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
      1934For the quarterly period ended:
      March 31, 2009Oro
            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.)6821 E Thomas Road,Scottsdale,Arizona
            85251(Address of principal executive
      offices)
            (Zip
  Code)




(480) 219-5005





(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.


YesxNoo





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
      filero
            
            Accelerated
      filerþ
            
            Non-accelerated
      filero
              (Do not check of a smaller
      reporting company)
            
            Smaller reporting
      companyo




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).


YesoNox







Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of March 31,
2009


161,831,194










ECOtality,
Inc.








Table of Contents


PART I -
      FINANCIAL INFORMATION
              3Financial
      Statements:Unaudited
      Condensed Consolidated Financial StatementsCondensed
      Consolidated Statements of Operations
              3Condensed
      Consolidated Balance Sheet
              4Condensed
      Consolidated Statements of Cash Flows
              5Notesto Consolidated
      Financial Statements
              6Management’s
      Discussion and Analysis of Financial Condition and Results  of
      Operation
              25Quantitative
      and Qualitative Disclosures about Market Risk
              35Controls
      and Procedures
              35PART
      II - OTHER INFORMATION
              36Legal
      Proceedings
              36Risk
      Factors
              36Unregistered
      Sales of Equity Securities
              36Defaults
      Upon Senior Securities
              37Submission of
      Matters to a Vote of Security Holders
              37Exhibits and
      Reports on Form 8-K
              38SIGNATURES
              39
  2


PART 1. FINANCIAL
INFORMATION




ECOtality, Inc.Condensed
      Consolidated Statement of OperationsUnaudited




For the Three Months Ended March
      31,2009
            
            
            2008Revenue
            
            $
            2,470,199
            
            
            $
            2,817,899Cost of goods
      sold
            
            
            1,394,293
            
            
            
            1,616,355Gross
profit
            
            
            1,075,906
            
            
            
            1,201,544Expenses:Depreciation
            
            
            138,970
            
            
            
            141,886General and administrative
      expenses
            
            
            1,342,509
            
            
            
            2,357,009Research and
      development
            
            
            11,467
            
            
            
            115,686Total
    expenses
            
            
            1,492,944
            
            
            
            2,614,581Operating
    loss
            
            
            (417,038
            )
            
            
            (1,413,037
            )Other
    income:Interest
    income
            
            
            -
            
            
            
            8,150Gain on Disposal of
      Assets
            
            
            9,760
            
            
            
            -Total other
      income
            
            
            9,760
            
            
            
            8,150Other
    expenses:Interest
      expense
            
            
            616,277
            
            
            
            562,304Loss on Disposal of
      Assets
            
            
            -
            
            
            
            25,020Total other
      expenses
            
            
            616,277
            
            
            
            587,324Loss from operations before income
      taxes
            
            
            (1,023,555
            )
            
            
            (1,992,211
            )Provision for income
      taxes
            
            
            -
            
            
            
            -Net (loss)
            
            $
            (1,023,555
            )
            
            $
            (1,992,211
            )Weighted average number
      ofcommon shares outstanding - basic
      and fully diluted
            
            
            151,342,490
            
            
            
            124,469,621Net (loss) per share-basic and
      fully diluted
            
            $
            (0.01
            )
            
            $
            (0.02
            )The accompanying notes are an
      integral part of these financial statements




3





ECOtality,
      Inc.Condensed
      Consolidated Balance Sheets




March 31,
    2009
            
            
            December 31,
      2008Assets
            
            (Unaudited)
            
            
            (Audited)Current
    assets:Cash
            
            $
            456,652
            
            
            $
            327,332Certificates of
      deposit
            
            
            28,044
            
            
            
            28,044Receivables, net of allowance for
      bad debt of  $38,641 and $69,176 as of 03/31/09
      and  12/31/08 respectively
            
            
            1,775,751
            
            
            
            1,963,073Inventory, net of allowance for
      obsolescence of $182,487 and $167,487  as of 03/31/09 and
      12/31/08 respectively
            
            
            1,006,590
            
            
            
            1,149,881Prepaid expenses and other current
      assets
            
            
            139,433
            
            
            
            229,931Total current
      assets
            
            
            3,406,471
            
            
            
            3,698,263Fixed assets, net accumulated
      depreciation of $4,397,046 and   $4,283,866 as of 03/31/09
      and 12/31/08  respectively
            
            
            1,497,503
            
            
            
            1,632,315Goodwill
            
            
            3,495,878
            
            
            
            3,495,878Total
assets
            
            $
            8,399,852
            
            
            $
            8,826,457Liabilities and Stockholders’
      EquityCurrent
      liabilities:Accounts
      payable
            
            $
            1,412,927
            
            
            $
            1,510,277Accrued
      liabilities
            
            
            811,823
            
            
            
            848,789Accrued
      Interest
            
            
            149,753
            
            
            
            1,281,115Liability for purchase
      price
            
            
            235,253
            
            
            
            2,115,253Note Payable - related
      party
            
            
            450,000
            
            
            
            450,000Current portion of LT Debt, net of
      discount of $1,530,101 and $1,530,101 as of 03/31/09 and 12/31/08
      respectively
            
            
            4,448,837
            
            
            
            3,411,540Total current
      liabilities
            
            
            7,508,593
            
            
            
            9,616,975Total LT Liabilities, net of
      discount of $166,210 and $548,735 as of 03/31/09 and 12/31/08
      respectively
            
            
            1,317,077
            
            
            
            1,971,849Stockholders’
      equity:Preferred stock, $0.001 par value,
      200,000,000 sharesauthorized, no shares issued and
      outstanding
            
            
            -
            
            
            
            -Common stock, $0.001 par value,
      300,000,000 sharesauthorized,  161,831,194
      and 129,422,861 shares issuedand outstanding as of 03/31/09 and
      12/31/08, respectively
            
            
            161,831
            
            
            
            129,423Common stock owed but not issued
      75,000 shares at 03/31/09 and 12/31/08
            
            
            75
            
            
            
            75Additional paid-in
      capital
            
            
            36,818,780
            
            
            
            33,485,763Retained
      deficit
            
            
            (37,361,179
            )
            
            
            (36,337,624
            )Accumulated Foreign Currency
      Translation Adjustments
            
            
            (45,325
            )
            
            
            (40,006
            )Total stockholders'
      equity
            
            
            (425,817
            )
            
            
            (2,762,368
            )Total liabilities and
      stockholders' equity
            
            $
            8,399,852
            
            
            $
            8,826,457The accompanying notes are an
      integral part of these financial statements




4





ECOtality,
      Inc.Consolidated
      Statement of Cash FlowsUnaudited




For the 3 Months Ended March
      31,2009
            
            
            2008Cash flows from operating
      activitiesNet Income
      (loss)
            
            $
            (1,023,555
            )
            
            $
            (1,992,211
            )Adjustments to
      reconcile:Stock and options issued for
      services and compensation
            
            
            90,000
            
            
            
            52,288Depreciation
            
            
            138,970
            
            
            
            141,886Amortization of stock issued for
      services
            
            
            35,163
            
            
            
            91,413Amortization of discount on notes
      payable
            
            
            382,525
            
            
            
            442,573Gain on disposal of
      assets
            
            
            (9,760
            )
            
            
            25,020Changes in operating assets and
      liabilities:Certificate
      of deposit
            
            
            -
            
            
            
            1,147,057Accounts
      Receivable
            
            
            187,322
            
            
            
            (230,248
            )Inventory
            
            
            143,291
            
            
            
            690,503Prepaid expenses and
      other
            
            
            90,497
            
            
            
            (116,995
            )Accounts
      Payable
            
            
            (97,350
            )
            
            
            (115,816
            )Accrued
      Liabilities
            
            
            191,934
            
            
            
            (42,836
            )Net cash provided (used) by
      operating activities
            
            
            129,036
            
            
            
            92,634Cash flows from investing
      activitiesPurchase of fixed
      assets
            
            
            (4,157
            )
            
            
            (143,277
            )Proceeds from sales of fixed
      assets
            
            
            9,760
            
            
            
            -Net cash (used) by investing
      activities
            
            
            5,603
            
            
            
            (143,277
            )Cash flows from financing
      activitiesPayments on notes
      payable
            
            
            -
            
            
            
            (2,180
            )Net cash provided (used) by
      financing activities
            
            
            -
            
            
            
            (2,180
            )Effects of exchange rate
      changes
            
            
            (5,319
            )
            
            
            (7,782
            )Net increase (decrease) in
      cash
            
            
            129,320
            
            
            
            (60,605
            )Cash –
      beginning
            
            
            327,332
            
            
            
            677,318Cash –
    ending
            
            $
            456,652
            
            
            $
            616,712Supplemental
      disclosures:Interest
    paid
            
            $
            -
            
            
            $
            4,758Income Taxes
      paid
            
            $
            -
            
            
            $
            -Non-cash
      transactions:Stock and options issued for
      services
            
            $
            90,000
            
            
            $
            52,288Shares of stock
      issued
            
            
            1,075,000
            
            
            
            125,000Number of options
      issued
            
            
            -
            
            
            
            175,000Stock issued for
      liability
            
            $
            1,880,000
            
            
            $
            -Shares of stock
      issued
            
            
            31,333,333
            
            
            
            -Amortization of stock issued for
      services
            
            $
            35,163
            
            
            $
            91,413Amortization of discount on notes
      payable
            
            $
            382,525
            
            
            $
            442,573Note Payable converted for common
      stock
            
            $
            -
            
            
            $
            100,000Shares of stock
      issued
            
            
            -
            
            
            
            333,333The accompanying notes are an
      integral part of these financial statements




5





ECOTALITY, INC.





NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS





(UNAUDITED)


Note 1 – History and
organization of the company




The Company was organized April 21,
1999 (Date of Inception) under the laws of the State ofNevada, 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 call ECOtality Stores, Inc.  See
note 3 for further information.




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




On November 6, 2007 the Company
acquired all the outstanding capital stock of Electric Transportation
Engineering Corporation, as well as its affiliated company The Clarity Group
(collectively referred to as eTec).  eTec designs fast-charge systems for
material handling and airport ground support applications. eTec also tests and
develops plug-in hybrids, advanced battery systems and hydrogen ICE
conversions.  See note 4 for further information.




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




The consolidated financial statements as
of December 31, 2008 and March 31, 2009 include the accounts of ECOtality,
Innergy Power Corporation, eTec, and Minit-Charger.  All significant
inter-company balances and transactions have been eliminated.  ECOtality
and its subsidiaries will collectively be referred herein as the
“Company”.





Note 2 – Going
Concern





The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred a net loss of $1,023,555 for the quarter ended March
31, 2009.  The Company has working capital of ($4,102,122) as of March
31, 2009 and has accumulated a retained deficit of $37,361,179 since its date of
inception.





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





Note3– Summary of Significant AccountingPolicies





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




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





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 quarter ended March 31, 2009 and 2008
interest income was $0 and $8,150, 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 March 31,2009and 2008, the Company had approximately $250,000 and
$567,439in excess of FDIC insured limits,
respectively.





Impairment of long-lived assets and
intangible assets


The Company follows the provisions of
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
and SFAS No. 142, “Goodwill and other intangible assets”, which addresses
financial accounting and reporting for acquired goodwill and other intangible
assets.  Management regularly reviews property, equipment, intangibles
and other long-lived assets for possible impairment. This review occurs
quarterly, or more frequently if events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. If there is indication of
impairment, then management prepares an estimate of future cash flows expected
to result from the use of the asset and its eventual disposition. If these cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized to write down the asset to its estimated fair value. Management
believes that the accounting estimate related to impairment of its property and
equipment, is a “critical accounting estimate” because: (1) it is highly
susceptible to change from period to period because it requires management to
estimate fair value, which is based on assumptions about cash flows and discount
rates; and (2) the impact that recognizing an impairment would have on the
assets reported on our balance sheet, as well as net income, could be material.
Management’s assumptions about cash flows and discount rates require significant
judgment because actual revenues and expenses have fluctuated in the past and
are expected to continue to do so.  During the quarter ended
March 31, 2009and 2008, the Company had impairment
expense of $0 and $0,
respectively.





Revenue recognition


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





Sales related to long-term contracts for
services (such as engineering, product development and testing) extending over
several years are accounted for under the percentage-of-completion method of
accounting under the American Institute of Certified Public Accountants’
Statement of Position 81-1,Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts. Sales and
earnings under these contracts are recorded based on the ratio of actual costs
incurred to total estimated costs expected to be incurred related to the
contract under the cost-to-cost method based on 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 or a product warranty liability.As of March 31, 2009and 2008, management has concluded that no reserve is required for product
returns.





We warrant to our customers that our
product and services are in good working order at the time of
delivery.  In our acquisition of Minit-Charger, we assumed a warranty
reserve in relation to warranties of products.  As of  March
31, 2009 the warranty reserve was $139,072.Management has concluded this warranty
reserve to be adequate for future expenses relating to the
warranty.





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 doubtfulaccounts 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 $38,641
and $21,252 as of March 31, 2009 and 2008, 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 forobsolescence as ofMarch 31, 2009was $182,487.





Advertising costs


The Company expenses all costs of
advertising as incurred.  There were advertising costs of $4,087 and
$15,454 included in
general and administrative expenses for the quarter ended March 31,
2009and 2008, respectively.





Research and development
costs


Research and development costs are
charged to expense whenincurred.  Forthe quarter ended March 31,
2009and 2008, research and development
costs were
$11,467and $115,686,
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 ofMarch31, 2009and 2008.  The respective carrying value
of certain on-balance-sheet financial instruments approximated their fair
values.





Loss per Common
Share


Net loss per share is provided in
accordance with Statement of Financial Accounting Standards No. 128 (SFAS
#128), “Earnings Per Share”. We present basic loss per share (“EPS”) and diluted
EPS on the face of statements of operations.  Basic EPS is computed by
dividing reported losses by the weighted average shares outstanding.  
Except where the result would be anti-dilutive to income from continuing
operations, diluted earnings per share has been computed assuming the conversion
of the convertible long-term debt and the elimination of the related interest
expense, and the exercise of stock warrants. Loss per common share has been
computed using the weighted average number of common shares outstanding during the year. For the quarter
ended March31,
2009and 2008, the assumed conversion of convertible
long-term debt and the exercise of stock warrants are anti-dilutive due to the
Company’s net loss and were excluded in determining diluted loss per
share.





Foreign Currency
Translation


In 2008 and 2009,aCompany subsidiary,PEPMexicooperatedoutside the
United Statesand their local currencyistheir functional currency. The functional currency is translated
into U.S. dollars for balance sheet accounts using the period end rates in
effect as of the balance sheet date and the average exchange rate for revenue
and expense accounts for each respective period. The translation adjustments are
deferred as a separate component of stockholders' equity, within other
comprehensive loss, net of tax where applicable.





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





Stock-Based
Compensation


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




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





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





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





The Company does not anticipate any
significant changes to its total unrecognized tax benefits with the next twelve
months.  As ofMarch 31, 2009and 2008, 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.





9




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





Segment reporting


SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information,” requires disclosures
related to components of a company for which separate financial information is
available that is evaluated regularly by a company’s chief operating decision
maker in deciding the allocation of resources and assessing
performance.  Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) andeTec’sMinit-Chargerbusiness acquisitions from June through
December 2007, the Company identified its segments based on the way management
expects to organize the Company to assess performance and make operating
decisions regarding the allocation of resources.   In accordance
with the criteria in SFAS No. 131, “Disclosure about Segments of anEnterpriseand Related Information,” the Company
has concluded it has three reportable segments for thequarterendedMarch31, 2009;ECOtality/ECOtalityStores segment, Innergy Power segment
andeTecsegment. TheECOtality/ECOtalityStores segment is the online
marketplace for fuel cell-related products and technologies with online
distribution sites in theU.S.,Japan,Russia,ItalyandPortugal.  The Innergy Power segment
is comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. TheeTecsegment 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 theMinit-Chargerbusiness 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.eTecholds exclusive patent rights to the
eTec SuperChargeTM  andMinit-Chargersystems - 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,eTecand Innergy.





The accounting policies for the segments
are the same as those described in the summary of significant accounting
policies in Note3of this Form 10-Q. Management is currently assessing how
it evaluates segment performance, and utilizesincome (loss) from operations,
excluding share-based compensation (benefits), depreciation and intangibles
amortization and income taxes.There were inter-segment sales during
the quarter ended March 31, 2009 and have been eliminated during the
consolidation process.





Recent Accounting
pronouncements


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





In November 2004, FASB issued Financial
Accounting Standards No. 151, Inventory Costing, an amendment amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts such as wasted material. This Statement requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of "abnormal." The implementation of this standard
did not have a material impact on the Company’s financial position, results of
operations or cash flows for the quarters ended March 31, 2009and 2008.





