Form
10-Q





ECOTALITY,
INC. - ETLY





Filed:
August 14, 2009 (period: June 30, 2009)





Quarterly
report which provides a continuing view of a company's financial
position








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: June 30, 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.


Yes x    No o





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




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





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


Yes o    No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of August 13, 2009


206,892,146





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
                5Notes to
      Condensed Consolidated Financial Statements
                6Management’s
      Discussion and Analysis of Financial Condition and Results  of
      Operation
                25Quantitative
      and Qualitative Disclosures about Market Risk
                37Controls
      and Procedures
                37PART
      II - OTHER INFORMATION
                38Legal
      Proceedings
                38Risk
      Factors
                38Unregistered
      Sales of Equity Securities
                38Defaults
      Upon Senior Securities
                39Submission
      of Matters to a Vote of Security Holders
                39Exhibits
      and Reports on Form 8-K
                40SIGNATURES
                41


2





PART1.
FINANCIAL INFORMATION





ECOtality,
Inc.


Condensed
Consolidated Statement of Operations


Unaudited





For the 3 Months Ended June 30,
                                    
                                    
                                    For the 6 Months Ended June 30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Revenue
                                    
                                    $
                                    1,747,085
                                    
                                    
                                    $
                                    2,936,150
                                    
                                    
                                    $
                                    4,217,284
                                    
                                    
                                    $
                                    5,754,049Cost
      of goods sold
                                    
                                    
                                    819,630
                                    
                                    
                                    
                                    1,667,945
                                    
                                    
                                    
                                    2,213,922
                                    
                                    
                                    
                                    3,284,300Gross
      profit
                                    
                                    
                                    927,455
                                    
                                    
                                    
                                    1,268,205
                                    
                                    
                                    
                                    2,003,362
                                    
                                    
                                    
                                    2,469,749Expenses:Depreciation
                                    
                                    
                                    111,337
                                    
                                    
                                    
                                    124,118
                                    
                                    
                                    
                                    250,307
                                    
                                    
                                    
                                    266,004General
      and administrative expenses
                                    
                                    
                                    1,543,850
                                    
                                    
                                    
                                    1,539,570
                                    
                                    
                                    
                                    2,886,361
                                    
                                    
                                    
                                    3,896,579Research
      and development
                                    
                                    
                                    695
                                    
                                    
                                    
                                    31,947
                                    
                                    
                                    
                                    12,162
                                    
                                    
                                    
                                    147,633Total
      expenses
                                    
                                    
                                    1,655,880
                                    
                                    
                                    
                                    1,695,635
                                    
                                    
                                    
                                    3,148,830
                                    
                                    
                                    
                                    4,310,216Operating
      loss
                                    
                                    
                                    (728,427
                                    )
                                    
                                    
                                    (427,430
                                    )
                                    
                                    
                                    (1,145,468
                                    )
                                    
                                    
                                    (1,840,467
                                    )Other
      income:Interest
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,011
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,161Total
      other income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,011
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,161Other
      expenses:Interest
      expense
                                    
                                    
                                    2,872,418
                                    
                                    
                                    
                                    503,309
                                    
                                    
                                    
                                    3,488,695
                                    
                                    
                                    
                                    1,065,613(Gain)
      / Loss on Disposal of Assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (20,126
                                    )
                                    
                                    
                                    (9,760
                                    )
                                    
                                    
                                    4,894Total
      other expenses
                                    
                                    
                                    2,872,418
                                    
                                    
                                    
                                    483,183
                                    
                                    
                                    
                                    3,478,935
                                    
                                    
                                    
                                    1,070,507Loss
      from operations before income taxes
                                    
                                    
                                    (3,600,845
                                    )
                                    
                                    
                                    (909,602
                                    )
                                    
                                    
                                    (4,624,403
                                    )
                                    
                                    
                                    (2,901,813
                                    )Provision
      for income taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Net
      (loss)
                                    
                                    $
                                    (3,600,845
                                    )
                                    
                                    $
                                    (909,602
                                    )
                                    
                                    $
                                    (4,624,403
                                    )
                                    
                                    $
                                    (2,901,813
                                    )Weighted
      average number ofcommon
      shares outstanding - basic and fully diluted
                                    
                                    
                                    161,910,484
                                    
                                    
                                    
                                    124,732,861
                                    
                                    
                                    
                                    156,626,487
                                    
                                    
                                    
                                    124,601,241Net
      (loss) per share-basic and fully diluted
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.01
                                    )
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.02
                                    )





The
accompanying notes are an integral part of these financial
statements





3





ECOtality,
Inc.


Condensed
Consolidated Balance Sheets





June 30, 2009
                        
                        
                        December 31, 2008(Unaudited)
                        
                        
                        (Audited)AssetsCurrent
      assets:Cash
                        
                        $
                        484,002
                        
                        
                        $
                        327,332Certificates
      of deposit
                        
                        
                        -
                        
                        
                        
                        28,044Receivables,
      net of allowance for bad debt of  $114,019 and $69,176 as of
      06/30/09 and  12/31/08 respectively
                        
                        
                        927,646
                        
                        
                        
                        1,963,073Inventory,
      net of allowance for obsolescence of $182,487 and $167,487  as
      of 06/30/09 and 12/31/08 respectively
                        
                        
                        1,019,551
                        
                        
                        
                        1,149,881Prepaid
      expenses and other current assets
                        
                        
                        157,187
                        
                        
                        
                        229,931Total
      current assets
                        
                        
                        2,588,386
                        
                        
                        
                        3,698,263Fixed
      assets, net accumulated depreciation of $4,482,138
      and   $4,283,866 as of 06/30/09 and 12/31/08
      respectively
                        
                        
                        1,486,375
                        
                        
                        
                        1,632,315Goodwill
                        
                        
                        3,495,878
                        
                        
                        
                        3,495,878Total
      assets
                        
                        $
                        7,570,640
                        
                        
                        $
                        8,826,457Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
                        
                        $
                        1,002,151
                        
                        
                        $
                        1,510,277Accrued
      liabilities
                        
                        
                        1,043,526
                        
                        
                        
                        848,789Accrued
      Interest
                        
                        
                        331,990
                        
                        
                        
                        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 $1,313,786 and $1,530,101 as of
      06/30/09 and 12/31/08 respectively
                        
                        
                        2,991,049
                        
                        
                        
                        3,411,540Total
      current liabilities
                        
                        
                        6,053,970
                        
                        
                        
                        9,616,975Total
      LT Debt, net of discount of $0 and $548,735 as of 06/30/09 and 12/31/08
      respectively
                        
                        
                        3,157,390
                        
                        
                        
                        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,  161,951,564
      and 129,422,861 shares issuedand
      outstanding as of 06/30/09 and 12/31/08, respectively
                        
                        
                        161,951
                        
                        
                        
                        129,423Common
      stock owed but not issued 0 shares at 06/30/09 and 75,000 at
      12/31/08
                        
                        
                        -
                        
                        
                        
                        75Additional
      paid-in capital
                        
                        
                        48,420,004
                        
                        
                        
                        33,485,763Unamortized
      Financing Charges
                        
                        
                        (9,211,240
                        )
                        
                        
                        -Retained
      deficit
                        
                        
                        (40,962,025
                        )
                        
                        
                        (36,337,624
                        )Accumulated
      Foreign Currency Translation Adjustments
                        
                        
                        (49,409
                        )
                        
                        
                        (40,006
                        )Total
      stockholders' equity
                        
                        
                        (1,640,718
                        )
                        
                        
                        (2,762,368
                        )Total
      liabilities and stockholders' equity
                        
                        $
                        7,570,640
                        
                        
                        $
                        8,826,457





The
accompanying notes are an integral part of these financial
statements


4




ECOtality,
Inc.


Consolidated
Statement of Cash Flows





Unaudited





For the 6 Months Ended June 30,2009
                      
                      
                      2008Cash
      flows from operating activitiesNet
      Income (loss)
                      
                      $
                      (4,624,403
                      )
                      
                      $
                      (2,901,813
                      )Adjustments
      to reconcile:Stock
      and options issued for services and compensation
                      
                      
                      95,175
                      
                      
                      
                      70,126Depreciation
                      
                      
                      250,307
                      
                      
                      
                      266,004Amortization
      of stock issued for services
                      
                      
                      117,206
                      
                      
                      
                      182,826Amortization
      of discount on notes payable
                      
                      
                      765,050
                      
                      
                      
                      825,097Amortization
      of financing costs
                      
                      
                      2,302,811
                      
                      
                      
                      -Gain
      on disposal of assets
                      
                      
                      (9,760
                      )
                      
                      
                      31,618Changes
      in operating assets and liabilities:Certificate
      of deposit
                      
                      
                      28,044
                      
                      
                      
                      1,191,966Accounts
      Receivable
                      
                      
                      1,035,426
                      
                      
                      
                      567,066Inventory
                      
                      
                      130,330
                      
                      
                      
                      198,580Prepaid
      expenses and other
                      
                      
                      72,744
                      
                      
                      
                      162,337Accounts
      Payable
                      
                      
                      (498,612
                      )
                      
                      
                      (361,967
                      )Accrued
      Liabilities
                      
                      
                      605,875
                      
                      
                      
                      (78,186
                      )Net
      cash provided (used) by operating activities
                      
                      
                      270,193
                      
                      
                      
                      153,654Cash
      flows from investing activitiesPurchase
      of fixed assets
                      
                      
                      (113,882
                      )
                      
                      
                      (168,254
                      )Proceeds
      from sales of fixed assets
                      
                      
                      9,761
                      
                      
                      
                      21,339Net
      cash (used) by investing activities
                      
                      
                      (104,121
                      )
                      
                      
                      (146,915
                      )Cash
      flows from financing activitiesPayments
      on notes payable
                      
                      
                      -
                      
                      
                      
                      (53,168
                      )Net
      cash provided (used) by financing activities
                      
                      
                      -
                      
                      
                      
                      (53,168
                      )Effects
      of exchange rate changes
                      
                      
                      (9,403
                      )
                      
