**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Amendment Number 3**

** to**

**FORM 10-QSB**

| **(Mark One)**                                                                                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                   |
| **x**                                                                                                                                                                                                                                                                        | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                   | ** ** |
| **For the quarterly period ended: March 31, 2007**                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                         |
| **Or**                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                         |
| **o**                                                                                                                                                                                                                                                                        | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                   | ** ** |
| **For the transition period from                      to                    ** |
| ** **                                                                                                                                                                                                                                                                   |
| **Commission File Number: 000-50983**                                                                                                                                                                                                                                        |

 

**ECOTALITY,INC.**

(Exact name ofregistrant 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)      |

 

(Former name,former address and former fiscal year, if changed since last report)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes x  No o

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

Yes o  No x

**APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVEYEARS:**

Indicate by checkmark whether the registrant has filed all documents and reports required to befiled by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.

Yes o  No o

**APPLICABLE ONLY TO CORPORATE ISSUERS:**

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: 106,999,906

 

----

**Ecotality, Inc.**

**(ADevelopment Stage Company)**

**Table of Contents**
| PART I - FINANCIAL  INFORMATION                      |   |   |
|------------------------------------------------------|--------|--------|
|                                                 |   |   |
| Unaudited  Financial Statements                      |   |   |
|                                                 |   |   |
| Balance Sheet                                        |   |   |
|                                                 |   |   |
| Statements of  Operations                            |   |   |
|                                                 |   |   |
| Statements of  Cash Flows                            |   |   |
|                                                 |   |   |
| Notes                                                |   |   |
|                                                 |   |   |
| Changes in  and Disagreements with Accountants       |   |   |
|                                                 |   |   |
| Management’s  Discussion and Plan of Operation  |   |   |
|                                                 |   |   |
| Controls and Procedures                              |   |   |
|                                                 |   |   |
| PART II - OTHER  INFORMATION                         |   |   |
|                                                 |   |   |
| Legal Proceedings                                    |   |   |
|                                                 |   |   |
| Unregistered  Sales of Equity Securities             |   |   |
|                                                 |   |   |
| Submission  of Matters to a Vote of Security Holders |   |   |
|                                                 |   |   |
| Exhibits and  Reports on Form 8-K                    |   |   |
|                                                 |   |   |
| SIGNATURES                                           |   |   |

 

2

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**PART I -FINANCIAL INFORMATION**

**UnauditedFinancial Statements**

Theaccompanying unaudited financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial reportingand pursuant to the rules and regulations of the Securities and ExchangeCommission (“Commission”).  While these statements reflect all normalrecurring adjustments which are, in the opinion of management, necessary forfair presentation of the results of the interim period, they do not include allof the information and footnotes required by generally accepted accountingprinciples for complete financial statements.  For further information,refer to the financial statements and footnotes thereto, which are included inthe Company’s Registration Statement on Form 10-KSB previously filed with theCommission on March 30, 2007, and subsequent amendments made thereto.

3

----

**Ecotality, Inc.**

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

(a DevelopmentStage Company)

**Restated Balance Sheet**

**(unaudited)**
| ** **                                                                                                 | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                                 | ** ** | **2007**           | ** ** |
| ** **                                                                                                 | ** ** | **(RESTATED)**     | ** ** |
| **Assets**                                                                                                 |       |               |       |
|                                                                                                       |       |               |       |
| Current assets:                                                                                            |       |               |       |
| Cash                                                                                                       |       | $                  | 3,124,771  |   |
| Prepaid expenses                                                                                           |       | 83,341             |       |
| Certificate of  Deposit                                                                                    |       | 2,036,510          |       |
| Total current  assets                                                                                      |       | 5,244,622          |       |
|                                                                                                       |       |               |       |
| Fixed assets                                                                                               |       |               |       |
| Building                                                                                                   |       | 575,615            |       |
| Computers and  Equipment                                                                                   |       | 38,455             |       |
| Vehicle                                                                                                    |       | 795,848            |       |
| Accumulated  Depreciation                                                                                  |       | (69,174            | )          |
| Total Fixed  Assets                                                                                        |       | 1,340,744          |       |
|                                                                                                       |       |               |       |
| Total Assets                                                                                               |       | 6,585,366          |       |
|                                                                                                       |       |               |       |
| **Liabilities and Stockholders’  Equity**                                                             | ** ** | ** **         | ** ** |
|                                                                                                       |       |               |       |
| Current liabilities:                                                                                       |       |               |       |
| Accounts payable                                                                                           |       | 506,968            |       |
| Payroll  liabilities                                                                                       |       | 13,585             |       |
| Contingent  Liability-Potential Registration Rights Penalty                                                |       | 3,001,493          |       |
| Total current  liabilities                                                                                 |       | 3,522,046          |       |
|                                                                                                       |       |               |       |
| Long Term Liabilities                                                                                      |       |               |       |
| Mortgage Payable                                                                                           |       | 287,500            |       |
| Total Long Term  Liabilities                                                                               |       | 287,500            |       |
|                                                                                                       |       |               |       |
| Total Liabilities                                                                                          |       | 3,809,546          |       |
|                                                                                                       |       |               |       |
| Stockholders’ equity                                                                                  |       |               |       |
| Preferred stock,  $0.001 par value, 200,000,000 shares authorized, no shares issued and  outstanding       |       | —             |       |
| Common stock,  $0.001 par value, 300,000,000 shares authorized, 106,999,906 shares issued  and outstanding |       | 107,000            |       |
| Additional paid-in  capital                                                                                |       | 22,994,399         |       |
| (Deficit)  accumulated during development stage                                                            |       | (20,325,579        | )          |
| Total  Stockholders’ Equity                                                                           |       | 2,775,820          |       |
|                                                                                                       |       |               |       |
| Total Liabilities and Stockholders’ Equity                                                            |       | $                  | 6,585,366  |   |

 

The accompanying notes are an integral part of thesefinancial statements.

4

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**Ecotality, Inc.**

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

(a DevelopmentStage Company)

**Restated Statements of Operations**

**(unaudited)**
| ** **                                                                                                        | ** ** | **Three Months Ended** | ** ** | **April 21, 1999** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------|------------|
| ** **                                                                                                        | ** ** | **March 31,**               | ** ** | **(Inception) to**      | ** ** |
| ** **                                                                                                        | ** ** | **2007**                         | ** ** | **2006**                     | ** ** | **March 31, 2007** | ** ** |
| ** **                                                                                                        | ** ** | **(RESTATED)**                   | ** ** | **(RESTATED)**               | ** ** | **(RESTATED)** | ** ** |
| Revenue                                                                                                           |       | $                                | —     |                         | $          | — |   | $ | 851 |   |
| Cost of Goods  Sold                                                                                               |       | —                           |       | —                       |       | 506 |   |
| Gross Profit                                                                                                      |       |                             |       |                         |       | 345 |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Expenses:                                                                                                         |       |                             |       |                         |       |   |   |
| Depreciation                                                                                                      |       | 48,087                           |       | 141                          |       | 69,174 |   |
| Executive compensation                                                                                            |       | 77,140                           |       | 2,477,110                    |       | 2,812,146 |   |
| General and administrative expenses (amounts exclude  executive compensation shown above as a separate line item) |       | 464,054                          |       | 322,815                      |       | 2,474,186 |   |
| Licenses and Permits                                                                                              |       | 1,339                            |       | —                       |       | 8,223,911 |   |
| Research and development                                                                                          |       | 373,530                          |       | 350,000                      |       | 1,461,634 |   |
| Settlement Expense                                                                                                |       | 1,800,000                        |       | —                       |       | 1,800,000 |   |
| Total expenses                                                                                                    |       | 2,764,150                        |       | 3,150,066                    |       | 16,901,051 |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Operating loss                                                                                                    |       | (2,764,150                       | )          | (3,150,066                   | )          | (16,900,706 | ) |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Other income:                                                                                                     |       |                             |       |                         |       |   |   |
| Interest income                                                                                                   |       | 21,743                           |       | —                       |       | 36,650 |   |
| Total other income                                                                                                |       | 21,743                           |       | —                       |       | 36,650 |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Other expenses:                                                                                                   |       |                             |       |                         |       |   |   |
| Interest expense                                                                                                  |       | 3,234                            |       | 21,606                       |       | 460,030 |   |
| Accrued expense-potential registration rights  penalty                                                            |       | 3,001,493                        |       |                         |       | 3,001,493 |   |
| Total other expenses                                                                                              |       | 3,004,727                        |       | 21,606                       |       | 3,461,523 |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Loss from  operations before income taxes                                                                         |       | (5,747,134                       | )          | (3,171,672                   | )          | (20,325,579 | ) |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Provision for  income taxes                                                                                       |       | —                           |       | —                       |       | — |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| (Loss) from  continuing operations                                                                                |       | (5,747,134                       | )          | (3,171,672                   | )          | (20,325,579 | ) |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Net (loss)                                                                                                        |       | $                                | (5,747,134 | )                            | $          | (3,171,672 | ) | $ | (20,325,579 | ) |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Weighted average  number of common shares outstanding - basic and fully diluted                                   |       | 110,066,566                      |       | 67,548,590                   |       |   |   |
|                                                                                                              |       |                             |       |                         |       |   |   |
| Net (loss) per share -  basic and fully diluted Continuing operations                                             |       | $                           | (0.05      | )                            | $     | (0.05 | ) |   |   |

 

The accompanying notes are an integral part of these financialstatements.

