(Unaudited)

Note 1 – History and Organization of the Company

The Company was incorporated on April 21, 1999 under the laws of the State of Nevada, as Alchemy Enterprises, Ltd. 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 the Company’s renewable energy strategy and its focus on developing an electric power cell technology. 

Note 2 - Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all normal and recurring adjustments that we believe are necessary to fairly state our financial position and the results of our operations and cash flows. Interim-period results are not necessarily indicative of results of operations or cash flows for a full-year. The balance sheet at December 31, 2011 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these interim unaudited condensed financial statements and the notes accompanying them should be read in conjunction with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 16, 2012.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. and include the accounts of Ecotality Inc. (corporate), Ecotality Stores (dba Fuel Cell Store), Innergy Power Corporation, Portable Energy de Mexico S.A. de C.V. (a subsidiary of the Company), Electric Transportation Engineering Corporation, d.b.a. Ecotality North America (“Ecotality North America”) and its subsidiary, Electric Transportation Applications, and Ecotality Australia. All significant inter-company balances and transactions have been eliminated.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP 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, warranty liability, allowance for excess and obsolete inventory, allowance for bad debts and future cash flows associated with long-lived assets including goodwill. Actual results may differ significantly from those estimates.

Reclassification

A reclassification has been made to the statement of cash flows for the three months ended March 31, 2011 in order to be consistent with the presentation for the three months ended March 31, 2012. There was no change to previously reported stockholders’ equity or net loss.

Note 3 – Summary of Significant Accounting Policies

Revenue Recognition

The Company derives revenue from sales of services and products and government grants related to clean energy technologies. The Company recognizes revenue 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 collectability is reasonably assured.

The Company has entered into agreements, including grant agreements, with various government entities, under which the Company is obligated to deliver services such as development of the infrastructure for deployment of Electric Vehicles (“EVs”), including gathering and completing the related data analyses. Under these agreements, the government entity makes payments to the Company based on expenditures incurred in the delivery of the services. The Company recognizes revenue as the related services are performed, based upon the actual efforts incurred relative to the amount of total effort expected to be incurred in the performance under each agreement. Amounts related to capital expenditures are recognized over the term of the agreement as the related capital assets are used in the delivery of services. Revenue is recognized provided that the conditions under which the government payments were made have been met, and only perfunctory obligations remain outstanding. Many government contracts are subject to definitization (finalization of certain terms and conditions within the general scope of the contract) and change orders. Government regulations allow for the commencement of work by contractors prior to definitization in order to enable time-sensitive procurement to begin. The government negotiates equitable adjustments with contractors if appropriate based on the terms of definitization or change order. Any resulting changes in either the total amounts that could be claimed by the Company or the nature of the allowable expenses are accounted for as changes in estimate in the period when they occur. In certain agreements, the government retains a financial interest in capital assets with a fair value of $5 thousand or greater at the end of the agreement, which the Company may either buy out upon termination of the agreement, offer to the government to buy out the Company’s interest in the assets or sell the assets in the market and remit to the government the portion of the selling price equal to its financial interest. In these agreements, the government’s estimated financial interest is included in deferred revenues, and the assets are depreciated to the estimated disposal value at the termination of the agreement.

Revenue from service agreements with other customers, such as consulting services, is recognized as the services are performed. All costs of services are expensed as incurred. Revenue from sales of products is recognized when products are delivered and the title and risk of loss pass to the customer. If the arrangement requires customer acceptance, revenue is recognized when acceptance occurs. The Company’s products are sold without a right of return.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05 Comprehensive Income (Topic 220 - Presentation of Comprehensive Income). Under this amendment, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements.

Note 4 – Net Income (Loss) per Common Share – Basic and Diluted

Net income (loss) per common share – basic is computed by dividing reported net income (loss) by the weighted average common shares outstanding. Our preferred stockholders have no obligation to fund the Company’s losses; accordingly, no losses are allocated to shares of preferred stock during the three months ended March 31, 2011. In the periods when the Company earns net income, net income per common share – basic is determined using the two-class method. Under this method, net income per share is calculated for common stock and participating securities such as preferred stock considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

Except where the result would be anti-dilutive, net income (loss) per common share - diluted has been computed assuming the conversion of outstanding shares of preferred stock into common stock, and the exercise of stock warrants and stock options. The two-class method is used to allocate net income between shares of preferred and common stock if the results are more dilutive to common stock than the conversion of preferred stock into common stock. For the three months ended March 31, 2012 the two-class method was used and the net earnings were allocated between common and preferred holders to compute the dilutive effect of the preferred shares. The Company's 5.05% Convertible Note, represents 3,937,008 potentially dilutive shares, however, the conversion price of the Note was higher at March 31, 2012 than the average share price, so the Note was determined to be anti-dilutive. The Company's outstanding stock options with a strike price lower than the average share price were evaluated for dilutive effect, but the proceeds from the strike price, when taken together with the unamortized future compensation amount, yielded a price higher than the average share price making them anti-dilutive. Outstanding warrants with a strike price lower than the average share price have been included as a dilutive factor. For the three months ended March 31, 2011, the assumed conversion of convertible preferred stock and the exercise of stock warrants and stock options anti-dilutive due to the Company's net losses and are excluded in determining net loss per common share - diluted.

Net income (loss) per common share has been computed as follows using the weighted average number of common shares outstanding during the periods presented:

Note 5 – Fair Value of Financial Instruments

Fair value is defined as the price at which an asset could be exchanged or a liability could be transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

Assets and liabilities recorded at fair value in our financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

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 significant to the fair value of the asset or liability.

 The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair values based on their short-term nature. The carrying amount of the Company’s long term debt approximates its fair value based on interest rates available to the Company for similar debt instruments and the remaining period until maturity of the debt. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2012 and December 31, 2011.

Note 6 — Balance Sheet Components

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. The Company writes down inventories for excess and obsolete items after evaluating historical sales, future demand, market conditions and expected product life cycles to reduce inventories to their estimated net realizable value. Such provisions are made in the normal course of business and charged to cost of goods sold in the consolidated statements of operations. Inventories as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):

Intangible Assets

The Company capitalizes costs to develop trademarks including attorney fees, registration fees, design costs and the costs of securing it. Trademarks are amortized over a useful life of ten years starting in 2011. The Company recognized $6,584 and nil of amortization on trademarks during the three months ending March 31, 2012 and 2011 respectively.

The Company capitalizes legal costs to establish new patents and amortizes them over the life of the patent. When the patents are approved and in use, amortization is commenced at that time. Patents are amortized over a useful life of twenty years or less. The Company recognized $5,936 and nil of amortization on patents during the three months ending March 31, 2012 and 2011, respectively.

Intangible assets as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):

Property and Equipment

Property and equipment, net are comprised of the following (in thousands):

Unearned Revenue

Unearned revenue at March 31, 2012 and December 31, 2011 relates to the DOE EV Project and the California Energy Commission Project to support the deployment of charge infrastructure and electric vehicles in California (CEC project) as well as other projects for which invoices are generated as costs are incurred and revenue is recognized as the related services are performed, or otherwise meet the revenue recognition criteria.  The current and long term portions of unearned revenue as of March 31, 2012 and December 31, 2011consisted of the following (in thousands):

Note 7– Stockholders’ equity

 Common Stock

During the three months ended March 31, 2012, the Company had no common stock transactions.

