Ecotality 10Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2008

Or

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

Commission File Number: 000-50983

ECOTALITY, INC.

(Exact name of registrant as specified in its charter)

Nevada	68-0515422
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6821 E Thomas Road, Scottsdale, Arizona	85251
(Address of principal executive offices)	(Zip Code)

(480) 219-5005

(Registrant’s telephone number, including area code)

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

Yes x No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check of a smaller reporting company)

Smaller reporting company þ

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 15, 2008

124,732,861

ECOtality, Inc.

Table of Contents

PART I - FINANCIAL INFORMATION	3

Financial Statements:

Condensed Consolidated Balance Sheet	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Cash Flows	5

Notes to Condensed Consolidated Financial Statements	6

Management’s Discussion and Analysis of Financial Condition and Results of Operation	21

Quantitative and Qualitative Disclosures about Market Risk	31

Controls and Procedures	31

PART II - OTHER INFORMATION	32

Legal Proceedings	32

Risk Factors	32

Unregistered Sales of Equity Securities	32

Defaults Upon Senior Securities	33

Submission of Matters to a Vote of Security Holders	33

Exhibits and Reports on Form 8-K	34

SIGNATURES	36

PART 1. FINANCIAL INFORMATION

ECOTALITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	March 31, 2008			December 31, 2007
	(Unaudited)
Assets

Current assets:
Cash	$	616,712		$	677,318
Certificates of deposit		50,727			1,197,784
Receivables, net of allowance for bad debt of $21,252 and $21,743 as of 03/31/08 and 12/31/07 respectively		2,624,554			2,387,542
Inventory, net of allowance for obsolescence of $48,000 and $293,934 as of 03/31/08 and 12/31/07 respectively		1,075,647			1,791,174
Prepaid expenses and other current assets		587,417			477,186
Total current assets		4,955,057			6,531,004

Fixed assets, net accumulated depreciation of $4,026,187 and $3,884,302 as of 03/31/08 and 12/31/07 respectively		2,028,535			2,027,142

Goodwill		3,095,878			3,095,878

Total assets	$	10,079,470		$	11,654,025

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	1,202,100		$	1,317,916
Accrued liabilities		770,709			670,746
Liability for purchase price		4,245,600			4,075,000
Current portion of LT Debt, net of discount of $1,291,272 and 1,174,075 as of 03/31/08 and 12/31/07 respectively		1,334,757			1,147,241
Total current liabilities		7,553,168			7,210,903

Total LT Liabilities, net of discount of $1,935,140 and $2,494,910 as of 03/31/08 and 12/31/07 respectively		1,532,791			1,808,314

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, 124,732,861 and 124,224,528 shares issued
and outstanding as of 03/31/08 and 12/31/07, respectively		124,733			124,225
Additional paid-in capital		31,139,184			30,780,992
Retained deficit		(30,262,626	)		(28,270,409	)
Accumulated Foreign Currency Translation Adjustments		(7,782	)		-
Total stockholders' equity		993,510			2,634,808

Total liabilities and stockholders' equity	$	10,079,470		$	11,654,025

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

ECOTALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended
	March 31,
	2008			2007
	(Unaudited)
Revenue	$	2,817,899		$	-
Cost of goods sold		1,616,355			-

Gross profit	$	1,201,544		$	-

Expenses:
Depreciation		141,886			48,087
General and administrative expenses		2,357,009			542,533
Research and development		115,686			373,530
Settlement Expense		0			1,800,000
Total expenses		2,614,581			2,764,150

Operating loss		(1,413,037	)		(2,764,150	)

Other income:
Interest income		8,150			21,743
Total other income		8,150			21,743

Other expenses:
Interest expense		562,304			3,234
Loss on Disposal of Assets		25,020			-
Accrued expense - Potential Registration Rights Penalty					3,001,493
Total other expenses		587,324			3,004,727

Loss from operations before income taxes		($1,992,211	)		($5,747,134	)

Provision for income taxes		-			-

Net (loss)		($1,992,211	)		($5,747,134	)

Weighted average number of
common shares outstanding - basic and fully diluted		124,469,621			110,066,566

Net (loss) per share-basic and fully diluted		($0.02	)		($0.05	)

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

ECOTALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Three Months Ended
	March 31,
	2008			2007
Cash flows from operating activities	(unaudited)
Net Income (loss)		($1,992,211	)		($5,747,134	)
Adjustments to reconcile:
Stock and options issued for services and compensation		52,288			-
Shares issued for settlement		-			1,200,000
Shares Accrued for registration penalty					3,001,493
Depreciation		141,886			48,087
Amortization of stock issued for services		91,413			-
Amortization of discount on notes payable		442,573			-
Loss on disposal of assets		25,020			-
Changes in operating assets and liabilities:
Certificate of deposit		1,147,057			(21,743	)
Accounts Receivable		(230,248	)		-
Inventory		690,503			-
Prepaid expenses and other		(116,995	)		5,543
Accounts Payable		(115,816	)		(87,107	)
Accrued Liabilities		(42,836	)		1,183
Net cash provided (used) by operating activities		92,634			(1,599,678	)
Cash flows from investing activities
Purchase of fixed assets		(143,277	)		(611,019	)
Net cash (used) by investing activities		(143,277	)		(611,019	)

Cash flows from financing activities
Mortgage Payable					287,500
Payments on notes payable		(2,180	)		-
Net cash provided (used) by financing activities		(2,180	)		287,500

Effects of exchange rate changes		(7,782	)

Net increase (decrease) in cash		(60,605	)		(1,923,197	)
Cash - beginning		677,318			5,047,968
Cash - ending		616,712			3,124,771

Supplemental disclosures:
Interest paid		4,758			3,234

Non-cash transactions:
Stock and options issued for services	$	52,288		$	-
Shares of stock issued		125,000			-
Number of options issued		175,000			-

Stock issued for settlement	$	0		$	1,200,000
Shares of stock issued		-			1,500,000

Amortization of stock issued for services	$	91,413		$	0

Amortization of discount on notes payable	$	442,573		$	0

Note Payable conversted for common stock	$	100,000		$	0
Shares of stock issued		333,333			-

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - History and organization of the company

The Company was organized April 21, 1999 (Date of Inception) under the laws of the State of Nevada, as Alchemy Enterprises, Ltd. The Company was initially authorized to issue 25,000 shares of its no par value common stock.