                      
                      (29,961
                      )Net
      increase (decrease) in cash
                      
                      
                      156,670
                      
                      
                      
                      (76,386
                      )Cash
      – beginning
                      
                      
                      327,332
                      
                      
                      
                      677,318Cash
      – ending
                      
                      $
                      484,002
                      
                      
                      $
                      600,931Supplemental
      disclosures:Interest
      paid
                      
                      $
                      -
                      
                      
                      $
                      124,270Income
      Taxes paid
                      
                      $
                      -
                      
                      
                      $
                      -Non-cash
      transactions:Stock
      and options issued for services
                      
                      $
                      95,175
                      
                      
                      $
                      70,126Shares
      of stock issued
                      
                      
                      1,150,000
                      
                      
                      
                      250,000Number
      of options issued
                      
                      
                      -
                      
                      
                      
                      -Stock
      issued for acquisition
                      
                      $
                      1,880,000
                      
                      
                      $
                      -Shares
      of stock issued
                      
                      
                      31,333,333
                      
                      
                      
                      -Amortization
      of stock issued for services
                      
                      $
                      117,206
                      
                      
                      $
                      182,826Amortization
      of discount on notes payable
                      
                      $
                      765,050
                      
                      
                      $
                      825,097Note
      Payable converted for common stock
                      
                      $
                      -
                      
                      
                      $
                      100,000Shares
      of stock issued
                      
                      
                      -
                      
                      
                      
                      333,333





The
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 of  Nevada as Alchemy Enterprises, Ltd.  The Company
was initially authorized to issue 25,000 shares of its no par value common
stock.





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





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





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





On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts.  It also offers consulting services on
establishing educational programs for all levels of educational
institutions.  FuelCellStore.com now operates as ECOtality Stores, Inc
wholly owned subsidiary.  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 June 30, 2009
include the accounts of ECOtality, Innergy Power Corporation, ECOtality Stores,
Inc ,(DBA Fuel Cell Store) 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
$3,600,845 for the three months ended June 30, 2009 and $4,624,403 for the six
months ended June 30, 2009.  The Company has working capital of
($3,723,873) as of June 30, 2009 and has accumulated a retained deficit of
$40,962,025 since its date of inception.





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





Note
3 – Summary of Significant Accounting Policies





Use of
estimates


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


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
June 30, 2009 and 2008 interest income was $0 and $1,011,
respectively.  For the six months ended June 30, 2009 and 2008
interest income was $0 and $9,161 respectively.





Credit
Risk


Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits and accounts receivable. The Company
maintains cash and cash equivalent balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $250,000.
 Deposits with these banks may exceed the amount of insurance provided on
such deposits.  At June 30, 2009 and 2008, the Com pany had approximately
$100,000 and $325,881 in excess of FDIC insured limits,
respectively.





Accounts
Receivable


Accounts
receivable are carried on a gross basis, with no discounting, less the allowance
for doubtful accounts.   Accounts receivable at June 30, 2009 was
$927,646.  At June 30, 2009 we had two customers that represented in
excess of 10% of our receivable balance. The first, Battelle Energy Alliance LLC
had a balance of $114,373.  $90,490 of the balance was paid in July
2009.  The second, The United States Department of Energy had a
balance of $112,647.  This balance was paid in full in July 2009. The
Company has not experienced material losses in the past from these or any other
significant customers and continues to monitor its exposures to minimize
potential credit losses.  The allowance for doubtful accounts was
$114,019 and $21,126 as of June 30, 2009 and 2008, 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 by performing the necessary testing for recoverability of
the asset and measuring its fair value. 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 three months ended June 30,
2009 and 2008 the Company had impairment expense of $0 and $0,
respectively.  During the six months ended June 30, 2009 and 2008
impariment expense was $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 June 30, 2009 and 2008, management has concluded
that no reserve is required for product returns.





Warranty
Liability


The
Company warrants a limited number of Minit-Charger products against defects for
periods up to 33 months. The estimate of warranty liability is based on
historical product data and anticipated future costs. Should actual failure
rates differ significantly from our estimates, we record the impact of these
unforeseen costs or cost reductions in subsequent periods and update our
assumptions and forecasting models accordingly.  As of June 30,
2009 the warranty reserve was $111,692.   Management has concluded this
warranty reserve to be adequate for future expenses relating to the
warranty.


7


ECOTALITY,
INC.





NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)





Inventory


Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, or
market.  Inventory includes material, labor, and factory overhead
required in the production of our products.  Inventory obsolescence is
examined on a regular basis.  The allowance for obsolescence as of
June 30, 2009 was $182,487.





Advertising
costs


The
Company expenses all costs of advertising as incurred.  Advertising costs
of $17,211 and $2,100 were included in general and administrative expenses for
the quarter ended June 30, 2009 and 2008 respectively.  For the six
months ended June 30, 2009 and 2008 advertising costs included in general and
administrative expenses were $21,298 and $17,554 respectively.





Research
and development costs


Research
and development costs are charged to expense when incurred.  For the
quarter ended June 30, 2009 and 2008,  research and development cos ts
were $695 and $31,947, respectively. For the six months ended June 30, 2009 and
2008 research and development was 12,162 and 147,633 respectively.





Contingencies


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





Fair
Value of Financial Instruments


The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values based on their short-term nature. Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of June 30, 2009 and 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 June 30, 2009 and 2008
and for the six months ended June 30, 2009 and 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, a Company subsidiary, PEP Mexico operated outside the United States
and their local currency is their functional currency. The functional
currency is translated into U.S. dollars for balance sheet accounts using the
period end rates in effect as of the balance sheet date and the average exchange
rate for revenue and expense accounts for each respective period. The
translation adjustments are deferred as a separate component of stockholders'
equity, within other comprehensive loss, net of tax where
applicable.





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





Stock-Based
Compensation


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


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





The
Company does not anticipate any significant changes to its total unrecognized
tax benefits with the next twelve months.  As of June 30, 2009 and
2008 respectively, 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) and eTec’s
Minit-Charger business acquisitions from June through December 2007, the Company
identified its segments based on the way management expects to organize the
Company to assess performance and make operating decisions regarding the
allocation of resources.   In accordance with the criteria in
SFAS No. 131, “Disclosure about Segments of an Enterprise and Related
Information,” the Company has concluded it has three reportable segments for the
quarter ended June 30, 2009; ECOtality Stores segment, Innergy Power segment and
eTec segment. The ECOtality Stores segment is the online marketplace for fuel
cell-related products and technologies with online distribution sites in the
U.S., Japan, Russia, Italy and Portugal.  The Innergy Power segment is
comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. The eTec segment relates to sale of fast-charge systems
for material handling and airport ground support applications to the testing and
development of plug-in hybrids, advanced battery systems and hydrogen ICE
conversions and consulting revenues.  This segment also includes the
Minit-Charger business which relates to the research, development and testing of
advanced transportation and energy systems with a focus on alternative-fuel,
hybrid and electric vehicles and infrastructures.  eTec holds exclusive
patent rights to the eTec
SuperChargeTM  and  Minit-Charger  systems -
battery fast charge systems that allow for faster charging with less heat
generation and longer battery life than conventional chargers.  The
Company has aggregated these subsidiaries into three reportable segments:
ECOtality/Fuel Cell Store, eTec and Innergy.





The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 3 of this Form 10-Q.
Management continues to assess how it evaluates segment performance, and
utilizes income (loss) from operations, excluding share-based compensation
(benefits), depreciation and intangibles amortization and income taxes. For the
quarter ended June 30, 2009 and June 30, 2008, inter-segment sales were $0 and
$0 respectively.  For the six months ended June 30, 2009 and 2008
inter-segment sales were $28,723 and $0 respectively.  All
inter-segment sales 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 related interpretations, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations. 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. The award amortization period is dependent upon the vesting period of the
award. FAS 123R is effective January 1, 2006. Accordingly, the Company
accelerated the vesting of pre-exsting awards as of June 30, 2009 and any
unamortized amounts were expensed . The company has adopted this accounting
standard which requires only new awards or awards that are modified, repurchased
or cancelled after the effective date to be accounted for under the provisions
of FAS123R.





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 June 30, 2009 and 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 where
specifically exempted in authoritative announcements.  The Company has
applied FAS157 prospectively effective with its fiscal year beginning January 1,
2008.


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 June 30, 2009 and June 30, 2008
or for the six months ended June 30, 2009 and 2008.





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





Reclassifications


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





Year
end


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





Note
4 – Acquisitions, 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 named ECOtality Stores, Inc.  The acquisition has been
accounted for under the purchase accounting method pursuant to SFAS
141.  Our consolidated financial statements for the year ended
December 31, 2008, the quarter ended and the six months ended June 30, 2009 and
2008 include the financial results of ECOtality Stores, Inc. subsequent to the
date of the acquisition.





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





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





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





In
accordance with SFAS No. 144, “Accounting for the impairment or disposal of long
lived assets”, the Company reviewed the goodwill for impairment performing the
necessary testing for recoverability of the asset and measuring its fair
value.   This testing revealed current, historic, and future
(projected) cash flow losses as well as a determination of fair value less than
the carrying value.  As a result of this testing, the full amount of
goodwill ($326,782) was impaired during the year ended December 31,
2007.


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, 2008, the quarter ended and the six months ended June 30, 2009 and 2008
include the financial results of Innergy Power Corporation and its subsidiary
subsequent to the date of the acquisition.





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





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





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





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





In
accordance with SFAS No. 144, “Accounting for the impairment or disposal of long
lived assets”, the Company reviewed the goodwill for impairment performing the
necessary testing for recoverability of the asset and measuring its fair
value.   This testing revealed current, historic, and future
(projected) cash flow losses as well as a determination of fair value less than
the carrying value.  As a result of this testing, the full amount of
goodwill ($2,494,565) was impaired during the year ended December 31,
2007.





eTec
acquisition


On
November 6, 2007, the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec 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.  The acquisition has been
accounted for under the purchase accounting method pursuant to SFAS
141.   Our consolidated financial statements for the year ended
December 31, 2008 and the quarter ended June 30, 2009 include the financial
results of eTec subsequent to the date of the acquisition.