Note 8 – Notes Payable

On January 16, 2007, the Company purchased an office building for an aggregate price of $576.0 thousand.  Half of the aggregate price of $288.0 thousand was paid in cash and the remaining balance of $288.0 thousand was structured as an interest-only loan.  The loan carried an interest rate of 6.75% calculated annually, with monthly interest-only payments due beginning on February 16, 2007.   The Company paid $100.0 thousand in connection with the refinance of the property on January 20, 2012. The remaining balance of $187 thousand is structured as an interest-only loan, bears an interest rate of 7.0% calculated annually, with monthly payments in the amount of $1.1 thousand due on or before January 16, 2014, with the possibility of an extension to January 16, 2016. The loan is secured by a deed of trust on the office building.

On July 15, 2011, the Company signed a Certificate of Acceptance under a Master Lease Agreement with Cisco Capital for equipment cost at $1.8 million, which was determined to be a capital lease. This 18-month capital lease of equipment obligated the Company to $2.1 million of lease payments starting August 1, 2011. The equipment covered by this lease was to be utilized by the Company in furthering the deployment of home energy management systems. On January 20, 2012 the Company and Cisco Capital together with Cisco Systems entered into a Settlement Agreement and Release following notification to the Company by Cisco Systems of their decision not to continue to provide certain services related to the equipment subject to the lease. The settlement agreement had the effect of terminating the lease, with the Company retaining a small portion of the equipment called for in the original lease, and returning the remainder. Interest payments previously accrued and unpaid under the lease agreement were liquidated through a final settlement calling for a payment from the Company to Cisco Capital of $10 thousand and a payment from Cisco Capital to the Company of $63 thousand. As a result of the Settlement Agreement and Release, in the March 31, 2012 financial statements we recorded a $147 thousand reversal of previously accrued interest expense. At March 31, 2012, the total liability balance relating to the capital lease obligation was $0.

March 13, 2012 Financing Agreements:

Convertible Note Purchase Agreement

The Company and ABBTV entered into a Convertible Note Purchase Agreement (the “Convertible Note Purchase Agreement”), pursuant to which the Company agreed to issue and sell, and the Investor agreed to purchase, $5 .0 million in aggregate principal amount of a 5.05% Unsecured Convertible Note due 2015 (the Note”). The Convertible Note Purchase Agreement contains customary representations, warranties and agreements by the Company. In addition, the Company has agreed to indemnify the Investor against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Investor may be required to make in respect of those liabilities.

5.05% Unsecured Convertible Note Due 2015

The Note matures on March 13, 2015 and bears interest at a rate of 5.05% per annum, payable quarterly in arrears in cash on the final day of each fiscal quarter beginning on March 31, 2012. The Note is the unsecured obligation of the Company and is senior to the Company’s preferred stock and common stock and other unsecured debt. The Note is convertible into shares of the Company’s common stock at any time, in whole or in part, at the option of the holder at a per share conversion price equal to $1.27, subject to adjustment for stock splits, stock dividends, combinations and other corporate transactions.

Events of default under the Note include, among others, payment defaults, cross-defaults, the Company’s common stock is suspended from trading for a period of time or no longer listed on an eligible trading market, and certain bankruptcy-type events involving the Company or certain subsidiaries. Upon an event of default, the holder may elect to require the Company to redeem all or any portion of the outstanding principal amount of the Note for a price equal to the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date immediately preceding the event of default and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount. In addition, upon an event of default the interest rate on the Note will increase by a per annum rate of 2.0% during the first 90-day period immediately following the event of default and will increase an additional 2.0% per annum during each subsequent 90-day period until the event of default has been cured, but in no event will such increase exceed a per annum rate of 6.0%.

The Company may redeem all the outstanding principal amount of the Note if the Company enters into a binding agreement for a change of control of the Company or if the closing sale price of the Company’s common stock exceeds 300% of the conversion price for thirty (30) consecutive calendar days. If the Company elects to redeem the Note, the redemption price will be equal to 115% of the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date the Company elects to redeem the note and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount. 

Registration Rights Agreement

 In connection with the potential conversion of the Note, the Company and ABBTV entered into a Registration Rights Agreement (the Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement providing for the resale of the securities issuable upon a conversion of the Note. The registration statement was filed May 11, 2012. The registration statement must be declared effective by the Securities and Exchange Commission (the “SEC”) no later than 90 days after the issuance date of the Note (or, in the event of a “full review” by the SEC, no later than 120 days after such issuance date). The Company will be required to pay liquidated damages to the Investor as set forth in the Registration Rights Agreement if it fails to meet these deadlines.

Amendment to Warrant

In connection with the Convertible Note Purchase Agreement, the Company and ABBTV entered into an Amendment to Warrant (“Warrant Amendment”), amending that certain warrant to purchase up to 1,041,667 shares of common stock of the Company (the “Warrant”), which the Company issued to the ABBTV on January 13, 2011. The Warrant Amendment reduces the exercise price applicable to the Warrant from $4.91 per share to $2.50 per share.

As a result of these agreements, the Company recorded a long term note of $5 million, which is presented in the March 31, 2012 balance sheet net the discount represented by the value of the related amendment to warrant. The discount was determined based on the difference in the value of the original warrant immediately prior to the amendment, and the value of the warrant immediately following the amendment. The reprice calculation resulted in a discount of $122 thousand. At March 31, 2012, the total long term liability balance relating to the convertible note was $5 million, less a discount of $0.1 million.

Note 9–Warrants

The following table summarizes the stock warrants activity for the three months ended March 31, 2012:

Additional information regarding the Company’s stock warrants outstanding and the weighted-average price as of March 31, 2012 is summarized below:  

In the three months ended March 31, 2012 the Company signed an Amendment to Warrant agreement with ABB Technology Ventures which called for the Company to reduce the exercise price of certain warrants to purchase up to 1,041,667 shares of common stock from $4.91 to $2.50 per share. This reduction in exercise price is reflected in the charts above. The Amendment to Warrant Agreement was entered into as part of a larger financing arrangement (see Note 14).

Note 10 - Stock-Based Compensation

Stock options

The following table summarizes the stock option activity for the three months ended March 31, 2012:

Additional information regarding the Company’s stock options outstanding and vested and exercisable as of March 31, 2012 is summarized below:

A summary of the assumptions used in calculating the fair value of option awards during the three months ended March 31, 2012 and 2011 is reflected below. There were no issuances of options during the three months ended March 31, 2011.

The share-based compensation expenses recognized in the consolidated statements of operations was $0.2 million and $0.1 million for the three months ended March 31, 2012 and 2011, respectively and includes the expense for options and restricted common stock awards.

Restricted Common Shares

Note 11 – Commitments and Contingencies

Operating Leases

The Company leases facilities under leases with third parties classified as operating leases.  The aggregate monthly rental payment on these operating leases is approximately $98,582.  Some leases are month to month, which requires no future obligation; however, all termed leases expire through December 2015. Future minimum annual lease payments for non-cancelable operating leases in effect at March 31, 2012 are as follows (in thousands):

On January 5, 2012, the Company signed a lease with Wells Fargo Bank, N.A. for space in San Francisco to house the Company’s corporate offices. This lease calls for monthly payments of $8,983 for the first 12 months and $9,392 for the duration. The lease expires on December 17, 2013.

The total rental expense included in the consolidated statements of operations for the three months ended March 31, 2012 and 2011 was $0.3 million and $0.2 million respectively. As of March 31, 2012, the Company had twenty-two leases in effect for operating space.