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

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

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

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

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

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

Note 2 - Summary of Significant Accounting Policies

Use of estimates

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and cash equivalents

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

Interest income is credited to cash balances as earned. For the quarter ended March 31, 2008 and 2007 interest income was $8,150 and $21,743, respectively.

Credit risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The Company maintains cash and cash equivalent balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to $100,000. Deposits with these banks may exceed the amount of insurance provided on such deposits. At March 31, 2008 and 2007, the Company had approximately $226,500 and $5,061,281 in excess of FDIC insured limits, respectively.

Impairment of long-lived assets and intangible assets

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

Revenue recognition

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Revenue is recognized when a formal arrangement exists, the price is fixed or determinable, all obligations have been performed pursuant to the terms of the formal arrangement and collectibility is reasonably assured. The Company recognizes revenues on product sales, based on the terms of the customer agreement. The customer agreement takes the form of either a contract or a customer purchase order and each provide information with respect to the product or service being sold and the sales price. If the customer agreement does not have specific delivery or customer acceptance terms, revenue is recognized at the time of shipment of the product to the customer.

Management periodically reviews all product returns and evaluates the need for establishing either a reserve for product returns or a product warranty liability. As of March 31, 2008 and 2007, management has concluded that no reserve is required for product returns.

We warrant to our customers that our product and services are in good working order at the time of delivery. In our acquisition of Minit-Charger, we assumed a warranty reserve in relation to warranties of products. At the time of acquisition, the warranty reserve was $231,303 and as of March 31, 2008 the warranty reserve was $217,729. Management has concluded this warranty reserve to be adequate for future expenses relating to the warranty.

Accounts receivable

Accounts receivable are carried on a gross basis, with no discounting, less the allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of the customers, and the amount and the age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. There is no collateral held by the Company for accounts receivable. The allowance for doubtful accounts was $21,252 and $21,743 as of March 31, 2008 and 2007, respectively.

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventory

Inventory is valued at the lower of cost, determined on a first-in, first-out basis, or market. Inventory includes material, labor, and factory overhead required in the production of our products. Inventory obsolescence is examined on a regular basis. The allowance for obsolescence as of March 31, 2008 was $48,000.

Advertising costs

The Company expenses all costs of advertising as incurred. There were advertising costs of $15,454 and $0 included in general and administrative expenses for the quarter ended March 31, 2008 and 2007, respectively.

Research and development costs

Research and development costs are charged to expense when incurred. For the quarter ended March 31, 2008 and 2007, research and development costs were $115,686 and $373,530, respectively.

Contingencies

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

Fair Value of Financial Instruments

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

Loss per Common Share

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

Foreign Currency Translation

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

Stock-Based Compensation

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment

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

Equipment	5-7 years
Buildings	39 years

Income Taxes

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

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

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

The Company does not anticipate any significant changes to its total unrecognized tax benefits with the next twelve months. As of March 31, 2008 and 2007, no income tax expense has been incurred.

Dividends

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segment reporting

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

Management is currently assessing how it evaluates segment performance, and currently utilize income (loss) from operations, excluding share-based compensation (benefits), depreciation and intangibles amortization and income taxes. There were no inter-segment sales during the quarter ended March 31, 2008.

Recent Accounting pronouncements

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

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

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

Reclassifications

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

Year end

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

Note 3 - Acquisitions and Goodwill

FuelCellStore.com acquisition

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

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Innergy Power Corporation acquisition

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

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

The fair value of the 3,000,000 shares of common stock given, based on the closing price of the Company’s common stock on December 31, 2007, was $555,000. A liability for the balance of $2,445,000 has been recorded as a current liability for purchase price on the consolidated balance sheet as of December 31, 2007. This liability has been reduced to reflect the value of the closing price of the Company’s common stock of March 31, 2008 and the amount of the current liability for purchase price has been updated to $2,376,000 on the consolidated balance sheet at March 31, 2008.

eTec acquisition

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

The fair market value of the transaction was $5,037,193. The Company paid $2,500,000 in cash, issued a $500,000 note payable, and issued 6,500,000 shares of the company’s common stock for the acquisition, which was valued at $1,820,000 based on the closing market price on the date of the agreement. The total value of the transaction also includes $217,193 in direct acquisition costs.

The $500,000 is payable in monthly installments of $50,000 beginning December of 2007. The note payable balance as of March 31, 2008 was $300,000.

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

	2007
Tangible assets acquired, net of liabilities assumed	$	1,941,315
Goodwill		3,095,878
	$	5,037,193

In accordance with SFAS No. 144, “Accounting for the impairment or disposal of long lived assets”, the Company reviewed the goodwill for impairment. Due to a proven track record of cash flows generated by the assets acquired, no impairment was taken during the year ended December 31, 2007. Impairment expense relating to this acquisition was $0 for the quarter ended March 31, 2008.

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minit-Charger acquisition

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

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

The fair value of the common stock given, based on the closing price of the Company’s common stock on December 31, 2007, was $370,000. A liability for the balance of $1,630,000 based on the December 31 closing price was recorded as a current liability for purchase price on the consolidated balance sheet as of December 31, 2007. This liability has been reduced to reflect the value of the closing price of the Company’s common stock of March 31, 2008 and the amount of the current liability for purchase price has been updated to $1,584,000 on the consolidated balance sheet at March 31, 2008.

Pro forma financial statements

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

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Quarter Ended March 31,
		2008						2007
		Reported			Pro Forma			Reported			Pro Forma
Net Revenues	$	2,817,899		$	2,817,899		$	-		$	3,268,073
Net Income (loss)		($1,992,211	)		($1,992,211	)		($5,747,134	)		($6,332,549	)
Net (loss) per share-basic and fully diluted		($0.02	)		($0.02	)		($0.05	)		($0.06	)

Note 4 - Fixed assets

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

Depreciation expense totaled $141,886 and $48,087, for the quarters ended March 31, 2008 and 2007 respectively.

Note 5 - Notes payable

For the quarter ended March 31, 2007

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Interest expense totaled $3,234 for the quarter ended March 31, 2007.

