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EX-31 - ECOTALITY, INC. | v180983_ex31.htm |
EX-32 - ECOTALITY, INC. | v180983_ex32.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For
the Fiscal Year Ended December 31, 2009
¨
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For
the Transition Period from
to
Commission
File Number 000-50983
ECOTALITY,
INC.
(Name of
small business issuer in its charter)
Nevada
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68-0515422
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
employer identification number)
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80
Rio Salado Parkway
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Tempe,
AZ
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85281
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(Address
of principal executive offices)
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(Zip
code)
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Issuer’s
telephone number: (480)
219-5005
Securities
Registered Pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which registered
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None
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None
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Securities
Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of
class)
(Title of
class)
Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. x Yes ¨ No
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes x No
The
issuer’s revenue for its most recent fiscal year was $8,601,674
The
Company’s common stock is listed on the Over-the-Counter Bulletin Board under
the stock ticker symbol “ETLE.” The aggregate market value of the voting
and non-voting common equity held by non-affiliates based upon a price per share
of $4.75 which was the closing price on April 12, 2009, was
$42,149,277.
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of April 12, 2009 was 8,873,532.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Transitional
Small Business Disclosure Format (Check one): Yes ¨ No x
PART I
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3
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ITEM 1 DESCRIPTION OF
BUSINESS
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3
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ITEM 1 DESCRIPTION OF
PROPERTY
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21
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ITEM 1 LEGAL
PROCEEDINGS
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21
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ITEM 2 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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21
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PART II
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22
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ITEM 2 MARKET FOR REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON
STOCK
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22
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ITEM 2 FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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35
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ITEM 2 CONTROLS AND
PROCEDURES
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F-20
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ITEM 2 OTHER
INFORMATION
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F-20
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PART III
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ITEM 4 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
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F-21
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ITEM 4 EXECUTIVE
COMPENSATION
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F-24
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ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
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F-26
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F-27
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ITEM 6 EXHIBITS
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F-28
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ITEM 6 PRINCIPAL ACCOUNTANT FEES AND
SERVICES
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F-29
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SIGNATURES
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F-30
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2
FORWARD
LOOKING STATEMENTS
This
Annual Report contains forward-looking statements about our business, financial
condition and prospects that reflect our 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 assumptions should prove incorrect, or if any of the risks
and uncertainties underlying such expectations should materialize, our 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 its 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 Report, words such as, “believes,” “expects,”
“intends,” “plans,” “anticipates,” “estimates” and similar
expressions are intended to identify and qualify forward-looking statements,
although there may be certain forward-looking statements not accompanied by such
expressions.
PART I
Item
1. Description of Business
Business
Development and Summary
We were
incorporated in Nevada in 1999. We are a leader in clean electric
transportation and storage technologies. Through innovation, acquisitions, and
strategic partnerships, we accelerate the market applicability of advanced
electric technologies to replace carbon-based fuels. We are a leader in
providing electric vehicle infrastructure products and solutions that are
used in on-road grid-connected vehicles (including plug-in hybrid electric
vehicles (PHEV) and battery electric vehicles (BEV)), material handling and
airport electric ground support applications. Through our main operating
subsidiary, Electric Transportation Engineering Corporation (eTec),
our primary product offering is the Minit-Charger line of advanced
battery fast-charge systems that are designed for various motive applications.
In addition to our electric transportation focus, we are also
involved in the development, manufacture, assembly and sale of specialty solar
products, advanced battery systems, and hydrogen and fuel cell systems. Our
subsidiaries and primary operating segments consist of Electric Transportation
Engineering Corporation (eTec), Innergy Power Corporation (Innergy), and
ECOtality Stores (dba Fuel Cell Store). In addition we have a wholly-owned
subsidiary in Mexico providing manufacturing services for us and a wholly-owned
subsidiary in Australia, ECOtality Australia Pty Ltd, to market and distribute
battery charging equipment to support on-road electric vehicles, industrial
equipment, and electric airport ground support equipment.
We
operate with a commercial “electro-centric” strategy, targeting only products
and companies involved in the creation, storage, and/or delivery of clean or
renewable electric power. This strategy has resulted in the development and
acquisition of various operating companies.. While focused on electric
transportation infrastructure, we have developed a diversified technology
portfolio that is linked through the ability to deliver comprehensive
electro-centric energy alternatives and solutions. By establishing a
technologically diverse multi-product base we are able to mitigate the
uncertainty of clean technology demands and regulatory changes. Our current
primary focus is to facilitate and execute the development and implementation of
electric vehicle charging infrastructure in anticipation of mass
commercialization of plug-in hybrid electric vehicles (PHEV) and battery
electric vehicles (BEV) in the 2010 to 2012 timeframe.
On August
5, 2009 our wholly owned subsidiary, eTec, was selected by the U.S.
Department of Energy for a grant of approximately $99.8 million to undertake the
largest deployment of electric vehicles (EVs) and charging infrastructure in
U.S. history. On September 30, 2009 eTec accepted
the grant of $99.8 million, of which $13 million was sub-funded to federal
research and development centers, which will net eTec $86 million in
revenue. eTec, as the lead applicant for the proposal,
partnered with Nissan North America to deploy EVs and the charging
infrastructure to support them. The project takes advantage of the early
availability of the Nissan LEAF, a zero-emission electric vehicle, to develop,
implement and study techniques for optimizing the effectiveness of charging
infrastructure that will support widespread EV deployment. The project will
install electric vehicle charging infrastructure and deploy up to a total of
4,700 Nissan battery electric vehicles in strategic markets in five states:
Arizona, California, Oregon, Tennessee, and Washington.
Electric
Transportation Engineering Corporation (eTec)
Electric
Transportation Engineering Corporation (eTec) was incorporated in Arizona in
1996 to support the development and installation of battery charging
infrastructures for electric vehicles. As our primary operating
subsidiary, eTec is a recognized leader in the research, development and testing
of advanced transportation and energy systems, and is the exclusive provider of
the Minit-Charger line of battery fast-charge systems and technologies.
Specializing in alternative-fuel, hybrid and electric vehicles and
infrastructures, eTec offers consulting, technical support and field services
and is committed to developing and commercially advancing clean electric
technologies with clear market advantages.
3
eTec’s
primary product line consists of the Minit-Charger line of battery fast-charge
systems. The Minit-Charger brand is the result of a consolidation of the two
leading fast-charging technologies: eTec SuperCharge™ and Edison Minit-Charger. Prior
to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec
held exclusive patent rights to the flagship product line, eTec
SuperCharge™ - battery fast-charge systems that allow for
rapid charging while generating less heat and promoting longer battery life than
conventional chargers. The
eTec SuperCharge technology was licensed to eTec from Norvic Traction in
1999. The eTec
SuperCharge™ system was specifically
designed for airport ground support equipment, neighborhood and on-road electric
vehicle, and marine and transit system operations. Since the acquisition of the
technology, eTec has made considerable engineering and product advancements and
is currently a leader in providing these clean electric fast-charging
technologies to airports throughout North America.
In 2007,
we acquired the Minit-Charger business of Edison Source, a division of Edison
International . The core
Minit-Charger technology allows for material handling equipment to
convert to electric power systems that can be charged quickly, conveniently and
efficiently, thereby eliminating the need for propane or diesel-powered
equipment or for backup batteries and costly change-out operations required with
traditional straight-line charging.. eTec’s Minit-Charger line of
battery fast charge systems has a large customer base that consists of Fortune
500 companies and other corporate entities throughout North
America.
In March
of 2008, all eTec fast-charging products, including the eTec SuperCharge™ product line, were
consolidated under the eTec
Minit-Charger brand. By unifying the underlying fast-charging
technologies under a single engineering, manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing efforts. The
complete portfolio of eTec
Minit-Charger products provides eTec with a leadership position in
current fast charging markets and positions us well to capitalize on the rapidly
growing clean technology sector for electric vehicle infrastructure
technologies. We believe Minit-Charger is the most superior fast-charge
technology on the market as it is a smart charging system that can charge
batteries (of almost all chemistries) as fast as possible, while best
controlling the battery temperature and avoiding the devastating effects of
overcharging.
eTec has
a comparatively long history in clean and renewable technologies and has various
standing contractual relationships as a test contractor and/or primary and
consulting engineer for projects with the United States Department of Energy
(DoE), several national research laboratories, national energy storage
consortiums, and large electric utilities where they provide services in energy
storage, monitoring, systems design and fabrication, product and vehicle
testing, and product development. Their work has been in the areas of electric
vehicle systems, recharging stations, energy demand management systems, utility
communication systems, advanced battery technologies, fast charging
technologies, hydrogen creation, storage and dispensing systems, and coal
gasification programs. Currently, eTec is holds the exclusive contract for the
DoE’s Advanced Vehicle Testing Activity (AVTA) program and has conducted more
than 6 million miles of vehicle testing on more than 200 advanced fuel
vehicles.
We
acquired eTec as an expansion platform for its core expertise in battery
technologies, fast charging systems, energy distribution infrastructure, and
advanced vehicle technologies and testing, which includes electric vehicle (EV),
hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and
hydrogen vehicle technologies. We believe that eTec will expand its core
technologies through new product development, joint ventures, acquisitions and
organic growth. Because eTec has unparalleled experience with
electric vehicle infrastructure, we believe our experience with electric
vehicles infrastructure, our knowledge of the vehicle and battery systems, as
well as our industry leading fast-charging technology provides us with a
distinct competitive advantage to be leading provider of electric vehicle
infrastructure services and installation.
eTec has
been involved in every North American EV initiative to date and is a leading
provider of solutions for electric vehicles and its supporting infrastructure.
Currently, eTec has installed more than 5,100 charging stations for motive
applications, and has installed more chargers for on-road applications than any
other company in North America.
On August
5, 2009 eTec was selected as the lead grantee by the U.S. Department of Energy
for a grant of approximately $99.8 million to undertake the largest
deployment of electric vehicles (EVs) and charging infrastructure in
U.S. history. On September 30, eTec accepted the $99.8 million
grant, of which approximately $13 million was sub-funded to federal
research and development centers, which will net eTec $86.4 million in
revenues. eTec, as the lead applicant for the proposal, partnered with
Nissan North America to deploy EVs and the charging infrastructure to support
them. The Project takes advantage of the early availability of the Nissan LEAF,
a zero-emission electric vehicle, to develop, implement and study techniques for
optimizing the effectiveness of charging infrastructure including more than
11,000 residential and publicly available charges that will support
widespread EV deployment. The Project will install a robust electric vehicle
charging infrastructure and will deploy 4,700 Nissan battery electric
vehicles in strategic markets in five states: Arizona, California, Oregon,
Tennessee, and Washington.
The
Project will collect and analyze data to characterize vehicle use in diverse
topographic and climatic conditions, evaluate the effectiveness of charge
infrastructure, and conduct trials of various revenue systems for commercial and
public charge infrastructure.
4
Innergy
Power Systems
Founded
in 1989, Innergy Power Systems is based in San Diego, California with a
manufacturing facility in Tijuana, Mexico. Innergy is the only North American
manufacturer of both renewable energy solar modules and thin-sealed rechargeable
batteries, as its solar photovoltaic (PV) product line addresses the burgeoning
worldwide demand for solar energy products and off-grid power. Innergy’s
fiberglass reinforced panel (FRP) solar modules are designed to meet a broad
range of applications for emergency preparedness and recreation, where quality,
durability, rugged construction and light weight are important in the outdoor
environment. Applications include logistics tracking, asset management systems,
off-grid lighting, mobile communications, mobile computing, recreational
vehicles, signaling devices and surveillance cameras.
Innergy
and our wholly owned subsidiary providing manufacturing services, Portable
Energy De Mexico, S.A. DE C.V., provides us the ability to further expand our
production, manufacturing and assembly capabilities for Innergy’s solar products
and energy storage devices, as well as products of our other subsidiaries,
including eTec’s Minit-Charger products. Innergy provides us the ability to
expand our offering of solar products and solutions into current and developing
commercial markets, as well as providing strong manufacturing and assembly
operations to assist other aspects of our business. While we expect solar to
become a major future energy source, Innergy’s battery systems that support the
electric vehicle market that is quickly expanding is vital as well, and we
expect the combination of solar solutions and new battery sales to contribute to
our long and short-term earnings and revenue growth. Innergy is actively
pursuing growth opportunities through product line expansion, joint ventures,
acquisitions, and manufacturing contracts.
ECOtality
Stores (dba Fuel Cell Store)
ECOtality
Stores (dba Fuel Cell Store) is our wholly-owned subsidiary and operates as our
online retail division. Fuel Cell Store (www.fuelcellstore.com) is an e-commerce
marketplace that offers consumers a wide 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,
manufactures, 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.
Hydrality™
Hydrality™
is a complex reactor system that stores and delivers hydrogen on-demand
using magnesium compounds and water. The EPC/Hydrality technology, which was
initially developed in conjunction with NASA’s Jet Propulsion Laboratory (JPL)
and subsequently advanced by Arizona State University, Green Mountain
Engineering and Airboss Aerospace, Inc. continues to have promise for a variety
of future 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 future
applications for Hydrality that include stationary applications for remote
power, back-up power systems, and large scale industrial and utility
use.
Products
We
currently offer the following products:
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Energy
engineering services (hydrogen, solar, battery, coal gasification, energy
delivery infrastructure)
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eTec’s
Minit-Charger fast-charge systems for material handling and airport ground
support equipment
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Charging
systems (Level 2 & 3) for on-road grid-connected electric
vehicles
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Energy
engineering services (hydrogen, solar, battery, coal gasification, energy
delivery infrastructure, etc…)
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eTec
Bridge Power Manager (BPM) systems
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Hydrogen
internal combustion engine (HICE) vehicle
conversions
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Industrial
battery systems
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Solar
panel production
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Specialty
solar solutions
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Specialty
thin-sealed lead battery products
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Various
proprietary solar products for consumer, emergency response programs and
remote power systems.
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Third-party
hydrogen and education related
products
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EV Microclimate
Program
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5
Customers
We have a
strong base of commercial, industrial, institutional, governmental, and utility
customers. As the transition 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, colleges and universities, international
research institutes, major electric utilities, the Department of Energy, the
Department of Transportation, major industry research consortiums, regional
government organizations, 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 products and 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 users of clean
electric and renewable energy technologies and products, precipitated by
regulatory, financial, employee, and customer pressures. While we continue to
achieve growth in the sale of fast-charge products for material handling and
airport applications, we have identified an emerging new market for our
fast-charging products for on-road electric vehicles. We are currently targeting
large international retailers, property management firms, major utilities,
traditional fuel providers and other commercial entities as potential on-road
vehicle fast-charge customers.
Manufacturing
We have
through our wholly-owned subsidiary Portable Energy De Mexico S.A.De C.V.,
manufacturing facilities in Tijuana, Mexico operated under a
“maquilladora” 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 and China.
If
needed, we have the ability to substantially expand our Mexican operations
as well as our high-value manufacturing capability in Phoenix, Arizona. We are
planning for new leased facilities in Mexico and Arizona to handle our
anticipated growth. Part of our strategic growth plan would include more
mechanized production systems, inclusive of International Organization for
Standardization (ISO) quality and environmental certifications. Should the
market for on-road grid-connected vehicles continue to expand, we anticipate a
tremendous increase in market demand for electric vehicle supply equipment
(EVSE) by 2012. As the market for EVSE enters a growth phase, the manufacturing
capabilities in Mexico and Phoenix may need to be expanded through the lease or
purchase of additional adjacent buildings that will allow us to increase
manufacturing capacity to meet the appropriate levels of market
demands
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 including NASA’s Jet Propulsion Laboratories (JPL) and
others, we have determined that we will reduce our technology research and
development expenditures at levels in-line with traditional operating technology
companies based upon a reasonable percentage of revenues.
We have
also 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 scale back our hydrogen research and
development expenditures as indicated above, and proceed only on the basis of
joint development projects with third-parties or significantly subsidized
development with potential licensees or federal grants.
This
shift to joint development projects and the scaling back on our hydrogen
research and development expenditures is clearly reflected in our 2009
operating results. The most significant research and development expenditures
for 2008 relate to final payments on Hydrality- related projects initiated in
2007 that were scheduled for completion in the first half of 2008.
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 “leader in clean electric transportation and storage
technologies”. This corporate branding of group products is an important part of
our strategy to provide individual and integrated electro-centric products and
solutions. 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 our corporate headquarters in Tempe,
Arizona.
The
majority of our products and services are sold directly on a
business-to-business basis. ECOtality Stores conducts sales operations through
the internet of hydrogen fuel cell products and educational kits and
systems.
Government
Regulation
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. Our eTec
subsidiary has a large portfolio of DOE contracts and is in regular contact with
leaders of U.S energy and technology policies.
6
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. Our eTec
subsidiary has a large portfolio of DOE contracts and is in regular contact with
leaders of U.S. energy and technology policies.
President
Barack Obama and his Administration continue to be strong proponents of
grid-connected vehicles and supporting infrastructure. Solid evidence of this
commitment can be found in the provisions of the Recovery Act. In a December
2009 report to the President, Vice President Joe Biden wrote, “The energy
components of the Recovery Act represent the largest single investment in clean
energy in American history… The Recovery Act investments of $80 billion for
clean energy will produce as much as $150 billion in additional clean energy
projects.” The Vice
President also referenced The EV Project when he wrote, “We are also building
the infrastructure to support these vehicles including construction of more than
10,000 charging locations in more than twelve cities.
We
believe that the Obama Administration will continue to help advance the electric
transportation technologies and to provide ongoing substantial funding
opportunities to establish and advance renewable energy infrastructure, electric
grid enhancements, and physical infrastructure to support this new method of
transportation. At the very least, substantial tax incentives and
rebates are offered for the purchase and use of reduced emissions vehicles, for
which all grid-connected vehicles currently apply, that are designed to support
consumer adoption. With our strong focus on electric transportation
infrastructure, grid-connected vehicles, and renewable energy technologies, we
believe the focus by the Obama Administration will continue to provide robust
funding opportunities for us and our core technologies.
eTec’s
portfolio of battery-charging and fast-charging systems 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 charging systems. Accordingly, any of our
systems installed in a jurisdiction that has adopted the 2002 NEC must be
installed in accordance with Article 692. Additionally, standards are being
devised by the Society of Automotive Engineers (SAE) for the connection and
communications standards between battery charging systems and grid-connected
vehicles. Our eTec subsidiary occupies leadership positions on both
the SAE’s Level 2 and Level 3 (fast-charging) committees. We expect all of our
electric vehicle supply equipment (EVSE) to comply with the necessary SAE
standards and specifications.
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 Hydrality 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
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 intensifies, 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.
Fast-Charge
Competition
The eTec SuperCharge and Minit-Charger systems
(consolidated under the eTec
Minit-Charger brand) are 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.
7
The
primary direct competitors to the 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
Minit-Charger fast charge system reduces or eliminates the
need for extra batteries.
Electric
Vehicle Infrastructure Competition
Electric
vehicle infrastructure refers to companies that provide electric vehicle supply
equipment (EVSE) and services that support grid-connected vehicles. From a
product standpoint, this would primarily include the physical charging system
hardware and integrated software requirements. While the market is still in its
relative infancy, competing firms that have publically announced intentions to
enter this market include Better Place, Coulomb Technologies, AeroVironment,
Inc., Aker Wade Power Technologies, LLC, Delta-Q Technologies and Elektromotive
(UK). We are unaware of any competitor with comparable actual experience in
installing EV infrastructure in North America. Additionally, we are unaware of
any competitors that are actively engaged in extensive consulting operations for
major automotive OEMS, utilities, governmental organizations, research
institutes, or industry and trade groups.
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.
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.
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.
8
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 similar
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.
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, 2008, in the United
States we held three patent applications and 16 issued patents, which will
expire at various times between 2010 and 2021. 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, 2008. 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 97,826 shares of our common stock to CalTech with a fair market value of
$84 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.
eTec’s
primary product line consists of the Minit-Charger line of battery fast-charge
systems. The Minit-Charger brand is the result of a consolidation of the two
leading fast-charging technologies: eTec SuperCharge™ and Edison Minit-Charger. Prior
to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec
held exclusive patent rights to the flagship product line, eTec SuperCharge™ - battery
fast-charge systems that allow for rapid charging while generating less heat and
promoting longer battery life than conventional chargers. The eTec SuperCharge technology
was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was
specifically designed for airport ground support equipment, neighborhood and
on-road electric vehicle, and marine and transit system operations. Since the
acquisition of the technology, eTec has made considerable engineering and
product advancements and is currently a leader in providing these clean electric
fast-charging technologies to airports throughout North
America.
In 2007,
we acquired the Minit-Charger business of Edison Source, a division of Edison
International . The core
Minit-Charger technology allows for material handling equipment to
convert to electric power systems that can be charged quickly, conveniently and
efficiently, thereby eliminating the need for propane or diesel-powered
equipment or for backup batteries and costly change-out operations required with
traditional straight-line charging In March of 2008, all eTec fast-charging
products, including the eTec
SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By
unifying the underlying fast-charging technologies under a single engineering,
manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing
efforts.
9
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.
Status
of any announced new product or service
In January 8, 2009 ECOtality announced the EV Microclimate Program An integrated
turnkey program that provides a blueprint for a comprehensive Electric Vehicle
infrastructure system. As part of this program
ECOtality works with all
relevant stakeholders to ensure an area is prepared for consumer adoption of
electric transportation. The implementation of an EV Micro-Climate
includes physical charge infrasture installations at residential, commercial and
public locations, as well as comprehensive regulatory, public awareness and
marketing programs to support the various value chains associated with a n EV
Micro-Climate. As part of the process, ECOtality will assist the
automotive manufactures with the installation of home charging
systems in car owners’ homes (or in public areas) in advance of vehicle
delivery, as well as install fast charging systems in strategic locations (ie
fuel stations, grocery stores, shopping areas).
On May
28, 2008, eTec announced the launch of the eTec Bridge Power Manager (BPM) that
allows for eTec
Minit-Charger’s fast-charge systems for electric ground support equipment
(eGSE) to share power with existing 480VAC supply circuits at airport terminal
gates and jetway bridges. The eTec Bridge Power Manager
significantly reduces infrastructure transition and conversion costs by
utilizing existing 480VAC gate power supply circuits that are typically used
only when a jetway bridge is aligning with a plane. The BPM decreases power to
Minit-Charger fast
charge systems when a jetway bridge is in use, then returns to full power once
the bridge is aligned. Up to four fast charge ports can operate from each
existing bridge supply with no impact to the airport operations. By eliminating
the need for new supply circuits, the BPM substantially reduces transition costs
as it provides a solution for the lengthy time needed to design and construct
new power circuits at an airport. As electric ground support equipment has been
shown to reduce annual fueling costs by 70 to 80% and total operating costs by
30 to 40% (when compared to internal combustion engine ground support equipment
that operates on gasoline or diesel fuel), the BPM additionally increases
efficiency by saving time and electricity by allowing electric GSE fleets to
recharge at the site of operation.
On July
22, 2008, ECOtality’s eTec announced it has launched a Plug-in Hybrid Electric
Vehicles (PHEVs) Grid Interaction Project to demonstrate and evaluate
bi-directional fast-charging operations for PHEVs in conjunction with smart grid
technologies for facility energy management. Funded by the USDOE through Idaho
National Laboratory (INL) and supported by project partner V2Green, the project
will demonstrate eTec’s ability to fast-charge a PHEV in 10 minutes and will
analyze the benefits and costs of using the energy storage capability of PHEVs
to provide energy back to a smart metered electric grid system. Pairing the eTec
Minit-Charger fast-charge system with utility smart meter interconnections, the
PHEV Grid Interaction Project will demonstrate and evaluate a bi-directional
fast-charge system capable of both fast-charging a PHEV in 10 minutes and
supplying the stored energy of a PHEV back to a smart grid. The project utilizes
V2Green’s smart grid technology to enable charging facilities (home or business)
to communicate and adaptively control the flow of energy between the
fast-charged PHEVs and the grid. Better energy consumption management results
from vehicles recharging during off-peak periods and providing stored energy
back to the grid during periods of peak-demand. The project will also evaluate
the impact of bi-directional fast-charging on PHEV battery life and performance
as PHEVs involved in the project will be subject to strenuous charge-discharge
cycles as each vehicle will be operated for a total of 5,440 miles.
On July
29, 2008, eTec announced the launch of the new eTec Minit-Charger SC battery
fast-charging system. Approved by Underwriters Laboratories Inc. (UL), the SC
Charger utilizes Minit-Charger’s patented advanced algorithm technology to
provide a lighter, compact and a more cost-effective fast-charging system that
serves a variety of material handling equipment applications. The SC Charger is
a high-frequency, single-connector charger designed for medium and heavy duty
applications. Providing up to 250 amps of output, the SC Charger can fast-charge
battery systems of 36 volts or lower four times faster than convention charger.
The SC Charger features a light and compact design that allows for the system to
be pole or wall mounted in order to save valuable floor space and allows better
cable management. The SC Charger also features advanced data collection
capabilities, including the patented Minit-Trak™ fleet and system data
management system, which provides the most comprehensive performance evaluation
of a battery’s state-of-health and state-of-charge and automatically adjusts its
charging rates to increase and maximize battery life.
On
January 8,2009 Ecotality announced its EV Microclimate Program. It is an
integrated turnkey program that provides a blueprint for a comprehensive
Electric Vehicle infrastructure system. As part of this program
ECOta;ity works with all relevant stakeholders to ensure an area is prepared for
consumer adoption of electric transportation. The implementation of
an EV Micro-Climate includes physical charge infrasture installations at
residential, commercial and public locations, as well as comprehensive
regulatory, public awareness and marketing programs to support the various value
chains associated with a n EV Micro-Climate. As part of the process,
ECOtality will assist the automotive manufactures with
the installation of home charging systems in car owners’ homes (or in
public areas) in advance of vehicle delivery, as well as install fast charging
systems in strategic locations (ie fuel stations, grocery stores, shopping
areas)
10
Employees
As of
December 31, 2009, we had 67 employees, including 13 in manufacturing and
the rest in research and development, sales and marketing, and general and
administration positions. None of our employees is represented by a labor union
or is covered by a collective bargaining agreement other than our employees in
our wholly owned subsidiary in Mexico. As we expand domestically and
internationally, however, we may encounter employees who desire union
representation. We believe that relations with our employees are
good.
Key
Transactions in 2007
November 2007
Acquisition- eTec Group of Companies
On
November 6, 2007 we signed an agreement to acquire all of the outstanding
stock of the Clarity Group, Inc. and its affiliate, Electric Transportation
Engineering Corporation (eTec), through a stock purchase agreement. eTec
provides technical support and field services for all aspects of electric
vehicle infrastructure. eTec operates as our wholly owned
subsidiary.
The
aggregate purchase price for the outstanding capital stock of eTec was
$3,000,000 in cash and 108,333 shares of our common stock. Of the
$3,000,000 in cash to be paid to eTec, $2,500,000 was paid upon closing of the
stock purchase agreement and $500,000 was paid in installments, with the final
payment being made December 11, 2009. The 108,333 shares were issued
in the following manner: 108,333 were issued upon the close of the stock
purchase agreement, 54,166 were released on date of signing, and 54,167 were
released by our corporate secretary on the first anniversary of the closing of
the stock purchase agreement, subject to any indemnity claims. The shares
bear a restrictive legend and are not subject to piggy back registration
rights.
November 2007
Financing
On
November 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an aggregate of $4,117,649. We received gross proceeds of
approximately $3,500,000 from this offering. In connection with the
November 2007 financing, we issued the following securities to the
investors:
|
·
|
$4,117,649
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 114,379 shares of common stock at
$19.20 per share for a period of five
years.
|
The
warrants were exercisable to purchase one share of common stock at $19.20 per
share, and had a term of exercise equal to 5 years. The warrant holders
could not exercise the warrants for a number of shares of common stock in excess
of that number of shares which upon giving effect to such exercise would cause
the aggregate number of shares beneficially owned by the holder to exceed 9.99%
of the outstanding shares of the common stock following such
exercise.
The
Original Issue Discount Secured Debentures were due on May 6, 2010, were
sold at an 8% discount, and were convertible into our common stock, at the
investors’ option, at a conversion price equal to $18 per share. We could
not prepay any portion of the principal amount of the November 2007
Debentures without the prior written consent of the holder. Beginning on
May 6, 2008, and continuing on the same date of each successive
month thereafter, we agreed to repay 1/24
th of the original principal amount of
the Debentures plus accrued but unpaid interest, liquidated damages
and any other amounts then owing to the holder in respect of
the Debenture. The holders of the November 2007 Debentures
did not have the right to convert the November 2007 Debentures, to
the extent that after giving effect to such conversion, such holder
would beneficially own in excess of 9.99% of the shares of our
common stock immediately after giving effect to such
conversion.
If we, at
any time while the November 2007 Debentures were outstanding, sold or
granted any option to purchase or sell or grant any right to re-price, or
otherwise dispose of or issue (or announce any sale, grant or any option to
purchase or other disposition), any common stock or common stock
equivalents entitling any person to acquire shares of our common stock at an
effective price per share that is lower than the then-existing
conversion price, the conversion price would be reduced to equal such effective
price per share. Such an adjustment would be made whenever we
issued such common stock or common stock equivalents.
We could,
at our option, redeem the November 2007 Debentures if we met certain equity
conditions and if we delivered a notice to the debenture holders of
our irrevocable election to redeem some or all of the then outstanding principal
amount of the November 2007 Debentures for cash in an amount
equal to the sum of (i) 115% of the then outstanding principal amount of
the Debentures to be redeemed, (ii) the accrued but unpaid
interest on such Debentures and (iii) all liquidated damages and other
amounts due in respect of the Debentures on the 30
th Trading Day following such notice. On that 30
th trading day, the redemption amount is payable in full
to the debenture holders.
We could
have redeemed a portion of the November 2007 Debentures each month for
cash. If we satisfied certain equity conditions and gave 10 trading days’
prior written irrevocable notice to the debenture holders, on each such monthly
redemption date, we could, at our option, have elected to pay all or part of a
monthly redemption amount in shares of our common stock based on a conversion
price equal to the lesser of (i) the then conversion price and
(ii) 88% of the average of the VWAPs for the 10 consecutive trading days
ending on the day that is immediately prior to the applicable monthly redemption
date. The debenture holder could convert any principal amount of the
November 2007 Debenture subject to a monthly redemption at any time prior
to the date that the monthly redemption amount, plus accrued but unpaid
interest, liquidated damages and any other amounts then owing to the holder are
due and paid in full.
11
We could,
at our option, have forced the debenture holders to convert all or portion of
the then outstanding principal amount of the November 2007 Debentures (plus
any accrued but unpaid interest, liquidated damages and other amounts then owing
the debenture holders) into shares of our common stock if we satisfied certain
equity conditions, the VWAP for 20 out of any 30 consecutive trading days
exceeds $45, and, within one trading day, we deliverd a written notice to the
debenture holders of such conversion.
We
granted the November 2007 Debenture investors a first priority security
interest in all of our assets and those of each of our subsidiaries subject only
to the December 2007 Debentures, pursuant to the security agreement, dated
as of November 6, 2007, between us, our subsidiaries and the secured
parties.