License Agreement

In May 2006, CalTech filed a provisional patent application on hydrogen technology being developed between Ecotality and the Jet Propulsion Laboratory (“JPL”). CalTech is the assignee of JPL’s patent and technology rights. On May 7, 2007, a non-provisional patent application was filed with CalTech as assignee and Ecotality, Inc. as exclusive licensee of the technology for a Method and System for Storing and Generating Hydrogen. The patent was issued on May 31, 2011. On June 12, 2006, Ecotality entered into a License Agreement with CalTech which related to electric power cell technology developed at JPL. In addition to consideration already made, the License Agreement contemplated certain additional consideration involving fee payments. To date, no additional fees have been paid in connection with the License Agreement. The accrued liability associated with the unpaid license fees was $0.1 million and $0.1 million at March 31, 2012 and December 31, 2011, respectively.

Contingencies

We and our Ecotality North America subsidiary, as well as certain individuals, have received subpoenas from the SEC pursuant to a formal Private Order of Investigation in connection with a fact-finding inquiry as to trading in shares of our common stock from the period between August 1, 2008 and August 31, 2009. The SEC has informed us, and the terms of the subpoenas confirm, that the fact-finding inquiry should not be construed as a determination that violations of law have occurred.  Our Board of Directors, through its Audit Committee, continues to monitor the ongoing inquiry.   We continue to cooperate fully with the SEC.

On April 15, 2011, the Company received a letter from Coulomb Technologies Inc. (“Coulomb”) alleging that the Company promised to make Coulomb the exclusive supplier for all the Company’s public charging stations and asserting that the Company infringed Coulomb’s trademarks by including references to Coulomb in one of the Company’s websites. On May 3, 2011, the Company responded to Coulomb by denying its allegations and requesting that it retract these claims. Coulomb has since reasserted its claims and threatened to initiate litigation if the dispute is not resolved. Ecotality believes all of Coulomb’s allegations to be unfounded and intends to defend its position vigorously, if necessary. On October 7, 2011, the Company entered into a Tolling Agreement with Coulomb that temporarily suspends the operation of any statute of limitations that would bar Coulomb from pursuing the claim (except for any statute of limitations that had already expired prior to the date of the Tolling Agreement). The Tolling Agreement is set to expire on June 30, 2012; provided that either party may, at any time, terminate the Tolling Agreement (and thus terminate the tolling of the statutes of limitations) by giving 30 days’ notice to the other party.

On February 13, 2012, Synapse Sustainability Trust, Inc. filed a suit against Ecotality, Ecotality North America and one other unrelated defendant in the Supreme Court of the State of New York, County of Onondaga. Among other things, Synapse alleges that it detrimentally relied on representations and statements of Ecotality in acquiring non-conforming electric vehicle charging units totaling approximately $160,000 that did not satisfy Synapse’s requirements Synapse seeks monetary damages in the amount of $6 million. Ecotality believes all of Synapse’s allegations to be unfounded and intends to defend its position vigorously.

The Company received a letter, dated March 19, 2012, from a law firm representing Ardour Investments, LLC claiming that the Company breached its obligations to Ardour for failure to pay Ardour certain fees in connection with investment banking services it alleges were provided by Ardour to the Company under an Engagement Letter between the Company and Ardour, dated November 1, 2007, as amended March 9, 2009. Ardour is claiming damages in the amount of $335,000. Along with the demand letter they have also delivered a draft complaint stating the claims they intend to file in the Supreme Court of the State of New York if the Company fails to make payment on their demand. We are currently evaluating the merits of Ardour’s case and have retained outside legal counsel in connection with the matter.

Note 12 - Segment Information

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. Ecotality Inc. is the parent company of Fuel Cell Store and ECOtality North America. Innergy, a division of ECOtality, 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. ECOtality North America 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. ECOtality North America also holds exclusive patent rights to the 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. ECOtality Australia Pty Ltd., the Company's wholly owned subsidiary in Australia, markets and distributes our Blink and Minit-Charger equipment in Australia and Southeast Asia. The Company includes Australia Pty Ltd. in its International segment and as other international subsidiaries are established, they would be included in International segment as well. These subsidiaries are presented in four reportable segments: Fuel Cell Store, ECOtality North America, Innergy and International.

Management continues to assess how it evaluates segment performance, we currently utilize income (loss) from operations, excluding depreciation of corporate assets. For the three months ended March 31, 2012 and 2011 inter-segment sales were $0.02 million and $0.01 million respectively.  All inter-segment sales have been eliminated during the consolidation process.

Summarized financial information concerning the Company’s reportable segments for the three months ended March 31, 2012 and 2011 is as follows (in thousands):

Note 13 – Agreement with Department of Energy (DOE)

On September 30, 2009, the Company’s Ecotality North America subsidiary signed a contract with the DOE for a cost-reimbursable contract worth at least $99.8 million, of which $13.4 million was sub-funded to federal research and development centers. On June 17, 2010, Ecotality North America was awarded a $15.0 million extension to the original cost-reimbursable contract, of which $1.2 million was sub-funded to federal research and development centers (such contract, as extended, the “DOE Contract”).  In connection with the DOE Contract, Ecotality North America will perform services to undertake deployment of electric vehicles and charging infrastructure in certain locations within the United States (“The EV Project”).  Ecotality North America obligations under the agreement include production and installation of charging units, support of electric vehicle deployment, program operation, gathering and analysis of data and preparation of electric vehicle use reports for the DOE, as well as the overall project management. Under the agreement, the DOE will reimburse 45.8% of total EV Project costs to be incurred by Ecotality North America, up to $100.2 million. Costs eligible for reimbursement include both capital expenditures and operating expenses incurred under the EV Project, including costs of charging units, materials, salaries, overhead, outsourced and subcontracted expenses, and other operating expenses. In addition the Company will submit as allowable costs certain estimated costs of ownership incurred by the owner of the vehicles in the program, which are not costs to the program. Such allowable costs will result in reimbursement for items that the Company incurs minimal actual related costs. The Company estimates total EV Project costs to be $218.7 million of which approximately $120 million have minimal related costs to the Company as they relate to allowable costs for third party ownership. The Company submits claims for costs reimbursement to the DOE twice per month, and reimbursements are received shortly thereafter. The EV Project commenced in October 2009 and is scheduled to terminate in 2013. Under the federal regulations, upon the completion of The EV Project, there are three options for any equipment with a then-current fair value in excess of $5,000. The options are as follows: (1) retain the equipment by paying the DOE the remaining 45.8% of the fair value as determined at the end of the contract, (2) the DOE may buy out from the Company remaining 54.2% of the fair value as determined at the end of the contract, or (3) the asset may be sold, with the Company entitled to 54.2% of the proceeds and the government entitled to 45.8%.

In the early stages of the contract, our costs are primarily driven by labor, research and development of software and hardware. The billable costs and associated revenues generated in the later stages of the contract are driven by and subject to the number of electric vehicles that are deployed at any given time. To the extent that the deployment of vehicles is delayed and or the total number of vehicles is less than our projection, our total realizable revenue and associated billable costs will be less than full contract amount provides for.

Disbursement of the DOE funds is subject to customary terms and conditions applicable to federal grants. The Company believes it is in compliance with all applicable terms and conditions.

In January 2012 the DOE notified the Company that it was proceeding with the definitization process and advised the Company verbally that a change will be made to disallow reimbursement of certain in-kind costs. The Company does not expect this change to impact our aggregate reimbursements by the DOE or the aggregate costs to be incurred, because in-kind costs result in minimal actual costs incurred by the Company, and the total allowable in-kind costs, which are driven by the deployment of vehicles, are expected to still be sufficient to claim the maximum amounts allowed under the DOE Contract. However, in connection with these DOE communications the Company has revised its methodology to measure the cumulative effort incurred under the EV Project for purposes of recognizing grant revenue, and excluded the in-kind costs no longer allowed for reimbursement.DOE Contract accounted for 59% of revenue for the three months ended March 31, 2012, and 51% for the three months ended March 31, 2011. The DOE Contract receivables balance was $2.2 million at March 31, 2012, and zero at December 31, 2011.