As of March 31, 2007, there were no other outstanding notes payable.

For the quarter ended March 31, 2008

During 2007, the Company acquired a note payable in the acquisition of eTec. The note relates to a vehicle that was also acquired in the acquisition. As of March 31, 2008, $24,105 was owed on the note; $3,480 of which is due during 2008 with the remainder, $20,625 recorded as a long-term note payable on the consolidated financial statements.

During 2007, the Company incurred a $500,000 note payable to the previous owners of eTec through the acquisition of eTec. The loan is payable in ten monthly installments of $50,000 each. See note 3 for details. As of March 31, 2008, $300,000 was owed and recorded as long-term note payable on the consolidated financial statements.

In November and December of 2007, the Company received gross proceeds of $5,000,000 in exchange for a note payable of $5,882,356 as part of a private offering of 8% Secured Convertible Debentures (the “Debentures”). The debentures are convertible into common stock at $0.30 per share. The debentures are due beginning in May and June of 2008. 1/24th of the outstanding amount is due each month thereafter. In connection with these debentures, the Company issued debenture holders warrants (“the Warrants”) to purchase up to 9,803,925 shares of the Company’s common stock with an exercise price of $0.32. The warrants are exercisable immediately upon issue. The Warrants expire five years from the date of issue. The aggregate fair value of the Warrants equals $2,272,942 based on the Black-Scholes pricing model using the following assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, strike price of $0.32, market price of $0.22-$0.32, no yield, and an expected life of 912 days. The gross proceeds received were bifurcated between the note payable and the warrants issued and a discount of $3,876,256 was recorded. The discount is being amortized over the loan term of two and one half years. As of March 31, 2008, a total of $649,844 had been amortized and recorded as interest expense and $3,226,412 remains as the unamortized discount. See note 7 for additional discussion regarding the issuance of warrants.

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The current portion of the debentures is recorded, net of a $1,291,272 discount, is $1,331,277 at March 31, 2008. The long-term portion of the debentures is recorded, net of a $1,935,140 discount, is $1,224,666 as of March 31, 2008.

Included in accrued liabilities is $114,051 of accrued interest relating to the debentures at March 31, 2008.

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

Note 6 - Stockholders’ equity

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

During the year ended December 31, 2007, the Company issued 11,800,000 shares in four different acquisitions. See Note 3 for further information.

During the year ended December 31, 2007, the Company issued a total of 750,000 shares of common stock to employees as an incentive. The stock was valued at the current market price at the date of issue for a total of $316,000. Of this amount $91,000 was expensed and $225,000 was recorded as unamortized cost of stock issued for services to be amortized over the periods of the related agreements. During the quarter ended March 31, 2008, $56,250 has been amortized and $56,250 remains in unamortized cost of stock issued for services.

In January 2008, 175,000 shares of $0.001 common stock were issued to employees of eTec. The cost of issuance for these shares was recorded at $0.155, the close price of the stock on the date of grant and was charged to compensation expense.

In February 2008, BridgePointe Capital, one of the holders of the convertible debentures described in Note 5, converted $100,000 of debentures into 333,332 shares of $0.001 common stock at a conversion price of $0.30. This conversion was made in two equal installments, the first on February 1^st, 2008 and the second on February 29^th, 2008. As a result of these conversions, a reduction to the outstanding debenture balance in the amount of $100,000 and a corresponding reduction to the remaining discount on the debenture of $55,797 were recorded.

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2007, the Company signed an employment agreement with the CEO of the Company. The Company agreed to issue a total of 1,000,000 options for shares of common stock currently and issue another 1,000,000 options to him one year from the date of the agreement. The options issued in 2007 have a term of ten years and a strike price of $0.30. The aggregate fair value of the Warrants equals $281,300 based on the Black-Scholes pricing model using the following assumptions: 3.95% risk free rate, 162.69% volatility, strike price of $0.30, market price of $0.32, no yield, and an expected life of 5 years. This amount was recorded as unamortized cost of stock issued for services to be amortized over the two-year period of the agreement. During the quarter ended March 31, 2008, $35,163 has been amortized into expense and $222,696 remains in unamortized cost of stock issued for services. The options to be issued in 2008 were treated as earned equally over the two-year term of the agreement so that 208,334 of these options were earned as of March 31, 2008. Those options were valued using the Black-Scholes pricing model assuming 3.45% risk free rate, 179.04% volatility, strike and market price of $0.21 and were valued at $25,163. This amount was expensed during the quarter ended March 31, 2008. The remainder of the options will be expensed over the two-year term of the agreement as they are earned.

During the year ended December 31, 2007, the Company issued a total of 790,000 shares of common stock to consultants forservices. The stock was valued at the current market price at the date of issue for a total of $400,400. This amount was recorded as a prepaid expense for services to be amortized over the periods of the related agreements. During the quarter ended March 31, 2008, $47,275 has been amortized and $66,300 remains in prepaid expenses.

There were 124,732,861 shares of common stock issued and outstanding at March 31, 2008.

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

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7 - Options and Warrants

As of December, 2007, there were 8,799,982 options and warrants outstanding.

As of March 31, 2008, there were 19,075,462 options and warrants outstanding.

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

	*Number*			*Weighted-Average*
	*Of Shares*			*Exercise Price*
Outstanding at December 31, 2006	8,799,982		$	0.57
Granted	11,753,925		$	0.31
Exercised	(1,478,445	)	$	0.35
Cancelled	0		$	0.00
Outstanding at December 31,2007	19,075,462		$	0.42
Granted	0		$	0.00
Exercised	0		$	0.00
Cancelled	0		$	0.00
Outstanding at March 31, 2008	19,075,462		$	0.42

	STOCK WARRANTS OUTSTANDING
*Range of* Exercise Prices	*Number of* Shares Outstanding	*Weighted-Average* Remaining Contractual Life in Years		*Weighted-* Average Exercise Price
$0.35	5,421,537	3.56	$	0.35
$1.24 - $1.42	1,900,000	3.32	$	1.36
$0.32	6,862,748	4.59	$	0.32
$0.32	2,941,177	4.67	$	0.32
$0.30	1,000,000	9.57	$	0.30
$0.18	950,000	9.75	$	0.18⁽²	⁾
	19,075,462	4.7	$	0.42

	STOCK WARRANTS EXERCISABLE
*Range of* Exercise Prices	*Number of* Shares Exercisable		*Weighted-* Average Exercise Price
$0.35	5,421,537	$	0.35
$1.24 - $1.42	1,900,000	$	1.36
$0.32	6,862,748	$	0.32
$0.32	2,941,177	$	0.32
$0.30	1,000,000	$	0.30
$0.18	950,000	$	0.18
	19,075,462	$	0.42

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 8 - Commitments and contingencies

As of March 31, 2008, the Company has seven leases in effect for operating space. Future obligations under these commitments are $161,631 for 2008, $119,400 for 2009, $109,450 for 2010, and $0 for 2011 and thereafter.