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




10




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





In July 2006, the FASB issued FASB
Interpretation No. 48 “Accounting for Uncertain Tax Positions”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109 “Accounting for Income Taxes”. It prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken, in
a tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.The implementation of this standard did
not have a material impact on the Company’s financial position, results of
operations or cash flows for the quarter ended March 31, 2009.





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





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.





Note4– Acquisitions, Goodwill, and Goodwill
Impairment





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 callECOtalityStores, Inc.  The acquisition
has been accounted for under the purchase accounting method pursuant to SFAS
141.  Our
consolidated financial statements for the year ended December 31,
2008and the quarter ended March 31,
2009include the financial results of
ECOtality Stores, Inc. subsequent to the date of the
acquisition.





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





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





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





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




11




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





Innergy Power Corporation
acquisition


On October 1, 2007, the Company acquired
certain assets of the Innergy Power Corporation and its wholly owned subsidiary,
Portable Energy De Mexico, S.A. DE C.V.  Innergy Power Corporation
designs and manufactures standard and custom solar-power and integrated
solar-battery solutions for government, industrial and consumer
applications.  The acquisition has been accounted for under the
purchase accounting method pursuant to SFAS 141.  Our consolidated financial
statements for the year ended December 31, 2008and the quarter ended March 31,
2009include the financial results of Innergy
Power Corporation and its subsidiary subsequent to the date of the
acquisition.




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





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








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





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





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





eTec acquisition


On November 6, 2007, the Company
acquired all the outstanding capital stock of Electric Transportation
Engineering Corporation, as well as its affiliated company The Clarity Group
(collectively referred to aseTec).eTecdesigns fast-charge systems for
material handling and airport ground support applications.eTecalso tests and develops plug-in
hybrids, advanced battery systems and hydrogen ICE conversions.  The
acquisition has been accounted for under the purchase accounting method pursuant
to SFAS 141.Our consolidated financial statements for the year ended December 31,
2008and the quarter ended March 31,
2009include the financial results of eTec
subsequent to the date of the acquisition.





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





The $500,000 is payable was initially
payable in monthly installments of $50,000 beginning December of
2007.  Payment of the balance of the note payable remaining
at March 31, 2009 was $235,253 and payment of this amount has been deferred
by the Sellers until
October 1, 2009.





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





The balance of the note payable
attributable to the
Working Capital True up as of March 31, 2009 was $400,000.  The
December 15, 2008 payment has been deferred by the Sellers until October 1,
2009.


.


12




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)




U.S. generally accepted accounting
principles, we have up to twelve months from closing of the acquisition to
finalize the valuation.  The purchase price allocation is preliminary,
pending finalization of our valuation of certain liabilities
assumed.  The following table summarizes the preliminary estimate of
fair value of assets as part of the acquisition with eTec :




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





In accordance with SFAS No. 144,
“Accounting for the impairment or disposal of long lived assets”, the Company
reviewed the goodwill for impairment.  Due to a proven track
record of cash flows generated by the assets acquired, no impairment was taken
during the year ended December 31, 2008.  Impairment expense
relating to this acquisition was $0 for the quarter ended March 31,
2009.





Minit-Chargeracquisition


On December 6, 2007 the Company acquired
througheTectheMinit-Chargerbusiness of Edison Enterprises.Minit-Chargermakes products that enable fast
charging of lift trucks using revolutionary technologies.  The
acquisition has been accounted for under the purchase accounting method pursuant
to SFAS 141..  Our consolidated financial statements for the year ended December
31, 2008and the quarter ended March 31,
2009include the financial results of
Minit-Charger subsequent to the date of the acquisition.




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





The fair value of the common stock
given, based on the closing price of the Company’s common stock on December 31,
2007, was $370,000. A liability for the balance of $1,630,000 based on the
December 31 closing price was recorded as a current liability for purchase price
on the consolidated balance sheet as of December 31, 2007. The liability was
adjusted to reflect the actual obligation due of $1,880,000 on the December 31,
2008 balance sheet. This liability was reduced to $0 for the March 31, 2009
balance sheet as the purchase price obligation was settled in full on January
30, 2009 with the issuance of 31,333,333 shares of Ecotality’s $0.001 par value
common stock.





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





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





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





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





Note5– Fixed assets





Fixed assets as ofMarch31, 2009and 2008consisted of the
following:




At March
31,
              
              
              At December
      312009
              
              
              2008Equipment
              
              $
              3,145,604
              
              
              $
              3,143,273Buildings
              
              
              575,615
              
              
              
              575,615Vehicles
              
              
              1,575,010
              
              
              
              1,600,849Furniture and
      fixtures
              
              
              47,409
              
              
              
              47,409Leasehold
      improvements
              
              
              470,380
              
              
              
              470,380Computer
      Software
              
              
              80,530
              
              
              
              78,6555,894,548
              
              
              
              5,916,181Less: accumulated
      depreciation
              
              
              (4,397,046
              )
              
              
              (4,283,866
              )1,497,503
              
              
              
              1,632,315
 Depreciation expense totaled
$138,970and$141,886, for thequartersended March 31, 2009and2008respectively.





Note6– Notes payable





For thequarterendedMarch31, 2008




13




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)




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





Interest expense totaled $562,304for the quarter ended March 31,
2008.





During 2007, the Company incurred a
$500,000 note payable to the previous owners of eTec through the acquisition of
eTec. The loan is payable in ten monthly installments of $50,000 each. See note
4 for details. As of March
31, 2009, $235,253was owed and recorded as an accrued
liability on the consolidated financial statements.





During 2007, the Company acquired a note
payable in the acquisition of eTec. The note related to a vehicle that was also
acquired in the acquisition. As of September 30, 2008 the vehicle had been sold
and the related note payable was paid in full.





In November and December of 2007, the
Company received gross proceeds of $5,000,000 in exchange for a note payable of
$5,882,356 as part of a private offering of 8% Secured Convertible Debentures
(the “Debentures”).  The debentures were convertible into common stock at
$0.30 per share. Debenture principal payments were due beginning in May and June
of 2008 (1/24th of the outstanding amount is due each month thereafter). In
connection with these debentures, the Company issued debenture holders warrants
(“the Warrants”) to purchase up to 9,803,925 shares of the Company’s common
stock with an exercise price of $0.32. The warrants were exercisable immediately
upon issue. The Warrants expire five years from the date of issue.  The
aggregate fair value of the Warrants equaled $2,272,942 based on the
Black-Scholes pricing model using the following assumptions: 3.39%-3.99% risk
free rate, 162.69% volatility, and strike price of $0.32, market price of
$0.22-$0.32, no yield, and an expected life of 912 days. The gross proceeds
received were bifurcated between the note payable and the warrants issued and a
discount of $3,876,256 was recorded. The discount is being amortized over the
loan term of two and one half years.  As of December 31, 2008, a total of
$1,797,419 had been amortized and recorded as interest expense and $2,078,836
remains as the unamortized discount. At March 31, 2009 a total of $2,179,945 had
been amortized and a balance of $1,696,311 remains in unamortized discount. See
note 8 for additional discussion regarding the issuance of
warrants.





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





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





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





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





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





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





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





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




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




14




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





During the fiscal year ended December
31, 2008 the impact to the financial statements for the provisions of the waiver
noted above were estimated, and the portion attributable to the year ended
December 31, 2008 was initially capitalized as prepaid financing charges (see
details in #1 through #3 below) and then subsequently expensed over the waiver
period ending December 31, 2008.





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 9,803,925 debenture warrants related to the pending reset of
      the exercise price (see letter “G” above) was calculated by using the
      Volume Weighted Average Price (VWAP) for the most recent 30 days prior to
      September 30, 2008 of $0.08 as the estimated new exercise price following
      the reset and the warrants were valued first at their current exercise
      price then at the estimated new price using the Black Scholes Model using
      the following assumptions: Strike Price $0.32 (old) and $0.08 (new), Stock
      Price $0.10 (price on date of agreement), time 780 days for November
      Warrants and 795 for December Warrants, Volatility 146.39%, Risk Free
      Interest Rate 3.83%. The increase in value calculated totaled $207,941. 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
      (9,803,925 total warrants at original exercise price $0.32), and the new
      aggregate exercise price of $784,314 following the reset of the exercise
      price to $0.08. This difference totaled $2,352,942 requiring the issuance
      of an estimated 29,411,775 warrants (at $0.08) to maintain the previous
      aggregate exercise price. The new warrants were valued at $1,438,235 using
      the Black Scholes Model with the following assumptions: Strike Price
      $0.08, Stock Price $0.07 (price at September 30, 2008), time 753 days,
      Volatility 146.39%, Risk Free Rate 3.83%. Of the total, $1,067,077 was
      capitalized as prepaid financing costs and was amortized over the waiver
      period ending December 31,
2008.