Note 14 – Agreements with ABB Technology Ventures Ltd (“ABBTV”) and ABB Inc.

On January 10, 2011, Ecotality entered into a Securities Purchase Agreement with ABBTV pursuant to which ABBTV agreed to purchase shares of the Company’s common stock for an aggregate purchase price of $10 million. The closing of the investment occurred on January 13, 2011. At the closing, the Company issued to ABBTV 2,604,167 shares of common stock at a purchase price of $3.84 per share.  In accordance with the Securities Purchase Agreement, the Company also issued to ABBTV a warrant to purchase 1,041,667 shares of its common stock at an exercise price of $4.91 per share, later reduced to $2.50 per share. The warrant expires in January 2016. The Company also entered into an investor rights agreement with ABBTV pursuant to which the Company agreed to file a registration statement providing for the resale of common stock purchased by ABBTV. Pursuant to the terms of the investor rights agreement, in January 2011 ABBTV nominated two members to the Company’s Board of Directors, who were subsequently confirmed by the Company. The Company recorded the proceeds from the investment in common stock and additional paid-in capital during the quarter ended March 31, 2011, as both common stock and the warrant represent equity instruments.

On January 10, 2011, the Company entered into a Collaboration and Strategic Supplier Relationship Framework Agreement with ABB Inc., an affiliate of ABBTV. This agreement sets forth the general terms for the collaboration and strategic supplier relationship that ABB Inc. and the Company have agreed to implement between themselves and their affiliated companies. Also on January 10, 2011, the Company and ABB Inc. entered into the Collaboration and Strategic Supplier Relationship for North America Markets Agreement. This agreement sets forth the terms of the supplier relationship between the Company and ABB Inc. with respect to the North American market. This agreement was amended as part of the March 13, 2012 financing discussed below.

On March 13, 2012, the Company entered into the following material definitive agreements:

Convertible Note Purchase Agreement 

The Company and ABBTV entered into a Convertible Note Purchase Agreement (the “Convertible Note Purchase Agreement”), pursuant to which the Company agreed to issue and sell, and the Investor agreed to purchase, $5.0 million in aggregate principal amount of a 5.05% Unsecured Convertible Note due 2015 (the “Note”). The Convertible Note Purchase Agreement contains customary representations, warranties and agreements by the Company. In addition, the Company has agreed to indemnify the Investor against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Investor may be required to make in respect of those liabilities.

5.05% Unsecured Convertible Note Due 2015 

The Note matures on March 13, 2015 and bears interest at a rate of 5.05% per annum, payable quarterly in arrears in cash on the final day of each fiscal quarter beginning on March 31, 2012. The Note is the unsecured obligation of the Company and is senior to the Company’s preferred stock and common stock and other unsecured debt. The Note is convertible into shares of the Company’s common stock at any time, in whole or in part, at the option of the holder at a per share conversion price equal to $1.27, subject to adjustment for stock splits, stock dividends, combinations and other corporate transactions.

Events of default under the Note include, among others, payment defaults, cross-defaults, the Company’s common stock is suspended from trading for a period of time or no longer listed on an eligible trading market, and certain bankruptcy-type events involving the Company or certain subsidiaries. Upon an event of default, the holder may elect to require the Company to redeem all or any portion of the outstanding principal amount of the Note for a price equal to the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date immediately preceding the event of default and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount. In addition, upon an event of default the interest rate on the Note will increase by a per annum rate of 2.0% during the first 90-day period immediately following the event of default and will increase an additional 2.0% per annum during each subsequent 90-day period until the event of default has been cured, but in no event will such increase exceed a per annum rate of 6.0%.

The Company may redeem all the outstanding principal amount of the Note if the Company enters into a binding agreement for a change of control of the Company or if the closing sale price of the Company’s common stock exceeds 300% of the conversion price for thirty (30) consecutive calendar days. If the Company elects to redeem the Note, the redemption price will be equal to 115% of the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date the Company elects to redeem the note and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount.

Registration Rights Agreement 

In connection with the potential conversion of the Note, the Company and ABBTV entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement providing for the resale of the securities issuable upon a conversion of the Note. The registration statement was filed May 11, 2012. The registration statement must be declared effective by the Securities and Exchange Commission (the “SEC”) no later than 90 days after the issuance date of the Note (or, in the event of a “full review” by the SEC, no later than 120 days after such issuance date). The Company will be required to pay liquidated damages to the Investor as set forth in the Registration Rights Agreement if it fails to meet these deadlines.

Amendment to Warrant 

In connection with the Convertible Note Purchase Agreement, the Company and ABBTV entered into an Amendment to Warrant (“Warrant Amendment”), amending that certain warrant to purchase up to 1,041,667 shares of common stock of the Company (the “Warrant”), which the Company issued to the ABBTV on January 13, 2011. The Warrant Amendment reduces the exercise price applicable to the Warrant from $4.91 per share to $2.50 per share.

STRATEGIC RELATIONSHIP AGREEMENTS

The 2012 Amended and Restated Collaboration and Strategic Supplier Relationship Framework Agreement 

On March 13, 2012, the Company and ABB Inc., an affiliate of ABBTV (“ABB”), entered into the 2012 Amended and Restated Collaboration and Strategic Supplier Relationship Framework Agreement (the “2012 Amended and Restated Collaboration Agreement”), amending, restating and superseding, collectively, that certain Collaboration and Strategic Supplier Relationship Framework Agreement, dated as of January 10, 2011, and that certain Collaboration and Strategic Supplier Relationship For NAM Agreement, dated as of January 10, 2011, between the Company and ABB. The 2012 Amended and Restated Collaboration Agreement, among other things, sets out the general framework upon which the Company and ABB and its affiliates will collaborate to develop and manufacture next generation electrical vehicle charging systems and in connection with the supplier relationship between the Company and ABB with respect to the North American market.

Blink License Agreement 

On March 13, 2012, the Company and ABB entered into a Blink License Agreement (the “Blink License Agreement”). Subject to certain restrictions, the Blink License Agreement grants ABB and its affiliates (1) a non-exclusive, non-transferable right and license to use the Blink application platform interface in the ABB electric vehicle charging system products that ABB or its affiliates market and sell in the North American market in perpetuity, (2) the right to use certain of the Company’s trademarks in connection with the marketing and sale in the North American market of ABB products that feature the Blink application platform interface, and (3) the right to grant sublicenses with respect to the rights granted under the Blink License Agreement. As consideration for the license, the Company received $5.0 million from ABB.

Accounting for the March 13, 2012 Transactions 

The March 13, 2012 transactions with ABB required an allocation of the $10 million in total proceeds from both the convertible note, and the licensing agreement. The consideration was allocated based on the relative fair market values of the underlying consideration and was recorded as follows: a $5 million long term note was recorded based on the fair value of a comparable instrument with comparable terms, a $0.1 million discount was applied to the note related to the value of re-pricing ABBTV’s pre-existing warrants, $2.4 million was recorded to other income, related to the value of the partial release of exclusivity to the North American Market provided for in the Collaboration Agreement, and $2.6 million was recorded as revenue related to the Blink License.