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

Note 9 - Segment Reporting

The Company did not have separate segments for the quarter ended March 31, 2007.

ECOTALITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summarized financial information concerning the Company’s reportable segments for the quarter ended March 31, 2008 is as follows:

Quarter Ended	ECOtality/				eTec/
March 31, 2008	Fuel Cell Store		Innergy		Minit-Charger			Total
Total net operating revenues	180,023		674,975		1,962,901		$	2,817,899
Depreciation and amortization	35,494		10,284		96,108			141,886
Operating income (loss)	(1,352,057	)	37,207		(98,187	)		(1,413,038	)
Interest expense	(562,098	)	-		(206	)		(562,304	)
Interest income	4,672		435		3,043			8,150
Loss on disposal of assets	-		-		(25,020	)		(25,020	)
Income (loss) before income tax	(1,909,483	)	37,642		(120,370	)		(1,992,211	)
Income tax provision (benefit)	-		-		-			-
Total assets	4,802,388		649,958		4,627,123			10,079,469
Capital expenditures (including non-cash)	(694	)	(7,396	)	(135,187	)		(143,277	)

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

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

Forward-Looking Statements

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

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

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

GENERAL

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

Business Development and Summary

ECOtality, Inc. is a Nevada corporation that was incorporated in 1999. We are a renewable energy company that develops, acquires and operates companies in the clean technology sector that provide commercial solutions for today’s global energy challenges. Through strategic acquisitions, partnerships and technology innovations, we strive to advance the market applicability of clean electric technologies to become accepted alternatives to carbon-based fuel technologies. In 2007, through a number of platform acquisitions we transitioned from a development-stage company into a revenue producing company focused on providing renewable energy products and solutions.

We operate with a commercial “electro-centric” strategy, targeting only products and companies that are involved in the creation, storage, and/or delivery of clean or renewable electric power. This strategy has resulted in the development and acquisition of various operating companies and the establishment of solar, hydrogen, and energy storage divisions. We are developing a diverse technology product base that is linked through the ability to deliver comprehensive electro-centric energy alternatives and solutions for commercial customers seeking to implement greenhouse gas reduction programs (GRPs) and to prepare for the anticipated consumer and governmental moves to carbon caps and taxes. We also believe that by building a technologically diverse multi-product base we can mitigate the uncertainty of renewable energy demand and regulatory changes. With our primary focus on commercially advancing clean electro-centric technologies, we are focused on improving the world’s prevailing and most dominant energy system - electricity.

Our gross sales grew from $0 in 2006 to $2,588,658 for the year ended December 31, 2007 and $2,817,899 for the first quarter of 2008. The trailing twelve month performance of the companies acquired in 2007, coupled with the strong and quickly growing demand for clean and renewable energy technologies and products positions us to greatly expand our sales and market share in 2008 as indicated by our first quarter sales revenue amount. As most of our acquisitions occurred between October and December of 2007, our revenue amounts for 2007 reflect only the portion of sales while under our control.

The current operations of the Company consist of:

Hydrality™

Hydrality™ is our initial technology and is a complex reactor system that stores and delivers hydrogen on-demand using magnesium compounds and water. When used in conjunction with existing fuel cell technology, Hydrality emits only pure water and produces no harmful emissions. An electric power cell or fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electric power without combustion.

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

We expect to derive revenue from technology license fees, technology transfer fees, fuel licensing fees and fees for the design, installation and technical support of Hydrality systems and by third parties.

Innergy Power Systems

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

Innergy and our wholly owned subsidiary, Portable Energy De Mexico, S.A. DE C.V., were acquired as platform acquisitions that provide us the ability to further expand our production and manufacturing of solar products and energy storage devices. We viewed this acquisition as the starting point of a major move to provide solar products and solutions for current and developing commercial markets. We expect that solar will become one of our four core technology groups and will contribute to our long and short-term earnings and revenue growth. Innergy is actively pursuing growth opportunities through product line expansion, joint ventures, acquisitions, and manufacturing contracts.

Electric Transportation Engineering Corporation (eTec)

Electric Transportation Engineering Corporation (eTec) was incorporated in Arizona in 1996 to support the development and installation of battery charging infrastructures for electric vehicles, and conducts research, development and testing of advanced transportation and energy systems. Specializing in alternative-fuel, hybrid and electric vehicles and infrastructures, eTec offers consulting, technical support and field services and is committed to developing and commercially advancing clean electric technologies with clear market advantages. eTec also holds exclusive patent rights for their flagship products, the eTec SuperCharge™ - battery fast-charge systems that allow for rapid charging while generating less heat and promoting longer battery life than conventional chargers. This technology was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system is specifically designed for airport ground support equipment, neighborhood electric vehicle operations, and marine and transit systems. Since the acquisition of the technology, eTec has made considerable engineering and product advancements and is currently a leader in providing this clean electric fast charging technology to airports throughout North America.

eTec has a comparatively long history in clean and renewable technologies and has various standing contractual relationships as a test contractor and/or primary and consulting engineer for projects with the Department of Energy, several national research laboratories, national energy storage consortiums, and large electric utilities where they provide services in energy storage, monitoring, systems design and fabrication, product and vehicle testing, and product development. Their work has been in the areas of advanced battery technologies, fast charging technologies, hydrogen creation, storage and dispensing systems, electric vehicle systems, recharging stations, and coal gasification programs.

eTec was acquired as an expansion platform for its core expertise in battery technologies, fast charging systems, energy distribution infrastructure, and advanced vehicle technologies and testing, which includes electric vehicle (EV), hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and hydrogen vehicle technologies. We believe that eTec and its subsidiaries will expand its core technologies through new product development, joint ventures, acquisitions and organic growth.

