Echo Automotive, Inc. - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Echo Automotive, Inc.	ex32-1.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Echo Automotive, Inc.	ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - Echo Automotive, Inc.	Financial_Report.xls
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Echo Automotive, Inc.	ex32-2.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Echo Automotive, Inc.	ex31-2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2013

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

For the transition period from ____________ to ____________

Commission File Number: 000-53681

ECHO AUTOMOTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
(Exact name of registrant as specified in its charter)

Nevada	98-0599680
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation)	Identification No.)

16000 N. 80th Street, Scottsdale, AZ 85260

(Address of Principal Executive Offices)

(855) 324-6288

(Registrant’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer o Accelerated filer o Non–Accelerated filer o Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 2, 2013
Common stock, par value $.001		89,573,811

Echo Automotive, Inc.

TABLE OF CONTENTS

		Page Numbers
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion & Analysis of Financial Condition & Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	19
Item1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	20

SIGNATURES		21

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ECHO AUTOMOTIVE, INC.
(A Development Stage Company)
Condensed Consolidated Balance Sheets

	June 30,			December 31,
	2013			2012
	(unaudited)
Assets
Current assets:
Cash	$	3,169		$	1,879
Other current assets		69,052			59,027
Total current assets		72,221			60,906

Property and equipment, net		682,376			154,497
Intangibles, net		3,393,434			47,500
Total assets	$	4,148,031		$	262,903

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	297,409		$	210,760
Accounts payable - related party		27,073			—
Bank overdraft		—			37,616
Accrued liabilities		271,181			189,450
Related party advances		127,603			100,000
Current portion of notes payable, net of debt discount of $26,525 and $0 for June 30, 2013 and December 31, 2012, respectively		533,475			150,000
Total current liabilities		1,256,741			687,826

Long-term portion of notes payable, net of current portion and debt discount of $94,827 and $9,214 for June 30, 2013 and December 31, 2012, respectively		221,173			581,786
Total liabilities		1,477,914			1,269,612

Contingencies and commitments

Stockholders’ equity (deficit):
Common stock, par value $.001, 650,000,000 shares authorized; 80,000,000 and 75,000,000 issued and outstanding at June 30, 2013 and December 31, 2012, respectively		80,000			75,000
Additional paid in capital		8,591,554			2,060,417
Stock subscription		(1,334,000	)		(434,507	)
Accumulated deficit		(4,667,437	)		(2,707,619	)
Total stockholders’ equity (deficit)		2,670,117			(1,006,709	)

Total liabilities and stockholders’ equity (deficit)	$	4,148,031		$	262,903

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

ECHO AUTOMOTIVE, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(unaudited)

	Three Months Ended						Six Months Ended						Period from Inception
	June 30,						June 30,						(November 25, 2009)
	2013			2012			2013			2012			to June 30, 2013

Revenue	$	—		$	6,100		$	600		$	6,100		$	130,956
Operating expenses:
General and administrative		1,049,218			536,654			1,891,267			653,102			4,554,459
Selling and marketing		6,834			1,023			11,613			2,043			93,306
Total operating expenses		1,056,052			537,677			1,902,880			655,145			4,647,765
Operating loss		(1,056,052	)		(531,577	)		(1,902,280	)		(649,045	)		(4,516,809	)

Other expense
Interest expense		31,827			13,935			57,538			22,479			150,628
Total other expense		31,827			13,935			57,538			22,479			150,628

Loss before taxes		(1,087,879	)		(545,512	)		(1,959,818	)		(671,524	)		(4,667,437	)

Income tax provision		—			—			—			—			—

Net loss	$	(1,087,879	)	$	(545,512	)	$	(1,959,818	)	$	(671,524	)	$	(4,667,437	)

Net loss per share
Basic and diluted	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	(0.03	)

Weighted average common shares outstanding
Basic and diluted		77,582,418			26,016,342			76,298,343			26,016,342

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

ECHO AUTOMOTIVE, INC.
(A Development Stage Company)
Statements of Changes in Stockholders’ Deficit
(unaudited)

	Common Stock						Additional Paid			Stock			Accumulated
	Shares			Amount			In Capital			Subscriptions			Deficit			Total

Balance at November 25, 2009		—		$	—		$	—		$	—		$	—		$	—

Member contributions		800,288			800			2,524			—			—			3,324

Net loss		—			—			—			—			(5,555	)		(5,555	)

Balance at December 31, 2009		800,288			800			2,524			—			(5,555	)		(2,231	)

Member contributions		10,810,148			10,810			34,090			—			—			44,900

Member withdrawls		(722,282	)		(722	)		(2,278	)		—			—			(3,000	)

Net loss		—			—			—			—			(38,600	)		(38,600	)

Balance at December 31, 2010		10,888,154			10,888			34,336			—			(44,155	)		1,069.00

Member contributions		15,128,188			15,128			47,707			—			—			62,835

Net loss		—			—			—			—			(300,542	)		(300,542	)

Balance at December 31, 2011		26,016,342			26,016			82,043			—			(344,697	)		(236,638	)

Member contributions		26,483,658			26,484			83,516			—			—			110,000

Common stock of Canterbury		22,500,000			22,500			1,777,532			—			—			1,800,032

Stock subscriptions assumed in the merger		—			—			—			(434,507	)		—			(434,507	)

Extinguishment of related party payable		—			—			91,761			—			—			91,761

Issuance of warrants		—			—			25,565			—			—			25,565

Net loss		—			—			—			—			(2,362,922	)		(2,362,922	)

Balance at December 31, 2012		75,000,000			75,000			2,060,417			(434,507	)		(2,707,619	)		(1,006,709	)