Note 15 – Agreement with Shenzhen Goch Investment Ltd. (SGI)

On July 2, 2009, the Company executed a non-binding Letter of Intent (LOI) with SGI. On September 15, 2009, the Company and SGI executed a Master Overhead Joint Venture Agreement and prepared draft business agreements. These arrangements specified creation of two joint ventures for the production and distribution of battery charging systems and electric vehicle infrastructure systems in China, one for the purpose of manufacturing battery charging and electric vehicle infrastructure systems for global sale, and the other for pursuing the marketing and sale of the products within an exclusively designated territory. The Company was to grant a perpetual, non-assignable, no-royalty license to both companies with regard to their respective branded products within the specified exclusive territory. Ecotality was to own 20% of the manufacturing and 40% of the distribution companies, and was to have a Technology Consulting Agreement with the distribution company. The manufacturing company was to be funded by SGI in the amount of $10.0 million, and the distribution company in the amount of $5.0 million. Subsequently, the parties agreed to modify the draft arrangement to form a single joint venture with exclusive sales and distribution rights in China, exclusive supply rights in China subject to certain limitations, and the amount of funding to be provided by SGI limited to $5.0 million.

In connection with signing the Collaboration and Strategic Supplier Relationship Agreements with ABB Inc., which would affect the exclusivity rights granted by the Company to the joint ventures to be formed with SGI, the Company and SGI further re-negotiated the draft business agreement, resulting in signing by both parties, on January 10, 2011, of an Amendment to the Master Overhead Joint Venture Agreement. The amendment aims to accommodate the impact of certain transactions with ABB Inc. on the arrangement with SGI. Under the amendment, SGI released its exclusive rights to supply electric vehicle charging products to the Company in favor of ABB Inc. The Company is obligated to use its best efforts to facilitate a manufacturing joint venture between SGI and ABB Inc. as it relates to certain products. In addition, the Company must offer SGI the first right to bid to replace the products should such products not be supplied by ABB Inc. and give SGI the “most favored nations” treatment with respect to any bids in response to such offers.

The draft business agreements also had provided for SGI to receive certain warrants to purchase the Company’s common stock based on its payment of certain license fees, its capital contributions to the joint venture, and the amount of products purchased by the Company from the joint venture. The parties have agreed that instead, SGI would be entitled to immediately receive warrants with an exercise price of $0.60 to purchase 477,777 shares of common stock. The value of the warrant was included in general and administrative expense in the statement of operations for the three months ended March 31, 2011, as it represents a release of exclusivity rights previously granted to SGI which became necessitated by the Investment and the Securities Purchase Agreement with ABBTV.  SGI will also be entitled to receive upon the final formation and total $5 million funding of the joint venture another warrant to purchase 477,777 shares of the Company’s common stock.

As part of the amendment, SGI also assigned all its economic interests under this agreement to Green Valley International Energy Investment Company, based in Beijing, China.

Note 16 – Subsequent Events

On May 11, 2012, the Company received a letter from Nasdaq Listing Qualifications informing it that the closing bid price of our common stock has been below $1.00 per share for a period of 30 consecutive trading days, which is outside the requirements of Nasdaq Marketplace Rule 5550(a)(2). The Nasdaq rules provide the Company with 180 days, or until November 7, 2012, to regain compliance. During this 180-day period, the Company’s shares will continue to trade on The Nasdaq Capital Market. If at any time during this 180-day period the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive trading days, the Company will regain compliance and the matter will be closed.

In the event that the Company does not regain compliance, it may be eligible for an additional 180-day compliance period. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards of The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of the Company’s intention to cure the deficiency during the second compliance period.

In May 2012, the Company cancelled 3,888 shares of its common stock representing a forfeited share grant.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

The statements contained in all parts of this Annual Report 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 Annual Report, the words anticipate,” estimate”,” expect”,” may,” plans”,” project”,” believe”, 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 our growth and implement our business strategy; our 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

We are a leader in advanced EV charging and storage systems with 20 years of experience in designing, manufacturing, testing and commercializing these technologies. Leveraging that experience, we are currently building the largest EV smart charging network in the U.S. Our cloud-based smart charging network, branded as the Blink Network, is initially supporting the adoption of EVs in 18 major U.S. metropolitan markets. Through innovation and strategic partnerships, with companies such as ABB, we are establishing and monetizing the Blink Network. Initial commercial customers hosting our chargers include Best Buy, Cracker Barrel, Fred Meyer/Kroger, Ikea, Macy’s, Sears and Walmart.

We were incorporated in the State of Nevada in 1999 under the name Alchemy Enterprises, Ltd. to market biodegradable products. In November 2006, we changed our name to ECOtality, Inc. to better reflect our renewable energy strategy. Our primary operating segments consist of ECOtality North America, Innergy, ECOtality Stores (d.b.a. Fuel Cell Store) and International which includes the results of ECOtality Australia Pty, Ltd. We acquired ECOtality Stores, Innergy and ECOtality North America in 2007. In conjunction with our acquisition of Innergy, we also acquired Innergy’s wholly owned subsidiary in Mexico, Portable Energy de Mexico S.A. de C.V., that provides manufacturing and assembly services. We also have a wholly owned subsidiary in Australia, ECOtality Australia Pty Ltd., that markets and distributes our Blink and Minit-Charger equipment in Australia and Southeast Asia. In 2011, we established a new, wholly-owned subsidiary, Ecotality Asia Pacific Limited. This new subsidiary, headquartered in Hong Kong, will serve as a holding company for potential joint ventures in China and other locations throughout Asia for the purpose of manufacturing, marketing and distributing battery charging equipment to support on-road electric vehicles, industrial equipment, and electric airport ground support.

Our Innergy division is based in San Diego, California and 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 ECOtality North America’s Blink and Minit-Charger products. Innergy also provides us the ability to expand our offering of solar products and solutions into current and developing commercial markets, and provides strong manufacturing and assembly operations to assist other aspects of our business.

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, 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. Fuel Cell Store is a 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.

On August 5, 2009, ECOtality North America was selected by the DOE for a cost-share grant of approximately $100.2 million to undertake the largest deployment of EVs and charging infrastructure in U.S. history, known as “The EV Project.” On September 30, 2009, ECOtality North America accepted the original contract of approximately $99.8 million, of which $13.4 million was sub-funded to federally funded research and development centers. On June 17, 2010, ECOtality North America was awarded an additional $15.0 million extension from the DOE, of which $1.2 million was sub-funded to federally funded research and development centers, to expand the market footprint of The EV Project and include the Chevrolet Volt. We believe that leading the world’s largest EV infrastructure project gives us unparalleled and distinct competitive advantages that will support our global business development initiatives.

Through The EV Project, we are developing, installing, and managing charging stations in over 18 U.S. cities in support of the initial launch of the Nissan LEAF battery EVs (“BEVs”) and Chevrolet Volt PHEVs. The goal of The EV Project is to develop, implement and study techniques for optimizing the deployment of charging infrastructure to support widespread market acceptance of EVs in the U.S. and internationally, as well as identify commercially viable business models to create a sustainable EV charging industry. Through The EV Project, we have begun to deploy our Blink charging stations in the following major metropolitan areas: Phoenix (AZ), Tucson (AZ), Los Angeles (CA), San Diego (CA), San Francisco (CA), Dallas (TX), Fort Worth (TX), Houston (TX), Seattle (WA), Portland (OR), Eugene (OR), Salem (OR), Corvallis (OR), Nashville (TN), Knoxville (TN), Memphis (TN), Chattanooga (TN) and Washington, DC.

In November 2010, ECOtality Australia was awarded part of the Victorian Electric Vehicle Trial from the Victoria Department of Transportation. This trial will deploy our Blink residential, commercial, and DC Fast Chargers in the State of Victoria for testing and data collection. The trial is expected to continue for three years from its inception and will expand the Blink product line outside the borders of the U.S.

On February 2, 2011, ECOtality North America was awarded a contract with the Bay Area Air Quality Management District to expand The EV Project into the San Francisco Bay Area. The Company entered into a definitive contract with respect to this award on April 15, 2011.