5

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**Ecotality, Inc.**

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

(a DevelopmentStage Company)

**Restated Statements of Cash Flows**

**(unaudited)**
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **April 21, 1999** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|------------------------------|------------|
| ** **                                                 | ** ** | **March 31,**               | ** ** | **(Inception) to**      | ** ** |
| ** **                                                 | ** ** | **2007**                         | ** ** | **2006**                     | ** ** | **March 31, 2007** | ** ** |
| ** **                                                 | ** ** | **(RESTATED)**                   | ** ** | **(RESTATED)**               | ** ** | **(RESTATED)** | ** ** |
| **Cash  flows from operating activities**                  | ** ** | ** **                       | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Net (loss)                                                 |       | $                                | (5,747,134 | )                            | $          | (3,171,672 | ) | $ | (20,325,579 | ) |
| Adjustments to  reconcile net (loss) to                    |       |                             |       |                         |       |   |   |
| Net cash (used) by operating activities:                   |       |                             |       |                         |       |   |   |
| Stock compensation - related party                         |       | —                           |       | 2,475,006                    |       | 2,475,006 |   |
| Shares issued for services                                 |       | —                           |       | —                       |       | 1,000 |   |
| Shares issued for licenses                                 |       | —                           |       | —                       |       | 8,217,391 |   |
| Shares issued for settlement                               |       | 1,200,000                        |       | —                       |       | 1,200,000 |   |
| Shares Accrued for registration penalty                    |       | 3,001,493                        |       | 0                            |       | 3,001,493 |   |
| Depreciation                                               |       | 48,087                           |       | 141                          |       | 69,174 |   |
| Warrants issued with notes payable                         |       | —                           |       | 26                           |       | 382,656 |   |
| Stock split adjustments                                    |       | —                           |       | —                       |       | 38,412 |   |
| Changes in  operating assets and liabilities:              |       |                             |       |                         |       |   |   |
| (Increase) decrease in inventory                           |       | —                           |       | 2,453                        |       | — |   |
| (Increase) in interest income from Certificate of  Deposit |       | (21,743                          | )          | —                       |       | (36,510 | ) |
| (Increase) in prepaid expenses                             |       | 5,543                            |       | (95,400                      | )          | (83,341 | ) |
| Increase in accounts payable                               |       | (87,107                          | )          | 3,500                        |       | 506,968 |   |
| Increase in accrued interest                               |       | —                           |       | 4,192                        |       | — |   |
| Increase in payroll liabilities                            |       | 1,183                            |       | 8,075                        |       | 13,585 |   |
| Net cash (used)  by operating activities                   |       | (1,599,678                       | )          | (773,679                     | )          | (4,539,745 | ) |
|                                                       |       |                             |       |                         |       |   |   |
| **Cash  flows from investing activities**                  | ** ** | ** **                       | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Purchase of fixed assets                                   |       | (611,019                         | )          | —                       |       | (1,409,918 | ) |
| Purchase of Certificate of Deposit                         |       | —                           |       | —                       |       | (2,000,000 | ) |
| Net cash (used)  by investing activities                   |       | (611,019                         | )          | —                       |       | (3,409,918 | ) |
|                                                       |       |                             |       |                         |       |   |   |
| **Cash  flows from financing activities**                  | ** ** | ** **                       | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Mortgage payable                                           |       | 287,500                          |       | —                       |       | 287,500 |   |
| Proceeds from notes payable                                |       | —                           |       | 750,000                      |       | 1,425,000 |   |
| Repayments of notes payable                                |       | —                           |       | —                       |       | (1,425,000 | ) |
| Issuance of common stock                                   |       | —                           |       | 375,000                      |       | 10,786,934 |   |
| Net cash  provided by financing activities                 |       | 287,500                          |       | 1,125,000                    |       | 11,074,434 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Net (decrease)  increase in cash                           |       | (1,923,197                       | )          | 351,321                      |       | 3,124,771 |   |
| Cash - beginning                                           |       | 5,047,968                        |       | 5,878                        |       | — |   |
| Cash - ending                                              |       | $                                | 3,124,771  |                         | $          | 357,199 |   | $ | 3,124,771 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Supplemental  disclosures;                                 |       |                             |       |                         |       |   |   |
| Interest paid                                              |       | $                                | 3,234      |                         | $          | 15,000 |   | $ | 62,374 |   |
| Income taxes paid                                          |       | $                                | —     |                         | $          | — |   | $ | — |   |
|                                                       |       |                             |       |                         |       |   |   |
| Non-cash  transactions:                                    |       |                             |       |                         |       |   |   |
| Stock compensation-Related Party                           |       | $                                | —     |                         | $          | 2,475,006 |   | $ | 2,475,006 |   |
| Number of shares issued for executive compensation         |       | —                           |       | 7,500,018                    |       | 7,500,018 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Share issued for services                                  |       | $                                | —     |                         | $          | — |   | $ | 1,000 |   |
| Number of shares issued for services                       |       | —                           |       | —                       |       | 35,294,200 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Share issued for licenses                                  |       | $                                | —     |                         | $          | — |   | $ | 8,217,391 |   |
| Number of shares issued for licenses                       |       | —                           |       | —                       |       | 5,869,565 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Share issued for financing costs                           |       | $                                | —     |                         | $          | — |   | $ | 382,656 |   |
| Number of shares issued for financing costs                |       | —                           |       | —                       |       | 2,971,429 |   |
|                                                       |       |                             |       |                         |       |   |   |
| Shares issued for settlement                               |       | $                                | 1,200,000  |                         | $          | — |   | $ | 1,200,000 |   |
| Number of shares  issued for settlement                    |       | 1,500,000                        |       | —                       |       | 1,500,000 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

6

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**Ecotality, Inc**

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

(a DevelopmentStage Company)

**Notes to Restated Financial Statements**

(Unaudited)

**Note1 - Basis of presentation**

The interimfinancial statements included herein, presented in accordance with UnitedStates generally accepted accounting principles and stated in US dollars, havebeen prepared by the Company, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission (SEC).  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations, although theCompany believes that the disclosures are adequate to make the informationpresented not misleading.

These statementsreflect all adjustments, consisting of normal recurring adjustments, which, inthe opinion of management, are necessary for fair presentation of theinformation contained therein.  It is suggested that these consolidatedinterim financial statements be read in conjunction with the financial statementsof the Company for the year ended December 31, 2006 and notes thereto includedin the Company’s 10-KSB annual report.  The Company follows the sameaccounting policies in the preparation of interim reports.

Resultsof operations for the interim periods are not indicative of annual results.

**Note2 - History and organization of the company**

The Company wasorganized April 21, 1999 (Date of Inception) under the laws of the State ofNevada, as Alchemy Enterprises, Ltd.  The Company has limited operationsand is considered a development stage company.  The Company was initiallyauthorized to issue 25,000 shares of its no par value common stock.

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

On November 26,2006, the Company amended its articles of incorporation to change its name fromAlchemy Enterprises, Ltd. to Ecotality, Inc.

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

**Note3 - Fixed assets**

Fixed assets as ofMarch 31, 2007 consisted of the following:
| Computer equipment        |   | $       | 38,455    |   |
|---------------------------|--------|---------|-----------|--------|
| Vehicles                  |   | 795,848 |      |
| Building                  |   | 575,615 |      |
| Accumulated  depreciation |   | (69,174 | )         |
|                      |   | $       | 1,340,744 |   |

 

Depreciationexpense totaled $48,087 and $141 for the three months ended March 31, 2007and 2006 respectively.

7

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**Note 4 -Debt and interest expense**

On February 9,2006, the Company conducted a private offering of debt securities, whereby itraised $750,000 in bridge loan financing from three non-affiliated individuals. The notes were due August 9, 2006, bear an interest rate of 10.5%calculated annually and contain no prepayment penalty.  The maturity dateof the notes was subsequently extended to October 9, 2006.  The notes wererepaid on September 29, 2006 including interest of $50,056.

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

On July 7, 2006,the Company raised $275,000 in bridge loan financing from two shareholders. The notes are due December 29, 2006, bear an interest rate of 10.5%calculated annually and contain no prepayment penalty.  The notes wererepaid on October 2, 2006 including interest of $6,724.

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

On August 3, 2006,the Company raised $100,000 in bridge loan financing from two shareholders. The notes are due December 29, 2006, bear an interest rate of 10.5%calculated annually and contain no prepayment penalty.  The notes wererepaid on October 2, 2006 including interest of $1,668.

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

On September 9,2006, the Company raised $100,000 in bridge loan financing from twoshareholders.  The notes are due December 29, 2006, bear an interest rateof 10.5% calculated annually and contain no prepayment penalty.  The noteswere repaid on October 2, 2006 including interest of $552.

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

On September 27,2006, the Company raised $200,000 in bridge loan financing from twoshareholders.  The notes are due December 29, 2006, are non-interest bearingand contain no prepayment penalty.  The notes were repaid on October 2,2006.

Interestexpense totaled $3,234 and $21,606 for the three months ended March 31, 2007and 2006 respectively.

8

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**Note 5 - Long Term Debt**

On January 16,2007, the Company purchased an office building for an aggregate price of$575,615.  A total of $287,959 has been paid and a tax credit has beenrecorded in the amount of $156.  The remaining balance of $287,500 isstructured as an interest-only loan from a third-party, bears an interest rateof 6.75% calculated annually, with monthly payments in the amount of $1,617 duebeginning on February 16, 2007.  The entire principal balance is due on orbefore January 16, 2012.

Interestexpense totaled $3,234 and $21,606 for the three months ended March 31, 2007and 2006 respectively.

**Note6 - Stockholders’ equity**

The Company isauthorized to issue 300,000,000 shares of its $0.001 par value common stock and200,000,000 shares of $0.001 par value preferred stock.

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

On February 15,2006, the Company issued 7,500,018 shares of its $0.001 par value common stockto an individual who is an officer and director as executive compensationvalued at $2,475,006, calculated at the fair market value of $0.33, on March 2,2006 when the company began trading shares of stock..

On March 23, 2006,three warrant holders exercised their rights to purchase shares of par valuecommon stock of the Company.  As a result, the Company issued an aggregateof 1,071,429 shares of common stock at a price per share of $0.35, for totalcash proceeds of $375,000.  See note 7 for additional discussion on thisissue.

On June 12, 2006,the Company entered into a License Agreement with California Institute ofTechnology, whereby the Company issued 5,869,565 shares of common stock at afair market value of $1.40 per share, based on the quoted market price on thegrant date, for licenses and permits carrying an aggregate value of $8,217,391. See note 8 for additional discussion on this issue.