Edison MinitCharger

Edison MinitCharger was a subsidiary of Edison Source, a division of Edison International (the Southern California energy conglomerate). Edison originally acquired Norvic Traction Technology, which became Edison MinitCharger, for its unique fast charge and complex battery maintenance technologies that are primarily used in mobile material handling applications (forklifts, pallet jacks, etc.). Edison MinitCharger has been, and continues to be, one of the leaders in the mobile material handling industry. The core MinitCharger technology allows for material handling equipment to convert to electric power systems that can be charged quickly, conveniently and efficiently, thereby eliminating the need for propane or diesel-powered equipment or for backup batteries and costly change-out operations required with traditional straight-line charging. Following the initial acquisition of Norvic, Edison engineers completed many advancements of the technology and received numerous patents all of which were transferred to us in our acquisition. MinitCharger has a large customer base that consists of Fortune 500 companies and other corporate entities throughout North America.

Our acquisition of Edison MinitCharger greatly increased the size of our company and reunited the technologies and advancements that sprung from the original Norvic Traction technology: Edison’s MinitCharger and eTec’s SuperCharge products. It allows the unification of the underlying fast charging technology under a single engineering, manufacturing and sales entity and puts us in a leadership position in the rapidly growing clean technology sector of electric vehicle infrastructure technologies.

ECOtality Stores (dba Fuel Cell Store)

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

Products

We currently offer the following products:

Hydrality technology

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

eTec SuperCharge fast charge systems

Minit-Charger fast charge systems

Industrial battery systems

Solar panel production

Specialty solar solutions

Specialty thin-sealed lead battery products

Proprietary solar products for consumer, emergency response programs and remote power systems.

Third-party hydrogen and education related products

Customers

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

We believe that commercial/industrial entities will be the early adopters of renewable energy technologies and products, precipitated by regulatory, financial, employee, and customer pressure. We also believe this sector will provide the most stable demand and will be less prone to overall economy or “fad” pressures. For the immediate future, we plan to focus our efforts and products on this high value added business sector.

Manufacturing

We have manufacturing facilities in Mexico operated under a Maquiladora program for the production of solar and battery products. The facility is highly labor-intensive. We have a high-value assembly operation in Phoenix, Arizona. Additionally, we have manufacturing agreements with third parties in Canada, Germany, and China.

We expect to expand our Mexican operations significantly in 2008, as well as the high-value manufacturing capability in Arizona. We are currently planning for new leased facilities in Mexico to handle our anticipated growth. Part of our anticipated growth plan would include more mechanized production systems, inclusive of International Organization for Standardization (ISO) quality and environmental certifications. We believe that our existing plant in Arizona has sufficient room for anticipated growth.

Research and Development

We devoted a large percentage of our 2007 research and development expenditures to the Hydrality project. This expenditure was with third-party technology and engineering partners such as NASA’s Jet Propulsion Laboratories (JPL) and others. We have determined that we will rationalize and capacitate our technology research and development expenditures at levels in-line with traditional operating technology companies based upon a reasonable percentage of revenues. Given the proven and commercially viable clean technology companies we acquired in 2007 and anticipate adding in 2008, we have determined we are well positioned with our strategy to grow through a combination of organic growth of existing operations and potential acquisitions of other mid-stage companies that are congruous with our clean electro-centric strategy.

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

Sales and Marketing

We are actively marketing all of our companies and products under the ECOtality brand as well as under their historic brand names. We are striving to build a strong corporate identity as a purveyor of “renewable energy” products and solutions. This corporate branding of group products is an important part of our strategy to provide individual and integrated electro-centric products and solutions. All marketing programs are or will be dually targeted towards “green products and green returns.” Product marketing is handled on a divisional and subsidiary level, with cross-marketing efforts to be a key element of the corporate marketing program. Corporate marketing and overall brand management, investor relations and group representation is handled out of corporate headquarters in Scottsdale, Arizona.

The majority of our products are sold directly on a business-to-business basis. ECOtality Stores operates internet sales operations of hydrogen fuel cell products and educational kits and systems. We intend to commercialize our Hydrality product through technology license fees, technology transfer fees, fuel licensing fees and fees for the design, installation and technical support of Hydrality systems by ECOtality and/or third parties.

Government

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

Solar power is increasingly becoming more attractive to consumers due to government subsidies and incentives that generally focus on grid-connected systems and take several forms, including feed-in tariffs, net metering programs, renewable portfolio standards, rebates, tax incentives and low-interest loans. Some programs further specify that a portion of the renewable energy quota must be from solar electricity.

Tax incentive programs exist in the United States at both the federal and state level and can take the form of investment tax credits, accelerated depreciation and property tax exemptions. Several governments also facilitate low interest loans for photovoltaic systems, either through direct lending, credit enhancement, or other programs.

Gradual government increases to Corporate Average Fuel Economy (CAFE) standards on vehicle mileage minimums, along with high gas prices and consumer ecology preferences, are forcing vehicle OEMs to actively seek alternatives to petroleum-powered internal combustion engines (ICE). There is considerable jockeying for a leadership role between two factions - biofuels vs. electric vehicles (HEVs, PHEVs and pure EVs). We are well positioned to play a substantial role in the electric vehicle sector and the associated establishment of an electric infrastructure for PHEVs and EVs.

Our Hydrality system may be subject to regulation under the 2002 National Electric Code (“NEC”), which is a model code adopted by the National Fire Protection Association that governs, among other things, the installation of fuel cell systems. Accordingly, any of our systems installed in a jurisdiction that has adopted the 2002 NEC must be installed in accordance with Article 692. In addition, product safety standards have been established covering the overall fuel cell system and the power conversion electronics. There may be new regulations with respect to fuel cells, but we do not currently know the extent to which any new regulations may impact our ability to distribute, sell or install and service Hydrality. If Hydrality reaches the commercialization stage and we begin distributing our systems to our early target markets, federal, state or local government entities may seek to impose regulations.