Financing agreements		5,000,000			5,000			495,000			—			—			500,000

Recognition of shares issuable in exchange for assets acquired		—			—			4,408,945			—			—			4,408,945

Stock subscription receivable								1,500,000			(1,500,000	)					—

Receipt of funds on stock subscriptions		—			—			—			600,507			—			600,507

Recognition of contingent beneficial conversion feature and warrants		—			—			127,192			—			—			127,192

Net loss		—			—			—			—			(1,959,818	)		(1,959,818	)

Balance at June 30, 2013		80,000,000		$	80,000		$	8,591,554		$	(1,334,000	)	$	(4,667,437	)	$	2,670,117

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

ECHO AUTOMOTIVE, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(unaudited)

							Period from Inception
	Six Months Ended June 30,						(November 25, 2009)
	2013			2012			to June 30, 2013

Cash flows from operating activities:
Net loss	$	(1,959,818	)	$	(671,524	)	$	(4,667,437	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		139,252			9,990			182,993
Accretion of debt discount		15,054			—			31,405
Changes in operating assets and liabilities:
Accounts receivable		—			(6,100	)
Other current assets		(10,025	)		(45,000	)		(69,052	)
Accounts payable		86,649			—			286,895
Accounts payable - related party		27,073			—			27,073
Bank overdraft		(37,616	)		—			—
Accrued liabilities		56,731			32,478			246,181
Related party advance		27,603			—			127,603
Net cash used in operating activities		(1,655,097	)		(680,156	)		(3,834,339	)

Cash flows from investing activities:
Purchases of intangibles		—			(50,000	)		(50,000	)
Purchases of property and equipment		(79,120	)		(124,272	)		(274,858	)
Net cash used in investing activities		(79,120	)		(174,272	)		(324,858	)

Cash flows from financing activities
Proceeds from stock subscriptions		600,507			—			2,068,307
Proceeds from notes payable		166,000			800,000			1,049,000
Principal repayments on notes payable		(31,000	)		—			(63,000	)
Proceeds from financing agreement		500,000			—			500,000
Proceeds from shares issuable in exchange for assets acquired		500,000			—			500,000
Advances from Company officers		—			—			159,250
Repayments to Company officers on advances		—			—			(159,250	)
Capital withdrawals		—			—			(3,000	)
Capital contributions		—			—			111,059
Net cash provided by financing activities		1,735,507			800,000			4,162,366

Increase (decrease) in cash		1,290			(54,428	)		3,169
Cash, beginning of period		1,879			101,359			—
Cash, end of period	$	3,169		$	46,931		$	3,169

Supplemental cash flow information

Shares issuable in exchange for assets acquired	$	4,408,945		$	—		$	4,408,945
Extinguishment of related party payable	$	—		$	—		$	91,761
Debt extinguished with issuance of company stock	$	—		$	—		$	110,000

Recognition of contingent beneficial conversion feature and warrants	$	127,192		$	—		$	152,757
Extinguishment of related party payable with stock subscription	$	—		$	—		$	97,693

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

ECHO AUTOMOTIVE, INC..

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Description of Business

Canterbury Resources, Inc. (“Canterbury”) was organized under the laws of the State of Nevada on September 2, 2008. Canterbury’s initial business plan was to acquire and explore mineral properties.

Exchange Agreement

On September 21, 2012 Echo Automotive LLC (“Echo”) and DBPJ Stock Holding, LLC, sole member of Echo (the “Echo Member”) entered into an exchange agreement (the “Exchange Agreement”) with Canterbury. The Exchange Agreement resulted in the Echo Member receiving a total of 52,500,000 shares of common stock of Canterbury in exchange for 100% of the issued and outstanding units of Echo. In accordance with the terms of the Exchange Agreement, the shares received by the Echo Member represented 70% of the issued and outstanding common stock of Canterbury at the time of the Exchange Agreement. As part of the exchange, Canterbury changed its name to Echo Automotive, Inc.

Operations

Echo Automotive, Inc. (the Company) is developing a set of technologies that it believes will reduce overall fuel expenses in commercial fleet vehicles by augmenting existing powertrains with highly efficient electrical energy delivered by electric motors powered by Echo’s modular plug-in battery modules. Echo believes this technology will achieve an immediate return on investment for each individual vehicle in a fleet.

The Company’s operations have previously been funded by advances and subsequent equity conversions by the majority stockholders. Future funding is expected to be provided in part by equity investments from other accredited investors. There can be no assurance that any of these strategies will be achieved on terms attractive to us.

Note 2 – Basis of Presentation

As a result of the Exchange Agreement, Canterbury merged with Echo, with Echo being the accounting acquirer thus resulting in a reverse merger. Therefore the accompanying financial statements are on a consolidated basis subsequent to September 21, 2012, but only reflect the operations of Echo prior to September 21, 2012.

In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial position, results of operations, and cash flows. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. The accounting policies are described in the “Notes to the Consolidated Financial Statements” in the 2012 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

The Company is a development stage company and has incurred significant losses during the three and six months ended June 30, 2013 and 2012 and for the period from inception (November 25, 2009) through June 30, 2013 and has experienced negative cash flows from operations since inception. These circumstances result in substantial doubt as to the ability of the Company to continue as a going concern as noted in Note 10.

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Echo Automotive, LLC and Advanced Technical Asset Holdings, LLC, beginning with their respective dates of acquisition. All significant intercompany accounts and transactions have been eliminated.

Fair Value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC (“ASC 820-10”), fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. When determining fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.