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

On February 15,2007, the Company entered into a Settlement Agreement and Release to theTechnology Contribution Agreement, originally entered into on February 15,2006, to settle and resolve all known disputes and uncertainties between theCompany and Howard Foote, Elliott Winfield and Universal Power Vehicles, Inc. In accordance with the Settlement, the Parties confirm the assignment,transfer and conveyance of all right, title and interest in and to theIntellectual Property transferred in the Contribution Agreement.  Inconsideration, the Company agreed to pay to Foote, Winfield and UPV cash in theamount of $600,000.  Additionally, the Parties received common stock inthe aggregate amount of 1,500,000 shares of the Company, as per a separateescrow agreement between Foote, Winfield and and Mr Harlod Sciotto, an officerand director of the Company. The shares were owned by Mr Sciotto and not thecompany. The escrow also provided for: (1) the immediate release from escrow andreturn to Harold Sciotto of 32,500,000 shares of our common stock; and (2) theimmediate release to Ecotality of 6,000,000 shares of our common stock fromescrow for cancellation.  The 6,000,000 shares were cancelled immediatelyupon receipt at their par value amount of $6,000 and that paid in capital wasreduced by that amount.  The value of the shares transferred was basedupon market value ($1,200,000) at the time of the transaction and have beenreflected as an expense in our financial statements with a corresponding creditto paid in capital in accordance with SEC bulletins topic 5:T.

9

----

**Note 7 - Warrants**

As ofJanuary 1, 2006, there were no warrants outstanding.

On February 9,2006, the Company issued warrants to purchase shares of the Company’s par valuecommon stock to three non-affiliated individuals in conjunction with bridgeloan agreements.  The warrant holders were granted the right to purchase atotal of 1,071,429 shares of common stock of the Company for an aggregatepurchase price of $375,000 or $0.35 a share.  The aggregate fair value ofsuch warrants totaled $92 based on the Black Schoeles Merton pricing modelusing the following estimates:  4 % risk free rate, 100 % volatility andexpected life of the warrants of 6 months.  On March 23, 2006, all ofthese warrants were exercised for total gross proceeds of $375,000.

On July 7, 2006,the Company issued warrants to purchase shares of the Company’s par valuecommon stock to two shareholders in conjunction with bridge loan agreements. The warrant holders were granted the right to purchase a total of1,100,000 shares of common stock of the Company for an a purchase price of$1,562,00 or $1.42 a share.  The aggregate fair value of such warrantstotaled $223,391 based on the Black Schoeles Merton pricing model using thefollowing estimates:  4% risk free rate, 100% volatility and expected lifeof 5 years.

On August 3, 2006,the Company issued warrants to purchase shares of the Company’s par valuecommon stock to two shareholders in conjunction with bridge loan agreements. The warrant holders were granted the right to purchase a total of 400,000shares of common stock of the Company for a purchase price of $496,000 or $1.24a share.  The aggregate fair value of such warrants totaled $79,079 basedon the Black Schoeles Merton pricing model using the following estimates: 4% risk free rate, 100% volatility and expected life of 5 years.

On September 6,2006, the Company issued warrants to purchase shares of the Company’s par valuecommon stock to two shareholders in conjunction with bridge loan agreements. The warrant holders were granted the right to purchase a total of 400,000shares of common stock of the Company for a purchase price of $528,000 or $1.32a share.  The aggregate fair value of such warrants totaled $80,094 basedon the Black Schoeles Merton pricing model using the following estimates: 4% risk free rate, 100% volatility and expected life of 5 years.

On October 27,2006 the Company issued warrants to purchase shares of the Company’s par valuecommon stock to the brokers of Brookstreet Securities Corporation as additionalconsideration for their acting as placement agent.  The warrant holderswere granted the right to purchase a total of 6,899,982 shares of common stockof the Company for a purchase price of $2,414,994, or $0.35 per share. The aggregate fair value of such warrants totaled $7,638,212 based on theBlack Schoeles Merton pricing model using the following estimates:  4%risk free rate, 91% volatility and expected life of 5 years.  The Companynetted the fair market value of the warrants against expenses related theoffering of common stock conducted by Brookstreet Securities Corporation.

Paragraph 5(Registration Rights) of the Subscription Agreement for the private placementdescribed above states that  ”If the Company fails to (i) file theRegistration Statement with the SEC on or prior to 60 days after the ClosingDate, (ii) obtain effectiveness of the Registration Statement by the SEC on orprior to 150 days after the Closing Date, or (iii) maintain effectiveness ofthe Registration Statement for 12 months after the date of effectiveness, theCompany shall be obligated to issue to the undersigned additional Shares” The Registration Rights paragraph further holds that if we fail or failto obtain or maintain the effectiveness of the registration statement, within30 days following the determination date (date upon which we fail to meet the60 or 150 day requirement)  we are to issue to the subscribers the numberof shares equal 1% of the number of shares issued as a part of thissubscription and do so on a weekly basis until such time as we are incompliancewith the registration requirement.  Further, the number of shares issuedas “penalty shares” in aggregate cannot exceed 10% of the number of sharesoriginally subscribed..  As of March 31, 2007 the Company  has notincurred any penalties (compensatory or otherwise), however,the Company hasreserved $3,001,49 for incurring any penalties in conjunction with this registration.  The amount reserved is based upon the maximumnumber of shares that may be issued and the closing price of a share of commonstockof $.87 on March 31, 2007.  Noshares of the Company’s common stock have been issued.. Our financialstatements have been restated to reflect this reservation.

10

----

Thefollowing is a summary of the status of all of the Company’s stock warrants asof March 31, 2007 and changes during the three months ended:
|                                         | ** ** | **Number   Of Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|-------------------------------------------|------------|
| Outstanding at  December 31, 2005       |       | 0                                |       | $                                         | 0.00       |   |
| Granted                                 |       | 1,071,429                        |       | $                                         | 0.35       |   |
| Exercised                               |       | (1,071,429                       | )          | $                                         | 0.35       |   |
| Cancelled                               |       | 0                                |       | $                                         | 0.00       |   |
| Outstanding at  March 31, 2006          |       | 0                                |       | $                                         | 0.00       |   |
| Granted                                 |       | 8,799,982                        |       | $                                         | 0.57       |   |
| Exercised                               |       | 0                                |       | $                                         | 0.00       |   |
| Cancelled                               |       | 0                                |       | $                                         | 0.00       |   |
| Outstanding at  December 31, 2006       |       | 8,799,982                        |       | $                                         | 0.57       |   |
| Granted                                 |       | 0                                |       | $                                         | 0.00       |   |
| Exercised                               |       | 0                                |       | $                                         | 0.00       |   |
| Cancelled                               |       | 0                                |       | $                                         | 0.00       |   |
| Outstanding at  March 31, 2007          |       | 8,799,982                        |       | $                                         | 0.57       |   |
| Warrants exercisable at  March 31, 2007 |       | 8,799,982                        |       | $                                         | 0.57       |   |

 

Thefollowing tables summarize information about stock warrants outstanding andexercisable at March 31, 2007
| ** **                              | ** ** | **STOCK WARRANTS OUTSTANDING** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number of  Shares  Outstanding**  | ** ** | **Weighted-Average  Remaining  Contractual  Life in Years** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $ 0.35                             |       |                                     | 6,899,982  |   | 4.58 |   | $ | 0.35 |   |
| $ 1.24 - $ 1.42               |       |                                     | 1,900,000  |   | 4.32 |   | $ | 1.36 |   |
|                                    |       | 8,799,982                                |       | 4.52 |   | $ | 0.57 |   |

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

 

**Note 8 - Commitments and contingencies**

On February 15,2006, the Company entered into a Technology Contribution Agreement with twoindividuals to acquire the rights, titles and interests to the intellectualproperty for the development of an electric power cell.  In exchange forthe rights to this intellectual property, the Company agreed to finance thedevelopment of the electric power cell system up to $1,350,000 and payoff$15,000 in interest costs for related debt.  To date through March 31,2007, $1,461,634 has been recorded as research and development expense inrelation to the technology and $15,000 as interest expense.

11

----

OnFebruary 15, 2006, the Company entered into a consulting agreement withUniversal Power Vehicles Corporation for annual compensation of $200,000. The term of the agreement is three years and may be extended uponagreement by both parties.  The Company prepaid one-half of thecompensation upon execution of the agreement, with the remaining compensationto be paid monthly beginning August 15.  The Company fully amortized$100,000 as an expense in the year ended December 31, 2006.  Theconsulting agreement has subsequently been terminated, without penalty, and noadditional payments will be made.

On February 15,2006, the Company entered into an employment agreement with an individual whois an officer and director of the Company.  The compensation is $120,000annually.  Additionally, the Company issued 7,500,018 (split-adjusted)shares of par value common stock to this individual as executive compensationvalued at $21,250.  The term of the agreement is one year and isautomatically renewed annually.  On February 15, 2007, the employmentagreement was renewed with compensation to be $222,000 annually.

On February 16,2006, the Company entered into an employment agreement with an individual whois an officer and director of the Company for annual compensation of $120,000. The term of the agreement is for one year and was automatically renewedon February 15, 2007.

On March 21, 2006,the Company entered into a lease agreement to rent office space at a rate of$547 per month and requires a refundable deposit of $500, which was paid by theCompany during the period ended March 31, 2006.  On October 31, 2006, theCompany added an addendum to the original lease agreement to rent additionaloffice space at a rate of $547 per month and requires an additional refundabledeposit of $500, which was paid by the Company during the period ended December31, 2006.  The deposits were recorded in prepaid expenses, but have beenexpensed during the three months ended March 31, 2007.  The lease andaddendum expired collectively on March 31, 2007 and was not renewed.