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





The
$500,000 was initially payable in monthly installments of $50,000 beginning
December of 2007.  Payment of the balance of the note payable
remaining at June 30, 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 was
$450,000 as of June 30, 2009.  This payment has been deferred by
the Sellers until October 1, 2009.





12




ECOTALITY,
INC.





NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)





The
aggregate purchase price was allocated to the assets acquired and liabilities
assumed on their preliminary estimated fair values at the date of the
acquisition.  The preliminary estimate of the excess of purchase price
over the fair value of net tangible assets acquired was allocated to
identifiable intangible assets and goodwill.  In accordance with U.S.
generally accepted accounting principles, we have up to twelve months from
closing of the acquisition to finalize the valuation.  The purchase
price allocation is preliminary, pending finalization of our valuation of
certain liabilities assumed.  The following table summarizes the
preliminary estimate of fair value of assets as part of the acquisition with
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 performing the
necessary testing for recoverability of the asset and measuring its fair
value.   This testing revealed current, historic, and future
(projected) positive cash flows supporting the full amount of
goodwill.  As a result of this testing in 2007 no impariment was taken
in the year ended December 31, 2007.  This testing yielded similar
results in both the quarter and the six months ending June 30, 2009 supporting
the carrying value, resulting in $0 impairment for those periods.





Minit-Charger
acquisition


On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. Minit-Charger makes products that enable fast charging of
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, 2008, the quarter ended and the six months ended June 30, 2009 and
2008 include 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 reflected
at $0 for the June 30, 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 with U.S.
generally accepted accounting principles, we have up to twelve months from
closing of the acquisition to finalize the valuation.  The purchase
price allocation is preliminary, pending finalization of our valuation of
certain liabilities assumed.  The following table summarizes the
preliminary estimate of fair value of assets as part of the acquisition with
Minit-Charger:





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


13


In
accordance with SFAS No. 144, “Accounting for the impairment or disposal of long
lived assets”, the Company reviewed the goodwill for impairment performing the
necessary testing for recoverability of the asset and measuring its fair
value.   This testing revealed current, historic, and future
(projected) cash flow losses as well as a determination of fair value less than
the carrying value.  As a result of this testing, the full amount of
goodwill ($1,280,066) was impaired during the year ended December 31,
2007.





Note
5 – Fixed assets





Fixed
assets as of June 30, 2009 and December 31, 2008 consisted of the
following:





At June 30,
                  
                  
                  At December 31,2009
                  
                  
                  2008Equipment
                  
                  $
                  3,144,200
                  
                  
                  $
                  3,143,273Buildings
                  
                  
                  575,615
                  
                  
                  
                  575,615Vehicles
                  
                  
                  1,658,432
                  
                  
                  
                  1,600,849Furniture
      and fixtures
                  
                  
                  47,410
                  
                  
                  
                  47,409Leasehold
      improvements
                  
                  
                  470,380
                  
                  
                  
                  470,380Computer
      Software
                  
                  
                  72,476
                  
                  
                  
                  78,6555,968,513
                  
                  
                  
                  5,916,181Less:
      accumulated depreciation
                  
                  
                  (4,482,138
                  )
                  
                  
                  (4,283,866
                  )1,486,375
                  
                  
                  
                  1,632,315





Depreciation
expense totaled $111,337 and $124,118, for the quarters ended June 30, 2009 and
2008 respectively.  For the six months ended June 30, 2009 and 2008
depreciation expense was $250,307 and 266,004 respectively.





Note
6 – Notes payable





For the
quarter ended June 30, 2008





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 $2,872,418 for the quarter ended June 30, 2009 and $503,309 for
the quarter ended June 30, 2008.  For the six months ended June 30,
2009 and 2008 interest expense was $3,488,695 and $1,065,613
respectively.





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 June 30, 2009, $
235,253 was owed and recorded as an accrued liability for purchase price 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.





NOVEMBER AND DECEMBER 2007
DEBENTURES& SUBSEQUENT AMENDMENTS





In
November and December of 2007, the Company received gross proceeds of $5,000,000
in exchange for a note payable of $5,882,356 as part of a private offering of 8%
Secured Convertible Debentures (the “Debentures”).  The debentures were
convertible into common stock at $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 were to expire
five years from the date of issue.  The aggregate fair value of the
Warrants equaled $2,272,942 based on the Black-Scholes pricing model using the
following assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, and
strike price of $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 remained as the unamortized
discount. At June 30, 2009 a total of $2,562,470 had been amortized and a
balance of $1,313,786 remains in unamortized discount. See note 8 for additional
discussion regarding the issuance of warrants.





AUGUST 2008AMENDMENT TO THE
DEBENTURES


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


14


AUGUST 2008 WAIVER
PROVISIONS:


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 was capped at
      4,000,000.





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





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





1.
            Net
      cash used





2.
            Current
      ratio adjusted for non-cash
liabilities





3.
            Corporate
      Headquarters accounts payable
amount





IMPACT OF THE AUGUST 2008
WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:


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.


15





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.





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


On
October 17, 2008, a purchase price true up with Innergy was completed, whereby
we satisfied our purchase price obligation to Innergy in the form of a share
issuance (please see Note 4 for details).  This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required us to immediately reset their warrant exercise price of $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.





2.
            The
      estimated number of additional warrants required to be issued to true up
      to the previous aggregate exercise price for the November and December
      Warrants (see letter “G” above) following the reset of the exercise price
      was calculated using the difference between the previous aggregate
      exercise price of $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.





MARCH 2009 AMENDMENT TO THE
DEBENTURES


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





MARCH 2009 WAIVER
PROVISIONS:


In
exchange for signing an Amendment to Debentures and Warrants, Agreement and
Waiver which defers  interest payments due for the first quarter 2009 until
May 1, 2009 and payment of monthly principal redemptions until May 1, 2009, we
agreed to the following:





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


16


B.
              The
      Holders collectively shal l maintain an equity position in the Company, in
      fully diluted shares, of 50.4 %. Should the Holders’ equity position
      collectively become less than the 50.4%, the Company shall issue warrants
      to each Holder, pro-ratably to bring Holders’ equity position back to
      50.4%.
 
 C.
              Additional
      covenants related to not exceeding $2,000,000 accounts payable amount or
      payment of other liabilities while the debentures are
      outstanding.
 
 D.
              The
      right to recommend for placement on the Company 's Board of Directors, a
      nominee by either BridgePointe or BridgePointe’s investment manager
      Roswell Capital Partners LLC. Such a recommendation shall meet the
      Company’s requirements as set forth in the Company’s Bylaws and all
      applicable federal and state law. The nominee shall serve until such time
      as the Company has redeemed the
debentures.
 
 E.
              All
      outstanding Warrants (defined in the Securities Purchase Agreements dated
      November 6, 2007 and December 6, 2007 ), and all Warrants issued to
      Holders as consideration for the current or prior Amendments to the
      November 2007 Debentures and the December 2007 Debentures shall be amended
      t o have an exercise price of $0.06 (to the extent that such exercise
      price was previously above $0.06), and the expiration dates shall be
      extended to May 1, 2014.
 
 F.
              Use
      best efforts to obtain stockholder approval of an increase in the
      authorized number of shares of common stock of the Company. The proposal
      shall increase the number of authorized common shares from 300,000,000 to
      500,000,000.
 
 G.
              In
      addition, the Securities Agreement, dated November 6, 2007 and all UCC-1
      filings made as required thereof, shall be amended to include each of the
      Company’s current and future Patents and Trademarks. In addition the
      Company shall file notice of the Assignment for Security of the Company’s
      curre nt and any future Patents and Trademarks with the United States
      Patent and Trademark Office and other foreign countries as
      appropriate.
 
 IMPACT OF THE MARCH 2009
WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
 There was
no financial impact of the March 2009 waiver as the warrants mentioned were
reset to $0.06 at the time of the October 2008 true up.
 
 MAY 2009AMENDMENT TO THE
DEBENTURES
 Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed  material to the Company’s future, thus  on  May
15, 2009, the Company and the Debenture Holders entered into an agreement
entitled “Amendment to Debentures and Warrants, Agreement and Waiver” (the
“Agreement”) restructuring the Company’s equity as well as establishing an
inducement for additional working capital for the Company.  The
Agreement’s effective date was May 1, 2009.
 
 MAY 2009 WAIVER
PROVISIONS:
 The
Company agreed to the following:
 
 1.
              Defer
      payment of interest until November 1, 2009. Interest to be paid monthly
      from that date.  Interest accrued though September 30, 2009 will
      be added to principal.
 2.
              Commence
      redemption of principal on January 1, 2010 in 10 equal
      payments.
 3.
              Consent
      to obtaining additional working capital for specified uses not to exceed
      $2,500,000 in the same form and rights of debentures pari pasu in
      seniority both as to security interest priority and right of payment with
      the debenture held by the existing
holders.
 4.
              Segregation
      of payment of the Karner bridge note, reaffirmed Karner and Morrow
      employment agreements, identifies specific contract carve outs should the
      Company fail to achieve certain target objectives, and provide for a bonus
      should the target be achieved.
 5.
              Maintain
      the conversion price of the November 2007 Debentures and December 2007
      Debentures at $.06.
 6.
              Additional
      covenants related to not exceeding $2,500,000 accounts payable amount or
      payment of other liabilities while the debentures are outstanding. Other
      covenants include maintaining minimum cash flow amounts. Allowing for
      inspection of financial records, and achieving Stimulus contract target
      objectives.
 7.
              The
      right to recommend for placement on the Company's Board of Directors, two
      (2)  nominees by either BridgePointe or BridgePointe’s
      investment manager Roswell Capital Partners LLC or other debenture
      holders. Such a recommendation will meet the Company’s requirements as set
      forth in the Company’s Bylaws and all applicable federal and state law.
      The nominees may serve until such time as the Company has redeemed the
      debentures.
 8.
              The
      existing Holders collectively will maintain an equity position in the
      Company, in fully diluted shares, of 80%. Should the existing holders
      Holders’ equity position collectively become less than the 80%, the
      Company will issue warrants to each existing Holder, pro-ratably to bring
      Holders’ equity position back to 80%. However, there are provisions (when
      additional capital is raised (not to exceed $2,500,000)) to bring the
      fully diluted position to 70% for the existing Holders as well as those
      Holders of new capital debentures.  There are provisions to
      further reduce the debenture holders to 65% should management achieve
      certain specified performance
targets.
  17
  9.
              All
      outstanding Warrants (defined in the Securities Purchase Agreements dated
      November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
      as consideration for the current or prior Amendments to the November 2007
      Debentures and the December 2007 Debentures will be amended to have
      an exercise price of $0.01 (to the extent that such exercise price
      was previously above $0.06), and the termination dates for the makeup
      warrants will be five (5) years from date of
  issuance.
 10.
              Use
      best efforts to obtain stockholder approval of an increase in the
      authorized number of shares of common stock of the Company.  The
      proposal shall increase the number of authorized common shares from
      300,000,000 to 1,300,000,000.
 11.
              Agreed
      to specific provisions relating to disclosure of material nonpublic
      information by debenture holder board members, or at other times when
      complying with the provisions of the debenture waive
      agreement..
 