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

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

General Competition

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

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

Hydrality Competition

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

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

Fast-Charge Competition

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

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

Retail Fuel Cell Competition

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

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

Solar Competition

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

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

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

Intellectual Property

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of patents, trademarks and trade secrets, as well as employee and third party confidentiality agreements, to safeguard our intellectual property. As of December 31, 2007, in the United States we held three patent applications and 16 issued patents, which will expire at various times between 2010 and 2021 if all maintenance fees are paid. We also held two PCT patent applications, two Canadian patent applications, one Japanese patent application, one European patent application, 11 issued Canadian patents, four issued Japanese patents, seven issued European patents, and one issued Australian patent. Our patent applications and any future patent applications, might not result in a patent being issued with the scope of the claims we seek, or at all and any patents we may receive may be challenged, invalidated, or declared unenforceable. We continually assess appropriate occasions for seeking patent protection for those aspects of our technology, designs and methodologies and processes that we believe provide significant competitive advantages. Our patents and patent applications generally relate to our hydrogen, battery charging, and thin-cell battery technologies.

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

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

With regard to patented CalTech Rights, CalTech has granted us the exclusive worldwide license, with the right to grant and authorize sublicenses, to make, have made, import, use, sell, and offer for sale any products, devices, systems, articles of manufacture, and compositions of matter, or processes or services that are covered by the patented CalTech Rights. With regard to non-patented CalTech Rights, CalTech has granted us a non-exclusive worldwide license, with the right to grant and authorize sublicenses, to make, have made, import, use, sell, offer for sale, reproduce, distribute, display, perform, create derivative works of, and otherwise exploit products, devices, systems, articles of manufacture, and compositions of matter, or processes or services that utilize the technology covered by the non-patented CalTech Rights. The non-patented CalTech Rights include technology necessary for the development or use of our products or services, as may be disclosed in any patent applications filed by CalTech or requested by us and consented to by CalTech.

All license rights granted by CalTech are subject to a reservation of rights by CalTech for non-commercial education and research purposes and U.S. Government rights provided under the Bayh-Dole Act, 35 U.S.C. § 200 et seq. and 37 C.F.R. § 401 et seq. as indicated below.

As of March 31, 2008, we held six United States federal trademark registrations (including eTec SUPERCHARGE®, MINIT-TRAK®, MINIT-WATCH®, INNERGY POWER®, THINLINE®, and POWER PLANT®) and 13 pending applications for federal registration of trademarks (including ECOTALITY™, HYDRALITY™, ELETRICELL™, ELECTRAWIND™, BIOSOLINA™, SOLATRICITY™, MAKING HYDROGEN POWER A REALITY™, and related logos). We also own various common law trademark rights and Canadian trademark registrations.

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

Employees

As of March 31, 2008, we had 63 employees,including 43 in manufacturing and the rest in research and development, sales and marketing, and general and administration positions. None of our employees are represented by labor unions or covered by a collective bargaining agreement. As we expand domestically and internationally, however, we may encounter employees who desire union representation. We believe that relations with our employees are good.

Results of Operations

QUARTER ENDED MARCH 31, 2008, COMPARED WITH QUARTER ENDED MARCH 31, 2007

CONSOLIDATED RESULTS

It is difficult to compare 1^st quarter 2008 results to those of 1^st quarter 2007 as we have transformed ourselves from being a development stage company to a growth oriented renewable energy company. Thus, the variations reflected in our results of operations described below are based upon this transformation.

In the quarter ended March 31, 2008, we had revenues of $2,817,899 compared to the quarter ended March 31, 2007 of $0. This increased revenue was generated from our four new acquisitions made in 2007. The cost of goods sold percentage for the quarter ending March 31, 2008 was 57% leaving us with a gross profit of $1,201,544. The increase in revenues is consistent with our efforts to move from being a development stage company in 2006 to a revenue-generating renewable energy company during the year ended December 31, 2007. We had anticipated a higher gross margin percentage; however, we experienced additional costs in the production of goods and services due to integration efforts related to our acquisitions during 2007.

Operating Expense for the quarter ended March 31, 2008 can be characterized as being impacted by our efforts to complete the transition and integration of the acquisitions by our management and staff. Extensive efforts were required to ensure that all actions were accomplished including the transition of the manufacturing processes related to Minit-Charger.

Total operating expenses during the three months ended March 31, 2008 were $2,614,581 compared to $964,150 for the three months ended March 31, 2007. General and administrative expenses were $2,364,576 or 90% of total operating expenses for the three months ended March 31, 2008 compared with $542,533 or 56% for the three months ended March 31, 2007. While not comparable to the general and operating expenses incurred during the 1^st quarter, 2007, changes in these expenses are described below:

Professional fees were $303,595 for the three months ended March 31, 2008 compared with $81,762 for the three months ended March 31, 2007. This increase is related to the increased resources being utilized given the increased size of the company post-acquisitions. New media, marketing, advertising and investor and public relations expenses of $90,583 for the three months ended March 31, 2008 were in line with prior year of $109,529 for the three months ended March 31, 2007. Legal fees were $229,778 for the quarter ended March 31, 2008 compared with $37,713 for the quarter ended March 31, 2007 and accounting fees were $109,381 for the quarter ended March 31, 2008 compared with $74,223 for the quarter ended March 31, 2007. Both legal and accounting fee increases are a direct result of regulatory and audit work in support of the business post-acquisition and ongoing integration of the new businesses. Executive compensation was $138,000 for the three months ended March 31, 2008 compared with $77,140 for the three months ended March 31, 2007. The higher figure in 2008 is attributable to stock awards to our chief executive officer. Depreciation expense was $141,886 for the quarter ended March 31, 2008 compared to $48,087 for the quarter ended March 31, 2007. The increase is based on the purchase of a hydrogen-powered bus in November 2006 which is being depreciated over 5 years, as well as new depreciation for the assets acquired as part of the acquisitions. All other general and administrative spending totaled $1,485,672 for the three months ended March 31, 2008 compared to $114,079 for the three months ended March 31, 2007. The increase is attributable to our acquisitions which represent $1,159,951 of quarter ended March 31, 2008 expenses, as compared to a total of $0 for a comparable period in 2007. Expenses for research and development totaled $115,686 for the three months ended March 31, 2008 compared to $373,530 for the three months ended March 31, 2007 with expenses for both years related to engineering work performed for us by the Jet Propulsion Laboratory and other firms supporting our Hydrality technology development. As outlined in the commercialization discussion above, as we move forward we will be limiting our expense in support of this research through securing grants and increasing the focus in areas showing potential for short-term commercialization to help defray costs.