On June 12, 2006,the Company entered into a License Agreement with California Institute ofTechnology, whereby the Company obtained certain exclusive and non-exclusiveintellectual property licenses pertaining to the development of an electronicfuel cell technology, in exchange for 5,869,565 shares of common stock of theCompany with a fair market value of $8,217,391, which amount has been recordedas licenses and permits expense.  The License Agreement carries an annualmaintenance fee of $50,000, with the first payment due on or about June 12,2009.  The License Agreement carries a perpetual term, subject to default,infringement, expiration, revocation or unenforceability of the LicenseAgreement and the licenses granted thereby.

**Note 9 - Restatement of financial statements**

In connection withthe preparation of our unaudited financial statements for the three monthperiods ended March 31, 2007 and 2006, we determined that there were errors inaccounting treatment and reported amounts in our previously filed financialstatements.  As a result, we determined to restate our financialstatements for the three month periods ended March 31, 2007 and 2006.  Therestatements are included in this Quarterly Report on Form 10-QSB/A (AmendmentNo. 2).

These restatedfinancial statements include adjustments related primarily to the following:

*Stockholders’Equity*.  The Company has restated its financialstatements for the three months ended March 31, 2007 and 2006 to reflect therevaluation of compensation paid to an executive officer.  The resultingaddition to executive compensation expense and reduction to additional paid-incapital totaled $2,453,756 for the three month periods ended March 31, 2007 and2006.

*Expenses. *The Company has restatedits financial statements for the three months ended March 31, 2007 to reflectthe reclassification of the expenses of the settlement agreement with Foote,Winfield and UPV to operating expenses rather than as a part of non operatingincome and expenses.  The Company classifiedthe $1,800,000 transaction as an operating expense as it pertains to patentsand technology which is a basis of the Company’s business activities.

*NonOperating Expense and Contingent Liability.*  The Company has reserved $3,001,493 forincurring any penalties in conjunction with registering its common shares withthe SEC.  The amount reserved is basedupon the maximum number of shares that may be issued and the closing price of ashare of common stock of $.87 on March 31, 2007.  No shares of the Company’s common stock havebeen issued. The company’s financial statements have been restated to reflectthis reservation.

12

----

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

*Balance Sheet as of March 31, 2007*
| ** **                                                                                                | ** ** | **As of March 31, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                | ** ** | **Previously Stated**                   | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| **Assets**                                                                                                | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets:                                                                                           |       |                                         |       |   |   |   |   |
| Cash                                                                                                      |       | $                                            | 3,124,771  |   | $ | — |   | $ | 3,124,771 |   |
| Prepaid expenses                                                                                          |       | 83,341                                       |       | — |   | 83,341 |   |
| Certificates of deposit                                                                                   |       | 2,036,510                                    |       |   |   | 2,036,510 |   |
| Total current assets                                                                                      |       | 5,244,622                                    |       | — |   | 5,244,622 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| Fixed assets                                                                                              |       |                                         |       |   |   |   |   |
| Building                                                                                                  |       | 575,615                                      |       |   |   | 575,615 |   |
| Computers and Equipment                                                                                   |       | 38,455                                       |       |   |   | 38,455 |   |
| Vehicle                                                                                                   |       | 795,848                                      |       |   |   | 795,848 |   |
| Accumulated Depreciation                                                                                  |       | (69,174                                      | )          |   |   | (69,174 | ) |
| Total Fixed Assets                                                                                        |       | 1,340,744                                    |       |   |   | 1,340,744 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
|                                                                                                      |       | 6,585,366                                    |       | — |   | 6,585,366 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| **Liabilities and Stockholders’ Equity**                                                             | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current liabilities:                                                                                      |       |                                         |       |   |   |   |   |
| Accounts payable                                                                                          |       | 506,968                                      |       | — |   | 506,968 |   |
| Payroll liabilities                                                                                       |       | 13,585                                       |       | — |   | 13,585 |   |
| Contingent Liability-Potential  Registration Rights Penalty                                               |       |                                         |       | 3,001,493 |   | 3,001,493 |   |
| Total current liabilities                                                                                 |       | 520,553                                      |       | 3,001,493 |   | 3,522,046 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| Long Term Liabilities                                                                                     |       |                                         |       |   |   |   |   |
| Mortgage Payable                                                                                          |       | 287,500                                      |       | 0 |   | 287,500 |   |
| Total Long Term Liabilities                                                                               |       | 287,500                                      |       |   |   | 287,500 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| Total Liabilities                                                                                         |       | 808,053                                      |       | 3,001,493 |   | 3,809,546 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| Stockholders’ equity                                                                                 |       |                                         |       |   |   |   |   |
| Preferred stock,  $0.001 par value, 200,000,000 shares authorized, no shares issued and outstanding       |       | —                                       |       | — |   | — |   |
| Common stock, $0.001  par value, 300,000,000 shares authorized, 106,999,906 shares issued and outstanding |       | 107,000                                      |       |   |   | 107,000 |   |
| Additional paid-in  capital                                                                               |       | 20,540,643                                   |       | 2,453,756 |   | 22,994,399 |   |
| (Deficit) accumulated  during development stage                                                           |       | (14,870,330                                  | )          | (5,455,249 | ) | (20,325,579 | ) |
| Total Stockholders’  Equity                                                                          |       | 5,777,313                                    |       | 3,001,493 |   | 2,775,820 |   |
|                                                                                                      |       |                                         |       |   |   |   |   |
| Total Liabilities and Stockholders’ Equity                                                           |       | $                                            | 6,585,366  |   | $ | — |   | $ | 6,585,366 |   |

 

13

----

 

*Statements of Operations for the three month periods endedMarch 31, 2007 and 2006*
| ** **                                                                                                        | ** ** | **For the three months ended  March 31, 2007** | ** ** | **For the three months ended  March 31, 2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                                                                        |
| ** **                                                                                                        | ** ** | **As  Previously  Stated**                                                   | ** ** | **Adjustments**                                                              | ** ** | **As Restated** | ** ** | **As  Previously  Stated** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Revenue                                                                                                           |       | $                                                                            | —     |                                                                         | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Cost of goods  sold                                                                                               |       | —                                                                       |       | —                                                                       |       | — |   | — |   | — |   | — |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Gross profit                                                                                                      |       | —                                                                       |       | —                                                                       |       |   |   | — |   |   |   | — |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                         |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                      |       | 48,087                                                                       |       | —                                                                       |       | 48,087 |   | 141 |   | — |   | 141 |   |
| Executive compensation                                                                                            |       | 77,140                                                                       |       | —                                                                       |       | 77,140 |   | 23,354 |   | 2,453,756 |   | 2,477,110 |   |
| General and administrative expenses (amounts exclude  executive compensation shown above as a separate line item) |       | 464,054                                                                      |       | —                                                                       |       | 464,054 |   | 322,815 |   | — |   | 322,815 |   |
| Licenses and permits                                                                                              |       | 1,339                                                                        |       | —                                                                       |       | 1,339 |   | — |   | — |   | — |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Research and  Development                                                                                         |       | 373,530                                                                      |       | —                                                                       |       | 373,530 |   | 350,000 |   | — |   | 350,000 |   |
| Settlement  expense                                                                                               |       | —                                                                       |       | 1,800,000                                                                    |       | 1,800,000 |   | — |   | — |   | — |   |
| Total expenses                                                                                                    |       | 964,150                                                                      |       | 1,800,000                                                                    |       | 2,764,150 |   | 696,310 |   | 2,453,756 |   | 3,150,066 |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Operating Loss                                                                                                    |       | (964,150                                                                     | )          | (1,800,000                                                                   | )          | (2,764,150 | ) | (696,310 | ) | (2,453,756 | ) | (3,150,066 | ) |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Other income                                                                                                      |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Interest income                                                                                                   |       | 21,743                                                                       |       | —                                                                       |       | 21,743 |   | — |   | — |   | — |   |
| Total other income                                                                                                |       | 21,743                                                                       |       | —                                                                       |       | 21,743 |   | — |   | — |   | — |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Other expenses:                                                                                                   |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                  |       | 3,234                                                                        |       | —                                                                       |       | 3,234 |   | 21,606 |   | — |   | 21,606 |   |
| Settlement expense                                                                                                |       | 1,800,000                                                                    |       | (1,800,000                                                                   | )          |   |   | — |   | — |   | — |   |
| Accrued Expense-Potential Registration  Rights Penalty                                                            |       |                                                                         |       | 3,001,493                                                                    |       | 3,001,493 |   |   |   |   |   |   |   |
| Total other  expenses                                                                                             |       | 1,803,234                                                                    |       | 1,201,493                                                                    |       | 3,004,727 |   | 21.606 |   | — |   | 21,606 |   |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Loss from  operations before income taxes                                                                         |       | (2,745,641                                                                   | )          | (3,001,493                                                                   | )          | (5,747,134 | ) | (717,916 | ) | (2,453,756 | ) | (3,171,672 | ) |
|                                                                                                              |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Provision for income  taxes                                                                                       |       | —                                                                       |       | —                                                                       |       | — |   | — |   | — |   | — |   |
|                                                                                                                   |            |                                                                              |            |                                                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

----

 

*Statements of Operations for the three month periods endedMarch 31, 2007 and 2006*
|                                                |   |        |       |       |       |         |       |       |   |       |   |       |       |
|-----------------------------------------------------|--------|-------------|------------|------------|------------|--------------|------------|------------|--------|------------|--------|------------|------------|
| (Loss) from  continuing operations                  |   | (2,745,641  | )          | (3,001,493 | )          | (5,747,134   | )          | (717,916   | )      | (2,453,756 | )      | (3,171,672 | )          |
|                                                |   |        |       |       |       |         |       |       |   |       |   |       |       |
| Net (loss)                                          |   | $           | (2,745,641 | )          | (3,001,493 | )            | (5,747,134 | )          | $      | (717,916   | )      | $          | (2,453,756 | ) | $ | (3,171,672 | ) |
|                                                |   |        |       |       |       |         |       |       |   |       |   |       |       |
| Weighted average number of                          |   |        |       |       |       |         |       |       |   |       |   |       |       |
| common shares outstanding - basic and fully diluted |   | 110,006,566 |       | —     |       | 110,006,566  |       | 67,548,590 |   |       |   | 67,548,590 |       |
|                                                |   |        |       |       |       |         |       |       |   |       |   |       |       |
| Net (loss) per share -  basic and fully diluted     |   | $           | (0.02      | )          | $          | —— |       | $          | (0.05  | )          | $      | (0.01      | )          |   |   | $ | (0.01 | ) |
|                                                     |        |             |            |            |            |              |            |            |        |            |        |            |            |  |  |  |  |  |  |