In
conjunction with the November 2007 Debenture transaction, our
subsidiaries entered into a guarantee agreement pursuant to which each of
them guaranteed our obligations under the securities purchase agreement and the
documents entered into pursuant to the securities purchase agreement, including
the November 2007 Debentures.
We
granted the November 2007 Debenture investors registration rights with
respect to the shares issuable upon conversion of the debentures and the shares
of common stock underlying the warrants. Pursuant to the registration
rights agreement by and among us and each of the parties signatory thereto, we
filed a registration statement on January 8, 2008. Our registration
statement was declared effective by the U.S. Securities and Exchange Commission
(the “Commission”) on January 28, 2008. With respect to any additional
registration statements which may be required pursuant to which, the number of
registerable securities at any time exceeds 100% of the number of shares of
common stock then registered in a registration statement during the period of
effectiveness, we are required to file the additional registration statements
within 90 days from closing. If we failed to have the registration
statement filed or declared effective by the required dates, we were obligated
to pay a penalty equal to 2% of the purchase price to each investor upon any
such registration failure and for each thirty days that such registration
failure continues. The parties agreed that the maximum aggregate
liquidated damages payable to a holder under the registration rights agreement
shall be 20% of the aggregate subscription amount paid by such holder pursuant
to the securities purchase agreement.
December 2007
Acquisition – Edison Minit-Charger and related Corporate Assets
Edison
Minit-Charger
In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.
The
aggregate purchase price is $1,000,000 in cash and 33,333 shares of our common
stock. If, on the 10th day
following the first anniversary date of the agreements December 14,
2008, the average closing price for our common stock during the 30-day period
ending on the first anniversary date of the Stock Purchase Agreement
(December 4, 2008) was less than $60.00 per share, we, at our option, would
either:
|
1.
|
Issue
additional shares of common stock to the seller so that the aggregate
value of our common stock is equal to the $2,000,000 (“Stock Consideration
Amount”);
|
|
|
|
2.
|
Pay
to the seller an additional amount of cash so that the aggregate value
equals difference between the amount of the Purchase Price and the Stock
Consideration Amount; or
|
|
|
|
3.
|
Purchase
or cause the purchase of the common stock issued for an aggregate price
equal to the Stock Consideration
Amount.
|
December 2007
Financing
On
December 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an aggregate of $1,764,706. We received gross proceeds of
approximately $1,500,000 from this offering. In connection with the
December 2007 financing, we issued the following securities to the
investors:
|
·
|
$1,764,706.50
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 49,019 shares of common stock at
$19.20 per share for a period of five
years.
|
12
The
warrants were originally exercisable to purchase one share of common stock at
$18 per share, and had a term of exercise equal to 5 years. The Warrant
holders could not exercise the Warrants for a number of shares of common stock
in excess of that number of shares which upon giving effect to such exercise
would cause the aggregate number of shares beneficially owned by the holder to
exceed 9.99% of the outstanding shares of the Common stock following such
exercise.
The
Original Issue Discount Secured Debentures were due on June 6, 2010, were sold
at an 8% discount, and were convertible into our common stock, at the investors’
option, at a conversion price equal to $19.20 per share. We did not have the
right to prepay any portion of the principal amount of the Debentures without
the prior written consent of the holder. Beginning on June 4, 2008, and
continuing on the same date of each successive month thereafter, we agreed to
repay 1/24
th of the original principal amount of the Debenture plus accrued but
unpaid interest, liquidated damages, if any, and any other amounts then owing to
the holder in respect of the Debenture. The holders of the Debentures did not
have the right to convert the Debentures, to the extent that after giving effect
to such conversion, such holder would beneficially own in excess of 9.99% of the
shares of our common stock immediately after giving effect to such
conversion.
If we, at
any time while the December 2007 Debenture was outstanding, sold or granted
any option to purchase or sell or grant any right to re-price, or otherwise
dispose of or issue (or announce any sale, grant or any option to purchase or
other disposition), any common stock or common stock equivalents entitling any
person to acquire shares of our common stock at an effective price per share
that is lower than the then-existing conversion price, the conversion price
would be reduced to equal such effective price per share. Such adjustment
would be made whenever we issued such common Stock or common stock
equivalents.
We could,
at our option, have redeemed the December 2007 Debentures if we met certain
equity conditions and if we delivered a notice to the debenture holders of our
irrevocable election to redeem some or all of the then outstanding principal
amount of the December 2007 Debentures for cash in an amount equal to the
sum of (i) 115% of the then outstanding principal amount of the Debentures
to be redeemed, (ii) the accrued but unpaid interest on such Debentures and
(iii) all liquidated damages and other amounts due in respect of the
Debentures on the 30
th Trading Day following such notice. On that 30
th trading day, the redemption amount was payable in full to
the debenture holders.
We could
redeem a portion of the December 2007 Debentures each month for cash.
If we satisfied certain equity conditions and gave 10 trading days’ prior
written irrevocable notice to the debenture holders, on each such monthly
redemption date, we could, at our option, have elected to pay all or part of a
monthly redemption amount in shares of our common stock based on a conversion
price equal to the lesser of (i) the then conversion price and
(ii) 88% of the average of the VWAPs for the 10 consecutive trading days
ending on the day that is immediately prior to the applicable monthly redemption
date. The debenture holder could convert any principal amount of the
December 2007 Debenture subject to a monthly redemption at any time prior
to the date that the monthly redemption amount, plus accrued but unpaid
interest, liquidated damages and any other amounts then owing to the holder were
due and paid in full.
We could,
at our option, have forced the debenture holders to convert all or portion of
the then outstanding principal amount of the December 2007 Debentures (plus
any accrued buy unpaid interest, liquidated damages and other amounts then owing
the debenture holders) into shares of our common stock if we satisfied certain
equity conditions, the VWAP for 20 out of any 30 consecutive trading days
exceeds $45, and, within one trading day, we delivered a written notice to the
debenture holders of such conversion
We
granted the December 2007 Debenture investors a first priority security
interest in all of our assets and each subsidiary subject only to the
November 2007 Debentures, pursuant to the Security Agreement, dated as of
November 6, 2007 between us, our subsidiaries and the secured
parties.
In
connection with the December 2007 Debenture transaction, each of our
subsidiaries entered into a guarantee agreement pursuant to which it
guaranteed the obligations of the Company under the securities purchase
agreement and the documents entered into pursuant to the securities purchase
agreement, including the December 2007 Debentures.
We
granted the investors registration rights with respect to the debentures and the
shares of common stock underlying the warrants. Pursuant to the
registration rights agreement by and among us and each of the parties signatory
thereto, we filed a registration statement on January 8, 2008. Our
registration Statement was declared effective by the Commission on
January 28, 2008. With respect to any additional registration statements
which may be required pursuant to which, the number of registerable securities
at any time exceeds 100% of the number of shares of common stock then registered
in a registration statement during the period of effectiveness, we are required
to file the additional registration statements within 90 days from
closing. If we failed to have the registration statement filed or declared
effective by the required dates, we would be obligated to pay a penalty equal to
2% of the purchase price to each investor upon any such registration failure and
for each thirty days that such registration failure continues. The parties
agreed that the maximum aggregate liquidated damages payable to a holder under
the registration rights agreement should be 20% of the aggregate subscription
amount paid by such holder pursuant to the securities purchase
agreement.
As
described above, in November and December of 2007, we received gross proceeds of
$5,000,000 in exchange for a note payable of $5,882,356 as part of a private
offering of 8% Secured Convertible Debentures (the “Debentures”). The
debentures were convertible into common stock at $18 per share. Debenture
principal payments were due beginning in May and June of 2008 (1/24th of the
outstanding amount is due each month thereafter). In connection with these
debentures, we issued debenture holders warrants (“the Warrants”) to purchase up
to 163,398 shares of our common stock with an exercise price of $19.20. The
warrants were exercisable immediately upon issue.
13
2008 Key
Transactions
August
29, 2008 Amendment to November and December 2007 Debentures
On August
29, 2008 we signed an Amendment to the Debenture agreements deferring payments
on our November and December 2007 debentures . The purpose of the agreement was
to provide us time to fund our working capital requirements internally through
organic growth as well as to obtain both short and long term funding through
equity financing and other sources of capital.
The
waiver, deferment agreement aligned with our short term working capital plan and
provided time to achieve our objectives in this regard. In exchange
for the Amendment to the Debentures, we agreed to:
|
A.
|
Waiver
of interest payments due between May-December
2008
|
|
B.
|
Deferment
of monthly redemptions for the period May-December
2008.
|
|
C.
|
Increase
to the outstanding principal amount plus accrued interest though December
31, 2008 for the debentures by 120% as of the effective date of the
agreement.
|
|
D.
|
Reset
of the common stock conversion rate from $10.80 to
$5.40.
|
|
E.
|
Commencement
of principal payments starting January 1, 2009 with no change
to the redemption period (May 2010)
|
|
F.
|
Commencement
of interest payments @ 8% per year April 1, 2009 (first payment
due).
|
|
G.
|
Inclusion
of make whole provisions to reset common stock warrant conversion prices
to the value used to “true-up” both the Innergy Power Company and
Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
For both of these acquisitions the Sellers were issued shares which the
Company guaranteed would be worth $60.00 per share for the thirty days
prior to the anniversary date of the purchase. This guarantee
requires the issuance of additional shares or payment in cash for the
difference in the share price on the respective anniversary
dates. In the case of Innergy, the number of required “true up”
shares is capped at 66,666.
|
H.
|
Inclusion
of further make whole provisions to issue additional warrants adequate to
maintain the pro rata
|
debenture ownership % when fully diluted as per schedule 13 in the waiver agreement. | ||
|
I.
|
Compliance
with covenants per quarterly public reports issued for the periods ending
June 30,
|
September
30, and December 31, 2008 for the following:
|
1.
|
Net
cash used
|
|
2.
|
Current
ratio adjusted for non-cash
liabilities
|
|
3.
|
Corporate
Headquarters accounts payable
amount
|
2009 Key
Transactions
March
5, 2009 Amendment to the November and December Debentures
On March
5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and
Warrants, Agreement and Waiver” (the “Agreement”) restructuring our equity with
the institutional debt holders of the our Original Issue Discount 8% Senior
Secured Convertible Debentures, dated November 6, 2007 (the “November 2007
Debentures”) (aggregate principal amount equal to $4,117,649) and with our debt
holder of our Original Issue Discount 8% Secured Convertible Debentures, dated
December 6, 2007 (the “December 2007 Debenture”) (aggregate principle amount
equal to $1,764,707). The November and December 2007 Debentures are held by
Enable Growth Partners LP (“EGP”), Enable Opportunity Partners LP (“EOP”),
Pierce Diversified Strategy Master Fund LLC, Ena (“Pierce”), and BridgePointe
Master Find Ltd (“BridgePointe”)(individually referred to as “Holder” and
collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.
To allow
the additional time necessary for us to achieve our working capital targets in
the current economic environment, we requested our debenture holders further
extend a waiver of debt service requirements. Therefore, in exchange
for signing an Amendment to Debentures and Warrants, Agreement and Waiver which
defers interest payments due for the first quarter 2009 until May 1, 2009
and payment of monthly principal redemptions until May 1, 2009, we agreed to the
following:
A.
|
Adjust
the conversion price of the November 2007 Debentures and December 2007
Debentures to $3.60.
|
B.
|
The
Holders collectively shall maintain an equity position in the Company, in
fully diluted shares, of 50.4%. Should the Holders’ equity position
collectively become less than the 50.4%, the Company shall issue warrants
to each Holder, pro-ratably to bring Holders’ equity position back to
50.4%.
|
C.
|
Additional
covenants related to not exceeding $2,000,000 accounts payable amount or
payment of other liabilities while the debentures are
outstanding.
|
D.
|
The
right to recommend for placement on the Company's Board of Directors, a
nominee by either BridgePointe or BridgePointe’s investment manager
Roswell Capital Partners LLC. Such a recommendation shall meet the
Company’s requirements as set forth in the Company’s Bylaws and all
applicable federal and state law. The nominee shall serve until such time
as the Company has redeemed the
debentures.
|
14
E.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
as consideration for the current or prior Amendments to the November 2007
Debentures and the December 2007 Debentures shall be amended to have an
exercise price of $3.60 (to the extent that such exercise price was
previously above $3.60), and the expiration dates shall be extended to May
1, 2014.
|
F.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The
proposal shall increase the number of authorized common shares from
300,000,000 to 500,000,000.
|
G.
|
In
addition, the Securities Agreement, dated November 6, 2007 and all UCC-1
filings made as required thereof, shall be amended to include each of the
Company’s current and future Patents and Trademarks. In addition the
Company shall file notice of the Assignment for Security of the Company’s
current and any future Patents and Trademarks with the United States
Patent and Trademark Office and other foreign countries as
appropriate.
|
We
believe this latest extension is timely and consideration appropriate, given the
growing and significant potential opportunities to successfully achieve our
capital objectives based on the strength and appeal of our products and
technical expertise in the electric vehicle microclimate infrastructure
environment.
May
15, 2009 Amendment to the November and December 2007 Debentures
Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed material to the Company’s future, thus on May
15, 2009, the Company and the Debenture Holders entered into an agreement
entitled “Amendment to Debentures and Warrants, Agreement and Waiver” (the
“Agreement”) restructuring the Company’s equity as well as establishing an
inducement for additional working capital for the Company. The
Agreement’s effective date was May 1, 2009.
MAY 2009
WAIVER PROVISIONS:
The
Company agreed to the following:
|
A.
|
Defer
payment of interest until November 1, 2009. Interest to be paid monthly
from that date. Interest accrued though September 30, 2009 will
be added to principal.
|
|
B.
|
Commence
redemption of principal on January 1, 2010 in 10 equal
payments.
|
|
C.
|
Consent
to obtaining additional working capital for specified uses not to exceed
$2,500,000 in the same form and rights of debentures pari pasu in
seniority both as to security interest priority and right of payment with
the debenture held by the existing
holders.
|
|
D.
|
Segregation
of payment of the Karner bridge note, reaffirmed Karner and Morrow
employment agreements, identifies specific contract carve outs should the
Company fail to achieve certain target objectives, and provide for a bonus
should the target be achieved.
|
|
E.
|
Maintain
the conversion price of the November 2007 Debentures and December 2007
Debentures at 3.60.
|
|
F.
|
Additional
covenants related to not exceeding $2,500,000 accounts payable amount or
payment of other liabilities while the debentures are outstanding. Other
covenants include maintaining minimum cash flow amounts. Allowing for
inspection of financial records, and achieving Stimulus contract target
objectives.
|
|
G.
|
The
right to recommend for placement on the Company's Board of Directors, two
(2) nominees by either BridgePointe or BridgePointe’s
investment manager Roswell Capital Partners LLC or other debenture
holders. Such a recommendation will meet the Company’s requirements as set
forth in the Company’s Bylaws and all applicable federal and state law.
The nominees may serve until such time as the Company has redeemed the
debentures.
|
|
H.
|
The
existing Holders collectively will maintain an equity position in the
Company, in fully diluted shares, of 80%. Should the existing holders
Holders’ equity position collectively become less than the 80%, the
Company will issue warrants to each existing Holder, pro-ratably to bring
Holders’ equity position back to 80%. However, there are provisions (when
additional capital is raised (not to exceed $2,500,000)) to bring the
fully diluted position to 70% for the existing Holders as well as those
Holders of new capital debentures. There are provisions to
further reduce the debenture holders to 65% should management achieve
certain specified performance
targets.
|
|
I.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
as consideration for the current or prior Amendments to the November 2007
Debentures and the December 2007 Debentures will be amended to have
an exercise price of $0.60 (to the extent that such exercise price
was previously above $3.60), and the termination dates for the makeup
warrants will be five (5) years from date of
issuance.
|
15
|
J.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The
proposal shall increase the number of authorized common shares from
300,000,000 to 1,300,000,000.
|
|
K.
|
Agreed
to specific provisions relating to disclosure of material nonpublic
information by debenture holder board members, or at other times when
complying with the provisions of the debenture waive
agreement.
|
June
2009 Amendment to the May Amendment to the Debentures
The
debenture holders and the Company signed a First Amendment to Amendment to
Debentures and Warrants, Agreement and Waiver dated June 30,
2009. This amendment modified the May 15, 2009 Amendment
by:
|
A.
|
Increasing
approval authority for specified transactions for the November and
December 2007 and July 2009 Debenture Holders to 85% from 75% of
outstanding principal amount.
|
|
B.
|
Clarifying
whom has Board of Director member
rights
|
|
C.
|
Clarifying
the June 30, 2009 warrant true-up calculation, per the May 15, 2009
Amendment.
|
July 2009 New
Debenture Issuance
To
support ECOtality’s expansion and current working capital needs, the Company
also received effective July 2, 2009 a direct investment of $2,5000,000 in 8%
Secured Convertible Debentures due October 1, 2010, of which Shenzhen Goch
Investment Ltd was issued $2,000,000 in debentures, Enable Growth Partners
(current debenture holder) was issued $250,000 in debentures, and BridgePointe
Master Fund (current debenture holder) was issued $250,000 in debentures. The
debentures have an exercise price or $3.60 per share of ECOtality common
stock. The July 2009 Debentures:
|
A.
|
Are
consistent with the initial debentures issued in November and December
2007 except this series is secured, convertible rather than original issue
discount debentures.
|
|
B.
|
Update
the original Security Purchase Agreements, Securities Agreements,
Registration Rights Agreements, Subsidiary Guarantees, and related
disclosure schedules.
|
|
C.
|
Provide
for issuance of warrants to Shenzhen Goch Investment Ltd for their capital
investment and adjusting the warrants held by Enable and BridgePointe
subject to the June 30, 2009 true up as defined in the May 15,
2009 Amendment.
|
|
D.
|
Restate
the agreement to increase the number of the Company’s
authorized common shares from 300,000,000 to
1,300,000,000.
|
|
E.
|
Restate
the covenants established in the May 15, 2009 Amendment and the Karner
“carve-out” should certain “Stimulus” contract targets not be achieved. In
accordance with the terms of the May 15 Amendment, the Company and Karner
agreed that if Karner continues to remain a full-time employee, and The
Company (with Karner’s assistance) fail to secure executed Stimulus
Contracts (as defined in the May 15 Amendment) having an aggregate total
contract value of $20,000,000 or more during the period from May 15, 2009
through October 1, 2009, then The Company must, on or prior to
October 9, 2009, transfer ownership of all stock and assets of The Clarity
Group, Inc. to Karner.
|
On July
2, 2009 the Company executed a non-binding Letter of Intent (LOI)
with Shenzhen Goch Investment Ltd to create joint ventures for the production
and distribution of battery charging systems and electric vehicle infrastructure
systems in China. The LOI specifies:
|
A.
|
Two
companies are to be formed: one for the purpose of
manufacturing battery charging and electric vehicle infrastructure systems
for global sale and one company for pursuing the marketing and sale of the
products within an exclusively designated
territory.
|
|
B.
|
Completion
of the Definitive Agreements within 30
days.
|
|
C.
|
Ecotality will
grant a perpetual, non-assignable no royalty license to both companies
with regard to their respective Branded Products within the specified
exclusive territory
|
|
D.
|
Ecotality
will own 20% of the manufacturing and 40 % of the distribution
companies.
|
|
E.
|
Ecotality
will have a Technology Consulting Agreement with the distribution
company.
|
16
|
F.
|
The
manufacturing company will be funded by Shenzhen Goch Investment Ltd in
the amount of $10,000,000 and the distribution company in the amount of
$5,000,000.
|
As of
December 31, 2009 we are completing the series of definitive agreements related
to the letter of intent.
Securities
Exchange Agreement
On
October 31, 2009, Ecotality, Inc. (“Ecotality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s
common stock (the “Common Stock”) at a 1:1 ratio.
Concurrent
with the signing of the Securities Exchange Agreement, the Ecotality Board of
Directors approved a 1:60 reverse stock split (the “Reverse Split”) of its
common stock and authorized Company management to affect the Reverse Split after
providing the required notice to the Financial Industry Regulatory Authority
(FINRA). The Reverse Stock split was approved by shareholders at the
August 26, 2009 Annual Shareholder Meeting. In addition, the Board
authorized Company management to submit an application to be listed on The
NASDAQ Stock Market after affecting the Reverse Split. There can be no assurance
that the Company can meet the listing requirements of the NASDAQ Stock
Market.
The
descriptions of the terms and conditions of the Securities Exchange Agreement
and the terms of the Series A Convertible Preferred Stock are qualified in their
entirety by the full text of the Securities Exchange Agreement and Certificate
of Designation, which are attached as Exhibits hereto and incorporated herein by
reference.
Securities
Purchase Agreement
On
October 31, 2009, Ecotality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Common Stock at purchase price of $7.20 per share. The funds from the
private placement will be utilized as working capital to support the initial
requirements of the contract signed with the Department of Energy on September
30, 2009.
Terms of
the private placement include:
|
A.
|
minimum
aggregate purchase of $15,500,000 of Common Stock by the
Investors.
|
|
B.
|
Each
Investor will receive a Warrant to purchase the equivalent number of
shares of Common Stock that it purchases under to the Securities Purchase
Agreement. The exercise price of the Warrants will be equal to
$9.00 per share. The Company may call the Warrants if the
closing price of shares of the Common Stock is at least $27 per share for
20 consecutive trading days, subject to certain conditions, including the
existence of an effective registration statement for the shares of Common
Stock issuable upon exercise of the Warrants (the “Warrant Shares”) and
minimum volume provisions. The Company may not effect any exercise
of the Warrants in an amount that would result in any Investor
or its affiliates beneficially owning more than 9.99% of the
outstanding Common Stock upon such an exercise. The Warrants
will have a five-year term during which they can be exercised and shall
contain a cashless exercise provision which shall apply if there is not an
effective registration statement covering the resale of the shares
issuable upon exercise.
|
|
C.
|
The
Company shall file a shelf registration statement for the resale of the
shares of Common Stock purchased under the Securities Purchase Agreement
and the Warrant Shares on Form S-3 or another appropriate form (the
“Registration Statement”). Such Registration Statement shall be
filed as soon as practicable, but in any event within 45 days of the
closing date of the Securities Purchase
Agreement.
|
The
Investors have agreed not to exercise “short sales” for a period of 9
months after the date of the Securities Purchase Agreement.
|
D.
|
The
Company will initiate the process to effect the Reverse Split prior to the
closing, and the Company will submit its application to be listed on The
NASDAQ Stock Market as soon as possible thereafter. The Company is
obligated to consummate the Reverse Split within 30 days of the date of
the Securities Purchase Agreement.
|
Other
Key Transactions in 2009
On August
26, 2009 the shareholders of Ecotality, Inc. (the “Company”) approved a proposal
authorizing the Board of Directors effect a reverse stock split of the Company's
$.001 par value common stock in the range of one-for-fifty to one-for
one-hundred . On October 26, 2009 the Board of Directors
authorized a one-for-sixty reverse stock split.
17
On
November 23, 2009 Ecotality, Inc. (“Ecotality” or the “Company”) received notice
from Financial Industry Regulatory Authority (FINRA) that it had all the
necessary documentation to process the Reverse Stock Split of 1:60 for the par
value $0.001 common shares of Ecotality, Inc. This corporate action
took effect at the open of business on November 24, 2009. There was also a
change to the Company's trading symbol at that time from ETLY to
ETLE.
Available
Information
We
maintain a website at http://www.ecotality.com. We make available free of charge
on our website our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statement and any
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file these materials with, or furnish them
to, the SEC. The information contained in or connected to our website is not
incorporated by reference into this report.
The
public may also read and copy any materials that we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an Internet website that contains reports and other information regarding
issuers, such as ECOtality, that file electronically with the SEC. The SEC’s
Internet website is located at http://www.sec.gov.
Risks Relating to Our
Business:
We
have a history of losses which may continue, which may negatively impact our
ability to achieve our business objectives.
We
incurred net losses of $29,507,750 and $8,067,211 for the years ended December
31, 2009 and 2008, respectively.. We cannot assure you that we can
achieve or sustain profitability on a quarterly or annual basis in the future.
Our operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.
A large percentage of our revenues
will depend on our grant from the Department of Energy, the loss of which would
materially adversely affect our operations and revenues.
On
September 30, 2009 our wholly owned subsidiary, eTec signed a contract with the
U.S. Department of Energy for a cost reimbursable contract worth at least $99.8
million, of which approximately $13 million was sub-funded to federal
research and development centers. This grant will net $86.4 million in revenue
to us, which we expect to account for a substantial portion of our revenues in
the immediate future. As a condition of this grant, we are required to meet
certain obligations, produce and deliver products on a timely basis to certain
required standards, properly account for and bill our products. If we were
unable to properly perform these tasks, we could lose the grant, which would
have a material adverse effect on our business, financial condition may not be
strong enough and results of operations. While we believe we have obtained
initial required working capital to meet the requirements of this cost
reimbursable contract, there is no guarantee that we will be able to complete
this contract without requiring additional working capital given the contract is
reimbursable for costs incurred.
There
is no assurance that the Hydrality technology is patentable by JPL or, if
patented, that others will not develop functionally similar products outside the
patent. Without patent protection, our competitors could develop
functionally similar products.
We have
entered into a license agreement with the California Institute of Technology, or
CalTech, under which we have the exclusive license to use and sell the Hydrality
technology under any JPL patent and patent application. There can be no
assurance that CalTech will obtain any patents on the Hydrality technology or,
if obtained, that others will not develop functionally similar products that do
not infringe on the patents. 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 by statute. Without
patent protection, our competitors could develop functionally similar
products.
We
face competition from large established renewable and alternative energy
development companies which are also seeking to develop alternative energy power
sources. Such competition could reduce our revenue or force us to reduce
our prices, which would reduce our potential profitability.
Literally
hundreds of companies, including many of the largest companies in the world, are
seeking to develop similar or competitive technologies to that of all of our
technologies. There can be no assurance that we can commercially develop
the Hydrality technology or that competitors will not develop substantially
equivalent or superior technology. Such competition could reduce our
revenue or force us to reduce our prices, which would reduce or eliminate our
potential profitability.
We
may not be able to protect our patents and intellectual property and we could
incur substantial costs defending against claims that our products infringe on
the proprietary or other rights of third parties.
Some of
our intellectual property may not be covered by any patent or patent
application. Moreover, we do not know whether any of our pending patent
applications or those CalTech will file or, in the case of patents issued
or to be issued, that the claims allowed are or will be sufficiently broad to
protect our technology and processes. Even if all of our patent
applications are issued and are sufficiently broad, our patents may be
challenged or invalidated. We could incur substantial costs in prosecuting
or defending patent infringement suits or otherwise protecting our intellectual
property rights. While we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be completely
successful in doing so. Moreover, patent applications filed in foreign
countries may be subject to laws, rules and procedures that are
substantially different from those of the United States, and any resulting
foreign patents may be difficult and expensive to enforce.
18
Our
competitors may independently develop or patent technologies or processes that
are substantially equivalent or superior to ours. If we are found to be
infringing on third party patents, we could be required to pay substantial
royalties and/or damages, and we do not know whether we will be able to obtain
licenses to use such patents on acceptable terms, if at all. Failure to
obtain needed licenses could delay or prevent the development, manufacture or
sale of our products, and could necessitate the expenditure of significant
resources to develop or acquire non-infringing intellectual
property.
Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and failure to do so may diminish our ability to compete effectively
and may harm our operating results. We may need to pursue lawsuits or
legal action in the future to enforce our intellectual property rights, to
protect our trade secrets and domain names and to determine the validity and
scope of the proprietary rights of others. If third parties prepare and
file applications for trademarks used or registered by us, we may oppose those
applications and be required to participate in proceedings to determine the
priority of rights to the trademark. Similarly, competitors may have filed
applications for patents, may have received patents and may obtain additional
patents and proprietary rights relating to products or technology that block or
compete with ours. We may have to participate in interference proceedings
to determine the priority of invention and the right to a patent for the
technology. Litigation and interference proceedings, even if they are
successful, are expensive to pursue and time consuming, and we could use a
substantial amount of our financial resources in either case.
Our
failure to protect our intellectual property rights may undermine our
competitive position and litigation to protect our intellectual property rights
or defend against third-party allegations of infringement may be
costly.
Protection
of our proprietary processes, methods and other technology, especially our
proprietary vapor transport deposition process and laser scribing process, is
critical to our business. Failure to protect and monitor the use of our existing
intellectual property rights could result in the loss of valuable technologies.
We rely primarily on patents, trademarks, trade secrets, copyrights and other
contractual restrictions to protect our intellectual property. We have received
patents in the United States and select foreign jurisdictions and we have
pending applications in such jurisdictions as well. Our existing patents and
future patents could be challenged, invalidated, circumvented, or rendered
unenforceable. We have pending patent applications in the United States and in
foreign jurisdictions. Our pending patent applications may not result in issued
patents, or if patents are issued to us, such patents may not be sufficient to
provide meaningful protection against competitors or against competitive
technologies.
We also
rely upon unpatented proprietary manufacturing expertise, continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While we generally enter into confidentiality agreements
with our employees and third parties to protect our intellectual property, such
confidentiality agreements are limited in duration and could be breached and may
not provide meaningful protection for our trade secrets or proprietary
manufacturing expertise. Adequate remedies may not be available in the event of
unauthorized use or disclosure of our trade secrets and manufacturing expertise.
In addition, others may obtain knowledge of our trade secrets through
independent development or legal means. The failure of our patents or
confidentiality agreements to protect our processes, equipment, technology,
trade secrets and proprietary manufacturing expertise, methods and compounds
could have a material adverse effect on our business. In addition, effective
patent, trademark, copyright and trade secret protection may be unavailable or
limited in some foreign countries. In some countries we have not applied for
patent, trademark, or copyright protection.
Third
parties may infringe or misappropriate our proprietary technologies or other
intellectual property rights, which could have a material adverse effect on our
business, financial condition and operating results. Policing unauthorized use
of proprietary technology can be difficult and expensive. Also, litigation may
be necessary to protect our legitimate interests.
We
cannot assure you that eTec will continue to receive Department of Energy (DOE),
or any other government funding, which comprises a large portion of its
revenue.
Government
funding of projects related to renewable energy, energy, and transportation is
subject to cuts or cancellation without notice. A large portion of the
consulting and testing revenue of eTec is DOE related activity, and as such the
future of such revenue streams is uncertain and out of our control.
We
cannot assure that the underlying technology of SuperCharge and MinitCharger
will remain commercially viable, and this could affect the revenue and potential
profit of eTec and MinitCharger.
We face
competition in the battery recharging and fast charging sector from a number of
companies. While we believe that we currently have the best technology in fast
charging, conditioning and monitoring batteries for transportation and
industrial applications, we cannot assure you that competitors will not develop
and bring to market substantially equivalent or superior technology. A loss of
our technology advantage could adversely impact or eliminate our revenue and
profitability
19
We
cannot assure you that the demand for hydrogen testing, educational and
small-scale applications will continue, and this could affect the prospects for
the Fuel Cell Store.