 IMPACT OF THE MAY 2009
WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
 In the
quarter ended June 30, 2009, the financial impact of the May waiver was
calculated and is being amortized as noted below, over the waiver period of May
15, 2009 through December 31, 2009.
 
 1.
              The
      change in value of the restated debenture warrants related to the
      reset of the exercise price (see #9 above) was calculated using the Black
      Scholes Model using the following assumptions: Strike Price $0.06 (old)
      and $0.01 (new), Stock Price $0.11 (price on date of agreement), time
      162.34 days Volatility 162.34%, Risk Free Interest Rate 3.10%. The
      increase in value calculated totaled $887,843.  This amount was
      added to additional paid in capital, and a contra-equity account
      for  “Unamortized Financing Charges” was established as the
      offset.  The portion of the Unamortized Financing Charges” that
      were attributable to May 15 through June 30th
      was $177,569 and was charged to interest expense in the quarter ended June
      30, 2009.  The remaining $710,274 will be expensed over the
      waiver period.
 
 2.
              The
      number of additional warrants  to be issued to support the
      requirement of an 80% equity position as described in #8 above was
      calculated as follows:  Total Debenture warrants outstanding
      prior to the waiver = 52,287,599 + shares available on debenture
      conversion 122,767,526 = 175,055,125 Total Fully Diluted Debenture Holder
      Ownership Pre-Waiver.  Total Company Fully Diluted Shares at May
      15, 2009 of 860,870,856 was used as the base on which to calculate the 80%
      ownership target  of  688,696,685
      shares.  To determine the warrants to be issued the 80% target
      figure of 688,696,685 less total Debenture Holder Ownership of 175,055,125
      resulted in 513,641,559 (additional warrants to be issued).  To
      value the new warrants we used the market cap at the date of the issuance
      calculated as shares outstanding at May 15, 2009 of 161,906,194 multiplied
      by the closing share price of  $0.11 =
      $17,809,681.  To get the portion of the market
      cap  attributable to the new warrants (vs. those already held by
      the debenture holders ) we divided the # of new warrants (513,641,559) by
      the total 80% ownership target number of shares ofr the debenture holders
      (686,696,685)  to get (75%).  The 75% was multiplied
      by  80% total ownership %, and the resulting 60% was then
      multiplied by the total market cap to get the portion of the market cap
      attributable to the new issuance of  $10,626,208. This amount
      was added to additional paid in capital, and a contra-equity account for
      “Unamortized Financing Charges” was used as the
  offset.
 The
portion of the Unamortized Financing Charges” that were attributable to May 15
through June 30th was
$2,125,242 and was charged to interest expense in the quarter ended June 30,
2009.  The remaining $8,500,966 will be expensed over the waiver
period.
 
 JUNE 2009Amendement to
theMAY
Amendment to theDebentures
 In
addition the debenture holders and the Company signed a First Amendment to
Amendment to Debentures and Warrants, Agreement and Waiver dated June 30,
2009.  This amendment modified the May 15, 2009 Amendment
by:
 JUNE 2009 Amendment
Provisions:
 a.
              Increasing
      approval authority for specified transactions for the November and
      December 2007 and July 2009 Debenture Holders to 85% from 75% of
      outstanding principal amount.
 b.
              Clarifying
      whom has Board of Director member
rights
 c.
              Clarifying
      the June 30, 2009 warrant true-up calculation, per the May 15, 2009
      Amendment.
 Impact of the provisions of
the June Amendment to the financial statements:
 There was
no impact to the financial statements related to the June amendment to the May
15, 2009 amendment.
 
 The
current portion of the debentures is recorded, net of a $1,313,786 discount, is
$4,304,835 at June 30, 2009.  The long-term portion of the debentures
is $2,869,890 as of June 30, 2009.
  18
  Included
in accrued interest is $286,989 of accrued interest relating to the debentures
at June 30, 2009.
 
 On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line was
secured by a second position on receivables (junior to previously issued
debentures). During the year ended December 31, 2008, $450,000 was advanced by
Mr. Karner and Ms. Forbes. Further advances above $450,000 were contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carried a loan fee of $45,000 payable when the line expires.  The
line was originally scheduled to expire December 15, 2008, but has been extended
to October 1, 2009 by the Lenders.  In consideration of the
extension, an interest fee of $50,000 was paid to the Lenders in December
2008.  No other interest payments or fees are required under the
agreement. The fee of $45,000 was expensed in full as of December 31,
2008.  All amounts advanced under the Line are due and payable in full
on October 1, 2009. The balance of the note payable w as $450,000 at June 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.
 
 Interest
expense totaled $2,872,418 and $503,309 for the quarter ended June 30, 2009 and
2008 respectively.  For the six months ended June 30, 2009 and 2008
interest expense was $3,488,695 and $1,065,603 respectively .
 
 Note
7 – 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.
 
 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 the
remaining $117,208  was expensed in the six months ending June 30,
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.
 
 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 June 30, 2009 $13,650 was expensed leaving a balance of $4,550 in
prepaid services at June 30,2009.
 
 There
were 129,422,861 s hares of common stock issued and outstanding at December
31, 2008.
 
 In March
2009 the Company issued 1,075,000 shares of the Company’s $0.001 common stock in
satisfaction of payables owed to two service vendors.
  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 through eTec the Minit-Charger business of
Edison Enterprises. The fair market value of the transaction was $3,000,000. The
company paid $1,000,000 in cash and issued 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.
 
 On April
13, 2009 75,000 shares of common stock were issued to an employee in accordance
with an employment agreeemnt.
 
 On June
1, 2009, 45,370 shares of common stock were issued to BridgePointe Master Fund
Ltd in satisfaction of a cashless exercise of 50,000 warrants.
 
 There
were 161,951,564 s hares of common stock issued and outstanding at June 30,
2009.
 
 There was
no preferred stock issued or outstanding as of June 30, 2009.
  19
  ECOTALITY,
INC.
 
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 Note
8 – Options and Warrants
 
 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.
 
 The
November and December debenture warrants were reset a second time in October
2008 from $0.08 to $0.06 due to the Innergy True Up outlined in Note 6 and an
additional 8,351,492 new warrants with an exercise price of $0.06 were
issued.
 
 At
December 31, 2008, there were 57,838,729 options 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.
 
 At of
March 31, 2009 there were 62,559,137 options and warrants
outstanding.
 
 On May
15, 2009 the November and December debentures were amended as outlined in Note
6.  As a result, the existing warrants were reset from $0.06 to $0.01
exercise price and an additional 513,641,559 true up warrants were also issued
to provide for an 80% equity position agreed to as part of this
amendment.
 
 On June1,
2009 BridgePointe Master Fund exercised 50,000 of their warrants.
 
 As of
June 30, 2009 there were 576,150,697 options and warrants
outstanding.
  20
  ECOTALITY,
INC.
 
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
  Number
                        
                        
                        Weighted-AverageOf
      Shares
                        
                        
                        Exercise
      PriceOutstanding
      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
                        
                        
                        518,361,968
                        
                        
                        $
                        0.01Exercised
                        
                        
                        50,000
                        
                        
                        $
                        0.01Cancelled
                        
                        
                        0
                        
                        
                        $
                        0.00Outstanding
      at June 30, 2009
                        
                        
                        576,150,697
                        
                        
                        $
                        0.02
 
 STOCK WARRANTS OUTSTANDINGWeighted-
                                Average
                              
                              
                              Weighted-Number of
                              
                              
                              Remaining
                              
                              
                              AverageRange of
                              
                              Shares
                              
                              
                              Contractual
                              
                              
                              ExerciseExercise Prices
                              
                              Outstanding
                              
                              
                              Life in Years
                              
                              
                              Price$0.35
                              
                              
                              5,421,537
                              
                              
                              
                              2.33
                              
                              
                              $
                              0.35$1.24
      - $1.42
                              
                              
                              1,900,000
                              
                              
                              
                              2.05
                              
                              
                              $
                              1.36$0.01
                              
                              
                              565,879,160
                              
                              
                              
                              4.92
                              
                              
                              $
                              0.01$0.28
                              
                              
                              1,000,000
                              
                              
                              
                              8.33
                              
                              
                              $
                              0.28$0.19
                              
                              
                              950,000
                              
                              
                              
                              8.50
                              
                              
                              $
                              0.19$0.04
                              
                              
                              1,000,000
                              
                              
                              
                              9.33
                              
                              
                              $
                              0.04576,150,697
                              
                              
                              
                              4.9
                              
                              
                              $
                              0.02
 
 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$0.01
                              
                              
                              565,879,160
                              
                              
                              $
                              0.01$0.28
                              
                              
                              1,000,000
                              
                              
                              $
                              0.28$0.19
                              
                              
                              950,000
                              
                              
                              $
                              0.19$0.04
                              
                              
                              1,000,000
                              
                              
                              $
                              0.04576,150,697
                              
                              
                              $
                              0.02
  21
  ECOTALITY,
INC.
 