 

15

----

 

*Statements of Operations for period from April 21, 1999(Inception) to March 31, 2007*
| ** **                                                                                                        | ** ** | **April 21, 1999 (Inception) to  March 31, 2007** | ** **  |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|-------------|
| ** **                                                                                                        |
| ** **                                                                                                        | ** ** | **As  Previously  Stated**                                                      | ** **  | **Adjustments** | ** ** | **As Restated** | ** ** |
| Revenue                                                                                                           |       | $                                                                               | 851         |   | $ | — |   | $ | 851 |   |
| Cost of goods  sold                                                                                               |       | 506                                                                             |        | — |   | 506 |   |
| Gross profit                                                                                                      |       | 345                                                                             |        | — |   | 345 |   |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Expenses:                                                                                                         |       |                                                                            |        |   |   |   |   |
| Depreciation                                                                                                      |       | 69,174                                                                          |        | — |   | 69,174 |   |
| Executive compensation                                                                                            |       | 418,390                                                                         |        | 2,393,756 |   | 2,812,146 |   |
| General and administrative expenses (amounts exclude  executive compensation shown above as a separate line item) |       | 2,474,186                                                                       |        | — |   | 2,474,186 |   |
| Licenses and permits                                                                                              |       | 8,223,911                                                                       |        | — |   | 8,223,911 |   |
| Research and Development                                                                                          |       | 1,461,634                                                                       |        | — |   | 1,461,634 |   |
| Settlement expense                                                                                                |       | —                                                                          |        | 1,800,000 |   | 1,800,000 |   |
| Total expenses                                                                                                    |       | 12,647,295                                                                      |        | 4,253,756 |   | 16,901,051 |   |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Operating Loss                                                                                                    |       | (12,646,950                                                                     | )           | (4,253,756 | ) | (16,900,706 | ) |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Other income                                                                                                      |       |                                                                            |        |   |   |   |   |
| Interest income                                                                                                   |       | 36,650                                                                          |        | — |   | 36,650 |   |
| Total other income                                                                                                |       | 36,650                                                                          |        | — |   | 36,650 |   |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Other expenses:                                                                                                   |       |                                                                            |        |   |   |   |   |
| Interest expense                                                                                                  |       | 460,030                                                                         |        | — |   | 460,030 |   |
| Settlement expense                                                                                                |       | 1,800,000                                                                       |        | (1,800,000 | ) | — |   |
| Accrued Expense-Potential Registration Rights  Penalty                                                            |       |                                                                            |        | 3,001,493 |   | 3,001,493 |   |
| Total other expenses                                                                                              |       | 2,260,030                                                                       |        | 1,201,493 |   | 3,461,523 |   |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Loss from  operations before income taxes                                                                         |       | (14,870,330                                                                     | )           | (5,455,249 | ) | (20,325,579 | ) |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Provision for  income taxes                                                                                       |       | —                                                                          |        | — |   | — |   |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| (Loss) from  continuing operations                                                                                |       | (14,870,330                                                                     | )           | (5,455,249 | ) | (20,325,579 | ) |
|                                                                                                              |       |                                                                            |        |   |   |   |   |
| Net (loss)                                                                                                        |       | $                                                                               | (14,870,330 | ) | $ | (5,455,249 | ) | $ | (20,325,579 | ) |

 

16

----

 

*Statementsof Cash Flows for the three months ended March 31, 2006 and for the threemonths ended March 31, 2007*
| ** **                                    | ** ** | **For the three months ended** | ** ** | **For the three months ended** | ** **  |
|-----------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|-------------|
| ** **                                    | ** ** | **March 31, 2006**                       | ** ** | **March 31, 2007**                       | ** **  |
| ** **                                    | ** ** | **As  Previously  Stated**                         | ** ** | **Adjustments**                                    | ** **  | **As Restated** | ** ** | **As  Previously  Stated** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Cash flows from  operating activities         |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Net (loss)                                    |       | $                                                  | (717,916   | )                                                  | (2,453,756) |   | $ | (3,171,672 | ) | $(2,745,641 | ) | (3,001,493 | ) | $ | (5,747,134 | ) |
| Adjustments to  reconcile net (loss) to       |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Net cash (used) by operating activities:      |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Stock compensation - related party            |       | 21,250                                             |       | 2,453,756                                          |        | 2,475,006 |   |   |   |   |   |   |   |
| Shares issued for services                    |       | —                                             |       |                                               |        | — |   |   |   |   |   |   |   |
| Shares issued for licenses                    |       | —                                             |       |                                               |        | — |   |   |   |   |   |   |   |
| Shares issued for settlement                  |       | —                                             |       |                                               |        | — |   | 1,200,000 |   |   |   | 1,200,000 |   |
| Shares accrued for registration penalty       |       | 0                                                  |       | 0                                                  |        | 0 |   | 0 |   | 3,001,493 |   | 3,001,493 |   |
| Depreciation                                  |       | 141                                                |       |                                               |        | 141 |   | 48,087 |   |   |   | 48,087 |   |
| Warrants issued with notes payable            |       | 26                                                 |       |                                               |        | 26 |   |   |   |   |   |   |   |
| Stock split adjustments                       |       | —                                             |       |                                               |        | — |   |   |   |   |   |   |   |
| Changes in  operating assets and liabilities: |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| (Increase) decrease in inventory              |       | 2,453                                              |       |                                               |        | 2,453 |   |   |   |   |   |   |   |
| (Increase) in Certificate of Deposit          |       | —                                             |       |                                               |        | — |   | (21,743 | ) |   |   | (21,743 | ) |
| (Increase) in prepaid expenses                |       | (95,400                                            | )          |                                               |        | (95,400 | ) | 5,543 |   |   |   | 5,543 |   |
| Increase in accounts payable                  |       | 3,500                                              |       |                                               |        | 3,500 |   | (87,107 | ) |   |   | (87,107 | ) |
| Increase in accrued interest                  |       | 4,192                                              |       |                                               |        | 4,192 |   | — |   |   |   | — |   |
| Increase in payroll liabilities               |       | 8,075                                              |       |                                               |        | 8,075 |   | 1,183 |   |   |   | 1,183 |   |
| Net cash (used)  by operating activities      |       | (773,679                                           | )          |                                               |        | (773,679 | ) | (1,599,678 | ) |   |   | (1,599,678 | ) |
|                                          |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Cash flows from  investing activities         |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Purchase of fixed assets                      |       | —                                             |       |                                               |        | — |   | (611,019 | ) |   |   | (611,019 | ) |
| Purchase of Certificate of Deposit            |       | —                                             |       |                                               |        | — |   |   |   |   |   |   |   |
| Net cash (used)  by investing activities      |       | —                                             |       |                                               |        | — |   | (611,019 | ) |   |   | (611,019 | ) |
|                                          |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Cash flows from  financing activities         |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Mortgage payable                              |       | —                                             |       |                                               |        | — |   | 287,500 |   |   |   | 287,500 |   |
| Proceeds from notes payable                   |       | 750,000                                            |       |                                               |        | 750,000 |   |   |   |   |   |   |   |
| Repayments of notes payable                   |       | —                                             |       |                                               |        | — |   |   |   |   |   |   |   |
| Issuance of common stock                      |       | 375,000                                            |       |                                               |        | 375,000 |   |   |   |   |   |   |   |
| Net cash provided  by financing activities    |       | 1,125,000                                          |       |                                               |        | 1,125,000 |   | 287,500 |   |   |   | 287,500 |   |
|                                          |       |                                               |       |                                               |        |   |   |   |   |   |   |   |   |
| Net (decrease)  increase in cash              |       | 351,321                                            |       |                                               |        | 351,321 |   | (1,923,197 | ) |   |   | (1,923,197 | ) |
| Cash - beginning                              |       | 5,878                                              |       |                                               |        | 5,878 |   | 5,047,968 |   |   |   | 5,047,968 |   |
| Cash - ending                                 |       | $                                                  | 357,199    |                                               |        |   | $ | 357,199 |   | $ | 3,124,771 |   |   |   | $ | 3,124,771 |   |
|                                               |            |                                                    |            |                                                    |             |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

----

*Statements of Cash Flows for the three months ended March31, 2006 and the three months ended March 31, 2007*
| ** **                                                         | ** ** | **Quarter ended March 31, 2006** | ** ** | **Quarter ended March 31, 2007** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                         | ** ** | **As**                                               | ** ** | ** **                                           | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                         | ** ** | **previously**                                       | ** ** | ** **                                           | ** ** | **As** | ** ** | **previously** | ** ** | ** ** | ** ** | **As** | ** ** |
| ** **                                                         | ** ** | **Stated**                                           | ** ** | **Adjustments**                                      | ** ** | **Restated** | ** ** | **Stated** | ** ** | **Adjustment** | ** ** | **Restated** | ** ** |
| Supplemental  disclosures;                                         |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest paid                                                      |       | $                                                    | 15,000     |                                                 |       |   | $ | 15,000 |   | $ | 3,234 |   |   |   | $ | 3,234 |   |
| Income taxes  paid                                                 |       | $                                                    | —     |                                                 |       |   | $ | — |   | $ | — |   |   |   | $ | — |   |
|                                                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Non-cash transactions:                                             |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Stock  Compensation related Party                                  |       | $                                                    | 21,250     |                                                 | 2,453,756  |   | $ | 2,475,006 |   | — |   |   |   | — |   |
| Number of shares  issued for stock compensation—related party |       | 7,500,018                                            |       |                                                 |       | 7,500,018 |   | — |   |   |   | — |   |
|                                                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Share issued for  services                                         |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
| Number of shares  issued for services                              |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
|                                                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Share issued for  licenses                                         |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
| Number of shares  issued for licenses                              |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
|                                                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Share issued for  financing costs                                  |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
| Number of shares  issued for financing costs                       |       | —                                               |       |                                                 |       | — |   | — |   |   |   | — |   |
|                                                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Shares issued for  settlement                                      |       | —                                               |       |                                                 |       | — |   | $ | 1,200,000 |   |   |   | $ | 1,200,000 |   |
| Number of shares issued for settlement                             |       | —                                               |       |                                                 |       | — |   | 1,500,000 |   |   |   | 1,500,000 |   |