The three levels of inputs that may be used to measure fair value are as follows:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), inputs that are other than quoted prices that are observable for the asset or liability or market corroborated inputs.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities, which may include internal data or valuation data received from the security issuer.

The Company’s financial instruments include cash, accounts payable, accrued liabilities, related party advances, and notes payable. The carrying value of these instruments approximates fair value due to the short-term nature of such instruments. The Company used inputs that would qualify as Level 2 inputs to make its assessment of the approximate fair value of the notes payable.

Note 4: Asset Acquisition

Bright Automotive, Inc. (“Bright”) was established in 2008 as an offspring of the non-profit Rocky Mountain Institute to commercialize and develop the IDEA plug-in hybrid electric fleet vehicle. Bright ceased operations in March 2012 after failing to obtain a loan through the Advanced Technology Vehicles Manufacturing Loan Program. The Company successfully hired key members of the Bright team and acquired certain facilities and intellectual property in a bid to accelerate EchoDrive™’s commercialization in spring of 2012. In the first quarter of 2013, Bright’s assets, including all of its intellectual properties and patents, were auctioned off and were purchased by Advanced Technical Asset Holdings, LLC (“ATAH”), a company wholly owned by a shareholder and debt holder of the Company, for a total purchase price of $500,000, comprised of $250,000 of cash and $250,000 of promissory notes. As part of the asset acquisition between Bright and ATAH, Bright is due 277,778 shares of the Company’s common stock within 12 months of the date of the execution of the agreement. Additionally, $25,000 and 27,778 shares of the Company’s common stock were due within 90 days of the execution of the agreement for the satisfactory transfer of the intellectual property and all the rights and privileges associated with the intellectual property. The $25,000 and a combined fair value of $326,945 for the 305,556 shares that ATAH is obligated to issue to Bright as of the acquisition date pursuant to the agreement were recorded as a liability by ATAH. The value of the shares was based on the market price of the stock as of the acquisition date.

On April 5, 2013 the Company acquired all of the issued and outstanding units of ATAH for 6,000,000 shares of the Company’s common stock. The value of the shares exchanged for units of ATAH was approximated $3,120,000, which was based on the market price of the stock as of the acquisition date. As part of an exchange agreement with ATAH, the Company assumed all of the assets and liabilities described above, $100,000 cash, and a promissory note for $400,000. As of June 30, 2013, the promissory note was paid and the Company received $400,000. The $25,000 and the 305,556 shares of the Company’s common stock were not paid to Bright as of June 30, 2013. The Company has allocated the fair value of the shares exchanged based on the relative fair value of the assets that qualify for allocation. The Company has not yet issued the shares of common stock related to this transaction and has recorded such an obligation in equity. The Company determined that this transaction met the business scope exception thus asset acquisition accounting was used instead of business combination accounting.

The following table summarizes the assets and liabilities assumed:

				Estimated
	Purchase			Useful Life
Asset or Liability Assumed	Price			(years)

Patents	$	2,460,219			14
Cash		500,000			N/A
Show Auto (Vehicles)		492,044			5
Computer Equipment		19,682			3
Obligation to pay cash to Bright		(25,000	)		N/A
Obligation to issue shares to Bright		(326,945	)		N/A
Net assets	$	3,120,000

License Agreement

On April 5, 2013 the Company entered into an amendment with CleanFutures (the “Amendment”) to the License Agreement dated February 1, 2012 (the “License Agreement”). The Amendment resulted from the mutual agreement with CleanFutures that the original intent of the License Agreement was not being met or adhered to. In accordance with the Amendment, the Company will issue 1,850,000 shares of the Company’s common stock to CleanFutures; in turn, the Company will receive certain rights, including perpetual use of the CleanFutures Patent and future patent(s), a non-compete agreement in which CleanFutures will not be permitted to do business with any of the Company’s competitors, and CleanFutures has agreed to certain covenants that will assure that CleanFutures will for perpetuity not interfere with the Company’s business. This Amendment superseded the existing License Agreement. The Company has not yet issued the shares of common stock related to this agreement. The fair value of the shares was $962,000 on April 5, 2013 based on stock price of $.52 on that date and was allocated among the assets based on their relative fair values. Any assets described below that was not assigned a purchase price was considered not to have value as contemplated by the terms of the agreement. The amounts purchased were capitalized based on the market price of the stock.

The following table summarizes the assets acquired:

Intangible Asset Acquired	Purchase Price		Estimated Useful Life (years)

License Agreement	$	962,000		7

The amortization expense relating to these acquisitions was $73,785 for the three and six months ended June 30, 2013.

Note 5: Related Party Transactions

Shareholders of the Company made advances of $25,570 during the six months ended June 30, 2013 for working capital purposes. The advances are due on demand, non-interest bearing, and classified within related party advances in the accompanying condensed consolidated balance sheet as of June 30, 2013.

The Company paid consulting fees to certain shareholders and directors of the Company that amounted to $72,500 and $142,500 for the three and six months ended June 30, 2013, respectively, and $126,317 and $186,230 for the three and six months ended June 30, 2012, respectively. The Company paid consulting fees to certain shareholders and directors of the Company that amounted to $804,556 for the period from inception (November 25, 2009) through June 30, 2013.

The Company incurred interest expense with related parties of $4,445 and $8,913 for the three and six months ended June 30, 2013, respectively. The Company incurred interest expense with related parties of $3,771 and $5,421 for the three and six months ended June 30, 2012, respectively. Total interest expense with related parties for the period from inception (November 25, 2009) through June 30, 2013 was $33,149. The Company has accrued interest on related party notes payable of $33,149 and $24,236 recorded within accrued liabilities in the accompanying condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012, respectively.