15




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 $0.15 to
$0.06, as well as to change their debt conversion rate from the previous $0.15
to $0.06.  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 calculations 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 $$0.06 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 $0.08
      (old) and $0.06 (new), Stock Price $0.10 (price on date of agreement),
      time 780 days for November Warrants and 795 for December Warrants,
      Volatility 146.39%, Risk Free Interest Rate 3.83%. The increase in value
      calculated totaled $35,001 and was charged to interest
      expense.





3.
            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 $0.08 and the
      new aggregate exercise price following the reset to $0.06. This change
      required the issuance of an additional 8,351,491 warrants 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 $0.06,
      Stock Price $0.04 (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 August 29, 2008, Mr. Donald
Karner, a director of the Company, and Kathryn Forbes agreed to provide the
Company a line of credit for up to $650,000. This Line is secured by a second
position on receivables (junior to previously issued debentures). During the
year ended December 31, 2008, $450,000 was advanced by Mr. Karner and Ms.
Forbes. Further advances above $450,000 were contingent on the Company securing
additional financing as agreed by October 26, 2008. This line carries a loan fee
of $45,000 payable when the line expires.  The line was originally
scheduled to expire December 15, 2008, but has been extendedtoOctober 1,2009by 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 are due and
payable in full onOctober
1, 2009. The balance of
the note payable was
$450,000 at March 30, 2009.





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.





OnMarch 5, 2009weentered in to an Agreement entitled
“Amendment to Debentures and Warrants, Agreement and Waiver” (the “Agreement”)
restructuringourequitywith the institutional debt holders of
theourOriginal Issue Discount 8% Senior
Secured Convertible Debentures, datedNovember 6, 2007 (the “November2007 Debentures”)(aggregate principal amount equal to
$4,117,649) and withourdebt holder ofourOriginal Issue Discount 8% Secured
Convertible Debentures, datedDecember 6, 2007(the “December 2007Debenture”)(aggregate principle amount equal to
$1,764,707).  TheNovember and December2007 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 January1, 2009.





To allow the additional time necessary
for us to achieve our working capital targets in the current economic
environment, we have requested our debenture holders further extend a waiver of
debt service requirements.  Therefore, in exchange for signing an
Amendment to Debentures and Warrants, Agreement and Waiver which
defersinterest 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 theNovember2007 Debentures andDecember2007Debentures to
  $.06.




16




B.
            The Holders collectively
      shall maintain an
      equity position in theCompany, in fully diluted shares,
      of 50.4%. Should the Holders’ equity
      position collectively become less than the 50.4%,theCompany 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 theCompany's Board of Directors, a nominee
      by either BridgePointe or BridgePointe’s investment manager Roswell
      Capital Partners LLC. Such a recommendation shall meet theCompany’s requirements as set forth in
      theCompany’s Bylawsand all applicable federal and
      state law. The nominee shall serve until such timeastheCompany has redeemed the
      debentures.





E.
            Alloutstanding Warrants (defined in
      the Securities Purchase Agreements datedNovember 6, 2007 andDecember 6, 2007), and all Warrants issued to
      Holders as consideration for the current or prior Amendments to theNovember2007 Debentures and theDecember2007Debenturesshall beamended to have an exercise price
      of $0.06(to the
      extent that such exercise price was previously above $0.06), and the expiration dates shall be extended to
      May1,
      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 theCompany’s current and future Patents and
      Trademarks. In additionthe Companyshall file notice of the
      Assignment for Security of theCompany’s current and any future Patents and
      Trademarks with the United States Patent and Trademark Officeand other foreign countries as
      appropriate.





Subsequent to year end a new waiver was
obtained. See note 12 for details.




17





ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





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





Included in accrued interest is $104,753
of accrued interest relating to the debentures at March 31,
2009.





Interest expense totaled $616,277 for
the quarter ended March 31, 2009.





Note7– Stockholders’
equity





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





18




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





During the year ended December 31,
2007, the Company signed an employment agreement with the CEO of the
Company.  The Company agreed to issue a total of 1,000,000 options for
shares of common stock currently and issue another 1,000,000 options to him one
year from the date of the agreement.  The options issued in 2007 have a
term of ten years and a strike price of $0.30.  The aggregate fair value of
the Warrants equals $281,300 based on the Black-Scholes pricing model using the
following assumptions: 3.95% risk free rate, 162.69% volatility, strike price of
$0.30, market price of $0.32, no yield, and an expected life of 5 years. 
This amount was recorded as unamortized cost of stock issued for services to be
amortized over the two-year period of the agreement.  During the year ended
December 31, 2007, $23,442 was amortized into expense and $257,858 remained
in unamortized cost of stock issued for services.  $140,650 was amortized
in 2008, and $35,163 was expensed in the quarter ending March 31,
2009.  The balance of $82,046 remains in unamortized cost of
stock issued for services at March 31, 2009. The options issued in 2008
were treated as earned equally over the two-year term of the agreement so that
83,334 of these options were earned  and expensed as of
December 31, 2007.  Those options were valued using the Black-Scholes
pricing model using the same assumptions and valued at $14,442. The balance
of the options were valued at $55,168 using the Black Scholes pricing model and
were expensed as earned in the year ending December 31,
2008.





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





There were129,422,861shares of common stock issued and
outstanding atDecember 31,
2008.





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





During the year ended December 31, 2008
the Company entered into contracts with employees that called for the issuance
of 300,000 shares of the Company’s $0.001 common stock.  These shares
were valued at $19,750.  This amount was expensed to compensation in
the year ended December 31, 2008.





On August 8, 2008 the Company entered
into a contract for services with vendor that called for the issuance of 390,000
shares of the Company’s $0.001 common stock.  These shares were valued
at $54,900 and are being 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 quarter ended March 31, 2009 $13,650 was
expensed leaving a balance of $18,200 in prepaid services at March 31,
2009.





In March 2009 the Company issued
1,075,000 shares of the Company’s $0.001 common stock in satisfaction of two
service vendors’ invoices totaling $90,000.





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





On December 6, 2007 the Company acquired
througheTectheMinit-Chargerbusiness of Edison Enterprises.The fair market value of
the transaction was $3,000,000. The company paid $1,000,000 in cash and issued
2,000,000 shares of the company’s common stock for the acquisition.  The
company guaranteed to the sellers that the shares would be worth $1 each
($2,000,000) by the tenth day following the first anniversary date of the
transaction. If the shares are not worth $2,000,000, the company would be
required to either issue additional shares such that the total shares are worth
$2,000,000 at that time or pay cash to the seller so that the aggregate value of
the 2,000,000 shares plus the cash given would equal $2,000,000.  This
purchase price obligation was settled in full on January 30, 2009 with the
issuance of 31,333,333 shares of Ecotality’s $0.001 par value common
stock.





There were 161,831,194shares of common stock issued and
outstanding atMarch 31,
2009.




There is no preferred stock issued or
outstanding as of March 31, 2009.





19




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)




Note 8– Options and
Warrants




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





During the year ended December 31,
2007, the Company signed an employment agreement with the CEO of the
Company.  The Company agreed to issue a total of 1,000,000 options for
shares of common stock currently and issue another 1,000,000 options to him one
year from the date of the agreement.  The options issued in 2007 have a
term of ten years and a strike price of $0.30.  The aggregate fair value of
the Warrants equals $281,300 based on the Black-Scholes pricing model using the
following assumptions: 3.95% risk free rate, 162.69% volatility, strike price of
$0.30, market price of $0.32, no yield, and an expected life of 5 years. 
This amount was recorded as unamortized cost of stock issued for services to be
amortized over the two-year period of the agreement.  During the year ended
December 31, 2007, $23,442 was amortized into expense and $257,858 remained
in unamortized cost of stock issued for services.  $140,650 was amortized
in 2008, and $35,163 was expensed in the quarter ending March 31,
2009.  The balance of $82,046 remains in unamortized cost of
stock issued for services at March 31, 2009. The options issued in 2008
were treated as earned equally over the two-year term of the agreement so that
83,334 of these options were earned and expensed as of December 31,
2007.  Those options were valued using the Black-Scholes pricing model
using the same assumptions and valued at $14,442. The balance of the
options were valued at $55,168 using the Black Scholes pricing model and were
expensed as earned in the year ending December 31, 2008.