The settlement expense of $1,800,000 for quarter ended March 31, 2007 is related to the settlement with Howard Foot and Elliot Winfield in resolution of all known disputes and uncertainties between them and us related to all agreements and contracts entered into concerning the fuel cell intellectual property and technology. We have included this expense as part of our operating costs due to the nature of our business regarding intellectual property. Since a primary objective of ours has been the commercial advancement of clean electric technologies that reduce our dependence upon carbon based fuels, we have retained a strong focus on research and development activities, and expect to continue to incur additional research and development costs, although at a significantly reduced rate, for the foreseeable future.

Our operating loss of $1,413,037 for the three months ended March 31, 2008 compared with a loss of $2,764,150 for the three months ended March 31, 2007 reflects the one-time settlement expense in the first quarter of 2007, as well as the increased the general and administrative expenses incurred as part of our acquisition integration efforts in 2008.

For the quarter ended March 31, 2008, we earned interest income in the amount of $8,150 compared with $21,743 for the quarter ended March 31, 2007.

Interest expense was $562,304 for the three months ended March 31, 2008 compared to $3,234 for the three months ended March 31, 2007. The higher amount for 2008 was driven by the interest on the convertible debentures we issued in November and December of 2007. Other expense was $25,020 for the quarter ended March 31, 2008 compared to $3,001,493 for the quarter ended March 31, 2007. The higher 2007 figure is primarily attributable to a reserve we established in the quarter ending March 31, 2007 to cover penalties in conjunction with registering our common shares of stock with the SEC. The amount we reserved was based upon the number of shares that were issued.

Our net loss after other income and expenses compared favorably for quarter ended March 31, 2008 at a $1,992,211 loss compared with a $5,747,134 loss for the quarter ended March 31, 2007.

Liquidity and Capital Resources

As of March 31, 2008, we had $616,712 of cash on hand and held certificates of deposit in the amount of $50,727 compared to quarter end 2007 balances of $3,124,771 of cash on hand and $2,036,510 in certificates of deposit.

We generated cash for operating activities in the first quarter of 2008 in the amount of $92,634 compared to a use of cash of ($1,599,678) for 2007. Cash used in investing activities was $143,277 for the three months ended March 31, 2008 compared to $611,019 for 2007. The higher spend in quarter ending March 31,2007 was related to the purchase of a building.

Cash used in financing activities was ($2,180) in the first quarter of 2008 compared to the generation of $287,500 in cash in 2007. Our current financing activities are described below:

The ability to fund our operating cash requirements, planned capital expenditures and debt service requirements for the foreseeable future is based largely from internal cash generation through the planned organic growth of our recent acquisitions as well as through the use of additional financing activities. We are also exploring the addition of a modest bank credit facility to supplement our sources of operating capital.

We believe that we have the ability to fund our operating cash requirements, planned capital expenditures and debt service requirements for the foreseeable future largely from internal cash generation through the planned organic growth of our recent acquisitions as well as through the potential cash generation associated with our private placement warrants. We are also exploring the addition of a modest bank credit facility to supplement our sources of operating capital.

Management’s Plan of Operation

Our plan of operation calls for sustained organic growth. We believe that the acquisitions we completed during 2007 will provide us with a base to support this objective and that this growth is reflected in our budget and business plans for 2008.

We plan to continue to leverage current invested capital through focused cash management, lean corporate staffing, and the implementation a company-wide Enterprise Resource Planning (ERP) system to support more automation, tight inventory controls and cost-effective operating procedures throughout our organization.

Working Capital

Net working capital is an important measure of our ability to finance our operations. Our net working capital at March 31, 2008 was negative by $2,598,111 or a ratio of 0.66 to 1. This ratio is significantly impacted by the reserve we have established to cover the maximum possible liability associated with the issuance of common stock price guarantees due in 2008 per certain of our acquisition agreements. It should be noted that we have the ability to meet this obligation through the issuance of cash or equity at our discretion. When this reserve of $4,245,600 is excluded from the calculation, our working capital is positive $3,307,566 or a ratio of 1.5 to 1.

We do not have any off-balance sheet arrangements.

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

Commitments and Long Term Liabilities

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

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

Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Company’s market risk from January 1, 2008 to March 31, 2008.

Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In view of our restatement of the financial statements for the year ended December 31, 2006, management reevaluated its disclosure controls and deemed them ineffective. We made the following changes in our disclosure controls during the year ended December 31, 2007 to make them effective for gathering, analyzing and disclosing the information the information we are required to disclose in the reports filed under the Securities and Exchange Act of 1934, within the time periods specified in the Commission’s rules and forms. These changes included adding an additional individual to record transactions in our books of account after they have been reviewed by appropriate company officials, reemphasized proper posting of transactions, having an independent accountant review transactions for compliance with applicable guidance, reviewing our chart of accounts to ensure that account classifications are in place, and ensuring accounting personnel attend continuing professional education. In addition to the above actions we have added a professional accountant to specifically oversee all reporting for us and our subsidiaries and performed an assessment of internal and disclosure controls at our acquired entities. As a result of these actions, we believe our disclosure controls and internal controls are effective for the quarter ended March 31, 2008.

Our management does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

Legal Proceedings

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

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

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

We are not a party to any pending legal proceedings.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment and new risks emerge from time to time. Management cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our business or to the extent to which any factor or combination of factors may impact our business. There have not been any material changes during the quarter ended March 31, 2008 from the risk factors disclosed in the above-mentioned Form 10-K for the year ended December 31, 2007.

Unregistered Sales of Equity Securities

On or about March 1, 2004, we commenced an offering of shares common stock in accordance with Regulation D, Rule504 of the Securities Act, registered by qualification in the State of Nevada. On May 17, 2004, we completed the offering, whereby we sold 830,000 shares of common stock, par value, at a price of $0.05 per share to 30 investors, of which 29 are unaffiliated shareholders of 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 one affiliated shareholder (Mr. Harold Sciotto) holds 40,000 shares of common stock. The offering was sold for $41,500 in cash. All investors were, at the time of purchase, residents of the State of Nevada.