The shareholder associated with the $2,000,000 financing agreement discussed within Note 7 overpaid the Company $16,559 when making the final payment on the stock subscription in January 2013. Additionally, this shareholder paid for $10,514 of legal expenses on behalf of the Company. The total of these two transactions, $27,073, is included within accounts payable – related party in the accompanying balance sheet as of June 30, 2013.

Note 6: Debt

On May 20, 2013, the Company entered into a financing and security agreement and a secured convertible subordinated promissory note with United Fleet Financing LLC “UFF” of which the sole member is a related party and also the owner of ATAH. Pursuant to the terms and conditions of this agreement, UFF has agreed to provide the Company $1,500,000 of financing for working capital. The financing will be provided to the Company in nine scheduled installments beginning June 15, 2013 and ending January 1, 2014, starting with a first installment of $166,000. Each installment payment has a term of 5 years from first installment of funding. Pursuant to the agreement UFF has the option to convert any amounts paid to the Company pursuant to the financing agreement, into common stock at a conversion price of $0.55 per share and receive up to 2,727,272 warrants, each to purchase 1.25 shares of common stock at a per share exercise price of $0.65 with a term of 18 months.

As of June 30, 2013 the Company has received $166,000 in cash related to this agreement and issued 377,273 warrants as discussed in Note 8. A debt discount of $95,624 was recorded to reflect a beneficial conversion feature and warrants associated with the first installment payable of $166,000. The debt discount is being amortized to interest expense until maturity or its earlier repayment or conversion. As of June 30, 2013 the Company has not issued any shares of its common stock related to this agreement.

Note 7: Equity

$2,000,000 Financing Agreement

In May 2012, the Company entered into a financing agreement to raise up to $2,000,000 through the sale of shares of its common stock at $0.50 per share and warrants to purchase one share of common stock of the Company with an exercise price of $0.75 per share, no vesting requirement and a term of 18 months. As of December 31, 2012, the Company had received all but $434,507 of the $2,000,000. In January 2013, the Company received the outstanding $434,507 for the right to 869,014 shares of the Company’s common stock.

As of June 30, 2013 the Company issued 4,000,000 shares related to this agreement. See Note 8 for discussion on the issuance of the related warrants.

$500,000 Financing Agreement

During February and March 2013, the Company received gross proceeds of $500,000 from a private placement of 1,000,000 shares of the Company’s common stock at $0.50 per share and warrants to purchase 1,000,000 shares of the Company’s common stock with an exercise price equal to the lower (i) of $0.75 per share or (ii) the preceding 10 day volume-weighted volume average price per share of Company stock prior to the exercise date, no vesting requirement and a term of 18 months pursuant to a financing agreement with Newmarket Traders LTD.

As of June 30, 2013 the Company issued 1,000,000 shares related to this agreement. See Note 8 for discussion on the issuance of the related warrants.

$1,500,000 Securities Agreement

On May 16, 2013, the Company entered into a securities purchase agreement with UFF pursuant to which UFF agreed to provide $1,500,000 of funding to the Company for working capital in exchange for the issuance of 2,727,273 units at a price of $0.55 per unit. Each unit consists of one share of common stock and a warrant to purchase 1.25 shares of the Company’s common stock at an exercise price equal to $0.65 per share, exercisable over five years. The $1,500,000 received was recorded as stock subscription receivable.

As of June 30, 2013 the Company has received $166,000 in cash related to this agreement and issued 377,273 warrants as discussed in Note 8. As of June 30, 2013 the Company has not issued any shares of its common stock related to this agreement.

Note 8: Warrants

As discussed in Note 7, the Company issued warrants during the six months ended June 30, 2013. The following summarizes the warrant activity for the six months ended June 30, 2013:

	Number of Units		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Intrinsic value

Outstanding at December 31, 2012		342,000	$	0.01
Grants		5,799,546		0.73
Outstanding at June 30, 2013		6,141,546	$	0.69		1.6	$	150,930

Exerciseable at June 30, 2013		6,141,546	$	0.69		1.6	$	150,930

The weighted-average grant date fair value for the six months ended June 30, 2013 equaled $1.37 per share.

On January 30, 2013, the Company issued 4,000,000 warrants to Hartford Equity, Inc. in conjunction with the $2,000,000 Financing Agreement discussed within Note 7. The grant-date fair value of these warrants was $914,388, which was calculated based on a pro-rata allocation of the grant-date fair value of the stock and warrants related to the $2,000,000 Financing Agreement to the proceeds received of $2,000,000.

During February and March 2013, the Company issued a total of 1,000,000 warrants to Newmarket Traders LTD as discussed within Note 7. The grant-date fair value of these warrants was $224,298; which was calculated based on a pro-rata allocation of the grant-date fair value of the stock and warrants related to the $500,000 Financing Agreement to the proceeds received of $500,000.

During the three months ended June 30, 2013 the Company issued 3,000 and 19,500 warrants to a related party lender and third party lender, respectively. During the six months ended June 30, the Company issued 6,000 and 39,000 warrants to a related party lender and third party lender, respectively. The issuances were related to outstanding notes payable agreements with warrant features stating that for every $10 outstanding at the end of each calendar month the Company will issue the lender one warrant to purchase one share of the Company’s common stock at no more than $0.01 per share with no vesting requirement and a term of five years. The grant-date fair value of these warrants was $9,675 and $31,575, for the three and six months ended June 30, 2013, respectively, which was recorded as a debt discount. During the three and six months ended June 30, 2013 $7,666 and $10,263 of this debt discount was accreted to interest expense.

