      Factors
                
                36Unregistered
      Sales of Equity Securities and use of Proceeds
                
                36Defaults
      Upon Senior Securities
                
                36Submission
      of Matters to a Vote of Security Holders
                
                36Exhibits
                
                37SIGNATURES
                
                38




2





PART1. FINANCIAL INFORMATION





ECOtality,
Inc.
 Condensed
Consolidated Statement of Operations
 Unaudited


For
      the Three Months Ended
                                          June
      30,
                                        
                                        
                                        For
      the Six Months Ended
                                          June
      30,2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2009Revenue
                                        
                                        $
                                        3,411,589
                                        
                                        
                                        $
                                        1,747,085
                                        
                                        
                                        $
                                        6,111,674
                                        
                                        
                                        $
                                        4,217,284Cost
      of goods sold
                                        
                                        
                                        3,061,504
                                        
                                        
                                        
                                        819,630
                                        
                                        
                                        
                                        5,453,028
                                        
                                        
                                        
                                        2,213,922Gross
      profit
                                        
                                        
                                        350,085
                                        
                                        
                                        
                                        927,455
                                        
                                        
                                        
                                        658,646
                                        
                                        
                                        
                                        2,003,362Expenses:Depreciation
                                        
                                        
                                        149,107
                                        
                                        
                                        
                                        111,337
                                        
                                        
                                        
                                        290,711
                                        
                                        
                                        
                                        250,307General
      and administrative expenses
                                        
                                        
                                        7,768,923
                                        
                                        
                                        
                                        1,543,850
                                        
                                        
                                        
                                        10,008,477
                                        
                                        
                                        
                                        2,886,361Research
      and development
                                        
                                        
                                        51,493
                                        
                                        
                                        
                                        695
                                        
                                        
                                        
                                        64,327
                                        
                                        
                                        
                                        12,162Total
      expenses
                                        
                                        
                                        7,969,520
                                        
                                        
                                        
                                        1,655,880
                                        
                                        
                                        
                                        10,363,513
                                        
                                        
                                        
                                        3,148,830Operating
      loss
                                        
                                        
                                        (7,619,438
                                        )
                                        
                                        
                                        (728,427
                                        )
                                        
                                        
                                        (9,704,869
                                        )
                                        
                                        
                                        (1,145,468
                                        )Other
      income:Interest
      income
                                        
                                        
                                        8,734
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        23,943
                                        
                                        
                                        
                                        -Gain
      on Disposal of Assets
                                        
                                        
                                        (12,201
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (12,201
                                        )
                                        
                                        
                                        9,760Other
      Income
                                        
                                        
                                        317,824
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        317,825
                                        
                                        
                                        
                                        -Total
      other income
                                        
                                        
                                        314,357
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        329,567
                                        
                                        
                                        
                                        9,760Other
      expenses:Interest
      expense
                                        
                                        
                                        (322,751
                                        )
                                        
                                        
                                        2,872,418
                                        
                                        
                                        
                                        6,043
                                        
                                        
                                        
                                        3,488,695Other
      Expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      other expenses
                                        
                                        
                                        (322,751
                                        )
                                        
                                        
                                        2,872,418
                                        
                                        
                                        
                                        6,043
                                        
                                        
                                        
                                        3,488,695Loss
      from operations before income taxes
                                        
                                        
                                        (6,982,330
                                        )
                                        
                                        
                                        (3,600,845
                                        )
                                        
                                        
                                        (9,381,345
                                        )
                                        
                                        
                                        (4,624,403
                                        )Provision
      for income taxes
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      (loss)
                                        
                                        $
                                        (6,982,330
                                        )
                                        
                                        $
                                        (3,600,845
                                        )
                                        
                                        $
                                        (9,381,345
                                        )
                                        
                                        $
                                        (4,624,403
                                        )Weighted
      average number ofcommon
      shares outstanding - basic and fully diluted
                                        
                                        
                                        8,960,550
                                        
                                        
                                        
                                        2,522,375
                                        
                                        
                                        
                                        8,629,023
                                        
                                        
                                        
                                        2,610,441Net
      (loss) per share-basic and fully diluted
                                        
                                        $
                                        (0.78
                                        )
                                        
                                        $
                                        (1.43
                                        )
                                        
                                        $
                                        (1.09
                                        )
                                        
                                        $
                                        (1.77
                                        )


The
accompanying notes are an integral part of these financial
statements


3





ECOtality, Inc.


Condensed
Consolidated Balance Sheets





June
      30, 2010
                                                
                                                
                                                Decenber
      31, 2009(Unaudited)
                                                
                                                
                                                (Audited)AssetsCurrent
      assets:Cash
      and Cash Equivalents
                                                
                                                $
                                                13,565,314
                                                
                                                
                                                $
                                                11,824,605Restricted
      Cash
                                                
                                                
                                                672,868
                                                
                                                
                                                
                                                -Receivables,
      net of allowance for bad debt of  $83,988 and $92,494 as of
      6/30/10 and  12/31/09 respectively
                                                
                                                
                                                1,336,554
                                                
                                                
                                                
                                                1,296,696Inventory,
      net of allowance for obsolescence of $292,896 and $335,864  as
      of 06/30/10 and 12/31/08 respectively
                                                
                                                
                                                1,166,390
                                                
                                                
                                                
                                                749,492Prepaid
      expenses and other current assets
                                                
                                                
                                                335,906
                                                
                                                
                                                
                                                387,327Total
      current assets
                                                
                                                
                                                17,077,032
                                                
                                                
                                                
                                                14,258,120Fixed
      assets, net accumulated depreciation of $4,270,095,
      and   $4,124,431 as of 06/30/10 and 12/31/09
      respectively
                                                
                                                
                                                1,837,812
                                                
                                                
                                                
                                                1,872,347Goodwill
                                                
                                                
                                                3,495,878
                                                
                                                
                                                
                                                3,495,878Total
      assets
                                                
                                                $
                                                22,410,724
                                                
                                                
                                                $
                                                19,626,344Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
                                                
                                                $
                                                802,919
                                                
                                                
                                                $
                                                372,982Accrued
      liabilities
                                                
                                                
                                                3,075,203
                                                
                                                
                                                
                                                1,438,177Total
      current liabilities
                                                
                                                
                                                3,878,122
                                                
                                                
                                                
                                                1,811,159Total
      LT Debt
                                                
                                                
                                                287,500
                                                
                                                
                                                
                                                287,500Stockholders’
      equity:Preferred
      stock, $0.001 par value, 200,000,000 sharesauthorized,
      8,416,881 and 8,597,299 shares issued and outstanding as
      of  06/30/10 and 12/31/09
    respectively
                                                
                                                
                                                8,417
                                                
                                                
                                                
                                                8,597Common
      stock, $0.001 par value, 1,300,000,000 sharesauthorized,
      8,994,065  and 6,713,285 shares issuedand
      outstanding as of 06/30/10 and 12/31/09,
      respectively
                                                
                                                
                                                8,993
                                                
                                                
                                                
                                                6,712Common
      stock owed but not issued; 0 and 2,079,061 shares at06/30/10
      and 12/31/09 respectively
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,079Additional
      paid-in capital
                                                
                                                
                                                93,519,127
                                                
                                                
                                                
                                                88,411,074Subscription
      receivable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,000,000
                                                )Retained
      deficit
                                                
                                                
                                                (75,226,712
                                                )
                                                
                                                
                                                (65,845,368
                                                )Accumulated
      Foreign Currency Translation Adjustments
                                                
                                                
                                                (64,721
                                                )
                                                
                                                
                                                (55,409
                                                )Total
      stockholders' equity
                                                
                                                
                                                18,245,103
                                                
                                                
                                                
                                                17,527,685Total
      liabilities and stockholders' equity
                                                
                                                $
                                                22,410,724
                                                
                                                
                                                $
                                                19,626,344


The
accompanying notes are an integral part of these financial
statements
  4


ECOtality,
Inc.
 Condensed
Consolidated Statement of Cash Flows
 Unaudited


For
      the 6 Months Ended June 30,2010
                                      
                                      
                                      2009Cash
      flows from operating activitiesNet
      Income (loss)
                                      
                                      $
                                      (9,381,345
                                      )
                                      
                                      $
                                      (4,624,403
                                      )Adjustments
      to reconcile:Stock
      and options issued for services and compensation
                                      
                                      
                                      5,096,076
                                      
                                      
                                      
                                      95,175Depreciation
                                      
                                      
                                      326,164
                                      
                                      
                                      
                                      250,307Amortization
      of stock issued for services
                                      
                                      
                                      -
                                      
                                      
                                      
                                      117,206Amortization
      of discount on notes payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      765,050Amortization
      of Financing Costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,302,811Issuance
      of Letters of Credit
                                      
                                      
                                      (672,868
                                      )Gain
      on disposal of assets
                                      
                                      
                                      12,201
                                      
                                      
                                      
                                      (9,760
                                      )Changes
      in operating assets and liabilities:Certificate
      of Deposit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      28,044Accounts
      Receivable
                                      
                                      
                                      (39,859
                                      )
                                      
                                      
                                      1,035,426Inventory
                                      
                                      
                                      (416,877
                                      )
                                      
                                      
                                      130,330Prepaid
      expenses and other
                                      
                                      
                                      51,416
                                      
                                      
                                      
                                      72,744Accounts
      Payable
                                      
                                      
                                      429,937
                                      
                                      
                                      
                                      (498,612
                                      )Accrued
      Liabilities
                                      
                                      
                                      1,637,026
                                      
                                      
                                      
                                      605,875Net
      cash provided (used) by operating activities
                                      
                                      
                                      (2,958,129
                                      )
                                      
                                      
                                      270,193Cash
      flows from investing activitiesPurchase
      of fixed assets
                                      
                                      
                                      (335,347
                                      )
                                      
                                      
                                      (113,882
                                      )Proceeds
      from sales of fixed assets
                                      
                                      
                                      31,500
                                      
                                      
                                      
                                      9,761Net
      cash provided (used) by investing activities
                                      
                                      
                                      (303,847
                                      )
                                      
                                      
                                      (104,121
                                      )Cash
      flows from financing activitiesProceeds
      from Warrant Exercise
                                      
                                      
                                      11,999
                                      
                                      
                                      
                                      -Proceeds
      from Subscription Receivable
                                      
                                      
                                      5,000,000
                                      
                                      
                                      
                                      -Net
      cash provided (used) by financing activities
                                      
                                      
                                      5,011,999
                                      
                                      
                                      
                                      -Effects
      of exchange rate changes
                                      
                                      
                                      (9,312
                                      )
                                      
                                      
                                      (9,403
                                      )Net
      increase (decrease) in cash
                                      
                                      
                                      1,740,710
                                      
                                      
                                      
                                      156,669Cash
      – beginning
                                      
                                      
                                      11,824,605
                                      
                                      
                                      
                                      327,332Cash
      – ending
                                      
                                      $
                                      13,565,314
                                      
                                      
                                      $
                                      484,002Supplemental
      disclosures:Interest
      paid
                                      
                                      $
                                      9,703
                                      
                                      
                                      $
                                      -Income
      Taxes paid
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Non-cash
      transactions:Stock
      and options issued for services
                                      
                                      $
                                      5,096,074
                                      
                                      
                                      $
                                      95,175Number
      of options Issued
                                      
                                      
                                      945,833Number
      of warrants Issued
                                      
                                      
                                      9,999Shares
      of stock issued
                                      
                                      
                                      1,183
                                      
                                      
                                      
                                      19,167Stock
      issued for acquisition
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,880,000Shares
      of stock issued
                                      
                                      
                                      -
                                      
                                      
                                      
                                      522,222Amortization
      of stock issued for services
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      117,206Amortization
      of discount on notes payable
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      765,050


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




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





(UNAUDITED)


Note 1 – History and organization of
the company




The
Company was incorporated April 21, 1999 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 its 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
called ECOtality Stores, Inc.  See note 4 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 4 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 ECOtality North
America).  ECOtality North America designs fast-charge systems for material
handling and airport ground support applications.  ECOtality North
America also tests and develops plug-in hybrids, advanced battery systems and
hydrogen ICE conversions.  See note 4 for further information.




On
December 6, 2007, the Company acquired through ECOtality North America the
Minit-Charger business of Edison Enterprises. Minit-Charger makes products that
enable fast charging of lift trucks using revolutionary technologies.  See
note 4 for further information.





On August
26, 2009, ECOtality Inc. management met with the shareholders at its annual
shareholders' meeting.  At this meeting the shareholders approved an
increase to the authorized number of common shares to 1,300,000,000
shares.




On
November 24, 2009 the Company effected a reverse split of 1:60 of its
$0.001 par value common stock and the ticker symbol was changed from "ETLY" to
"ETLE".  All shares in these financial statements have been
retroactively adjusted and presented for this reverse split.





On
January 7, 2010 the Company established a new, wholly owned subsidiary,
ECOtality Australia Pty Ltd., headquartered in Brisbane,
Queensland.  This subsidiary will market and distribute battery
charging equipment to support on-road vehicles (EV), industrial equipment, and
electric airport ground support equipment (GSE).





On May
20, 2010 the Company was listed on the NASDAQ and the ticker symbol was changed
from “ETLE” to “ECTY”





The
consolidated financial statements as of June 30, 2010 include the accounts of
ECOtality Inc., ECOtality Stores, Innergy Power Corporation, ECOtality North
America and ECOtality Australia Pty Ltd.  All significant
inter-company balances and transactions have been eliminated.  ECOtality
and its subsidiaries will collectively be referred to herein as the
“Company”.





Note
2 — 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.


6


Cash and
cash equivalents


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 six months
ended June 30, 2010 and 2009 interest income was $23,943 and $0
respectively.