On September 30, 2011, ECOtality North America was awarded a $26.4 million contract by the DOE to conduct the DOE’s Advanced Vehicle Testing and Evaluation project. This award is for a 5-year term to conduct work as the sole vehicle tester for the DOE’s Advanced Vehicle Testing Activity.

Results of Operations

Three months ended March 31, 2012 compared to three months March 31, 2011

The following table sets forth our results of operations for the three months ended March 31, 2012 and 2011 (in thousands, except percentages):

Revenue and Cost of Revenue

We recognized revenue of $13.7 million for the three months ended March 31, 2012 compared to $4.3 million for the three months ended March 31, 2011.  The increase in revenue of $9.3 million or 215% in 2012 is primarily related to the revenue earned on work performed under the DOE Contract, which was $8.1 million in the three months ended March 31, 2012 compared to $2.2 million for the same period in 2011. We also reported licensing revenue of $2.6 million in the three months ended March 31, 2012 as compared to nil for the three months ended March 31, 2011. We anticipate the majority of our revenue in 2012 will be derived from the DOE Contract based on deliveries of chargers and the billing of in-kind costs relating to cost share of EV project participants.

Cost of revenue primarily consists of labor, materials, facilities and equipment related to the manufacturing of chargers and development of the Blink Network.  Cost of revenue was $8.5 million for the three months ended March 31, 2012 compared to $5.3 million for the three months ended March 31, 2011.  The increase of $3.2 million, or 59%, was primarily due to the ramp up of activity and associated costs incurred under the DOE Contract in 2012.

Gross margin percentage for the three months ended March 31, 2012 was 38% compared to (23%) for the three months ended March 31, 2011. The increase in the gross margin is related to increased revenue related to in-kind costs under our EV Project contract for which the Company is permitted to include cost share from third party project participants in its billings, resulting in lower direct costs to the Company. It is also reflective to the sale of the license to ABB which generated $2.6 million in revenue in the three months ended March 31, 2012 for which no direct costs were incurred.

Operating Expenses

Total operating expenses were $6.5 million for the three months ended March 31, 2012 compared to $5.8 million for the three months ended March 31, 2011. The largest component of our operating expenses is general and administrative expenses, which were $6.0 million or 93% of total operating expenses for the three months ended March 31, 2012, compared with $3.8 million or 65% for the three months ended March 31, 2011.

General and administrative expenses primarily consist of payroll, facilities, legal fees, professional fees and marketing costs.  General and administrative expenses increased by $2.2 million or 58% for the three months ended March 31, 2012 compared to the same period in the prior year.

Legal fees were $0.2 million for the three months ended March 31, 2012 compared with $0.5 million for the three months ended March 31, 2011. The reduction in 2012 was primarily related to lower costs associated with the SEC formal Private Order of Investigation and lower patent maintenance fees. All expenses related to the SEC Private Order are currently being expensed with the expectation of insurance reimbursement in 2012 from our Directors and Officers insurance carrier.

Professional fees were $0.7 million for the three months ended March 31, 2012 compared with $0.3 million for three months ended March 31, 2011. The $0.4 million increase is attributable to increased expenses to perform maintenance on our IT systems to support our execution of the EV Project and our overall business plan.

Executive and Director’s compensation was $0.7 million in the three months ended March 31, 2012 compared with $0.3 million in the comparable prior year period.  All other compensation was $2.2 million for the three months ended March 31, 2012 compared to $1.5 million for the three months ended March 31, 2011.  The increase in compensation is directly attributable to the increase in workforce required to service the DOE Contract.

Our marketing, investor and public relations expenses were $0.3 million for the three months ended March 31, 2012 compared with $0.2 million for the three months ended March 31, 2011. The increased spending in 2012 was primarily related to ongoing branding identification efforts to establish our base brand from which all our on-road (electric vehicle related) products will extend and to promoting our line of electric vehicle products.

Accounting fees were $0.3 million for the three months ended March 31, 2012 compared to $0.2 million for the three months ended March 31, 2011. The increase in accounting expenses is related to higher audit fees.

All other general and administrative expenses totaled $1.6 million for the three months ended March 31, 2012 compared to $0.9 million for the three months ended March 31, 2011. The increase in all other general and administrative expenses was primarily driven by the additional resources needed to support the increased employee population and the ramp up of activity around the DOE contract.

Warrant expense was $1.8 million for the three months ended March 31, 2011 and related to the issuance of a warrant to purchase 477,777 shares of common stock that was issued to Shenzen Goch Investment Ltd. in accordance with an amendment to our Master Overhead Joint Venture Agreement. The value of the warrant was included in the statement of operations for the three months ended March 31, 2011 as it represents a release of exclusivity rights previously granted to SGI which was necessitated by the Securities Purchase Agreement with ABBTV. There was no similar item during the three months ended March 31, 2012.

Research and development expenses totaled $0.3 million for the three months ended March 31, 2012 compared to $0.1 million for the three months ended March 31, 2011. The increase of $0.2 million was due to our focus on research and development activities related to EV products.

Depreciation expense was approximately $0.1 million for the three months ended March 31, 2012 and 2011. We expect this expense to increase as we purchase more property and equipment in support of the growth of our operations.

Other income totaled $2.4 million for the three months ended March 31, 2012 compared to $0.002 million for the three months ended March 31, 2011. The increase was due to the March 13, 2012 transaction with ABB related to the partial release of exclusivity to the North American Market provided for in the Blink License Agreement.

Segment Information

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. Ecotality Inc. is the parent company of Fuel Cell Store and ECOtality North America. Innergy, a division of ECOtality, 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. ECOtality North America 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. ECOtality North America also holds exclusive patent rights to the 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. ECOtality Australia Pty Ltd., the Company's wholly owned subsidiary in Australia, markets and distributes our Blink and Minit-Charger equipment in Australia and Southeast Asia. The Company includes Australia Pty Ltd. in its International segment and as other international subsidiaries are established, they would be included in International segment as well. These subsidiaries are presented in four reportable segments: Fuel Cell Store, ECOtality North America, Innergy and International.

Management continues to assess how it evaluates segment performance, we currently utilize income (loss) from operations, excluding depreciation of corporate assets. For the three months ended March 31, 2012 and 2011 inter-segment sales were $0.02 million and $0.01 million respectively.  All inter-segment sales have been eliminated during the consolidation process.

Summarized financial information concerning the Company’s reportable segments for the three months ended March 31, 2012 and 2011 is as follows:

Ecotality North America is the segment that includes the operating results related to our DOE Contract. The changes in operating results by segment are consistent with the fluctuations noted in the results of operations year over year, as the majority of the increase activity is related to activities under the DOE Contract.

Employees

As of March 31, 2012, we had 181 employees, including 7 in manufacturing and the remainder 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.

Liquidity and Capital Resources

As of March 31, 2012, we had $4.0 million of cash and cash equivalents compared to $9.6 million as of December 31, 2011. The $5.5 million decrease in cash is directly attributable to the use of our funds in the expansion of our business as we incurred costs to produce and install electric chargers in support of the DOE Contract requirements. As of March 31, 2012 we had $0.5 million of restricted cash which serves as the collateral for letters of credit and accordingly, is not available for our use in current operations.

Our primary uses of cash from operating activities have been for personnel-related expenditures and costs related to the DOE Contract. We have experienced negative cash flows from operations as we continue to expand our business.  Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we increase spending on the design and development of our products and the related contracts we enter into during a period.