On June 15, 2013, the Company issued 377,273 warrants relating to a $1.5 million securities purchase agreement with UFF entered into on May 20, 2013. The issuances were related to proceeds received of $166,000 which is the first of nine scheduled installments beginning June 15, 2013 and ending January 1, 2014. Pursuant to the agreement, the Company receives cash in exchange for the issuance of 2,727,273 units at a price of $0.55 per unit. Each unit consists of one share of common stock and a warrant to purchase 1.25 shares of the Company’s common stock at an exercise price equal to $0.65 per share, exercisable over five years. The grant date fair value of the warrants issued on June 15, 2013 was $88,936, which was calculated on a pro-rata allocation of the grant date fair value of the stock and warrants related to the $1.5 million securities agreement to the proceeds received of $166,000.

On June 15, 2013, the Company issued 377,273 warrants relating to a $1.5 million financing and security agreement and a secured convertible subordinated promissory note with UFF entered into on May 20, 2013. The issuances were related to proceeds received of $166,000 which is the first of nine scheduled installments beginning June 15, 2013 and ending January 1, 2014. Pursuant to the agreement and the note, the conversion price is $0.55 per share, to purchase 1.25 shares of restricted common stock at a per share exercise price of $0.65 with a term of 18 months. The grant date fair value of the warrants issued on June 15, 2013 was $113,558 of which $95,624 was allocated as a debt discount and beneficial conversion. During the three and six months ended June 30, 2013, $796 of this debt discount was accreted to interest expense.

The warrants issued during the six months ended June 30, 2013 were valued using the Black-Scholes pricing model with the following range of assumptions:

Black-Scholes Pricing Model Assumptions
Exercise price	$	0.01 - $0.75
Stock price	$	0.40 - $1.94
Volatility		153.81% - 196	%
Risk-free interest rate		0.20% - 1.41	%
Expected Term		1.5 - 5 years

Note 9: Basic and Diluted Net Loss Per Share

Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. For the three and six months ended June 30, 2013 and 2012, the assumed exercise of exercisable warrants and conversion of convertible notes payable are anti-dilutive due to the Company’s net loss and are excluded from the determination of net loss per common share – diluted. Accordingly, net loss per common share – diluted equals net loss per common share – basic in all periods presented.

	Three and Six Months Ended June 30,
	2013		2012

Convertible notes payable		1,956,342		1,175,953
Warrants		7,064,402		314,285

Note 10: Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. For the three and six months ended June 30, 2013, the Company had a net loss of $1,087,879 and $1,959,818, respectively, as compared to a net loss of $545,512 and $671,524 for the three and six months ended June 30, 2012, respectively. Additionally, the Company has incurred a net loss of $4,667,437 for the period from inception (November 25, 2009) to June 30, 2013. As of June 30, 2013, the Company had not emerged from the development stage. These circumstances result in substantial doubt as to the Company's ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company's ability to begin operations and achieve a level of profitability. The Company intends to finance operations by issuing additional common stock, warrants and through bridge financing. The failure to achieve the necessary levels of profitability and obtain the additional funding would be detrimental to the Company. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 11: Commitments and Contingencies

Litigation

The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of June 30, 2013.

Note Payable Default and Dispute

The Company is in dispute with a certain lender regarding the conversion terms of the outstanding notes payable agreement that is currently in default. The Company is attempting to utilize on-going dialogue with the lender to resolve the dispute and cure the default.

Note 12: Subsequent Events

On June 20, 2013, the Company entered into a financing and security agreement and secured a convertible promissory note (the “Emerald Note”) in the amount of $200,000 with Emerald Private Equity Fund, LLC (“Emerald”). Pursuant to the terms of the Emerald Note, Emerald agreed to provide the Company with $200,000 upon execution. In connection with this financing, Emerald received a warrant to purchase 714,286 shares of the Company’s common stock at an exercise price of $0.65 per share, exercisable over a five year term. The Emerald Note has a maturity date of five years and will bear interest at 8% annually. The unpaid outstanding balance on the Emerald Note may be converted at the option of either party at a rate of two shares of the Company’s restricted common stock for each $0.70. In connection with this financing, Emerald received warrants to purchase 714,286 shares of the Company’s restricted common stock at an exercise price of $0.65 per share, exercisable over a five year term. As of June 30, no funds have been received related to this agreement and therefore no shares are considered issuable per the agreement. In July, 2013, the Company received a cash payment relating to this agreement. There was no obligation for the Company to repay at June 30, 2013, so it is not included as a liability at that date.

On July 3, 2013, as part of an equity agreement, the Company filed with the Securities Exchange Commission a Form S-1 for the registration of its Common Stock, $.001 par value. The amount of shares to be registered was 11,288,094 million.

On August 1, 2013, the Company amended the $1.5 million securities purchase agreement dated May 16, 2013 to change the payment schedule such that two payments are received in August 2013 rather than two payments received in July 2013.

On August 1, 2013, the Company amended the $1.5 million financing and security agreement dated May 20, 2013 to change the payment schedule such that all payments are received by December 31, 2013.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth in our Annual Report on Form 10-K filed on April 16, 2013.

As used in this Form 10-Q, “we,” “us,” and “our” refer to Echo Automotive, Inc., which is also sometimes referred to as the “Company.”

You Should Not Place Undue Reliance on These Forward-Looking Statements

The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.