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 Note
9– Commitments and contingencies
 
 As of
June 30, 2009, the Company has four leases in effect for operating space. 
Future obligations under these commitments are $122,435 for 2009, $245,804 for
2010, $88,448 for 2011, $90,521 for 2012 and $45,787 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
which has been accrued in the quarter ended June 30, 2009.   The
License Agreement carries a perpetual term, subject to default, infringement,
expiration, revocation or unenforceability of the License Agreement and the
licenses granted thereby.
 
 Note
10 – Segment Reporting
 
 SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance.  Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) and eTec’s
Minit-Charger business acquisitions from June through December 2007, the Company
identified its segments based on the way management expects to organize the
Company to assess performance and make operating decisions regarding the
allocation of resources.   In accordance with the criteria in
SFAS No. 131, “Disclosure about Segments of an Enterprise and Related
Information,” the Company has concluded it has three reportable segments for the
quarter and six months ended June 30 2009; ECOtality Stores segment, Innergy
Power segment and eTec segment. The ECOtality Stores segment is the online
marketplace for fuel cell-related products and technologies with online
distribution sites in the U.S., Japan, Russia, Italy and Portugal
..  The Innergy Power segment is comprised of the sale of solar
batteries and other solar and battery powered devices to end-users. The eTec
segment relates to sale of fast-charge systems for material handling and airport
ground support applications to the testing and development of plug-in hybrids,
advanced battery systems and hydrogen ICE conversions and consulting
revenues.  This segment also includes the Minit-Charger business which
relates to the research, development and testing of advanced transportation and
energy systems with a focus on alternative-fuel, hybrid and electric vehicles
and infrastructures.  eTec holds exclusive patent rights to the eTec
SuperChargeTM and Minit-Charger  systems - battery fast charge systems
that allow for faster charging with less heat generation and longer battery life
than conventional chargers.  The Company has aggregated these
subsidiaries into three reportable segments: ECOtality/Fuel Cell Store, eTec and
Innergy.
 
 The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 3 of this Form 10-Q
Management 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 no inter-segment sales during the quarter ended June 30, 200 9
and 2008.  For the six months ended June 30, 2009 and 2008
inter-segment sales were $28,723 and $0.  All inter-segment sales 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
quarter ended June 30, 2009 and June 30, 2008 and for the six months
ended June 30, 2009 and 2008 respectively are as follows:
  THREE MONTHS ENDED JUNE 30,
      2009ETEC
                                            
                                            
                                            INNERGY
                                            
                                            
                                            FUEL CELL
                                              STORE
                                            
                                            
                                            TOTALTotal
      net operating revenues
                                            
                                            $
                                            1,020,473
                                            
                                            
                                            $
                                            572,008
                                            
                                            
                                            $
                                            154,604
                                            
                                            
                                            $
                                            1,747,085Depreciation
      and amortization
                                            
                                            $
                                            75,845
                                            
                                            
                                            $
                                            1,471
                                            
                                            
                                            $
                                            106,473
                                            
                                            
                                            $
                                            183,789Operating
      income (loss)
                                            
                                            $
                                            (142,339
                                            )
                                            
                                            $
                                            128,710
                                            
                                            
                                            $
                                            13,696
                                            
                                            
                                            $
                                            67Interest
      Income (expense)
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Gain
      / (Loss) on disposal of assets
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Other
      Income (expense)
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Segment
      Income before Corporate Overhead Allocation
                                            
                                            $
                                            (142,339
                                            )
                                            
                                            $
                                            128,710
                                            
                                            
                                            $
                                            13,696
                                            
                                            
                                            $
                                            67Corporate
      Overhead Allocation
                                            
                                            $
                                            2,083,942
                                            
                                            
                                            $
                                            1,168,117
                                            
                                            
                                            $
                                            315,722
                                            
                                            
                                            $
                                            3,567,781Segment
      Income / (Loss)
                                            
                                            $
                                            (2,226,281
                                            )
                                            
                                            $
                                            (1,039,407
                                            )
                                            
                                            $
                                            (302,026
                                            )
                                            
                                            $
                                            (3,567,713
                                            )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            33,132Reported
      Net income after tax
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (3,600,845
                                            )Capital
      Expenditures
                                            
                                            $
                                            109,725
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            109,725Total
      segment assets - excluding intercompany receivables
                                            
                                            $
                                            2,448,983
                                            
                                            
                                            $
                                            585,398
                                            
                                            
                                            $
                                            195,742
                                            
                                            
                                            $
                                            3,230,123Other
      items Not included in Segment Assets:Goodwill
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            3,495,878Other
      Corporate Assets
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            844,638Total
      Reported Assets
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            7,570,640
 
 THREE MONTHS ENDED JUNE 30,
      2008ETEC
                                              
                                              
                                              INNERGY
                                              
                                              
                                              FUEL
                                                CELL
                                                STORE
                                              
                                              
                                              TOTALTotal
      net operating revenues
                                              
                                              $
                                              1,992,106
                                              
                                              
                                              $
                                              711,870
                                              
                                              
                                              $
                                              232,174
                                              
                                              
                                              $
                                              2,936,150Depreciation
      and amortization
                                              
                                              $
                                              95,301
                                              
                                              
                                              $
                                              (6,185
                                              )
                                              
                                              $
                                              890
                                              
                                              
                                              $
                                              90,006Operating
      income (loss)
                                              
                                              $
                                              181,200
                                              
                                              
                                              $
                                              84,906
                                              
                                              
                                              $
                                              66,504
                                              
                                              
                                              $
                                              332,610Interest
      Income
                                              
                                              $
                                              920
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Gain
      / (Loss) on disposal of assets
                                              
                                              $
                                              27,074
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              27,074Segment
      Income before Corporate Overhead Allocation
                                              
                                              $
                                              209,194
                                              
                                              
                                              $
                                              84,906
                                              
                                              
                                              $
                                              66,504
                                              
                                              
                                              $
                                              360,604Corporate
      Overhead Allocation
                                              
                                              $
                                              838,660
                                              
                                              
                                              $
                                              299,691
                                              
                                              
                                              $
                                              97,743
                                              
                                              
                                              $
                                              1,236,095Segment
      Income / (Loss)
                                              
                                              $
                                              (629,466
                                              )
                                              
                                              $
                                              (214,785
                                              )
                                              
                                              $
                                              (31,239
                                              )
                                              
                                              $
                                              (875,491
                                              )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              34,112Reported
      Net income after tax
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (909,602
                                              )Capital
      Expenditures
                                              
                                              $
                                              29,540
                                              
                                              
                                              $
                                              4,566
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              34,106Total
      segment assets - excluding intercompany receivables
                                              
                                              $
                                              4,090,157
                                              
                                              
                                              $
                                              714,655
                                              
                                              
                                              $
                                              221,111
                                              
                                              
                                              $
                                              5,025,923Other
      items Not included in Segment Assets:Goodwill
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              3,095,878Other
      Corporate Assets
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              1,185,173Total
      Reported Assets
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              9,306,974
  23




SIX MONTHS ENDED JUNE 30,
    2009ETEC
                                        
                                        
                                        INNERGY
                                        
                                        
                                        FUEL CELL
                                          STORE
                                        
                                        
                                        TOTALTotal
      net operating revenues
                                        
                                        $
                                        2,795,559
                                        
                                        
                                        $
                                        1,050,822
                                        
                                        
                                        $
                                        370,903
                                        
                                        
                                        $
                                        4,217,284Depreciation
      and amortization
                                        
                                        $
                                        179,355
                                        
                                        
                                        $
                                        2,926
                                        
                                        
                                        $
                                        107,364
                                        
                                        
                                        $
                                        289,645Operating
      income (loss)
                                        
                                        $
                                        (193,319
                                        )
                                        
                                        $
                                        265,070
                                        
                                        
                                        $
                                        61,344
                                        
                                        
                                        $
                                        133,095Interest
      Income (expense)
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Gain
      / (Loss) on disposal of assets
                                        
                                        $
                                        9,760
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        9,760Other
      Income (expense)
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Segment
      Income before Corporate Overhead Allocation
                                        
                                        $
                                        (183,559
                                        )
                                        
                                        $
                                        265,070
                                        
                                        
                                        $
                                        61,344
                                        
                                        
                                        $
                                        142,855Corporate
      Overhead Allocation
                                        
                                        $
                                        2,898,282
                                        
                                        
                                        $
                                        1,387,778
                                        
                                        
                                        $
                                        414,952
                                        
                                        
                                        $
                                        4,701,012Segment
      Income / (Loss)
                                        
                                        $
                                        (3,081,841
                                        )
                                        
                                        $
                                        (1,122,708
                                        )
                                        
                                        $
                                        (353,608
                                        )
                                        
                                        $
                                        (4,558,157
                                        )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        66,246Reported
      Net income after tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        (4,624,403
                                        )Capital
      Expenditures
                                        
                                        $
                                        113,882
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        113,882Total
      segment assets - excluding intercompany receivables
                                        
                                        $
                                        2,448,983
                                        
                                        
                                        $
                                        585,398
                                        
                                        
                                        $
                                        195,742
                                        
                                        
                                        $
                                        3,230,123Other
      items Not included in Segment Assets:Goodwill
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        3,495,878Other
      Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        844,638Total
      Reported Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        7,570,640





6 MONTHS ENDED JUNE 30,
2008ETEC
                                        
                                        
                                        INNERGY
                                        
                                        
                                        FUEL
                                          CELL
                                          STORE
                                        
                                        
                                        TOTALTotal
      net operating revenues
                                        
                                        $
                                        3,955,007
                                        
                                        
                                        $
                                        1,386,845
                                        
                                        
                                        $
                                        412,196
                                        
                                        
                                        $
                                        5,754,048Depreciation
      and amortization
                                        
                                        $
                                        191,409
                                        
                                        
                                        $
                                        4,099
                                        
                                        
                                        $
                                        1,483
                                        
                                        
                                        $
                                        196,991Operating
      income (loss)
                                        