 

18

----

 

*Statementsof Cash Flows for the period from April 21, 1999 (Inception) to March 31, 2007*

 
| ** **                                    | ** ** | **April 21, 1999 (Inception) to  March 31, 2007** | ** **  |
|-----------------------------------------------|------------|---------------------------------------------------------------------------------|-------------|
| ** **                                    | ** ** | **As  Previously  Stated**                                                      | ** **  | **Adjustments** | ** ** | **As Restated** | ** ** |
| Cash flows from  operating activities         |       |                                                                            |        |   |   |   |   |
| Net (loss)                                    |       | $                                                                               | (14,870,330 | ) | (5,455,249 | ) | $ | (20,325,579 | ) |
| Adjustments to  reconcile net (loss) to       |       |                                                                            |        |   |   |   |   |
| Net cash (used) by operating activities:      |       |                                                                            |        |   |   |   |   |
| Stock compensation - related party            |       | 21,250                                                                          |        | 2,453,756 |   | 2,475,006 |   |
| Shares issued for services                    |       | 1,000                                                                           |        |   |   | 1,000 |   |
| Shares issued for licenses                    |       | 8,217,391                                                                       |        |   |   | 8,217,391 |   |
| Shares issued for settlement                  |       | 1,200,000                                                                       |        |   |   | 1,200,000 |   |
| Accrued for penalty                           |       | 0                                                                               |        | 3,001,493 |   | 3,001,493 |   |
| Depreciation                                  |       | 69,174                                                                          |        |   |   | 69,174 |   |
| Warrants issued with notes payable            |       | 382,656                                                                         |        |   |   | 382,656 |   |
| Stock split adjustments                       |       | 38,412                                                                          |        |   |   | 38,412 |   |
| Changes in  operating assets and liabilities: |       |                                                                            |        |   |   |   |   |
| (Increase) decrease in inventory              |       | —                                                                          |        |   |   | — |   |
| (Increase) in Certificate of Deposit          |       | (36,510                                                                         | )           |   |   | (36,510 | ) |
| (Increase) in prepaid expenses                |       | (83,341                                                                         | )           |   |   | (83,341 | ) |
| Increase in accounts payable                  |       | 506,968                                                                         |        |   |   | 506,968 |   |
| Increase in accrued interest                  |       | —                                                                          |        |   |   | — |   |
| Increase in payroll liabilities               |       | 13,585                                                                          |        |   |   | 13,585 |   |
| Net cash (used)  by operating activities      |       | (4,539,745                                                                      | )           |   |   | (4,539,745 | ) |
|                                          |       |                                                                            |        |   |   |   |   |
| Cash flows from  investing activities         |       |                                                                            |        |   |   |   |   |
| Purchase of fixed assets                      |       | (1,409,918                                                                      | )           |   |   | (1,409,918 | ) |
| Purchase of Certificate of Deposit            |       | (2,000,000                                                                      | )           |   |   | (2,000,000 | ) |
| Net cash (used)  by investing activities      |       | (3,409,918                                                                      | )           |   |   | (3,409,918 | ) |
|                                          |       |                                                                            |        |   |   |   |   |
| Cash flows from  financing activities         |       |                                                                            |        |   |   |   |   |
| Mortgage payable                              |       | 287,500                                                                         |        |   |   | 287,500 |   |
| Proceeds from notes payable                   |       | 1,425,000                                                                       |        |   |   | 1,425,000 |   |
| Repayments of notes payable                   |       | (1,425,000                                                                      | )           |   |   | (1,425,000 | ) |
| Issuance of common stock                      |       | 10,786,934                                                                      |        |   |   | 10,786,934 |   |
| Net cash  provided by financing activities    |       | 11,074,434                                                                      |        |   |   | 11,074,434 |   |
|                                          |       |                                                                            |        |   |   |   |   |
| Net (decrease)  increase in cash              |       | 3,124,771                                                                       |        |   |   | 3,124,771 |   |
| Cash - beginning                              |       | —                                                                          |        |   |   | — |   |
| Cash - ending                                 |       | $                                                                               | 3,124,771   |   |   |   | $ | 3,124,771 |   |

 

19

----

 

*Statementsof Cash Flows for the period from April 21 (inception) to  the three months ended March 31, 2007*
| Supplemental disclosures;                                     |   |       |      |   |      |       |   |
|---------------------------------------------------------------|--------|------------|-----------|--------|-----------|------------|--------|
| Interest paid                                                 |   | $          | 62,374    |   |      |       | $      | 62,374 |   |
| Income taxes paid                                             |   | $          | —    |   |      |       | $      | — |   |
|                                                          |   |       |      |   |      |       |   |
| Non-cash  transactions:                                       |   |       |      |   |      |       |   |
| Stock Compensation related Party                              |   | $          | 21,250    |   | 2,453,756 |       | $      | 2,475,006 |   |
| Number of shares issued for stock compensation-related  party |   | 7,500,018  |      |   |      | 7,500,018  |   |
|                                                          |   |       |      |   |      |       |   |
| Share issued for services                                     |   | $          | 1,000     |   |      |       | $      | 1,000 |   |
| Number of shares issued for services                          |   | 35,294,200 |      |   |      | 35,294,200 |   |
|                                                          |   |       |      |   |      |       |   |
| Share issued for licenses                                     |   | $          | 8,217,391 |   |      |       | $      | 8,217,391 |   |
| Number of shares issued for licenses                          |   | 5,869,565  |      |   |      | 5,869,565  |   |
|                                                          |   |       |      |   |      |       |   |
| Share issued for financing costs                              |   | $          | 382,656   |   |      |       | $      | 382,656 |   |
| Number of shares issued for financing costs                   |   | 2,971,429  |      |   |      | 2,971,429  |   |
|                                                          |   |       |      |   |      |       |   |
| Shares issued for settlement                                  |   | $          | 1,200,000 |   |      |       | $      | 1,200,000 |   |
| Number of shares  issued for settlement                       |   | 1,500,000  |      |   |      | 1,500,000  |   |

 

**Note 10 - Subsequent Events**

OnJune 11, 2007, we signed an agreement to purchase the assets of theFuelCellStore.com, a small web based seller of educational fuel cell products.The FuelCellStore.com product line includes demonstration kits, educationalmaterials, fuel cell systems and component parts.  It also offersconsulting services on establishing educational programs for all levels ofeducational institutions.  The company is significantly smaller than weare and we will not be required to provide audited financial statements forit.  We operate Fuel Cell Store through a wholly owned subsidiary. Whilerevenue producing activities, facilities and employees will initially remainthe same, we intend to change the distribution system through bar coding andinventory control procedures, and expand the customer base through increasedemphasis on marketing.  We sell the Fuel Cell Store products through ourown Ecotality website.

Weagreed to buy the assets of the FuelCellStore.com for $350,000 in cash and toissue 300,000 shares of our common stock. Our common stock will be valued at its closing market price on the dateof the agreement.  The closing price was$.63 per share, on that date for a total value of $189,000 and a total pricepaid, cash and  stock, of $539,000. Weconcluded this to be an asset purchase rather than a business purchase becausewe did not acquire their debt and they continue to exist after the purchase iscompleted.  Of the assets acquired weidentified and assign a value to $179,775 in merchandise inventory, $8,600 infixed assets, and approximately $23,500 in current accounts receivable.  We reviewed the intangible assets that we acquired, including the customer database, and internally developed software and determined that the intangibleassets did not have value to us. Therefore, the difference between the assetsnoted and the price paid for the assets $327,125 will be allocated to intangibleassets and will be impaired and written off due to the lack of proven futurecash flows generated by the assets acquired.

Asof  April 5, 2007 we were obligated to issue 344,999 shares per week for amaximum of 10 weeks as a penalty to the investors of the private placement forfailure to register their shares by that date.  We are currentlyobligated, therefore to issue an aggregate of 3,449,992 shares pro rata to theinvestors but are not required to register these shares. However,the Companyhas reserved $3,001,493  for incurringany penalties in conjunction with this registration.  The amount reserved is based upon the maximumnumber of shares that may be issued and the closing price of a share of commonstock of $.87 on March 31, 2007.  Noshares of the Company’s common stock have been issued. Our financial statementshave been restated to reflect this reservation.

20

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**Changes inand Disagreements with Accountants**

On January 25, 2007, ourAudit Committee approved the dismissal of Beckstead and Watts, LLP as ourprincipal certifying accountants.  None of the reports of Beckstead andWatts, LLP on our financial statements contained any adverse opinion ordisclaimer of opinion, or was qualified or modified as to uncertainty, auditscope or accounting principles, except as follows: Beckstead and Watts, LLP’sreport on our financial statements as of and for the years ended December 31,2005 and 2004.

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

OnJanuary 25, 2007, the Registrant engaged Weaver & Martin, CPAs, 411Valentine, Suite 300, Kansas City, Missouri 64111, as its independentregistered public accounting firm commencing January 25, 2007, for the fiscalyear ended December 31, 2006.  During the most recent two fiscal yearsthrough January 25, 2007 (the date of engagement), neither the Registrant noranyone engaged on its behalf has consulted with Weaver & Martin, CPAsregarding: (i) either the application of accounting principles to a specifiedtransaction, either completed or proposed; or the type of audit opinion thatmight be rendered on the Registrant’s financial statements; or (ii) any matterthat was either the subject of a disagreement (as defined in Item 304(a)(1)(v)of Regulation S-K).