Overview

We were organized under the laws of the State of Nevada on September 2, 2008 under the name Canterbury Resources, Inc. On August 27, 2012 we effected a stock dividend of four shares of common stock of the Company for each share of common stock issued and outstanding. Effective September 24, 2012, we amended our Articles of Incorporation to change our name from “Canterbury Resources, Inc.” to “Echo Automotive, Inc.”

On October 11, 2012 we closed a voluntary exchange transaction (the “Exchange” or “Exchange Transaction”) with Echo Automotive, LLC, an Arizona limited liability company (“Echo LLC”) and DBPJ Stock Holding, LLC, an Arizona limited liability company and sole member of Echo (the “Echo LLC Member”) pursuant to an Exchange Agreement dated September 21, 2012 (the “Exchange Agreement”) by and among the Company, Echo LLC, and the Echo LLC Member. As a result of the Exchange, the Echo LLC Member acquired 70% of our issued and outstanding common stock, Echo LLC became our sole wholly-owned subsidiary, and we acquired the business and operations of Echo LLC.

Through Echo LLC, we are now a development stage company with several technologies and methods that allow commercial fleet vehicles to significantly reduce their overall fuel expenses. Our business plan is based on providing the marketplace with a business proposition for reducing the use of fossil fuels by augmenting power trains within existing commercial fleet vehicles with highly efficient electrical assist delivered through electric motors powered by our modular plug-in batteries to achieve rapid real-world operating results including a rapid return on the investment for such amended vehicles.

Bright Automotive, Inc. was established in 2008 as an offspring of the non-profit Rocky Mountain Institute to commercialize and develop the IDEA plug-in hybrid electric fleet vehicle. Bright Automotive ceased operations in March 2012 after failing to obtain a loan through the Advanced Technology Vehicles Manufacturing Loan Program. We successfully hired key members of the Bright Automotive team and acquired certain facilities and intellectual property in a bid to accelerate EchoDriveTM’s commercialization in spring of 2012. In the first quarter of 2013, Bright Automotive, Inc.’s assets, including all of its intellectual properties and patents, were auctioned off and were purchased by Advanced Technical Asset Holdings, LLC (“ATAH”). On April 5, 2013, we acquired ATAH for 6,000,000 shares of our common stock as part of an exchange agreement with ATAH in which we received full ownership of the assets described above (“ATAH Exchange”). We plan to use the intellectual property and patents to develop additional electrification solutions for the marketplace.

As of the date of this Quarterly Report on Form 10-Q, we have generated minimal revenue and we do not generate adequate cash flows to support our existing operations. Moreover, the historical and existing capital structure is not adequate to fund our planned growth. Our operations to date have been funded by advances, private “family and friends” capital contributions, equity financings, and subsequent equity conversions by the majority stockholders. Our working and growth capital is dependent on more significant future funding expected to be provided in part by equity investments from other accredited investors including institutional investors. Future cash flows are subject to a number of variables, including the level of production, economic conditions and maintaining cost controls. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.

For the three and six months ended June 30, 2013 we had a net loss of $1,087,879 and $1,959,818, respectively, as compared to a net loss of $545,512 and $671,524, respectively for the three and six months ended June 30, 2012.

Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2013 to the Three and Six Months Ended June 30, 2012

Revenues

We are in the research and development phase and currently have no customers. We had $0 and $600, respectively of revenue during the three and six months ended June 30, 2013 and $6,100 for the three and six months ended June 30, 2012. This revenue is attributable to the sales of carbon credits and consulting services.

General and Administrative Expenses

	General and Administrative Expenses
	2013		2012		Change		Percent

Three Months Ended June 30,	$	1,049,218	$	536,654	$	512,564		96	%
Six Months Ended June 30,	$	1,891,267	$	653,102	$	1,238,165		190	%

General and administrative expenses increased for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012 due to increases in payroll expenses of approximately $218,000, legal expenses of approximately $111,000, rent expense of approximately $38,000, other expenses of approximately $183,000, partially offset by a decrease in consulting expenses of approximately $37,000.

General and administrative expenses increased for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 due to increases in payroll expenses of approximately $656,000, legal expenses of approximately $172,000, rent expense of approximately $77,000 and consulting expenses of approximately $10,000 and other expenses of approximately $323,000.

Selling and Marketing Expenses

	Selling and Marketing Expenses
	2013		2012		Change		Percent

Three Months Ended June 30,	$	6,834	$	1,023	$	5,811		568	%
Six Months Ended June 30,	$	11,613	$	2,043	$	9,570		468	%

Selling and marketing expenses increased in the three and six months ended June 30, 2013 as compared to the three and six months ended June 30, 2012 due to significant sales, marketing and public relations efforts including, but not limited to, a major industry tradeshow, news releases providing business updates to the marketplace, marketing collateral for customer meetings, and sales calls which required the shipping of the Echo demonstration vehicle.

Operating Loss

	Operating Loss
	2013			2012			Change			Percent

Three Months Ended June 30,	$	(1.056,052	)	$	(531,577	)	$	(524,475	)		99	%
Six Months Ended June 30,	$	(1,902,280	)	$	(649,045	)	$	(1,253,235	)		193	%

The increase in our operating loss for the three and six months ended June 30, 2013 as compared to the three and six months ended June 30, 2012 is due to the increase in general and administrative expenses and selling and marketing expenses, each of which is described above.

Total Other Expense

	Total Other Expense
	2013		2012		Change		Percent

Three Months Ended June 30,	$	31,827	$	13,935	$	17,892		128	%
Six Months Ended June 30,	$	57,538	$	22,479	$	35,059		156	%

In the three and six months ended June 30, 2013, the change in other expense is interest expense on our various debt.