                                        $
                                        83,013
                                        
                                        
                                        $
                                        122,113
                                        
                                        
                                        $
                                        (11,086
                                        )
                                        
                                        $
                                        194,040Interest
      Income
                                        
                                        $
                                        3,757
                                        
                                        
                                        $
                                        435
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        4,192Gain
      / (Loss) on disposal of assets
                                        
                                        $
                                        2,054
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        2,054Segment
      Income before Corporate Overhead Allocation
                                        
                                        $
                                        88,824
                                        
                                        
                                        $
                                        122,548
                                        
                                        
                                        $
                                        (11,086
                                        )
                                        
                                        $
                                        200,286Corporate
      Overhead Allocation
                                        
                                        $
                                        2,084,772
                                        
                                        
                                        $
                                        731,037
                                        
                                        
                                        $
                                        217,278
                                        
                                        
                                        $
                                        3,033,087Segment
      Income / (Loss)
                                        
                                        $
                                        (1,995,948
                                        )
                                        
                                        $
                                        (608,489
                                        )
                                        
                                        $
                                        (228,364
                                        )
                                        
                                        $
                                        (2,832,801
                                        )Not
      Included in segment income:Depreciation
      on Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        69,013Reported
      Net income after tax
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        (2,901,813
                                        )Capital
      Expenditures
                                        
                                        $
                                        165,422
                                        
                                        
                                        $
                                        2,832
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        168,254Total
      segment assets - excluding intercompany receivables
                                        
                                        $
                                        4,090,157
                                        
                                        
                                        $
                                        714,655
                                        
                                        
                                        $
                                        221,111
                                        
                                        
                                        $
                                        5,025,923Other
      items Not included in Segment Assets:Goodwill
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        3,095,878Other
      Corporate Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        1,185,173Total
      Reported Assets
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        9,306,974


24


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 June 30, 2009.





Note
12 – Subsequent Events





July 2, 2009 Secured
Convertible Debentures


To
support ECOtality’s expansion and current working capital needs, the
Company  received effective July 2, 2009 a direct investment of
$2,500,000 through  July 2, 2009 issuance of $2,500,000 in 8% Secured
Convertible Debentures (July 2009 Debentures) due October 1, 2010. The
debentures have an  conversion price or $0.06 per share of Ecotality
common stock. Shenzhen Goch Investment Ltd was issued $2,000,000 of July 2009
Debentures, Enable Growth Partners (November and December 2007 Debenture holder)
was issued $250,000 in July 2009 Debentures, and BridgePointe Master Fund
(November and December 2007 Debenture holder) was issued $250,000 in July 2009
Debentures. The July 2009 Debentures:





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




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




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




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




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




Onl July
7, 2009 the total balance of Bridge Note due to Mr. Donald Karner and Ms.
Kathryn Forbes of $450,000 plus financing charges of $45,000 was paid in
full.





On July
16, 2009 BridgePointe Master Fund exercised 50,000 warrants in a cashless
exercise resulting in the issuance of 45,039 shares


of common
stock.





On July
20, 2009 100,000 shares of the Company’s common stock were issued to employees
under the Employee Equity Incentive Plan.





On July
21, 2009 BridgePointe Master Fund exercised 300,000 warrants in a cashless
exercise resulting in the issuance of 266,966 shares of common
stock.





On July
29, 2009 the Company issued 1,000,000 shares to employees under the Employee
Equity Incentive Plan.





On July
30, 2009 BridgePointe Master Fund exercised 500,000 warrants in a cashless
exercise resulting in the issuance of 455,634 shares of common
stock.





On August
5, 2009 BridgePointe Master Fund exercised 2,000,000 warrants in a cashless
exercise resulting in the issuance of 1,837,793 shares of common
stock.  Also on this date several Enable debenture holders converted a
portion of their debenture principal, $840,000 into common stock resulting in an
issuance of 14,000,000 shares of common stock.





On August
6, 2009 Enable Growth Partners exercised 13,600,000 warrants in a cashless
exercise resulting in the issuance of 13,026,160 shares of common
stock.  Enable Opportunity Partners exercised 1,600,000 warrants in a
cashless exercise resulting in the issuance of 1,532,489 shares of common
stock.  Pierce Diversified Master Fund exercised 800,000 warrants in a
cashless exercise resulting in the issuance of 766,245 shares of common
stock.  Also on August 6, BridgePointe Master Fund (debenture
holder) converted a portion of their debenture principal, $250,000 into common
stock resulting in an issuance of 4,166,666 shares of common stock.





On August
7, 2009 BridgePointe Master Fund exercised 8,000,000 warrants in a cashless
exercise resulting in the issuance of 7,743,590 shares of common
stock.





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





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





Forward-Looking
Statements




This
Quarterly Report contains forward-looking statements about our business,
financial condition and prospects that reflect management’s assumptions and
beliefs based on information currently available.  We can give no assurance
that the expectations indicated by such forward-looking statements will be
realized.  If any of our management’s assumptions should prove incorrect,
or if any of the risks and uncertainties underlying such expectations should
materialize, 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 were
incorporated in Nevada in 1999.  We are a leader in clean electric
transportation and storage technologies. Through innovation, acquisitions, and
strategic partnerships, we accelerate  the market applicability of advanced
electric technologies to replace carbon-based fuels. We are a leader in
providing electric vehicle infrastructure products and solutions that are
used in on-road grid-connected vehicles (including plug-in hybrid electric
vehicles (PHEV) and battery electric vehicles (BEV)), material handling and
airport electric ground support applications. Through our main operating
subsidiary, Electric Transportation Engineering Corporation (eTec),
our  primary product offering is the Minit-Charger line of advanced
battery fast-charge systems that are designed for various motive applications.
In addition to our  electric transportation focus, we are also
involved in the development, manufacture, assembly and sale of specialty solar
products, advanced battery systems, and hydrogen and fuel cell systems. Our
subsidiaries and primary operating segments consist of Electric Transportation
Engineering Corporation (eTec), Innergy Power Corporation (Innergy), and
ECOtality Stores (dba Fuel Cell Store). In addition we have a wholly owned
subsidiary in Mexico providing manufacturing services for us.





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




Electric
Transportation Engineering Corporation (eTec)





Electric
Transportation Engineering Corporation (eTec) was incorporated in Arizona in
1996 to support the development and installation of battery charging
infrastructures for electric vehicles. As  our  primary
operating  subsidiary, 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 battery fast-charge systems
and technologies.  Specializing in alternative-fuel, hybrid and
electric vehicles and infrastructures, eTec offers consulting, technical support
and field services and is committed to developing and commercially advancing
clean electric technologies with clear market advantages.




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





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





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


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) program  and has
conducted more than 6 million miles of vehicle testing on more than 200 advanced
fuel vehicles.





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





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





Innergy
Power Systems





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





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





ECOtality
Stores (dba Fuel Cell Store)





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




HydralityTM





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




Organizational
History




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


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 shares were issued in the following
manner: 6,500,000 were issued upon the close of the stock purchase agreement,
3,250,000 were released on date of signing, and 3,250,000were released 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


Edison
Minit-Charger




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




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




Status
of any announced new product or service




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




Stage
of Commercialization of the Hydrality Technology




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




Current
transportation industry trends suggest that the commercial viability of hydrogen
fuel cell vehicles remains on the distant horizon (about 10 years away) due to
cost and efficiency problems with underlying fuel cell technologies. Being
reactive and reflexive to these market trends, we have reduced the developmental
costs of Hydrality for transportation applications to pursue additional
applications with immediate commercial applicability in 2009. 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 an Enterprise and Related Information,” we have
concluded we have three reportable segments for the year ended December 31,
2008; ECOtality/ECOtality Stores segment, Innergy Power segment and eTec
segment. The ECOtality/ECOtality Stores segment is the online marketplace for
fuel cell-related products and technologies with online distribution sites in
the U.S., Japan, Russia, Italy and Portugal .  The Innergy Power segment is
comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. The eTec segment relates to sale of fast-charge systems
for material handling and airport ground support applications to the testing and
development of plug-in hybrids, advanced battery systems and hydrogen ICE
conversions and consulting revenues.  This segment also includes the
Minit-Charger business which relates to the research, development and testing of
advanced transportation and energy systems with a focus on alternative-fuel,
hybrid and electric vehicles and infrastructures.  eTec holds exclusive
patent rights to the eTec SuperChargeTM and Minit-Charger systems - battery fast
charge systems that allow for faster charging with less heat generation and
longer battery life than conventional chargers.  We have aggregated these
subsidiaries into three reportable segments: ECOtality/Fuel Cell Store, eTec and
Innergy.


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 June,
2009 and they have been eliminated.