Credit
risks


Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits.  The Company maintains cash
and cash equivalent balances at financial institutions that are insured by the
Federal Deposit Insurance Corporation up to $250,000.  Deposits with these
banks may exceed the amount of insurance provided on such deposits.  At
June 30, 2010 and 2009, the Company had approximately $13.3 million and $0.1
million in excess of FDIC insured limits, respectively.





Accounts
receivable at June 30, 2010 was $1,336,554, and at June 30, 2009 was
$927,646.  At June 30, 2010, we had one customer that represented in
excess of 10% of our receivable balance.  This customer had a balance of
$182,860. The Company has not experienced material losses in the past from this
or any other significant customer and continues to monitor its exposures to
minimize potential credit losses. The allowance for doubtful accounts was
$83,988 and $114,019 as of June 30, 2010 and 2009, respectively.





Impairment
of long-lived assets and 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 six months ended June 30, 2010 and
2009, the Company had no impairment expense.





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 collectability 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.  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.





Management
periodically reviews all product returns and evaluates the need for establishing
either a reserve for product returns.  As of June 30, 2010 and 2009,
management has concluded that no reserve is required for product
returns.





The
Company warrants a limited number of ECOtality North America products against
defects for periods up to 120 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 June 30, 2010 and 2009 the
warranty reserve was $232,723 and $111,692 respectively.  The increase
to the reserve was made in response to lengthening the warranty period on
several items.





Accounts
receivable


Accounts
receivable are carried on a gross basis, with no discounting, less the allowance
for doubtful accounts. Management estimates the allowance for doubtful accounts
based on existing economic conditions, the financial conditions of the
customers, and the amount and the age of past due
accounts.  Receivables are considered past due if full payment is not
received by the contractual due date.  Past due accounts are generally
written off against the allowance for doubtful accounts only after all
collection attempts have been exhausted.  There is no collateral held
by the Company for accounts receivable.  The allowance for doubtful
accounts was $83,988 and $114,019 as of June 30, 2010 and 2009,
respectively.


7




ECOTALITY,
INC.




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)





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
June 30, 2010 and 2009 was $292,896 and $182,487 respectively.





Advertising
costs


The
Company expenses all costs of advertising as incurred.  There were
advertising costs of $0 and $21,298 included in general and administrative
expenses for the six months ended June 30, 2010 and 2009,
respectively.





Research
and development costs


Research
and development costs are charged to expense when incurred.  For the
six months ended June 30, 2010 and 2009, research and development costs were
$64,327and
$12,162, 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 June 30, 2010 and 2009.
 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 ASC Subtopic 260-10. 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 quarter ended June 30, 2010 and
2009, 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


For the
six months ended June 30, 2010, two Company subsidiaries, Portable Energy
De Mexico, and ECOtality Australia Pty. were operating outside the United States
of America.   For both entities 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 is used for revenue and
expense accounts for each respective period. The resulting translation
adjustments are deferred as a separate component of stockholders' equity, within
other comprehensive loss, net of tax where applicable.





Stock-Based
Compensation


The
Company records stock-based compensation in accordance with ASC topic 718-20
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.


8


ECOTALITY,
INC.




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)





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





Income
Taxes


The
Company has adopted the provisions of ASC subtopic 740-10 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 does not anticipate any significant changes to its total unrecognized
tax benefits within the next twelve months. As of June 30, 2010, no income tax
expense has been incurred.




Dividends


The
Company has not yet 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


Generally
accepted accounting procedures require 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.  In this manner
the Company has concluded it has three reportable segments; ECOtality Stores,
Innergy Power segment and ECOtality North America segment (which includes
ECOtality Australia). 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 ECOtality North America segment includes our ECOtality
Australia operations and 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.  ECOtality North America holds exclusive patent rights
to the ECOtality North America 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,
ECOtality North America 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. For the six
months ended June 30, 2010 and 2009 inter-segment sales were $339,373 and
$28,723 respectively.  All inter-segment sales have been eliminated
during the consolidation process.


9


Recent
Accounting Pronouncements





The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements.  The Company has
adopted this standard.  The standard increased our disclosure by requiring
disclosure reviewing subsequent events.  ASC 855-10 is included in the
“Subsequent Events” accounting guidance.




In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4,Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly”)  . ASC 820-10 provides guidance on how to determine
the fair value of assets and liabilities when the volume and level of activity
for the asset/liability has significantly decreased. FSP 157-4 also
provides guidance on identifying circumstances that indicate a transaction is
not orderly. In addition, FSP 157-4 requires disclosure in interim and
annual periods of the inputs and valuation techniques used to measure fair value
and a discussion of changes in valuation techniques. The Company determined that
adoption of FSP 157-4 did not have a material impact on its results of
operations and financial position.





In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes ”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.





In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock ").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008.  The adoption of this pronouncement did not
have a material impact on its financial position, results of operations or cash
flows.





In
June 2009, the FASB issued ASC 105Accounting Standards
Codification TMand the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.





In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.





In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on the Company’s financial
statements.





International
Financial Reporting Standards


In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, the
Company would be required to prepare financial statements in accordance with
IFRS in fiscal year 2014, including comparative information also prepared under
IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential
impact of IFRS on its financial statements and will continue to follow the
proposed roadmap for future developments.


10





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
3 – Fair Value Measurements





The
Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair
value of certain of its financial assets required to be measured on a recurring
basis.  The adoption of ASC Topic 820-10 did not impact the Company’s
financial condition or results of operations.  ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value.  The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).  ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants on
the measurement date.  A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability.  The three levels of the fair value
hierarchy under ASC Topic 820-10 are described below:


Level
1 – Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access.





Level
2 – Valuations based on quoted prices for similar assets and liabilities in
active markets, quoted prices for identical assets and liabilities in markets
that are not active, or other inputs that are observable or can be corroborated
by observable data for substantially the full term of the assets or
liabilities.





Level
3 – Valuations based on inputs that are supportable by little or no market
activity and that are significant to the fair value of the asset or
liability.





The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of June 30, 2010:




Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Fair ValueCash
      and CDs
                  
                  $
                  13,565,314
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  13,565,314Accounts
      receivable
                  
                  
                  -
                  
                  
                  
                  1,336,554
                  
                  
                  
                  -
                  
                  
                  
                  1,336,554Accounts
      payable
                  
                  
                  -
                  
                  
                  
                  802,919
                  
                  
                  
                  -
                  
                  
                  
                  802,919Accrued
      liabilities
                  
                  
                  -
                  
                  
                  
                  3,075,203
                  
                  
                  
                  -
                  
                  
                  
                  3,075,203Notes
      payable
                  
                  
                  -
                  
                  
                  
                  287,500
                  
                  
                  
                  -
                  
                  
                  
                  287,500Total
                  
                  $
                  13,565,314
                  
                  
                  $
                  5,502,176
                  
                  
                  $
                  -
                  
                  
                  $
                  19,067,490





The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009:





Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Fair ValueCash
      and CDs
                  
                  $
                  11,824,605
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  11,824,605Accounts
      receivable
                  
                  
                  -
                  
                  
                  
                  1,296,696
                  
                  
                  
                  -
                  
                  
                  
                  1,296,696Accounts
      payable
                  
                  
                  -
                  
                  
                  
                  372,982
                  
                  
                  
                  -
                  
                  
                  
                  372,982Accrued
      liabilities
                  
                  
                  -
                  
                  
                  
                  1,438,177
                  
                  
                  
                  -
                  
                  
                  
                  1,438,177Notes
      payable
                  
                  
                  -
                  
                  
                  
                  287,500
                  
                  
                  
                  -
                  
                  
                  
                  287,500Total
                  
                  $
                  11,824,605
                  
                  
                  $
                  3,395,355
                  
                  
                  $
                  -
                  
                  
                  $
                  15,219,960





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. Our consolidated financial statements for the six months ended June
30, 2010 and 2009 include the financial results of ECOtality Stores,
Inc.





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. Our consolidated financial statements for the the six
months ended June 30, 2010 and 2009  include the financial results of
Innergy Power Corporation and its subsidiary.


11


ECOtality
North America 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 ECOtality North America).
ECOtality North America develops and provides fast-charge systems designed for
electric vehicle (EVs and PHEVs), mobile material handling, airport ground
support, and marine and transit applications. ECOtality North America also tests
and develops plug-in hybrids, advanced battery systems and hydrogen ICE
conversions. Our consolidated financial statements for the six months ended
June 30, 2010 and 2009 include the financial results of ECOtality North
America.





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 108,333 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 included $217,193 in direct acquisition costs and the
subsequent Net Working Capital Adjustment discussed below.





The
$500,00 was initially payable in monthly installments of $50,000 beginning
December of 2007.  The balance remaining at December 31, 2008 was
$235,253 and payment of this amount was made on December 11,
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 TrueUp Payment
of $400,000 from the Buyers to the Sellers was agreed to in full satisfaction of
this purchase agreement requirement. The true up obligation was an adjustment to
the purchase price.  Full payment was made on December 11, 2009 and
has been recorded as an increase to Goodwill of $400,000.





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 excess of purchase price over the fair value of net
tangible assets acquired was allocated to identifiable intangible assets and
goodwill. The following table summarizes the fair value of assets as part
of the acquisition with eTec:





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




The
Company reviewed the goodwill for impairment performing the necessary testing
for recoverability of the asset and measuring its fair value.   This
testing revealed current, historic, and future (projected) positive cash flows
supporting the full amount of goodwill.  As a result of this testing
in 2008, no impairment was taken in the year ended December 31,
2008.  In December 2009 and at June 30, 2010, the Company
reviewed the goodwill for impairment performing the necessary testing for
recoverability of the asset and measuring its fair value.   This
testing again revealed current, historic, and future (projected) positive
cash flows supporting the full amount of goodwill.  As a result of
this testing no impairment was taken in the six months ended June 30, 2010 nor
in the year ending December 31, 2009.




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.





Note
5 – Fixed assets





Fixed
assets as of June 30, 2010 and at December 31, 2009 consisted of the
following:





At June 30, 2010
                      
                      
                      At December 31, 2009Equipment
                      
                      $
                      3,239,044
                      
                      
                      $
                      3,200,649Buildings
                      
                      
                      575,615
                      
                      
                      
                      575,615Vehicles
                      
                      
                      1,191,937
                      
                      
                      
                      1,282,577Furniture
      & Fixtures
                      
                      
                      168,474
                      
                      
                      
                      100,883Leasehold
      improvements
                      
                      
                      731,936
                      
                      
                      
                      704,911Computer
      Software
                      
                      
                      200,901
                      
                      
                      
                      132,1446,107,907
                      
                      
                      
                      5,996,778Less:
      accumulated depreciation
                      
                      
                      (4,270,095
                      )
                      
                      
                      (4,124,431
                      )1,837,812
                      
                      
                      
                      1,872,347




12





Depreciation
expense totaled $290,711 and $250,307, for the six months ended June 30, 2010
and 2009 respectively.





Note
6 – Notes payable





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.





During
2007, the Company incurred a $500,000 note payable to the previous owners of
eTec through the acquisition of eTec. As of December 31, 2008, $ 235,253 was
owed and recorded as an accrued liability for purchase price on the consolidated
financial statements.  This balance was paid in full on December 11,
2009 and $0 was reflected in the financial statements on June 30,
2010.




NOVEMBER
AND DECEMBER 2007 DEBENTURES & SUBSEQUENT AMENDMENTS





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 $18 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 163,399
shares of the Company’s common stock with an exercise price of $19.20. The
warrants were exercisable immediately upon issue. The Warrants were to 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 $19.20, market price of $13.20-$19.20, 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 was being amortized over the loan term.  As of December 31,
2009 the total discount was fully amortized and recorded as interest
expense.  $0 was remaining at June 30, 2010.




AUGUST
2008 AMENDMENT TO THE DEBENTURES


On August
29, 2008 the Company signed an Amendment to the Debenture agreements deferring
the payments indicated above. The purpose of the agreement was 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.





AUGUST
2008 WAIVER PROVISIONS:


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 $18.00 to
  $9.00.





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 $60.00 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
    66,666.


13





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





IMPACT OF
THE AUGUST 2008 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS


During
the period ended September 30, 2008 the impact to the financial statements for
the provisions of the waiver noted above were estimated, the portion
attributable to the period ending September 30, 2008 was charged to interest
expense, and the remainder was capitalized as prepaid financing charges (see
details in #1 through #3 below).  During the last three months of the
waiver period, October to December 31, 2008, the remainder of the capitalized
prepaid financing charges of $2,378,672 were charged to interest
expense.  At December 31, 2008 all costs of the initial waiver had
been fully expensed.





1.
            The
      increase to principal of $1,559,859 (see letter “C” above) was added to
      the long term note, $1,157,315 was capitalized in prepaid financing
      charges and the portion of the increase attributable to the nine month
      period ending September 30, 2008 of $402,544, less previously accrued
      interest (now incorporated in the principal) of $191,438 was charged to
      interest expense. The capitalized remainder of $1,157,315 was charged to
      interest expense in the year ended December 31,
  2008.





2.
            The
      estimated change in value of the original 163,399 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 $4.80 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 $19.20
      (old) and $4.80 (new), Stock Price $6.00 (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.  Of the total, $154,279 was
      capitalized as prepaid financing costs and was amortized over the waiver
      period ending December 31, 2008.





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 (163,399 total warrants at original exercise price
      $19.20), and the new aggregate exercise price of $784,314 following the
      reset of the exercise price to $4.80. This difference totaled $2,352,942
      requiring the issuance of an estimated 490,196 warrants (at $4.80) 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 $4.80, Stock Price $4.20 (price at September 30,
      2008), time 753 days, Volatility 146.39%, Risk Free Rate 3.83%. Of the
      total, $1,067,077 was capitalized as prepaid financing costs and was
      amortized over the waiver period ending December 31,
  2008.