We face
competition in the provision of fuel cell products and educational materials
from a number of companies. Additionally, the hydrogen industry is evolving,
demand is unpredictable and follows outside forces such as school funding
programs and government funding which are out of our control.
An
increase in interest rates or a dramatic tightening of corporate credit markets
could make it difficult for end-users to finance the cost of a conversion to
renewable energy products and systems and could reduce or eliminate the demand
for our products.
Many of
our end-users depend on debt financing to fund the initial capital expenditure
required to purchase and install renewable energy products and systems. As a
result, an increase in interest rates could make it difficult for our end-users
to secure the financing necessary to purchase and install renewable energy
products and systems on favorable terms, or at all and thus lower demand for our
products and reduce our net sales. In addition, we believe that a significant
percentage of our end-users install renewable energy products as an investment,
funding the initial capital expenditure through a combination of equity and
debt. An increase in interest rates could lower an investor’s return on
investment in a renewable energy products and systems and make alternative
investments more attractive relative to renewable energy products and, in each
case, could cause these end-users to seek alternative investments.
Problems
with product quality or performance may cause us to incur warranty expenses,
damage our market reputation and prevent us from maintaining or increasing our
market share.
Our
products are sold with various materials and workmanship warranty for technical
defects and a 10 year and 25 year warranty against declines of more than 10% and
20% of their initial rated power, respectively. As a result, we bear the risk of
extensive warranty claims long after we have sold our products and recognized
net sales. As of December 31, 2009, our accrued warranty expense amounted
to approximately $211,345.
Because
of the limited operating history of our products, we have been required to make
assumptions regarding the durability and reliability of our products. Our
assumptions could prove to be materially different from the actual performance
of our products, causing us to incur substantial expense to repair or replace
defective solar modules in the future. Any widespread product failures may
damage our market reputation and cause our sales to decline and require us to
repair or replace the defective products, which could have a material adverse
effect on our financial results
We
depend on a limited number of third-party suppliers for key raw materials and
their failure to perform could cause manufacturing delays and impair our ability
to deliver our products to customers in the required quality and quantities and
at a price that is profitable to us.
Our
failure to obtain raw materials and components that meet our quality, quantity
and cost requirements in a timely manner could interrupt or impair our ability
to manufacture our products or increase our manufacturing cost. Most of our key
raw materials are either sole-sourced or sourced by a limited number of
third-party suppliers. As a result, the failure of any of our suppliers to
perform could disrupt our supply chain and impair our operations. In addition,
many of our suppliers are small companies that may be unable to supply our
increasing demand for raw materials as we implement our planned rapid expansion.
We may be unable to identify new suppliers or qualify their products for use on
our production lines in a timely manner and on commercially reasonable terms, if
at all.
Our
substantial international operations subject us to a number of risks, including
unfavorable political, regulatory, labor and tax conditions in foreign
countries.
We have
significant marketing and distribution operations outside the United States and
expect to continue to have significant manufacturing operations outside the
United States in the near future. We have significant manufacturing
operations in Mexico. In the future, we may have operations in other European
countries, and other Asian countries and, as a result, we will be subject to the
legal, political, social and regulatory requirements and economic conditions of
many jurisdictions. Risks inherent to international operations, include, but are
not limited to, the following:
·
|
difficulty
in enforcing agreements in foreign legal
systems;
|
·
|
foreign
countries may impose additional withholding taxes or otherwise tax our
foreign income, impose tariffs, or adopt other restrictions on foreign
trade and investment, including currency exchange
controls;
|
·
|
fluctuations
in exchange rates may affect product demand and may adversely affect our
profitability in U.S. dollars to the extent the price of our solar
modules, cost of raw materials and labor and equipment is denominated in a
foreign currency;
|
·
|
inability
to obtain, maintain, or enforce intellectual property
rights;
|
·
|
risk
of nationalization of private
enterprises;
|
·
|
changes
in general economic and political conditions in the countries in which we
operate;
|
20
·
|
unexpected
adverse changes in foreign laws or regulatory requirements, including
those with respect to environmental protection, export duties and
quotas;
|
·
|
difficulty
with staffing and managing widespread operations;
and
|
·
|
trade
barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could increase the prices of our solar
modules and make us less competitive in some
countries.
|
Our
future success depends on our ability to retain our key employees and to
successfully integrate them into our management team.
We are
dependent on the services of Jonathan Read, our Chief Executive Officer, Barry
Baer, our Chief Financial Officer and Don Karner, President of our eTec
subsidiary. The loss of Messrs. Read, Baer or Karner could have a material
adverse effect on us. There is a risk that we will not be able to retain or
replace these key employees. Several of our current key employees, including
Messrs. Read, Baer and Karner, are subject to employment conditions or
arrangements that contain post-employment non-competition provisions. However,
these arrangements permit the employees to terminate their employment with us
upon little or no notice. Failure to maintain our small management team
could prove disruptive to our daily operations, require a disproportionate
amount of resources and management attention and prove
unsuccessful.
We
have limited insurance coverage and may incur losses resulting from product
liability claims, business interruptions, or natural disasters.
We are
exposed to risks associated with product liability claims in the event that the
use of our solar modules results in personal injury or property damage. Our
recharging systems, batteries, solar modules are electricity-producing devices,
and it is possible that users could be injured or killed by our products due to
product malfunctions, defects, improper installation, or other causes. Our
companies commercial shipment of products began in 1999 and, due to our limited
historical experience, we are unable to predict whether product liability claims
will be brought against us in the future or the effect of any resulting adverse
publicity on our business. Moreover, we may not have adequate resources and
insurance to satisfy a judgment in the event of a successful claim against us.
The successful assertion of product liability claims against us could result in
potentially significant monetary damages and require us to make significant
payments. Any business disruption or natural disaster could result in
substantial costs and diversion of resources.
Any
change in government regulation and/or administrative practices may have a
negative impact on our ability to operate and our profitability.
The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in the United States or any other
jurisdiction, may be changed, applied or interpreted in a manner which will
fundamentally alter our ability to carry on our business.
The
actions, policies or regulations, or changes thereto, of any government body or
regulatory agency, or other special interest groups, may have a detrimental
effect on us. Any or all of these situations may have a negative impact on our
ability to operate and/or our profitably.
Our
directors, executive officers and affiliates will continue to exert significant
control over our future direction, which could reduce the sale value of our
company.
As of
February 5, 2010 members of our Board of Directors and our executive officers,
together with our affiliates, own approximately 56% of our outstanding common
stock. Accordingly, these stockholders, if they act together, may be able
to control all matters requiring approval of our stockholders, including the
election of directors and approval of significant corporate transactions.
The concentration of ownership, which could result in a continued
concentration of representation on our Board of Directors, may delay, prevent or
deter a change in control and could deprive our stockholders of an opportunity
to receive a premium for their common stock as part of a sale of our
assets.
Investors
should not anticipate receiving cash dividends on our common stock.
We have
never declared or paid any cash dividends or distributions on our common stock
and intend to retain future earnings, if any, to support our operations and to
finance expansion. Therefore, we do not anticipate paying any cash
dividends on the common stock in the foreseeable future.
There
is a reduced probability of a change of control or acquisition of us due to the
possible issuance of preferred stock. This reduced probability could
deprive our investors of the opportunity to otherwise sell our stock in an
acquisition of us by others.
Our
Articles of Incorporation authorize our Board of Directors to issue up to
200,000,000 shares of preferred stock, of which, 8,477,299 shares are
outstanding as of April 12, 2010 in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or
designation of such series, without further vote or action by stockholders.
As a result of the existence of “blank check” preferred stock, potential
acquirers of our company may find it more difficult to, or be discouraged from,
attempting to effect an acquisition transaction with, or a change of control of,
our company, thereby possibly depriving holders of our securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.
21
Risks Relating to Our
Outstanding Financing Arrangements:
There
are a large number of shares underlying our preferred shares and warrants
outstanding that may be available for future sale and the sale of these shares
may depress the market price of our common stock.
As of
April 12, 2010, we had 8,537,299 shares of common stock issued and
outstanding, shares of series A convertible preferred stock outstanding that may
be converted into 8,537,299 shares of common stock and warrants outstanding that
may be exercised into 3,091,856 shares of common stock. All of the shares
issuable upon conversion of the series A convertible preferred stock and
exercise of the warrants may be sold without restriction upon the
effectiveness of a registration statement
The
issuance of shares upon conversion of the series A convertible preferred stock
or exercise of the warrants may cause immediate and substantial dilution to our
existing stockholders.
The
issuance of shares upon conversion of the series A convertible preferred stock
or exercise of the outstanding warrants may result in substantial dilution to
the interests of other stockholders. Although holders of the series A
convertible preferred stock and warrants may not convert their series A
convertible preferred stock or exercise their warrants if such conversion or
exercise would cause them to own more than 9.99% of our outstanding common
stock, this restriction does not prevent them from converting and/or exercising
some of their holdings and then converting the rest of their holdings. In this
way, the holders could sell more than their limit while never holding more than
this limit. The shares issued upon conversion of the series A convertible
preferred stock and/or exercise of the outstanding warrants could have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
Risks Relating to Our Common
Stock:
If
We Fail to Remain Current in Our Reporting Requirements, We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to
Sell Our Securities and the Ability of Stockholders to Sell Their Securities in
the Secondary Market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
DESCRIPTION
OF PROPERTY
Our
primary property consists of office and manufacturing facilities to support our
operations. Our facilities are summarized in the following table:
Type
|
Location
|
Ownership
|
Approximate
Square Feet
|
|||||
Headquarters
|
Scottsdale,
AZ
|
Owned
|
1,700 | |||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
2,350 | |||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
7,500 | |||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
3,650 | |||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
15,000 | |||||
Manufacturing/Office
|
San
Diego, CA
|
Leased
|
5,400 | |||||
Manufacturing/Office
|
Tijuana,
Mexico
|
Leased
|
19,000 |
We
purchased the office building that serves as our headquarters and which is
located in Scottsdale, Arizona, on January 16, 2007 for an aggregate price
of $575,615. A total of $287,959 has been paid as of December 31,
2009 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, bears
interest at a 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 of the loan is due on or before January 16, 2012.
The loan is secured by a deed of trust on the office building.
Our lease
terms range from month to month through to 2013, with all terminating on or
before May 30, 2013.
It is our
belief that we are adequately insured regarding our leased and owned
properties.
22
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.
ITEM
2
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
On
August 26, 2009, ECOtality Inc. management met with the shareholders at its
annual shareholders' meeting.
Proxies
representing more than 86 % of the approximately 2,698,046 shares of the
Company’s outstanding common shares eligible to vote as of the record date of
July 27, 2009 were received. Accordingly, a quorum was present.
The
shareholders voted on the five proposals presented in our proxy statement mailed
on July 31, 2009
Proposal
1
At the
meeting the shareholders elected the five nominees: Jonathan R. Read, Harold W.
Sciotto, Jerry Y. S. Lin, E. Slade Mead and Barry S Baer to hold office until
the 2010 Annual Meeting of Stockholders and until their successors have been
elected and qualified.
Proposal
2
The
Shareholders ratified the selection of Weaver & Martin LLP, Kansas
City, Missouri, as our independent auditors for the fiscal year ending December
31, 2009.
Proposal
3
The
Shareholders approved the ECOtality Employee Equity Incentive Plan.
Proposal
4
The
Shareholders approved an amendment to the Company’s Amended and Restated
Articles of Incorporation to increase the number of authorized shares of Common
Stock from the 300,000,000 shares, par value $0.001 per share, presently
authorized to 1,300,000,000 shares.
Proposal
5
The
Shareholders approved discretionary authority for a reverse stock split in the
range of one-for-fifty to one-for-one-hundred.
PART II
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET
INFORMATION FOR COMMON STOCK
Market
information
Our
common stock has been quoted on the NASD’s OTC Bulletin Board under the trading
symbol “ACHM” from December 7, 2005 until December 12, 2006 when our
symbol was changed to “ETLY.” In November of 2009 our symbol was changed
to "ETLE". The high and low closing prices of our common stock for the
periods indicated are set forth below. These closing prices do not reflect
retail mark-up, markdown or commissions.
23
High
|
Low
|
*High Adj
|
*Low Adj
|
|||||||||||||
2009
|
||||||||||||||||
First
Quarter
|
$ | 0.04 | $ | 0.02 | $ | 2.40 | $ | 1.20 | ||||||||
Second
Quarter
|
$ | 0.17 | $ | 0.03 | $ | 10.20 | $ | 1.80 | ||||||||
Third
Quarter
|
$ | 0.46 | $ | 0.09 | $ | 27.60 | $ | 5.40 | ||||||||
Fourth
Quarter
|
$ | 0.13 | $ | 8.50 | $ | 7.80 | $ | 8.50 | ||||||||
2008
|
||||||||||||||||
First
Quarter
|
$ | 0.31 | $ | 0.13 | $ | 18.60 | $ | 7.80 | ||||||||
Second
Quarter
|
$ | 0.23 | $ | 0.05 | $ | 13.80 | $ | 3.00 | ||||||||
Third
Quarter
|
$ | 0.07 | $ | 0.06 | $ | 4.20 | $ | 3.60 | ||||||||
Fourth
Quarter
|
$ | 0.09 | $ | 0.03 | $ | 5.40 | $ | 0.03 |
*
Adjusted for impact of Reverse Split of 1:60 taking place on November 24,
2009.
On
December 31, 2009 the closing bid price on the OTC Bulletin Board for our
common stock was $5.54 per share.
The
shares quoted are not now, but could become subject to the provisions of
Section 15(g) and Rule 15g-9 of the Securities Exchange Act of
1934, as amended (the Exchange Act”), commonly referred to as the “penny stock”
rule. Section 15(g) sets forth certain requirements for transactions
in penny stocks and Rule 15g-9(d)(1) incorporates the definition of
penny stock as that used in Rule 3a51-1 of the Exchange Act.
The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides that any equity security is considered to be a penny
stock unless that security is: registered and traded on a national securities
exchange meeting specified criteria set by the Commission; authorized for
quotation on The NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00 per share) or
the registrant’s net tangible assets; or exempted from the definition by the
Commission. Trading in the shares is subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse.
For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of
a risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker
dealers to trade and/or maintain a market in the company’s common stock and may
affect the ability of shareholders to sell their shares.
Shares
Available Under Rule 144
As of
April 12, 2010, we had 8,873,532 shares of common stock outstanding, In
general, under the recently amended Rule 144 which became effective on
February 15, 2008 a person, or persons whose shares are aggregated, who owns
shares that were purchased from us, or any affiliate, at least six months
(subject only to the Rule 144(c) public information requirement until
the securities have been held for one year), previously, including a person who
may be deemed our affiliate, is entitled to sell within any three month period,
a number of shares that does not exceed the greater of:
|
1.
|
1%
of the then outstanding shares of our common stock;
or
|
|
2.
|
The
average weekly trading volume of our common stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission.
|
Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
Any person who is not deemed to have been our affiliate at any time during
the 90 days preceding a sale, and who owns shares within the definition of
“restricted securities” under Rule 144 under the Securities Act that were
purchased from us, or any affiliate, at least one year previously, is entitled
to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
Future
sales of restricted common stock under Rule 144 or otherwise or of the
shares could negatively impact the market price of our common stock. We
are unable to estimate the number of shares that may be sold in the future by
our existing stockholders or the effect, if any, that sales of shares by such
stockholders will have on the market price of our common stock prevailing from
time to time. Sales of substantial amounts of our common stock by existing
stockholders could adversely affect prevailing market prices.
24
Holders
As of
April 12, 2010,we . had approximately 8,873,525 shares of $0.001 par value
common stock issued and outstanding held by 413 registered
shareholders. ECOtality, Inc.’s Transfer Agent is: Corporate
Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver,
CO 80209. Phone 303-282-4800, Fax 303-282-5800.
Dividends
We have
not declared or paid any cash dividends on our common stock. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and do not anticipate paying any cash dividends
on our 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 our financial condition and the results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the Board of Directors considers relevant.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides the following information as of December 31, 2009,
for equity compensation plans previously approved by security holders, as well
as those not previously approved by security holders:
|
1.
|
The
number of securities to be issued upon the exercise of outstanding
options, warrants and rights;
|
|
2.
|
The
weighted-average exercise price of the outstanding options, warrants and
rights; and
|
|
3.
|
Other
than securities to be issued upon the exercise of the outstanding options,
warrants and rights, the number of securities remaining available for
future issuance under the plan.
|
Plan Category
|
Number of Shares
to be Issued
Upon Exercise of
Outstanding
Options,
Warrants and
Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants and
Rights
|
Number of Shares
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Shares Reflected
in the First
Column)
|
|||||||||
Equity
compensation plans approved by shareholders
|
49,167 | $ | 10.08 | 28,000 | ||||||||
Equity
compensation plans not approved by shareholders
|
$ | |||||||||||
Total
|
49,167 | $ | 10.08 | 28,000 |
Recent
Sales of Unregistered Securities
On
November 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an aggregate of $4,117,649. We received gross proceeds of
approximately $3,500,000 from this offering. In connection with the
November 2007 financing, we issued the following securities to the
investors:
|
·
|
$4,117,649
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 114,379 shares of common stock at
$19.20 per share for a period of five
years.
|
The
warrants were originally exercisable to purchase one share of common stock at
$19.20 per share, and had a term of exercise equal to 5 years. The warrant
holders could not exercise the warrants for a number of shares of common
stock in excess of that number of shares which upon giving effect to such
exercise would cause the aggregate number of shares beneficially owned by the
holder to exceed 9.99% of the outstanding shares of the common stock following
such exercise. On October 31, 2009, the remaining unpaid principal and
related interest and penalties of $4,194,393 as well as the outstanding warrants
(including warrants issued subsequently related to debt payment waivers) to
purchase 4,597,145 shares at $0.60, were converted to preferred
shares.
On
December 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an
aggregate of $1,764,706.We received gross proceeds of approximately $1,500,000
from this offering. In connection with the December 2007 financing,
we issued the following securities to the investors:
25
|
·
|
$1,764,706.50
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 49,019 shares of common stock at
$19.20 per share for a period of five
years.
|
The
warrants were originally exercisable to purchase one share of common stock at
$19.20 per share, and had a term of exercise equal to 5 years. The Warrant
holders could not exercise the Warrants for a number of shares of common stock
in excess of that number of shares which upon giving effect to such exercise
would cause the aggregate number of shares beneficially owned by the holder to
exceed 9.99% of the outstanding shares of the Common stock following such
exercise. On October 30, 2009, the remaining unpaid principal and related
interest and penalties of $2,350,895 was converted to preferred
shares.
July 2,
2009 issuance of $2,500,000 in 8% Secured Convertible Debentures (July 2009
Debentures) due October 1, 2010. The debentures had an exercise price or $3.60
per share of ECOtality common stock. Shenzhen Goch Investment Ltd was issued
$2,000,000 of July 2009 Debentures, Enable Growth Partners (November and
December 2007 Debenture holder) was issued $250,000 in July 2009 Debentures, and
BridgePointe Master Fund (November and December 2007 Debenture holder) was
issued $250,000 in July 2009 Debentures. New investor Shenzhen Goch was
issued 29,149 Common Stock Purchase Warrants to purchase shares of common stock
at $0.60. The Nov/Dec debenture holders cancelled an equivalent
number of previously issued Common Stock purchase warrants of equal value to
offset this issuance. On October 31, 2009, the remaining unpaid principal
and related interest of $2,565,881 and the related outstanding warrants to
purchase 29,149 shares of common stock at $0.60 were converted to preferred
shares.
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common Stock”).
At the date of this filing the Series A Convertible Preferred Stock is
convertible at a1:60 ratio. Following the reverse split of common shares
(see below) the Company expects that the preferred shares will be convertible at
a 1:1 ratio
On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Common Stock at a purchase price of $7.20 per share. The funds from
the private placement will be utilized as working capital to support the initial
requirements of the contract signed with the Department of Energy on September
30, 2009.
Terms of
the private placement include:
1.
|
A
minimum aggregate purchase of $15,500,000 of Common Stock by the
Investors.
|
2.
|
Each
Investor will receive a Warrant to purchase the equivalent number of
shares of Common Stock that it purchases under to the Securities Purchase
Agreement. The exercise price of the Warrants will be equal to $9.00
per share. The Company may call the Warrants if the closing price of
shares of the Common Stock is at least $27 per share for 20 consecutive
trading days, subject to certain conditions, including the existence of an
effective registration statement for the shares of Common Stock issuable
upon exercise of the Warrants (the “Warrant Shares”) and minimum volume
provisions. The Company may not effect any exercise of the Warrants
in an amount that would result in any Investor or its affiliates
beneficially owning more than 9.99% of the outstanding Common Stock upon
such an exercise. The Warrants will have a five-year term during
which they can be exercised and shall contain a cashless exercise
provision which shall apply if there is not an effective registration
statement covering the resale of the shares issuable upon
exercise.
|
3.
|
The
Company shall file a shelf registration statement for the resale of the
shares of Common Stock purchased under the Securities Purchase Agreement
and the Warrant Shares on Form S-3 or another appropriate form (the
“Registration Statement”). Such Registration Statement shall be
filed as soon as practicable, but in any event within 45 days of the
closing date of the Securities Purchase
Agreement.
|
4.
|
The
Investors have agreed not to exercise “short sales” for a period of
9-months after the date of the Securities Purchase
Agreement.
|
5.
|
The
Company will initiate the process to effect the Reverse Split prior to the
closing, and the Company will submit its application to be listed on The
NASDAQ Stock Market as soon as possible thereafter. The Company is
obligated to consummate the Reverse Split within 30 days of the date of
the Securities Purchase Agreement which was accomplished on November 24,
2009.
|
26
MANAGEMENT’S
DISCUSSION AND PLAN OF OPERATIONS.
Forward-Looking
Statements
The
statements contained in all parts of this document that are not historical facts
are, or may be deemed to be, “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements
include, but are not limited to, those relating to the following: our ability to
secure necessary financing; expected growth; future operating expenses; future
margins; fluctuations in interest rates; ability to continue to grow
and implement growth, and regarding future growth, cash needs, operations,
business plans and financial results and any other statements that are not
historical facts.
When used
in this document, the words “anticipate,” “estimate,” “expect,” “may,” “plans,”
“project,” and similar expressions are intended to be among the statements that
identify forward-looking statements. Our results may differ significantly
from the results discussed in the forward-looking statements. Such
statements involve risks and uncertainties, including, but not limited to, those
relating to costs, delays and difficulties related to our dependence on our
ability to attract and retain skilled managers and other personnel; the intense
competition within our industry; the uncertainty of our ability to manage and
continue its growth and implement its business strategy; its vulnerability to
general economic conditions; accuracy of accounting and other estimates; our
future financial and operating results, cash needs and demand for services; and
our ability to maintain and comply with permits and licenses; as well as other
risk factors described in this Annual Report. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those projected.
Overview
of the Business
We were
incorporated in Nevada in 1999. We are a leader in clean electric
transportation and storage technologies. Through innovation, acquisitions, and
strategic partnerships, we accelerate the market applicability of advanced
electric technologies to replace carbon-based fuels. We are a leader in
providing electric vehicle infrastructure products and solutions that are used
in on-road grid-connected vehicles (including plug-in hybrid electric vehicles
(PHEV) and battery electric vehicles (BEV)), material handling and airport
electric ground support applications. Through our main operating subsidiary,
Electric Transportation Engineering Corporation (eTec), our primary
product offering is the Minit-Charger line of advanced battery fast-charge
systems that are designed for various automotive applications. In addition to
our electric transportation focus, we are also involved in the
development, manufacture, assembly and sale of specialty solar products,
advanced battery systems, and hydrogen and fuel cell systems. Our subsidiaries
and primary operating segments consist of Electric Transportation Engineering
Corporation (eTec), Innergy Power Corporation (Innergy), and ECOtality
Stores (dba Fuel Cell Store). In addition we have a wholly owned subsidiary in
Mexico providing manufacturing services for us.
We
operate with a commercial “electro-centric” strategy, targeting only products
and companies involved in the creation, storage, and/or delivery of clean or
renewable electric power. This strategy has resulted in the development and
acquisition of various operating companies.. While focused on electric
transportation infrastructure, we have developed a diversified technology
portfolio that is linked through the ability to deliver comprehensive
electro-centric energy alternatives and solutions. By establishing a
technologically diverse multi-product base we are able to mitigate the
uncertainty of clean technology demands and regulatory changes. Our current
primary focus is to facilitate and execute the development and implementation of
electric vehicle charging infrastructure in anticipation of mass
commercialization of plug-in hybrid electric vehicles (PHEV) and battery
electric vehicles (BEV) in the 2010 to 2012 timeframe.
Electric
Transportation Engineering Corporation (eTec)
Electric
Transportation Engineering Corporation (eTec) was incorporated in Arizona in
1996 to support the development and installation of battery charging
infrastructures for electric vehicles. As our primary operating
subsidiary, eTec is a recognized leader in the research, development and testing
of advanced transportation and energy systems, and is the exclusive provider of
the Minit-Charger line of battery fast-charge systems and technologies.
Specializing in alternative-fuel, hybrid and electric vehicles and
infrastructures, eTec offers consulting, technical support and field services
and is committed to developing and commercially advancing clean electric
technologies with clear market advantages.
eTec’s
primary product line consists of the Minit-Charger line of battery fast-charge
systems. The Minit-Charger brand is the result of a consolidation of the two
leading fast-charging technologies: eTec SuperCharge™ and
Edison Minit-Charger.
Prior to rebranding all eTec fast-charge systems under the Minit-Charger brand,
eTec held exclusive patent rights to the flagship product line, eTec SuperCharge™ -
battery fast-charge systems that allow for rapid charging while generating less
heat and promoting longer battery life than conventional chargers. The eTec SuperCharge technology
was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was
specifically designed for airport ground support equipment, neighborhood and
on-road electric vehicle, and marine and transit system operations. Since the
acquisition of the technology, eTec has made considerable engineering and
product advancements and is currently a leader in providing these clean electric
fast-charging technologies to airports throughout North
America.
27
In 2007,
we acquired the Minit-Charger business of Edison Source, a division of Edison
International . The core
Minit-Charger technology allows for material handling equipment to
convert to electric power systems that can be charged quickly, conveniently and
efficiently, thereby eliminating the need for propane or diesel-powered
equipment or for backup batteries and costly change-out operations required with
traditional straight-line charging.. eTec’s Minit-Charger line of
battery fast charge systems has a large customer base that consists of Fortune
500 companies and other corporate entities throughout North
America.
In March
of 2008, all eTec fast-charging products, including the eTec SuperCharge product
line, were consolidated under the eTec Minit-Charger brand. By
unifying the underlying fast-charging technologies under a single engineering,
manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing efforts. The
complete portfolio of eTec
Minit-Charger products provides eTec with a leadership position in
current fast charging markets and well positions us to capitalize on the rapidly
growing clean technology sector for electric vehicle infrastructure
technologies. We believe Minit-Charger is the most superior fast-charge
technology on the market as it is a smart charging system that can charge
batteries (of almost all chemistries) as fast as possible, while best
controlling the battery temperature and avoiding the devastating effects of
overcharging.
eTec has
a comparatively long history in clean and renewable technologies and has various
standing contractual relationships as a test contractor and/or primary and
consulting engineer for projects with the United States Department of Energy
(DoE), several national research laboratories, national energy storage
consortiums, and large electric utilities where they provide services in energy
storage, monitoring, systems design and fabrication, product and vehicle
testing, and product development. Their work has been in the areas of electric
vehicle systems, recharging stations, energy demand management systems, utility
communication systems, advanced battery technologies, fast charging
technologies, hydrogen creation, storage and dispensing systems, and coal
gasification programs. Currently, eTec is holds the exclusive contract for the
DoE’s Advanced Vehicle Testing Activity (AVTA) program and has conducted more
than 6 million miles of vehicle testing on more than 200 advanced fuel
vehicles.
eTec was
acquired as an expansion platform for its core expertise in battery
technologies, fast charging systems, energy distribution infrastructure, and
advanced vehicle technologies and testing, which includes electric vehicle (EV),
hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and
hydrogen vehicle technologies. We believe that eTec will expand its core
technologies through new product development, joint ventures, acquisitions and
organic growth. As eTec has unparalleled experience with electric vehicle
infrastructure, we believe our experience with electric vehicles infrastructure,
our knowledge of the vehicle and battery systems, as well as our industry
leading fast-charging technology provides us with a distinct competitive
advantage to be leading provider of electric vehicle infrastructure services and
installation.
eTec has
been involved in every North American EV initiative to date and is a leading
provider of solutions for electric vehicles and its supporting infrastructure.
Currently, eTec has installed more than 5,100 charging stations for motive
applications, and has installed more chargers for on-road applications than any
other company in North America.
On August
5, 2009 eTec was selected by the U.S. Department of Energy for a grant of
approximately $99.8 million to undertake the largest deployment of electric
vehicles (EVs) and charging infrastructure in U.S. history. On September 30th, eTec
accepted the $99.8 million grant, of which approximately $13 million was
sub-funded to federal research and development centers, which will net eTec
$86.4 million in revenues. eTec, as the lead applicant for the
proposal, partnered with Nissan North America to deploy EVs and the charging
infrastructure to support them. The Project takes advantage of the early
availability of the Nissan LEAF, a zero-emission electric vehicle, to develop,
implement and study techniques for optimizing the effectiveness of charging
infrastructure that will support widespread EV deployment. The Project will
install electric vehicle charging infrastructure and deploy up to a total of
4,700 Nissan battery electric vehicles in strategic markets in five states:
Arizona, California, Oregon, Tennessee, and Washington.
The
Project will collect and analyze data to characterize vehicle use in diverse
topographic and climatic conditions, evaluate the effectiveness of charge
infrastructure, and conduct trials of various revenue systems for commercial and
public charge infrastructure. With the goal of developing mature charging
environments, the Project proposes to deploy charging infrastructure in major
population areas that include Phoenix (AZ), Tucson (AZ), San Diego (CA),
Portland (OR), Eugene (OR), Salem (OR), Corvallis (OR), Seattle (WA), Nashville
(TN), Knoxville (TN) and Chattanooga (TN). To support the Nissan EV, the Project
will install approximately 11,000 Level 2 (220V) charging systems and 250
Level 3 (fast-charge) systems.
Innergy
Power Systems
Founded
in 1989, Innergy Power Systems is based in San Diego, California with a
manufacturing facility in Tijuana, Mexico. Innergy is the only North American
manufacturer of both renewable energy solar modules and thin-sealed rechargeable
batteries, as its solar photovoltaic (PV) product line addresses the burgeoning
worldwide demand for solar energy products and off-grid power. Innergy’s
fiberglass reinforced panel (FRP) solar modules are designed to meet a
broad range of applications for emergency preparedness and recreation,
where quality, durability, rugged construction and light weight are important in
the outdoor environment. Applications include logistics tracking, asset
management systems, off-grid lighting, mobile communications, mobile computing,
recreational vehicles, signaling devices and surveillance cameras.