This offering was made in reliance upon an exemption from the registration provisions of 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 best efforts basis. In regards to the offering closed in May 2004, listed below are the factual circumstances which support the availability of Rule 504:

	1.	At the time of the offering, we were not subject to the reporting requirements of section 13 or section 15(d) of the Exchange 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 have pursued a specific business plan, and continue to do so.

	2.	We were issued a permit to sell securities by the State of Nevada, pursuant to our application for registration by qualification of offering of our common stock in that state. The application for registration by qualification was filed pursuant to the provisions of NRS 90.490, which requires the public filing and delivery to investors of a substantive disclosure document before sale. In May 2004, we completed an offering of shares of common stock pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as amended, and the registration by qualification of said offering in the State of Nevada, whereby we sold 830,000 shares of our common stock to a total of 30 shareholders. One of these purchasers is our sole officer and director, although at the time of purchase, he was not. The entire offering was conducted exclusively in the State of Nevada, pursuant to the permit issued by the State of Nevada.

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

On June 12, 2006, we issued 5,869,565 shares of our common stock, with a fair market value of $1.40 per share, for an aggregate value of $8,217,391, to CalTech pursuant to a License Agreement. As a result of the issuance, CalTech holds at September 30, 2007 approximately 5.4% of our issued and outstanding common stock. At the time of the issuance, CalTech had fair access to and all available material information about our company was made available. The shares bear a restrictive transfer legend. The issuance of stock to CalTech was made in accordance with an exemption from registration contained in Section 4(2) of the Securities Act of 1933.

On July 7, 2006, we issued warrants to purchase shares of our common stock to one share holder and one non-affiliated entity in conjunction with bridge loan agreements. Each warrant holder was granted the right to purchase 550,000 shares of common stock for an aggregate purchase price of $781,000 or $1.42 a share. The issuance of the stock purchase warrants was made in accordance with an exemption from registration contained in Section 4(2) of the Securities Act of 1933.

On August 3, 2006, we issued warrants to purchase shares our common stock to one shareholder and on non-affiliated entity in conjunction with bridge loan agreements. Each warrant holder was granted the right to purchase 200,000 shares of common stock for an aggregate purchase price of $248,000 or $1.24 a share. The issuance of the stock purchase warrants was made in accordance with an exemption from registration contained in Section 4(2) of the Securities Act of 1933.

On September 6, 2006, we issued warrants to purchase shares of our common stock to one shareholder and one non-affiliated entity in conjunction with bridge loan agreements. Each warrant holder was granted the right to purchase 200,000 shares of common stock for an aggregate purchase price of $264,000 or $1.32 a share. The issuance of the stock purchase warrants was made in accordance with an exemption from registration contained in Section 4(2) of the Securities Act of 1933.

In October 2006 we issued an aggregate of 34,499,920 shares of our common stock to a group of 277 accredited investors through Brookstreet Securities Corporation, as Placement Agent, at $0.35 per share pursuant to the exemption provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated there under. The shares were offered solely to accredited investors, no form of general advertising was used, and all investors took the shares as an investment and not with the intent to distribute and all shares were issued with a restrictive legend thereon. The total offering costs related to this issuance was $9,352,713, of which $1,714,501 was paid in cash and $7,638,212 of which was the fair market value of warrants to purchase shares of our common stock issued to the placement agent. As additional consideration for acting as our Placement Agent, we issued to Brookstreet warrants to acquire 6,899,982 shares of our common stock at $0.35 per share until October 27, 2011. Since the close of the offering, the actual uses of the proceeds from the offering used for working capital, or for which at least five percent of the total 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

The actual uses of proceeds described above for legal and professional fees and working capital were consistent with the anticipated uses of proceeds described in the Prospectus for the offering.

Defaults upon Senior Securities

There were no defaults upon senior securities in the quarter ended March 31, 2008.

Submission of Matters to a Vote of Security Holders

None

Exhibits and 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)
	c.	Agreement for purchase and sale of assets (9)

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)
	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)
	c.	Press Release (9)

Notes:

1.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on February 21, 2006.

2.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on July 12, 2006.

3.	Incorporated by reference to the Registration Statement on Form 10SB12G, as amended, previously filed with the SEC on March 3, 2005.

4.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on December 4, 2006.

5.	Incorporated by reference herein to the Form SB-2, previously filed with the SEC on February 12, 2007.

6.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on February 21, 2007.

7.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on January 30, 2007.

8.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on March 27, 2007.

9.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on June 15, 2007.

10.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on July 10, 2007.

11.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on September 20, 2007.

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

13.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on November 9, 2007.

14.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on December 7, 2007.

15.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on December 11, 2007.

16.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on December 26, 2007.

17.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on December 31, 2007.

18.	Incorporated by reference herein to the Form SB-2, previously filed with the SEC on January 8, 2008.

19.	Incorporated by reference herein to the Form SB-2, previously filed with the SEC on January 31, 2008.

20.	Incorporated by reference herein to the Form 8-K, previously filed with the SEC on January 31, 2008.

Date of 8-K		Items Disclosed on Form 8-K

January 30		Items 4.01, and 9.01

January 31		Items 2.01, and 9.01

February 21		Items 1.01, 1.02, 5.02 and 9.01

March 27		Items 7.01 and 9.01

SIGNATURES

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

ECOTALITY, INC.

Signature	Title	Date

/s/ Jonathan R. Read	Chief Executive Officer,	May 15, 2008
Jonathan R. Read	President and Director

/s/ Harold W. Sciotto	Secretary, Treasurer	May 15, 2008
Harold W. Sciotto	and Director

/s/ Barry S. Baer	Chief Financial Officer	May 15, 2008
Barry S. Baer	Principal Accounting Officer

/s/ Jerry Y. S. Lin	Director	May 15, 2008
Jerry Y. S. Lin

/s/ E. Slade Mead	Director	May 15, 2008
E. Slade Mead

/s/ Donald B. Karner	Director	May 15, 2008
Donald B. Karner

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Ecotality (ECTY) Inactive 10-Q2008 Q1 Quarterly report

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