IMPACT OF
OCTOBER 2008 TRUE-UP (REQUIRED BY THE AUGUST 2008 WAIVER) TO THE FINANCIAL
STATEMENTS


On
October 17, 2008, a purchase price true up with Innergy was completed, whereby
we satisfied our purchase price obligation to Innergy in the form of a share
issuance (please see Note 4 for details).  This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required us to immediately reset their warrant exercise price of $9.00 to
the VWAP in place at the time of the Innergy True up of $3.60, as well as to
change their debt conversion rate from the previous $9.00 to
$3.60.  This true up also required the issuance of new warrants to
allow the denture holders to maintain their previous aggregate exercise price
following the update.  The calculation for this change to our
debenture debt is outlined below.  All related charges were
immediately charged to interest expense.





1.
            The
      estimated change in value of the restated  debenture warrants
      related to the reset of the exercise price (see letter “G” above) was
      calculated by using the stock price employed for the Innergy true up
      calculation of $3.60 as the 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 $4.80 (old) and $3.60  (new), Stock
      Price $6.00 (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 $35,001 and
      was charged to interest
expense.


14





2.
            The
      estimated number of additional warrants required to be issued to true up
      to the previous 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 previous aggregate
      exercise price of $4.80 and the new aggregate exercise price following the
      reset to $3.60. This change required the issuance of an additional
      139,191 warrants (at $3.60) to maintain the previous aggregate exercise
      price. The change in value of the old vs. the  new increased
      number of warrants was ($445,061) using the Black Scholes Model with the
      following assumptions: Strike Price $3.60, Stock Price $2.40 (price at
      December 31, 2008), time 753 days, Volatility 146.39%, Risk Free Rate
      3.83%. The reduction in value (due to the lower stock price) was charged
      to interest expense.





On
January 30, 2009 a purchase price true up with Edison was completed, whereby we
satisfied our purchase price obligation to Edison in the form of a share
issuance (please see Note 4 for details).  This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required the issuance of new warrants to allow the debenture holders to
maintain their previous aggregate exercise price following the
update.   This calculation resulted in the issuance of an additional
4,720,408 warrants (at $0.06) to maintain the previous aggregate exercise price.
The change in value of the old vs. the new increased number of warrants was
$124,147 using the Black Scholes Model consistent with the Innergy true
up.  The cost of the increased warrants of $124,147 was charged to
interest expense in the quarter ended March 31, 2009.





MARCH
2009 AMENDMENT TO THE DEBENTURES


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.





MARCH
2009 WAIVER PROVISIONS:


In
exchange for signing an Amendment to Debentures and Warrants, Agreement and
Waiver which deferred  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
      Debenture s to $3.60.





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.





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
      t o have an exercise price of $3.60 (to the extent that such exercise
      price was previously above $3.60), 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.


15





IMPACT OF
THE MARCH 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:


There was
no financial impact of the March 2009 waiver as the warrants mentioned were
reset to $3.60 at the time of the October 2008 true up.





The
current portion of the debentures was recorded, net of a $1,530,101 discount, at
$4,448,837 at March 31, 2009.  The long-term portion of the debentures
was recorded, net of a $166,211 discount, at $1,029,577 as of March 31,
2009.





Included
in accrued liabilities was $104,753 of accrued interest relating to the
debentures at March 31, 2009, and $0 at June 30, 2010.





MAY
2009 AMENDMENT TO THE DEBENTURES


Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed material to the Company’s future, thus on May 15, 2009, the
Company and the Debenture Holders entered into an agreement entitled “Amendment
to Debentures and Warrants, Agreement and Waiver” (the “Agreement”)
restructuring the Company’s equity as well as establishing an inducement for
additional working capital for the Company.  The Agreement’s effective
date was May 1, 2009.





MAY 2009
WAIVER PROVISIONS:


The
Company agreed to the following:





1.
            Defer
      payment of interest until November 1, 2009. Interest to be paid monthly
      from that date.  Interest accrued though September 30, 2009 will
      be added to principal.





2.
            Commence
      redemption of principal on January 1, 2010 in 10 equal
      payments.





3.
            Consent
      to obtaining additional working capital for specified uses not to exceed
      $2,500,000 in the same form and rights of debentures pari pasu in
      seniority both as to security interest priority and right of payment with
      the debenture held by the existing
holders.





4.
            Segregation
      of payment of the Karner bridge note, reaffirmed Karner and Morrow
      employment agreements, identifies specific contract carve outs should the
      Company fail to achieve certain target objectives, and provide for a bonus
      should the target be achieved.





5.
            Maintain
      the conversion price of the November 2007 Debentures and December 2007
      Debentures at $.06.





6.
            Additional
      covenants related to not exceeding $2,500,000 accounts payable amount or
      payment of other liabilities while the debentures are outstanding. Other
      covenants include maintaining minimum cash flow amounts. Allowing for
      inspection of financial records, and achieving Stimulus contract target
      objectives.





7.
            The
      right to recommend for placement on the Company's Board of Directors, two
      (2)  nominees by either BridgePointe or BridgePointe’s
      investment manager Roswell Capital Partners LLC or other debenture
      holders. Such a recommendation will meet the Company’s requirements as set
      forth in the Company’s Bylaws and all applicable federal and state law.
      The nominees may serve until such time as the Company has redeemed the
      debentures.





8.
            The
      existing Holders collectively will maintain an equity position in the
      Company, in fully diluted shares, of 80%. Should the existing holders
      Holders’ equity position collectively become less than the 80%, the
      Company will issue warrants to each existing Holder, pro-ratably to bring
      Holders’ equity position back to 80%. However, there are provisions (when
      additional capital is raised (not to exceed $2,500,000)) to bring the
      fully diluted position to 70% for the existing Holders as well as those
      Holders of new capital debentures.  There are provisions to
      further reduce the debenture holders to 65% should management achieve
      certain specified performance
targets.





9.
            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 will be amended to have
      an exercise price of $0.60 (to the extent that such exercise price
      was previously above $3.60), and the termination dates for the makeup
      warrants will be five (5) years from date of
  issuance.





10.
            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 1,300,000,000.


16





11.
            Agreed
      to specific provisions relating to disclosure of material nonpublic
      information by debenture holder board members, or at other times when
      complying with the provisions of the debenture waive
      agreement..





IMPACT OF
THE MAY 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:


In the
quarter ended June 30, 2009, the financial impact of the May waiver was
calculated and fully amortized as noted below, over the waiver period of May 15,
2009 through December 31, 2009.




1.
            The
      change in value of the restated debenture warrants related to the
      reset of the exercise price (see #9 above) was calculated using the Black
      Scholes Model using the following assumptions: Strike Price $0.06 (old)
      and $0.01 (new), Stock Price $0.11 (price on date of agreement), time
      162.34 days Volatility 162.34%, Risk Free Interest Rate 3.10%. The
      increase in value calculated totaled $887,843.  This amount was
      added to additional paid in capital, and a contra-equity account
      for “Unamortized Financing Charges” was established as the
      offset.  The portion of the Unamortized Financing Charges” that
      was charged to interest expense through September 30, 2009 was $532,706.
       The remaining $355,137 was expensed over the remainder of the waiver
      period (October through December
2009).





2.
            The
      number of additional warrants  to be issued to support the
      requirement of an 80% equity position as described in #8 above was
      calculated as follows:  Total Debenture warrants outstanding
      prior to the waiver = 871,460 + shares available on debenture conversion
      2,046,125 = 2,917,585 Total Fully Diluted Debenture Holder Ownership
      Pre-Waiver.  Total Company Fully Diluted Shares at May 15, 2009
      of 14,347,848 was used as the base on which to calculate the 80% ownership
      target of 11,478,278 shares.  To determine the
      warrants to be issued the 80% target figure of 11,478,278 less total
      Debenture Holder Ownership of 2,917,585 resulted in 8,560,692 (additional
      warrants to be issued).  To value the new warrants we used the
      market cap at the date of the issuance calculated as shares outstanding at
      May 15, 2009 of 2,698,436 multiplied by the closing share price
      of  $6.60 = $17,809,681.  To get the portion of the
      market cap  attributable to the new warrants (vs. those already
      held by the debenture holders ) we divided the # of new warrants
      (8,560,692) by the total 80% ownership target number of shares for the
      debenture holders (11,478,278)  to get (75%).  The 75%
      was multiplied by 80% total ownership %, and the resulting 60% was
      then multiplied by the total market cap to get the portion of the market
      cap attributable to the new issuance of  $10,626,208. This
      amount was added to additional paid in capital, and a contra-equity
      account for “Unamortized Financing Charges” was used as the
      offset.




All
Unamortized Financing Charges were amortized and charged to charged to interest
expense over the waiver period in the year ending December 31,
2009.





JUNE
2009 Amendment to the MAY Amendment to the Debentures


The
debenture holders and the Company signed a First Amendment to Amendment to
Debentures and Warrants, Agreement and Waiver dated June 30,
2009.  This amendment modified the May 15, 2009 Amendment
by:





a.
            Increasing
      approval authority for specified transactions for the November and
      December 2007 and July 2009 Debenture Holders to 85% from 75% of
      outstanding principal amount.


b.
            Clarifying
      whom has Board of Director member
rights





c.
            Clarifying
      the June 30, 2009 warrant true-up calculation, per the May 15, 2009
      Amendment.





IMPACT OF
THE PROVISIONS OF THE JUNE AMENDMENT TO THE FINANCIAL STATEMENTS:


There was
no impact to the financial statements related to the June amendment to the May
15, 2009 amendment.




JULY
2009 NEW DEBENTURE ISSUANCE





To
support ECOtality’s expansion and current working capital needs, the Company
received a direct investment of $2,5000,000 in 8% Secured Convertible Debentures
due October 1, 2010, of which Shenzhen Goch Investment Ltd was issued $2,000,000
in debentures, Enable Growth Partners (current debenture holder) was issued
$250,000 in debentures, and BridgePointe Master Fund (current debenture holder)
was issued $250,000 in debentures. The debentures have an exercise price or
$3.60 per share of ECOtality common stock.  The July 2009
Debentures:





a.
            Are
      consistent with the initial debentures issued in November and December
      2007 except this series is secured, convertible rather than original issue
      discount debentures.


17





b.
            Update
      the original Security Purchase Agreements, Securities Agreements,
      Registration Rights Agreements, Subsidiary Guarantees, and related
      disclosure schedules.





c.
            Provide
      for issuance of warrants to Shenzhen Goch Investment Ltd for their capital
      investment and adjusting the warrants held by Enable and BridgePointe
      subject to the June 30, 2009 true up as defined in the May 15,
      2009 Amendment.





d.
            Restate
      the agreement to increase the number of the Company’s authorized
      common shares from 300,000,000 to
1,300,000,000.





e.
            Restate
      the covenants established in the May 15, 2009 Amendment and the Karner
      “carve-out” should certain “Stimulus” contract targets not be achieved. In
      accordance with the terms of the May 15 Amendment, the Company and Karner
      agreed that if Karner continues to remain a full-time employee, and The
      Company (with Karner’s assistance) fail to secure executed Stimulus
      Contracts (as defined in the May 15 Amendment) having an aggregate total
      contract value of $20,000,000 or more during the period from May 15, 2009
      through October 1, 2009, then The Company  must, on or prior to
      October 9, 2009, transfer ownership of all stock and assets of The Clarity
      Group, Inc. to Karner.





OCTOBER
2009 SECURITIES EXCHANGE AGREEMENT





On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299  shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common Stock”) at a
1:1 ratio.





As of
June 30, 2010  a liability had been accrued of  $641,409 in
anticipation of  a potential penalty related to the registration
rights agreement as included in the October 31 Securities Purchase Agreement
(SPA).  This agreement’s provisions called for the filing of a
registration statement within 45 days of the SPA being signed.  For
reasons largely outside Management’s control, this filing was
delayed.   In recognition of this circumstance, a waiver of all
penalties was signed by the affected investors and the accrued penalty was
reversed in the quarter ended June 30, 2010.  This reversal was
recorded as a reduction of interest expense for the portion of the penalty
accrued and expensed to interest in 2010 ($323,910), and the portion of the
penalty accrued and expensed in 2009 ($317,499) was recorded as “other
income”.





IMPACT OF
THE PROVISIONS OF THE SECURITIES EXCHANGE AGREEMENT ON THE FINANCIAL
STATEMENTS:


The
outstanding principal and unpaid interest on the date of the agreement was
$9,111,170.  The outstanding debenture liability was relieved in full
and a credit was recorded to additional paid in capital in the amount
of  9,102,573 and preferred stock was credited at par value of $0.001
multiplied by the 8,597,299 shares that were issued, for a credit of
$8,597.  The unamortized discount on the convertible debentures was
$676,244 immediately prior to the transaction.  This amount was
charged in full to interest expense in the year ended December 31,
2009.





The
balance of the debenture debt at June 30, 2010 was $0.




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 was
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 was 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 in full on April 20, 2009. The
balance of the note payable was $450,000 at December 31, 2008.  This
balance was paid in full on December 11, 2009.




Interest
expense totaled ($322,751) for the quarter and $6,043 for the six months ended
June 30, 2010.  The negative interest expense in the quarter reflects
the reversal of the portion of a penalty for a delayed filing of our S-1 that
was accrued and expensed in 2010.  This penalty was related to the
October 2009 Securities Exchange agreement and called for the filing of an S-1
within 45 days of the signing of that document.  This filing was
delayed largely due to circumstances outside management’s
control.  For this reason, the affected shareholders waived the
penalty and the total associated accrued liability of $641,409 ($317,499 accrued
in 2009 and $323,910 in 2010) has been reversed.  The 2009 portion of
the accrual ($317,499) was recorded as other income.





Note
7 – Stockholders’ equity





The
Company is authorized to issue 1,300,000,000 shares of its $0.001 par value
common stock and 200,000,000 shares of $0.001 par value preferred
stock.