Innergy
and our wholly owned subsidiary providing manufacturing services, Portable
Energy De Mexico, S.A. DE C.V., provides us the ability to further expand our
production, manufacturing and assembly capabilities for Innergy’s solar products
and energy storage devices, as well as products of our other subsidiaries,
including eTec’s Minit-Charger products. Innergy provides us the
ability to expand our offering of solar products and solutions into current and
developing commercial markets, as well as provides strong manufacturing and
assembly operations to assist other aspects of our business. While we expect
solar to become a major future energy source, Innergy’s battery systems that
support the growing electric vehicle market is quickly expanding and we expect
the combination of solar solutions and new battery sales to contribute to our
long and short-term earnings and revenue growth. Innergy is actively pursuing
growth opportunities through product line expansion, joint ventures,
acquisitions, and manufacturing contracts.
28
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.
Hydrality™
Hydrality™
is a complex reactor system that stores and delivers hydrogen on-demand
using magnesium compounds and water. The EPC/Hydrality technology, which was
initially developed in conjunction with NASA’s Jet Propulsion Laboratory (JPL)
and subsequently advanced by Arizona State University, Green Mountain
Engineering and Airboss Aerospace, Inc. continues to have strong promise for a
variety of commercial applications. While we initially sought to design and
license a cost efficient Hydrality system for use in motorized vehicles and
industrial equipment, we have identified several additional and promising
applications for Hydrality that include stationary applications for remote
power, back-up power systems, and large scale industrial and utility
use.
Organizational
History
We were
incorporated in Nevada in 1999 under the name Alchemy Enterprises, Ltd. to
market biodegradable products. On November 14, 2006, we changed our
name to “ECOtality, Inc.” to better reflect our renewable energy
strategy.
On
June 12, 2006, we entered into a License Agreement with California
Institute of Technology (CalTech), which operates Jet Propulsion Laboratory
(JPL), whereby we acquired certain exclusive licensed patent and/or patent
applications rights and improvement patent rights related to research performed
under the JPL Task Plan No. 82-10777, entitled “Mechanically-Fed Metal-Air
Fuel Cell As A High Energy Power Source” (“Task Plan”), as well as a
nonexclusive licensed technology rights developed as a result of the Task Plan.
As partial consideration paid in connection with the License Agreement, we
issued 5,869,565 shares of our common stock to CalTech with a fair market value
of $1.40 per share, based upon the closing price of our common stock on
June 12, 2006, for a total aggregate value of $8,217,391.
Furthermore, we are obligated to pay an annual maintenance fee of $50,000
to CalTech, beginning on June 12, 2009, continuing until the expiration,
revocation, invalidation or unenforceability of the last exclusively licensed
patent rights or improvement patent rights. The License Agreement carries
a perpetual term, subject to default, infringement, expiration, revocation or
unenforceability of the License Agreement and the licenses granted
thereby.
On
June 11, 2007, we bought the assets of the Fuel Cell Store
(www.FuelCellStore.com), a small web-based seller of educational fuel cell
products. The Fuel Cell Store product line includes demonstration kits,
educational materials, fuel cell systems and component parts. It also
offers consulting services for establishing educational programs for all levels
of educational institutions. Since Fuel Cell Store was significantly
smaller than we are, we were not required to provide audited financial
statements for it. We operate the Fuel Cell Store through our
wholly-owned subsidiary, ECOtality Stores, Inc. While revenue
producing activities, facilities and employees has initially remained the same,
we have changed the distribution system through inventory control procedures,
and expanded the customer base through increased emphasis on marketing. We
sell Fuel Cell Store products through our own ECOtality Store’s website (www.fuelcellstore.com).
On
October 1, 2007 we closed on the purchase of certain assets of Innergy
Power Corporation and its wholly owned subsidiary, Portable Energy De Mexico,
S.A. DE C.V., pursuant to an agreement that we entered into on September, 18,
2007. Innergy designs and manufactures standard and custom solar-power and
integrated solar-battery solutions for government, industrial and consumer
applications. The purchase price for the assets was 50,000 shares of our
common stock. We guaranteed to the sellers that the shares of our common
stock issued in the transaction would be worth $3,000,000 during the 30 day
period commencing 11 months from the closing date or we would be required to
either issue additional shares such that the total shares are worth $3,000,000
at that time or pay the seller the difference in cash. The shares were
issued to the seller and are subject to piggy back registration rights and a
lock-up agreement.
On
November 6, 2007 we signed an agreement to acquire all of the outstanding
stock of the Clarity Group, Inc. and its affiliate, Electric Transportation
Engineering Corporation (eTec), through a stock purchase agreement. eTec
provides technical support and field services for all aspects of electric
vehicle infrastructure. eTec operates as our wholly owned subsidiary and
there have been no changes to the eTec’s management team.
29
In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.
Our
Hydrality System
We have
been developing Hydrality™, a system that stores and delivers hydrogen on-demand
using magnesium compounds and water. When used in conjunction with existing fuel
cell technology, Hydrality emits only pure water and produces no harmful
emissions.
While we
initially sought to design and license a cost efficient Hydrality system for use
in motorized vehicles and industrial equipment, we have identified several
additional promising applications for Hydrality that include stationary
application for remote power, back-up power systems, and large-scale industrial
and utility use as we have described above in our description of our
business.
On
May 7, 2007, a non-provisional patent application was filed by Stinson
Morrison Hecker LLP in the name of California Institute of Technology as
assignee and us as exclusive licensee of the technology, for a Method and System
for Storing and Generating Hydrogen, claiming priority from a provisional
application filed by CalTech on May 8, 2006. The details of the
patent application and invention are confidential until publication or issue.
The patent application is generally directed towards the hydrogen reactor
design currently under development.
The
current technology, which is the subject of the pending patent application, is a
method for generating hydrogen in an on-board vehicle reaction chamber to fuel a
fuel cell or modified engine on demand. The information and diagrams in
the Technology Contribution Agreement and JPL Task Plan involve a metal-air
battery design. Based on the research of JPL into the metal-air battery
design, the technology has migrated from a basic metal-air battery concept to a
hydrogen reactor.
While we
are now are in the process of investigating and analyzing third-generation
reactor models, we anticipate this to be a long term project given the minimal
amount of funds we are expending on this research and development effort.
Laboratory-scale test reactors are being used to gather data for the
purpose of characterizing the reactor and constructing analytical design models.
It is anticipated that patent protection will be sought on one or more
aspects or features of the third-generation reactor. However, it is not
our stated intent to manufacture reactors. Rather, it is our intent to use the
third-generation reactors to demonstrate the technology, and then license the
technology and/or the reactor design to others for commercialization. The
specifications of the commercial reactors have not yet been determined, and the
designs will vary based on different customer application
requirements.
Status
of any announced new product or service
Throughout
2008 and 2009, the Company has stressed its focus on being the leading supplier
of electric vehicle infrastructure. We have also continued to reiterate that
although we initially sought to design and license a cost efficient Hydrality
system for use in motorized vehicles and industrial equipment, we have
identified several additional and promising applications for Hydrality that
include stationary applications for remote power, back-up power systems, and
large scale industrial and utility use.
Fuel
Cell Store
On
June 17, 2007 we bought the assets of the Fuel Cell Store for $350,000 in
cash and 5,000 shares of our common stock. Our common stock will be
valued at its closing market price on the date of the agreement. The
closing price was $37.80 per share, on that date for a total value of $189,000
and a total price paid cash and stock of $539,000. We concluded this to be
an asset purchase rather than a business purchase because we did not
acquire their debt and they continue to exist after the purchase is
completed. Of the assets acquired we identified and assigned a value
of $179,775 in merchandise inventory, $8,600 in fixed assets, and $23,843
in current accounts receivable. We reviewed the intangible assets that we
acquired, including the customer data base and internally developed software,
and determined that the intangible assets did not have value to
us. Therefore, the difference between the assets noted and the price
paid for the assets $326,782 was allocated to intangible assets and
impaired and written-off due to the lack of proven future cash flows generated
by the assets acquired.
Innergy
Power Corporation
On
October 1, 2007, we purchased certain assets of Innergy Power Corporation
and its wholly-owned subsidiary, Portable Energy De Mexico, S.A. DE C.V..
The purchase price for the assets was 50,000 shares of our common
stock. We guaranteed to the seller that the shares of our common stock
issued to them in the acquisition would be worth $3,000,000 during the 30 day
period commencing 11 months from the closing date or we will be required to
either issue additional shares such that the total shares are worth $3,000,000
at that time or pay the seller the difference in cash. The shares that we
issued to the seller are subject to piggy back registration rights and a lock up
agreement to be executed by the seller’s stockholders.
30
Electric
Transportation Engineering Corporation (eTec)
On
November 6, 2007, we signed a stock purchase agreement with two
non-affiliated individuals whereby we purchased all of the issued and
outstanding capital stock of Electric Transportation Engineering Corporation, as
well as its affiliated company Clarity Group, Inc. (both of which are
collectively referred to as “eTec”). eTec provides technical support and
field services for all aspects of electric vehicle infrastructure. eTec
will operate as our subsidiary and there will be no changes to the company’s
management team.
The
aggregate purchase price for the outstanding capital stock of eTec is $3,000,000
in cash and 108,333 shares of our common stock of the $3,000,000 in cash to be
paid to eTec, $2,500,000 was paid upon closing of the stock purchase agreement
and $500,000 was to be paid in 10 equal monthly installments, beginning
December 1, 2007. The 108,333 shares were issued in the following
manner: 108,333 were issued upon the close of the stock purchase agreement,
54,166 were released on date of signing, and 54,166 were to be released on the
first anniversary of the closing of the stock purchase agreement from the
Company corporate secretary barring any indemnity claims. The shares bear
a restrictive legend and are not subject to piggy-back registration
rights.
Edison
Minit-Charger
In
December 2007, we entered into and completed various stock and asset
purchase agreements with Electric Transportation Engineering Corporation
(“eTec”), Edison Source (“Vendor”), Edison Enterprises (“Edison”) and 0810009
B.C. Unlimited Liability Company (“0810009”) to purchase certain technology and
assets related to the manufacture and selling of a “fast charge” battery
charging system to be used in commercial and industrial market
places.
The
aggregate purchase price is $1,000,000 in cash and 33,333 shares of our common
stock. If, on the 10th day
following the first anniversary date of the agreements December 14, 2008,
the average closing price for our common stock during the 30-day period ending
on the first anniversary date of the Stock Purchase Agreement (December 4,
2008) was less than $60.00 per share, we, at our option, shall
either:
|
1.
|
Issue
additional shares of common stock to the seller so that the aggregate
value of our common stock is equal to the $2,000,000 (“Stock Consideration
Amount”);
|
|
2.
|
Pay
to the seller an additional amount of cash so that the aggregate value
equals difference between the amount of the Purchase Price and the Stock
Consideration Amount; or
|
|
3.
|
Purchase
or cause the purchase of the common stock issued for an aggregate price
equal to the Stock Consideration
Amount.
|
Stage
of Commercialization of the Hydrality Technology
NASA’s
Jet Propulsion Laboratory (JPL), under its agreement with us, has completed
testing of the Hydrality technology on lab-scale models of the reactor resulting
in announced results and improvements. Its research is ongoing on our behalf and
will continue throughout the implementation stages of the technology.
Additionally, we have entered into an agreement with Arizona State University
(ASU) to evaluate potential regeneration technologies and determine cost and
energy efficiencies for converting magnesium oxide, the main byproduct of
Hydrality, back to its original form of magnesium.
Current
transportation industry trends suggest that the commercial viability of hydrogen
fuel cell vehicles remains on the distant horizon (about 10 years away) due to
cost and efficiency problems with underlying fuel cell technologies. Being
reactive and reflexive to these market trends, we have reduced the developmental
costs of Hydrality for transportation applications to pursue additional
applications with immediate commercial applicability in 2008. With the current
shift in the transportation market towards plug-in hybrid vehicles (PHEV) and
pure electric vehicles (EV), we will aggressively explore the use of eTec’s fast
charging systems in PHEV and EV infrastructure applications. If and when
fuel cell technologies begin to present a practical and economically viable
solution for alternative electric propulsion systems, the Company will be
prepared to capitalize upon the ongoing research and development efforts of
Hydrality to modify the system for use in transportation
applications.
As our
research and development efforts have identified several new and promising
applications for Hydrality that include stationary use, remote power, back-up
power systems, and large scale industrial and utility use, we intend to refocus
our research and development expenditures upon these areas that we determine to
have immediate commercial applicability. While we will target our research and
development efforts primarily on stationary and utility power applications, the
research and testing for large-scale applications of our Hydrality system will
be valuable in further advancing the technology for all applications, including
those of transportation.
We
believe the Hydrality technology has a promising future, but this future was not
as imminent as it was two years ago. There have been dramatic changes in the
hydrogen industry and an absence of expected interrelated product advancements
(i.e. fuel cells). Thus we have determined that the extreme vagaries of the
hydrogen technology industry, the immediate advancement of other renewable
technologies to the commercial forefront, and the potentially long and expensive
road to commerciality and profitability for any hydrogen technology necessitates
us to prudently and significantly scale back all hydrogen expenditures, and
proceed only on the basis of joint development projects or significantly
subsidized development with potential licensees or DOE grants.
31
Segment
Information
SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
disclosures related to components of a company for which separate financial
information is available that is evaluated regularly by a company’s chief
operating decision maker in deciding the allocation of resources and assessing
performance. Upon completion of FuelCellStores.com, Innergy Power
Corporation, Electric Transportation Engineering Corporation (eTec) and eTec’s
Minit-Charger business acquisitions from June through December 2007,
we identified our segments based on the way we expect to organize our Company to
assess performance and make operating decisions regarding the allocation of
resources. In accordance with the criteria in SFAS No. 131,
“Disclosure about Segments of an Enterprise and Related Information,” we have
concluded we have three reportable segments for the year ended December 31,
2009; Fuel Cell Store segment, Innergy Power segment and eTec segment. The Fuel
Cell Store 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. We have aggregated these subsidiaries into three
reportable segments: Fuel Cell Store, eTec and Innergy.
The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 2 of this Form 10-K.
Management continues to assess how it evaluates segment performance, and
currently utilizes income (loss) from operations. There was $28,723
in inter-segment sales during the year ended December 31,
2009.
Summarized
financial information concerning our reportable segments for the year ended
December 31, 2009 are as follows:
TWELVE MONTHS ENDED DECEMBER 31, 2009
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ETEC
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INNERGY
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FUEL CELL
STORE
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TOTAL
|
|||||||||||||
Total
net operating revenues
|
$ | 5,702,323 | $ | 2,111,198 | $ | 788,153 | $ | 8,601,674 | ||||||||
Depreciation
and amortization
|
$ | 320,064 | $ | 7,078 | $ | 3,561 | $ | 330,703 | ||||||||
Operating
income (loss)
|
$ | (2,077,492 | ) | $ | 646,001 | $ | 147,715 | $ | (1,283,776 | ) | ||||||
Interest
Income (expense)
|
$ | (1,289 | ) | $ | - | $ | - | $ | (1,289 | ) | ||||||
Gain
/ (Loss) on disposal of assets
|
$ | 48,523 | $ | - | $ | - | $ | 48,523 | ||||||||
Other
Income (expense)
|
$ | 236 | $ | - | $ | - | $ | 236 | ||||||||
Segment
Income before Corporate Overhead Allocation
|
$ | (2,030,022 | ) | $ | 646,001 | $ | 147,715 | $ | (1,236,306 | ) | ||||||
Corporate
Overhead Allocation
|
$ | 18,653,977 | $ | 6,906,350 | $ | 2,578,280 | $ | 28,138,607 | ||||||||
Segment
Income / (Loss)
|
$ | (20,683,999 | ) | $ | (6,260,349 | ) | $ | (2,430,565 | ) | $ | (29,374,913 | ) | ||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$ | 132,840 | ||||||||||||||
Reported
Net income after tax
|
$ | (29,507,750 | ) | |||||||||||||
Capital
Expenditures
|
$ | 771,919 | $ | - | $ | 5,945 | $ | 777,864 | ||||||||
Total
segment assets - excluding intercompany receivables
|
$ | 2,876,733 | $ | 714,433 | $ | 186,909 | $ | 3,778,075 | ||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$ | 3,495,878 | ||||||||||||||
Other
Corporate Assets
|
$ | 12,352,371 | ||||||||||||||
Total
Reported Assets
|
$ | 19,626,324 |
32
Summarized
financial information concerning the Company’s reportable segments for the year
ended December 31, 2008 is as follows:
YEAR ENDED DECEMBER 31, 2008
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$ | 8,072,664 | $ | 2,324,170 | $ | 790,549 | $ | 11,187,384 | ||||||||
Depreciation
and amortization
|
$ | 470,929 | $ | 6,229 | $ | 3,560 | $ | 480,718 | ||||||||
Operating
income (loss)
|
$ | (528,193 | ) | $ | (40,368 | ) | $ | 49,859 | $ | (518,702 | ) | |||||
Interest
Income
|
$ | 9,632 | $ | 519 | $ | - | $ | 10,151 | ||||||||
Gain
/ (Loss) on disposal of assets
|
$ | (95 | ) | $ | - | $ | - | $ | (95 | ) | ||||||
Other
Income - Working Capital True Up
|
$ | 364,645 | $ | - | $ | - | $ | 364,645 | ||||||||
Segment
Income before Corporate Overhead Allocation
|
$ | (154,011 | ) | $ | (39,849 | ) | $ | 49,859 | $ | (144,001 | ) | |||||
Corporate
Overhead Allocation
|
$ | 5,721,432 | $ | 1,534,970 | $ | 531,566 | $ | 7,787,968 | ||||||||
Segment
Income / (Loss)
|
$ | (5,875,443 | ) | $ | (1,574,819 | ) | $ | (481,707 | ) | $ | (7,931,969 | ) | ||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$ | 135,241 | ||||||||||||||
Reported
Net income after tax
|
$ | (8,067,210 | ) | |||||||||||||
Capital
Expenditures
|
$ | 251,260 | $ | 12,025 | $ | - | $ | 263,284 | ||||||||
Total
segment assets - excluding intercompany receivables
|
$ | 3,637,112 | $ | 512,532 | $ | 158,599 | $ | 4,308,243 | ||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$ | - | $ | - | $ | - | $ | 3,495,878 | ||||||||
Other
Corporate Assets
|
$ | - | $ | - | $ | - | $ | 1,022,336 | ||||||||
Total
Reported Assets
|
$ | 8,826,457 |
Results
of Operations
YEAR
ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008
Since
January 1, 2008 we have been transitioning ourselves from being a development
stage company to a growth oriented renewable energy company with a focus toward
electric vehicle infrastructure. Beginning January 2009 we initiated additional
efforts to strengthen our financial viability including steps to reduce or
eliminate our debt structure, obtain adequate working capital, establish strong
partnerships and secure federal stimulus contracts. Thus, the variations
reflected in our results of operations described below reflect these steps as
well as this transformation and the impact of the global economic
slowdown.
In the
year ended December 31, 2009, we had revenues of $8,601,674 compared to the year
ended December 31, 2008 of $11,187,384. This reduction in revenue is
largely related to the effect of the slowing economy on our business
particularly our industrial charger sales. Internally we saw a continued
reduction in billable consulting hours due to the redeployment of resources
required to prepare for the US Department of Energy Stimulus grant proposals
awarded during the third quarter ended September 30, 2009. The cost of goods
sold percentage for the year ending December 31, 2009 was 58% leaving us with a
gross profit of $3,641.897. Our gross margin of 42% was an improvement over the
2008 gross margin of 36%.
Total
operating expenses during the year ended December 31, 2009 were $17,289,242
compared to $7,900,473 for the year ended December 31, 2008. General and
administrative expenses were $16,806,908 or 97% of total operating expenses for
the year ended December 31, 2009 compared with $6,991,804 or 88% for the
year ended December 31, 2008. Details around the changes in these expenses
are described below:
Operating
Expense
Professional
fees were $296,231 for the year ended December 31, 2009 compared with
$417,767 for year ended December 31, 2008. This decrease is driven by
increased efficiencies. New media, marketing, advertising and investor and
public relations expenses were $253,301 for the year ended December 31,
2009 compared with $179,206 for the year ended December 31, 2008 with the
increase primarily attributable to public and investor relations activities in
2009 around our bid for stimulus contracts, and our capital raise
activities. Legal fees were $840,764 for the year ended December 31,
2009 compared with $448,943 for the year ended December 31, 2008 and
accounting fees were $140,322 for the year ended December 31, 2009 compared
with $155,981 for the year ended December 31, 2008. The legal fee
increases are a direct result of the activities around our debt restructure and
capital raise activities in 2009. Executive compensation (not including
subsidiary executives) was $10,352,828 for the year ended December 31, 2009
compared with $659,300 for the year ended December 31, 2008. This
significant increase in executive compensation reflects the bonus payments under
the management incentive program as described in the May 15, 2009 debenture
waiver agreement incorporated by reference herein. These bonuses were awarded to
staff members for their contributions relating to the Company’s success in
meeting key milestones in bringing in new business in 2009. These payments
involved an award of equity initially valued at $8.1 million, and cash payments
of $1 million dollars. In January of 2010 the equity portion of the award was
finalized at a reduced value in the form of 673,505 restricted shares valued at
$3,704,278 on date of issuance.
Depreciation
expense was $463,543 for the year ended December 31, 2009 compared to
$615,960 for the year ended December 31, 2008. All other general and
administrative spending totaled $4,997,557 for the year ended
December 31, 2009 compared to $5,056,512 for the year ended
December 31, 2009.
33
Expenses
for research and development totaled $18,793 for the year ended
December 31, 2009 compared to $292,709 for year ended December 31,
2008. This reduction reflects our focused strategy on applications with
short-term commercialization potential supported through joint projects and
grants to help defray costs. Since one of our primary objectives continues to be
the commercial advancement of clean electric technologies that reduce our
dependence upon carbon based fuels, we have retained a strong focus on research
and development activities, and expect to continue to incur additional research
and development costs, although at a significantly reduced rate, for the
foreseeable future
Our
operating loss of $13,647,347 for the year ended December 31, 2009 compared
with a loss of $3,821,634 for the year ended December 31,
2008.
For the
year ended December 31, 2009, we earned interest income in the amount of
$6,277 compared with $17,184 for the year ended December 31,
2008.
Interest
expense was $15,915,438 for the year ended December 31, 2009 compared to
$4,620,364 for the year ended December 31, 2008. The higher amount
for 2009 is attributable to additional fees and financing charges related to our
waivers on the convertible debentures we issued in November and December of
2007. Gain on disposal of assets was $48,523 for the year ended December
31, 2009 compared to a loss of $7,043 for the year ended December 31,
2008. The gain in 2009 was primarily related to the sale of vehicles
previously utilized for testing and evaluation as part of consulting
activities. Other income was $235 for the year ended December 31, 2009
compared to $346,646 for the year ended December 31, 2008. The 2008 figure is
attributable to the Net Working Capital True up associated with our
Minit-Charger acquisition.
Our net
loss after other income and expenses compared unfavorably for the year ended
December 31, 2009 for a loss of $29,507,750 compared with a $8,067,211 loss for
year ended December 31, 2008. The higher loss in for the year ended December 31,
2009 is primarily attributable to costs incurred for waivers on payments related
to our debenture obligations, as well as the costs of the final debt
restructuring and elimination of our debenture debt. Executive compensation was
also a factor (primarily in the form of equity) that was paid for achieving a
debt restructure, obtaining critical contracts and securing additional capital
to support our existing and future business requirements.
Liquidity
and Capital Resources
As of
December 31, 2009, we had $11,824,605 of cash on hand compared to year end
2008 balances of $327,332 of cash on hand and $28,044 in certificates of
deposit. This increase in cash is directly attributable to our successful
capital raise in 2009 of $20.5 million dollars.
We
utilized cash for operating activities in 2009 in the amount of $4,152,163
compared to $1,704,743 for 2008. In addition, cash used in investing
activities was $680,226 for the year ended December 31, 2009 compared to
$228,177 for 2008. The variance of $2.4 million utilized for operating
activities was largely driven by significant pay down of accounts payable and
accrued liabilities made possible by the inflow of cash related to our capital
raise in the fourth quarter of 2009. The $514,580 variance in investing
activities reflects our investment in 2009 in new vehicles required for our
consulting activities. .
Cash
generated by financing activities was $16,345,065 in 2009 compared to $1,622,938
in 2008. The cash generated in 2009 is related to receipt of $15.5 million in
new investment in 2009.
It
is important to understand our complex financing transactions from January
1, 2008 through December 31, 2009 as we have endeavored to become a leader in
the renewable energy sector during a period characterized by a lack of capital
markets in a down economy. These activities are described in detail
below:
Given
what we believed to be a competitive edge in the fast charger market, as well as
having efficient plant operating capacity in Mexico, we were confident our
strengths in the alternative energy field would allow us to achieve our planned
objectives, and to generate adequate levels of working capital in the second
half of 2008. These assumptions, however, did not adequately capture
the magnitude nor the speed of the economic down turn and its subsequent impact
in even the alternative energy field. These external forces restricting growth
and access to capital simultaneously resulted in our financing options being
very limited and expensive.
To bridge
this period of restricted capital options required the establishment of a line
of credit and relief from debt service requirements as we continued to pursue
our objectives of raising working capital through equity or other
sources
On August
29, 2008 the Company signed an agreement with its November and December 2007
Debenture Holders to defer principal and interest payments for the period May 1
through December 31, 2008. This agreement was to provide time to
internally fund working capital requirements through organic growth and to
obtain both short and long-term funding through equity financing and other
capital sources. The waiver period allotted by this agreement was proven
insufficient given the deterioration of the Nation’s economic situation since
its signing. The consideration for this waiver/deferment was material to our
fiscal operations but necessary to seeking our growth objectives.
These
cash management efforts in the year ended December 31, 2008, while adequate for
that period, we required additional measures, most notably a successful capital
raise and organic growth of our operations to allow us to meet our obligations
going forward. To that end, during the year ended December 31, 2009, sought
additional capital while working with our debt holders to preclude paying
interest and redemption of principal redemption in exchange for additional
time to generate needed working capital. We were successful in this
endeavor and in a series of transactions during 2009 obtained additional
working capital and converted our debt to equity.
34
On March
5, 2009, the Company entered in to an agreement (with an effective date of
January 1, 2009) to further restructure its equity with the Holders of the
November and December 2007 Debentures. To allow additional time necessary
for the Company to achieve its working capital objectives in the current
economic environment, the Company requested the November and December 2007
Debenture Holders to further extend a waiver of debt service requirements.
In exchange for signing the Amendment to Debentures and Warrants, Agreement and
Waiver which deferred interest payments due for the first quarter 2009 until May
1, 2009 and payment of monthly principal redemptions until May 1, 2009, the
Company agreed to a number of adjustments to the November and December 2007
Debentures.
On
May 15, 2009, despite the current tenuous economic environment, the financial
opportunities offered specifically in the Stimulus projects related to electric
transportation, were deemed material to the Company’s future, thus the
Company and the November and December 2007 Debenture Holders entered into
an agreement entitled “Amendment to Debentures and Warrants, Agreement and
Waiver” (the “Agreement”) restructuring the Company’s equity as well as
establishing an inducement for additional working capital. The Agreement’s
effective date was May 1, 2009. The Agreement signed on May 15, 2009
provided for $2,000,000 in new capital as well as additional capital (up to
$500,000) to be invested by the November and December 2007 Debenture
Holders.
On July
2, 2009 the Company completed two amendments to the May 15, 2009 Amendment to
Debentures and Warrants, Agreement and Waiver, and issued $2,500,000 in 8%
Secured Convertible Debentures that are important to the Company’s future
and tie together the series of November and December 2007 Debenture documents
that have been amended three times since the initial issuing of the
debentures in November and December 2007. The
transactions/agreements have been consummated included:
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common
Stock”).
Concurrent
with the signing of the Securities Exchange Agreement, the ECOtality Board of
Directors approved a 1:60 reverse stock split (the “Reverse Split”) of its
common stock and authorized Company management to affect the Reverse Split after
providing the required notice to the Financial Industry Regulatory Authority
(FINRA). The Reverse Stock split was effective November 24,
2009.
On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with accredited investors (the “Investors”) in the
amount of $20.5 million pursuant to which the Investors agreed to purchase
shares of the Common Stock at a purchase price of $7.20 per share. The
funds from the private placement will be utilized as working capital to support
the initial requirements of the contract signed with the Department of Energy on
September 30, 2009.
Management’s
Plan of Operation
Our
overall plan of operation calls for sustained organic growth. We believed that
the acquisitions we completed during 2007 would provide us with a base to
support this objective and this growth was reflected in our budget and business
plans for 2008. As described above, growth consistent with our plans did not
occur in the third and fourth quarters of 2008, nor during the year ended
December 31, 2009. Sales of consulting services and manufacturing
revenues remained at lower than anticipated levels.
However,
with the signing of Securities Exchange Agreements with our debenture holders
and Securities Purchase Agreements with current and new investors on October
31,2009 ,we have taken the following actions to significantly strengthen
our financial viability:
|
1.
|
Raise
$20.5 million for working capital in equity financing from original
investors/debt holders ($15 million) and new investors ($5.5
million).
|
|
a.
|
This
results in positive shareholder equity on our balance
sheet.
|
|
b.
|
This
private offering also provides a satisfactory level of working capital to
support initial requirements of the DOE contract awarded to our subsidiary
eTec.
|
|
2.
|
Convert
$9.08 million of debt on balance sheet to equity (preferred
shares).
|
|
3.
|
Convert
debt holder warrants to equity (preferred
shares).
|
|
a.
|
Eliminates
warrant dilutive “overhang”.
|
|
b.
|
Preferred
shares have lockup provisions (9 months), and no dividends or redemption
rights.
|
35
|
4.
|
Reduce
existing dilution “blocker” held by debt holders from 65% to
0%.
|
|
a.
|
Diminishes
any control issues by any one share
holder.
|
|
b.
|
Eliminates
potential dilution fears with current and future share
holders.
|
|
5.
|
Conduct
reverse split of common shares
(1:60).
|
|
a.
|
Established
reasonable number of shares in the publically traded market
place.
|
|
b.
|
Prepares
us for being listed on a national stock
exchange.
|
Working
Capital
Net
working capital is an important measure of our ability to finance our
operations. Our net working capital at December 31, 2009 was
positive by $12,446,961.
We do not
have any off-balance sheet arrangements.
We
anticipate the need to add significant numbers of full- or part- time employees
over the next 12 months per the award of the Stimulus Department of Energy
related contracts. We plan to outsource the research and development and
production of our products when cost effective to do so.
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 97,826 shares of common stock of the
Company with a fair market value of $8,217,391. The License Agreement
carries an annual maintenance fee of $50,000, with the first payment due on or
about June 12, 2009. The License Agreement carries a perpetual term,
subject to default, infringement, expiration, revocation or unenforceability of
the License Agreement and the licenses granted thereby.
On
January 19, 2007 we purchased a small (1,750 square feet) stand alone office
building at a cost of $575,615. A total of $287,959 has been paid and a
tax credit has been recorded in the amount of $156. The remaining balance
of $287,500 is structured as an interest-only loan from a non affiliated
third-party, bears an interest rate of 6.75% calculated annually, with monthly
payments in the amount of $1,617 due beginning on February 16, 2007. The
entire principal balance is due on or before January 16, 2012.