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

21

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**Management’sDiscussion and Plan of Operation**

*Forward-LookingStatements*

ThisQuarterly Report contains forward-looking statements about our business,financial condition and prospects that reflect management’s assumptions andbeliefs based on information currently available.  We can give no assurancethat the expectations indicated by such forward-looking statements will berealized.  If any of our management’s assumptions should prove incorrect,or if any of the risks and uncertainties underlying such expectations shouldmaterialize, Alchemy’s actual results may differ materially from thoseindicated by the forward-looking statements.

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

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

**Overview**

Wewere incorporated in the State of Nevada on April 21, 1999, as a marketer ofprivate-label biodegradable cleaning chemicals.  On February 15, 2006, weentered into and closed a Technology Contribution Agreement with Howard Footeand Elliot Winfield (“Transferors”), pursuant to which we acquired all ofTransferors’ right, title and interest in and to a certain electric power cell(“EPC”) technology to be used in connection with the development of an improvedelectric battery represented by a U.S. Patent Office patent application (the “Technology”). As a result of the Technology Contribution Agreement, our board ofdirectors made a decision to change our business focus from marketing chemicalproducts toward developing the EPC technology.

Weare a development stage company seeking to design and license a cost efficientelectric power cell for use in motorized vehicles and industrial equipment. A power or fuel cell is an electrochemical device that combines hydrogenand oxygen to produce electric power without combustion.  We have enteredinto a development agreement with JPL to develop, build and patent a prototype100 kilowatts electric power cell.  We also have entered into a licenseagreement for certain exclusive patent rights and non-exclusive technologyrights from CalTech, which is the operator of JPL and assignee of its patentand technology rights.

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

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

22

----

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

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

1.                  Hydrogen-fuelstorage capacity, by weight for the entire system, has increased from 4.7% tobetween 8% and 9%, depending on operating mode, allowing the modified HydratusTMto meet the Department of Energy’s 2010 goal of 6% hydrogen storage capacity.

2.                  A drop inoperating temperature of the modified HydratusTM of 300-400 degrees Centigradewill allow the use of less expensive materials in system construction.

3.                  The amount ofheat generated by the modified HydratusTM has decreased significantly byapproximately 80% is expected to result in reduced system complexity, in termsof cost and size.  Additionally, because less energy is generated, andsubsequently wasted during operation, the regeneration efficiency of thereaction products is increased by approximately 400%.

As aresult of the technical, performance and cost advancements, JPL has recommendedall future research and development efforts be shifted to focus on the modifiedHydratusTM and all associated systems and processes.  JPL and Ecotalityhave agreed to develop and test a 7kW prototype, which JPL believes is suitableto power various commercial applications, as well as can be scaled for futuresystems.  Additionally, JPL and Ecotality plan to design and test afull-size 65kW HydratusTM suitable for application in a bus.  We believethe modified 65kW HydratusTM will be implemented in a proof of concept vehiclein the second half of 2007.

**Management’s Discussion**

*Operating Expenses*

Totalexpenses for the three month period ended March 31, 2007 were $2,764,150. Approximately 13% of these expenses were research and development costsrelated to engineering work performed for us by the Jet Propulsion Laboratoriesand other firms supporting our project. In addition to the research anddevelopment costs for the three months ended March 31, 2007, we incurred$464,056 in general and administrative expenses, of which $119,475 can beattributed to legal, and professional fees related to registration of ourcommon stock, the settlement with Foote and Winfield, and public entityaccounting and reporting requirements. In addition, we incurred $77,140 inexecutive compensation and $48,087 in depreciation. During the quarter endedMarch 31, 2007, we entered into a Settlement Agreement, pursuant to which atotal of $1,800,000 has been recognized as an operating expense

Incomparison, total expenses during the three month period ended March 31, 2006were $3,150,066.  A material component of total expenses during thisperiod was attributable to $350,000 in research and development costsspecifically related to the power cell technology acquired under the TechnologyContribution Agreement. In addition to research and development expenses, forthe three months ended March 31, 2006 we also incurred $322,815 in general andadministrative expenses, $2,477,110 in executive compensation. .Because theamount of executive compensation was a significant component of general andadministrative expenses we separated the amount on our financial statement forthe three months ended March 31, 2007 and March 31, 2006. When general andadministrative expenses are considered together, fully 88% of the general andadministrative expenses are attributed to executive compensation and $2,475,006of the executive compensation reflects the value of the shares of our commonstock issued to our CEO on February 15, 2006 . We also incurred $141 in depreciation expense.

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Wecontinued to not realize operating revenues during the three month period endedMarch 31, 2007 and our operating loss for the period was $2,764,150 while ouroperating loss from inception to March 31, 2007 was $16,900,706.  Weexpect to continue to incur ongoing operating losses for the foreseeablefuture, because the Technology acquired in the Technology ContributionAgreement is still in the research and development stage as indicated above. As a result, we do not currently have any revenue generating potentialand will not until we are able to effectively demonstrate the commercialability of our Technology, of which there can be no assurance.

In comparison, our operating loss for the period endedMarch 31, 2006 was $3,150,066.

Forthe three months ended March 31, 2007, we realized total other income of$21,743, consisting solely of interest income.  We also incurred interestexpense in the amount of $3,234 during the three months ended March 31, 2007compared to the $21,606 incurred for the three months ended March 31, 2006.  In addition to these other income and expense items,  we havereserved $3,001,493 for incurring any penalties in conjunction with registeringour common shares of stock with the SEC. The amount we reserved is based upon the maximum number of shares thatpotentially may be issued and the closing price of a share of our common stockof $.87 on March 31, 2007.  No shares ofthe our common stock have been issued in conjunction with this reservation ofshares. After taking other income and expenses into account, our loss fromcontinuing operations was $5,747,134 during the three months ended March 31,2007 and $3,171,672 for the three months ended March 31, 2006.

Duringthe three months ended March 31, 2007 we acquired fixed assets including anoffice facility at a purchase price of $575,000, additional computer equipmentfor $15,171 and made enhancements to our hydrogen powered bus for $20,848.

*Liquidity and Capital Resources*

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

OnApril 10, 2006, we entered into a letter of intent with Brookstreet Capital, aninvestment banking firm, to act as a placement agent in connection with aprivate placement of our unregistered common stock, pursuant to Regulation D,Rule 506, offered solely to accredited investors.  The private placementwas conducted on a best efforts basis and there was no assurance that any orall of the securities offered thereby would be sold.  As of October 31,2006, we sold 34,499,920 shares of our $0.001 par value common stock.  Theaggregate gross proceeds received in this private placement was $12,074,935.Total offering costs related to this issuance was $9,352,713, of which$1,714,501 was paid in cash and $7,638,212 of which was the fair market valueof warrants to purchase shares of our common stock issued to the placementagent.

Thewarrants issued in conjunction with the private placement will generateapproximately $2,414,994 in cash should all 6,899,982 warrants be exercised at$.35 per share.

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

*Management’s Plan of Operation*

Asdescribed in Liquidity and Capital Resources, above, we raised gross proceedsof $12,074,935 in a private placement.  The warrants underlying the commonshares issued in connection with this private placement may generate up to anadditional $2,414,888 in capital over the next four (4) years beginning fiscalyear 2007.  As of January 1, 2007 we had available to us approximately$7,062,735 to meet our operating requirements.  In planning for fiscalyear 2007, to achieve our research and development goals we developed anoverall operating budget of $3,650,000, including $2,100,000 for research anddevelopment projects.  In addition, we identified the following othermajor costs: (1) $717,000 for officer ($400,000) and employee ($317,000) compensation,(2) $425,000 for advertising, marketing, website and new media operations, and(3) $260,000 for professional and legal fees.  These identified categoriesand costs are generally consistent with our expenses incurred during the yearended December 31, 2006 and remain consistent with the three months ended March31, 2007.  We do not anticipate the purchase or sale of any major capitalequipment, nor do we anticipate adding a significant number of employees. The compensation amounts indicated above for both officers and employeesdo not reflect any stock options or grants that may be awarded during thecourse of the year in accordance with our Stock Incentive Plan.

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

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*Working Capital*

Networking capital is an important measure of our ability to finance ouroperations.  Given that our net working capital at December 31, 2006 waspositive and continues to remain positive through the three months ended March31, 2007, and that our private placement efforts have been successful to date,we believe we have adequate working capital to maintain our research anddevelopment efforts during 2007 as a minimum.  We may need to obtainadditional financing prior to having profitable commercial operations.

We do not have any off-balance sheet arrangements.

We currently do not own any significant plant orequipment that we would seek to sell in the near future.

Wedo not anticipate the need to hire additional full- or part- time employeesover the next 12 months.  We plan to outsource the research anddevelopment and production of our products.

We do not manufacture any products.  There are noexpected purchases of plant or significant equipment.

**Controlsand Procedures**

Wehave established a set of disclosure controls and procedures designed to ensurethat information required to be disclosed by us in our reports filed under theSecurities Exchange Act, is recorded, processed, summarized and reported withinthe time periods specified by the SEC’s rules and forms.  Disclosurecontrols have also designed with the objective of ensuring that thisinformation is accumulated and communicated to our management, including ourchief executive officer and chief financial officer, as appropriate, to allowtimely decisions regarding required disclosure. In view of our restatement ofthe financial statements for the three months ended March 31, 2007, managementhas reevaluated its disclosure controls and has deemed them ineffective.  We have made  the following changes to ourdisclosure controls  to make themeffective for gathering, analyzing and disclosing the information we arerequired to disclose in the reports we file under the Securities Exchange Actof 1934, within the time periods specified in the SEC’s rules and forms.  These changes include adding an additionalindividual to record transactions in our books of account after they have beenreviewed by appropriate company officials., reemphasized proper posting oftransactions, having an independent accountant review transactions forcompliance with applicable guidance, reviewing our chart of accounts to ensurethat account classifications are in place, and ensuring accounting personnelattend continuing professional education.