18




Common
Stock





On August
8, 2008 the Company entered into a contract for services with vendor that called
for the issuance of 6,500 shares of the Company’s $0.001 common
stock.  These shares were valued at $54,900 and were expensed over the
life of the contract.  At December 31, 2008 $22,750 had been expensed
leaving a balance of $31,850 in prepaid services.  In the nine months
ended September 30, 2009 the remaining $31,850 was expensed leaving a balance of
$0 in prepaid services at December 31, 2009.





There
were 2,157,048 shares of common stock issued and outstanding at December
31, 2008.





On
December 6, 2007 the Company acquired through ECOtality North America the
Minit-Charger business of Edison Enterprises. The fair market value of the
transaction was $3,000,000. The company paid $1,000,000 in cash and issued
33,333 shares of the company’s common stock for the acquisition.  The
company guaranteed to the sellers that the shares would be worth $60 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.  This
purchase price obligation was settled in full on January 30, 2009 with the
issuance of 522,222 shares of ECOtality’s $0.001 par value common
stock.





In March
2009 the Company issued 17,917 shares of the Company’s $0.001 common stock
in satisfaction of $90,000 in accounts payable owed to two service
vendors.





On April
13, 2009 1,250 shares of common stock owed in 2008 were issued to an employee in
accordance with an employment agreement.





For the
year ended December 31, 2009, 16,667 shares of common stock valued at $260,000
were issued and 16,667 were owed in return for professional
services.





19,895
shares were issued to Corporate Headquarter employees as
compensation.  These awards were valued at $128,987 and approved by
the Board and were issued in recognition of performance during the year ended
December 31, 2009.





On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Company's Common Stock at a purchase price of $7.20 per
share.  $20,500,000 was raised pursuant to the Purchase Agreement in
the year ended December 31, 2009.   Total fees to brokers
associated with the capital raise were $1,204,935 in cash as per their
contracted fee agreements.  $15,500,000 was received in the year ended
December 31, 2009.  1,458,330 Shares were issued in 2009 in
satisfaction of $10,500,000 of the investment received.  The the
remaining $5,000,000 received in 2009 and an additional $5,000,000 subscribed in
2009 were related to a single investor.  To capture the partial
receipt and outstanding commitment, a subscription receivable of $5,000,000
and 1,388,889 shares owed but not issued were recorded at December 31, 2009 and
were subsequently issued upon receipt of the second half of the investor's total
$10,000,000 investment in January of 2010.  At June 30, 2010 all
related shares were issued and outstanding.  In addition to the shares
and fees described above, the purchase agreement called for the issuance
of 2,847,222 warrants to the new investors and 163,194 warrants to the
brokers involved in the capital raise, as part of the contractual fee
agreements.  These are five year warrants with an exercise price of
$9.00 and were issued November 10, 2009.




On
September 30, 2009, triggering conditions were met under the management
incentive plan (established as part of the May 15, 2009 amendment to the
debentures) resulting in the grant of an equity award to Mr. Jonathan Read
valued at $8.1 million. This award, originally stated in terms of warrants was
never issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company’s $0.001 par value common stock being granted
to Mr. Read on January 15, 2010, with final issuance of the shares on January
27, 2010. The value of the final award was calculated at the time of the
issuance of the shares on January 27, 2010. The share price on that date was
$5.50 for total compensation of $3,704,278. At December 31, 2009 the full amount
of the original award of $8.1 million was recorded in additional paid in capital
and the shares were shown as owed but not issued. At June 30, 2010 the 673,505
shares are issued and outstanding.  The award amount booked to
additional paid in capital was not reduced from the original $8.1 million
estimate to the $3.7 million final award value in compliance with
GAAP.




For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares,  Enable Opportunity exercised 114,159 warrants in exchange for
107,506 shares, Pierce Diversified Master Fund exercised 57,079 warrants in
exchange for 53,753 shares,  BridgePointe Master Fund exercised
1,080,210 warrants in exchange for 1,010,324 shares and Glenwood Capital, LLC
(recipient of assigned warrants) exercised 34,854 warrants in exchange for
33,333 shares





For the
year ended December 31, 2009, 98,610 shares were issued on the cashless
conversion of 105,306 Brookstreet Investor warrants at $0.60 exercise
price.





For
the year ended December 31, 2009, 302,778 shares on the Company's $0.001
par value common stock  were issued for conversion of debenture debt
in the amount of  $1,090,000 at a rate of $3.60 as
follows:  Pierce Diversified Master Fund converted $42,000 in debt for
11,667 shares, Enable Growth converted $714,000 in debt for 198,333 shares,
Enable Opportunity converted $84,000 in debt for 23,333 shares and BridgePointe
Master Fund converted $250,000 in debt for 69,444 shares.


19





There
were 6,713,285 shares of Common Stock outstanding and 2,079,061 shares owed but
not issued at December 31, 2009.





Shares
owed but not issued at December 31, 2009 (as described in detail above) were
subsequently issued in the quarter ended March 31, 2010 as
follows:  673,505 shares were issued to Jonathan Read, 16,666 shares
were issued to a consultant and 1,388,888 shares were issued to new
investors.





19,998
shares of Common Stock were issued in the quarter ended March 31, 2010 relating
to the exercise of warrants with an exercise price of $0.60.  The
warrants were exercised in the following increments:  9,999 on January
11, 2010, 3,333 on January 15, 2010, 3,333 on January 19, 2010 and 3,333 on
March 22, 2010.  These warrants were exercised for cash.





On March
3, 2010 60,000 shares were issued to BridgePointe Master Fund on the conversion
of the same number of preferred shares.





130
previously outstanding fractional shares of Common Stock (resulting from the
November 2009 reverse stock split) were bought back and cancelled by the Company
reducing the total outstanding shares by that amount.





There
were 8,872,474 shares of Common Stock outstanding and 0 shares were owed but not
issued at March 31, 2010.





On April
7, 2010, 83 shares were issued to an employee in accordance with an employment
agreement.





On April
8, 2010, 1,100 shares were issued to a consultant in accordance with a
contractual agreement.





On April
21, 20,418 shares of preferred stock were converted in exchange for the issuance
of 20,418 shares of common stock.





On April
27, 2010 100,000 shares of preferred stock were converted in exchange for the
issuance of 100,000 shares of common stock.





10
previously outstanding fractional shares of Common Stock (resulting from the
November 2009 reverse stock split) were bought back and cancelled by the Company
reducing the total outstanding shares by that amount.








There
were 8,994,065 shares of Common Stock outstanding and 0 shares were owed but not
issued at June 30, 2010.





Preferred
Shares





On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299  shares of Series A Convertible
Preferred Stock (while not impacted by the current common stock split discussed
herein, it could be subject to adjustment for future forward and reverse stock
splits, stock dividends, recapitalizations and the like). The Series A
Convertible Preferred Stock has no redemption or preferential dividend rights,
but may be converted into shares of the Company’s common stock (the “Common
Stock”) at a 1:1 ratio





There
were 8,597,299 shares of Series A Convertible Preferred Stock outstanding at
December 31, 2009.





On March
3, 2010 BridgePointe Master Fund converted 60,000 shares of their Preferred
Stock into 60,000 shares of Common Stock.





There
were 8,537,299 shares of Series A Convertible Preferred Stock outstanding at
March 31, 2010.





On April
21, 2010 Glenwood Capital converted 20,418 shares of their Preferred Stock into
20,418 shares of Common Stock.





On April
27, 2010 BridgePointe Master Fund converted 100,000 shares of their Preferred
Stock into 100,000 shares of Common Stock.





There
were 8,416,881 shares of Series A Convertible Preferred Stock outstanding at
June 30, 2010.





Note
8 – Options and Warrants





At
December 31, 2008, there were 914,812 warrants outstanding.





A third
reset of the November and December debenture warrants occurred in January 2009
due to the Edison True up outlined in Note 6.  This reset led to the
issuance of an additional 78,673 warrants attributable to the November and
December Warrants with an exercise price of $3.60.





On May
15, 2009 the November and December debentures were amended as outlined in Note
6.  As a result, the existing warrants were reset from $3.60 to $0.60
exercise price and an additional 8,560,692 true up warrants were also issued to
provide for an 80% equity position agreed to as part of this
amendment.





In
conjunction with the new July 2 debentures discussed more fully in Note 6, the
November and December 2007 debenture holders surrendered 720,128 warrants in
compliance with the June 30th True Up requirement contained in the May 15, 2009
debenture waiver.


20





For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange for 107,506
shares, Pierce Diversified Master Fund exercised 57,079 warrants in exchange for
53,753 shares, BridgePointe Master Fund exercised 1,080,210 warrants in exchange
for 1,010,324 shares and Glenwood Capital, LLC (recipient of assigned warrants)
exercised 34,854 warrants in exchange for 33,333 shares





In
accordance with our October 2009 Securities Purchase Agreement, new investors
would secure 1 share of common stock per $7.20 invested plus one warrant to
purchase one share of common stock for a price of $9.00.  In return for
total equity investments received of $15.5 million in addition to a subscription
receivable of an additional $5 million, 2,847,222 five year warrants were issued
on November 10, 2009 with an exercise price of $9.00 to 13 new investors. 
In addition, 163,194 five year warrants with an exercise price of $9.00 were
issued to brokers involved in the capital raise activities in accordance with
their contractual agreements.





During
the year ended December 31, 2009: 26,665 five year warrants with an exercise
price of $0.60 were issued to two consultants in accordance with their
contractual agreements, 17,615 five year warrants with an exercise price of
$0.60 were issued to Brookstreet Investors in satisfaction of anti-dilution
provisions as outlined in their Securities Purchase Agreements, and 105,693
warrants with an exercise price of $0.60 were cashless exercised by Brookstreet
Investors in return for 98,610 shares of common stock.





On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible debentures and
holders of certain warrants to convert all outstanding amounts ($9,111,170)
under these debentures and all 6,455,083 related warrants into an aggregate of
8,597,299 shares of Series A Convertible Preferred Stock.





In the
six months ended June 30, 2010, 18,332, 5 year warrants with an exercise price
of $0.60 were issued to a consultant in accordance with contract terms (valued
at $51,036 using the Black Scholes Model) and 19,998 warrants with an exercise
price of $0.60 were exercised by consultants for cash.




The
following is a summary of the status of the Company’s stock
warrants*:





*This
table previously contained both warrants and employee options.  The options
have been removed from the table to be disclosed separately going forward,
resulting in a reduction in the outstanding number of shares in the warrant
table by 49,167 starting in December of 2008.





Number
      Of Shares
                            
                            
                            Weighted-Average
                              Exercise
      PriceOutstanding
      at December 31, 2008
                            
                            
                            914,812
                            
                            
                            $
                            8.40Granted
                            
                            
                            11,694,061
                            
                            
                            $
                            2.76Exercised
                            
                            
                            (8,817,722
                            )
                            
                            $
                            0.60Cancelled
                            
                            
                            (720,128
                            )
                            
                            $
                            0.60Outstanding
      at December 31, 2009
                            
                            
                            3,071,023
                            
                            
                            $
                            9.71Granted
                            
                            
                            9,999
                            
                            
                            $
                            0.60Exercised
                            
                            
                            (19,998
                            )
                            
                            $
                            0.60Cancelled
                            
                            
                            -
                            
                            
                            $
                            0.60Outstanding
      at June 30, 2010
                            
                            
                            3,061,024
                            
                            
                            $
                            9.71





STOCK
      WARRANTS OUTSTANDINGRange
      of
                      Exercise
      Price
                    
                    Number
      of
                      Shares
                      Outstanding
                    
                    
                    Weighted-Average
                      Remaining
                      Contractual
                      Life
      in Years
                    
                    
                    Weighted-Average
                      Exercise
      Price$74.40-$85.20
                    
                    
                    31,665
                    
                    
                    
                    1.17
                    
                    
                    $
                    81.66$21.00
                    
                    
                    2,281
                    
                    
                    
                    1.33
                    
                    
                    $
                    21.00$9.00
                    
                    
                    3,010,412
                    
                    
                    
                    4.36
                    
                    
                    $
                    9.003,061,024
                    
                    
                    
                    4.32
                    
                    
                    $
                    9.71




STOCK
      WARRANTS EXERCISABLERange
      of
                                                          Exercise
      Price
                                                        
                                                        Number
      of
                                                          Shares
                                                          Outstanding
                                                        
                                                        
                                                        Weighted-Average
                                                          Remaining
                                                          Contractual
                                                          Life
      in Years
                                                        
                                                        
                                                        Weighted-Average
                                                          Exercise
      Price$74.40-$85.20
                                                        
                                                        
                                                        31,665
                                                        
                                                        
                                                        
                                                        1.17
                                                        
                                                        
                                                        $
                                                        81.66$21.00
                                                        
                                                        
                                                        2,281
                                                        
                                                        
                                                        
                                                        1.33
                                                        
                                                        
                                                        $
                                                        21.00$9.00
                                                        
                                                        
                                                        3,010,412
                                                        
                                                        
                                                        
                                                        4.36
                                                        
                                                        
                                                        $
                                                        9.003,061,024
                                                        
                                                        
                                                        
                                                        4.32
                                                        
                                                        
                                                        $
                                                        9.71


21


Options:





At
December 31, 2008, there were 49,164 options outstanding.





On April
16, 2010 the Company’s outside directors received a total of 70,500 10 year
options to purchase Common Stock at a $4.60 exercise price (the closing market
price on that date).  These options were valued at $321,974 using the Black
Scholes Model (time 1,825 days, volatility 237.55%, risk free rate 3.83%). These
options were issued in accordance with a Director’s Compensation package
implemented in the first quarter of 2010.