As of
December 31, 2009, the Company has five leases in effect for operating
space. Future obligations under these commitments are $275,431 for 2010,
$234,775 for 2011, $239,777 for 2012 and $63,499 for 2013.
Critical
Accounting Policy and Estimates
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of the financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
we evaluate our estimates and judgments, including those related to revenue
recognition, recoverability of intangible assets, and contingencies and
litigation. We base our estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant accounting
estimates inherent in the preparation of our consolidated financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, primarily the
valuation of intangible assets. The methods, estimates and judgments we
use in applying these most critical accounting policies have a significant
impact on the results we report in our consolidated financial
statements.
Loss per
share
Net loss
per share is provided in accordance with ASC Subtopic 260-10. We present
basic loss per share (“EPS”) and diluted EPS on the face of statements of
operations. Basic EPS is computed by dividing reported losses by the
weighted average shares outstanding. Except where the result would be
anti-dilutive to income from continuing operations, diluted earnings per share
has been computed assuming the conversion of the convertible long-term debt and
the elimination of the related interest expense, and the exercise of stock
warrants. For the year ended December 31, 2008, the assumed conversion of
convertible long-term debt and the exercise of stock warrants are anti-dilutive
due to our net loss and were excluded in determining diluted loss per
share.
36
Fair value of financial
instruments
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to us as of December 31, 2009 and 2008.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. Fair value was assumed to
approximate carrying value for cash because it is short term in nature and its
carrying amount approximates fair value.
Income
Taxes
We follow
the provisions of ASC Subtopic 740-10 for recording the provision for income
taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that some
portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of
change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification
of assets and liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability are
classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.
Segment
reporting
Generally
accepted accounting principles require disclosures related to components of a
company for which separate financial information is available that is evaluated
regularly by a company’s chief operating decision maker in deciding the
allocation of resources and assessing performance. We are the parent
company of Innergy Power Corporation, Fuel Cell Store and Electric
Transportation Engineering Corporation. Innergy Power is a leader in the design
and manufacture of thin sealed rechargeable lead batteries and high quality
flat-panel multi-crystalline solar modules. Fuel Cell Store is the leading
online marketplace for fuel cell-related products and technologies with online
distribution sites in the U.S., Japan, Russia, Italy and Portugal. eTec is
a leader in the research, development and testing of advanced transportation and
energy systems with a focus on alternative-fuel, hybrid and electric vehicles
and infrastructures. eTec also 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. We have aggregated these subsidiaries into three
reportable segments: Fuel Cell Store, eTec and Innergy.
Dividends
We have
not yet adopted any policy regarding payment of dividends. No dividends have
been paid or declared since inception.
Recent
Accounting Pronouncements
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. The Company has
adopted this standard. The standard increased our disclosure by requiring
disclosure reviewing subsequent events. ASC 855-10 is included in the
“Subsequent Events” accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”). ASC 820-10 provides
guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly
decreased. FSP 157-4 also provides guidance on identifying circumstances
that indicate a transaction is not orderly. In addition, FSP 157-4 requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques.
The Company determined that adoption of FSP 157-4 did not have a material
impact on its results of operations and financial position.
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
37
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of this pronouncement did not have a
material impact on its financial position, results of operations or cash
flows.
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on the Company’s financial
statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, the
Company would be required to prepare financial statements in accordance with
IFRS in fiscal year 2014, including comparative information also prepared under
IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential
impact of IFRS on its financial statements and will continue to follow the
proposed roadmap for future developments.
The
following documents (pages F-1 to F-8) form part of the report on the
Financial Statements
PAGE
|
|
Independent
Registered Public Accounting Firm Reports
|
F-1
|
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Operations
|
F-3
|
Consolidated
Statement of Stockholders’ Equity (Deficit)
|
F-4
|
Consolidated
Statements of Cash Flows
|
F-5
|
Footnotes
|
F-6
|
38
ECOtality, Inc.
Consolidated
Balance Sheets
as
of
December 31,
2009 and 2008
and
Consolidated
Statements of Operations,
Stockholders’
Equity, and
Cash
Flows
For
the years ended
December 31,
2009 and 2008,
39
TABLE OF
CONTENTS
PAGE
|
|
Independent
Registered Public Accounting Firm Report 2009
|
F-1
|
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Operations
|
F-3
|
Consolidated
Statement of Changes in Stockholders’ Equity
|
F-4
|
Consolidated
Statements of Cash Flows
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
|
40
WEAVER &
MARTIN
To the
Board of Directors and Stockholders
ECOtality, Inc.
Scottsdale,
AZ
We have
audited the accompanying consolidated balance sheets of ECOtality, Inc. and
Subsidiaries as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years
then ended. ECOtality, Inc.’s management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. Our
audits of the financial statements include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ECOtality, Inc.
and Subsidiaries as of December 31, 2009 and 2008, and the results of its
consolidated operations, stockholders’ equity, and cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/
Weaver & Martin, LLC
|
|
Kansas
City, Missouri
|
|
April
15, 2010
|
|
Certified
Public Accountants & Consultants
|
|
411
Valentine, Suite 300
|
|
Kansas
City, Missouri 64111
|
|
Phone:
(816) 756-5525
|
|
Fax:
(816) 756-2252
|
F-1
ECOtality,
Inc.
Consolidated
Balance Sheets
Decenber 31, 2009
|
December 31, 2008
|
|||||||
|
(Audited)
|
(Audited)
|
||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 11,824,605 | $ | 327,332 | ||||
Certificates
of deposit
|
- | 28,044 | ||||||
Receivables,
net of allowance for bad debt of $92,494 and $69,176 as of
12/31/09 and 12/31/08 respectively
|
1,296,696 | 1,963,073 | ||||||
Inventory,
net of allowance for obsolescence of $335,864 and $167,487 as
of 12/31/09 and 12/31/08 respectively
|
749,492 | 1,149,881 | ||||||
Prepaid
expenses and other current assets
|
387,327 | 229,931 | ||||||
Total
current assets
|
14,258,120 | 3,698,263 | ||||||
Fixed
assets, net accumulated depreciation of $4,124,431,
and $4,283,866 as of 12/31/09 and 12/31/08
respectively
|
1,872,347 | 1,632,315 | ||||||
Goodwill
|
3,495,878 | 3,495,878 | ||||||
Total
assets
|
$ | 19,626,344 | $ | 8,826,457 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 372,982 | $ | 1,510,277 | ||||
Accrued
liabilities
|
1,438,177 | 848,789 | ||||||
Accrued
Interest
|
- | 1,281,115 | ||||||
Liability
for purchase price
|
- | 2,115,253 | ||||||
Note
Payable - related party
|
- | 450,000 | ||||||
Current
portion of LT Debt, net of discount of $0 and $1,530,101 as of 12/31/09
and 12/31/08 respectively
|
- | 3,411,540 | ||||||
Total
current liabilities
|
1,811,159 | 9,616,975 | ||||||
Total
LT Debt, net of discount of $0 and $548,735 as of 12/31/09 and 12/31/08
respectively
|
287,500 | 1,971,849 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 200,000,000 shares
|
||||||||
authorized,
8,597,299 and 0 shares issued and outstanding as of
|
||||||||
12/31/09
and 12/31/08 respectively
|
8,597 | - | ||||||
Common
stock, $0.001 par value, 1,300,000,000 shares
|
||||||||
authorized,
6,713,285 and 2,157,048 shares issued
|
||||||||
and
outstanding as of 12/31/09 and 12/31/08, respectively
|
6,712 | 129,423 | ||||||
Common
stock owed but not issued; 2,079,061 shares at
|
||||||||
12/31/09
and 1,250 at 12/31/08
|
2,079 | 75 | ||||||
Additional
paid-in capital
|
88,411,074 | 33,485,763 | ||||||
Subscription
receivable
|
(5,000,000 | ) | - | |||||
Retained
deficit
|
(65,845,368 | ) | (36,337,624 | ) | ||||
Accumulated
Foreign Currency Translation Adjustments
|
(55,409 | ) | (40,006 | ) | ||||
Total
stockholders' equity
|
17,527,685 | (2,762,368 | ) | |||||
Total
liabilities and stockholders' equity
|
$ | 19,626,344 | $ | 8,826,457 |
The
accompanying notes are an integral part of these financial
statements
F-2
ECOtality,
Inc.
Consolidated
Statement of Operations
For the Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
(Audited)
|
(Audited)
|
|||||||
Revenue
|
$ | 8,601,674 | $ | 11,187,384 | ||||
Cost
of goods sold
|
4,959,777 | 7,108,545 | ||||||
Gross
profit
|
3,641,897 | 4,078,839 | ||||||
Expenses:
|
||||||||
Depreciation
|
463,543 | 615,960 | ||||||
General
and administrative expenses
|
16,806,908 | 6,991,804 | ||||||
Research
and development
|
18,793 | 292,709 | ||||||
Total
expenses
|
17,289,244 | 7,900,473 | ||||||
Operating
loss
|
(13,647,347 | ) | (3,821,634 | ) | ||||
Other
income:
|
||||||||
Interest
income
|
6,277 | 17,184 | ||||||
Other
Income
|
235 | 364,646 | ||||||
Total
other income
|
6,512 | 381,830 | ||||||
Other
expenses:
|
||||||||
Interest
expense
|
15,915,438 | 4,620,364 | ||||||
(Gain)
/ Loss on Disposal of Assets
|
(48,523 | ) | 7,043 | |||||
Total
other expenses
|
15,866,915 | 4,627,407 | ||||||
Loss
from operations before income taxes
|
(29,507,750 | ) | (8,067,211 | ) | ||||
Provision
for income taxes
|
- | - | ||||||
Net
(loss)
|
$ | (29,507,750 | ) | $ | (8,067,211 | ) | ||
Weighted
average number of
|
||||||||
common
shares outstanding - basic and fully diluted
|
3,614,045 | 2,094,557 | ||||||
Net
(loss) per share-basic and fully diluted
|
$ | (8.16 | ) | $ | (3.85 | ) |
The
accompanying notes are an integral part of these financial
statements
F-3
ECOtality,
Inc.
Consolidated
Statement of Stockholders’ Equity
Series
A Convertible
|
Common
Stock
|
Additional
|
Accum
Foreign
|
Total
|
||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
owed
but
|
Paid-in
|
Subscription
|
Retained
|
Currency
Trans
|
Stockholders’
|
|||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
not
issued
|
Capital
|
receivable
|
Deficit
|
Adjustment
|
Equity
|
|||||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
- | $ | - | 2,070,409 | $ | 2,070 | $ | - | $ | 30,903,146 | $ | - | $ | (28,270,409 | ) | $ | - | $ | 2,634,808 | |||||||||||||||||||||
Shares
issued for professional services
|
- | - | 9,417 | 9 | - | 81,716 | - | - | - | 81,725 | ||||||||||||||||||||||||||||||
Shares
issued for Conversion of Debt
|
- | - | 5,555 | 6 | - | 99,994 | - | - | - | 100,000 | ||||||||||||||||||||||||||||||
Option
issued to purchase Ecotality Shares
|
- | - | - | - | - | 55,168 | - | - | - | 55,168 | ||||||||||||||||||||||||||||||
Option
issued for compensation
|
- | - | 5,000 | 5 | 1 | 24,994 | - | - | - | 25,000 | ||||||||||||||||||||||||||||||
Options
Revalued per Purchase Agreements
|
- | - | - | - | - | 2,195,000 | - | - | - | 2,195,000 | ||||||||||||||||||||||||||||||
Amortization
of stock issued for services
|
- | - | - | - | - | 253,151 | - | - | - | 253,151 | ||||||||||||||||||||||||||||||
Shares
issued for 2007 acquisitions
|
- | - | 66,667 | 67 | - | (67 | ) | - | - | - | - | |||||||||||||||||||||||||||||
Accumulated
Foreign Currency Translation Adjustments
|
- | - | - | - | - | - | - | - | (40,006 | ) | (40,006 | ) | ||||||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | - | - | (8,067,215 | ) | - | (8,067,215 | ) | ||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
- | - | 2,157,048 | 2,157 | 1 | 33,613,103 | - | (36,337,624 | ) | (40,006 | ) | (2,762,369 | ) | |||||||||||||||||||||||||||
Shares
issued for 2007 acquisition
|
- | - | 522,222 | 522 | - | 1,879,478 | - | - | - | 1,880,000 | ||||||||||||||||||||||||||||||
Shares
issued to satisfy accounts payable
|
- | - | 17,917 | 18 | - | 89,982 | - | - | - | 90,000 | ||||||||||||||||||||||||||||||
Shares
issued for professional services
|
- | - | 16,667 | 17 | 17 | 259,967 | - | - | - | 260,000 | ||||||||||||||||||||||||||||||
Shares
issued that were owed from previous year
|
- | - | 1,250 | 1 | (1 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
Shares
issued for employee compensation
|
- | - | 19,895 | 20 | 674 | 8,356,018 | - | - | - | 8,356,712 | ||||||||||||||||||||||||||||||
Cashless
exercise of warrants
|
- | - | 2,217,333 | 2,217 | - | (2,217 | ) | - | - | - | - | |||||||||||||||||||||||||||||
Notes
payable converted for common stock
|
- | - | 302,778 | 303 | - | 1,089,697 | - | - | - | 1,090,000 | ||||||||||||||||||||||||||||||
Amortization
of financing costs
|
- | - | - | - | - | 11,514,051 | - | - | - | 11,514,051 | ||||||||||||||||||||||||||||||
Shares
issued for cash, net of expenses
|
- | - | 1,458,330 | 1,458 | 1,388 | 19,292,219 | (5,000,000 | ) | - | - | 14,295,065 | |||||||||||||||||||||||||||||
Warrants
issued for services
|
- | - | - | - | - | 1,508,756 | - | - | - | 1,508,756 | ||||||||||||||||||||||||||||||
Notes
payable converted for preferred stock
|
8,597,299 | 8,597 | - | - | - | 9,102,573 | - | - | - | 9,111,170 | ||||||||||||||||||||||||||||||
Warrants
issued for anti-dilution provisions
|
- | - | - | - | - | 1,707,446 | - | - | - | 1,707,446 | ||||||||||||||||||||||||||||||
Accumulated
Foreign Currency Translation Adjustments
|
- | - | - | - | - | - | - | - | (15,403 | ) | (15,403 | ) | ||||||||||||||||||||||||||||
Rounding
|
- | - | (155 | ) | (2 | ) | 1 | - | - | 6 | - | 5 | ||||||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | - | - | (29,507,750 | ) | - | (29,507,750 | ) | ||||||||||||||||||||||||||||
Balance,
December 31, 2009
|
8,597,299 | $ | 8,597 | 6,713,285 | $ | 6,712 | $ | 2,079 | $ | 88,411,074 | $ | (5,000,000 | ) | $ | (65,845,368 | ) | $ | (55,409 | ) | $ | 17,527,685 |
See
accompanying notes to the consolidated financial
statements
F-4
ECOtality,
Inc.
Consolidated
Statement of Cash Flows
For the Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
(loss)
|
$ | (29,507,750 | ) | $ | (8,067,211 | ) | ||
Adjustments
to reconcile:
|
||||||||
Stock
and options issued for services and compensation
|
10,125,468 | 161,893 | ||||||
Stock
issued for interest expense
|
526,446 | - | ||||||
Depreciation
|
488,718 | 615,960 | ||||||
Amortization
of stock issued for services
|
- | 253,151 | ||||||
Amortization
of discount on notes payable
|
2,078,836 | 1,590,148 | ||||||
Amortization
of financing costs
|
11,514,051 | - | ||||||
Warrants
issued for anti-dilution provisions
|
471,331 | - | ||||||
Gain
on disposal of assets
|
(48,523 | ) | 7,043 | |||||
Changes
in operating assets and liabilities:
|
||||||||
Certificate
of deposit
|
28,044 | 1,169,740 | ||||||
Accounts
Receivable
|
666,377 | 431,232 | ||||||
Inventory
|
400,389 | 641,293 | ||||||
Prepaid
expenses and other
|
(157,396 | ) | 240,490 | |||||
Accounts
Payable
|
(1,047,295 | ) | 192,361 | |||||
Accrued
interest
|
(45,000 | ) | - | |||||
Liability
for purchase price
|
(235,253 | ) | - | |||||
Accrued
Liabilities
|
589,394 | 1,059,158 | ||||||
Net
cash provided (used) by operating activities
|
(4,152,163 | ) | (1,704,743 | ) | ||||
Cash
flows from investing activities
|
||||||||
Purchase
of fixed assets
|
(777,864 | ) | (263,284 | ) | ||||
Proceeds
from sales of fixed assets
|
97,638 | 35,108 | ||||||
Net
cash (used) by investing activities
|
(680,226 | ) | (228,177 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
on sale of common stock, net of expenses
|
14,295,065 | - | ||||||
Payments
on notes payable
|
(450,000 | ) | (386,921 | ) | ||||
Borrowings
on notes payable
|
2,500,000 | 2,009,859 | ||||||
Net
cash provided (used) by financing activities
|
16,345,065 | 1,622,938 | ||||||
Effects
of exchange rate changes
|
(15,403 | ) | (40,006 | ) | ||||
Net
increase (decrease) in cash
|
11,497,273 | (349,987 | ) | |||||
Cash
– beginning
|
327,332 | 677,318 | ||||||
Cash
– ending
|
$ | 11,824,605 | $ | 327,332 | ||||
Supplemental
disclosures:
|
||||||||
Interest
paid
|
$ | 65,528 | $ | 129,622 | ||||
Income
Taxes paid
|
$ | 800 | $ | 800 | ||||
Non-cash
transactions:
|
||||||||
Stock
and options issued for services and compensation
|
$ | 10,125,468 | $ | 161,893 | ||||
Shares
of stock issued
|
55,727 | 14,417 | ||||||
Number
of options issued
|
18,332 | 16,667 | ||||||
Stock
issued for acquisition
|
$ | 1,880,000 | $ | - | ||||
Shares
of stock issued
|
522,222 | - | ||||||
Amortization
of stock issued for services
|
$ | - | $ | 253,151 | ||||
Amortization
of discount on notes payable
|
$ | 2,078,836 | $ | 1,590,148 | ||||
Shares
issued for cashless warrant exercise
|
$ | - | $ | - | ||||
Shares
of stock issued
|
2,217,333 | - | ||||||
Note
Payable converted for common stock
|
$ | 1,090,000 | $ | 100,000 | ||||
Shares
of stock issued
|
302,778 | 5,556 | ||||||
Note
Payable and accrued interest converted for preferred stock
|
$ | 9,111,170 | $ | - | ||||
Shares
of preferred stock issued
|
8,597,299 | - |
See
accompanying notes to the consolidated financial statements
F-5
ECOtality, Inc.
Notes
to Consolidated Financial Statements
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 our renewable energy strategy.
The
former business of the Company was to market a private-label biodegradable
product line. During the year ended December 31, 2006, the board of
directors changed the Company’s focus toward developing an electric power cell
technology.
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational
institutions. FuelCellStore.com now operates as a wholly owned subsidiary
call ECOtality Stores, Inc. See note 4 for further
information.
On
October 1, 2007, the Company purchased certain assets of Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and
custom solar-power and integrated solar-battery solutions for government,
industrial and consumer applications. See note 4 for further
information.
On
November 6, 2007 the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec designs
fast-charge systems for material handling and airport ground support
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. See note 4 for further
information.
On
December 6, 2007 the Company acquired through eTec the Minit-Charger
business of Edison Enterprises. Minit-Charger makes products that enable fast
charging of lift trucks using revolutionary technologies. See note 4 for
further information.
On
August 26, 2009, ECOtality Inc. management met with the shareholders at its
annual shareholders' meeting. At this meeting the shareholders
approved an increase to the authorized number of common shares to 1,300,000,000
shares.
The
consolidated financial statements as of December 31, 2009 include the
accounts of ECOtality, Innergy Power Corporation and eTec. All significant
inter-company balances and transactions have been eliminated. ECOtality
and its subsidiaries will collectively be referred herein as the
“Company”.
On
November 24, 2009 the Company effected a reverse split of 1:60 of its
$0.001 par value common stock and the ticker symbol was changed from "ETLY" to
"ETLE". All shares in these financial statements have been
retroactively adjusted and presented for this reverse split.
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.
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 year ended December 31,
2009 and 2008 interest income was $6,277 and $17,184,
respectively.
F-6
Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits and accounts receivable. The Company
maintains cash and cash equivalent balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $250,000.
Deposits with these banks may exceed the amount of insurance provided on
such deposits. At December 31, 2009 and 2008, the Company had
approximately $11,500,000 and $100,000 in excess of FDIC insured limits,
respectively.
Accounts
receivable at December 31, 2009 was $1,296,696, and at December 31, 2008 was
$1,963,073. At December 31, 2009 we had one customers that represented in excess
of 10% of our receivable balance. Palco Telecom Service had a balance
of $184,190 that was remitted on February 9, 2010. The Company has not
experienced material losses in the past from this or any other significant
customer and continues to monitor its exposures to minimize potential credit
losses.
Impairment
of long-lived assets and intangible assets
Management
regularly reviews property, equipment, intangibles and other long-lived assets
for possible impairment. This review occurs quarterly, or more frequently if
events or changes in circumstances indicate the carrying amount of the asset may
not be recoverable. If there is indication of impairment, then management
prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the
carrying amount of the asset, an impairment loss is recognized to write down the
asset to its estimated fair value. Management believes that the accounting
estimate related to impairment of its property and equipment, is a “critical
accounting estimate” because: (1) it is highly susceptible to change from
period to period because it requires management to estimate fair value, which is
based on assumptions about cash flows and discount rates; and (2) the
impact that recognizing an impairment would have on the assets reported on our
balance sheet, as well as net income, could be material. Management’s
assumptions about cash flows and discount rates require significant judgment
because actual revenues and expenses have fluctuated in the past and are
expected to continue to do so. During the year ended December 31, 2009 and 2008,
the Company had no impairment expense.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with ASC Subtopic
605-10. Revenue is recognized when a formal arrangement exists, the price is
fixed or determinable, all obligations have been performed pursuant to the terms
of the formal arrangement and collectibility is reasonably assured.
Sales
related to long-term contracts for services (such as engineering, product
development and testing) extending over several years are accounted for under
the percentage-of-completion method of accounting . Sales and
earnings under these contracts are recorded based on the ratio of actual costs
incurred to total estimated costs expected to be incurred related to the
contract under the cost-to-cost method based budgeted milestones or tasks as
designated per each contract. Anticipated losses on contracts are recognized in
full in the period in which losses become probable and estimable.
For all
other sales of product or services the Company recognizes revenues based on the
terms of the customer agreement. The customer agreement takes the form of
either a contract or a customer purchase order and each provides information
with respect to the product or service being sold and the sales price. If
the customer agreement does not have specific delivery or customer acceptance
terms, revenue is recognized at the time of shipment of the product to the
customer.
Warranty
Liability
The
Company warrants a limited number of eTec products against defects for periods
up to 120 months. The estimate of warranty liability is based on historical
product data and anticipated future costs. Should actual failure rates differ
significantly from our estimates, we record the impact of these unforeseen costs
or cost reductions in subsequent periods and update our assumptions and
forecasting models accordingly. At December 31, 2009 the warranty reserve was
$211,345. At December 31, 2008 the reserve was $163,751. The increase
to the reserve was made in response to lengthening the warrantee period on
several items.
Accounts
receivable
Accounts
receivable are carried on a gross basis, with no discounting, less the allowance
for doubtful accounts. Management estimates the allowance for doubtful accounts
based on existing economic conditions, the financial conditions of the
customers, and the amount and the age of past due accounts. Receivables are
considered past due if full payment is not received by the contractual due date.
Past due accounts are generally written off against the allowance for doubtful
accounts only after all collection attempts have been exhausted. There is no
collateral held by the Company for accounts receivable. The allowance for
doubtful accounts was $92,494 and $69,176 as of December 31 2009 and 2008,
respectively.
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 December 31, 2009 and 2008 was
$335,864 and $167,487 respectively.
Advertising
costs
The
Company expenses all costs of advertising as incurred. Included in general and
administrative expenses for the year ended December 31, 2009 and 2008 were
advertising costs of $4,937 and $8,212 respectively.
Research
and development costs
Research
and development costs are charged to expense when incurred. For the year ended
December 31, 2009 and 2008, research and development costs were $18,793 and
$292,709 respectively.
F-7
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 December 31, 2009 and 2008.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. See Note 3 for further
information.
Loss per
Common Share
Net loss
per share is provided in accordance with ASC Subtopic 260-10. We present basic
loss per share (“EPS”) and diluted EPS on the face of statements of operations.
Basic EPS is computed by dividing reported losses by the weighted average
shares outstanding. Except where the result would be anti-dilutive to
income from continuing operations, diluted earnings per share has been computed
assuming the conversion of the convertible long-term debt and the elimination of
the related interest expense, and the exercise of stock warrants. Loss per
common share has been computed using the weighted average number of common
shares outstanding during the year. For the year ended December 31, 2009 and
2008, the assumed conversion of convertible long-term debt and the exercise of
stock warrants are anti-dilutive due to the Company’s net losses and are
excluded in determining diluted loss per share.
Foreign
Currency Translation
In 2008
and 2009, a Company subsidiary, Portable 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.
In 2009,
a Company subsidiary, eTec, conducted a portion of their business in Canadian
Dollars. Because their functional currency is US dollars, the impact of the
translation was taken directly to the income statement and included in General
and Administrative expense.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with SFAS No. 123R “Share
Based Payments”, using the fair value method. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are accounted for based on Emerging Issues Task Force Issue No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services” using the fair
value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
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 ASC subtopic 740-10 which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. A valuation allowance is provided for those
deferred tax assets for which the related benefits will likely not be realized.
Future changes in such valuation allowance are included in the provision for
deferred income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
F-8
The
Company does not anticipate any significant changes to its total unrecognized
tax benefits with the next twelve months. As of December 31, 2009 no income tax
expense has been incurred.
Dividends
The
Company has not adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception. For the foreseeable
future, the Company intends to retain any earnings to finance the development
and expansion of its business and it does not anticipate paying any cash
dividends on its common stock. Any future determination to pay dividends
will be at the discretion of the Board of Directors and will be dependent upon
then existing conditions, including the Company’s financial condition and
results of operations, capital requirements, contractual restrictions, business
prospects and other factors that the board of directors considers
relevant.
Segment
reporting
Generally
accepted accounting procedures require disclosures related to
components of a company for which separate financial information is available
that is evaluated regularly by a company’s chief operating decision maker in
deciding the allocation of resources and assessing performance. 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 The Company has concluded it has three reportable segments; ECOtality
Stores, DBA Fuel Cell Store segment, Innergy Power segment and eTec segment. The
ECOtality Stores segment is the online marketplace for fuel cell-related
products and technologies with online distribution sites in the U.S., Japan,
Russia, Italy and Portugal. The Innergy Power segment is comprised of the sale
of solar batteries and other solar and battery powered devices to end-users. The
eTec segment relates to sale of fast-charge systems for material handling and
airport ground support applications to the testing and development of plug-in
hybrids, advanced battery systems and hydrogen ICE conversions and consulting
revenues. This segment also includes the Minit-Charger business which relates to
the research, development and testing of advanced transportation and energy
systems with a focus on alternative-fuel, hybrid and electric vehicles and
infrastructures. eTec holds exclusive patent rights to the eTec
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.
While
management is currently assessing how it evaluates segment performance, we
currently utilize income (loss) from operations, excluding depreciation of
corporate assets. We also exclude goodwill from segment assets. For the year
ended December 31, 2009 and 2008 inter-segment sales were $28,723 and $0
respectively. All inter-segment sales have been eliminated during the
consolidation process.
Recent
Accounting Pronouncements
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. The Company has
adopted this standard. The standard increased our disclosure by requiring
disclosure reviewing subsequent events. ASC 855-10 is included in the
“Subsequent Events” accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”). ASC 820-10 provides
guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly
decreased. FSP 157-4 also provides guidance on identifying circumstances
that indicate a transaction is not orderly. In addition, FSP 157-4 requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques.
The Company determined that adoption of FSP 157-4 did not have a material
impact on its results of operations and financial position.
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of this pronouncement did not
have a material impact on its financial position, results of operations or cash
flows.
F-9
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on the Company’s financial
statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, the
Company would be required to prepare financial statements in accordance with
IFRS in fiscal year 2014, including comparative information also prepared under
IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential
impact of IFRS on its financial statements and will continue to follow the
proposed roadmap for future developments.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation. These reclassifications had no
effect on previously reported results of operations or retained
earnings.
Year
end
The
Company has adopted December 31 as its fiscal year end.
Note
3 – Fair Value Measurements
The
Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair
value of certain of its financial assets required to be measured on a recurring
basis. The adoption of ASC Topic 820-10 did not impact the Company’s
financial condition or results of operations. ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants on
the measurement date. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability. The three levels of the fair value
hierarchy under ASC Topic 820-10 are described below:
Level
1 – Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access.
Level
2 – Valuations based on quoted prices for similar assets and liabilities in
active markets, quoted prices for identical assets and liabilities in markets
that are not active, or other inputs that are observable or can be corroborated
by observable data for substantially the full term of the assets or
liabilities.
Level
3 – Valuations based on inputs that are supportable by little or no market
activity and that are signifigant to the fair value of the asset or
liability.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2008:
F-10
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Cash
and CDs
|
$ | 355,376 | $ | - | $ | - | $ | 355,376 | ||||||||
Accounts
receivable
|
- | 1,963,073 | - | 1,963,073 | ||||||||||||
Accounts
payable
|
- | 1,510,277 | - | 1,510,277 | ||||||||||||
Accrued
liabilities
|
- | 2,129,904 | - | 2,129,904 | ||||||||||||
Notes
payable
|
- | 5,833,389 | - | 5,833,389 | ||||||||||||
Total
|
$ | 355,376 | $ | 11,436,643 | $ | - | $ | 11,792,019 |
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009:
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Cash
and CDs
|
$ | 11,824,605 | $ | - | $ | - | $ | 11,824,605 | ||||||||
Accounts
receivable
|
- | 1,296,696 | - | 1,296,696 | ||||||||||||
Accounts
payable
|
- | 372,982 | - | 372,982 | ||||||||||||
Accrued
liabilities
|
- | 1,438,177 | - | 1,438,177 | ||||||||||||
Notes
payable
|
- | 287,500 | - | 287,500 | ||||||||||||
Total
|
$ | 11,824,605 | $ | 3,395,355 | $ | - | $ | 15,219,960 |
Note 4 - Acquisitions and
Goodwill
FuelCellStore.com
acquisition
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational institutions.
FuelCellStore.com now operates as a wholly owned subsidiary called ECOtality
Stores, Inc. Our consolidated financial statements for the year ended December
31, 2008 and 2009 include the financial results of ECOtality Stores,
Inc.