Summarized
financial information concerning the Company’ s reportable segments for the
quarter ended June 30, 2009 and June 30, 2008 and for the six months
ended June 30, 2009 and 2008 respectively are as follows:





THREE MONTHS ENDED JUNE 30,
      2009ETEC
                      
                      
                      INNERGY
                      
                      
                      FUEL CELL
                        STORE
                      
                      
                      TOTALTotal
      net operating revenues
                      
                      $
                      1,020,473
                      
                      
                      $
                      572,008
                      
                      
                      $
                      154,604
                      
                      
                      $
                      1,747,085Depreciation
      and amortization
                      
                      $
                      75,845
                      
                      
                      $
                      1,471
                      
                      
                      $
                      106,473
                      
                      
                      $
                      183,789Operating
      income (loss)
                      
                      $
                      (142,339
                      )
                      
                      $
                      128,710
                      
                      
                      $
                      13,696
                      
                      
                      $
                      67Interest
      Income (expense)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Gain
      / (Loss) on disposal of assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Other
      Income (expense)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Segment
      Income before Corporate Overhead Allocation
                      
                      $
                      (142,339
                      )
                      
                      $
                      128,710
                      
                      
                      $
                      13,696
                      
                      
                      $
                      67Corporate
      Overhead Allocation
                      
                      $
                      2,083,942
                      
                      
                      $
                      1,168,117
                      
                      
                      $
                      315,722
                      
                      
                      $
                      3,567,781Segment
      Income / (Loss)
                      
                      $
                      (2,226,281
                      )
                      
                      $
                      (1,039,407
                      )
                      
                      $
                      (302,026
                      )
                      
                      $
                      (3,567,713
                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      33,132Reported
      Net income after tax
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (3,600,845
                      )Capital
      Expenditures
                      
                      $
                      109,725
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      109,725Total
      segment assets - excluding intercompany receivables
                      
                      $
                      2,448,983
                      
                      
                      $
                      585,398
                      
                      
                      $
                      195,742
                      
                      
                      $
                      3,230,123Other
      items Not included in Segment Assets:Goodwill
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      3,495,878Other
      Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      844,638Total
      Reported Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      7,570,640





THREE MONTHS ENDED JUNE 30,
      2008ETEC
                      
                      
                      INNERGY
                      
                      
                      FUEL
                        CELL
                        STORE
                      
                      
                      TOTALTotal
      net operating revenues
                      
                      $
                      1,992,106
                      
                      
                      $
                      711,870
                      
                      
                      $
                      232,174
                      
                      
                      $
                      2,936,150Depreciation
      and amortization
                      
                      $
                      95,301
                      
                      
                      $
                      (6,185
                      )
                      
                      $
                      890
                      
                      
                      $
                      90,006Operating
      income (loss)
                      
                      $
                      181,200
                      
                      
                      $
                      84,906
                      
                      
                      $
                      66,504
                      
                      
                      $
                      332,610Interest
      Income
                      
                      $
                      920
                      
                      
                      $
                      -
                      
                      
                      $
                      -Gain
      / (Loss) on disposal of assets
                      
                      $
                      27,074
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      27,074Segment
      Income before Corporate Overhead Allocation
                      
                      $
                      209,194
                      
                      
                      $
                      84,906
                      
                      
                      $
                      66,504
                      
                      
                      $
                      360,604Corporate
      Overhead Allocation
                      
                      $
                      838,660
                      
                      
                      $
                      299,691
                      
                      
                      $
                      97,743
                      
                      
                      $
                      1,236,095Segment
      Income / (Loss)
                      
                      $
                      (629,466
                      )
                      
                      $
                      (214,785
                      )
                      
                      $
                      (31,239
                      )
                      
                      $
                      (875,491
                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      34,112Reported
      Net income after tax
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (909,602
                      )Capital
      Expenditures
                      
                      $
                      29,540
                      
                      
                      $
                      4,566
                      
                      
                      $
                      -
                      
                      
                      $
                      34,106Total
      segment assets - excluding intercompany receivables
                      
                      $
                      4,090,157
                      
                      
                      $
                      714,655
                      
                      
                      $
                      221,111
                      
                      
                      $
                      5,025,923Other
      items Not included in Segment Assets:Goodwill
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      3,095,878Other
      Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      1,185,173Total
      Reported Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      9,306,974




31





SIX MONTHS ENDED JUNE 30,
    2009ETEC
                      
                      
                      INNERGY
                      
                      
                      FUEL CELL
                        STORE
                      
                      
                      TOTALTotal
      net operating revenues
                      
                      $
                      2,795,559
                      
                      
                      $
                      1,050,822
                      
                      
                      $
                      370,903
                      
                      
                      $
                      4,217,284Depreciation
      and amortization
                      
                      $
                      179,355
                      
                      
                      $
                      2,926
                      
                      
                      $
                      107,364
                      
                      
                      $
                      289,645Operating
      income (loss)
                      
                      $
                      (193,319
                      )
                      
                      $
                      265,070
                      
                      
                      $
                      61,344
                      
                      
                      $
                      133,095Interest
      Income (expense)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Gain
      / (Loss) on disposal of assets
                      
                      $
                      9,760
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      9,760Other
      Income (expense)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Segment
      Income before Corporate Overhead Allocation
                      
                      $
                      (183,559
                      )
                      
                      $
                      265,070
                      
                      
                      $
                      61,344
                      
                      
                      $
                      142,855Corporate
      Overhead Allocation
                      
                      $
                      2,898,282
                      
                      
                      $
                      1,387,778
                      
                      
                      $
                      414,952
                      
                      
                      $
                      4,701,012Segment
      Income / (Loss)
                      
                      $
                      (3,081,841
                      )
                      
                      $
                      (1,122,708
                      )
                      
                      $
                      (353,608
                      )
                      
                      $
                      (4,558,157
                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      66,246Reported
      Net income after tax
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (4,624,403
                      )Capital
      Expenditures
                      
                      $
                      113,882
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      113,882Total
      segment assets - excluding intercompany receivables
                      
                      $
                      2,448,983
                      
                      
                      $
                      585,398
                      
                      
                      $
                      195,742
                      
                      
                      $
                      3,230,123Other
      items Not included in Segment Assets:Goodwill
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      3,495,878Other
      Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      844,638Total
      Reported Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      7,570,640





6 MONTHS ENDED JUNE 30,
2008ETEC
                      
                      
                      INNERGY
                      
                      
                      FUEL
                        CELL
                        STORE
                      
                      
                      TOTALTotal
      net operating revenues
                      
                      $
                      3,955,007
                      
                      
                      $
                      1,386,845
                      
                      
                      $
                      412,196
                      
                      
                      $
                      5,754,048Depreciation
      and amortization
                      
                      $
                      191,409
                      
                      
                      $
                      4,099
                      
                      
                      $
                      1,483
                      
                      
                      $
                      196,991Operating
      income (loss)
                      
                      $
                      83,013
                      
                      
                      $
                      122,113
                      
                      
                      $
                      (11,086
                      )
                      
                      $
                      194,040Interest
      Income
                      
                      $
                      3,757
                      
                      
                      $
                      435
                      
                      
                      $
                      -
                      
                      
                      $
                      4,192Gain
      / (Loss) on disposal of assets
                      
                      $
                      2,054
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,054Segment
      Income before Corporate Overhead Allocation
                      
                      $
                      88,824
                      
                      
                      $
                      122,548
                      
                      
                      $
                      (11,086
                      )
                      
                      $
                      200,286Corporate
      Overhead Allocation
                      
                      $
                      2,084,772
                      
                      
                      $
                      731,037
                      
                      
                      $
                      217,278
                      
                      
                      $
                      3,033,087Segment
      Income / (Loss)
                      
                      $
                      (1,995,948
                      )
                      
                      $
                      (608,489
                      )
                      
                      $
                      (228,364
                      )
                      
                      $
                      (2,832,801
                      )Not
      Included in segment income:Depreciation
      on Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      69,013Reported
      Net income after tax
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (2,901,813
                      )Capital
      Expenditures
                      
                      $
                      165,422
                      
                      
                      $
                      2,832
                      
                      
                      $
                      -
                      
                      
                      $
                      168,254Total
      segment assets - excluding intercompany receivables
                      
                      $
                      4,090,157
                      
                      
                      $
                      714,655
                      
                      
                      $
                      221,111
                      
                      
                      $
                      5,025,923Other
      items Not included in Segment Assets:Goodwill
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      3,095,878Other
      Corporate Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      1,185,173Total
      Reported Assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      9,306,974


32





Employees




As of
June 30, 2009, we had 49 employees including 14 in manufacturing and the rest in
research and development, sales and marketing, and general and administration
positions. None of our employees are represented by labor unions or covered by a
collective bargaining agreement other than our employees in Mexico. As we expand
domestically and internationally, however, we may encounter employees who desire
union representation. We believe that relations with our employees are
good.





Results
of Operations





QUARTER
ENDED JUNE 30, 2009, COMPARED WITH QUARTER ENDED JUNE 30, 2008





CONSOLIDATED
RESULTS





Since
January 1, 2008 we have been transitioning ourselves from being a development
stage company to a growth oriented renewable energy company with a focus toward
electric vehicle infrastructure. 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 June 30, 2009, we had revenues of $1,747,085 compared to the
quarter ended June 30, 2008 of $2,936,150.  This reduction in revenue
is largely related to the effect of the slowing economy on our business
particularly our industrial charger sales.  Internally we saw a
reduction in billable consulting hours due to the redployment of resources
required to prepare for the US Department of Energy Stimulus grant proposals to
be awarded during the quarter ended September 30, 2009. The cost of goods sold
percentage for the quarter ending June 30, 2009 was 46.9% leaving us with a
gross profit of $927,455. Our gross margin of 53.1% was an improvement over the
same period in 2008 of 43.2%. Further, it should be noted that while there was a
decrease in top line revenues for the quarter ended June 30, 2009, our operating
subsidiaries continued to generate positive operating income





Total
operating expenses during the three months ended June 30, 2009 were $1,655,880
compared to $1,695,635 for the three months ended June 30,
2008..  General and administrative expenses were $1,543,850 or 93.2%
of total operating expenses for the three months ended June 30, 2009 compared
with $1,539,570 or 90.7% for the three months ended June 30, 2008. This overall
consistency for the quarter year over year comparisonis is attributable to
maintainging tight operating controls, improved efficiencies while operating in
a complex economic environment.  Details around the changes in these
expenses are described below:





Professional
fees were $14,255 for the three months ended June 30, 2009 compared with $64,234
for the three months ended June 30, 2008.  This reduction demonstrates
the tight cost controls initiated in 2008 and continued in place in 2009. New
media, marketing, advertising and investor and public relations expenses were
$17,211 for the three months ended June 30, 2009 compared with $32,582 for the
three months ended June 30, 2008 with the decrease primarily attributable to
utilizing internal corporate resources for these functions.  Legal
fees were $159,645 for the quarter ended June 30, 2009 compared with $102,711
for the quarter ended June 30, 2008 and accounting fees were $48,500 for the
quarter ended June 30, 2009 compared with $12,175 for the quarter ended June 30,
2008.  Executive compensation was $201,123 for the three months ended
June 30, 2009 compared with $131,000 for the three months ended June, 2008.
Depreciation expense was $111,337 for the quarter ended June 30, 2009 compared
to $124,118 for the quarter ended June 30, 2008.  All other general
and administrative spending totaled $1,103,143 for the three months ended June
30, 2009 compared to $1,196,868 for the three months ended June 30,
2008.