On April
26, 2010, Management and Employees were awarded a total of 767,000 ten year
options to purchase Common Stock at a $5.39 exercise price (the closing market
price on that date).  These options were valued at $4,103,834 using the
Black Scholes Model (time 1,825 days, volatility 236.92%, risk free rate 3.83%).
These options were issued at the direction of the Board of Directors in an
employment compensation plan approved by our Board Compensation Committee in
conjunction with an independent compensation consultant.





On June
14, 2010 an additional 100,000 10 year options were issued to Management and
Employees to purchase Common Stock at a $6.19 exercise price (the closing market
price on that date).  These options were valued at $613,570 using the Black
Scholes Model (time 1,825 days, volatility 232.85%, risk free rate 2.07%). These
options were issued at the direction of the Board of Directors as outlined in
the employment compensation plan approved by our Board Compensation Committee in
conjunction with an independent compensation consultant.





At June
30, 2010, there were 986,664 options outstanding with a weighted average
exercise price of $5.61 and weighted average remaining life of 8.79
years.





NOTE
9 – Income taxes





The
Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”) for recording the provision for
income taxes.  ASC 740-10 requires the use of the asset and liability
method of accounting for income taxes.  Under the asset and liability
method, 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.





The
Company’s effective income tax rate is higher than would be expected if the
federal statutory rate were applied to income before tax, primarily because of
expenses deductible for financial reporting purposes that are not deductible for
tax purposes during the year ended December 31, 2009 and 2008.





The
Company’s operations for the year ended December 31, 2009 and 2008 resulted in
losses, thus no income taxes have been reflected in the accompanying statements
of operations.





As of
December 31, 2009 and 2008, the Company has net operating loss carry-forwards
which may or may not be used to reduce future income taxes payable. Current
Federal Tax Law limits the amount of loss available to offset against future
taxable income when a substantial change in ownership occurs. Therefore, the
amount available to offset future taxable income may be limited.  A
valuation allowance has been recorded to reduce the net benefit recorded in the
financial statements related to this deferred asset. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the ultimate
realization of these deferred tax assets.





The
provision for income taxes consist of the following:





As of December 31,2009
                  
                  
                  2008Current
      tax
                  
                  $
                  -
                  
                  
                  $
                  -Benefits
      of operating loss carry forward
                  
                  
                  3,295,000
                  
                  
                  
                  3,780,000Change
      in valuation allowance
                  
                  
                  (3,295,000
                  )
                  
                  
                  (3,780,000
                  )Provision
      for income tax
                  
                  $
                  -
                  
                  
                  $
                  -




22


Below is
a summary of deferred tax asset calculations as of December 31, 2009 based on a
34% income tax rate. Currently there is no reasonable assurance that the Company
will be able to take advantage of a deferred tax asset. Thus, an offsetting
allowance has been established for the deferred asset.





Deferred tax
                      asset
                    
                    
                    34% tax rateNet
      operating loss
                    
                    $
                    27,730,124
                    
                    
                    $
                    9,425,000Reserves
      and allowances
                    
                    
                    8,859,582
                    
                    
                    
                    1,025,000Goodwill,
      net of amort.
                    
                    
                    3,027,045
                    
                    
                    
                    3,010,00013,460,000Valuation
      allowance
                    
                    
                    
                    
                    
                    
                    (13,460,000
                    )Deferred
      tax asset
                    
                    
                    
                    
                    
                    $
                    -





For
financial reporting purposes, the Company has incurred a loss since inception to
December 31, 2009.  Based on the available objective evidence, including
the Company’s history of its loss, management believes it is more likely than
not that the net deferred tax assets will not be fully realizable. Accordingly,
the Company provided for a full valuation allowance against its net deferred tax
assets at December 31, 2009. Further, management does not believe it has taken
the position in the deductibility of its expenses that creates a more likely
than not potential for future liability under the guidance of FIN
48.





A
reconciliation between the amount of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is as
follows:





Year ended December 31,2009
                  
                  
                  2008Federal
      and state statutory rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %Non-deductible
      items in net loss
                  
                  
                  (23
                  )%
                  
                  
                  13
                  %Change
      in valuation allowance
                  
                  
                  (11
                  )%
                  
                  
                  (47
                  )%-
                  
                  
                  
                  -


23


For
financial reporting purposes, the Company has incurred a loss since inception to
June 30, 2010.  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 34% has been fully offset by the
change in the valuation allowance during the quarters ended June 30, 2010 and
2009.  The effective income tax rate of the Company over these years is
0%.





Note
10– Commitments and contingencies




As of
June 30, 2010, the Company has eleven leases in effect for operating
space.  Future obligations under these commitments are $194,540 for the
remainder of 2010, $396,238 for 2011, $404,240 for 2012, $190,589 for 2013,
$129,159 for 2014, $109,175 for 2015.





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 and the
second June 12, 2010, both of which have been accrued (total of $39,267 net
allowable reductions) through the six months ended June 30, 2010. 
 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





Generally
accepted accounting procedures  require 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.  In this
manner the Company has concluded it has three reportable segments; ECOtality
Stores, Innergy Power segment and ECOtality North America segment (which
includes ECOtality Australia). 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 ECOtality North America segment
includes our ECOtality Australia operations and 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.  ECOtality North America
holds exclusive patent rights to the ECOtality North America 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, ECOtality North America 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. For the six
months ended June 30, 2010 and 2009 inter-segment sales were $339,373 and
$28,723 respectively.  All inter-segment sales have been eliminated during
the consolidation process.





Summarized
financial information concerning the Company’s reportable segments for the
quarter and the six months ended June 30, 2010 and 2009 is as
follows:


24




THREE
      MONTHS ENDED JUNE 30, 2010ECOTALITYNORTH
                                          
                                          
                                          
                                          
                                          
                                          FUEL
      CELLAMERICA
                                          
                                          
                                          INNERGY
                                          
                                          
                                          STORE
                                          
                                          
                                          TOTALTotal
      net operating revenues
                                          
                                          $
                                          2,925,941
                                          
                                          
                                          $
                                          291,654
                                          
                                          
                                          $
                                          193,994
                                          
                                          
                                          $
                                          3,411,589Depreciation
      and amortization
                                          
                                          $
                                          109,638
                                          
                                          
                                          $
                                          1,012
                                          
                                          
                                          $
                                          890
                                          
                                          
                                          $
                                          111,540Operating
      income (loss)
                                          
                                          $
                                          (4,178,933
                                          )
                                          
                                          $
                                          (108,819
                                          )
                                          
                                          $
                                          53,683
                                          
                                          
                                          $
                                          (4,234,069
                                          )Interest
      Income (expense)
                                          
                                          $
                                          (74
                                          )
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          (74
                                          )Gain
      / (Loss) on disposal of assets
                                          
                                          $
                                          (12,201
                                          )
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          (12,201
                                          )Other
      Income (expense)
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Segment
      Income before Corporate Overhead Allocation
                                          
                                          $
                                          (4,191,208
                                          )
                                          
                                          $
                                          (108,819
                                          )
                                          
                                          $
                                          53,683
                                          
                                          
                                          $
                                          (4,246,344
                                          )Corporate
      Overhead Allocation
                                          
                                          $
                                          (2,314,293
                                          )
                                          
                                          $
                                          (230,686
                                          )
                                          
                                          $
                                          (153,441
                                          )
                                          
                                          $
                                          (2,698,419
                                          )Segment
      Income / (Loss)
                                          
                                          $
                                          (6,505,501
                                          )
                                          
                                          $
                                          (339,505
                                          )
                                          
                                          $
                                          (99,758
                                          )
                                          
                                          $
                                          (6,944,764
                                          )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          37,567Reported
      Net income after tax
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (6,982,330
                                          )Capital
      Expenditures
                                          
                                          $
                                          114,651
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          114,651Total
      segment assets - excluding intercompany receivables
                                          
                                          $
                                          4,711,355
                                          
                                          
                                          $
                                          367,447
                                          
                                          
                                          $
                                          273,535
                                          
                                          
                                          $
                                          5,352,337Other
      items Not included in Segment Assets:Goodwill
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          3,495,878Other
      Corporate Assets
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          13,562,508Total
      Reported Assets
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          22,410,724





THREE
      MONTHS ENDED JUNE 30, 2009ECOTALITYNORTH
                                      
                                      
                                      
                                      
                                      
                                      FUEL
      CELLAMERICA
                                      
                                      
                                      INNERGY
                                      
                                      
                                      STORE
                                      
                                      
                                      TOTALTotal
      net operating revenues
                                      
                                      $
                                      1,020,473
                                      
                                      
                                      $
                                      572,008
                                      
                                      
                                      $
                                      154,604
                                      
                                      
                                      $
                                      1,747,085Depreciation
      and amortization
                                      
                                      $
                                      75,845
                                      
                                      
                                      $
                                      1,471
                                      
                                      
                                      $
                                      889
                                      
                                      
                                      $
                                      78,205Operating
      income (loss)
                                      
                                      $
                                      (142,339
                                      )
                                      
                                      $
                                      128,710
                                      
                                      
                                      $
                                      13,696
                                      
                                      
                                      $
                                      67Interest
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Gain
      / (Loss) on disposal of assets
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Other
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Segment
      Income before Corporate Overhead Allocation
                                      
                                      $
                                      (142,339
                                      )
                                      
                                      $
                                      128,710
                                      
                                      
                                      $
                                      13,696
                                      
                                      
                                      $
                                      67Corporate
      Overhead Allocation
                                      
                                      $
                                      2,083,942
                                      
                                      
                                      $
                                      1,168,117
                                      
                                      
                                      $
                                      315,722
                                      
                                      
                                      $
                                      3,567,781Segment
      Income / (Loss)
                                      
                                      $
                                      (2,226,281
                                      )
                                      
                                      $
                                      (1,039,407
                                      )
                                      
                                      $
                                      (302,026
                                      )
                                      
                                      $
                                      (3,567,713
                                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      33,132Reported
      Net income after tax
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (3,600,845
                                      )Capital
      Expenditures
                                      
                                      $
                                      109,725
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      109,725Total
      segment assets - excluding intercompany receivables
                                      
                                      $
                                      2,448,983
                                      
                                      
                                      $
                                      585,398
                                      
                                      
                                      $
                                      195,742
                                      
                                      
                                      $
                                      3,230,123Other
      items Not included in Segment Assets:Goodwill
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,495,878Other
      Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      844,638Total
      Reported Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      7,570,639


25




SIX
      MONTHS ENDED JUNE 30, 2010ECOTALITYNORTH
                                        
                                        
                                        
                                        
                                        
                                        FUEL
      CELLAMERICA
                                        
                                        
                                        INNERGY
                                        
                                        
                                        STORE
                                        
                                        
                                        TOTALTotal
      net operating revenues
                                        
                                        $
                                        5,074,693
                                        
                                        
                                        $
                                        639,109
                                        
                                        
                                        $
                                        397,873
                                        
                                        
                                        $
                                        6,111,674Depreciation
      and amortization
                                        
                                        $
                                        214,739
                                        
                                        
                                        $
                                        1,981
                                        
                                        
                                        $
                                        1,779
                                        
                                        
                                        $
                                        218,499Operating
      income (loss)
                                        
                                        $
                                        (5,167,729
                                        )
                                        
                                        $
                                        (58,387
                                        )
                                        
                                        $
                                        100,617
                                        
                                        
                                        $
                                        (5,125,500
                                        )Interest
      Income (expense)
                                        
                                        $
                                        (106
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (106
                                        )Gain
      / (Loss) on disposal of assets
                                        
                                        $
                                        (12,201
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (12,201
                                        )Other
      Income (expense)
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Segment
      Income before Corporate Overhead Allocation
                                        
                                        $
                                        (5,180,036
                                        )
                                        
                                        $
                                        (58,387
                                        )
                                        
                                        $
                                        100,617
                                        
                                        
                                        $
                                        (5,137,807
                                        )Corporate
      Overhead Allocation
                                        
                                        $
                                        (3,463,568
                                        )
                                        
                                        $
                                        (436,203
                                        )
                                        
                                        $
                                        (271,555
                                        )
                                        
                                        $
                                        (4,171,327
                                        )Segment
      Income / (Loss)
                                        
                                        $
                                        (8,643,605
                                        )
                                        
                                        $
                                        (494,590
                                        )
                                        
                                        $
                                        (170,939
                                        )
                                        
                                        $
                                        (9,309,134
                                        )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        72,212Reported
      Net income after tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        (9,381,345
                                        )Capital
      Expenditures
                                        
                                        $
                                        335,347
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        335,347Total
      segment assets - excluding intercompany receivables
                                        
                                        $
                                        4,711,355
                                        
                                        
                                        $
                                        367,447
                                        
                                        
                                        $
                                        273,535
                                        
                                        
                                        $
                                        5,352,337Other
      items Not included in Segment Assets:Goodwill
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        3,495,878Other
      Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        13,562,508Total
      Reported Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        22,410,724





SIX
      MONTHS ENDED JUNE 30, 2009FUEL
      CELLETEC
                                      
                                      
                                      INNERGY
                                      
                                      
                                      STORE
                                      
                                      
                                      TOTALTotal
      net operating revenues
                                      
                                      $
                                      2,795,559
                                      
                                      
                                      $
                                      1,050,822
                                      
                                      
                                      $
                                      370,903
                                      
                                      
                                      $
                                      4,217,284Depreciation
      and amortization
                                      
                                      $
                                      179,355
                                      
                                      
                                      $
                                      2,926
                                      
                                      
                                      $
                                      1,780
                                      
                                      
                                      $
                                      184,061Operating
      income (loss)
                                      
                                      $
                                      (193,319
                                      )
                                      
                                      $
                                      265,070
                                      
                                      
                                      $
                                      61,344
                                      
                                      
                                      $
                                      133,095Interest
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Gain
      / (Loss) on disposal of assets
                                      
                                      $
                                      9,760
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,760Other
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Segment
      Income before Corporate Overhead Allocation
                                      
                                      $
                                      (183,559
                                      )
                                      
                                      $
                                      265,070
                                      
                                      
                                      $
                                      61,344
                                      
                                      
                                      $
                                      142,855Corporate
      Overhead Allocation
                                      
                                      $
                                      2,898,282
                                      
                                      
                                      $
                                      1,387,778
                                      
                                      
                                      $
                                      414,952
                                      
                                      
                                      $
                                      4,701,012Segment
      Income / (Loss)
                                      
                                      $
                                      (3,081,841
                                      )
                                      
                                      $
                                      (1,122,708
                                      )
                                      
                                      $
                                      (353,608
                                      )
                                      
                                      $
                                      (4,558,157
                                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      66,246Reported
      Net income after tax
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (4,624,403
                                      )Capital
      Expenditures
                                      
                                      $
                                      113,882
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      113,882Total
      segment assets - excluding intercompany receivables
                                      
                                      $
                                      2,448,983
                                      
                                      
                                      $
                                      585,398
                                      
                                      
                                      $
                                      195,742
                                      
                                      
                                      $
                                      3,230,123Other
      items Not included in Segment Assets:Goodwill
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,495,878Other
      Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      844,638Total
      Reported Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      7,570,639





NOTE
12 – Related Party Transactions





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 nine months ended September 30, 2008, $300,000 was
advanced by Mr. Karner and Ms. Forbes. This line carried a loan fee of $45,000
payable when the line expired on December 15, 2008. No other interest payments
or fees were required under the agreement. The fee of $45,000 was expensed over
the life of the Line. Imputed interest of $1,425 and financing charges of $6,962
were expensed in the nine month period ending September 30, 2008.  The
balance of the note payable of $450,000 was paid July 9, 2009.