Innergy Power Corporation
acquisition
On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and custom
solar-power and integrated solar-battery solutions for government, industrial
and consumer applications. Our consolidated financial statements for the year
ended December 31, 2009 and 2008 include the financial results of Innergy Power
Corporation and its subsidiary.
The fair
market value of the transaction was $3,000,000. The Company issued 50,000 shares
of the Company’s common stock for the acquisition. The Company guaranteed
to the sellers that the shares would be worth $60 each ($3,000,000) during the
30-day period commencing 11 months from the closing date. If the shares were not
worth $3,000,000, the company would be required to either (a) issue additional
shares such that the total shares are worth $3,000,000 at that time or, (b)
issue a total of 66,667 new shares, or (c) pay cash to the seller such that the
aggregate value of the 50,000 shares plus the cash given would equal
$3,000,000.
The
purchase price obligation was settled in full on October 17, 2008 with the
issuance of 66,667 shares of Ecotality’s $0.001 par value common
stock.
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 develops and
provides fast-charge systems designed for electric vehicle (EVs and PHEVs),
mobile material handling, airport ground support, and marine and transit
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. Our consolidated financial statements for
the year ended December 31, 2009 and 2008 include the financial results of
eTec.
The fair
market value of the transaction was $5,437,193. The Company paid $2,500,000 in
cash, issued a $500,000 note payable, and issued 108,333 shares of the company’s
common stock for the acquisition, which was valued at $1,820,000 based on the
closing market price on the date of the agreement. The total value of the
transaction also included $217,193 in direct acquisition costs and the
subsequent Net Working Capital Adjustment discussed below.
The
$500,000 is payable was initially payable in monthly installments of $50,000
beginning December of 2007. Payment of the balance of the note
payable remaining at December 31, 2008 was $235,253 and payment of this amount
was made on December 11, 2009.
F-11
Included
in the purchase agreement was a Net Working Capital Adjustment which called for
an adjustment to the purchase price to be made via a post-Closing payment from
the Sellers to the Buyers or the Buyers to the Seller to the extent that the
actual Net Working Capital as of the Closing Date was more or less than the
agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented by the Sellers in August 2008 and a True Up
Payment of $400,000 from the Buyers to the Sellers was agreed to in full
satisfaction of this purchase agreement requirement. The resulting note payable
represents an adjustment of the purchase price, and as such has been recorded as
an increase to Goodwill of $400,000.
The
balance of the note payable attributable to the Working Capital True up as of
December 31, 2008 was $400,000. Payment of this amount was made on
December 11, 2009.
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
estimate of fair value of assets as part of the acquisition with
eTec:
Tangible
assets acquired, net of liabilities assumed
|
$
|
1,941,315
|
||
Goodwill
|
3,495,878
|
|||
$
|
5,437,193
|
The
Company reviewed the goodwill for impairment performing the necessary testing
for recoverability of the asset and measuring its fair value. This
testing revealed current, historic, and future (projected) positive cash flows
supporting the full amount of goodwill. As a result of this testing
in 2008 no impairment was taken in the year ended December 31,
2008. In December 2009, the Company reviewed the goodwill for
impairment performing the necessary testing for recoverability of the asset and
measuring its fair value. This testing again revealed
current, historic, and future (projected) positive cash flows supporting the
full amount of goodwill. As a result of this testing in 2009 no
impairment was taken in the year ended December 31, 2009, resulting in $0
impairment for those periods.
Minit-Charger
acquisition
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. Minit-Charger makes products that enable fast charging of
mobile material handling equipment using revolutionary proprietary
technologies.
The fair
market value of the transaction was $3,000,000. The company paid $1,000,000 in
cash and issued 33,333 shares of the company’s common stock for the
acquisition. The company guaranteed to the sellers that the shares would
be worth $60 each ($2,000,000) by the tenth day following the first anniversary
date of the transaction. If the shares are not worth $2,000,000, the company
would be required to either issue additional shares such that the total shares
are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 33,333 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 adjusted to reflect the actual obligation due
of $1,880,000 on the December 31, 2008 balance sheet. This
obligation totals the $2,000,000 remaining purchase price obligation multiplied
by $56.40 (the difference between $60 and the VWAP of $3.60 for the thirty days
prior to the true up date of December 15, 2008).
Included
in the purchase agreement with Edison was a Net Working Capital Adjustment which
called for an adjustment to the purchase price to be made via a post-Closing
payment from the Sellers to the Buyers or the Buyers to the Seller to the extent
that the actual Net Working Capital as of the Closing Date was more or less than
the agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented to the Sellers in April 2008. Based on this
reconciliation and additional documentation and updates from both parties a true
up payment of $390,174 was received in December 2008 in full satisfaction of
this obligation. This True Up represents an adjustment of the
purchase price. As all goodwill associated with the MinitCharger acquisition was
impaired and written down to $0 in year ended December 31, 2007, the $390,174
was recorded as other income in our eTec business segment for the year ended
December 31, 2008.
F-12
Note
5 – Fixed assets
Fixed
assets as of December 31, 2009 and 2008 consisted of the
following:
At December 31,
|
At December 31,
|
|||||||
2009
|
2008
|
|||||||
Equipment
|
$ | 3,200,649 | $ | 3,143,273 | ||||
Buildings
|
575,615 | 575,615 | ||||||
Vehicles
|
1,282,577 | 1,600,849 | ||||||
Furniture
and fixtures
|
100,883 | 47,409 | ||||||
Leasehold
improvements
|
704,911 | 470,380 | ||||||
Computer
Software
|
132,144 | 78,655 | ||||||
5,996,778 | 5,916,181 | |||||||
Less:
accumulated depreciation
|
(4,124,431 | ) | (4,283,866 | ) | ||||
1,872,347 | 1,632,315 |
Depreciation
expense totaled $488,718 and $615,960, for the years ended December 31,
2009 and 2008 respectively.
Note
6 – Notes payable
For the
year ended December 31, 2007:
On
January 16, 2007, the Company purchased an office building for an aggregate
price of $575,615. $287,959 in cash was paid and the remaining
balance of $287,500 was structured as an interest-only loan. The loan
bears an interest rate of 6.75% calculated annually, with monthly interest-only
payments due beginning on February 16, 2007. The entire principal
balance is due on or before January 16, 2012 and is recorded as a long-term
note payable on the consolidated financial statements.
During
2007, the Company incurred a $500,000 note payable to the previous owners of
eTec through the acquisition of eTec. The loan is payable in ten monthly
installments of $50,000 each. See note 4 for details. As of December 31, 2008, $
235,253 was owed and recorded as an accrued liability for purchase price on the
consolidated financial statements. This balance was paid in full on
December 11, 2009 and $0 was reflected in the financial statements on December
31, 2009.
During
2007, the Company acquired a note payable in the acquisition of eTec. The note
related to a vehicle that was also acquired in the acquisition. As of December
31, 2008 the vehicle had been sold and the related note payable was paid in
full.
NOVEMBER
AND DECEMBER 2007 DEBENTURES & SUBSEQUENT AMENDMENTS
In
November and December of 2007, the Company received gross proceeds of $5,000,000
in exchange for a note payable of $5,882,356 as part of a private offering of 8%
Secured Convertible Debentures (the “Debentures”). The debentures were
convertible into common stock at $18 per share. Debenture principal payments
were due beginning in May and June of 2008 (1/24th of the outstanding amount is
due each month thereafter). In connection with these debentures, the Company
issued debenture holders warrants (“the Warrants”) to purchase up to 163,399
shares of the Company’s common stock with an exercise price of $19.20. The
warrants were exercisable immediately upon issue. The Warrants expire five years
from the date of issue. The aggregate fair value of the Warrants equaled
$2,272,942 based on the Black-Scholes pricing model using the following
assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, and strike price of
$19.20, market price of $13.20-$19.20, no yield, and an expected life of 912
days. The gross proceeds received were bifurcated between the note payable and
the warrants issued and a discount of $3,876,256 was recorded. The discount is
being amortized over the loan term of two and one half years. As of
December 31, 2008, a total of $1,797,419 had been amortized and recorded as
interest expense and $2,078,836 remains as the unamortized discount. See
note 8 for additional discussion regarding the issuance of
warrants.
F-13
AUGUST
2008 AMENDMENT TO THE DEBENTURES
On August
29, 2008 the Company signed an Amendment to the Debenture agreements deferring
the payments indicated above. The purpose of the agreement is to provide the
Company time to fund its working capital requirements internally through organic
growth as well as to obtain both short and long term funding through equity
financing and other sources of capital.
AUGUST
2008 WAIVER PROVISIONS:
The
waiver, deferment agreement aligns with the Company’s short term working capital
plan and provides time to achieve company objectives in this regard. In exchange
for the Amendment to the Debentures, the Company agreed to:
A.
|
Waiver
of interest payments due between May-December
2008
|
B.
|
Deferment
of monthly redemptions for the period May-December
2008.
|
C.
|
Increase
to the outstanding principal amount plus accrued interest though December
31, 2008 for the debentures by 120% as of the effective date of the
agreement.
|
D.
|
Reset
of the common stock conversion rate from $18.00 to
$9.00.
|
E.
|
Commencement
of principal payments starting January 1, 2009 with no change to the
redemption period (May 2010)
|
F.
|
Commencement
of interest payments @ 8% per year April 1, 2009 (first payment
due).
|
G.
|
Inclusion
of make whole provisions to reset common stock warrant conversion prices
to the value used to “true-up” both the Innergy Power Company and
Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
For both of these acquisitions the Sellers were issued shares which the
Company guaranteed would be worth $60.00 per share for the thirty days
prior to the anniversary date of the purchase. This guarantee requires the
issuance of additional shares or payment in cash for the difference in the
share price on the respective anniversary dates. In the case of Innergy,
the number of required “true up” shares is capped at
66,666.
|
H.
|
Inclusion
of further make whole provisions to issue additional warrants adequate to
maintain the pro rata debenture ownership % when fully diluted as per
schedule 13 in the waiver
agreement.
|
I.
|
Compliance
with covenants per quarterly public reports issued for the periods ending
June 30,
|
September
30, and December 31, 2008 for the following:
1.
|
Net
cash used
|
2.
|
Current
ratio adjusted for non-cash
liabilities
|
3.
|
Corporate
Headquarters accounts payable
amount
|
IMPACT OF
THE AUGUST 2008 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS
During
the period ended September 30, 2008 the impact to the financial statements for
the provisions of the waiver noted above were estimated, the portion
attributable to the period ending September 30, 2008 was charged to interest
expense, and the remainder was capitalized as prepaid financing charges (see
details in #1 through #3 below). During the last three months of the
waiver period, October to December 31, 2008, the remainder of the capitalized
prepaid financing charges of $2,378,672 were charged to interest
expense. At December 31, 2008 all costs of the initial waiver had
been fully expensed.
1.
|
The
increase to principal of $1,559,859 (see letter “C” above) was added to
the long term note, $1,157,315 was capitalized in prepaid financing
charges and the portion of the increase attributable to the nine month
period ending September 30, 2008 of $402,544, less previously accrued
interest (now incorporated in the principal) of $191,438 was charged to
interest expense. The capitalized remainder of $1,157,315 was charged to
interest expense in the year ended December 31,
2008.
|
2.
|
The
estimated change in value of the original 163,399 debenture warrants
related to the pending reset of the exercise price (see letter “G” above)
was calculated by using the Volume Weighted Average Price (VWAP) for the
most recent 30 days prior to September 30, 2008 of $4.80 as the estimated
new exercise price following the reset and the warrants were valued first
at their current exercise price then at the estimated new price using the
Black Scholes Model using the following assumptions: Strike Price $19.20
(old) and $4.80 (new), Stock Price $6.00 (price on date of agreement),
time 780 days for November Warrants and 795 for December Warrants,
Volatility 146.39%, Risk Free Interest Rate 3.83%. The increase in value
calculated totaled $207,941. Of the total, $154,279 was
capitalized as prepaid financing costs and was amortized over the waiver
period ending December 31, 2008.
|
3.
|
The
estimated number of additional warrants required to be issued to true up
to the original aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the current aggregate exercise
price of $3,137,256 (163,399 total warrants at original exercise price
$19.20), and the new aggregate exercise price of $784,314 following the
reset of the exercise price to $4.80. This difference totaled $2,352,942
requiring the issuance of an estimated 490,196 warrants (at $4.80) to
maintain the previous aggregate exercise price. The new warrants were
valued at $1,438,235 using the Black Scholes Model with the following
assumptions: Strike Price $4.80, Stock Price $4.20 (price at September 30,
2008), time 753 days, Volatility 146.39%, Risk Free Rate 3.83%. Of the
total, $1,067,077 was capitalized as prepaid financing costs and was
amortized over the waiver period ending December 31,
2008.
|
F-14
IMPACT OF
OCTOBER 2008 TRUE-UP (REQUIRED BY THE AUGUST 2008 WAIVER) TO THE FINANCIAL
STATEMENTS
On
October 17, 2008, a purchase price true up with Innergy was completed, whereby
we satisfied our purchase price obligation to Innergy in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required us to immediately reset their warrant exercise price of $9.00 to
the VWAP in place at the time of the Innergy True up of $3.60, as well as to
change their debt conversion rate from the previous $9.00 to
$3.60. This true up also required the issuance of new warrants to
allow the denture holders to maintain their previous aggregate exercise price
following the update. The calculations for this change to our
debenture debt is outlined below. All related charges were
immediately charged to interest expense.
1.
|
The
estimated change in value of the restated debenture warrants
related to the reset of the exercise price (see letter “G” above) was
calculated by using the stock price employed for the Innergy true up
calculation of $3.60 as the new exercise price following the reset and the
warrants were valued first at their current exercise price then at the
estimated new price using the Black Scholes Model using the following
assumptions: Strike Price $4.80 (old) and $3.60 (new), Stock
Price $6.00 (price on date of agreement), time 780 days for November
Warrants and 795 for December Warrants, Volatility 146.39%, Risk Free
Interest Rate 3.83%. The increase in value calculated totaled $35,001 and
was charged to interest expense.
|
2.
|
The
estimated number of additional warrants required to be issued to true up
to the previous aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the previous aggregate
exercise price of $4.80 and the new aggregate exercise price following the
reset to $3.60. This change required the issuance of an
additional 139,191 warrants (at $3.60) to maintain the previous aggregate
exercise price. The change in value of the old vs. the new
increased number of warrants was ($445,061) using the Black Scholes Model
with the following assumptions: Strike Price $3.60, Stock Price $2.40
(price at December 31, 2008), time 753 days, Volatility 146.39%, Risk Free
Rate 3.83%. The reduction in value (due to the lower stock price) was
charged to interest expense.
|
On
January 30, 2009 a purchase price true up with Edison was completed, whereby we
satisfied our purchase price obligation to Edison in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required the issuance of new warrants to allow the debenture holders to
maintain their previous aggregate exercise price following the
update. This calculation resulted in the issuance of an additional
4,720,408 warrants (at $0.06) to maintain the previous aggregate exercise price.
The change in value of the old vs. the new increased number of warrants was
$124,147 using the Black Scholes Model consistent with the Innergy true
up. The cost of the increased warrants of $124,147 was charged to
interest expense in the quarter ended March 31, 2009.
MARCH
2009 AMENDMENT TO THE DEBENTURES
On
March 5, 2009 we entered in to an Agreement entitled “Amendment to Debentures
and Warrants, Agreement and Waiver” (the “Agreement”) restructuring
our equity with the institutional debt holders of the our Original Issue
Discount 8% Senior Secured Convertible Debentures, dated November 6, 2007 (the
“November 2007 Debentures”) (aggregate principal amount equal to
$4,117,649) and with our debt holder of our Original Issue Discount 8% Secured
Convertible Debentures, dated December 6, 2007 (the “December 2007
Debenture”) (aggregate principle amount equal to
$1,764,707). The November and December 2007 Debentures are held by
Enable Growth Partners LP (“EGP”), Enable Opportunity Partners LP (“EOP”),
Pierce Diversified Strategy Master Fund LLC, Ena (“Pierce”), and BridgePointe
Master Find Ltd (“BridgePointe”)(individually referred to as “Holder”
and collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.
MARCH
2009 WAIVER PROVISIONS:
In
exchange for signing an Amendment to Debentures and Warrants, Agreement and
Waiver which defers interest payments due for the first quarter 2009 until
May 1, 2009 and payment of monthly principal redemptions until May 1, 2009, we
agreed to the following:
A.
|
Adjust
the conversion price of the November 2007 Debentures and December 2007
Debenture s to $3.60.
|
B.
|
The
Holders collectively shall maintain an equity position in the Company, in
fully diluted shares, of 50.4 %. Should the Holders’ equity position
collectively become less than the 50.4%, the Company shall issue warrants
to each Holder, pro-ratably to bring Holders’ equity position back to
50.4%.
|
C.
|
Additional
covenants related to not exceeding $2,000,000 accounts payable amount or
payment of other liabilities while the debentures are
outstanding.
|
D.
|
The
right to recommend for placement on the Company 's Board of Directors, a
nominee by either BridgePointe or BridgePointe’s investment manager
Roswell Capital Partners LLC. Such a recommendation shall meet the
Company’s requirements as set forth in the Company’s Bylaws and all
applicable federal and state law. The nominee shall serve until such time
as the Company has redeemed the
debentures.
|
E.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007 ), and all Warrants issued to
Holders as consideration for the current or prior Amendments to the
November 2007 Debentures and the December 2007 Debentures shall be amended
t o have an exercise price of $3.60 (to the extent that such exercise
price was previously above $3.60), and the expiration dates shall be
extended to May 1, 2014.
|
F-15
F.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The proposal
shall increase the number of authorized common shares from 300,000,000 to
500,000,000.
|
G.
|
In
addition, the Securities Agreement, dated November 6, 2007 and all UCC-1
filings made as required thereof, shall be amended to include each of the
Company’s current and future Patents and Trademarks. In addition the
Company shall file notice of the Assignment for Security of the Company’s
current and any future Patents and Trademarks with the United States
Patent and Trademark Office and other foreign countries as
appropriate.
|
IMPACT OF
THE MARCH 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
There was
no financial impact of the March 2009 waiver as the warrants mentioned were
reset to $3.60 at the time of the October 2008 true up.
MAY
2009 AMENDMENT TO THE DEBENTURES
Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed material to the Company’s future, thus on May
15, 2009, the Company and the Debenture Holders entered into an agreement
entitled “Amendment to Debentures and Warrants, Agreement and Waiver” (the
“Agreement”) restructuring the Company’s equity as well as establishing an
inducement for additional working capital for the Company. The
Agreement’s effective date was May 1, 2009.
MAY 2009
WAIVER PROVISIONS:
The
Company agreed to the following:
1.
|
Defer
payment of interest until November 1, 2009. Interest to be paid monthly
from that date. Interest accrued though September 30, 2009 will
be added to principal.
|
2.
|
Commence
redemption of principal on January 1, 2010 in 10 equal
payments.
|
3.
|
Consent
to obtaining additional working capital for specified uses not to exceed
$2,500,000 in the same form and rights of debentures pari pasu in
seniority both as to security interest priority and right of payment with
the debenture held by the existing
holders.
|
4.
|
Segregation
of payment of the Karner bridge note, reaffirmed Karner and Morrow
employment agreements, identifies specific contract carve outs should the
Company fail to achieve certain target objectives, and provide for a bonus
should the target be achieved.
|
5.
|
Maintain
the conversion price of the November 2007 Debentures and December 2007
Debentures at $.06.
|
6.
|
Additional
covenants related to not exceeding $2,500,000 accounts payable amount or
payment of other liabilities while the debentures are outstanding. Other
covenants include maintaining minimum cash flow amounts. Allowing for
inspection of financial records, and achieving Stimulus contract target
objectives.
|
7.
|
The
right to recommend for placement on the Company's Board of Directors, two
(2) nominees by either BridgePointe or BridgePointe’s
investment manager Roswell Capital Partners LLC or other debenture
holders. Such a recommendation will meet the Company’s requirements as set
forth in the Company’s Bylaws and all applicable federal and state law.
The nominees may serve until such time as the Company has redeemed the
debentures.
|
8.
|
The
existing Holders collectively will maintain an equity position in the
Company, in fully diluted shares, of 80%. Should the existing holders
Holders’ equity position collectively become less than the 80%, the
Company will issue warrants to each existing Holder, pro-ratably to bring
Holders’ equity position back to 80%. However, there are provisions (when
additional capital is raised (not to exceed $2,500,000)) to bring the
fully diluted position to 70% for the existing Holders as well as those
Holders of new capital debentures. There are provisions to
further reduce the debenture holders to 65% should management achieve
certain specified performance
targets.
|
9.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
as consideration for the current or prior Amendments to the November 2007
Debentures and the December 2007 Debentures will be amended to have
an exercise price of $0.60 (to the extent that such exercise price
was previously above $3.60), and the termination dates for the makeup
warrants will be five (5) years from date of
issuance.
|
10.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The
proposal shall increase the number of authorized common shares from
300,000,000 to 1,300,000,000.
|
11.
|
Agreed
to specific provisions relating to disclosure of material nonpublic
information by debenture holder board members, or at other times when
complying with the provisions of the debenture waive
agreement..
|
IMPACT OF
THE MAY 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
In the
quarter ended June 30, 2009, the financial impact of the May waiver was
calculated and is being amortized as noted below, over the waiver period of May
15, 2009 through December 31, 2009.
F-16
1.
|
The
change in value of the restated debenture warrants related to the
reset of the exercise price (see #9 above) was calculated using the Black
Scholes Model using the following assumptions: Strike Price $0.06 (old)
and $0.01 (new), Stock Price $0.11 (price on date of agreement), time
162.34 days Volatility 162.34%, Risk Free Interest Rate 3.10%. The
increase in value calculated totaled $887,843. This amount was
added to additional paid in capital, and a contra-equity account
for “Unamortized Financing Charges” was established as the
offset. The portion of the Unamortized Financing Charges” that
was charged to interest expense through September 30, 2009 was $532,706
The remaining $355,137 was expensed over the remainder of the waiver
period (October through December
2009).
|
2.
|
The
number of additional warrants to be issued to support the
requirement of an 80% equity position as described in #8 above was
calculated as follows: Total Debenture warrants outstanding
prior to the waiver = 871,460 + shares available on debenture conversion
2,046,125 = 2,917,585 Total Fully Diluted Debenture Holder Ownership
Pre-Waiver. Total Company Fully Diluted Shares at May 15, 2009
of 14,347,848 was used as the base on which to calculate the 80% ownership
target of 11,478,278 shares. To determine
the warrants to be issued the 80% target figure of 11,478,278 less total
Debenture Holder Ownership of 2,917,585 resulted in 8,560,692 (additional
warrants to be issued). To value the new warrants we used the
market cap at the date of the issuance calculated as shares outstanding at
May 15, 2009 of 2,698,436 multiplied by the closing share price
of $6.60 = $17,809,681. To get the portion of the
market cap attributable to the new warrants (vs. those already
held by the debenture holders ) we divided the # of new warrants
(8,560,692) by the total 80% ownership target number of shares for the
debenture holders (11,478,278) to get (75%). The 75%
was multiplied by 80% total ownership %, and the resulting 60%
was then multiplied by the total market cap to get the portion of the
market cap attributable to the new issuance of $10,626,208.
This amount was added to additional paid in capital, and a contra-equity
account for “Unamortized Financing Charges” was used as the
offset.
|
All
Unamortized Financing Charges were amortized and charged to charged to interest
expense over the waiver period in the year ending December 31,
2009.
JUNE
2009 Amendment to the MAY Amendment to the Debentures
The
debenture holders and the Company signed a First Amendment to Amendment to
Debentures and Warrants, Agreement and Waiver dated June 30,
2009. This amendment modified the May 15, 2009 Amendment
by:
a.
|
Increasing
approval authority for specified transactions for the November and
December 2007 and July 2009 Debenture Holders to 85% from 75% of
outstanding principal amount.
|
b.
|
Clarifying
whom has Board of Director member
rights
|
c.
|
Clarifying
the June 30, 2009 warrant true-up calculation, per the May 15, 2009
Amendment.
|
IMPACT OF
THE PROVISIONS OF THE JUNE AMENDMENT TO THE FINANCIAL STATEMENTS:
There was
no impact to the financial statements related to the June amendment to the May
15, 2009 amendment.
The
current portion of the debentures is recorded, net of a $931,261 discount, is
$6,794,992 at September 30, 2009. The long-term portion of the
debentures is $858,472 as of September 30, 2009.
Included
in accrued interest is $466,107 of accrued interest relating to the debentures
at September 30, 2009.
JULY
2009 NEW DEBENTURE ISSUANCE
To
support ECOtality’s expansion and current working capital needs, the Company
received a direct investment of $2,5000,000 in 8% Secured Convertible Debentures
due October 1, 2010, of which Shenzhen Goch Investment Ltd was issued $2,000,000
in debentures, Enable Growth Partners (current debenture holder) was issued
$250,000 in debentures, and BridgePointe Master Fund (current debenture holder)
was issued $250,000 in debentures. The debentures have an exercise price or
$3.60 per share of Ecotality common stock. The July 2009
Debentures:
a.
|
Are
consistent with the initial debentures issued in November and December
2007 except this series is secured, convertible rather than original issue
discount debentures.
|
|
b.
|
Update
the original Security Purchase Agreements, Securities Agreements,
Registration Rights Agreements, Subsidiary Guarantees, and related
disclosure schedules.
|
c.
|
Provide
for issuance of warrants to Shenzhen Goch Investment Ltd for their capital
investment and adjusting the warrants held by Enable and BridgePointe
subject to the June 30, 2009 true up as defined in the May 15,
2009 Amendment.
|
d.
|
Restate
the agreement to increase the number of the Company’s
authorized common shares from 300,000,000 to
1,300,000,000.
|
F-17
e.
|
Restate
the covenants established in the May 15, 2009 Amendment and the Karner
“carve-out” should certain “Stimulus” contract targets not be achieved. In
accordance with the terms of the May 15 Amendment, the Company and Karner
agreed that if Karner continues to remain a full-time employee, and The
Company (with Karner’s assistance) fail to secure executed Stimulus
Contracts (as defined in the May 15 Amendment) having an aggregate total
contract value of $20,000,000 or more during the period from May 15, 2009
through October 1, 2009, then The Company must, on or prior to
October 9, 2009, transfer ownership of all stock and assets of The Clarity
Group, Inc. to Karner.
|
(NOTE -
on September 30,2009 contracts totaling in excess of $20 million were
achieved so this carve out provision is no longer valid).
OCTOBER
2009 SECURITIES EXCHANGE AGREEMENT
On
October 31, 2009, Ecotality, Inc. (“Ecotality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common Stock”) at a
1:1 ratio.
IMPACT OF
THE PROVISIONS OF THE SECURITIES EXCHANGE AGREEMENT ON THE FINANCIAL
STATEMENTS:
The
outstanding principal and unpaid interest on the date of the agreement was
$9,111,170. The oustanding debenture liability was relieved in full
and a credit was recorded to additional paid in capital in the amount
of 9,102,573 and preferred stock was credited at par value of $0.001
multiplied by the 8,597,299 shares that were issued, for a credit of
$8,597. The unamortized discount on the convertible debentures was
$676,244 immediately prior to the transaction. This amount was
charged in full to interest expense in the year ended December 31,
2009.
Interest
expense totaled $15,915,438 and $4,620,364 for the year ended December 31, 2009
and 2008 respectively.
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line was
secured by a second position on receivables (junior to previously issued
debentures). During the year ended December 31, 2008, $450,000 was advanced by
Mr. Karner and Ms. Forbes. Further advances above $450,000 were contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carries a loan fee of $45,000 payable when the line expires. The
line was originally scheduled to expire December 15, 2008, but was extended to
April 20, 2009 by the Lenders. In consideration of the extension, an
interest fee of $50,000 was paid to the Lenders in December 2008. No
other interest payments or fees are required under the agreement. The fee of
$45,000 was expensed in full as of December 31, 2008. All amounts
advanced under the Line are due and payable in full on April 20, 2009. The
balance of the note payable was $450,000 at December 31, 2008. This
balance was paid in full on December 11, 2009 leaving a $0 balance in accrued
liabilities related to this item at December 31, 2009.
Note
7 – Stockholders’ equity
The
Company is authorized to issue 1,300,000,000 shares of its $0.001 par value
common stock and 200,000,000 shares of $0.001 par value preferred
stock.
Common
Stock
During
the year ended December 31, 2007, the Company issued a total of 13,167
shares of common stock to consultants for services. The stock was valued at the
current market price at the date of issue for a total of $400,400. This
amount was recorded as a prepaid expense for services to be amortized over the
periods of the related agreements. During the year ended December 31,
2007, $284,375 has been amortized and $116,025 remained in prepaid
expenses. During the year ended December 31, 2008, $116,025 was
amortized and $0 remained in prepaid expenses at December 31, 2008.
During
the year ended December 31, 2007, the Company signed an employment
agreement with the CEO of the Company. The Company agreed to issue a total
of 16,666 options for shares of common stock currently and issue another 16,666
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 $3.60. 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 $18.00, market price of $19.20, no yield, and an
expected life of 5 years. This amount was recorded as unamortized cost of
stock issued for services to be amortized over the two-year period of the
agreement. During the year ended December 31, 2007, $23,442 was
amortized into expense and $257,858 remained in unamortized cost of stock issued
for services. $140,650 was amortized in 2008, and the remaining
$117,208 was expensed in the six months ending June 30,
2009. The options issued in 2008 were treated as earned equally over
the two-year term of the agreement so that 1,389 of these
options were earned and expensed as of December 31, 2007. Those
options were valued using the Black-Scholes pricing model using the same
assumptions and valued at $14,442. The balance of the options were valued
at $55,168 using the Black Scholes pricing model and were expensed as earned in
the year ending December 31, 2008.
F-18
During
the year ended December 31, 2008, a debenture holder, BridgePointe, elected to
convert a portion of their principal to shares at the conversion rate in affect
at that time of $18.00 per share. $100,000 of principal was converted
to 5,555 shares
During
the year ended December 31, 2008 the Company entered into contracts with
employees that called for the issuance of 5,000 shares of the Company’s $0.001
common stock. These shares were valued at $25,000. This
amount was expensed to compensation in the year ended December 31,
2008.
On August
8, 2008 the Company entered into a contract for services with vendor that called
for the issuance of 6,500 shares of the Company’s $0.001 common
stock. These shares were valued at $54,900 and were expensed over the
life of the contract. At December 31, 2008 $22,750 had been expensed
leaving a balance of $31,850 in prepaid services. In the nine months
ended September 30, 2009 the remaining $31,850 was expensed leaving a balance of
$0 in prepaid services at September 30,2009.
On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. The fair market value of the transaction was $3,000,000. The Company issued
50,000 shares of the Company’s common stock for the acquisition. The
Company guaranteed to the sellers that the shares would be worth 60 each
($3,000,000) during the 30-day period commencing 11 months from the closing
date. If the shares were not worth $3,000,000, the company would be required to
either (a) issue additional shares such that the total shares are worth
$3,000,000 at that time or, (b) issue a total of 66,666 new shares, or (c) pay
cash to the seller such that the aggregate value of the 50,000 shares plus the
cash given would equal $3,000,000. On October 17, 2008, 66,666 shares were
issued to Innergy Power Corporation in full satisfaction of our purchase
obligation to them.