Expenses
for research and development totaled $695 for the three months ended June 30,
2009compared
to$31,947 for the
three months ended June 30, 2008.   This steep reduction reflects
our continued 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 second quarter
2009.





Our
operating loss compared negatively with the same period prior year for a loss of
$728,427 for the quarter ended June 30 2009 compared with a loss of $427,430 for
the quarter ended June 30, 2008.  While we made strides in improving
our gross margin comparing 2009 to 2008, we were unable to reduce general and
administrative expenses accordingly and generated the operating loss as
indicated.




For the
quarter ended June 30, 2009, we earned interest income in the amount of $0
compared with $1,011 for the quarter ended June 30, 2008.





Interest
expense was $2,872,418 for the three months ended June 30, 2009 compared to
$503,309 for the three months ended June 30, 2008.  The signicantly
higher amount for 2009 was driven by the interest on the convertible debentures
we issued in November and December of 2007and were required to amend given our
inability to pay principal and interest during the period.  We had no
gain on disposal of assets in the three months ended June 30, 2009 compared to a
loss on disposal of assets of $20,126for the same period in
2008.


33





SIX
MONTHS ENDED JUNE 30, 2009, COMPARED WITH SIX MONTHS ENDED JUNE 30,
2008





It is
difficult to compare the six months ended June 2009 results to the same period
in 2008 as during the six months ended June 30, 2008 was a period of
transformation  from being a development stage company to a growth
oriented renewable energy company with four new acquisitions to integrate into a
cohesive whole company. Further compounding any comparison to the six months
ended June 30, 2009 is the economic downturn experienced by the US and our
company particularly within the industrial sales area. Thus, the variations
reflected in our results of operations described below are based upon these
factors.





In the
six months ended June 30, 2009, we had revenues of $4,217,284 compared to the
six months ended June 30, 2008 of $5,754,049. The cost of goods sold percentage
for the six months ending June 30, 2009 was 52.5% leaving us with a gross profit
of $2,003,362. The decrease in revenues in 2009 as compared to 2008 is a
reflection of our second quarter revenue decrease of $1,189,065.





Total
operating expenses during the six months ended June 30, 2009 were $3,148,830
compared to $4,310,216 for six months ended June 30, 2008. General and
administrative expenses were $2,886,361for six months ended June 30, 2009
compared with $3,896,579 for the six months ended June 30, 2008. This major
decrease in general and administrative expenses reflects our overall approach to
controlling overhead costsThese expenses are described in detail below:




Professional
fees were $27,804 for the six months ended June 30, 2009 compared with $367,829
for the six months ended June 30, 2008. This change reflects the increased
resources required for our transition and our overall increase in size. New
media, marketing, advertising and investor and public relations expenses of
$21,298 for the six months ended June 30, 2009 also shows significant reduction
from prior year of $123,165 for the six months ended June 30,
2008.  This reduction was accomplished through utilizing Corporate
resources for many of these activities in 2009.  Legal fees were
$216,481 for the six months ended June 30, 2009 compared with $332,489 for the
six months ended June 30, 2008 and accounting fees were $113,322 for the six
months ended June 30, 2009 compared with $121,556 for the six months ended June
30, 2008. Executive compensation was $394,803 for the six months ended June 30,
2009 compared with $269,000 for the six months ended June 30, 2008. Depreciation
expense was $250,307 for the six months ended June 30, 2009 compared to $266,004
for the six months ended June 30, 2008.  All other general and
administrative spending totaled $2,112,650 for the six months ended June 30,
2009 compared to $2,682,540 for the six months ended June 30, 2008.





Expenses
for research and development totaled $12,162 for the six months ended June 30,
2009 compared to $147,633for the six months ended June 30, 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 a primary objective of the Company continues to be the
commercial advancement of clean electric technologies that reduce our dependence
upon carbon based fuels, we have retained a strong focus on research and
development activities, and expect to continue to incur additional research and
development costs, although at a significantly reduced rate, for the foreseeable
future.




Our
operating loss of $4,624,403 for the six months ended June 30, 2009 compared
with the loss of $2,901,813 for the six months ended June 30, 2008 is
directly attributable to increased interest expense accrued for the non-cash
impact of the consideration given in return for waivers granted by our debenture
holders.  These waivers are explained in detail in Note
6.





For the
six months ended June 30, 2009, we earned interest income in the amount of $0
compared with $9,161 for the six months ended June 30, 2008.





Interest
expense was $3,488,695 for the six months ended June 30, 2009 compared to
$1,065,613 for the six months ended June 30, 2008. The significantly higher
amount for 2009 was driven by the interest on the convertible debentures we
issued in November and December of 2007 and the related non-cash consideration
for waivers granted by our debenture holders in extendeding additional time to
make required principal and interest payments.


34


Liquidity
and Capital Resources





As of
June 30, 2009, we had $484,002 of cash on hand and held certificates of deposit
in the amount of $0 compared to quarter end 2008 balances of $327,332 of cash on
hand and $28,044 in certificates of deposit.





We
generated cash for operating activities in the second quarter of 2009 in the
amount of $270,193 compared to $153,654 for 2008.   In addition,
cash used in investing activities was $104,121 for the three months ended June
30, 2009 compared to a use of cash of $146,915 for 2008. The use in each
year was for the purchase of fixed assets





It is
important to understand our complex financing activities since January 1, 2008
as we have endeavored to become a transformational leader in the renewable
energy sector during a period characterized by a lack of capital markets in a
down economy. These activities are described in detail below:





Given
what we believed to be a competitive edge in the fast charger market, as well as
having efficient plant operating capacity in Mexico, we were confident 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  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 of restricted capital options 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 required 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 six months ended June 30, 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 needed working capital.





On March
5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and
Warrants, Agreement and Waiver” (the “Agreement”) restructuring our equity
with the institutional debt holders of the our Original Issue Discount 8% Senior
Secured Convertible Debentures, dated November 6, 2007 and with our debt holder
of our Original Issue Discount 8% Secured Convertible Debentures, dated December
6, 2007”). The Agreement’s effective date was January 1, 2009. The purpose
of this amendment was to allow the additional time necessary for us to achieve
our working capital targets in the current economic environment, by requesting
our debenture holders to further extend a waiver of debt service
requirements.  In exchange for signing this Amendment to Debentures
and Warrants, Agreement and Waiver deferred  interest payments due for the
first quarter 2009 until May 1, 2009 and payment of monthly principal
redemptions until May 1, 2009,





Despite
the current tenuous economic environment, the financial opportunities available
to us specifically in the US Department of Energy Stimulus projects related to
electric vehicle transportation, were material to our future, and on May 15,
2009, we and the Debenture Holders entered into an agreement entitled “Amendment
to Debentures and Warrants, Agreement and Waiver” restructuring our equity as
well as establishing an inducement for additional working
capital.  The Agreement’s effective date was May 1,
2009.





We
agreed to the following:





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


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


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


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


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


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


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


35





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


9.
              All
      outstanding Warrants (defined in the Securities Purchase Agreements dated
      November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
      as consideration for the current or prior Amendments to the November 2007
      Debentures and the December 2007 Debentures will be amended to have
      an exercise price of $0.01 (to the extent that such exercise price
      was previously above $0.06), and the termination dates for the makeup
      warrants will be five (5) years from date of
  issuance.


10.
              Use
      best efforts to obtain stockholder approval of an increase in the
      authorized number of shares of common stock of the Company.  The
      proposal shall increase the number of authorized common shares from
      300,000,000 to 1,300,000,000.


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 waiver
      agreement.




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, as described above, growth consistent with our plans
did not occur in the third and fourth quarters of 2008, nor in the first and
second  quarters of  2009.  Sales, consulting
services and manufacturing revenues have remained at lower than anticipated
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 particularly electric vehicle
infrastructure. 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
      (US government Stimulus contractual agreements)and private
      sector  support with partnerships and joint ventures of
      alternative energy such that there is a requirement to build the related
      infrastructure throughout the United
States




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




Working
Capital





Net
working capital is an important measure of our ability to finance our
operations.  Our net working capital at June 30, 2009 was negative by
$3,465,584 when including all purchase price, bridge and debenture
indebtedness or a ratio of 0.43 to 1.However when
excludingthese
specific items including the current portion of the convertible debenture
indebtedness the ratio turns to a positive 1.27 to 1.





We do not
have any off-balance sheet arrangements.





We do
anticipate the need to add significant numbers of full- or part- time employees
over the next 12 months per award of any Stimulus or related contracts.  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
June 30, 2009, the Company has four leases in effect for operating space. 
Future obligations under these commitments are $122,435 for 2009, $245,804 for
2010, $88,448 for 2011, $90,521 for 2012 and $45,787 for 2013.


36


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 June 30, 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 the quarter ended June 30, 2009.


37


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 June 30, 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








38




Defaults
upon Senior Securities





There
were no defaults upon senior securities in the quarter ended June 30,
2009





Submission
of Matters to a Vote of Security Holders




None


39


Exhibits
and Reports on 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.




40





(13)
                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      May 18, 2009.(14)
                Incorporated
      by reference herein to the Form 8-K, previously filed with the SEC on
      July 06, 2009.(15)
                Incorporated
      by reference herein to the Form 8-K/A previously filed with the SEC
      on July 09, 2009





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,
              
              August
      14, 2009Jonathan
      R. Read
              
              President
      and Director/s/
      Harold W. Sciotto
              
              Secretary,
      Treasurer
              
              August
      14, 2009Harold
      W. Sciotto
              
              and
      Director/s/
      Barry S. Baer
              
              Chief
      Financial Officer
              
              August
      14, 2009Barry
      S. Baer
              
              Principal
      Accounting Officer
                Director/s/
      Jerry Y. S. Lin
              
              Director
              
              August
      14, 2009Jerry
      Y. S. Lin/s/
      E. Slade Mead
              
              Director
              
              August
      14, 2009E.
      Slade Mead


41