Please
refer to Note 7 and 8 for information on equity awards to employees and
directors.


26




Note
13 – Subsequent Events





The
Company has evaluated all subsequent events through the date the financial
statements were issued, and determined that there are no subsequent events to
record, and the following subsequent events to disclose:




On July
7, 2010 a Preferred Shareholder converted 116,472 Preferred Shares into 116,472
shares of Common Stock.





On July
23, 2010 a Preferred Shareholder converted 31,328 Preferred Shares into 31,238
shares of Common Stock.





On July
31, 2010 Preferred Shareholders converted 206,984 Preferred Shares into 206,984
shares of Common Stock.





Management’s Discussion and Analysis of Financial Condition and
Results of Operations





The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition. The discussion should be read in conjunction
with the Condensed Consolidated Financial Statements and the related notes
thereto.





Forward-Looking
Statements





This
Quarterly Report contains forward-looking statements about our business,
financial condition and prospects that reflect 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 management’s assumptions should prove incorrect,
or if any of the risks and uncertainties underlying such expectations should
materialize, ECOtality’s 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 our customer base, managements’ ability to raise capital
in the future, the retention of key employees and changes in the regulation of
our industry.





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





GENERAL





The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition. The discussion should be read in conjunction
with the Condensed Consolidated Financial Statements and the related notes
thereto, contained elsewhere in this Form 10-Q.





Business
Development and Summary





ECOtality
is a leader in clean electric transportation and storage technologies The
primary focus of the Company is to facilitate and establish a
robust  electric vehicle (“EV”) charging infrastructure throughout the
world in anticipation of the broad commercialization of plug-in hybrid electric
vehicles (“PHEVs”) and battery electric vehicles (“BEVs”) .  With nearly
two-decades of industry expertise in EV technologies, the U.S. Department of
Energy (“DOE”) awarded ECOtality’s wholly-owned subsidiary, ECOtality North
America (formerly known as Electric Transportation Engineering Corporation or
“eTec”), approximately $114.8 million in matching grants to undertake the
largest deployment of electric vehicles and charging infrastructure in U.S.
history.  As the sole project manager of the total $230 million
public-private initiative known as “The EV Project,” the Company
believes it is uniquely positioned to capture a significant share
of the market for electric vehicles and charging solutions.





Through
The EV Project, ECOtality is leading the first large-scale deployment of smart
EV chargers for grid-tied electric vehicles.  This smart infrastructure
will feature real time connectivity, programmable charging time and a robust
media interface model that gives consumers added control of their charging
beyond “on” or “off” and allows for interaction with utilities’ demand response
initiatives and smart meter roll outs. The charging network is expected to
support the initial launch of over 5,700Nissan Leaf batter electric vehicles
(BEVs) and 2,600 Chevrolet Volt range extended electric vehicles (REEVs) and
will deploy approximately  15,000 charging stations in sixteen U.S.
cities across six states and the District of Columbia beginning in the fourth
quarter of 2010.  The goal of The EV Project is to develop, implement and
study techniques for optimizing the deployment of charging infrastructure to
support widespread deployment of electric vehicles in the U.S. and
internationally as well as to identify commercially viable business models to
create a sustainable EV charging industry.  The Company believes that
leading the world’s largest EV infrastructure project gives the Company
unparalleled and distinct competitive advantages that will support our global
business development initiatives into the future.  Operationally, The EV
Project enables ECOtality to further develop its industry leading smart charging
technologies and should serve as a platform to establish future revenue
opportunities through commercial relationships with national retailers and
partners throughout the electric vehicle value chain.  Beginning in late
2010 as part of The EV Project, our charging infrastructure is expected to be
deployed in major metropolitan areas including Phoenix and Tucson, Arizona, Los
Angeles and San Diego, California, Dallas, Fort Worth and Houston, Texas,
Seattle, Washington, Portland, Eugene, Salem, and Corvallis, Oregon, Nashville,
Knoxville and Chattanooga, Tennessee and Washington, DC.


27


ECOtality
plans to deploy its newly launched “Blink” brand of electric vehicle smart
chargers for both Level 2 charging (240V)  and Level 3 DC Fast
Charging (480V), through The EV Project beginning in late 2010.  Blink
chargers are currently available in two models, an in-home residential
wall-mounted unit and a commercial stand-alone charger that can be easily
installed at various points of interest, such as in a retailer’s parking
lot.  ECOtality intends to introduce the Blink Level 3 model which can
deliver a full charge in under 30 minutes (depending upon the battery size), or
four to six times faster than can be achieved with conventional chargers, with
battery life that is equal to or longer than those using traditional battery
charging methods.  Blink can be optimized to fast-charge on-road batteries
of all chemistries, while controlling battery temperature and avoiding the
negative effects of overcharging.  Blink is programmable to charge the
vehicle when electricity rates are lowest, providing energy and cost
efficiencies, and can be formatted to link directly to participating public
utilities for monitoring and billing.  Blink can also be controlled
remotely through web and smart-phone applications. The Blink system is fully
interactive with color touch screens delivering information, third-party media
and connectivity to network headquarters. Through its ability to operate a
national network, as well as enterprise networks, Blink should provide an array
of applications for the monetization of the charging space for hosts and network
operators. Blink Level 2 chargers for commercial and residential use are
expected to be available for retail in the late 4th quarter
of 2010 and the Blink DC Fast Charger will be available for retail in the first
half of 2011.





While we
are currently focused on successfully leading The EV Project in the United
States, we are also pursuing EV charging infrastructure opportunities around the
world, particularly in China, Australia and Europe.  We recently announced
two strategic joint ventures with China-based Shenzhen Goch Investment Limited
to manufacture, assemble and sell EV charging equipment in China.  These
joint ventures make us the first EV charging solutions provider in China,
representing an enormous growth opportunity for the Company as China is expected
to lead the world in purchases of electric vehicles.





In
addition to on-road applications, ECOtality specializes in providing EV smart
chargers for airport ground support vehicles and material handling equipment.
ECOtality offers DC Fast Charging systems, which have been installed at over
6,000 charging stations and powering electric ground support equipment at
airports across North America and electric material handling equipment at
warehouses and shipping facilities of industry-leading companies such as
including Costco, ConAgra Foods, Kimberly-Clark, The Home Depot, Pepsi and
Toyota.





ECOtality
is also involved in the development, manufacture, assembly and sale of specialty
solar products, advanced battery systems, and hydrogen and fuel cell
systems.  Through ECOtality subsidiary, Innergy Power Systems, we
manufacture patented ThinLine sealed lead rechargeable batteries and fiberglass
reinforced panel solar modules.  Innergy’s product line is focused on solar
energy products for off-grid power in a broad range of applications for
emergency preparedness and recreation.  Through the ECOtality Stores
subsidiary, we operate an e-commerce marketplace that offers a range of
educational and small commercial fuel cell products and consulting
services.





ECOtality’s
technology portfolio is linked through our ability to deliver a broad set of
alternative energy solutions to a variety of energy consumers.  We operate
with a commercial “electro-centric” strategy and plan to continue to pursue
additional technologies and companies focused on the creation, storage, and/or
delivery of clean or renewable electric power.  ECOtality’s technologically
diverse, multi-product platform should enable us to effectively mitigate the
uncertainty of clean technology demands and regulatory changes.




While we
are positioned favorably to meet our obligations in the early stages of the DOE
contract, we have a requirement for additional capital that we have publically
disclosed.  We intend to seek the necessary capital prior to the end
of 2010 that will allow us to complete our obligations related to the DOE
contract.  It has not been determined whether this requirement will be
met through debt or an equity raise.





Status
of any announced new product or service





On
January 8, 2009 ECOtality announced its EV Microclimate Program. It is an
integrated turnkey program that provides a blueprint for a comprehensive
Electric Vehicle infrastructure system.  As part of this program ECOtality
works with all relevant stakeholders to ensure an area is prepared for consumer
adoption of electric transportation.  The implementation of an EV
Micro-Climate includes physical charge infrastructure installations at
residential, commercial and public locations, as well as comprehensive
regulatory, public awareness and marketing programs to support the various value
chains associated with a n EV Micro-Climate.  As part of the process,
ECOtality will assist the automotive manufactures with
the  installation of home charging systems in car owners’ homes (or in
public areas) in advance of vehicle delivery, as well as install fast charging
systems in strategic locations (ie fuel stations, grocery stores, shopping
areas)





On July
27, 2010, ECOtality launched the new Blink brand of electric vehicle smart
chargers for both Level 2 charging (240V) and Level 3 DC Fast Charging (480V),
which will be brought to market through The EV Project beginning in late
2010.  Blink Level 2 chargers are currently available in two models, an
in-home residential wall-mounted unit and a commercial stand-alone charger that
can be easily installed at various points of interest, such as in a retailer’s
parking lot. ECOtaloity intends to introduce the Blink Level 3 model which can
deliver a full charge in under 30 minutes (depending upon the battery size), or
four to six times faster than can be achieved with conventional chargers, with
battery life that is equal to or longer than those using traditional battery
charging methods.  Blink can be optimized to fast-charge on-road batteries
of all chemistries, while controlling battery temperature and avoiding the
negative effects of overcharging.  Blink is programmable to charge the
vehicle when electricity rates are lowest, providing energy and cost
efficiencies, and can be formatted to link directly to participating public
utilities for monitoring and billing.  Blink can also be controlled
remotely through web and smart-phone applications. The Blink system is fully
interactive with color touch screens delivering information, third-party media
and connectivity to network headquarters. Through its ability to operate a
national network, as well as enterprise networks, Blink should provide an array
of applications for the monetization of the charging space for hosts and network
operators. Blink Level 2 chargers for commercial and residential use are
expected to be available for retail in the late 4th quarter
of 2010 and the Blink DC Fast Charger will be available for retail in the first
half of 2011.


28


Segment
Information





Generally
accepted accounting procedures require 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.  In this manner the
Company has concluded it has three reportable segments; ECOtality Stores,
Innergy Power segment and ECOtality North America segment (which includes
ECOtality Australia). 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 ECOtality North America segment includes our ECOtality
Australia operations and 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.  ECOtality North America holds exclusive patent rights
to the ECOtality North America 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,
ECOtality North America 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. For the six
months ended June 30, 2010 and 2009 inter-segment sales were $339,373 and
$28,723 respectively.  All inter-segment sales have been eliminated during
the consolidation process.