Net Loss

	Net Loss
	2013			2012			Change			Percent

Three Months Ended June 30,	$	(1,087,879	)	$	(545,512	)	$	(542,367	)		99	%
Six Months Ended June 30,	$	(1,959,818	)	$	(671,524	)	$	(1,288,294	)		192	%

Changes in net loss are attributable to our changes in operating loss and other expense, each of which we have described above.

From Inception (November 25, 2009) to June 30, 2013

We have generated $130,956 of revenue since inception (November 25, 2009). We are in the research and development phase and currently have no customers. Revenue from inception to June 30, 2013 is attributable to the sales of carbon credits and consulting services. We have incurred $4,647,765 of operating expenses from inception through June 30, 2013. These expenses are comprised of $4,554,459 of general and administrative expenses and $93,306 of selling and marketing expenses. The general and administrative expenses consist of payroll, consulting, legal, rent, and miscellaneous expenses. We also incurred $150,628 of interest expense. Our net loss from inception through June 30, 2013 is $4,667,437.

Liquidity and Capital Resources

Net cash used in operating activities was $1,655,097 and $680,156 for the six months ended June 30, 2013 and 2012, respectively. The increase is mainly attributable to increases in net loss of approximately $1,288,294 and settlement of the bank overdraft of approximately $38,000, partially offset by non-cash depreciation, amortization, and accretion of debt discount of approximately $129,262 and increase to accounts payable and related party advances of approximately $141,000.

As of June 30, 2013, we had cash on hand of $3,169 and negative working capital of $1,184,520. We believe that our cash on hand and working capital will not be sufficient to meet our anticipated cash requirements for the next 12 months. To date, our working capital has been a combination of private investments, private loans, stockholder capital contributions, and advances through promissory notes.

Cash used in investing activities was $79,120 and $174,272 for the six months ended June 30, 2013 and 2012, respectively. In 2013, this amount consisted of purchases of property and equipment. In 2012, this amount consisted of purchases of property and equipment of $124,272 and purchases of intangibles of $50,000.

Cash provided by financing activities was $1,735,507 and $800,000 for the six months ended June 30, 2013 and 2012, respectively. During the six months ended June 30, 2013, we received cash from stock subscriptions in the amount of $600,507, proceeds from notes payable of $166,000, proceeds from a financing agreement of $500,000, proceeds from shares issuable in exchange for assets acquired of $500,000 and made repayments on debt of $31,000. During the six months ended June 30, 2012, we secured notes payable in the amount of $800,000.

We had negative working capital of $1,184,520 as of June 30, 2013 compared to $626,920 as of December 31, 2012. Our cash position increased to $3,169 at June 30, 2013 compared to $1,879 at December 31, 2012, for the reasons described above.

As of June 30, 2013, we have outstanding notes payable totaling $876,000, of which $560,000, excluding the debt discount, is classified as short-term. Interest expense incurred on all debt, excluding the expense related to the accretion of the debt discount, was $41,484 and $22,478 for the six months ended June 30, 2013 and 2012, respectively.

In May 2012, we entered into a financing agreement to raise up to $2,000,000 through the sale of shares of our common stock at $0.50 per share and warrants to purchase one share of our common stock with an exercise price of $0.75 per share and a term of 18 months. As of June 30, 2013 we received the entire $2,000,000 under this private placement and issued the related shares and warrants.

In February and March 2013, we entered into a financing agreement to raise $500,000 through the sale of shares of our common stock at $0.50 per share and warrants to purchase one share of our common stock with an exercise price of $0.75 per share and a term of 18 months. As of June 30, 2013 we received the entire $500,000 under this private placement and issued the related shares and warrants.

On May 16, 2013, we entered into a securities purchase agreement with United Fleet Financing LLC “UFF” of which the sole member is a related party. Pursuant to the agreement, UFF agreed to provide $1,500,000 of funding for working capital in exchange for the issuance of 2,727,273 units at a price of $0.55 per unit. Each unit consists of one share of common stock and a warrant to purchase 1.25 shares of our common stock at an exercise price equal to $0.65 per share, exercisable over five years.

On May 20, 2013, we entered into a financing and security agreement and a secured convertible subordinated promissory note with UFF. Pursuant to the terms and conditions of this agreement, UFF has agreed to provide us $1,500,000 of financing for working capital. The financing will be provided to us in nine scheduled installments beginning June 15, 2013 and ending January 1, 2014, starting with a first installment of $166,000. Pursuant to the agreement UFF has the option to convert any amounts paid to the Company pursuant to the financing agreement, into common stock at a conversion price of $0.55 per share and receive up to 2,727,272 warrants, each to purchase 1.25 shares of common stock at a per share exercise price of $0.65 with a term of 18 months.

On June 20, 2013, we entered into a financing and security agreement and a secured convertible promissory note (the “Emerald Note”) in the amount of $200,000 with Emerald Private Equity Fund, LLC (“Emerald”). Pursuant to the terms of the Emerald Note, Emerald agreed to provide us with $200,000 upon execution. In connection with this financing, Emerald received a warrant to purchase 714,286 shares of our common stock at an exercise price of $0.65 per share, exercisable over a five (5) year term. The Emerald Note has a maturity date of five (5) years and will bear interest at eight percent (8%) annually. The unpaid outstanding balance on the Emerald Note may be converted at the option of either party a rate of two (2) shares of our restricted common stock for each $0.70. In connection with this financing, Emerald received warrants to purchase 714,286 shares of our restricted common stock at an exercise price of $0.65 per share, exercisable over a five (5) year term.