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




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





The November and December debenture
warrants issued in year ending December 31, 2007 were covered by the 2008
Debenture Waiver documents and as such were subject to the reset provisions
outlined in Note 6 (A-I).  In October 2008 these warrants were reset
to an exercise price of $0.08 and additional “make whole” warrants were issued
to allow the denture holders to true up to the previous aggregate exercise price
(original number of warrants extended at previous higher exercise price vs. the
lower true up price triggered by the Innergy true up make whole
provision.).  This reset led to the issuance of an additional
29,411,775 warrants attributable to the November and December Warrants with an
exercise price of $0.08.  These warrants were reset a second time to
$0.06 and new warrants were issued following the Innergy True up
below.





A second reset of the November and
December debenture warrants occurred in October 2008 due to the Innergy True Up
outlined in Note 6 requiring a reset of the debenture warrants from $0.08 to
$0.06.  This reset led to the issuance of an additional 8,351,492
warrants attributable to the November and December Warrants with an exercise
price of $0.06.








At December 31, 2008, there were
57,838,729options and 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
4,720,408 warrants attributable to the November and December Warrants with an
exercise price of $0.06.





No warrants were exercised during the
quarter ended March 31, 2009.





As of March 31, 2009, there were62,559,137options and warrants
outstanding.




20




ECOTALITY,INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)








Number
            
            
            Weighted-AverageOf Shares
            
            
            Exercise
    PriceOutstanding at December 31,
      2006
            
            
            8,799,982
            
            
            $
            0.57Granted
            
            
            11,753,925
            
            
            $
            0.31Exercised
            
            
            (1,478,445
            )
            
            $
            0.35Cancelled
            
            
            0
            
            
            $
            0.00Outstanding at December 31,
      2007
            
            
            19,075,462
            
            
            $
            0.42Granted
            
            
            38,763,267
            
            
            $
            0.06Exercised
            
            
            0
            
            
            $
            0.00Cancelled
            
            
            0
            
            
            $
            0.00Outstanding at December 31,
      2008
            
            
            57,838,729
            
            
            $
            0.14Granted
            
            
            4,720,408
            
            
            $
            0.06Exercised
            
            
            0
            
            
            $
            0.00Cancelled
            
            
            0
            
            
            $
            0.00Outstanding at March 31,
      2009
            
            
            62,559,137
            
            
            $
            0.13




STOCK WARRANTS
      OUTSTANDINGWeighted-AverageNumber of
            
            
            Remaining
            
            
            Weighted-Range of
            
            
            Shares
            
            
            Contractual
            
            
            AverageExercise
    Prices
            
            
            Outstanding
            
            
            Life in
    Years
            
            
            Exercise
    Price$
            0.35
            
            
            
            
            
            5,421,537
            
            
            
            2.58
            
            
            $
            0.35$
            1.24
            -
            $
            1.42
            
            
            
            1,900,000
            
            
            
            2.3
            
            
            $
            1.36$
            0.06
            
            
            
            
            
            
            36,601,323
            
            
            
            6.17
            
            
            $
            0.06$
            0.06
            
            
            
            
            
            
            15,686,277
            
            
            
            6.17
            
            
            $
            0.06$
            0.28
            
            
            
            
            
            
            1,000,000
            
            
            
            8.58
            
            
            $
            0.28$
            0.19
            
            
            
            
            
            
            950,000
            
            
            
            8.75
            
            
            $
            0.19$
            0.04
            
            
            
            
            
            
            1,000,000
            
            
            
            9.58
            
            
            $
            0.0462,559,137
            
            
            
            5.87
            
            
            $
            0.13






STOCK WARRANTS
      EXERCISABLENumber of
            
            
            Weighted-Range of
            
            
            Shares
            
            
            AverageExercise
    Prices
            
            
            Exercisable
            
            
            Exercise
    Price$
            0.35
            
            
            
            
            
            5,421,537
            
            
            $
            0.35$
            1.24
            -
            $
            1.42
            
            
            
            1,900,000
            
            
            $
            1.36$
            0.06
            
            
            
            
            
            
            36,601,323
            
            
            $
            0.06$
            0.06
            
            
            
            
            
            
            15,686,277
            
            
            $
            0.06$
            0.28
            
            
            
            
            
            
            1,000,000
            
            
            $
            0.28$
            0.19
            
            
            
            
            
            
            950,000
            
            
            $
            0.19$
            0.04
            
            
            
            
            
            
            1,000,000
            
            
            $
            0.0462,559,137
            
            
            $
            0.13





21




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





Note 9– Commitments and
contingencies





As of March 31, 2009, the Company has
four leases in effect for operating space.  Future obligations under these
commitments are $156,889 for 2009, $203,413 for 2010, $95,978 for 2011 and
98,060 for 2012 and $41,225 for 2013.





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





Note10– Segment Reporting





SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information,” requires disclosures
related to components of a company for which separate financial information is
available that is evaluated regularly by a company’s chief operating decision
maker in deciding the allocation of resources and assessing
performance.  Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) andeTec’sMinit-Chargerbusiness acquisitions from June through
December 2007, the Company identified its segments based on the way management
expects to organize the Company to assess performance and make operating
decisions regarding the allocation of resources.   In accordance
with the criteria in SFAS No. 131, “Disclosure about Segments of anEnterpriseand Related Information,”the Company has concluded it has three
reportable segments for the quarter ended March 31, 2008;ECOtality/ECOtalityStores segment, Innergy Power segment
andeTecsegment. TheECOtality/ECOtalityStores segment is the online
marketplace for fuel cell-related products and technologies with online
distribution sites in theU.S.,Japan,Russia,ItalyandPortugal.  The Innergy Power segment
is comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. TheeTecsegment 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 theMinit-Chargerbusiness 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.eTecholds exclusive patent rights to the
eTec SuperChargeTM andMinit-Chargersystems - 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,eTecand Innergy.





The accounting policies for the segments
are the same as those described in the summary of significant accounting
policies in Note3of this Form 10-QManagement is currently assessing how
it evaluates segment performance, and currently utilize income (loss) from
operations, excluding share-based compensation (benefits), depreciation and
intangibles amortization and income taxes.There were inter-segment sales during
the quarter ended March 31, 2009 and they have been eliminated in the
consolidation process.





22




ECOTALITY, INC.




NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)





Summarized financial information
concerning the Company’s
reportable segments for the quarterendedMarch31, 2009 and March 31, 2008 areas follows:





THREEMONTHS ENDED MARCH
      31, 2009ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            1,775,086
            
            
            $
            478,814
            
            
            $
            216,299
            
            
            $
            2,470,199Depreciation
      and amortization
            
            $
            103,510
            
            
            $
            1,455
            
            
            $
            891
            
            
            $
            105,856Operating
      income (loss)
            
            $
            (50,980
            )
            
            $
            136,360
            
            
            $
            47,648
            
            
            $
            133,028Interest
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Gain
      / (Loss) on disposal of assets
            
            $
            9,760
            
            
            $
            -
            
            
            $
            -
            
            
            $
            9,760Other
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Segment
      Income before Corporate Overhead Allocation
            
            $
            (41,220
            )
            
            $
            136,360
            
            
            $
            47,648
            
            
            $
            142,788Corporate
      Overhead Allocation
            
            $
            814,340
            
            
            $
            219,661
            
            
            $
            99,230
            
            
            $
            1,133,231Segment
      Income / (Loss)
            
            $
            (855,560
            )
            
            $
            (83,301
            )
            
            $
            (51,582
            )
            
            $
            (990,443
            )Capital
      Expenditures
            
            $
            4,157
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,157Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            33,114Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,023,555
            )Capital
      Expenditures
            
            $
            147,212
            
            
            $
            7,396
            
            
            $
            263,979
            
            
            $
            418,587Total
      segment assets - excluding intercompany receivables
            
            $
            3,194,463
            
            
            $
            526,609
            
            
            $
            208,800
            
            
            $
            3,929,872Other
      items Not included in Segment Assets:Goodwill
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            3,495,878Other
      Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            974,102Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,399,852




THREE
      MONTHS ENDED MARCH 31, 2008ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            1,962,901
            