Wedo not expect that our disclosure controls or internal controls over financialreporting will prevent all errors or all instances of fraud.  A controlsystem, 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 thereare resource constraints, and the benefits of controls must be consideredrelative to their costs.  Management is required to apply its judgment inevaluating the cost-benefit relationship of possible controls and procedures.Because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within our company have been detected.  These inherentlimitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of simple error or mistake. Because of the inherent limitation of a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

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**PART II -OTHER INFORMATION**

**LegalProceedings**

NoDirector, officer, significant employee, or consultant of Ecotality, Inc. hasbeen convicted in a criminal proceeding, exclusive of traffic violations.

NoDirector, officer, significant employee, or consultant of Ecotality, Inc. hasbeen permanently or temporarily enjoined, barred, suspended, or otherwiselimited from involvement in any type of business, securities or bankingactivities.

NoDirector, officer, significant employee or consultant of Ecotality, Inc. hasbeen convicted of violating a federal or state securities or commodities law.

Ecotality, Inc. is not a party to any pending legalproceedings

**UnregisteredSales of Equity Securities**

Onor about March 1, 2004, we commenced an offering of shares common stock inaccordance with Regulation D, Rule 504 of the Securities Act, registered byqualification in the State of Nevada. On May 17, 2004, we completed theoffering, whereby we sold 830,000 shares of common stock, par value, at a priceof $0.05 per share to 30 investors, of which 29 are unaffiliated shareholdersof record and one is our sole officer and director. The 30 non-affiliated,non-accredited shareholders hold 790,000 shares of our common stock. The oneaffiliated shareholder (Mr. Harold Sciotto) holds 40,000 shares of commonstock. The offering was sold for $41,500 in cash. All investors were, at thetime of purchase, residents of the State of Nevada.

Thisoffering was made in reliance upon an exemption from the registration provisionsof the Securities Act of 1933, as amended, in accordance with Regulation D,Rule 504 of the Act. In addition, this offering was underwritten on a bestefforts basis. In regards to the offering closed in May 2004, listed below arethe factual circumstances which support the availability of Rule 504:

1.               At the time of the offering, we were notsubject to the reporting requirements of section 13 or section 15(d) of theExchange Act. Further, we are not now, nor were we at the time of the offering,considered to be an investment company. Finally, since inception, we havepursued a specific business plan, and continue to do so

We were issued a permitto sell securities by the State of Nevada, pursuant to our application forregistration by qualification of offering of our common stock in that state.The application for registration by qualification was filed pursuant to theprovisions of NRS 90.490, which requires the public filing and delivery toinvestors of a substantive disclosure document before sale. In May 2004, wecompleted an offering of shares of common stock pursuant to Regulation D, Rule504 of the Securities Act of 1933, as amended, and the registration byqualification of said offering in the State of Nevada, whereby we sold 830,000shares of our common stock to a total of 30 shareholders. One of thesepurchasers is our sole officer and director, although at the time of purchase,he was not. The entire offering was conducted exclusively in the State ofNevada, pursuant to the permit issued by the State of Nevada.

3.               The aggregate offering price for the offeringclosed in May 2004 was $41,500, all of which was collected from the offering.

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OnJune 12, 2006, we issued 5,869,565 shares of our common stock, with a fairmarket value of $1.40 per share, for an aggregate value of $8,217,391, toCalTech pursuant to a License Agreement.  As a result of the issuance,CalTech now holds approximately 8% of our issued and outstanding common stock. At the time of the issuance, CalTech had fair access to and all availablematerial information about our company was made available.  The sharesbear a restrictive transfer legend.  The issuance of stock to CalTech wasmade in accordance with an exemption from registration contained in Section4(2) of the Securities Act of 1933.

OnJuly 7, 2006, we issued warrants to purchase shares of our common stock to twoshareholders in conjunction with bridge loan agreements.  Each warrantholder was granted the right to purchase 550,000 shares of common stock for anaggregate purchase price of $781,000 or $1.42 a share.  The issuance ofthe stock purchase warrants was made in accordance with an exemption fromregistration contained in Section 4(2) of the Securities Act of 1933.

OnAugust 3, 2006, we issued warrants to purchase shares our common stock to twoshareholders in conjunction with bridge loan agreements.  Each warrantholder was granted the right to purchase 200,000 shares of common stock for anaggregate purchase price of $248,000 or $1.24 a share.  The issuance ofthe stock purchase warrants was made in accordance with an exemption fromregistration contained in Section 4(2) of the Securities Act of 1933.

OnSeptember 6, 2006, we issued warrants to purchase shares of our common stock totwo shareholders in conjunction with bridge loan agreements.  Each warrantholder was granted the right to purchase 200,000 shares of common stock for anaggregate purchase price of $264,000 or $1.32 a share.  The issuance ofthe stock purchase warrants was made in accordance with an exemption fromregistration contained in Section 4(2) of the Securities Act of 1933.

InOctober 2006 we issued an aggregate of 34,499,920 shares of our common stock toa group of 277 accredited investors through Brookstreet Securities Corporation,as Placement Agent, at $0.35 per share pursuant to the exemption provided bySection 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. The shares were offered solely to accredited investors, no form ofgeneral advertising was used, all investors took the shares as an investmentand not with the intent to distribute and all shares were issued with arestrictive legend thereon.  The total offering costs related to thisissuance was $9,352,713, of which $1,714,501 was paid in cash and $7,638,212 ofwhich was the fair market value of warrants to purchase shares of our commonstock issued to the placement agent.  As additional consideration foracting as our Placement Agent, we issued to Brookstreet warrants to acquire6,899,982 shares of our common stock at $0.35 per share until October 27, 2011. Since the close of the offering, the actual uses of the proceeds from theoffering used for working capital, or for which at least five percent of thetotal proceeds has been used, were as follows:
| Item                                | ** ** | **Amount** | ** ** |
|-------------------------------------|------------|------------|------------|
|                                |       |       |       |
| **Use of  Net Proceeds:**           | ** ** | ** ** | ** ** |
| Development of EPC technology       |       | $          | 8,749      |   |
| Investor relations expenses         |       | 146,675    |       |
| General and administrative expenses |       | 445,039    |       |
| Repayment of debt                   |       | 1,425,000  |       |
| Working capital                     |       | 437,898    |       |
|                                |       |       |       |
| **Total**                           |       | $          | 2,463,361  |   |

 

Theactual uses of proceeds described above for legal and professional fees andworking capital were consistent with the anticipated uses of proceeds describedin the Prospectus for the offering.

**Submissionof Matters to a Vote of Security Holders**

None

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**Exhibitsand Reports on Form 8-K**
| Exhibit Number | ** ** | **Name and/or  Identification of Exhibit**                                         | ** ** |   |
|----------------|------------|------------------------------------------------------------------------------------|------------|--------|
| ** **     | ** ** | ** **                                                                         |       |
| 2              |       | Plan of Purchase, Sale, Reorganization, arrangement,  liquidation or succession    |       |
|           |       | a.   Technology Contribution Agreement and Exhibits thereto (1)               |       |
|           |       | b.  License  Agreement with California Institute of Technology (2)            |       |
|           |       |                                                                               |       |
| 3              |       | Articles of Incorporation & By-Laws                                            |       |
|           |       | a.   Articles of Incorporation filed on April 21, 1999 (3)                    |       |
|           |       | b.   Amendment to Articles of Incorporation filed on November 27, 2006        |       |
|           |       | c.   Amendment to Articles of Incorporation filed on November 27, 2006        |       |
|           |       | d.   Amendment to Articles of Incorporation filed on November 27, 2006 (4)    |       |
|           |       | e.   Restated Bylaws (5)                                                      |       |
|           |       |                                                                               |       |
| 10             |       | Material Contracts                                                                 |       |
|           |       | a.    Purchase  Order with Hydrogenics Corporation(4)               |       |
|           |       | b.     Settlement Agreement and Release(6)                          |       |
|           |       |                                                                               |       |
| 16             |       | Letter on change in certifying accountant(7)                                       |       |
|           |       |                                                                               |       |
| 31             |       | Rule 13a-14(a)/15d-14(a) Certification                                             |       |
|           |       |                                                                               |
| 32             |       | Certification under Section 906 of the  Sarbanes-Oxley Act (18 U S C Section 1350) |
|           |       |                                                                               |
| 99             |       | Additional Exhibits                                                                |
|           |       | a.     Escrow Agreement(6)                                          |
|           |       | b.     Letter from NASA/Jet Propulsion Laboratories(8)              |

 

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Notes:
| 1. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on February  21, 2006.                                |
|----|----------------------------------------------------------------------------------------------------------------------------------------|
| 2. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on July 12,  2006.                                    |
| 3. | Incorporated by  reference to the Registration Statement on Form 10SB12G, as amended,  previously filed with the SEC on March 3, 2005. |
| 4. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on December  4, 2006.                                 |
| 5. | Incorporated by  reference herein to the Form SB-2, previously filed with the SEC on February  12, 2007.                               |
| 6. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on February  21, 2007.                                |
| 7. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on January  30, 2007.                                 |
| 8. | Incorporated by  reference herein to the Form 8-K, previously filed with the SEC on March 27,  2007.                                   |

 
| Date of 8-K | ** ** | **Items  Disclosed on Form 8-K** | ** ** |
|-------------|------------|----------------------------------|------------|
|        |       |                             |
| January 30  |       | Items 4.01, and  9.01       |
|        |       |                             |
| February 21 |       | Items 1.01, 1.02, 5.02 and 9.01  |
|        |       |                             |
| March 27    |       | Items 7.01 and 9.01              |

 

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**SIGNATURES**

Inaccordance with the Exchange Actof 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated.

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

 

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