Summarized
financial information concerning the Company’s reportable segments for the
quarter and six months ended June 30, 2010 is as follows:





THREE
      MONTHS ENDED JUNE 30, 2010ECOTALITYNORTH
                                        
                                        
                                        
                                        
                                        
                                        FUEL
      CELLAMERICA
                                        
                                        
                                        INNERGY
                                        
                                        
                                        STORE
                                        
                                        
                                        TOTALTotal
      net operating revenues
                                        
                                        $
                                        2,925,941
                                        
                                        
                                        $
                                        291,654
                                        
                                        
                                        $
                                        193,994
                                        
                                        
                                        $
                                        3,411,589Depreciation
      and amortization
                                        
                                        $
                                        109,638
                                        
                                        
                                        $
                                        1,012
                                        
                                        
                                        $
                                        890
                                        
                                        
                                        $
                                        111,540Operating
      income (loss)
                                        
                                        $
                                        (4,178,933
                                        )
                                        
                                        $
                                        (108,819
                                        )
                                        
                                        $
                                        53,683
                                        
                                        
                                        $
                                        (4,234,069
                                        )Interest
      Income (expense)
                                        
                                        $
                                        (74
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (74
                                        )Gain
      / (Loss) on disposal of assets
                                        
                                        $
                                        (12,201
                                        )
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (12,201
                                        )Other
      Income (expense)
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Segment
      Income before Corporate Overhead Allocation
                                        
                                        $
                                        (4,191,208
                                        )
                                        
                                        $
                                        (108,819
                                        )
                                        
                                        $
                                        53,683
                                        
                                        
                                        $
                                        (4,246,344
                                        )Corporate
      Overhead Allocation
                                        
                                        $
                                        (2,314,293
                                        )
                                        
                                        $
                                        (230,686
                                        )
                                        
                                        $
                                        (153,441
                                        )
                                        
                                        $
                                        (2,698,419
                                        )Segment
      Income / (Loss)
                                        
                                        $
                                        (6,505,501
                                        )
                                        
                                        $
                                        (339,505
                                        )
                                        
                                        $
                                        (99,758
                                        )
                                        
                                        $
                                        (6,944,764
                                        )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        37,567Reported
      Net income after tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        (6,982,330
                                        )Capital
      Expenditures
                                        
                                        $
                                        114,651
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        114,651Total
      segment assets - excluding intercompany receivables
                                        
                                        $
                                        4,711,355
                                        
                                        
                                        $
                                        367,447
                                        
                                        
                                        $
                                        273,535
                                        
                                        
                                        $
                                        5,352,337Other
      items Not included in Segment Assets:Goodwill
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        3,495,878Other
      Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        13,562,508Total
      Reported Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        22,410,724


29




THREE
      MONTHS ENDED JUNE 30, 2009ECOTALITYNORTH
                                      
                                      
                                      
                                      
                                      
                                      FUEL
      CELLAMERICA
                                      
                                      
                                      INNERGY
                                      
                                      
                                      STORE
                                      
                                      
                                      TOTALTotal
      net operating revenues
                                      
                                      $
                                      1,020,473
                                      
                                      
                                      $
                                      572,008
                                      
                                      
                                      $
                                      154,604
                                      
                                      
                                      $
                                      1,747,085Depreciation
      and amortization
                                      
                                      $
                                      75,845
                                      
                                      
                                      $
                                      1,471
                                      
                                      
                                      $
                                      889
                                      
                                      
                                      $
                                      78,205Operating
      income (loss)
                                      
                                      $
                                      (142,339
                                      )
                                      
                                      $
                                      128,710
                                      
                                      
                                      $
                                      13,696
                                      
                                      
                                      $
                                      67Interest
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Gain
      / (Loss) on disposal of assets
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Other
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Segment
      Income before Corporate Overhead Allocation
                                      
                                      $
                                      (142,339
                                      )
                                      
                                      $
                                      128,710
                                      
                                      
                                      $
                                      13,696
                                      
                                      
                                      $
                                      67Corporate
      Overhead Allocation
                                      
                                      $
                                      2,083,942
                                      
                                      
                                      $
                                      1,168,117
                                      
                                      
                                      $
                                      315,722
                                      
                                      
                                      $
                                      3,567,781Segment
      Income / (Loss)
                                      
                                      $
                                      (2,226,281
                                      )
                                      
                                      $
                                      (1,039,407
                                      )
                                      
                                      $
                                      (302,026
                                      )
                                      
                                      $
                                      (3,567,713
                                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      33,132Reported
      Net income after tax
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (3,600,845
                                      )Capital
      Expenditures
                                      
                                      $
                                      109,725
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      109,725Total
      segment assets - excluding intercompany receivables
                                      
                                      $
                                      2,448,983
                                      
                                      
                                      $
                                      585,398
                                      
                                      
                                      $
                                      195,742
                                      
                                      
                                      $
                                      3,230,123Other
      items Not included in Segment Assets:Goodwill
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,495,878Other
      Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      844,638Total
      Reported Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      7,570,639





SIX
      MONTHS ENDED JUNE 30, 2010ECOTALITYNORTH
                                      
                                      
                                      
                                      
                                      
                                      FUEL
      CELLAMERICA
                                      
                                      
                                      INNERGY
                                      
                                      
                                      STORE
                                      
                                      
                                      TO
      TALTotal
      net operating revenues
                                      
                                      $
                                      5,074,693
                                      
                                      
                                      $
                                      639,109
                                      
                                      
                                      $
                                      397,873
                                      
                                      
                                      $
                                      6,111,674Depreciation
      and amortization
                                      
                                      $
                                      214,739
                                      
                                      
                                      $
                                      1,981
                                      
                                      
                                      $
                                      1,779
                                      
                                      
                                      $
                                      218,499Operating
      income (loss)
                                      
                                      $
                                      (5,167,729
                                      )
                                      
                                      $
                                      (58,387
                                      )
                                      
                                      $
                                      100,617
                                      
                                      
                                      $
                                      (5,125,500
                                      )Interest
      Income (expense)
                                      
                                      $
                                      (106
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (106
                                      )Gain
      / (Loss) on disposal of assets
                                      
                                      $
                                      (12,201
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (12,201
                                      )Other
      Income (expense)
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Segment
      Income before Corporate Overhead Allocation
                                      
                                      $
                                      (5,180,036
                                      )
                                      
                                      $
                                      (58,387
                                      )
                                      
                                      $
                                      100,617
                                      
                                      
                                      $
                                      (5,137,807
                                      )Corporate
      Overhead Allocation
                                      
                                      $
                                      (3,463,568
                                      )
                                      
                                      $
                                      (436,203
                                      )
                                      
                                      $
                                      (271,555
                                      )
                                      
                                      $
                                      (4,171,327
                                      )Segment
      Income / (Loss)
                                      
                                      $
                                      (8,643,605
                                      )
                                      
                                      $
                                      (494,590
                                      )
                                      
                                      $
                                      (170,939
                                      )
                                      
                                      $
                                      (9,309,134
                                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      72,212Reported
      Net income after tax
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (9,381,345
                                      )Capital
      Expenditures
                                      
                                      $
                                      335,347
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      335,347Total
      segment assets - excluding intercompany receivables
                                      
                                      $
                                      4,711,355
                                      
                                      
                                      $
                                      367,447
                                      
                                      
                                      $
                                      273,535
                                      
                                      
                                      $
                                      5,352,337Other
      items Not included in Segment Assets:Goodwill
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,495,878Other
      Corporate Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      13,562,508Total
      Reported Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      22,410,724


30





SIX
      MONTHS ENDED JUNE 30, 2009FUEL
      CELLETEC
                                    
                                    
                                    INNERGY
                                    
                                    
                                    STORE
                                    
                                    
                                    TO
      TALTotal
      net operating revenues
                                    
                                    $
                                    2,795,559
                                    
                                    
                                    $
                                    1,050,822
                                    
                                    
                                    $
                                    370,903
                                    
                                    
                                    $
                                    4,217,284Depreciation
      and amortization
                                    
                                    $
                                    179,355
                                    
                                    
                                    $
                                    2,926
                                    
                                    
                                    $
                                    1,780
                                    
                                    
                                    $
                                    184,061Operating
      income (loss)
                                    
                                    $
                                    (193,319
                                    )
                                    
                                    $
                                    265,070
                                    
                                    
                                    $
                                    61,344
                                    
                                    
                                    $
                                    133,095Interest
      Income (expense)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Gain
      / (Loss) on disposal of assets
                                    
                                    $
                                    9,760
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    9,760Other
      Income (expense)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Segment
      Income before Corporate Overhead Allocation
                                    
                                    $
                                    (183,559
                                    )
                                    
                                    $
                                    265,070
                                    
                                    
                                    $
                                    61,344
                                    
                                    
                                    $
                                    142,855Corporate
      Overhead Allocation
                                    
                                    $
                                    2,898,282
                                    
                                    
                                    $
                                    1,387,778
                                    
                                    
                                    $
                                    414,952
                                    
                                    
                                    $
                                    4,701,012Segment
      Income / (Loss)
                                    
                                    $
                                    (3,081,841
                                    )
                                    
                                    $
                                    (1,122,708
                                    )
                                    
                                    $
                                    (353,608
                                    )
                                    
                                    $
                                    (4,558,157
                                    )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    66,246Reported
      Net income after tax
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    (4,624,403
                                    )Capital
      Expenditures
                                    
                                    $
                                    113,882
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    113,882Total
      segment assets - excluding intercompany receivables
                                    
                                    $
                                    2,448,983
                                    
                                    
                                    $
                                    585,398
                                    
                                    
                                    $
                                    195,742
                                    
                                    
                                    $
                                    3,230,123Other
      items Not included in Segment Assets:Goodwill
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    3,495,878Other
      Corporate Assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    844,638Total
      Reported Assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    7,570,639





Employees





As of
June 30, 2010 we had 98 employees, including 12 in manufacturing and the rest in
research and development, sales and marketing, and general and administration
positions. None of our employees is represented by a labor union or is 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.





We
anticipate the need to add significant numbers of full- or part- time employees
over the next 12 months per the award of the Stimulus Department of Energy
related contracts.  We plan to outsource the research and development and
production of our products when cost effective to do so.





Results
of Operations





QUARTER
ENDED JUNE 30, 2010, COMPARED WITH QUARTER ENDED JUNE 30, 2009





CONSOLIDATED
RESULTS





Since
January 1, 2008, we have been transitioning from being a development stage
company to a growth oriented renewable energy company with a focus toward
electric vehicle infrastructure. Beginning January 2009, we initiated additional
efforts to strengthen our financial viability including steps to reduce or
eliminate our debt structure, obtain additional working capital, establish
strong partnerships and secure federal stimulus contracts. Thus, the variations
reflected in our results of operations when comparing the quarter ended June 30,
2010 to the quarter ended June 30, 2009 and described below reflect these steps
as well as this transformation and the impact of the global economic
slowdown.





In the
quarter ended June 30, 2010, we had revenues of $3,411,589 compared to the
quarter ended June 30, 2009 of $1,747,085.  The increase in revenue is
largely related to the effect of our ramp up of work on our recently awarded
contract with the US Department of Energy (DOE).  The cost of goods sold
percentage for the quarter ending June 30, 2010 was 90% leaving us with a gross
profit of $350,085. Our gross margin was down 43% from the same period prior
year of 53%.  This reduction is directly related to the nature of our cost
reimbursement contract with the DOE.  This contract provides for a cost
match of 50%, which is expected to continue to reduce our gross margin in the
early stages of the contract pending the launch of electric vehicles in 4th quarter 2010.





Total
operating expenses during the three months ended June 30, 2010 were $7,969,520
compared to $1,655,880 for the three months ended June 30, 2009, a 79% increase
over prior year.  This increase reflects costs associated with our recent
listing on the NASDAQ stock exchange and our S-1 (Registration Statement) and
proxy filing as well as continued staffing and other start up expenses to
service the contract with the DOE.  These costs include but are not limited
to expanding office space, recruiting and hiring new employees and related
administrative efforts at both our ECOtality North America subsidiary and our
corporate headquarters. We incurred expenses in the form of increased staffing
for the new offices established in the EV Project cities in line with our budget
projections that will in accordance with our DOE contract be reimbursed in
subsequent fiscal quarters.  In addition, the Board Compensation Committee
implemented an employee equity incentive program for 2010 to ensure continuity
in key leadership and line staff positions critical to our execution of the
contract.  The Board also adopted a new compensation program for
independent directors comparable to companies of like size.  Both of these
programs took effect in the quarter ending June 30, 2010. General and
administrative expenses were $7,768,923 or 97% of total operating expenses for
the three months ended June 30, 2010 compared with $1,543,850 or 93% for the
three months ended June 30, 2009. Details around the changes in these expenses
are described below:


31


Professional
fees were $242,106 for the three months ended June 30, 2009 compared with
$14,225 for the three months ended June 30, 2009.  This increase is
attributable to the costs to be listed on NASDAQ and to secure services from an
outside consulting firm to advise the board compensation committee on the
appropriate compensation plans for employees and outside directors.  It
also includes other outsourced human resource activities to support our growing
employee base and IT costs to facilitate strong communications between our new
and existing office locations. New media, marketing, advertising and investor
and public relations expenses were $141,860 for the three months ended June 30,
2009 compared with $17,211 for the three months ended June 30, 2009.  The
spend in 2010 is related to outsourced branding identification efforts to
establish our base brand from which all our on-road (electric vehicle related)
products will extend.  Legal fees were $184,418 for the quarter ended June
30, 2010 compared with $159,645 for the quarter ended June 30, 2009.  While
legal spend in both years has been substantial, each of these figures were
driven by different business issues.  In 2009 much of our legal fees were
attributable to managing our debt.  In contrast, for the quarter ending
June 30, 2010 our legal fees are related to efforts around registering shares
for the investors who supported us in our recent capital raise and continuing to
establish and protect our Intellectual Property (IP) including the expansion of
these IP protections into targeted international markets. Accounting fees were
$48,500 for the quarter ended June 30, 2010, and for the quarter ended June 30,
2009.  Accounting fees in both periods are attributable to our financial
statement audits which were negotiated to be flat for those periods. 
Executive compensation was $3,046,661 for the three months ended June 30, 2010
compared with $201,126 for the three months ended June 30, 2009. The increase is
directly attributable to equity based (in the form of stock options vs. cash
based) compensation for our employees.  This compensation plan is directly
related to recommendations by an outside consulting firm and our Board
Compensation Committee who were engaged to ensure our employee incentive
plans are on par with similarly situated companies and that they clearly align
rewards for executive and non-executive management and staff with the
expectations of our shareholders.  Depreciation expense was $149,107 for
the quarter ended June 30, 2010 compared to $111,337 for the quarter ended June
30, 2009.  All other general and administrative (G&A) spending totaled
$4,105,378 for the three months ended June 30, 2010 compared to $1,103,143 for
the three months ended June 30, 2009.  The increase in all other G&A is
primarily driven by the extension of the equity incentive plan discussed above
to executive and non-executive management and line staff
employees to ensure engagement and continuity of the workforce responsible
for the effective execution of our business plan and the fulfillment of our DOE
contract obligations.





Expenses
for research and development totaled $51,493 for the three months ended June 30,
2010compared
to$695 for the
three months ended June 30, 2009.   Expenses for R&D, while higher
than previous year, are anticipated to remain relatively low.  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 focus on research and development activities, and expect to
continue to incur additional research and development costs, although at a low
rate, for the foreseeable future.