            
            $
            674,975
            
            
            $
            180,023
            
            
            $
            2,817,899Depreciation
      and amortization
            
            $
            96,108
            
            
            $
            10,284
            
            
            $
            593
            
            
            $
            106,985Operating
      income (loss)
            
            $
            (98,187
            )
            
            $
            37,207
            
            
            $
            (77,590
            )
            
            $
            (138,570
            )Interest
      Income (expense)
            
            $
            2,837
            
            
            $
            435
            
            
            $
            -
            
            
            $
            3,272Gain
      / (Loss) on disposal of assets
            
            $
            (25,020
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (25,020
            )Other
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Segment
      Income before Corporate Overhead Allocation
            
            $
            (120,370
            )
            
            $
            37,642
            
            
            $
            (77,590
            )
            
            $
            (160,318
            )Corporate
      Overhead Allocation
            
            $
            1,251,754
            
            
            $
            430,436
            
            
            $
            114,802
            
            
            $
            1,796,992Segment
      Income / (Loss)
            
            $
            (1,372,124
            )
            
            $
            (392,794
            )
            
            $
            (192,392
            )
            
            $
            (1,957,310
            )Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            34,901Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,992,211
            )Capital
      Expenditures
            
            $
            135,187
            
            
            $
            7,396
            
            
            $
            694
            
            
            $
            143,277Total
      segment assets - excluding intercompany receivables
            
            $
            4,518,623
            
            
            $
            858,071
            
            
            $
            249,264
            
            
            $
            5,625,959Other
      items Not included in Segment Assets:Goodwill
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            3,095,878Other
      Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,357,633Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,079,470




23




NOTE 11– 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 9 months ended
September 30, 2008, $300,000 was advanced by Mr. Karner and Ms. Forbes. Further
advances above $450,000 are contingent on the Company securing additional
financing as agreed by October 26, 2008. This line carries a loan fee of $45,000
payable when the line expires on December 15, 2008. No other interest payments
or fees are required under the agreement. The fee of $45,000 is being expensed
over the life of the Line. Imputed interest of $1,425 and financing charges of
$6,962 were expensed in the 9 month period ending September 30, 2008. All
amounts advanced under the Line were due and payable in full on December 15,
2008. The balance of the note payable was $450,000 at March 31,
2009.





Note 12– Subsequent Events





In November and December 2007 the
Company issuedOriginal
Issue Discount 8% Senior Secured Convertible Debentures, datedNovember 6, 2007 (the “November2007 Debenture”)(aggregate principal amount equal to
$4,117,649) and Original Issue Discount 8%
Secured Convertible Debentures, datedDecember 6, 2007(the “December 2007Debenture”)(aggregate principle amount equal to
$1,764,707).These debentures were issued
to prudent acquisitions to transition Ecotality from a development stage
(primarily focused in the hydrogen sector) to a revenue producing company with a
diversified clean technology portfolio (solar, fuel cell and electric charging
products). The Company’s revenue increased from $2.6 million for the year ended
December 31, 2007 to $11.2 for the year ended December 31,
2008.




TheNovember and December2007 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 FundLtd (“BridgePointe”)(individually
referred to as “Holder” and collectively as the
“Holders”).




These convertible debentures were
designed for what the Company believed at the time to be very viable economic
growth opportunities and that the convertible features of the debentures were in
line with the market growth conditions of late 2007and early
2008.  However, due to the economic deterioration in 2008, the Company
was forced to take action to defer principal and interest payments in a series
of debenture waiver agreements, to with;





1.
            On August 29, 2008 the Company
      signed an agreement with its Debenture Holders to defer principal and
      interest payments for the period May 1 through December 31,
      2008.  This agreement was to provide the Company time to
      internally fund its working capital requirements through organic growth
      and to obtain both short and long-term funding through equity financing
      and other capital sources.  The waiver period allotted by this
      agreement was proven insufficient given the deterioration of the nation’s
      economic situation since its
signing.


2.
            OnMarch 5, 2009, theCompanyentered in to anagreement(with aneffective dateofJanuary1, 2009)to furtherrestructureitsequitywiththeholders of the
      DebentureHolders.  To allow additional
      time necessary for the Company to achieve its working capital objectives
      in the current economic environment, the Company requested the Debenture
      Holders to further extend a waiver of debt service
      requirements.  In exchange for signing the Amendment to
      Debentures and Warrants, Agreement and Waiver which defersinterest payments due for the
      first quarter 2009 until May 1, 2009 and payment of monthly principal
      redemptions until May 1, 2009, the Company agreed to a number of
      adjustments to the
debentures.




Despite the current tenuous economic,
the financial opportunities specifically in the Stimulus projects related to
electric transportation, are material to the Company’s future, and onMay 15, 2009,the Company and the Debenture Holders
entered into the attachedagreement entitled “Amendment to
Debentures and Warrants, Agreement and Waiver” (the “Agreement”) restructuringthe Company’sequity as well as establishing an
inducement for additional working capital for the Company.The Agreement’s effective date isMay1, 2009.




24





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.
            Maintainthe conversion price of theNovember2007 Debentures andDecember2007Debentures 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 theCompany's Board of Directors,two (2)nomineesby either BridgePointe or
      BridgePointe’s investment manager Roswell Capital Partners LLCor other debenture
      holders. Such a
      recommendationwillmeet theCompany’s requirements as set forth in
      theCompany’s Bylawsand all applicable federal and
      state law. The nominees mayserve until such timeastheCompany has redeemed the
      debentures.


8.
            TheexistingHolders collectivelywill maintain an equity position
      in theCompany, in
      fully diluted shares, of80%. Should theexisting holdersHolders’ equity position
      collectively become less than the80%,theCompanywillissue warrants to eachexistingHolder, pro-ratably to bring
      Holders’ equity position back to80%.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.
            Alloutstanding Warrants (defined in
      the Securities Purchase Agreements datedNovember 6, 2007 andDecember 6, 2007), and all Warrants issued to
      Holders as consideration for the current or prior Amendments to theNovember2007 Debentures and theDecember2007Debentureswillbeamended to have an exercise price
      of $0.01(to the
      extent that such exercise price was previously above $0.06), and thetermination 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 to1,300,000,000.


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...








Management’s Discussionand 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, Alchemy’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.




25





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





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





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




Electric Transportation Engineering
Corporation (eTec)





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




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





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





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




26





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





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





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





Innergy Power
Systems





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





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





ECOtality Stores (dba Fuel Cell
Store)





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




HydralityTM





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




Organizational
History




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




27




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





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





On October 1, 2007 we closed on the
purchase of certain assets of Innergy Power Corporation and its wholly owned
subsidiary, Portable Energy De Mexico, S.A. DE C.V., pursuant to an agreement
that we entered into on September, 18, 2007.  Innergy designs and
manufactures standard and custom solar-power and integrated solar-battery
solutions for government, industrial and consumer applications.  The
purchase price for the assets was 3,000,000 shares of our common stock.  We
guaranteed to the sellers that the shares of our common stock issued in the
transaction would be worth $3,000,000 during the 30 day period commencing 11
months from the closing date or we would be required to either issue additional
shares such that the total shares are worth $3,000,000 at that time or pay the
seller the difference in cash.On October 17, 2008, 4,000,000 shares
were issued to Innergy Power Corporation in full satisfaction of our purchase
obligation to them.





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




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





Electric Transportation Engineering
Corporation (eTec)




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




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




28




EdisonMinit-Charger




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




The aggregate purchase pricewas$1,000,000 in cash and 2,000,000 shares
of our common stock.The company guaranteed to
the sellers that the shares would be worth $1 each ($2,000,000) by the tenth day
following the first anniversary date of the transaction. If the shares were 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 31,333,333 shares of
Ecotality’s $0.001 par value common stock.





Our Hydrality System




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




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




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




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




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




Status of any announced new product or
service




Throughout 2008,and during the first quarter
2009,we havefocusedthe Company on being the leading
supplier of electric vehicle infrastructure. We have also continued to reiterate
that althoughwe initially
sought to design and license a cost efficient Hydrality system for use in
motorized vehicles and industrial equipment, we have identified several
additional and promising applications for Hydrality that include stationary
applications for remote power, back-up power systems, and large scale industrial
and utility use.