We are currently seeking both short-term funding to finance current operations as well as significant amounts of long term capital to execute our business plan. We project that in order to execute our business plan and proceed to full production, approximately $2.0 million in short term funding will be required over the next four months and $1.5 million in the first half of 2014. Our base monthly expenses total approximately $250,000.The additional working capital needs are related to hiring additional personnel, electric motors, battery cells, and costs related to selling and marketing efforts.

Our current cash requirements are significant due to planned development and marketing of our current products, and we anticipate generating losses. In order to execute on our business strategy, we will require additional working capital commensurate with the operational needs of planned marketing, development and production efforts. We anticipate that we will be able to raise sufficient amounts of working capital through debt or equity offerings as may be required to meet short-term obligations. However, changes in operating plans, increased expenses, acquisitions, or other events, may cause us to seek additional equity or debt financing in the future. We expect to incur additional marketing, development and production expenses. Accordingly, we expect to continue to use debt and equity financing to fund operations for the foreseeable future as we look to expand our asset base and fund marketing, development and production of the EchoDrive™ product.

We generated minimal revenue and are in the developmental stage and therefore we do not internally generate adequate cash flows to support our existing operations. Moreover, the historical and existing capital structure is not adequate to fund our planned growth. We intend to finance our operations by issuing additional common stock, warrants and through bridge financing. There can be no assurance that we will be successful in procuring the financing we are seeking. Future cash flows are subject to a number of variables, including the level of production, economic conditions and maintaining cost controls. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.

To meet future objectives, we will need to meet revenue targets and sell additional equity and debt securities, which most likely will result in dilution to current stockholders. We may also seek additional loans where the incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand business operations and could harm our overall business prospects. In addition, we cannot be assured of profitability in the future.

Considering we have yet to emerge from the development stage, we do not generate adequate cash flows to support our existing operations, our reliance on capital from investors, the potential need to seek additional loans to meet future objectives, and other factors, we believe there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to begin operations and achieve a level of profitability. The Company intends to finance our operations by issuing additional common stock, warrants and through bridge financing. The failure to achieve the necessary levels of profitability and obtain the additional funding would be detrimental to the Company.

Off-Balance Sheet Arrangements

None.

Significant Accounting Policies

Our significant accounting policies are described in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, which are incorporated by reference herein.

Recently Issued Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on our condensed consolidated financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued but not yet effective that might have a material impact on our financial position, results of operations, or condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, the Company is not required to provide Part I, Item 3 disclosure.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of June 30, 2013, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2013 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

In performing the above-referenced assessment, our management identified the following material weaknesses:

i)		We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

ii)		We do not have an audit committee. While not being legally obligated to have an audit committee, it is the management’s view that to have an audit committee, comprised of independent board members, is an important entity-level control over our financial statements.

iii)		We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud-related risks and the risks related to non-routine transactions, if any, on our internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.

iv)		We lack personnel with formal training to properly analyze and record complex transactions in accordance with U.S. GAAP.

v)		We have not achieved the optimal level of segregation of duties relative to key financial reporting functions.

vi)		Our computer controls are weak due to lack of IT personnel and protocol infrastructure.

Our management feels the weaknesses identified above have not had any material effect on our financial results. However, the Company has taken steps to mitigate this risk, by retaining an external CPA firm to assist in the analysis of certain accounting matters and in the preparation of the Company’s quarterly filings with the Securities and Exchange Commission. Additionally, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the near term, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses. Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarterly period ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of our management, there are no material legal proceedings pending against us or any of our officers or directors.

Item 1A - Risk Factors

There have been no material updates to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There are no sales of our securities without registration under the Securities Act of 1933, as amended, during the three months ended June 30, 2013, that were not previously disclosed in an Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or in a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description

3.1(a)	Articles of Incorporation (incorporated by reference to the registrant’s Registration Statement on Form S-1 filed on March 20, 2009).

3.1(b)	Text of Amendment to Articles of Incorporation (incorporated by reference to the registrant’s Current Report on Form 8-K filed on Sept. 27, 2012).

3.2	Bylaws, as amended (incorporated by reference to the registrant’s Registration Statement on Form S-1 filed on March 20, 2009)

10.1	Exchange Agreement, dated April 5, 2013, between the Company and Advanced Technical Asset Holdings, LLC (incorporated by reference to the registrant’s Current Report on Form 8-K filed on April 11, 2013)

10.2	License Agreement with CleanFutures, LLC dated April 5, 2013 (incorporated by reference to the registrant’s Annual Report on Form 10-K filed on April 16, 2013).

10.3	Financing and Security Agreement with United Fleet Financing LLC dated May 20, 2013 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on May 24, 2013).

10.4	Form of Secured Convertible Subordinated Promissory Note (incorporated by reference to the registrant’s Current Report on Form 8-K filed on May 22, 2013).

10.5	Form of Warrant (incorporated by reference to the registrant’s Current Report on Form 8-K filed on May 22, 2013).

10.6	Form of Securities Purchase Agreement (incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed on August 20, 2012).

10.7	Financing and Security Agreement with Emerald Private Equity Fund, LLC , dated June 20, 2013 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on June 24, 2013).

10.8	Secured Convertible Promissory Note with Emerald Private Equity Fund, LLC dated June 20, 2013 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on June 24, 2013).

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.*

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.*

101	Interactive Data File**

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files 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 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

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.

Echo Automotive, Inc.

/s/ Rodney H McKinley
Rodney H McKinley
Chief Financial Officer
(Principal Financial Officer)

Dated: August 19, 2013

Echo Automotive, Inc. - FORM 10-Q - August 19, 2013

Attached files

Echo Automotive, Inc. Reports