Our
operating loss was $7,619,438 for the quarter ended June 30, 2010 compared with
a loss of $728,427 for the quarter ended June 30, 2009.  Unlike 2009, the
loss in the second quarter of 2010 is influenced primarily by our investment in
our business and workforce, vs. the significant costs of debt service that we
experienced in 2009.





For the
quarter ended June 30, 2010, we earned interest income in the amount of $8,734
compared with $0 for the quarter ended June 30, 2009.





Interest
expense was ($322,751) for the three months ended June 30, 2010 compared to
$2,872,418 for the three months ended June 30, 2009.  The amount in second
quarter 2009 was driven by the interest on the convertible debentures we issued
in November and December of 2007.  For second quarter 2010 the amount is
attributable to the reversal of a penalty associated with our obligation to file
an S-1 within a short time frame following our capital raise in October. Due to
circumstances largely outside our control we were unable to meet the filing
deadline.  Management was able to successfully secure a waiver agreement
due to these extenuating circumstances resulting in the total penalty being
waived prior to this filing.  This waiver also accounts for the 317,824 of
other income.  This amount is the portion of the penalty expensed and
accrued in 2009.  We had a gain on disposal of assets of 12,201 in the
three months ended June 30, 2010, there were no assets disposed of in the
quarter ended June 30, 2009.





Our net
loss after other income and expenses was $6,982,330 for the quarter ended June
30, 2010 compared to a loss of $3,600,845 for the quarter ended June 30,
2009.





SIX
MONTHS ENDED JUNE 30, 2010, COMPARED WITH SIX MONTHS ENDED JUNE 30,
2009





It is
difficult to compare the six months ended June 2010 results to the same period
in 2009 as during the six months ended June 30, 2010 we have been wholly engaged
in ramping up the organization to service our new DOE contract, to successfully
become listed on a national stock exchange (NASDAQ), and to refocus the
business, now free from debenture debt, on pursuing new opportunities to
capitalize on our strong position as a leader in electric vehicle charging and
infrastructure development.  This, in contrast to the same period in 2009,
which was spent largely on managing onerous debt service obligations, overcoming
limited growth due to the precipitous economic downturn, and attempting to
secure investment in an adverse capital market.  Thus, the variations
reflected in our results of operations described below are based upon these
factors.


32


In the
six months ended June 30, 2010, we had revenues of $6,111,674 compared to the
six months ended June 30, 2009 of $4,217,284. The cost of goods sold percentage
for the six months ending June 30, 2010 was 89% leaving us with a gross profit
of $656,646. The increase in revenues in 2010 as compared to 2009 is driven by
the early stages of our new US Department of Energy (DOE) contract.  The
increased cost of goods sold percentage is directly related to the nature of our
cost reimbursement contract with the DOE.  This contract provides for a
cost match of 50%, which is expected to continue to reduce our gross margin in
the early stages of the contract pending the launch of electric vehicles in
4th quarter
2010.





Total
operating expenses during the six months ended June 30, 2010 were $10,363,513
compared to $3,148,830 for six months ended June 30, 2009. General and
administrative expenses were $10,008,477 for the six months ended June 30, 2010
compared with $2,886,361 for the six months ended June 30, 2009. This increase
in general and administrative expenses is in line with our budget for the period
and reflects our investments in our business and employees, as well as our ramp
up to service the DOE contract in the first half of 2010.  Details of these
expenses are outlined below.





Professional
fees were $386,511 for the six months ended June 30, 2010 compared with $27,804
for the six months ended June 30, 2009. The increase in 2010 reflects the costs
of listing on the NASDAQ exchange as well as ramping up our use of cost
effective outsourced recruiting and human resource firms to staff as required by
our DOE contract, as well as to design appropriate compensation plans for
employees and our outside directors. New media, marketing, advertising and
investor and public relations expenses of $251,518 for the six months ended June
30, 2010 is up substantially from prior year of $21,298 for the six months ended
June 30, 2009.  This increase is directly attributable to significant
investment in the “Blink” branding of our electric vehicle charging product line
in 2010. Legal fees were $410,343 for the six months ended June 30, 2010
compared with $216,481 for the six months ended June 30, 2009.  This
increase is commensurate with our investments in securing and protecting our IP
(Intellectual Property) rights both in the US and abroad, as well as filing a
registration statement, our proxy and other key activities focused on future
growth.  Accounting fees were $113,750 for the six months ended June 30,
2010 compared with $113,322 for the six months ended June 30, 2009. Executive
compensation was $3,339,552 for the six months ended June 30, 2010 compared with
$394,502 for the six months ended June 30, 2009. The increase in compensation is
related to the equity compensation plan introduced by the Board Compensation
Committee in April of 2010. Depreciation expense was $290,177 for the six months
ended June 30, 2010 compared to $250,307 for the six months ended June 30,
2009.  All other general and administrative spending totaled $5,506,802 for
the six months ended June 30, 2010 compared to $2,112,652 for the six months
ended June 30, 2009.  The increase in other spending in 2010 is
attributable to our roll out of our 2010 compensation plan to executive,
non-executive and line staff personnel critical to our successful execution of
the DOE contract and our future growth.





Expenses
for research and development totaled $64,237 for the six months ended June 30,
2010 compared to $12,162 for the six months ended June 30, 2009. Since a primary
objective of the Company 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
low rate, for the foreseeable future.




Our
operating loss of $9,704,869 for the six months ended June 30, 2010 compared
with the loss of $1,145,468 for the six months ended June 30, 2009 is directly
attributable to our investment in the business and workforce in 2010, as well as
our increased resource deployment required to service the DOE
contract.





For the
six months ended June 30, 2010, we earned interest income in the amount of
$23,943 compared with $0 for the six months ended June 30, 2009.





Interest
expense was $6,043 for the six months ended June 30, 2010 compared to $3,448,695
for the six months ended June 30, 2009. The significantly higher amount for 2009
was driven by the interest on the convertible debentures we issued in November
and December of 2007 and the related non-cash consideration for waivers granted
by our debenture holders in extending additional time to make required principal
and interest payments.





Liquidity
and Capital Resources





As of
June 30, 2010, we had $13,565,314 of cash on hand compared to a June 30, 2009
balance of $484,002 of cash on hand.  This increase is due to our
successful capital raise efforts in the fourth quarter of 2009, and our
continued tight management of the funds received.





We had a
use of cash for operating activities for the six months ended June 30, 2010 in
the amount of $(2,958,129) compared to a generation of cash for the six months
ended June 30, 2009 of $270,193   In addition, cash utilized in
investing activities was $303,847 for the three months ended June 30, 2010
compared to a use of cash of 104,121 for the same period in 2009.  The use
of cash in the six months ended June 30, 2010 is in line with our budget for the
DOE cost match contract.





Cash
generated by financing activities was $5,011,999 for the six months ended June
30, 2010 compared cash generated of $0 in 2009.  The cash in 2010
represented the collection of a subscription receivable in January 2010 related
to our October 2009 capital raise.


33


It is
important to understand our complex financing transactions from January 1, 2009
through June 30, 2010 as we have endeavored to become a leader in the renewable
energy sector during a period largely characterized by a lack of capital markets
in a down economy. These activities are described in detail below:





On March
5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and
Warrants, Agreement and Waiver” (the March “Agreement”) restructuring our equity
with the institutional debt holders of the Original Issue Discount 8% Senior
Secured Convertible Debentures, dated November 6, 2007 (the “November 2007
Debentures”).   This agreement arranged a deferral of interest
payments until May 1, 2009 subject to conditions that were subsequently amended
on May 15, 2009.





On
May 15, 2009, despite the current tenuous economic environment, the financial
opportunities offered specifically in the American Reinvestment and Recovery Act
(ARRA) projects related to electric transportation, were deemed material to the
Company’s  future, thus the Company and the November and December 2007
Debenture Holders entered into an agreement entitled “Amendment to Debentures
and Warrants, Agreement and Waiver” (the “Agreement”) restructuring the
Company’s  equity as well as establishing an inducement for additional
working capital. The Agreement’s effective date was May 1, 2009.   The
Agreement signed on May 15, 2009 provided for $2,000,000 in new capital as well
as additional capital (up to $500,000) to be invested by the November and
December 2007 Debenture Holders.





On July
2, 2009 the Company completed two amendments to the May 15, 2009 Amendment to
Debentures and Warrants, Agreement and Waiver, and issued $2,500,000 in 8%
Secured Convertible Debentures that were important to the Company’s future and
tied together the series of November and December 2007 Debenture documents that
were amended three times since the initial issuing of the
debentures  in November and December 2007.  The
transactions/agreements that have been consummated include:





On
October 31, 2009, the Company signed a Securities Exchange Agreement with all
holders of its convertible debentures and holders of certain warrants to convert
all outstanding amounts ($9,111,170) under these debentures and all related
warrants into an aggregate of 8,597,299  shares of Series A
Convertible Preferred Stock (while not impacted by the current common stock
split discussed herein, it could be subject to adjustment for future forward and
reverse stock splits, stock dividends, recapitalizations and the like). The
Series A Convertible Preferred Stock has no redemption or preferential dividend
rights, but may be converted into shares of the Company’s common
stock.





Concurrent
with the signing of the Securities Exchange Agreement, the ECOtality Board of
Directors approved a 1:60 reverse stock split (the “Reverse Split”) of its
common stock and authorized Company management to affect the Reverse Split after
providing the required notice to the Financial Industry Regulatory Authority
(FINRA).  The Reverse Stock split was effective November 24,
2009.





On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with accredited investors (the “Investors”) in the
amount of $20.5 million pursuant to which the Investors agreed to purchase
shares of the Common Stock at a purchase price of $7.20 per share.  The
funds from the private placement will be utilized as working capital to support
the initial requirements of the contract signed with the Department of Energy on
September 30, 2009.





On
January 7, 2010 we received the final commitment of $5 million from the
Securities Purchase Agreements signed on October 31, 2009.





The
culmination of all the activities noted above have resulted in a strong working
capital position, the elimination of our debenture debt and related interest
obligations and have positioned us favorably to meet our obligations in the
early stages of the DOE contract.  In line
with the requirement for additional capital for the DOE contract, we
have publically disclosed that we intend to seek this capital prior to the end
of 2010 in order to complete our obligations related to the DOE contract. 
It has not been determined whether this requirement will be met through debt or
an equity raise.





Management’s
Plan of Operation





Our long
term 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 had been reflected in our budget and business
plans for 2009. However, growth consistent with our plans did not occur during
2009.  Sales, consulting services and manufacturing levels remained at
lower levels.




However,
with the signing of the DOE contract on September 30, 2009 and the Securities
Exchange Agreements with our debenture holders and Securities Purchase
Agreements with current and new investors on October 31, 2009, we have taken the
following actions to significantly strengthen our financial viability which has
continued through the June 30, 2010:




·
            Raised
      $20.5 million for working capital in equity financing from original
      investors/debt holders ($15 million) and new investors ($5.5
      million).


o
            This
      has resulted in positive shareholder equity on our balance sheet
      and will allow us to secure working capital to invest in
      the later stages of the DOE contract awarded to our Ecotality North
      America Subsidiary.





·
            Converted
      $9.08 million of debt on balance sheet to equity (preferred
      shares).


34


Working
Capital





Net
working capital is an important measure of our ability to finance our
operations.  Our net working capital at June 30, 2010 was positive by
$13,198,910.





Off
Balance Sheet Arrangements





We do not
have any off-balance sheet arrangements.





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.  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.





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
June 30, 2010, the Company has eleven leases in effect for operating
space.  Future obligations under these commitments are $194,540 for the
remainder of 2010, $396,238 for 2011, $404,240 for 2012, $190,589 for 2013,
$129,159 for 2014, $109,175 for 2015.





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 carried out an evaluation with the
participation of our Chief Executive Officer and Chief Financial Officer, of 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, our Chief
Executive Officer  and Chief Financial Officer concluded that our
disclosure controls and procedures were effective for the period ended June 30,
2010.





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 six months ended June 30, 2010.


35


PART II - OTHER INFORMATION





Legal
Proceedings





We are
not a party to any pending legal proceedings.





Risk
Factors





In
addition to the other information set forth in this report, you should carefully
consider the risk factors discussed in “Risk Factors” in our Annual Report on
Form 10-K for the year ended December 31, 2009, which could materially affect
our business, financial condition or future results. We caution the reader that
these risk factors may not be exhaustive. We operate in a continually changing
business environment and new risks emerge from time to time. Management cannot
predict such new risk factors, nor can we assess the impact, if any, of such new
risk factors on our business or to the extent to which any factor or combination
of factors may impact our business. There have not been any material changes
during the quarter ended June 30, 2010 from the risk factors disclosed in the
above-mentioned Form 10-K for the year ended December 31, 2009.





Unregistered
Sales of Equity Securities and Use of Proceeds





There
were no sales of unregistered securities for the period covered by this
report.





Defaults upon Senior Securities





There
were no defaults upon senior securities in the six months ended June 30,
2010.





Submission
of Matters to a Vote of Security Holders





None.


36




Exhibit Number
              
              Name
      and/or Identification of Exhibit3.1
              
              Amended
      and Restated Articles of Incorporation  (Note
  2)3.2
              
              Amended
      and Restated Bylaws (Note 1)31.1
              
              Rule 13a-14(a)/15d-14(a) Certification
      of CEO31.2
              
              Rule 13a-14(a)/15d-14(a) Certification
      of CFO32
              
              Certification
      under Section 906 of the Sarbanes-Oxley Act (18 U.S.C.
      Section 1350)








Notes:





(1)
            Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      November 2, 2007.





(2)
            Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      September 2, 2009.





37


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
              
              August
      16, 2010Jonathan
      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,
                  
                  August
      16, 2010Jonathan
      R. Read
                  
                  President
      and Director/s/
      Barry S. Baer
                  
                  Chief
      Financial Officer
                  
                  August
      16, 2010Barry
      S. Baer
                  
                  Principal
      Accounting Officer and Director


38