Stage of Commercialization of the
Hydrality Technology




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




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




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




29




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




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





Segment Information




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




30




The accounting policies for the segments
are the same as those described in the summary of significant accounting
policies in Note3 of this Form 10-Q. Management is continues to assess how
it evaluates segment performance, and currently utilize income (loss) from
operations, excluding share-based compensation (benefits), depreciation and
intangibles amortization and income taxes. There were  inter-segment
sales during the quarter ended March 31, 2009 and they have been
eliminated.





Summarized financial information
concerning the Company’s
reportable segments for the quarterendedMarch31, 2009 and March 31, 2008 areas follows:







THREE MONTHS ENDED MARCH
      31, 2009ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            1,775,086
            
            
            $
            478,814
            
            
            $
            216,299
            
            
            $
            2,470,199Depreciation
      and amortization
            
            $
            103,510
            
            
            $
            1,455
            
            
            $
            891
            
            
            $
            105,856Operating
      income (loss)
            
            $
            (50,980
            )
            
            $
            136,360
            
            
            $
            47,648
            
            
            $
            133,028Interest
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Gain
      / (Loss) on disposal of assets
            
            $
            9,760
            
            
            $
            -
            
            
            $
            -
            
            
            $
            9,760Other
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Segment
      Income before Corporate Overhead Allocation
            
            $
            (41,220
            )
            
            $
            136,360
            
            
            $
            47,648
            
            
            $
            142,788Corporate
      Overhead Allocation
            
            $
            814,340
            
            
            $
            219,661
            
            
            $
            99,230
            
            
            $
            1,133,231Segment
      Income / (Loss)
            
            $
            (855,560
            )
            
            $
            (83,301
            )
            
            $
            (51,582
            )
            
            $
            (990,443
            )Capital
      Expenditures
            
            $
            4,157
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,157Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            33,114Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,023,555
            )Capital
      Expenditures
            
            $
            147,212
            
            
            $
            7,396
            
            
            $
            263,979
            
            
            $
            418,587Total
      segment assets - excluding intercompany receivables
            
            $
            3,194,463
            
            
            $
            526,609
            
            
            $
            208,800
            
            
            $
            3,929,872Other
      items Not included in Segment Assets:Goodwill
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            3,495,878Other
      Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            974,102Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,399,852




THREE
      MONTHS ENDED MARCH 31, 2008ETEC
            
            
            INNERGY
            
            
            FUEL
      CELL STORE
            
            
            TOTALTotal
      net operating revenues
            
            $
            1,962,901
            
            
            $
            674,975
            
            
            $
            180,023
            
            
            $
            2,817,899Depreciation
      and amortization
            
            $
            96,108
            
            
            $
            10,284
            
            
            $
            593
            
            
            $
            106,985Operating
      income (loss)
            
            $
            (98,187
            )
            
            $
            37,207
            
            
            $
            (77,590
            )
            
            $
            (138,570
            )Interest
      Income (expense)
            
            $
            2,837
            
            
            $
            435
            
            
            $
            -
            
            
            $
            3,272Gain
      / (Loss) on disposal of assets
            
            $
            (25,020
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (25,020
            )Other
      Income (expense)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Segment
      Income before Corporate Overhead Allocation
            
            $
            (120,370
            )
            
            $
            37,642
            
            
            $
            (77,590
            )
            
            $
            (160,318
            )Corporate
      Overhead Allocation
            
            $
            1,251,754
            
            
            $
            430,436
            
            
            $
            114,802
            
            
            $
            1,796,992Segment
      Income / (Loss)
            
            $
            (1,372,124
            )
            
            $
            (392,794
            )
            
            $
            (192,392
            )
            
            $
            (1,957,310
            )Not
      Included in segment income:Depreciation
      on Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            34,901Reported
      Net income after tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,992,211
            )Capital
      Expenditures
            
            $
            135,187
            
            
            $
            7,396
            
            
            $
            694
            
            
            $
            143,277Total
      segment assets - excluding intercompany receivables
            
            $
            4,518,623
            
            
            $
            858,071
            
            
            $
            249,264
            
            
            $
            5,625,959Other
      items Not included in Segment Assets:Goodwill
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            3,095,878Other
      Corporate Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,357,633Total
      Reported Assets
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            10,079,470




31




Employees




As of March 31, 2009, we had 43
employees including 15inmanufacturing and the
rest in research and development, sales and marketing, and general and
administration positions. None of our employees are represented by labor unions
or covered by a collective bargaining agreementother than our employees inMexico. As we expand domestically and
internationally, however, we may encounter employees who desire union
representation. We believe that relations with our employees are
good.





Results of
Operations





QUARTER ENDED MARCH 31, 2009, COMPARED
WITH QUARTER ENDED MARCH 31, 2008





CONSOLIDATED RESULTS





During the period since January 1, 2008
we have transitioned ourselves from being a development stage company to a
growth oriented renewable energy company. Thus, the variations reflected in our
results of operations described below are based upon this transformation and the
impact of the global economic slowdown.




In the quarter ended March 31, 2009, we
had revenues of $2,470,199 compared to the quarter ended March 31, 2008 of
$2,817,899.  The reduction in revenue is largely related to theaffect of the slowing economy on our
business.  The cost of goods sold percentage for the quarter ending
March 31, 2009 was 56% leaving us with a gross profit of $1,075,906. Our gross
margin of 44% was an improvement over the same period prior year of
43%.





Total operating expenses during the
three months ended March 31, 2009 were $1,492,944compared to $2,614,581 for the three
months ended March 31, 2008, a 43% reduction from prior year.  General
and administrative expenses were $1,342,509 or 90% of total operating expenses
for the three months ended March 31, 2009 compared with $2,357,009 or 90% for
the three months ended March 31, 2008. The reduction of 43% is attributable to
tight operating controls and improved efficiencies gained in through our
successful integration of our 2007 acquisitions.  Details around the
changes in these expenses are described below:





Professional fees were $13,579 for the
three months ended March 31, 2009 compared with $303,595 for the three months
ended March 31, 2008.  This reduction demonstrates the tight cost
controls implemented in 2008. New media, marketing, advertising and investor and
public relations expenses were $4,087 for the three months ended March 31, 2009
compared with $490,583 for the three months ended March 31, 2008 with the
decrease primarily attributable to utilizing internalcorporateresources for these
functions.  Legal fees were $56,836 for the quarter ended March 31,
2009 compared with $229,778 for the quarter ended March 31, 2008 and accounting
fees were $64,822for the quarter ended March 31, 2009
compared with $109,381 for the quarter ended March 31,
2008.  Executive compensation was $193,677 for the three months ended
March 31, 2009 compared with $138,000 for the three months ended March 31, 2008.
Depreciation expense was $138,970 for the quarter ended March 31, 2009 compared
to $141,886 for the quarter ended March 31, 2008.  All other general
and administrative spending totaled $1,009,507for the three months ended March 31,
2009 compared to $1,485,672 for the three months ended March 31,
2008.





Expenses for research and development
totaled $11,467 for the three months ended March 31, 2009compared to$115,686 for the three months ended
March 31, 2008.   This reduction reflects our focused strategy on
applications with short-term commercialization potential supported through joint
projects and grants to help defray costs. Since one of our primary objectives
continues to be the commercial advancement of clean electric technologies that
reduce our dependence upon carbon based fuels, we have retained a strong focus
on research and development activities, and expect to continue to incur
additional research and development costs, although at a significantly reduced
rate, for the foreseeable future, as reflected in the minimal amount
expensed during the first quarter 2009.





Our operating loss compared favorably
with the same period prior year for a loss of $1,023,555 for the quarter ended
March 31, 2009 compared with a loss of $1,992,211 for the quarter ended
March 31, 2008, reflecting an improvement year over year of $968,656 or
49%.




For the quarter ended March 31, 2009, we
earned interest income in the amount of $0 compared with $8,150 for the quarter
ended March 31, 2008.





Interest expense was $616,277 for the
three months ended March 31, 2009 compared to $562,304 for the three months
ended March 31, 2008.  The higher amount for 2009 was driven by the
interest on the convertible debentures we issued in November and December of
2007.  We had a gain on disposal of assets in the three months ended
March 31, 2009 of $9,760 compared to a loss on disposal of assets of $25,020 for
the same period in 2008.




32





Liquidity and Capital
Resources





As of March 31, 2009, we had $456,652 of
cash on hand and held certificates of deposit in the amount of $28,044 compared
to quarter end 2008 balances of $327,332 of cash on hand and $28,044 in
certificates of deposit.