We utilized cash for operating activities in the amount of $6.8 million during the three months ended March 31, 2012 compared to $5.1 million during the three months ended March 31, 2011. The use of cash reflected a net income of $1.2 million in 2012 and a net loss of $6.8 million in 2011.  The net income for the three months ended March 31, 2012 is largely due to recording $2.6 million of license revenue and $2.4 million of other income related to the March 13, 2012 ABB transaction. This income is offset by expenses incurred to support the DOE Contract requirements.

Net cash used in investing activities was $3.7 million for the three months ended March 31, 2012 compared to $1.3 million for the three months ended March 31, 2011. The purchase of property and equipment of $3.6 million in 2012 and $1.3 million in 2011 was primarily for items to be utilized in support of the DOE cost reimbursement contract.

Net cash generated by financing activities was $5.0 million in 2012 compared to $9.3 million in 2011. The 2012 figure is related to securing a 5.05% Convertible Note from ABB Technology Ventures.  The 2011 figure is related to $10 million in equity investment capital received in January 2011 associated with a public offering.  Financing activities commencing in 2009 and continuing to the present, have been a critical factor in enabling us to transform ourselves to become a leader in the renewable energy sector.

Management’s Plan of Operation and for Working Capital

The majority of our operational focus in 2011 was centered around the design and development of hardware, software and network infrastructure necessary for the creation of the Blink Network. In the three months ended March 31, 2011 we focused on establishing a viable operation BLINK network by installing EVSE at our customers’ and partners’ residential and commercial locations in conjunction with the launch of the Nissan LEAF , Chevy Volt and other electric vehicles. A majority of the installations in 2012 will go towards satisfying the demand of The EV Project. However, we have ramped up a sales and field operations organization that will sell, install and service EVSE and an EVSE network after The EV Project’s completion. We expect the majority of installations in 2012 and beyond to come from these direct sales and partnership efforts. In order for the direct sales efforts to be successful, we must successfully partner with some or all of the following potential partners: major retail outlets, large corporate clients, small and medium enterprises, industrial supply companies, utilities, commercial, retail and office building owners, state and local governments and automobile manufacturers.

In addition, we are updating our industrial line of products and services as we maintain a marketing and sales focus on the recovering warehouse and airport ground support equipment markets. We are developing and launching our next generation of industrial products in the second half of 2012 with additional features and services, but at lower costs than our products selling price today in order to remain competitive.

Net working capital is an important measure of our ability to finance our operations.  Our net working capital was $9.3 million at March 31, 2012.    Given that we may not raise additional working capital from debt or equity in 2012, we are working hard to execute on the DOE Contract and to sell our products throughout 2012 to generate the necessary working capital from operations.

Contractual Obligations

On June 12, 2006, the Company entered into a license agreement (the License Agreement”) with the California Institute of Technology (CalTech”) 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 $8.2 million. In addition, the License Agreement contemplated certain additional fee arrangements, to date, no additional fees have been paid in connection with the License Agreement.

On January 16, 2007, the Company purchased an office building for an aggregate price of $576.0 thousand.  Half of the aggregate price of $288.0 thousand was paid in cash and the remaining balance of $288.0 thousand was structured as an interest-only loan.  The loan carried an interest rate of 6.75% calculated annually, with monthly interest-only payments due beginning on February 16, 2007.   The Company paid $100.0 thousand in connection with the refinance of the property on January 20, 2012. The remaining balance of $187 thousand is structured as an interest-only loan, bears an interest rate of 7.0% calculated annually, with monthly payments in the amount of $1.1 thousand due on or before January 16, 2014, with the possibility of an extension to January 16, 2016. The loan is secured by a deed of trust on the office building.

As of March 31, 2012, the Company has twenty-one leases in effect for operating space. Future obligations under thse commitments are $0.7 million for 2012, $0.5 million for 2013, $0.2 million for 2014 and $0.2 million for 2015 and $0 thereafter.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated 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 goodwill and intangible assets, stock-based compensation, inventory valuations, allowance for bad debts, warranty liability, valuation of deferred tax 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. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We derive our revenue from sales of services and products and government grants related to clean energy technologies. We recognize revenue 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 collectability is reasonably assured.

We have entered into agreements, including grant agreements, with various government entities, under which we are obligated to deliver services such as development of the infrastructure for deployment of EVs, including gathering and completing the related data analyses. Under these agreements, the government entity makes payments to us based on expenditures incurred in the delivery of the services. We recognize revenue as the related services are performed, based upon the actual efforts incurred relative to the amount of total effort expected to be incurred by us in the performance under each agreement. Amounts related to capital expenditures are recognized over the term of the agreement as the related capital assets are used in the delivery of our services. Revenue is recognized provided that the conditions under which the government payments were made have been met, and we have only perfunctory obligations outstanding. In certain agreements, the government retains a financial interest in capital assets with a fair value of $5,000 or greater at the end of the agreement, which the Company may either buy out upon termination of the agreement, offer to the government to buy out the Company’s interest in the assets or sell the assets in the market and remit to the government the portion of the selling price equal to its financial interest. In these agreements, the government’s estimated financial interest is included in deferred revenues, and the assets are depreciated to the estimated disposal value at the termination of the agreement.

Revenue from service agreements with other customers, such as consulting services, is recognized as the services are performed. All costs of services are expensed as incurred. Revenue from sales of products is recognized when products are delivered and the title and risk of loss pass to the customer. If the arrangement requires customer acceptance, revenue is recognized when acceptance occurs. Our products are sold without a right of return.

Intangible Assets

Intangible assets on our consolidated balance sheet consist of capitalized costs to develop trademarks, including attorney fees, registration fees, design costs and the costs of securing the trademark, and legal costs to establish new patents.

We capitalized legal costs to establish new patents or trademarks and amortize the cost over the life of the intangible asset or its economic use, if deemed to be shorter. We periodically review our finite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset is impaired or the estimated useful lives are no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to their estimated fair values. Fair value is estimated based on discounted future cash flows.

Goodwill

Goodwill has been recorded as a result of our acquisition of Electric Transportation Engineering Corporation in 2007. The goodwill is not deductible for tax purposes.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and board members using a fair value method, which requires the recognition of compensation expense for costs related to all stock-based payments including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Black-Scholes pricing model is used to estimate the fair value of options granted that are expensed on a straight-line basis over the vesting period.

Accounting for stock options issued to nonemployees is based on the estimated fair value of the awards using the Black-Scholes pricing model. The measurement of stock-based compensation is subject to adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the consolidated statements of operations during the period the related services are rendered.

The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards. These assumptions include the expected term, risk-free interest rate, expected volatility, and expected dividend. The expected term represents the estimated time from the date of the grant until the date of exercise and is based on the simplified method which calculates the expected term as the average of the time-to-vesting and the contractual life of the award. The expected volatility is determined based on daily historical price observations for the Company’s shares over the expected term or as close to that term as possible subject only to the limitation of the Company’s trading history. The risk-free interest rate is the market yield currently available on U.S. Treasury securities with maturities approximately equal to the option’s expected term. The expected dividend yield was assumed to be zero as the Company has not paid, and do not anticipate paying, cash dividends on shares of common stock.

The Company’s estimate of forfeiture rate is based on an analysis of employee turnover and historical forfeitures, and the appropriateness of the forfeiture rate will continue to be evaluated s based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements.

The Company will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to stock-based compensation on a prospective basis and incorporating these factors into the Black-Scholes option pricing model. Each of these inputs is subjective and generally requires significant management and director judgment to determine.