There
were 2,157,048 shares of common stock issued and outstanding at December
31, 2008.
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. The fair market value of the transaction was $3,000,000. The
company paid $1,000,000 in cash and issued 33,333 shares of the company’s common
stock for the acquisition. The company guaranteed to the sellers that the
shares would be worth $60 each ($2,000,000) by the tenth day following the first
anniversary date of the transaction. If the shares are not worth $2,000,000, the
company would be required to either issue additional shares such that the total
shares are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 2,000,000 shares plus the cash given would equal
$2,000,000. This purchase price obligation was settled in full on
January 30, 2009 with the issuance of 522,222 shares of Ecotality’s $0.001 par
value common stock.
In March
2009 the Company issued 17,917 shares of the Company’s $0.001 common
stock in satisfaction of $90,000 in accounts payable owed to two service
vendors.
On April
13, 2009 1,250 shares of common stock owed in 2008 were issued to an employee in
accordance with an employment agreement.
For the
year ended December 31, 2009, 16,667 shares of common stock valued at $260,000
and were issued and 16,667 were owed in return for professional
services.
19,895
shares were issued to Corporate Headquarter employees as
compensation. These awards were valued at $128,987 and approved by
the Board and were issued in recognition of performance during the year ended
December 31, 2009.
On
October 31, 2009, Ecotality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Company's Common Stock at a purchase price of $7.20 per
share. $20,500,000 was raised pursuant to the Purchase Agreement in
the year ended December 31, 2009. Total fees to brokers
associated with the capital raise were $1,204,935 in cash as per their
contracted fee agreements. $15,500,000 was received in the year ended
December 31, 2009. 1,458,330 Shares were issued in 2009 in
satisfaction of $10,500,000 of the investment received. The the
remaining $5,000,000 received in 2009 and an additional $5,000,000 subscribed in
2009 were related to a single investor. To capture the partial
receipt and outstanding commitment, a subscription receivable of
$5,000,000 and 1,388,889shares owed but not issued were recorded at December 31,
2009 and were subsequently issued upon receipt of the second half of the
investor's total $10,000,000 investment in January of 2010. In
addition to the shares and fees described above, the purchase agreement called
for the issuance of 2,847,222 warrants to the new investors and
163,194 warrants to the brokers involved in the capital raise, as part of the
contractual fee agreements. These are five year warrants with an
exercise price of $9.00 and were issued November 10, 2009.
On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the grant of an equity award to Mr. Jonathan Read
valued at $8.1 million. This award, originally stated in terms of warrants was
never issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company’s $0.001 par value common stock being granted
to Mr. Read on January 15, 2010, with final issuance of the shares on January
27, 2010. The value of the final award was calculated at the time of the
issuance of the shares on January 27, 2010. The share price on that date was
$5.50 for total compensation of $3,704,278. At December 31, 2009 the full amount
of the original award of $8.1 million was recorded in additional paid in capital
and the shares were shown as owed but not issued. The award amount booked to
additional paid in capital was not reduced from the original $8.1 million
estimate to the $3.7 million final award value in compliance with GAAP.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange for
107,506 shares, Pierce Diversified Master Fund exercised 57,079 warrants in
exchange for 53,753 shares, BridgePointe Master Fund exercised
1,080,210 warrants in exchange for 1,010,324 shares and Glenwood Capital, LLC
(recipient of assigned warrants) exercised 34,854 warrants in exchange for
33,333 shares
For the
year ended December 31, 2009, 98,610 shares were issued on the cashless
conversion of 105,306 Brookstreet Investor warrants at $0.60 exercise
price.
F-19
For the
year ended December 31, 2009, 302,778 shares on the Company's $0.001
par value common stock were issued for conversion of debenture debt
in the amount of $1,090,000 at a rate of $3.60 as
follows: Pierce Diversified Master Fund converted $42,000 in debt for
11,667 shares, Enable Growth converted $714,000 in debt for 198,333 shares,
Enable Opportunity converted $84,000 in debt for 23,333 shares and BridgePointe
Master Fund converted $250,000 in debt for 69,444 shares.
On September
30, 2009, triggering conditions were met under the management incentive plan
resulting in the grant of an equity award to Mr. Read valued at
$8.1MM. This award, originally stated in terms of warrants was never
issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company's $0.001 par value common stock being
granted to Mr. Read on January 15, 2010, with final issuance of the shares on
January 27, 2010. The shares associated with this award were
recorded as shares owed but not issued as of December 31, 2009. The value of the
final award was calculated at the time of the issuance of the shares on January
27, 2010. The share price on that date was $5.50 for total
compensation of $3,704,278.
There
were 6,713,285 shares of Common Stock outstanding and 2,079,061 shares owed but
not issued at December 31, 2009.
Preferred
Shares
On
October 31, 2009, Ecotality, Inc. (“Ecotality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible
Preferred Stock (while not impacted by the current common stock split discussed
herein, it could be subject to adjustment for future forward and reverse stock
splits, stock dividends, recapitalizations and the like). The Series A
Convertible Preferred Stock has no redemption or preferential dividend rights,
but may be converted into shares of the Company’s common stock (the “Common
Stock”) at a 1:1 ratio
There
were 8,597,299 shares of Series A Convertible Preferred Stock outstanding at
December 31, 2009.
Note
8 – Options and Warrants
As
of December 31, 2007, there were 317,924 options and warrants
outstanding.
The
November and December debenture warrants issued in year ending December 31, 2007
were covered by the 2008 Debenture Waiver documents and as such were subject to
the reset provisions outlined in Note 6 (A-I). In October 2008 these
warrants were reset to an exercise price of $4.80 and additional “make whole”
warrants were issued to allow the denture holders to true up to the previous
aggregate exercise price (original number of warrants extended at previous
higher exercise price vs. the lower true up price triggered by the Innergy true
up make whole provision.). This reset led to the issuance of an
additional 490,196 warrants attributable to the November and December Warrants
with an exercise price of $4.80.
The
November and December debenture warrants were reset a second time in October
2008 from $4.80 to $3.60 due to the Innergy True Up outlined in Note 6 and an
additional 139,191 new warrants with an exercise price of $3.60 were
issued.
16,667
10-year options with and exercise price of $2.40 were issued to the CEO of the
Company in accordance with his employment agreement.
At
December 31, 2008, there were 963,979 options and warrants
outstanding.
A third
reset of the November and December debenture warrants occurred in January 2009
due to the Edison True up outlined in Note 6. This reset led to the
issuance of an additional 78,673 warrants attributable to the November and
December Warrants with an exercise price of $3.60.
On May
15, 2009 the November and December debentures were amended as outlined in Note
6. As a result, the existing warrants were reset from $3.60 to $0.60
exercise price and an additional 8,560,692 true up warrants were also issued to
provide for an 80% equity position agreed to as part of this
amendment.
In
conjunction with the new July 2 debentures discussed more fully in Note 6, the
November and December 2007 debenture holders surrendered 720,703warrants in
compliance with the June 30th True Up requirement contained in the May 15, 2009
debenture waiver.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange
for 107,506 shares, Pierce Diversified Master Fund exercised 57,079
warrants in exchange for 53,753 shares, BridgePointe Master Fund
exercised 1,080,210 warrants in exchange for 1,010,324 shares and Glenwood
Capital, LLC (recipient of assigned warrants) exercised 34,854 warrants in
exchange for 33,333 shares
In
accordance with our October 2009 Securities Purchase Agreement, new investors
would secure 1 share of common stock per $7.20 invested plus one warrant to
purchase one share of common stock for a price of $9.00. In return
for total equity investments received of $15.5 million in addition to a
subscription receivable of an additional $5 million, 2,847,222 five year
warrants were issued on November 10, 2009 with an exercise price of $9.00 to 13
new investors. In addition, 163,194 five year warrants with an
exercise price of $9.00 were issued to brokers involved in the capital raise
activities in accordance with their contractual agreements.
F-20
18,332
five year warrants with an exercise price of $0.60 were issued to two
consultants in accordance with their contractual agreements.
17,615
five year warrants with an exercise price of $0.60 were issued to Brookstreet
Investors in satisfaction of anti-dilution provisions as outlined in their
Securities Purchase Agreements.
105,693
warrants with an exercise price of $0.60 were cashless exercised by Brookstreet
Investors in return for 98,610 shares of common stock.
On
October 31, 2009, Ecotality, Inc. (“Ecotality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible
Preferred Stock.
F-21
Number
Of Shares
|
Weighted-
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2005
|
0 | $ | 0.00 | |||||
Granted
|
0 | $ | 0.00 | |||||
Exercised
|
0 | $ | 0.00 | |||||
Cancelled
|
0 | $ | 0.00 | |||||
Outstanding
at December 31, 2006
|
146,666 | $ | 34.20 | |||||
Granted
|
195,899 | $ | 18.60 | |||||
Exercised
|
(24,641 | ) | $ | 21.00 | ||||
Cancelled
|
- | $ | 0.00 | |||||
Outstanding
at December3l, 2007
|
317,924 | $ | 25.20 | |||||
Granted
|
646,054 | $ | 3.60 | |||||
Exercised
|
0 | $ | 0.00 | |||||
Cancelled
|
- |
$
|
0.00
|
|||||
Outstanding
at December 31, 2008
|
963,979 | $ | 8.40 | |||||
Granted
|
11,685,721 | $ | 2.78 | |||||
Exercised
|
(8,817,143 | ) | $ | 0.60 | ||||
Cancelled
|
(720,703 | ) | $ | 0.60 | ||||
Outstanding
at December 31, 2009
|
3,111,854 | $ | 9.72 |
STOCK WARRANTS OUTSTANDING
|
||||||||||||
Range of
Exercise Prices
|
Number of
Shares
Outstanding
|
Weighted-
Average
Remaining
Contractual
Life in Years
|
Weighted-
Average
Exercise
Price
|
|||||||||
$74.40
- $85.20
|
31,665 | 1.55 | $ | 81.66 | ||||||||
$21.00
|
2,281 | 1.83 | $ | 21.00 | ||||||||
$16.80
|
16,666 | 7.83 | $ | 16.80 | ||||||||
$11.10
|
15,832 | 8.00 | $ | 11.10 | ||||||||
$9.00
|
3,010,412 | 4.81 | $ | 9.00 | ||||||||
$2.40
|
16,666 | 8.83 | $ | 2.40 | ||||||||
$0.60
|
18,332 | 4.81 | $ | 0.60 | ||||||||
3,111,854 | 4.88 | $ | 9.72 |
STOCK WARRANTS EXERCISABLE
|
||||||||
Range of
Exercise Prices
|
Number of
Shares
Exercisable
|
Weighted-
Average
Exercise
Price
|
||||||
$74.40
- $85.20
|
31,665 | $ | 81.66 | |||||
$21.00
|
2,281 | $ | 21.00 | |||||
$16.80
|
16,666 | $ | 16.80 | |||||
$11.10
|
15,832 | $ | 11.10 | |||||
$9.00
|
3,010,412 | $ | 9.00 | |||||
$2.40
|
16,666 | $ | 2.40 | |||||
$0.60
|
18,332 | $ | 0.60 | |||||
3,111,854 | $ | 9.72 |
F-22
NOTE
9 – Income taxes
The
Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”) for recording the provision for
income taxes. ASC 740-10 requires the use of the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The
Company’s effective income tax rate is higher than would be expected if the
federal statutory rate were applied to income before tax, primarily because of
expenses deductible for financial reporting purposes that are not deductible for
tax purposes during the year ended December 31, 2009 and 2008.
The
Company’s operations for the year ended December 31, 2009 and 2008 resulted in
losses, thus no income taxes have been reflected in the accompanying statements
of operations.
As of
December 31, 2009 and 2008, the Company has net operating loss carry-forwards
which may or may not be used to reduce future income taxes payable. Current
Federal Tax Law limits the amount of loss available to offset against future
taxable income when a substantial change in ownership occurs. Therefore, the
amount available to offset future taxable income may be limited. A
valuation allowance has been recorded to reduce the net benefit recorded in the
financial statements related to this deferred asset. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the ultimate
realization of these deferred tax assets.
The
provision for income taxes consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax
|
$ | - | $ | - | ||||
Benefits
of operating loss carryforward
|
3,295,000 | 3,780,000 | ||||||
Change
in valuation allowance
|
(3,295,000 | ) | (3,780,000 | ) | ||||
Provision
for income tax
|
$ | - | $ | - |
Below is
a summary of deferred tax asset calculations as of December 31, 2009 based on a
34% income tax rate. Currently there is no reasonable assurance that the Company
will be able to take advantage of a deferred tax asset. Thus, an offsetting
allowance has been established for the deferred asset.
Deferred tax
asset
|
34% tax rate
|
|||||||
Net
operating loss
|
$ | 27,730,124 | $ | 9,425,000 | ||||
Reserves
and allowances
|
8,859,582 | 1,025,000 | ||||||
Goodwill,
net of amort.
|
3,027,045 | 3,010,000 | ||||||
13,460,000 | ||||||||
Valuation
allowance
|
(13,460,000 | ) | ||||||
Deferred
tax asset
|
$ | - |
For
financial reporting purposes, the Company has incurred a loss since inception to
December 31, 2009. Based on the available objective evidence,
including the Company’s history of its loss, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company provided for a full valuation allowance against its net
deferred tax assets at December 31, 2009. Further, management does not believe
it has taken the position in the deductibility of its expenses that creates a
more likely than not potential for future liability under the guidance of FIN
48.
A
reconciliation between the amount of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is as
follows:
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Federal
and state statutory rate
|
34 | % | 34 | % | ||||
Non-deductible
items in net loss
|
(23 | )% | 13 | % | ||||
Change
in valuation allowance
|
(11 | )% | (47 | )% | ||||
- | - |
F-23
Note
10 – Commitments and contingencies
As of
December 31, 2009, the Company has five leases in effect for operating
space. Future obligations under these commitments are $275,431 for 2010,
$234,775 for 2011, $239,777 for 2012 and $63,499 for 2013.
In June
of 2006, the Company entered into a License Agreement with California Institute
of Technology, whereby the Company obtained certain exclusive and non-exclusive
intellectual property licenses pertaining to the development of an electronic
fuel cell technology. The License Agreement carries an annual
maintenance fee of $50,000, with the first payment due on or about June 12, 2009
which has been accrued through the year ended December 31,
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
11 – Segment Reporting
Generally
Accepted Accounting Principles require disclosures related to components of a
company for which separate financial information is available that is evaluated
regularly by a company’s chief operating decision maker in deciding the
allocation of resources and assessing performance. 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. The Company
has concluded it has three reportable segments for the years ended December 31,
2009 and 2008; ECOtality Stores segment, Innergy Power segment and eTec segment.
The ECOtality Stores segment is the online marketplace for fuel cell-related
products and technologies with online distribution sites in the U.S., Japan,
Russia, Italy and Portugal . The Innergy Power segment is comprised
of the sale of solar batteries and other solar and battery powered devices to
end-users. The eTec segment relates to sale of fast-charge systems for material
handling and airport ground support applications to the testing and development
of plug-in hybrids, advanced battery systems and hydrogen ICE conversions and
consulting revenues. This segment also includes the Minit-Charger
business which relates to the research, development and testing of advanced
transportation and energy systems with a focus on alternative-fuel, hybrid and
electric vehicles and infrastructures. eTec holds exclusive patent rights
to the eTec 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.
The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 2 of this Form
10-K. Management continues to assess how it evaluates segment
performance, and currently utilize income (loss) from operations, excluding
share-based compensation (benefits), depreciation and intangibles amortization
and income taxes. For year ended December 31, 2009 and 2008
inter-segment sales were $28,723 and $0. All inter-segment sales have
been eliminated in the consolidation process.
Summarized
financial information concerning our reportable segments for the year ended
December 31, 2009 are as follows:
YEAR ENDED DECEMBER 31, 2009
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$ | 5,702,323 | $ | 2,111,198 | $ | 788,153 | $ | 8,601,674 | ||||||||
Depreciation
and amortization
|
$ | 320,064 | $ | 7,078 | $ | 3,561 | $ | 330,703 | ||||||||
Operating
income (loss)
|
$ | (2,077,492 | ) | $ | 646,001 | $ | 147,715 | $ | (1,283,776 | ) | ||||||
Interest
Income (expense)
|
$ | (1,289 | ) | $ | - | $ | - | $ | (1,289 | ) | ||||||
Gain
/ (Loss) on disposal of assets
|
$ | 48,523 | $ | - | $ | - | $ | 48,523 | ||||||||
Other
Income (expense)
|
$ | 236 | $ | - | $ | - | $ | 236 | ||||||||
Segment
Income before Corporate Overhead Allocation
|
$ | (2,030,022 | ) | $ | 646,001 | $ | 147,715 | $ | (1,236,306 | ) | ||||||
Corporate
Overhead Allocation
|
$ | 18,653,977 | $ | 6,906,350 | $ | 2,578,280 | $ | 28,138,607 | ||||||||
Segment
Income / (Loss)
|
$ | (20,683,999 | ) | $ | (6,260,349 | ) | $ | (2,430,565 | ) | $ | (29,374,913 | ) | ||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$ | 132,840 | ||||||||||||||
Reported
Net income after tax
|
$ | (29,507,750 | ) | |||||||||||||
Capital
Expenditures
|
$ | 771,919 | $ | - | $ | 5,945 | $ | 777,864 | ||||||||
Total
segment assets - excluding intercompany receivables
|
$ | 2,876,733 | $ | 714,433 | $ | 186,909 | $ | 3,778,075 | ||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$ | 3,495,878 | ||||||||||||||
Other
Corporate Assets
|
$ | 12,352,371 | ||||||||||||||
Total
Reported Assets
|
$ | 19,626,324 |
F-24
Summarized
financial information concerning the Company’s reportable segments for the year
ended December 31, 2008 is as follows:
YEAR ENDED DECEMBER 31, 2008
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$ | 8,072,664 | $ | 2,324,170 | $ | 790,549 | $ | 11,187,384 | ||||||||
Depreciation
and amortization
|
$ | 470,929 | $ | 6,229 | $ | 3,560 | $ | 480,718 | ||||||||
Operating
income (loss)
|
$ | (528,193 | ) | $ | (40,368 | ) | $ | 49,859 | $ | (518,702 | ) | |||||
Interest
Income
|
$ | 9,632 | $ | 519 | $ | - | $ | 10,151 | ||||||||
Gain
/ (Loss) on disposal of assets
|
$ | (95 | ) | $ | - | $ | - | $ | (95 | ) | ||||||
Other
Income - Working Capital True Up
|
$ | 364,645 | $ | - | $ | - | $ | 364,645 | ||||||||
Segment
Income before Corporate Overhead Allocation
|
$ | (154,011 | ) | $ | (39,849 | ) | $ | 49,859 | $ | (144,001 | ) | |||||
Corporate
Overhead Allocation
|
$ | 5,721,432 | $ | 1,534,970 | $ | 531,566 | $ | 7,787,968 | ||||||||
Segment
Income / (Loss)
|
$ | (5,875,443 | ) | $ | (1,574,819 | ) | $ | (481,707 | ) | $ | (7,931,969 | ) | ||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$ | 135,241 | ||||||||||||||
Reported
Net income after tax
|
$ | (8,067,210 | ) | |||||||||||||
Capital
Expenditures
|
$ | 251,260 | $ | 12,025 | $ | - | $ | 263,284 | ||||||||
Total
segment assets - excluding intercompany receivables
|
$ | 3,637,112 | $ | 512,532 | $ | 158,599 | $ | 4,308,243 | ||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$ | - | $ | - | $ | - | $ | 3,495,878 | ||||||||
Other
Corporate Assets
|
$ | - | $ | - | $ | - | $ | 1,022,336 | ||||||||
Total
Reported Assets
|
$ | 8,826,457 |
NOTE
12 – Related Party Transactions
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line is
secured by a second position on receivables (junior to previously issued
debentures). During the nine months ended September 30, 2008, $300,000 was
advanced by Mr. Karner and Ms. Forbes. This line carried a loan fee of $45,000
payable when the line expired on December 15, 2008. No other interest payments
or fees were required under the agreement. The fee of $45,000 was expensed over
the life of the Line. Imputed interest of $1,425 and financing charges of $6,962
were expensed in the nine month period ending September 30, 2008. The
balance of the note payable of $450,000 was paid July 9, 2009.
Please refer to Note 7 for information on equity awards to
employees.
Note
13 – Subsequent Events
The
Company has evaluated all subsequent events through April 15, 2010, the date the
financial statements were issued, and determined that there are no subsequent
events to record, and the following subsequent events to disclose:
On
January 6, 2010, Ecotality Inc. established a new, wholly-owned
subsidiary, Ecotality Australia Pty Ltd. The Company, headquartered
in Brisbane, Queensland, will market and distribute battery charging equipment
to support on-road electric vehicles (EV), industrial equipment, and electric
airport ground support equipment (GSE).
On
January 15, 2010 the Company issued 673,505 common shares to the CEO of the
Company in satisfaction of the management incentive plan award that was
triggered in September 2009 but for which the final structure of the equity
award was not determined and finalized until 2010. This award is
described further in footnote 7.
On
October 31, 2009, Ecotality Inc. signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors pursuant
to which the Investors agreed to purchase shares of the Common Stock at a
purchase price of $7.20 per share. On January 7, 2010 we received the
remaining $5,000,000 investment in this offering that remained outstanding after
the closing on November 20, 2009. As a result, the Company
issued 1,388,888 shares in January 2010 to the investor for whom the total
commitment was $10 million, of which $5 million was received in 2009 and $5
million was received in 2010.
F-25
From
January 1, through April 13, 2010, a consultant to the company
exercised 19,998 warrants with an exercise price of $0.60 for cash and 19,998
shares of the Company's common stock were issued.
On March
1, 2010 a lease for a new Corporate Headquarters location for Ecotality went
into effect. This lease is for a term of 68 months for
4,441 rentable square feet in Tempe, AZ. For the first 8 months of
rent were abated and all tenant improvements were funded by the landlord, CH
Realty III. The first 20 months of the lease call for payments of
$27.50 per square foot.
On March
3rd, 2010 BridgePointe Master Fund converted 60,000 of their series A preferred
shares into 60,000 shares of the Company's common stock.
From
January 1, through April 13, 2010, 17,766 shares of the Company's
common stock were issued in to two consultants in accordance with
their contracts.
On April
7th 2010, 1,100 shares were issued to an employee of eTec in accordance with an
employment agreement.
CONTROLS
AND PROCEDURES
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
We
maintain a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by us in the reports filed under the
Securities Exchange Act, is recorded, processed, summarized and reported within
the time periods specified by the Commission’s rules and forms.
Disclosure controls are also designed with the objective of ensuring that
this information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure. We evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end
of the period covered by this report. As a result of this evaluation, we
concluded that our disclosure controls and procedures were effective for the
period ended December 31, 2009.
Changes
in Internal Control
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). These internal controls are
designed to provide reasonable assurance that the reported financial information
is presented fairly, that disclosures are adequate and that the judgment
inherent in the preparation of financial statements is reasonable.
Our
management does not expect that our disclosure controls or internal controls
over financial reporting will prevent all errors or all instances of fraud.
A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Because of the inherent limitation of a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
Management
conducted its evaluation of the effectiveness of our internal controls over
financial reporting based on the framework and criteria established in Internal
Control-Integrated Framework, issued by the Committee of Sponsoring
Organization’s of the Treadway Commission (COSO). Based on this evaluation, we
concluded that our internal controls over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) were
effective for the year ended December 31, 2009.
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s Report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.
OTHER
INFORMATION
None.
F-26
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE
EXCHANGE ACT
Each
of our directors is elected by the stockholders to a term of one (1) year
and serves until his successor is elected and qualified. Each officer is
appointed by the Board of Directors to a term of one (1) year and serves
until his successor is duly elected and qualified, or until he is removed from
office. The Board of Directors has no nominating, auditing, or
compensation.
The
following table sets forth certain information regarding the executive officers
and directors of the Company as of December 31, 2009:
Names:
|
Ages
|
Titles:
|
Board of Directors
|
|||
Jonathan
R. Read
|
53
|
Chief
Executive Officer and President
|
Director
|
|||
Barry
S. Baer
|
66
|
Chief
Financial Officer
|
Director
|
|||
E.
Slade Mead
|
48
|
Director
|
||||
Carlton
Johnson
|
50
|
Director
|
||||
Daryl
Magana
|
41
|
Director
|
||||
Jack
Smith
|
41
|
Director
|
||||
Dave
Kuzma
|
64
|
Director
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Biographical resumes of
each officer and director are set forth below.
Jonathan
R. Read, Chief Executive Officer, President and Director
Mr. Read
has been our Chief Executive Officer, President and a Director since February
2006. From 1976 to 1978, Mr. Read was a Regional Manager for Specialty
Restaurant Corporation, operating a theme dinner house throughout California.
From 1979 to 1984, he was Managing Director for a group of international
companies based in Malaysia, Indonesia and Singapore ranging from hospitality
interests to manufacturing and real estate. From 1984 until he sold that
company in 1989, he was the Chairman and Chief Executive Officer of Shakey’s
International, a worldwide restaurant chain with operations in the United
States, Southeast Asia, Japan, South America, Mexico, Europe and the Caribbean.
In 1986, Mr. Read founded Park Plaza International (Park Inn
International/ Park Plaza Worldwide) and served as Chairman and CEO from 1986 to
2003. He expanded Park Plaza from four hotels into a global hotel group.
Mr. Read sold the companies to Carlson Hospitality and Golden Wall
Investments in 2003 and was an investor for his own accounts until he joined us
in February 2006.
Barry
S Baer, Chief Financial Officer, Director
Colonel
Barry S. Baer joined us as our Chief Financial Officer in December, 2006. He was
the CFO at Obsidian Enterprises from February 2003 to March 2004, and
at a number of manufacturing corporations including Max Katz Bag Company
(March 2004 to the present), Apex Industries (August 2002 to
December 2003) and Pharmaceutical Corporation of America (March 1993
to August 2002). Previously, he worked with the City of Indianapolis as its
Director of Public Works. Between June 2005 and December 2008, Mr. Baer
served as a member of the State of Indiana Unemployment Insurance Board. Since
October 2007, Colonel Baer has also served as CFO for Buck-A-Roo$ Holding
Corporation.
He was a
member of the U.S. Army from 1965 to 1992 ending his career as a Colonel. He
received his certification as a Certified Public Accountant while serving on
active duty in the Army. Colonel Baer’s military service includes Commander of
an armored cavalry troop in Vietnam; Director of the Accounting Systems for the
U.S. Army; Commander of the 18th Finance Group during Operation Desert
Shield/Desert Storm in the first Gulf War and Deputy Chief of Staff for Resource
Management for the Army Material Command.
Colonel
Baer earned a BS (Accounting) and an MBA from the University of Colorado.
He devotes approximately 40% of his time to other business
interests.
Slade
Mead, Director
Mr. Mead
has been a Director since October 2007. Mr. Mead is
currently the Director of College Placement at the Trinity-Pawling School and
does some consulting work representing professional
athletes. Previously, Mr. Mead worked for Advantage
International, a leading global sports management firm, where he ran the London
office and represented several professional tennis and baseball players. Between
2002 and 2004, Mr. Mead was an Arizona State Senator where he served on the
Appropriations, Government and Education (Vice-Chair) Committees. With a
deep commitment to education, Mr. Mead was voted the Arizona School Board
Legislator of the Year (2003), Arizona Women’s Political Caucus Legislator of
the Year (2004), and Arizona Career Technical Education Policy Maker of the Year
(2004). Mr. Mead remains very active in education and state politics
as he ran for Arizona Superintendent of Public Instruction in 2006, and is a
Court appointed School Board and Receiver Board member for the Maricopa Regional
School District. Mr. Mead holds a Yale Undergraduate and attended the
University of Connecticut Law School.
41
Carlton
Johnson, Director
Mr.
Johnson has been a Director since October 2009. Mr. Johnson has been In-House Legal
Counsel of Roswell Capital Partners since April 1996. His responsibilities
include general corporate, securities law, business litigation, and corporate
governance. Mr. Johnson has been a member of the Alabama Bar since 1986, the
Florida Bar since 1988, and the State Bar of Georgia since 1997. From
1993 to 1996 he served on the Florida Bar Young Lawyers Division Board of
Governors. Mr. Johnson earned a degree in History/Political Science, with high
honors, at Auburn University in 1982 and Juris Doctorate at Samford University –
Cumberland School of Law, with high honors in 1986. He has served on the Board
of Directors for Peregrine Pharmaceuticals Inc. since 1999. He is the Chair of
their Audit Committee, and has served in various positions for this biotech
company including assisting in business development and licensing, financing and
general corporate governance. Since 2001, Mr. Johnson has served on the Board of
Directors of Patriot Scientific, Inc. He is Chair of the Compensation Committee
and serves on the Audit Committee, as well as the Executive Committee and is
Patriot Scientific Co-Chair to the holding company for intellectual property
licensing and enforcement.
Daryl
Magana, Director
Mr.
Magana has been a Director since December 2009. Mr. Magana is a Partner at
Cybernaut Capital Management, a private equity firm with a focus on the China
market. Mr. Magana joined Cybernaut in February of 2006 as Partner and Head of
Global Operations. In 2002, Mr. Magana Founded, and was Chairman and CEO
of the China based consulting and technology firm SRS2. In 1997, Mr.
Magana founded Bidcom; one of the industry’s first Application Service
Providers. BidCom was recognized by Fortune Magazine as one of 1999’s Top Ten
Technology Companies. Mr. Magana is a respected technology expert and innovative
web-pioneer featured in numerous conferences, major business publications,
television and radio broadcasts and has served as guest lecturer at several
Universities including Harvard and Stanford. Mr. Magana attended the University
of San Francisco.
Jack
Smith, Director
Mr. Smith
has been a Director since December 2009. Mr. Jack Smith invented and
co-founded Hotmail and served as the company’s Chief Technology Officer prior to
it being acquired by Microsoft in 1997. After Hotmail’s acquisition, Mr. Smith
focused on advanced infrastructure design as a general manager at Microsoft. Mr.
Smith next served as co-founder and CEO of Akamba Corporation where he invented
and marketed the first Web server accelerator card that boosted server
performance by 300 percent. From 2001 until 2007, Mr. Smith seed funded,
advised, and/or directed early stage tech startup companies. One such company
was Ironport Systems, into which he invested and where he served on its board
for seven years, prior to its acquisition by Cisco.Mr. Smith was named CEO of
Proximex Corporation in 2007 and has successfully developed Proximex’s
leadership margin in the physical security information management market.Mr.
Smith co-founded Valley Inception, LLC which makes seed investments in early
stage companies and provides marketing, public relations, and project management
services for equity. His earlier background includes semiconductor design as an
engineer and various technical positions at Apple Computer and FirePower
Systems, a subsidiary of Canon Computer Systems .