Wegeneratedcash for operating activities in the
first quarter of 2009 in the amount of $129,036 compared to $92,634 for
2008.   In addition, cashgeneratedin investing activities was
$5,603for the three months ended March 31,
2009compared toa use of cash of($143,277)for 2008.





Cash generated by financing activities
was $0in the first quarter of 2009 compared
toa use of cash of
($2,180)in 2008.





Our current financing activities are
described below:





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





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





These cash management efforts in the
year ended December 31, 2008, while adequate for that period require additional
measures, most notably a successful capital raise and organic growth of our
operations to allow us to meet our obligations going forward. To that end, we
have during the quarter ended March 31, 2009 continued to seek additional
capital while working with our debt holders to preclude paying interest and
redemption of principal redemption in exchange for additional time to
generate additional capital.





OnMarch 5, 2009weentered in to an Agreement entitled
“Amendment to Debentures and Warrants, Agreement and Waiver” (the “Agreement”)
restructuringourequitywith the institutional debt holders of
theourOriginal Issue Discount 8% Senior
Secured Convertible Debentures, datedNovember 6, 2007 (the “November2007 Debentures”)(aggregate principal amount equal to
$4,117,649) and withourdebt holder ofourOriginal Issue Discount 8% Secured
Convertible Debentures, datedDecember 6, 2007(the “December 2007Debenture”)(aggregate principle amount equal to
$1,764,707).  TheNovember and December2007 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 datewasJanuary1, 2009.





To allow the additional time necessary
for us to achieve our working capital targets in the current economic
environment, we requested our debenture holders to further extend a waiver of
debt service requirements.  In exchange for signing an Amendment to
Debentures and Warrants, Agreement and Waiver which defersinterest 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 theNovember2007 Debentures andDecember2007Debentures to
  $.06.





B.
            The Holders collectively
      shall maintain an
      equity position in theCompany, in fully diluted shares,
      of 50.4%. Should the Holders’ equity
      position collectively become less than the 50.4%,theCompany 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 theCompany's Board of Directors, a nominee
      by either BridgePointe or BridgePointe’s investment manager Roswell
      Capital Partners LLC. Such a recommendation shall meet theCompany’s requirements as set forth in
      theCompany’s Bylawsand all applicable federal and
      state law. The nominee shall serve until such timeastheCompany has redeemed the
      debentures.




33




E.
            Alloutstanding Warrants (defined in
      the Securities Purchase Agreements datedNovember 6, 2007 andDecember 6, 2007), and all Warrants issued to
      Holders as consideration for the current or prior Amendments to theNovember2007 Debentures and theDecember2007Debenturesshall beamended to have an exercise price
      of $0.06(to the
      extent that such exercise price was previously above $0.06), and the expiration dates shall be extended to
      May1,
      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 theCompany’s current and future Patents and
      Trademarks. In additionthe Companyshall file notice of the
      Assignment for Security of theCompany’s current and any future Patents and
      Trademarks with the United States Patent and Trademark Officeand other foreign countries as
      appropriate.




Our
continued cash management offorts are further described in Subsequent
Events.




Management’s Plan of
Operation





Our overall plan of operation calls for
sustained organic growth. We believed that the acquisitions we completed during
2007 would provide us with a base to support this objective and this growth was
reflected in our budget and business plans for 2008. However, growth consistent
with our plans did not occur in the third and fourth quarters of 2008, nor in
the first quarter of 2009. Sales, consulting services and manufacturing levels
remained at lower levels..





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


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





(2)
            obtaining additional working
      capital to sustain our growth
objectives





(3)
            public and private support of
      alternative energy such that there is a requirement to build the related
      infrastructure throughout theUnited
    States





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





Working Capital





Net working capital is an important
measure of our ability to finance our operations.  Our net working capital at
March 31, 2009 was negative by $4,102,122 or a ratio of 0.45 to 1.





We do not have any off-balance sheet
arrangements.





We do not anticipate the need to add
significant numbers of full- or part- time employees over the next 12 months.
 We plan to outsource the research and development and production of our
products when cost effective to do so.





Commitments and Long Term
Liabilities





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





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 March 31, 2009, the Company has
four leases in effect for operating space.  Future obligations under these
commitments are $156,889 for 2009, $203,413 for 2010, $95,978 for 2011 and
98,060 for 2012 and $41,225 for 2013.




34





Quantitative and Qualitative Disclosures
about Market Risk





Controls and
Procedures





Conclusion Regarding the Effectiveness
of Disclosure Controls and Procedures




We maintain a set of disclosure controls
and procedures designed to ensure that information required to be disclosed by
us in the reports filed under the Securities Exchange Act, is recorded,
processed, summarized and reported within the time periods specified by the
Commission’s rules and forms.  Disclosure controls are also designed
with the objective of ensuring that this information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure.  We evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. As a
result of this evaluation, we concluded that our disclosure controls and
procedures were effective for the period ended March 31,
2009.





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 thequarterendedMarch31, 2009.




35





PART II - OTHER
INFORMATION




Legal Proceedings




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





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





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





We are not a party to any pending legal
proceedings.




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, 2008, 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 March  31, 2009 from the risk factors disclosed in the
above-mentioned Form 10-K for the year ended December 31,
2008.





Unregistered Sales of Equity
Securities





Recent Sales of Unregistered
Securities




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




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




·
                $4,117,649 in Secured Original
      Issue Discount Convertible Debentures;
  and
  ·
                Common Stock Purchase Warrants to
      purchase 6,862,748 shares of common stock at $0.32 per share for a period
      of five years.




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




36




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




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


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




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




Defaults upon Senior
Securities





There were no defaults upon senior
securities in the quarter ended March 31,2009





Submission of Mattersto a Vote of Security Holders




None




37





Exhibits and Reportson Form 8-K




Exhibit
    Number
            
            Name and/or Identification of
      Exhibit2
            
            Plan of Purchase,Sale, Reorganization, arrangement,
      liquidation or successiona.  Technology Contribution
      Agreement and Exhibits thereto (1)b.  License Agreement with
      California Institute of Technology (2)3
            
            Articles of
      Incorporation & By-Lawsa.  Articles of Incorporation
      filed on April 21, 1999 (3)b.  Amendment to Articles of
      Incorporation filed on November 27, 2006c.  Amendment to Articles of
      Incorporation filed on November 27, 2006d.  Restated Bylaws October
      31, 2007(5)e.  Amendment to Articles of
      Incorporation filed on January 3, 2008 (4)10
            
            Material Contractsa.   Purchase Order with
      Hydrogenics Corporation (4)b.  Settlement Agreement and
      Release (6)16
            
            Letter on change in certifying
      accountant (7)31
            
            Rule 13a-14(a)/15d-14(a) Certification32
            
            Certification under
      Section 906 of the Sarbanes-Oxley Act (18 U.S.C.
      Section 1350)99
            
            Additional
    Exhibitsa.  Escrow
      Agreement(6)b.  Letter from NASA/Jet
      Propulsion Laboratories (8)2
            
            Plan of Purchase,Sale, Reorganization, arrangement,
      liquidation or successiona.  Technology Contribution
      Agreement and Exhibits thereto
(1)







Notes:




(1)
            Incorporated by reference herein
      to the Form SB-2, previously filed with the SEC on January 8,
      2008.(2)
            Incorporated by reference herein
      to the Form SB-2, previously filed with the SEC on January 31,
      2008.(3)
            Incorporated by reference herein
      to the Form SB-2, previously filed with the SEC on January 31,
      2008.(4)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on January 31,
      2008.(5)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on April 11,
      2008.(6)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on September 4,
      2008.(7)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on September 25,
      2008.(8)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on December 30,
      2008.(9)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on January 07,
      2009.(10)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on February 03,
      2009.(11)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on February 11,
      2009.(12)
            Incorporated by reference herein
      to the Form 8-K, previously filed with the SEC on March 10,
      2009.




38





SIGNATURES




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,
            
            May 18,
  2009Jonathan R.
      Read
            
            President and
      Director/s/ Harold W.
      Sciotto
            
            Secretary,
      Treasurer
            
            May 18,
  2009Harold W.
      Sciotto
            
            and
Director/s/ Barry S.
      Baer
            
            Chief Financial
      Officer
            
            May 18,
  2009Barry S.
    Baer
            
            Principal Accounting
      Officer
              Director/s/ Jerry Y. S.
      Lin
            
            Director
            
            May 18,
  2009Jerry Y. S.
    Lin/s/ E. Slade
      Mead
            
            Director
            
            May 18,
  2009E. Slade
    Mead




39