Inventory Valuation

Inventory is stated at the lower of cost, determined on a first-in, first-out basis, or market value. Inventory write-downs for potentially excess and obsolete inventory are recorded based on forecasted demand, economic trends and technological obsolescence of the Company’s products. If future demand or market conditions are less favorable than the Company’s projections, future inventory write-downs could be required and would be reflected in costs of goods sold in the period the revision is made. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. If actual demand and market conditions are less favorable than anticipated, additional inventory adjustments could be required in future periods.

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.

Due to certain significant ownership changes in the past, in 2011 the Company conducted a Section 382 study to determine if any of the historical net operating losses (NOLs) will be limited in the future. While the study is not finalized, it was determined that the Company had three ownership changes during the period they generated NOLs. As a result of these changes, the Company is subject to an annual limitation on the use of the NOLs but assuming the Company generates taxable income as needed, prior to the NOLs expiring, the Company should be able to fully utilize the NOLs.

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. Ecotality Inc. is the parent company of Fuel Cell Store and ECOtality North America. Innergy, a division of ECOtality, 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. ECOtality North America 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. ECOtality North America also holds exclusive patent rights to the 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. ECOtality Australia Pty Ltd., the Company’s wholly owned subsidiary in Australia, markets and distributes Blink and Minit-Charger equipment in Australia and Southeast Asia. The company includes Australia Pty Ltd. in its International segment and as other international subsidiaries are established, they would be included in International segment as well. These subsidiaries are presented four reportable segments: Fuel Cell Store, ECOtality North America, Innergy and International.

Recent Accounting Pronouncements

For a description of the new accounting standards that affect us, see Note 3, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included under Item 1 of this Quarterly Report on 10-Q.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required by this Item.

ITEM 4.  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 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 Exchange Act of 1934) as of the end of the period covered by this report. As a result of this evaluation, we concluded that our internal controls and procedures were effective for the period ended March 31, 2012.

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. Based on this evaluation, we concluded that our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act of 1934) were effective for the period ended March 31, 2012.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s Report is not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this quarterly report.

Changes in Internal Control

There have been no changes in the Company’s internal control over financial reporting during the first quarter of 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We and our ECOtality North America subsidiary, as well as certain individuals, have received subpoenas from the SEC pursuant to a formal Private Order of Investigation in connection with a fact-finding inquiry as to trading in shares of our common stock from the period between August 1, 2008 and August 31, 2009. The SEC has informed us, and the terms of the subpoenas confirm, that the fact-finding inquiry should not be construed as a determination that violations of law have occurred.  Our Board of Directors, through its Audit Committee, continues to monitor the ongoing inquiry.   We continue to cooperate fully with the SEC.

On April 15, 2011, we received a letter from Coulomb Technologies Inc. (“Coulomb”) alleging that we promised to make Coulomb the exclusive supplier for all of our public charging stations and asserting that we infringed Coulomb’s trademarks by including references to Coulomb in one of our websites. On May 3, 2011, we responded to Coulomb by denying its allegations and requesting that it retract these claims. Coulomb has since reasserted its claims and threatened to initiate litigation if the dispute is not resolved. ECOtality believes all of Coulomb’s allegations to be unfounded and intends to defend its position vigorously, if necessary. On October 7, 2011, we entered into a Tolling Agreement with Coulomb that temporarily suspends the operation of any statute of limitations that would bar Coulomb from pursuing the claim (except for any statute of limitations that had already expired prior to the date of the Tolling Agreement). The Tolling Agreement is set to expire on June 30, 2012; provided that either party may, at any time, terminate the Tolling Agreement (and thus terminate the tolling of the statutes of limitations) by giving 30 days notice to the other party.

On February 13, 2012, Synapse Sustainability Trust, Inc. filed a suit against ECOtality, ECOtality North America and one other unrelated defendant in the Supreme Court of the State of New York, County of Onondaga. Among other things, Synapse alleges that it detrimentally relied on representations and statements of ECOtality in acquiring non-conforming electric vehicle charging units totaling approximately $160,000 that did not satisfy Synapse’s requirements. Synapse seeks monetary damages in the amount of $6 million. ECOtality believes all of Synapse’s allegations to be unfounded and intends to defend its position vigorously.

The Company received a letter, dated March 19, 2012, from a law firm representing Ardour Investments, LLC claiming that the Company breached its obligations to Ardour for failure to pay Ardour certain fees in connection with investment banking services it alleges were provided by Ardour to the Company under an Engagement Letter between the Company and Ardour, dated November 1, 2007, as amended March 9, 2009. Ardour is claiming damages in the amount of $335,000. Along with the demand letter they have also delivered a draft complaint stating the claims they intend to file in the Supreme Court of the State of New York if the Company fails to make payment on their demand. We are currently evaluating the merits of Ardour’s case and have retained legal counsel in connection with the matter.

ITEM 1A.  RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment and new risks emerge from time to time. Management cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our business or to the extent to which any factor or combination of factors may impact our business. There have not been any material changes during the quarter ended March  31, 2012 from the risk factors disclosed in the above-mentioned Form 10-K for the year ended December 31, 2011.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 13, 2012, the Company entered into the following financing arrangements:

Convertible Note Purchase Agreement

The Company and ABB Technology Ventures Ltd (the “Investor”) entered into a Convertible Note Purchase Agreement (the “Convertible Note Purchase Agreement”), pursuant to which the Company agreed to issue and sell, and the Investor agreed to purchase, $5.0 million in aggregate principal amount of a 5.05% Unsecured Convertible Note due 2015 (the Note”). The Convertible Note Purchase Agreement contains customary representations, warranties and agreements by the Company. In addition, the Company has agreed to indemnify the Investor against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Investor may be required to make in respect of those liabilities.

5.05% Unsecured Convertible Note Due 2015

The Note matures on March 13, 2015 and bears interest at a rate of 5.05% per annum, payable quarterly in arrears in cash on the final day of each fiscal quarter beginning on March 31, 2012. The Note is the unsecured obligation of the Company and is senior to the Company’s preferred stock and common stock and other unsecured debt. The Note is convertible into shares of the Company’s common stock at any time, in whole or in part, at the option of the holder at a per share conversion price equal to $1.27, subject to adjustment for stock splits, stock dividends, combinations and other corporate transactions.

Events of default under the Note include, among others, payment defaults, cross-defaults, the Company’s common stock is suspended from trading for a period of time or no longer listed on an eligible trading market, and certain bankruptcy-type events involving the Company or certain subsidiaries. Upon an event of default, the holder may elect to require the Company to redeem all or any portion of the outstanding principal amount of the Note for a price equal to the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date immediately preceding the event of default and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount. In addition, upon an event of default the interest rate on the Note will increase by a per annum rate of 2.0% during the first 90-day period immediately following the event of default and will increase an additional 2.0% per annum during each subsequent 90-day period until the event of default has been cured, but in no event will such increase exceed a per annum rate of 6.0%.

The Company may redeem the outstanding principal amount of the Note if the Company enters into a binding agreement for a change of control of the Company or if the closing sale price of the Company’s common stock exceeds 300% of the conversion price for thirty (30) consecutive calendar days. If the Company elects to redeem the Note, the redemption price will be equal to 115% of the greater of (i) the amount to be redeemed (as calculated through the redemption date) and (ii) the product of (A) the conversion rate with respect to such amount in effect at such time as the holders deliver a redemption notice and (B) the greatest closing sale price of the Company’s common stock on any trading day during the period starting on the date the Company elects to redeem the note and ending on the trading day immediately prior to the date the Company is required to pay the redemption amount.

The proceeds from this debt issuance are to be used to fund operations.

Item 3.  Defaults Upon Senior Securities

There were no defaults upon senior securities in the three months ended March 31, 2012.

ITEM 4.  Mining Safety Disclosures

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(A) Exhibits:

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.