Dave
Kuzma, Director
Mr. Kuzma
has been a Director since December 2009. Mr. Dave Kuzma is former
president of Sempra Energy Resources and Chief Financial Officer/Treasurer of
three Fortune 500 companies. Sempra is a diversified energy company involved in
electric generation, oil and gas drilling, pipelines and gas processing. Prior
to Sempra Energy, Mr. Kuzma was Chief Financial Officer and treasurer of Enova
Corporation, which is the parent company of San Diego Gas & Electric
(SDG&E) and several other US-based subsidiaries, for which he also served as
CFO/Treasurer. He also served as the Chief Financial Officer and Senior Vice
President at Florida Progress Corporation. Mr. Kuzma began his career as an
auditor for Price Waterhouse, after which he joined Consolidated Natural Gas
Company of Pittsburgh. There he held the positions of Manager of Finance,
Director of Internal Auditing, Assistant Treasurer, Finance Treasurer and Vice
President and General Manager during his 20-year career with the
company. Mr. Kuzma is a Certified Public Accountant.
Role
of the Board
The board
has responsibility for establishing broad corporate policies and for the overall
performance and direction of the Company, but is not involved in day-to-day
operations. Members of the board keep informed of the Company’s business
by participating in board and committee meetings, by reviewing analyses and
reports sent to them regularly, and through discussions with its executive
officers.
Directors
hold office until the next annual meeting of stockholders and the election and
qualification of their successors. Officers are elected annually by the
Board of Directors and serve at the discretion of the Board.
Family
Relationships
None.
42
Board
Committees and Independence
At
December 31, 2009 we were not required to have any independent members of the
Board of Directors. However, the board of directors has determined
that (i) Messrs. Read
and Baer have relationships which, in the opinion of the board of directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director and each is not an “independent director” as
defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Messrs.
Mead, Johnson, Magana, Smith and Kuzma are independent directors as defined in
the Marketplace Rules of The NASDAQ Stock Market. Subsequent to December 31,
2009 at its regularly scheduled Board meeting on February 8, 2010 Board
committees for Audit and Compensation were established and such “independent
director” determination has been made pursuant to the committee independence
standards.
Code
of Ethics
We have
adopted a Code of Business Conduct and Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.
Section
16(a) Compliance
Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers, and persons who beneficially own more than 10%
of a registered class of the Company’s equity securities, to file reports of
beneficial ownership and changes in beneficial ownership of the Company’s
securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership),
4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual
Statement of Beneficial Ownership of Securities). Directors, executive officers
and beneficial owners of more than 10% of the Company’s Common Stock are
required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Except as otherwise set
forth herein, based solely on review of the copies of such forms furnished to
the Company, or written representations that no reports were required, the
Company believes that for the fiscal year ended December 31, 2009
beneficial owners did comply with Section 16(a) filing requirements
applicable to them.
Involvement
on Certain Material Legal Proceedings during the Last Five Years
No
director, officer, significant employee or consultant has been convicted in a
criminal proceeding, exclusive of traffic violations.
No
bankruptcy petitions have been filed by or against any business or property of
any director, officer, significant employee or consultant of the Company nor has
any bankruptcy petition been filed against a partnership or business association
where these persons were general partners or executive officers.
No
director, officer, significant employee or consultant has been permanently or
temporarily enjoined, barred, suspended or otherwise limited from involvement in
any type of business, securities or banking activities.
No
director, officer or significant employee has been convicted of violating a
federal or state securities or commodities law.
43
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth, for the last two completed fiscal years ended
December 31, 2009and 2008,and 2007 the cash compensation paid by the
Company, as well as certain other compensation paid with respect to those years
and months, to the Chief Executive Officer and, to the extent applicable, each
of the five other most highly compensated executive officers of the Company in
all capacities in which they served
Summary
Compensation Table
|
|||||||||||||||||||||||||||||
Name and Principal
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total ($)
|
||||||||||||||||||||
Johnathan
R Read
|
2009
|
390,884 | 75,000 | 3,731,778 | (1),(2) | 4,197,662 | |||||||||||||||||||||||
CEO
and President
|
2008
|
337,224 | 55,168 | (3) | 392,392 | ||||||||||||||||||||||||
2007
|
218,000 | 150,000 | 295,742 | (3) | 663,742 | ||||||||||||||||||||||||
Harold
W. Sciotto
|
2009
|
120,000 | 120,000 | ||||||||||||||||||||||||||
Secretary
and Treasurer
|
2008
|
120,000 | 120,000 | ||||||||||||||||||||||||||
2007
|
120,000 | 120,000 | |||||||||||||||||||||||||||
Barry
S. Baer
|
2009
|
143,844 | 39,375 | 27,500 | (4) | 210,719 | |||||||||||||||||||||||
Chief
Financial Officer
|
2008
|
142,908 | 142,908 | ||||||||||||||||||||||||||
2007
|
96,439 | 86,650 | (5) | 183,089 | |||||||||||||||||||||||||
Donald
B. Karner
|
2009
|
262,500 | 600,000 | (6) | 8,083 | (7) | 870,583 | ||||||||||||||||||||||
CEO,
eTec Subsidiary
|
2008
|
250,001 | 8,750 | (7) | 258,751 | ||||||||||||||||||||||||
2007
|
120,600 | 4,463 | (7) | 125,063 | |||||||||||||||||||||||||
Kevin
P. Morrow
|
2009
|
170,833 | 400,000 | (6) | 9,800 | (7) | 580,633 | ||||||||||||||||||||||
Exec.
VP eTec Subsidiary
|
2008
|
132,150 | 6,000 | (7) | 138,150 | ||||||||||||||||||||||||
2007
|
125,693 | 4,524 | (7) | 130,217 |
Notes:
(1) On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the grant of an equity award to Mr. Read valued at
$8.1MM. This award, originally stated in terms of warrants was never issued, was
subsequently revised and reduced, with final grant and award of 673,505 shares
of the Company’s $0.001 par value common stock being granted to Mr. Read on
January 15, 2010, with final issuance of the shares on January 27, 2010. The
value of the final award was calculated at the time of the issuance of the
shares on January 27, 2010. The share price on that date was $5.50 for total
compensation of $3,704,278.
(2) On
July 28, 2009 we issued 4,167 (post-Reverse Split) shares of the Company’s
$0.001 par value common stock to Mr. Read as compensation for services valued at
$27,500, calculated at $6.60 using the Black Scholes Option
Calculator.
(3) On
November 1, 2007 we granted 33,333 (post-Reverse Split) options to acquire
shares of the Company’s $0.001 par value common stock to Mr. Read as additional
incentive compensation for services, the first 16,667 options vested on November
1,2007 and were valued at $281,300 calculated at $16.878 per share using the
Black Scholes Option Calculator. The second 16,666 options vested on November 1,
2008. The portion of these options earned in 2007 was valued at $14,442,
calculated at $10.398 using the Black Scholes Option Calculator, the remainder
of the options were earned in 2008 and were valued at $55,168, calculated
monthly resulting in a weighted average value per share of $6.618 using the
Black Scholes Option Calculator.
(4) On
July 28, 2009 we issued 4,167 (post-Reverse Split) shares of the Company’s
$0.001 par value common stock to Mr. Baer as compensation for services valued at
$27,500, calculated at $6.60 using the Black Scholes Option
Calculator.
(5) On
December 31, 2007 we issued 8,333 (post-Reverse Split) options to acquires
shares of the Company’s $0.001 par value common stock to Mr. Baer as
compensation for services valued at $86,650, calculated at $10.398 using the
Black Scholes Option Calculator.
(6) On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the payment of a cash award on December 22, 2009 to
Don Karner of $600,000 and to Kevin Morrow of $400,000.
(7)
Employer match for 401K contributions.
44
Employment
Agreements and Executive Compensation
In
October 2007 we entered into a two-year employment agreement with
Mr. Read for an annual salary of $300,000 and a one-time bonus of $150,000
payable upon the execution of the agreement. In April 2009 Mr. Read's
contract was renewed for an additional 2 years at a base salary of
$300,000
In
February 2008 we renewed our employment agreement with Mr. Sciotto
extending it for another two years, providing for an annual salary of $120,000
per year.
In
November 2006 we engaged Barry S. Baer to serve as Chief Financial Officer
at a rate of $100.00 per hour. This engagement continues based on mutual
agreement between the parties. In May 2008 this rate was increased to
$125 per hour and the engagement has continued at this rate through December
2009.
OUSTANDING EQUITY AWARDS AT
FISCAL YEAR -END
Option Awards
|
Equity Awards
|
||||||||||||||||||||||||||
Name and Principal
Position
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number or
shares or
Units of
Stock That
Have Not
Vested (#)
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
Equity
Incentive
Plan Awards:
Market of
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)
|
||||||||||||||||||
Johnathan
R. Read
|
16,667 | - | - | $ | 2.40 |
11/1/2018
|
(1)
|
- | - | - | - | ||||||||||||||||
CEO
and President
|
16,667 | - | - | $ | 16.80 |
11/1/2017
|
(1)
|
- | - | - | - | ||||||||||||||||
- | |||||||||||||||||||||||||||
Barry
S. Baer
Chief
Financial
Officer
|
8,333 | - | - | $ | 11.40 |
12/31/2012
|
(2)
|
- | - | - | - |
Notes:
(1) On
November 1, 2007 we granted 33,334 options to acquire shares of the Company’s
$0.001 par value common stock to Mr. Read as additional incentive compensation
for services, the first 16,667 options vested on November 1,2007 and were valued
at $281,300 calculated at $16.8777 per share using the Black Scholes Option
Calculator. The second 278 options vested on November 1,2008. The portion of
these options earned in 2007 was valued at $14,442, calculated at $l0.398 using
the Black ScholesOption Calculator, the remainder of the options were earned in
2008 and were valued at $55,l68, calculated monthly resulting in a weighted
average value per share of $6.618 using the Black Scholes Option
Calculator.
(2) On
December 31, 2007 we issued 8,333 options to acquires shares of the Company’s
$0.001 par value common stock to Mr. Baer as compensation for services valued at
$86,650, caculated at $10.3984 using the Black Scholes Option
Calculator.
Director
Compensation
Our
directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and
qualified.
A
majority of the authorized number of directors constitutes a quorum of the Board
of Directors for the transaction of business. The directors must be present at
the meeting to constitute a quorum. However, any action required or permitted to
be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors individually or collectively consent in writing to the
action.
Directors
received compensation for their services for the fiscal year ended December 31,
2009 as set forth below:
45
DIRECTOR
COMPENSATION
|
||||||||||||||||||||||||
Name
|
Fees Earned or
Paid in Cash $
|
Stock
Awards $
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
$
|
Total $
|
||||||||||||||||||
E.
Slade Mead
|
$ | 12,000 | (1) | - | - | - | - | $ | 12,000 | |||||||||||||||
Jerry
Y.S. Lin
|
$ | 35,000 | (2) | - | - | - | - | $ | 35,000 | |||||||||||||||
$ | 47,000 | - | - | - | - | $ | 47,000 |
(1) E.
Slade Mead serves as a member of the Board of Directors and is compensated at a
rate of $1,000 per month to cover his travel expenses and time for attending
meetings and managing correspondence.
(2) Jerry
Y.S. Lin served as a Director through November 1, 2009 and was compensated at a
rate of $3,500 per month to serve as both a member of the Board of Directors, as
well as the Chairman of the Tehnology Committee. This compensation covered his
travel expenses and time for attending meetings and managing
correspondence.
Dr. Lin’s
responsibilities as Chairman of the Technology Committee include the
following:
a. Maintain
currency in the field of Hydrogen research and development and ensuring
Ecotality stays abreast of developments in this field.
b. Maintain
currency in the commercialization of hydrogen based energy/storage products and
advising the Company on the appropriateness of performing further work to
commercialize products for which the Company owns or has the license to the
Intellectual Property.
c. Oversee
the development or commercialization of any hydrogen related products by the
Company
Equity
Incentive Plan
In
January 2007 we adopted, subject to stockholder approval, an equity
incentive plan which provides for the grant of options intended to qualify as
“incentive stock options” and “non-statutory stock options” within the meaning
of Section 422 of the Internal Revenue Code of 1986 together with the grant
of bonus stock and stock appreciation rights at the discretion of our Board of
Directors. Incentive stock options are issuable only to our eligible
officers, directors and key employees. Non-statutory stock options are
issuable only to our non-employee directors and consultants.
The plan
is administered by our Board of Directors. Currently, we have 28,000shares
of common stock reserved for future issuance upon the exercise of stock options
granted under the plan. Under the plan, the Board of Directors determine
which individuals will receive options, grants or stock appreciation rights, the
time period during which the rights may be exercised, the number of shares of
common stock that may be purchased under the rights and the option
price.
With
respect to stock options, the per share exercise price of the common stock may
not be less than the fair market value of the common stock on the date the
option is granted. No person who owns, directly or indirectly, at the time
of the granting of an incentive stock option, more than 10% of the total
combined voting power of all classes of our stock is eligible to receive
incentive stock options under the plan unless the option price is at least 110%
of the fair market value of the common stock subject to the option on the date
of grant. The option price for non-statutory options is established by the
Board and may not be less than 100% of the fair market value of the common stock
subject to the option on the date of grant.
No
options may be transferred by an optionee other than by will or the laws of
descent and distribution, and during the lifetime of an optionee, the option may
only be exercisable by the optionee. Options may be exercised only if the
option holder remains continuously associated with us from the date of grant to
the date of exercise, unless extended under the plan grant. Options under
the plan must be granted within ten years from the effective date of the
plan and the exercise date of an option cannot be later than five years
from the date of grant. Any options that expire unexercised or that
terminate upon an optionee’s ceasing to be employed by us will become available
once again for issuance. Shares issued upon exercise of an option will
rank equally with other shares then outstanding.
Liability
and Indemnification of Officers and Directors
Under our
Articles of Incorporation, our directors are not liable for monetary damages for
breach of fiduciary duty, except in connection with:
|
·
A breach of a director’s duty of loyalty to us or our
stockholders;
|
46
|
·
Acts or omissions not in good faith or which involve intentional
misconduct, fraud or a knowing violation of
law;
|
|
·
A transaction from which a director received an improper benefit;
or
|
|
·
An act or omission for which the liability of a director is expressly
provided under Nevada law.
|
Our
Articles of Incorporation and Bylaws require us to indemnify our officers and
directors and other persons against expenses, judgments, fines and amounts
incurred or paid in settlement in connection with civil or criminal claims,
actions, suits or proceedings against such persons by reason of serving or
having served as officers, directors, or in other capacities, if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to our best interests and, in a criminal action or proceeding, if he
had no reasonable cause to believe that his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of no contest or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to our best
interests or that he or she had reasonable cause to believe his or her conduct
was unlawful. Indemnification as provided in our Bylaws will be made only
as authorized in a specific case and upon a determination that the person met
the applicable standards of conduct. Insofar as the limitation of, or
indemnification for, liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, or persons controlling us pursuant to the
foregoing, or otherwise, we have been advised that, in the opinion of the SEC,
such limitation or indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of February 5, 2010.
·
|
By
each person who is known by us to beneficially own more than 5% of our
common stock;
|
·
|
By
each of our officers and directors; and
|
·
|
By
all of our officers and directors as a
group.
|
47
BENEFICIAL
OWNERSHIP AT JANUARY 28,
2010
|
|||||||||||
Percent of
|
|||||||||||
Title
of
|
Of
|
||||||||||
Class
|
Name
of Beneficial
Owner
|
Number
of Shares Beneficially
Owned
|
Class
|
||||||||
Common
Stock
|
Harold
Sciotto, Secretary and Treasurer
|
(1)
|
95,098 | 1.08 | % | ||||||
Common
Stock
|
Jonathan
R. Read, CEO, President and Director
|
(1) (12)
|
805,173 | 9.16 | % | ||||||
Common
Stock
|
Donald
Karner, CEO, eTec Subsidiary
|
(1)
|
163,240 | 1.86 | % | ||||||
Common
Stock
|
Kevin
Morrow, Vice President, eTec Subsidiary
|
(1)
|
106,560 | 1.21 | % | ||||||
Common
Stock
|
Edward
S Mead, Director
|
(1)
|
11,776 | 0.13 | % | ||||||
Common
Stock
|
Daryl
Magana, Director
|
(1) (14)
|
78,319 | 0.89 | % | ||||||
Common
Stock
|
Barry
Baer, CFO, Director
|
(1) (13)
|
12,500 | 0.14 | % | ||||||
|
Officers
and Directors as a Group
|
1,272,666 | |||||||||
Common
Stock
|
Enable Growth
Partners LP, Enable
Opportunity Partners, LP
&
|
(2) (7) (11)
|
878,023 | 9.99 | % | ||||||
Pierce
Diversified Strategy Master Fund, LLC
|
|||||||||||
Common
Stock
|
BridgePointe Master
Fund Ltd, Providence Christian Foundation Inc.
|
(4) (8) (11)
|
878,023 | 9.99 | % | ||||||
Common
Stock
|
Zhu-Xu Charitable
Remainder Trust, Valley
2010
Investment
|
(5) (9)
|
1,388,889 | 15.80 | % | ||||||
LLC.,
Global LearnNet Ltd.
|
|||||||||||
Common
Stock
|
Marion
Lynton, Ardsley Partners Institutional, Ardsley Partners
|
||||||||||
|
Fund,
Ardsley Offshore Fund, Ardsley Partners Renewable,
|
(3) (10)
|
878,023 | 9.99 | % | ||||||
Ardsley
Renewable Offshore
|
|||||||||||
Common
Stock
|
Edison
Enterprises
|
(6) (15)
|
555,556 | 6.32 | % |
Notes:
(1)
|
The
address for these shareholders is c/o ECOtality, Inc., 6821 E. Thomas
Road, Scottsdale,
AZ 85251
|
(2)
|
The
address for these shareholders is One Ferry Building, Suite 255, San
Francisco, CA 94111
|
(3)
|
The
address for these shareholders is 262 Harbor Drive, Stamford,
CT 06902
|
(4)
|
The
address for these shareholders is 1120 Sanctuary Pkwy, Suite 325,
Alpharetta, GA 30004.
|
(5)
|
The
address for these shareholders is 12167 Kate Dr. Los Altos
Hills, CA 94022
|
(6)
|
The
address for these shareholders is 2244 Walnut Grove, Rosemead,
CA 91770
|
(7)
|
Enable
Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce
Diversified Strategy Master Fund LLC, are presented here as an affiliated
group (Enable). This affiliation is described in the 13G filing
on February 12, 2009 by Enable Capital Management, LLC, (ECM) Enable
Growth Partners, LP (EGP) and Mitchell S. Levine. "The
securities" are "owned by EGP, and other client accounts, for which ECM
serves as general partner and/or investment manager. ECM, as
EGP's and those other investment limited partnerships' and client
accounts' general partner and/or investment manager, and Mitchell S.
Levine, as managing member and majority owner of ECM, may therefore be
deemed to beneficially own the Securities owned by EGP and such other
investment limited partnerships and client accounts for the purpose of
Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the
"Act"), in so far as they may be deemed to have the power to direct the
voting or disposition of those
Securities."
|
Enable
Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce Diversified
Strategy Master Fund LLC, collectively own an aggregate of 551,111 shares of our
common stock, or 6.27% of our total issued and outstanding.
Enable
Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce Diversified
Strategy Master Fund LLC, collectively have 277,778 Warrants associated with the
October 31, 2009 Securities Purchase Agreement which are currently exercisable
at $9.00 per share.
Enable
Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce Diversified
Strategy Master Fund LLC, collectively have 4,585,632 preferred shares
associated with the October 31, 2009 Securities Exchange Agreement 20% of which
(917,126) are currently convertible to common shares at a rate of one for
one.
The
percent ownership for Enable in the table above includes their current shares as
well as those they have the right to acquire within sixty days subject to the
Ownership Limitation of 9.99% (see note 7 below).
Shares
owned of 551,111 + warrants 277,778 + Convertible Preferred 917,126 = 1,194,904
Ownership before Limitation Beneficial Ownership subject to 9.99% Limitation =
Total Outstanding Shares 8,789,016* 9.99% = 878,023878,023 (maximum
ownership) - 551,111 (currently outstanding) = 326,912 shares they have rights
to acquire in the next 60 days (January 29, 2010 - March 2, 2010).
(8)
|
BridgePointe
Master Fund and Providence Christian Foundation collective own an
aggregate of 566,666 shares of our common stock or 6.45% of our total
issued and outstanding.
|
BridgePointe
Master Fund and Providence Christian Foundation collectively have 416,666
Warrants associated with the October 31, 2009 Securities Purchase Agreement
which are currently exercisable at $9.00 per share.
Bridge
Pointe Master Fund has 1,382,365 preferred shares associated with the October
31, 2009 Securities Exchange Agreement 20% of which (276,473) are convertible to
common shares at a rate of one for one.
The
percent ownership for BridgePointe and Providence Christian Foundation in the
table above includes their current shares as well as those they have the right
to acquire within sixty days subject to the Ownership Limitation of 9.99% (see
note 7 below).
Shares
owned of 566,666 + warrants 416.666 + Convertible Preferred 276,473 = 1,259,805
Beneficial Ownership Before Limitation Beneficial Ownership subject
to 9.99% Limitation = Total Outstanding Shares 8,789,016* 9.99% =
878,023878,023 (maximum ownership) - 566,666 (currently outstanding) = 311,357
shares they have rights to acquire in the next 60 days (January 29, 2010 - March
2, 2010).
The
natural persons with voting or investment power over BridgePointe's shares are
Eric S. Swartz and Michael C. Kendrick.
(9)
|
Zhu-Xu
Charitable Remainder Trust, Valley 2010 Investment LLC., and Global
LearnNet Ltd collectively own an aggregate1,388,889 shares of
our common stock or 15.8% of our total issued and
outstanding.
|
Zhu-Xu
Charitable Remainder Trust, Valley 2010 Investment LLC., and Global LearnNet
Ltd. collectively have 1,388,889 Warrants associated with the October 31, 2009
Securities Purchase Agreement which are currently exercisable at $9.00 per
share.
Zhu-Xu
Charitable Remainder Trust has 1,430,741preferred shares associated with the
October 31, 2009 Securities Exchange Agreement 20% of which (286,148) are
convertible to common shares at a rate of one for one.
48
The
percent ownership for Zhu-Xu Charitable Remainder Trust, Valley 2010 Investment
LLC., and Global LearnNet Ltd in the table above includes their current shares
as well as those they have the right to acquire within sixty days (January 29,
2010 - March 2, 2010). subject to the Ownership Limitation of 9.99% (see note 7
below).
Shares
owned of 1,388,889 + warrants 1,388,889 + Convertible Preferred 286,148 =
3,063,926 Beneficial Ownership Before Limitation. Beneficial
Ownership subject to 9.99% Limitation = Total Outstanding
Shares 8,789,016* 9.99% = 878,023, 878,023 (maximum ownership)
- 1,388,889 (currently outstanding) = 0 shares they have rights to
acquire in the next 60 days (January 29, 2010 - March 2, 2010).
The
natural persons with voting or investment power over Zhu-Xu Charitable Remainder
Trust, Valley 2010 Investment LLC. and Global LearnNet Ltd. Is Yuqing
Xu.
(10)
|
Marion
Lynton, Ardsley Partners Institutional, Ardsley Partners Fund, Ardsley
Offshore Fund, Ardsley Partners Renewable and Ardlsey Renewable Offshore
are presented here as an affiliated group. This affiliation is
described in their 13G Filing dated November 25, 2009. Mr. Hempleman is
the Managing Partner of Ardsley and Ardsley Partners and in that capacity
directs their operations and therefore may be deemed to be the indirect
beneficial owner of the shares held by the entities listed
above.
|
The
Ardsley Group collectively owns an aggregate 694,443 shares of our common stock
or 7.9% of our total issued and outstanding.
The
Ardsley Group collectively has 694.443 warrants associated with the October 31,
2009 Securities Purchase Agreement which are currently exercisable at $9.00 per
share.
The
percent ownership for the Ardsley Group in the table above includes their
current shares as well as those they have the right to acquire within sixty days
(January 29, 2010 - March 2, 2010), subject to the Ownership Limitation of 9.99%
(see note 7 below).
Shares
owned of 694,444 + warrants 694,444 = 1,399,888 Beneficial Ownership
Before Limitation Beneficial Ownership subject to 9.99% Limitation = Total
Outstanding Shares 8,789,016* 9.99% = 878,023. 878,023 (maximum
ownership) - 694,444 (currently outstanding) = 183,580 shares they
have rights to acquire in the next 60 days (January 29, 2010 - March 2,
2010).
The
natural person with voting or investment power over the Ardsley Group is Philip
J. Hempleman.
(11)
|
Beneficial
Ownership Limitation of 9.99%
|
The
conversion of the Convertible Notes and the exercise of the Warrants are subject
to restrictions (the "Ownership Limitations") that prohibit conversion or
exercise to the extent that, after giving effect to such conversion or exercise,
the holder of the Convertible Notes or Warrants (together wish such holder's
affiliates, and any other person or entity acting as a group together
with such holder or any of such holder's affiliates) would, as a result of such
conversion or exercise, beneficially own in excess of 9.99% of the total number
of issued and outstanding shares of the Issuer's common stock (including for
such purposes the shares of the Issuer's common stock issued upon such
conversion and/or exercise).
(12)
|
Jonathan
Read owns 771,839 shares of common stock. He also has rights to exercise
33,334 warrants which were granted in accordance with employment
agreements. 16,667 warrants are exercisable at $16.80, the
remaining 16,667 are exercisable at $2.40. If these were
exercised, his ownership would total 805,173 shares. The
percent ownership for Jonathan Read in the table above includes his
current shares as well as those he has right to acquire within the next 60
days(January 29, 2010 - March 2, 2010). : shares owned 771,839
+ warrants 33,334 = 805,173 Beneficially Owned
Shares
|
(13)
|
Barry
Baer owns 4,167 shares of common stock. He also has rights to
exercise 8,333 warrants for an exercise price of $11.40 per share. granted
in accordance with his contract for services. If these were
exercised, his ownership would total 12,500 shares. shares. The
percent ownership for Barry Baer in the table above includes his current
shares as well as those he has a right to acquire within sixty days
(January 29, 2010 - March 2, 2010) : shares owned= 4,167 +
warrants 8,333 =12,500 Beneficially Owned
Shares.
|
(14)
|
Daryl
Magana owns 391,596 preferred shares associated with the October 31, 2009
Securities Exchange Agreement 20% of which (78,319) are convertible to
common shares at a rate of one for one. The percent ownership for Daryl
Magana in the table above includes his current shares as well as those he
has a right to acquire within sixty days (January 29, 2010 - March 2,
2010) : shares owned = 0+ Convertible Preferred 78,319 =
Beneficially Owned Shares.
|
(15)
|
Edison
Enterprises has the sole power to vote and/or dispose of all of
its 33,333,333 shares of Ecotality common stock. The natural persons with
voting or investment power for Edison Enterprises are: W. James
Scilacci, CEO, President, Financial Officer and Chairman of the Board;
Robert L. Adler, Vice President and Director; and Theodore F. Craver, Jr.,
Director.
|
49
Exhibit Number
|
Name and/or Identification of
Exhibit
|
|
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)
|
|
Notes:
(1)
|
Incorporated
by reference herein to the Form SB-2, previously filed with the SEC
on January 8, 2008.
|
(2)
|
Incorporated
by reference herein to the Form SB-2, previously filed with the SEC
on January 31, 2008.
|
(3)
|
Incorporated
by reference herein to the Form SB-2, previously filed with the SEC
on January 31, 2008.
|
(4)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
January 31, 2008.
|
(5)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
April 11, 2008.
|
(6)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
September 4, 2008.
|
(7)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
September 25, 2008.
|
(8)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
December 30, 2008.
|
(9)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
January 07, 2009.
|
(10)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
February 03, 2009.
|
(11)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
February 11, 2009.
|
(12)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
March 10, 2009.
|
50
(13)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
May 18, 2009.
|
(14)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
July 06, 2009.
|
(15)
|
Incorporated
by reference herein to the Form 8-K/A previously filed with the SEC
on July 09, 2009
|
(16)
|
Incorporated
by reference herein to the Form 8-K, previously filed with the SEC on
August 27, 2009.
|
(17)
|
Incorporated
by reference herein to the Form 8-K previously filed with the SEC on
September 2, 2009
|
(18)
|
Incorporated
by reference herein to the Form 8-K (1 of 2), previously filed with
the SEC November 4, 2009.
|
(19)
|
Incorporated
by reference herein to the Form 8-K (2 of 2) previously filed
with the SEC on November 4, 2009
|
(20)
|
Incorporated
by reference herein to the Form 8-K (2 of 2) previously filed
with the SEC on November 18, 2009
|
(21)
|
Incorporated
by reference herein to the Form 8-K previously filed with the
SEC on November 23, 2009
|
(22)
|
Incorporated
by reference herein to the Form 8-K previously filed with
the SEC on December 16, 2009
|
(23)
|
Incorporated
by reference herein to the Form 8-K (1 of 2) previously filed
with the SEC on January 13, 2010
|
(24)
|
Incorporated
by reference herein to the Form 8-K (2 of 2) previously filed
with the SEC on Janury 13,
2010
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
following table sets forth fees billed to us by our independent auditors for the
years ended December 31, 2009 and 2008 for (i) services rendered for
the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services rendered that are reasonably related to
the performance of the audit or review of our financial statements that are not
reported as Audit Fees, and (iii) services rendered in connection with tax
preparation, compliance, advice and assistance.
SERVICES
|
2009
|
2008
|
||||||
Audit
fees
|
125,500 | $ | 131,325 | |||||
Audit-related
fees
|
— | — | ||||||
Tax
fees
|
11,000 | 10,000 | ||||||
All
other fees
|
0 | 1,522 | ||||||
Total
fees
|
136,500 | $ | 142,847 |
51
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
ECOTALITY,
INC.
Signature
|
Title
|
Date
|
||
/s/ Jonathan R. Read
|
Chief
Executive Officer
|
April
15, 2010
|
||
Jonathan
R. Read
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
ECOTALITY,
INC.
Signature
|
Title
|
Date
|
|||
/s/ Jonathan R. Read
|
Chief
Executive Officer,
|
April
15, 2010
|
|||
Jonathan
R. Read
|
President
and Director
|
||||
/s/ Barry S. Baer
|
Chief
Financial Officer
|
April
15, 2010
|
|||
Barry
S. Baer
|
Principal
Accounting Officer and Director
|
||||
/s/ Dave Kuzma
|
Director
|
April
15, 2010
|
|||
Dave
Kuzma
|
|||||
/s/
E. Slade Mead
|
Director
|
April
15, 2010
|
|||
E.
Slade Mead
|
|||||
/s/
Jack Smith
|
Director
|
April
15, 2010
|
|||
Jack
Smith
|
|||||
/s/Daryl Magana
|
Director
|
April
15, 2010
|
|||
Daryl
Magana
|
|||||
/s/Carlton Johnson
|
Director
|
April
15, 2010
|
|||
Carlton
Johnson
|
52